The Invisible Forces–the invisible hand, the invisible foot, and the invisible handshake–stem from Adam Smith, who  discussed the invisible hand in The Wealth of Nations (1776), Book IV, Chapter 2.  This idea was subsequently extended to “the invisible forces” by economist David Colander in Microeconomics, 2nd ed. (1995), pp. 17-19.

According to Colander:

the invisible hand refers to economic forces that influence human behavior

the invisible foot refers to legal and political forces that influence human behavior

the invisible handshake refers to social and historical forces that influence human behavior

Simply put, the invisible forces comprise a system that influences and is influenced by human behavior.  Since this behavior takes place in a physical and biological environment, and influences that environment, matters relating to the physical and biological environment are also relevant.  It is this broader view of economics that The Invisible Forces Weekly illustrates and explores.

The Invisible Forces Weekly is produced and published by Bruce Larson.  You may contact him at: brucedeanlarson@gmail.com.

Resources

Proximate Origins and Purposes

The BCE Model with the Invisible Forces

The BCE Model with the Invisible Forces Fully Extended

Notes on Entrepreneurship

The Invisible Forces Weekly (1-260)

The Invisible Forces Weekly (261-present)

The Invisible Forces Weekly 279 (24 August 2016)

 

 

 

 

 

 

 

 

 

 

 

279 (24 August 2016)

Welcome to week 279!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(16 August 2016): “As Coal Industry Sputters, Some Miners Are Moving On” (http://www.bloomberg.com/news/articles/2016-08-16/as-coal-industry-sputters-some-miners-are-moving-on)

——–A new study by “the Federal Reserve Bank of Cleveland finds laid-off coal miners are beginning to bow to the inevitable and train for jobs in other industries.  The study . . . says a program called Hiring Our Miners Everyday [HOME] . . . has had success in moving coal miners into new jobs, although not in big numbers yet. . . . ‘As of March 2016, the HOME program has enrolled more than 3,000 laid-off coal miners and their spouses.  Of those enrolled, 1,449 have received support while training for new careers.  More than 1,100 have obtained new employment, while 90 participated in internships through the HOME program.’”  Employers have been enthusiastic about the retrained miners: “Ex-coal miners have a reputation for being safety-conscious and dependable.”

********The article goes to note that “Coal-mining employment in eastern Kentucky has fallen from 67,000 in 1950 to 7,000 in 2014.”  The study notes, though, that “helping coal miners move on isn’t easy . . . because ‘the job of a coal miner is much more than just a job: It’s an identity.’”  The link to the study is provided in the article.  Click on Case Study 5 “Transitioning Workers from Coal to Other Careers: Hiring Our Miners Everyday.”  The case study is 12 pages long.

********While we are on the topic of exit, it is noteworthy that the National Mining Association and the American Coalition for Clean Coal Electricity are losing members, including some of the largest energy utilities in the United States.  You can learn more in the article “Coal Lobbying Groups Losing Members as Industry Tumbles (https://insideclimatenews.org/news/23082016/coal-lobbying-groups-losing-members-industry-tumbles).

(17 August 2016): “Walmart’s Out-of-Control Crime Problem Is Driving Police Crazy” (https://www.bloomberg.com/features/2016-walmart-crime/)

——–“Police reports from dozens of stores suggest the number of petty crimes committed on Walmart properties nationwide this year will be in the hundreds of thousands.  But people dashing out the door with merchandise is the least troubling part of Walmart’s crime problem.  More than 200 violent crimes, including attempted kidnappings and multiple stabbings, shootings, and murders, have occurred at the nation’s 4,500 Walmarts this year, or about one a day, according to an analysis of media reports.”  All this is happening “more than a year into a corporate campaign to bring down crime—a campaign Walmart says is succeeding. . . . [But police] chiefs and their officers on the ground says that’s just not so.”  At a Walmart in Tulsa, Oklahoma, police sergeant Robert Rohloff “says there’s nothing funny about Walmart’s impact on public safety.  He can’t believe . . . that a multibillion-dollar corporation isn’t doing more to stop crime.  Instead, he says, it offloads the job to the police at taxpayers’ expense.”  Rohloff notes: “I may have half my squad there for hours.”  The current level of crime is “the direct, if unintended, result of corporate policy.”  Cost-cutting stemming back to 2000 removed greeters, “taking away a deterrent to theft at the porous entrances and exits” and “Self-checkout scanners replaced many cashiers.”

********As the article points out, the amount of crime is not inevitable.  Store size, location, hours of operation, and the observable presence of security guards can and do make a difference, as the experience of Target shows.  Crime at Walmart can be reduced, of course, but it will require the hiring of additional employees that may well reduce profitability.  Consequently, the public safety officers in Tulsa and elsewhere provide those services instead.

********The article includes links to an 11-minute radio broadcast and a four-minute video with the reporter of the story.

(18 August 2016): “Big Alcohol Tries to Go on a Health Kick” (http://www.bloomberg.com/news/articles/2016-08-18/beverage-makers-go-after-the-athleisure-set)

——–“Alcoholic beverage companies have steered clear of the health-and-fitness trend that’s overtaken virtually every consumer category from food to clothing.  Now that’s changing as millennials, especially women, obsess over everything they ingest.  Big alcohol players, including Diageo and MillerCoors, are trying to cater to the so-called athleisure-wearing customer.  Their challenge: to give fitness-chic stat to a product more associated with binge drinking and addiction.”  As a result, new products are being marketed.  “MillerCoors is releasing two alcoholic drinks with healthy-sounding names.”  Easy Tea, a “refined, brisk and less sweet iced tea” and Zumbida Mango, “the first of several fruit-flavored fermented drinks.”  Diageo will “soon sell a Smirnoff Spiked Sparkling Seltzer line.”  Even Boston Beer, the producer of Sam Adams, is getting in on the action.

********The world of beverages containing alcohol is in a state of flux.  As the article notes, the characteristics of the beverages are changing, but so are the packages in which the products are contained.  Witness the expanded use of cans for craft beer (http://www.citizen-times.com/story/news/local/2016/08/18/canned-craft-beer-conquering-asheville/88515008/) and the increased sale of wine in cans (http://www.usatoday.com/story/life/people/2016/08/19/canned-wine-trend/88868790/).  Clearly the delivery systems for alcohol are changing.  Perhaps they must.  In addition to the desire for companies to expand sales, there is a lingering—some producers sense a growing—concern of losing sales.  This is addressed directly in “With Moderate Drinking Under Fire, Alcohol Companies Go on Offensive” [SR](http://www.wsj.com/articles/with-moderate-drinking-under-fire-alcohol-companies-go-on-offensive-1471889160).  At a spring brewers’ conference, the managing director of the American Beverage Institute, Sarah Longwell, told the attendees that “The industry . . . was in danger of losing its ‘health halo.’” as “policy officials around the world scrutinize their previous advice in the light of research pointing to possible cancer risks.”  If there is the possibility of losing the health halo, perhaps an extra dose of something perceived to be health will restore it.

(20 August 2016): “Game theory: Prison breakthrough” (http://www.economist.com/news/economics-brief/21705308-fifth-our-series-seminal-economic-ideas-looks-nash-equilibrium-prison)

********This is the fifth of six briefs on economics.  It focuses on game theory, in particular John Nash’s Nobel Prize-winning idea of Nash equilibrium.  In its exposition the familiar two-by-two matrix of the Prisoner’s Dilemma is discussed.  As the article shows, the game theory that was the original brain child of John von Neumann and Oskar Morgenstern had to undergo significant development in order to reach its current position in economics and other disciplines, including political science, management, even biology.

********John Nash will be known to many from the movie “A Beautiful Mind” and possibly Sylvia Nasar’s book of the same name (https://www.amazon.com/Beautiful-Mind-Sylvia-Nasar/dp/1451628420).  You can learn more about Nash and his work at: http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1994/nash-facts.html.

(22 August 2016): “Rent-to-Own Homes: A Win-Win for Landlords, a Risk for Struggling Tenants” (http://www.nytimes.com/2016/08/22/business/dealbook/rent-to-own-homes-a-win-win-for-landlords-a-risk-for-struggling-tenants.html)

——–Vision Property Management is one of a growing number of companies that are blurring “the line between what it means to be a renter and a homeowner.  These companies do not offer regular leases or mortgages—they offer ‘rent to own’ contracts on homes that require tenants to make all repairs, no matter how big or small.”  According to Vision’s Alex Szkaradek, the firm is “bringing the dream of homeownership to Americans who lack good credit or are too poor to qualify for mortgages. . . . But these rent-to-own agreements reside in a gray area of the law. . . . interviews with housing lawyers and more than a dozen of Vision’s customers across the country, found that these deals are risky, lack consumer protections and may not be enforceable in some states.”

********As the article points out, it is not unusual for customers to make substantial property repairs only to end up with nothing.  Concerns such as these have led seven U.S. Senators to write to the new Consumer Financial Protection Bureau regarding “the lack of protections for low-income home buyers.  The article includes a three-minute video and a copy of the rent-to-own documents of a Vision customer.  You can learn more about Vision at: https://vpm3.com/.  It appears that VPM does not have houses in North Carolina, but it does in Georgia, Kentucky, South Carolina, Tennessee, and Virginia.\

(23 August 2016): “The Nation’s First Soda Tax Is Working.  Can Its Success Last?” (http://www.bloomberg.com/news/articles/2016-08-23/the-nation-s-first-soda-tax-is-working-can-its-success-last)

——–According to a study just published in the American Journal of Public Health, “Minority and low-income residents of Berkeley, Calif., drank 21 percent less of the sugary stuff after the city implemented an excise tax . . . Researchers compared sugary drink sales in Berkeley from the four-month period of April 2014 through July 2014 to a five-month period the next year, just after the tax went into effect.  During that same period, soda sales in San Francisco and Oakland to minorities and low-income residents . . . ticked up 4 percent.”  The tax, which was implemented in March 2015, “charges distributors an additional penny per ounce of sugar-sweetened beverages such as soda, sports drinks, and sweet teas.”  It has been estimated that “Nearly 70 percent of that cost is then passed on to consumers.”

********This is a clear example of the impact of the invisible foot—legal and political forces—on consumption behavior.  Evidently the imposition of an excise tax such as this tend to be accompanied by campaigns that “inform people of the dangers of soda.”  The source article appears to be “Higher Retail Prices of Sugar-Sweetened Beverages 3 Months After Implementation of an Excise Tax in Berkeley, California.”  You can learn more at: http://ajph.aphapublications.org/doi/abs/10.2105/AJPH.2015.302881.

May you have a good week!

Bruce

278 (17 August 2016)

Welcome to week 278!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(11 August 2016): “Orangutan able to guess a taste without sampling it, just like us” (https://www.sciencedaily.com/releases/2016/08/160811101027.htm)

——–“Without having tasted a specific new juice mix before, an orangutan in a Swedish zoo has enough sense to know whether it will taste nice or not based on how he recombined relevant memories from the past.  Only humans were previously thought to have this ability of affective forecasting, in which prior experiences are used to conjure up mental pictures about totally ne situations, says Gabriela-Alina Sauciuc of Lund University in Sweden, in Springer’s journal Animal Cognition.

********I wasn’t aware there was a journal devoted to cognition in non-human animals but I’m glad there is.  In microeconomics agents play a central role—they make things happen by way of making decisions in line with their preferences.  It has been easy to assume that only human beings have preferences but anyone who shares a life with a bird, cat, llama, or mule knows that they have preferences, too.  What is different here is that some researchers have devoted time and effort to demonstrating these preferences.  Here is the link to the original article, “Affective forecasting in an orangutan: predicting the hedonic outcome of novel juice mixes” (http://link.springer.com/article/10.1007/s10071-016-1015-0).

********The term ‘affective forecasting’ is a new one for me.  It is “an ability that allows the prediction of the hedonic outcome of never-before experienced situations, by mentally recombining elements of prior experiences into possible scenarios, and pre-experiencing what these might feel like” (Abstract of the article at the link).  The description of the methods of the studies indicates that preferences are constructed (forecasted) from preferences for simpler items and then combined in some way.  All this has something to say about experience goods (https://en.wikipedia.org/wiki/Experience_good) and the experience economy (https://www.amazon.com/Experience-Economy-Updated-Joseph-Pine/dp/1422161978/).  If non-human beings have preferences, do they trade, too?  Something more to consider on the way to creating an economics that considers all sentient beings.  Time to revisit Gordon Tullock’s The Economics of Non-Human Societies (https://www.amazon.com/Economics-Non-Human-Societies-Gordon-Tullock/dp/1882969189/)?

********Gordon Tullock passed away on election day (4 November 2014), a synchronistic event for someone who wrote so much about the political process, including voting.  He is one of those people who made great contributions to economics even though he reportedly took only one economics course during his life.  Many argue that he should have received the Nobel Prize in Economics in 1986, when his long-time collaborator James Buchanan was so recognized.  There is less information about Tullock’s life and work than there should be, in my estimation.  Two obituary notices provide a hint of his accomplishments.  One is from The Washington Post (https://www.washingtonpost.com/news/volokh-conspiracy/wp/2014/11/05/gordon-tullock-rip/?utm_term=.bdf005c5db57) and another is from Forbes (http://www.forbes.com/sites/fredsmith/2014/11/06/in-memoriam-gordon-tullock/#3056db7847ca).

******** For the record, I was alerted to the orangutan story by the daily Economist Espresso: http://link.economist.com/view/540fcaaf3b35d03b58af7e894e4xb.dux/c5b6b5c7.

(13 August 2016): “Fiscal multipliers: Where does the buck stop?” (http://www.economist.com/news/economics-brief/21704784-fiscal-stimulus-idea-championed-john-maynard-keynes-has-gone-and-out)

********This is the fourth of six briefs on economics.  It deals with the notion of the multiplier, which stemmed from the 1931 writings of Richard Kahn and was given currency by John Maynard Keynes in The General Theory of Employment, Interest, and Money (1936).  Kahn noted that “public spending would yield both the primary boost from the direct spending, but also ‘beneficial repercussions’.  If road-building, for instance, took workers off the dole and led them to increase their own spending, . . . then there might be a sustained rise in total employment as a result.”  As this article points out, the existence and size of multipliers continues to be a point of contention among economists to this day.  This controversy is focused on macroeconomic (national) multipliers rather than regional multipliers.  There is no argument that regional multipliers, say for the Asheville, North Carolina Metropolitan Statistical Area (https://en.wikipedia.org/wiki/Asheville_metropolitan_area), exist and can be substantial.

********Last week Bloomberg mentioned the first brief on economics, which dealt with “the lemons problem” (http://www.economist.com/news/economics-brief/21702428-george-akerlofs-1970-paper-market-lemons-foundation-stone-information) in “The Dirty Little Secret of Finance: Asymmetric Information” (https://www.bloomberg.com/view/articles/2016-08-11/the-dirty-little-secret-of-finance-asymmetric-information).  It’s worth a look, as it notes: “The upshot of all this . . . is that asymmetric information, which is nothing more than a nuisance in most markets, is at the core of finance.  It’s key to the way traders, including high-frequency traders, make their profits.  And it’s probably at the root of why markets break down and crash.”  All this circles back to the controversy about the existence and size of multipliers.  I suspect that in the multipliers are larger in the presence of asymmetric information.

(13 August 2016): “Where We Spend Is Upending Traditional Retail” (http://www.wsj.com/articles/where-we-spending-is-unending-traditional-retail-1471041884)

——–“U.S. retail sales barely budged in July according to data released Friday, capping a week of tepid earnings results from department stores and underlining a seismic shift in consumer spending.  Americans are still splashing out, but they are splurging less on goods such as apparel and electronics and more on entertainment, travel and health care. . . . Retail now represents only a slice of household outlays, with consumption of services making up about two-thirds of all personal expenditures.”

********The article points to a dramatic shift in consumer purchases from goods to services, as well as pointing toward a continuing movement from concrete-and-mortar stores to online for the purchase of goods.  I was especially intrigued by the graphic “Twenty Years of Spending” that accompanies the article.  It took me awhile to figure it out but it shows how the ranking of various consumer categories have changed over time.  The most dramatic change has been the climb of the percentage of spending on Nonstore (mostly interest) spending, shown in gray.  Also noteworthy are the fluctuations for Gasoline stations and Home and garden.  This is definitely worth a look.

(15 August 2016): “It’s Getting Harder and More Expensive to Make Cars in Mexico” [SR](http://www.wsj.com/articles/mexicos-auto-production-boom-is-driving-up-labor-costs-1471201920)

——–Labor costs at auto-manufacturing plants in Mexico are increasing.  As a result, “Retention and retraining programs are becoming the norm as are bonuses for employees who agree to stay in place, especially those with valued skills. . . . The pressure isn’t yet so severe that it is undermining the rationale for moving production to Mexico.  But it is an unexpected sticker shock—labor is one of the few costs manufacturers can control—and threatens both profitability and production quality.”  Labor competition is “most pronounced in Mexico’s industrial strongholds—cities such as Juárez in the north of Mexico—and in the central, heartland states of Guanajuato, Aguascalientes and San Luis Potosi.  In Guanajuato, manufacturers including Honda and Mazda Moto Corp are busing workers from as many as two hours away, labor recruiters.”

********The pressure on the internal labor markets of Mexico is much reminiscent of the pressure on the internal labor markets of China.  In both cases, increased demand for labor services due to increased manufacturing output has resulted in increased wage rates.  I suspect that one result of this in Mexico will be, as it has been in China, the relocation of some production facilities to (rural) areas where wage rates are lower.  The article made me think of Boom, Bust, Exodus: The Rust Belt, the Maquilas, and a Tale of Two Cities (https://www.amazon.com/gp/product/0199765618/), by Chad Broughton.

********Even the most locally rooted businesses, for example, the Hershey Co. of Hershey, Pennsylvania, must be alive to the possibility of the migration of their signature businesses.  An examination of that possibility appears in “Hershey, Pa., Is the Town That Chocolate Built” [SR](http://www.wsj.com/articles/hershey-pa-is-the-town-that-chocolate-built-1471301344).  On June 30th Mondelez International Inc. offered “to buy Hershey for $23 billion.  Hershey’s board rejected the bid.”

(15 August 2016): “Economic Slump Sends Big Ships to Scrap Heap” (http://www.wsj.com/articles/economic-slump-sends-big-ships-to-scrap-heap-1471192256)

——–“Up until a year ago, the shipping industry was ordering ships in droves.  This year, orders of new vessels have fallen to a record low and companies can’t get rid of ships fast enough.”  This year about “1,000 ships that have the combined capacity to haul 52 million metric tons of cargo . . . will be dragged onto beaches, cut into pieces and sold for scrap metal this year.  That is second only to the record amount of capacity of 61 million so-called dead weight tons that were scrapped and recycled in 2012.”  According to Basil Karatzas of New York-based Karatzas Marine Advisors Co., “Given the tremendous overcapacity, it will take much more recycling and at least two to three years of no growth in capacity to see some balance between supply and demand.”  As a result of the increasing number of scrapped ships, the price of scrap steel has fallen significantly.  Two years ago “India, Pakistan and Bangladesh were paying about $460 a ton of steel.  Last year it was $300 and it is now roughly $250. . . . South Asian scrapyards recycle about three-quarters of all ships every year.  The remainder goes to yards in China and Turkey.”

********Evidently the business that reduces ship to scrap is called “ship breaking.”  The shipping industry seems like it should be very interesting to analyze.  There are freight rates to consider, as well as the prices of new ships and scrap.  Then there is the durability of ships, not to mention their vintage.  With the seeming rise anti-trade sentiment in the U.S., there will be many people looking to understand these (adaptive) relationships more carefully.

May you have a good week!

Bruce

277 (10 August 2016)

Welcome to week 277!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(4 August 2016): “The Hottest Start-Up Market?  Baby Boomers” (http://www.nytimes.com/2016/08/04/business/smallbusiness/the-hottest-start-up-market-baby-boomers.html)

——–“With an estimated 74.9 million baby boomers, according to Pew Research Center, the biggest market opportunity for start-ups is older Americans rather than hip millennials.  As members of the generation that defined rock ‘n’ roll grow older, they are adding a wide range of goods and services to their lifestyles.”  Boomers are a large part of the so-called “longevity” market, i.e., “the over-50 demographic . . . whose annual economic activity currently amounts to $7.6 trillion, according to AARP. . . . The staggering size of the total longevity economy . . . has been attracting more entrepreneurs, deep-pocketed financiers and places to pitch new ideas in the past few years.”  Boris Mordkovich is one of those entrepreneurs.  He and his brother Yevgeniy founded the electric bike company Evelo, which is profitable and is projected to double its revenue to $4 million.  Regarding the bike, he notes: “Electric bikes are an equalizer . . . They let the rider decide how much or how little they will pedal.”  Funding for start-ups, like Evelo, seems to be readily available as more venture capitalists recognize the opportunities provided by the longevity market.

********This article addresses the consumption habits of Baby Boomers.  In a related article, “For Economy, Aging Population Poses Double Whammy,” by Wall Street Journal columnist Greg Ip [SR](http://www.wsj.com/articles/for-economy-aging-population-poses-double-whammy-1470249965), some of the negative consequences of Boomers retirees are examined.  He notes, “Economists have long expected an aging population to hamper growth for the simple reason that it means a smaller labor force.  But new research has identified a potentially more powerful impact: Rapid retirements deprive companies of critical experience and knowledge, which undermines productivity across the entire economy.”  An examination of the consequences of an aging population is provided by “a new paper by Nicole Maestas of Harvard University and Kathleen Mullen and David Powell of the Rand Corp., a think tank.  Because the 50 states are aging at different rates, they were able to tease out the impact of aging on economic growth.  Their conclusion: On average, every 10% increase in the share of state’s population over the age of 60 reduced per capital growth in [state] gross domestic product by 5.5%.”

********The article by Maestas, Mullen, and Powell is “The Effect of Population Aging on Economic Growth, the Labor Force and Productivity” can be read at: http://www.nber.org/papers/w22452.

(5 August 2016): “Colombia’s New, Legal Drug Barons Focus on Medical Marijuana” (http://www.nytimes.com/2016/08/05/business/international/colombia-medical-marijuana-drugs.html)

——–“Like many drug barons in Colombia, Federico Cock-Correa wants to sell his product globally.  Just 15 miles outside Medellin, Mr. Cock-Correa is looking to replace vast acres of flowers with marijuana plants, with plans to export the harvest.  But unlike the brutal heroin and cocaine trade that once flourished nearby, his operation has the government’s stamp of approval.”  During the last year Colombia overhauled 30-year-old drug laws, formally legalizing medical marijuana for domestic use and allowing “the commercial cultivation, processing and export of medical marijuana products—like oils and creams—although not the flower, the part of the plant normally rolled into a joint.”  One company looking to benefit from the legal change is Toronto-based PharmaCielo, which has received a license “to manufacture cannabis products . . . [and] is still waiting for licenses for cultivation. . . . Once it receives approval, PharmaCielo will start growing marijuana and then process the material into medical products that can be exported to Canada and other countries that allow the importation of medical cannabis.  The United States, for now, remains a long way off.”  When production is fully underway, “PharmaCielo expects to produce a gram of marijuana flowers for about 5 cents.  The same amount costs at least 10 times as much to produce in the United States and Canada.”

********The cost differences for growing marijuana flowers are dramatic and stem from geography, climate, and soil.  Since the equator runs through Colombia, as it does for Ecuador and Brazil (and some other countries), days and nights tend to be near 12 hours each, thereby keeping plants in the vegetative state in which flowers grow for longer periods of time and without artificial lighting.  To achieve the same results in the U.S. or Canada, extensive use of artificial lighting must be made, hence one dimension of the production cost differential.

********There is, of course, an extensive back story to this article, one that includes Colombia’s historical role in the production of cocaine, Colombia’s role as a large supplier of cut flowers, e.g., and the slow evolution of legal marijuana, medical and otherwise, in the U.S. and Canada.  As Colombian growers redeploy their resources from cut flowers to marijuana, no doubt the short-run effect will be higher flower prices, although longer term some flower production will likely increase elsewhere.  Likewise, it is easy to see a day when a U.S. marijuana trade group lobbies hard against the importation of marijuana into the country, possibly even seeking to increase penalties on those who smuggle it into the country.  I’ve been reading, as part of my efforts to become better informed on the global market for illegal drugs, Cocaine: An Unauthorized Biography (https://www.amazon.com/Cocaine-Unauthorized-Biography-Dominic-Streatfeild/dp/0312286244/), by Dominic Streatfeild, and it does a nice job of providing background for the development of cocaine products and Colombia’s role in it.  It has been an engaging read and shows many of the impacts that the cocaine trade has had in the U.S. and globally.

(5 August 2016): “This Company Has Built a Profile on Every American Adult” (http://www.bloomberg.com/news/articles/2016-08-05/this-company-has-built-a-profile-on-every-american-adult)

——–“The most important tools for America’s 35,000 private investigators are database subscription services.  For more than a decade, professional snoops have been able to search troves of public and nonpublic records . . . and condense them into comprehensive reports costs as little as $10.  Now they can combine that information with the kinds of things marketers know about you, such as which politicians you donate to, what you spend on groceries, and whether its weird that you ate in last night, to create a portrait of your life and predict your behavior.  IDI, a year-old company in the so-called data-fusion business, is the first to centralize and weaponized all that information for its customers.”  According to its CEO, Derek Dubner, the company has “already built a profile on every American adult.”  He says that the “personal profiles include all known addresses, phone numbers, and e-mail addresses; every piece of property ever bought or sold, plus related mortgages; past and present vehicles owned; criminal citations, from speeding tickets on up; voter registration; hunting permits; and names and phone numbers of neighbors.  The report also includes photos of cars taken by private companies using automated license plate readers—billions of snapshots tagged with GPS coordinates and time stamps to help PIs surveil people or bust alibis.”

********You can learn more about IDI (Interactive Data Intelligence) at: http://ididata.com/.  The expression ‘data fusion’ seems useful and is widely used in a variety of contexts.  Its Wikipedia entry is suggestive: https://en.wikipedia.org/wiki/Data_fusion.  One can only imagine what a really determined organization with extensive resources could pull together for one person.  Private investigators in North Carolina are licensed.  You can learn more at: http://www.ncdps.gov/About-DPS/Bobaards-Commissions/Private-Protective-Services-Board.

(6 August 2016): “Tariffs and wages: An inconvenient iota of truth” (http://www.economist.com/news/economics-brief/21703350-third-our-series-looks-stolper-samuelson-theorem-inconvenient-iota)

********This is the third of six briefs on economics.  It explores the eponymous Stolper-Samuelson Theorem of international trade and relates it to current economic deliberations.  The presentation is probably as easy as it gets, although not exactly easy.  Among other things, it points to the relatively ease that goods have in moving from country to country and the relatively difficulty that labor has in doing the same thing.  It was the movement of labor, of course, that was one of the issues behind the recent Brexit vote in the UK.

(6 August 2016): “Think You Bought Red Snapper?  Don’t Be So Sure” (http://www.wsj.com/articles/think-you-bought-red-snapper-dont-be-so-sure-1470428804)

——–Three years ago the environmental group Oceana studied whether those buying fish were getting what they paid for.  “Scientists performed DNA tests on more than 1,200 samples from nearly 700 different stores and restaurants in 21 states.  One out of three fish were mislabeled . . . and the numbers were even worse in big cities such as New York, Los Angeles and Boston.  The poster child for the problem is red snapper, which many experts cite as the most faked species.”  According to researcher Mark Stoeckle, of Rockefeller University, “When you buy [red snapper], you almost never get it.”  Behind the broader issue is that “Seafood uniquely lends itself to fraud.  The supply chain for it is opaque and convoluted, and most white-fleshed fish—which is to say, most fin fish—looks similar when filleted.  For unethical suppliers, it is easy to substitute a lower-cost fish for a pricier one.”

********The article concludes with some suggestions on how to avoid fish fraud.  The final suggestion might have come from one of the cows in the (old) Chick-fil-A ads: “it might be smart to order the chicken instead.”

(9 August 2016): “Maple Syrup Cartel Battles a Black Market Rebellion” (http://www.bloomberg.com/news/features/2016-08-10/maple-syrup-cartel-battles-a-black-market-rebellion)

——–“After eight years of tightly limiting output to keep prices high, the Federation of Quebec Maple Syrup Producers next year will boost its quota by 12 percent for 13,500 sap farmers who operate in the Canadian province.  The goal is twofold: Reclaim the 10 percent of market share lost to the U.S. over the last decade, and quell a rebellion by producers increasingly turning to black market sales for growth.”  Output restrictions had frustrated some, leading them “to sell on the black market.”  According to Simon Trepanier, executive director of the Federation, “If we allow producers to add more taps . . . , they will not be interested in selling on the black market . . . It will help to have a clean market, instead of a black market.”  Farmer Jim Dempsey of Inverness, Quebec, indicated that “looser restrictions may not work as planned.  He’s concerned that the additional syrup will end up in the group’s strategic reserve, unless the federation can find more markets to sell into or lowers its prices, which he believes they won’t do.”

********The concerns voiced by Jim Dempsey are real ones.  The article caught my attention because the shifting of the output restriction moves the boundary between legal and black markets.  In the short run, that boundary will undoubtedly reduce the size of the black market as more existing producers with their existing production participate in the legal market.  In the long run, however, the incentives that led some to access the black market will return and the size of the black market will increase once more.

********Nicely connected to the last comment above is the expression “For every regulatory action, there is a reaction.”  This is the first sentence of “A Payday-Loan Rival Gains Ground” [SR](http://www.wsj.com/articles/a-payday-loan-alternative-gains-ground-1470603307).  The instance examined in the article notes: “The latest example: A government effort to crack down on payday loans has given new energy to installment loans.”  Restrictions on the availability of payday loans will almost surely lead to more installment loans which, although they may also have high interest rates, have longer repayment lengths.  All this is reminiscent of the ecological saying “You cannot do only one thing.”  This is true of all adaptive systems, of which markets are a prime example.

May you have a good week!

Bruce

276 (3 August 2016)

Welcome to week 276!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(28 July 2016): “Why Do Sports Make Sane People Lost Their (Economic) Minds?” (http://www.bloomberg.com/news/articles/2016-07-28/why-do-sports-make-sane-people-lose-their-economic-minds)

********This link provides access to a 24-minute podcast by Bloomberg Benchmark.  The occasion for the podcast is the incipient Summer Olympics at Rio de Janeiro.  In light of the recent history of the Summer Olympics, one has to question the sanity of cities who actively seek to host the Olympics.  Yet they do.  Most likely, they will continue to do so.  The podcast is built around an interview with “Neil de Mause, an expert in the world of publicly financed sports facilities.”  De Mause and Joanna Cagan are the authors of Field of Schemes: How the Great Stadium Swindle turns Public Money into Private Profit, revised and expanded edition (https://www.amazon.com/dp/0803260164/).  De Mause argues that the likelihood of a publicly-financed stadium for a sports franchise “paying off” is effectively nil.  Furthermore, the oft-stated concern that the loss of a sports team due to not building a stadium will lead to the loss of political position, e.g., mayor of a city, has no evidence to support it.  It is more likely that politicians will lose their positions from approving a stadium.  No doubt, the book develops the argument at some length.  There seems to be a more general question lurking behind the narrower question of whether or not to approve a sports stadium.

(28 July 2016): “An Auction House Learns the Art of Shadow Banking” (http://www.bloomberg.com/news/articles/2016-07-28/art-of-shadow-banking-how-an-auction-house-got-into-the-picture)

——–“Malaysian financier and art buyer Low Taek Jho . . . was looking to borrow more than $100 million without having to answer all the nosy questions big U.S. banks are required to ask.”  Instead he “sent an e-mail in March 2014 to an employee of an art dealership saying he wanted a lender with a ‘fairly quick and relaxed kyc process’—a reference to the know-your-customer rules designed to curb money laundering.  Low got his money a month later, not from a bank but from Sotheby’s, an auction house that isn’t subject to the same money-laundering scrutiny by regulators.”  In an era of skyrocketing are prices, “Sotheby’s and other boutique lenders have become a new kind of shadow bank, a term for companies that offer financing without being regulated like banks.  This has raised concerns that such financing could facilitate money laundering.”  According to David Hall, who spent ten years as a special prosecutor of the Art Crime Team of the FBI, “One way to launder [money] is to use art as security for a loan. . . . The level of scrutiny you’ll receive from a bank is much higher that you will receive from an auction house.”

********According Jane Levine, a spokeswoman for Sotheby’s, the auction house does have a compliance program that “looks into a client’s source of wealth and evaluates risk in a manner in a manner analogous to financial institutions.”  Nevertheless, the company is “not covered by the strict reporting requirements of the Bank Secrecy Act or supervised as deposit-taking institutions by federal banking regulators.”  You can learn more about the use of art to launder money in Money Laundering Through Art: A Criminal Justice Perspective (https://www.amazon.com/Money-Laundering-Through-Art-Perspective-ebook/dp/B00DA0OXOQ/), by Fausto Martin De Sanctis.  Money laundering is of particular interest to U.S. Immigration and Customs Enforcement (https://www.ice.gov/money-laundering), although it appears that the FBI is reasserting itself in that area (https://www.fbi.gov/audio-repository/news-podcasts-thisweek-fbi-revamps-money-laundering-investigations.mp3/view).

********The U.S. Department of the Treasury has a significant involvement in the area of money laundering enforcement (https://www.treasury.gov/resource-center/terrorist-illicit-finance/Pages/Money-Laundering.aspx).   It was interesting to see its pdf “Money Laundering through the Football Sector” (https://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/ML-football-sector_072009.pdf).  In this instance “football” is what an American would call “soccer.”

(30 July 2016): “Financial stability: Minsky’s moment” (http://www.economist.com/news/economics-brief/21702740-second-article-our-series-seminal-economic-ideas-looks-hyman-minskys)

——–[The second of six briefs on economics.] “From the start of his academic career academic career in the 1950s until 1996, when he died, Hyman Minsky laboured in relative obscurity.  His research about financial crises and their causes attracted a few devoted admirers but little mainstream attention . . . So it remained until 2007, when the subprime-mortgage crisis erupted in America.  Suddenly, it seemed that everyone was turning to his writings as they tried to make sense of the mayhem.  Brokers wrote notes to clients about the ‘Minsky moment’ engulfing financial markets.  Central bankers referred to his theories in their speeches.  And he became a posthumous media start, with just about every major outlet giving column space and airtime to his ideas.”  At the root of Minsky’s ideas is a firm’s investment funds “can come from one of two sources: the firm’s own cash or that of others . . . The balance between the two is the key question for the financial system.”  He then went on to distinguish between three kinds of financing: “hedge financing,” which is the safest, “speculative financing,” which is a bit riskier, and “Ponzi financing,” the riskiest of all.  The ability of each type of financing to cover (or not) the principal and interest of a loan plays a central role in the stability (instability) of the financial system.

********I’m not knowledgeable about Minsky’s work but The Economist makes a good case for learning more.  You can learn more about the life and work of Hyman Minsky at: https://en.wikipedia.org/wiki/Hyman_Minsky.

(1 August 2016): “Russia’s Acres, if Not Its Locals, Beckon Chinese Farmers” (http://www.nytimes.com/2016/08/01/world/asia/russia-china-farmers.html)

********This articles take a look at land use in far-eastern Russia and neighboring China.  It lifts up issues of motivation to work as well as the continuing impact of agricultural collectivization in Russia.  It is a place where “local officials and many residents, while grumbling that they cannot keep up with Chinese work habits, tend to see China and its vast pool of industrious labor as the best hope of developing impoverished regions that often feel neglected by Moscow.”  As Lyudmilla Voron notes, “Our own people have been spoiled . . . The (Russian) men drink too much and don’t want to work.”  I was interested to see the presence of the “Jewish Autonomous Region” on the map provided.  There is a link provided to obtain more information about it.

May you have a good week!

Bruce

275 (27 July 2016)

Welcome to week 275!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(20 July 2016): “Tesla Autopilot crash won’t halt self-driving car development, NHTSA says” (http://www.cnet.com/roadshow/news/tesla-autopilot-crash-wont-halt-self-driving-car-development/)

——–“Despite a fatal crash involving a Tesla Model S being driven by its Autopilot feature, the US National Highway Transportation Safety Administration’s (NHTSA) head Mark Rosekind insisted that the government would still work to promote self-driving cars by providing a framework in which develop can continue.”  Rosekind commented, “No one incident will stop the NHTSA from promoting highly automated driving development.”  He went on to suggest that “the NHTSA was willing to accept imperfect technology during development of highly automated driving because of its vast life-saving potential.”

********I found it refreshing to read that the current state of “imperfect” technology was not going to put “the kibosh” on development.  It reminds me, once more, of the importance of technological change and how tempting it must be to use the invisible foot—legal and political forces—to hinder those changes.  What is the “mix” of the invisible forces that enhance technological change (or its opposite)?  The NHTSA head’s approach seems practical and far-sighted.  I was led to this article by a similar article in The Wall Street Journal at: [SR](http://www.wsj.com/articles/tesla-autopilot-crash-shouldnt-slow-self-driving-development-regulator-says-1469200956).

(21 July 2016): “Letting Markets Guide Adaptation to Climate Change” (http://www.nytimes.com/2016/07/21/upshot/letting-markets-guide-adaptation-to-climate-change.html)

——–[An Upshot article by Michael Greenstone, an economist at the University of Chicago.]  “We are on course to set another record for the hottest year, the third year in a row, and 2016 may well have the most billion-dollar weather disasters. . . . Climate change is projected to bring more frequent damaging storms, with high winds and flooding.”  Although insurance markets provide incentives to adapt to climate chance, “in too many states, well-intentioned regulations aren’t letting the market properly price climate risk.”  Florida is a case in point.  There “regulations cap premiums—forcing inland areas to pay more for wind insurance, while the coastal residents don’t pay premiums reflecting their higher risks.”  This contrasts with California, “a state at high risk for earthquakes.”  There the California Earthquake Authority “prices its premiums according to each policyholder’s risk for earthquake damages.”  Such premiums “reflect careful risk assessments based on the best available science and characteristics of the house, including proximity to fault lines.”  In this case, homeowners facing higher risk of earthquake damages pay higher premiums.  But those premiums can be reduced by homeowner action to reduce risk.  In such a regulatory environment, the market “works as it should.”

********I do not know how such insurance functions in North Carolina.  I took a look at the site of the North Carolina Department of Insurance (http://www.ncdoi.com/), which covers all types of insurance.  After some browsing, I identified the NCDOI HurriClaims Center (http://www.ncdoi.com/HurriClaims/) as a potential information source.  Prior to identifying the site, I came across a policy report on “North Carolina’s Beach Plan: Who pays for Coastal Property Insurance?” (http://www.johnlocke.org/acrobat/policyReports/beach_plan_reform.pdf), by the John Locke Foundation.  This is not a source I would ordinarily trust, but my scan of it indicates that it is a knowledgeable and reasoned attempt to deal with an important policy issue.

(22 July 2016): “In Backyard of RNC, Drugs, Vanishing Jobs Strain Rural America” (http://www.bloomberg.com/news/articles/2016-07-22/in-backyard-of-rnc-drugs-vanishing-jobs-strain-rural-america)

——–The U.S. Department of Agriculture was created “in the mid-19th century to ensure the future of farming, [but] it’s becoming Uncle Sam’s lead tool to fight a social emergency—soaring drug use, rising suicide rates and deepening poverty—spreading across the heartland.”  According to USDA Secretary Tom Vilsack, “We’re charged with the responsibility of filling the gap to make sure rural America hasn’t been forgotten.”  The tapping of the USDA “for the job underscores a broader point: The government, like the wider culture, is much more attuned to the problems of urban areas where most Americans live.

********What caught my attention about the article is the broadening of the scope of the work of the USDA to include matters that might ordinarily be thought of as falling under the responsibilities of the Department of Health and Human Services.  It is almost as if the USDA is being viewed as focusing on “all things rural.”

(22 July 2016): “The Incalculable Value of Finding a Job You Love” (http://www.nytimes.com/2016/07/24/upshot/first-rule-of-the-job-hunt-find-something-you-love-to-do.html)

——–[An article for “The Upshot” by Cornell economist Robert H. Frank.]  My “first response when students seek advice on how to succeed is to ask whether any activity has ever absorbed them completely.  Most answer affirmatively.  I then suggest that they prepare themselves for a career that entails tasks as similar as possible to that activity, even if it doesn’t normally lead to high financial rewards.  I tell them not to worry about the money.  My point is that becoming an expert is so challenging that you are unlikely to expend the necessary effort unless the task is one that you love for its own sake.  If it is, the process will be rewarding apart from whether it leads to high pay.”

********As Frank goes on to note, although there are no guarantees that you’ll become “the best” at what you do, “by choosing to concentrate on a task you love, you’ll enjoy the considerable proportion of your life that you spend at work, which is much more than billions of others can say.”  Social science findings “establish clearly that once you have met your basic obligations, it’s possible to live a very satisfying life even if you don’t earn a lot of money.”  Of course, some people get to do both.

(23 July 2016): “Payday Loan Limits May Cut Abuse but Leave Some Borrowers Looking” (http://www.nytimes.com/2016/07/23/business/dealbook/payday-loan-limits-may-cut-abuse-but-leave-some-borrowers-looking.html)

——–“The Consumer Financial Protection Bureau, the watchdog agency set up after the last financial crisis, is poised to adopt strict new national rules that will curtail payday lending.”  But lenders like Tanya Alazaus, who operates an Advance America shop in Canton, Ohio, “and even some consumer advocates who favor stronger regulation . . . are grappling with the uncomfortable question of what will happen to customers . . . if a financial lifeline that they rely on is cut off.”  There is reason to be concerned.  “A sweeping study of bans on payday lending, scheduled to be published soon in The Journal of Law and Economics . . . [concluded that when] short-term loans disappear, the need that drive demand for them does not; many customers simply shift to other expensive forms of credit like pawn shops, or pay late fees on overdue bills.”

********The article has a variety of interesting twists that indicate the challenges associated with writing rules in reference to legislation of the kind that the created the CFPB that specifically prohibits certain kinds of rules.  As noted, in the present case rules emerge that “are a messy compromise that both sides hate.”

********This is probably as good an account of some of the issues surrounding payday loans as I have found in the media.  Among other things, it provides a number of very useful links.  Here are three.  A clear summary of some aspects of payday loans can be found at: http://libertystreeteconomics.newyorkfed.org/2015/10/reframing-the-debate-about-payday-lending.html#.V5N_1LgrJhE. The proposed rules of the CFPB can be viewed at: http://files.consumerfinance.gov/f/documents/CFPB_Proposes_Rule_End_Payday_Debt_Traps.pdf.  The paper that will appear in The JLE can be accessed at: http://www.human.cornell.edu/pam/people/upload/Bhutta_Goldin_Homonoff7-13-2016.pdf.

(23 July 2016): “Information asymmetry: Secrets and agents” (http://www.economist.com/news/economics-brief/21702428-george-akerlofs-1970-paper-market-lemons-foundation-stone-information)

********This is the first of six “Economics Briefs” to appear in The Economist.  It focuses on the epochal (1970) paper “The Market for Lemons,” by Nobel Laureate George Akerlof, who also happens to be married to Janet Yellen, who is the chairman of the Federal Reserve.  Akerlof introduced the notion of informational asymmetry in an analytically important way, thereby blazing a trail that many others have trod, including Michael Spence and Joseph Stiglitz, both winners of the Nobel prize in economics.  You can see the list of “Six big economic ideas” and other material at: http://www.economist.com/economics-briefs.  You can access the lemons article at: https://www.iei.liu.se/nek/730g83/artiklar/1.328833/AkerlofMarketforLemons.pdf.

********Every important paper has a story behind it and “Lemons” is no exception.  You can read the story behind Akerlof’s paper, which he wrote in his first year as an assistant professor at UC-Berkeley, at: http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2001/akerlof-article.html.  It reminded me of a passage by Rainer Maria Rilke (http://www.onbeing.org/program/wild-love-world/feature/go-limits-your-longing/1448):

Let everything happen to you: beauty and terror.

Just keep going.  No feeling is final.

Easier to write than to practice, but in the face of three rejections from the “commanding heights” of the economics profession, Akerlof kept going.

(26 July 2016): “Why It’s So Hard to Build Affordable Housing: It’s Not Affordable” (http://www.bloomberg.com/news/articles/2016-07-26/why-it-s-so-hard-to-build-affordable-housing-it-s-not-affordable)

********The City of Asheville, North Carolina has long been concerned about affordable housing.  Likewise, how to “best use” publically owned land, especially in the downtown area, continues to be of interest.  Consequently, this article and its various links struck me as noteworthy and potentially useful.  For example, it provides a variety of statistics from the National Low Income Housing Coalition indicating how large the “gap” is.  From the Urban Institute, an online simulator illustrates “the challenges of building new affordable housing.”  It shows that “No matter how you slice it, creating the affordable housing needed today probably requires government help. . . . Playing with the simulator, you quickly learn that there are only a few levers that truly affect a developer’s ability to finance a project.”

********The article concludes with the comment “There’s also another way to create housing for the poorest renters, which is to build housing for higher wage-earners, freeing up older, lesser-quality units through a process called filtering.”  As Reihan Salam, who is a policy fellow at the National Review Institute, the filtering approach is “not always politically attractive, because you’re talking about housing that has deteriorated a bit . . . That’s basically how housing markets have always worked.”  The notion of filtering evokes a memory of “trickle-down economics” in an obvious way.  Here is the article that discusses filtering in detail (https://www.bloomberg.com/view/articles/2016-05-18/want-cheap-rents-build-expensive-housing-then-wait).  It has a clear discussion of different housing quality in relation to short- and long-term aspects.

********Affordable housing, as conventionally characterized, is not the only housing issue.  Facebook is looking to employ an addition 6,500 workers at its Menlo Park, California headquarters.  But where to house these people?  To help increase housing, Facebook pledged, earlier this month, to “build at least 1,500 units of housing, meant not specifically for Facebook employees, but for the general public. . . . Under the plan, 15% of the units would be reserved for low- or middle-income families.”  Other tech giants, like Google, are watching to see what becomes of this.  More detail is provided in “Facebook’s (Answer to Silicon Valley Housing Crunch: Build Apartments” [SR](http://www.wsj.com/articles/facebooks-answer-to-silicon-valley-housing-crunch-build-apartments-1469534402).

(26 July 2016): “Crude Slump, Pipeline Expansion Mark End of U.S. Oil-Train Boom” (http://www.wsj.com/articles/crude-slump-pipeline-expansion-mark-end-of-u-s-oil-train-boom-1469484016)

——–“The oil-train boom is waning almost as quickly as it began.  Rail became a major way to move crude after companies began unlocking new bounties of oil from shale formations, with volumes rising from almost nothing in 2009 to more than one million barrels a day by 2014 . . . But those numbers began falling after oil prices started tumbling two years ago, and aren’t projected to recover anytime soon.”  Contributing to the decline has been the building of new oil pipelines.  “More pipelines have begun reaching North Dakota and other shale regions, giving producers a cheaper way to move their oil to market.  Also, a string of fiery crude-freight-train derailments . . . have prompted a host of new and expensive regulations . . . The changes are evident in North Dakota, once the epicenter of the crude-by-rail trend.”  Oil output has “fallen by 180,000 barrels a day from its 2014 peak.  Meanwhile, pipeline takeaway capacity has more than doubled since 2010.”

********The article has a nice bar graph showing crude oil shipped by rail from 2010 to early 2016.  My eyeballing of it indicates that the April 2016 shipments are the lowest since June 2012.  The article points out nicely two points: (1) even in the short run, there are alternative ways to move oil, and (2) as the long run emerges, additional alternatives to moving oil emerge.  Nothing earthshaking here, as this is simply a statement of two well-worn economic principles, but sometimes a reminder is useful.

May you have a good week!

Bruce

274 (20 July 2016)

Welcome to week 274!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(14 July 2016): “Grid Attack: How America Could Go Dark” [SR](http://www.wsj.com/articles/how-america-could-go-dark-1468423254)

——–“The U.S. electric system is in danger of widespread blackouts lasting days, weeks or longer through the destruction of sensitive, hard-to-replace equipment.  Yet records are so spotty that no government agency can offer an accurate tally of substation attacks, whether for vandalism, theft or more nefarious purposes.”  Furthermore, “Most substations are unmanned and often protected chiefly by chain-link fences.  Many have no electronic security, leaving attacks unnoticed until after the damage is done.  Even if there are security cameras, they often prove worthless.  In some cases, alarms are simply ignored.”

********The U.S. electrical grid has been the subject of much discussion in recent years due to its need to be updated to address the expanding use of renewable energy sources like solar and wind.  This article points to the importance of making the grid more secure from attack for whatever reason.  This is an enormous challenge as “The grid was cobbled together during the electrification of the U.S. over the past 125 years.  It is a fragile, interdependent system generally more vulnerable in summer when it is running closer to its limits.  It is also at risk during low-demand periods, when power plant operators and linemen perform maintenance.  Fewer plants and transmission lines operating mean fewer options for delivering electricity during emergencies.”  Although the Federal Energy Regulatory Commission has issued a rule to better secure the grid, “it doesn’t extend to tens of thousands of smaller substations” across the country.

********Not coincidentally, I suspect, there is a review in The Wall Street Journal [SR](http://www.wsj.com/articles/the-marvel-of-electricity-1468616241) of The Grid: The Fraying Wires Between Americans and Our Energy Future (https://www.amazon.com/Grid-Fraying-Between-Americans-Energy/dp/1608196100/), by cultural anthropologist Gretchen Bakke.  As noted by reviewer R. Tyler Priest, “Gretchen Bakke explains . . . [that] a vast network that arose to provide electricity in a centralized and standardized fashion is ‘being colonized by a new logic: little, flexible, fast, adaptive local.’  The large utilities no longer enjoy a monopoly over the power that they spread across the grid.”  Regulatory policies developed during the Progressive Era that emphasized power generation as a natural monopoly are no longer sufficient for current and future conditions.  The book will be released on July 26th.  Regrettably, I was unable to locate a copy of its Table of Contents.  A related is Smart Power Anniversary Edition (2014).  You can learn more about it at: https://www.amazon.com/Smart-Power-Anniversary-Electric-Utilities/dp/1610915895/.

********As noted in Bakke’s book and in the article on attacks on the grid, the grid is highly complicated, almost defying the ability of one person to comprehend it.  This theme is carried over and broadened in Overcomplicated: Technology at the Limits of Comprehension (https://www.amazon.com/Overcomplicated-Technology-at-Limits-Comprehension/dp/1591847761/), by applied mathematician and network scientist Samuel Arbesman.  The book is review in the Journal under the heading “The Rise of the Kluges” [SR](http://www.wsj.com/articles/the-rise-of-the-kluges-1468968418).  So, what are kluges?  In brief, “overly complicated, inelegant, cobbled-together messes.”  They are such that “Even experts can no longer fully understand or control them.”  As Arbesman notes, “From the electrical grid to Toyota’s software to online dating sites, the systems we live by are inelegant messes that no one fully understands.”  So, what is to be done?  “The obvious solution is to simplify our systems, but that is next to impossible.  Once a system is in place it inevitably undergoes a process of accretion—feature is added to feature and new layers to old ones. . . . And so, bit by bit, a kluge is born.”  According to Arbesman, “Our only hope . . . is to approach the Entanglement much as a biologist approaches the natural world.  Biologists do not look for grand formulations.  They conduct experiments and carefully observe.  Over time they learn a great deal about the natural world.”  Perhaps, over time, we will do the same for the artificial world we have created.

(16 July 2016): “Buying drugs online: Shedding light on the dark web” (http://www.economist.com/news/international/21702176-drug-trade-moving-street-online-cryptomarkets-forced-compete)

——–“Though online markets still account for a small share of illicit drug sales, they are growing fast—and changing drug-dealing as they grow.  Sellers are competing on price and quality, and seeking to build reputable brands.  Turnover has risen from an estimated $15m-17m in 2012 to $150m-180m in 2015.  And the share of American drug-takers who have got high with the help of a website jumped from 8% in 2014 to 15% this year, according to the Global Drug Survey, an online study.  Online drug markets are part of the ‘dark web’; sites only accessible through browsers such as Tor, which route communications via several computers and layers of encryption, making them almost impossible for law enforcement to track.”

********The Economist was enabled to conduct a study of dark web transactions via 1.5 terabytes of “information for around 360,000 sales between December 2013 and July 2015” obtained from a web crawler and this article reports on it.  Its discussion of the role of drug price (higher online than on the street), drug quality (higher online than on the street), and shipping costs (higher online than on the street) was quite interesting.  As it turned out the dollar value of the drugs MDMA and Ecstasy (combined) just nudged out marijuana, and then cocaine for the period studied.  Those involved in the dark web would certainly fall under the subject matter of Illicit (https://www.amazon.com/Illicit-Smugglers-Traffickers-Copycats-Hijacking/dp/1400078849/), by Moisés Naím, which I just finished reading.  I found the book a bit of an effort to read until I got to chapter 9 and beyond, were broader issues were encountered; chapters 2-7 were largely a recounting different areas where illicit activities take place.  The book, however, reinforced my understanding that almost every legal market has a “shadow” illegal (illicit) market.  That being the case, conventional analysis of markets, which is carried out on the implicit assumption that all transactions are legal, would benefit from considering the adjacent illegal markets.  This is a natural way to bring the invisible foot—legal and political forces—into everyday economic analysis.  It is also a natural way to bring the invisible handshake—social and historical forces—into the analysis.  From the handshake the role of ethics and religion are immediate.

********The article reminded me of “You Can Lose Out Just Being Associated With Pot” (http://www.bloomberg.com/news/articles/2016-07-08/you-can-lose-out-just-being-associated-with-pot), which discusses some of the unanticipated consequences of being associated with the marijuana industry.  A case in point is Derek Peterson, the CEO of Terra Tech, a publicly traded pot company.  Peterson lost his application for life insurance from Mutual of Omaha because of his employment.

(18 July 2016): “Report: NC’s regional disparities, income gaps growing” (http://www.newsobserver.com/news/business/article90354967.html)

——–“N.C. State University economist Michael Walden’s biannual economic diagnosis for the state warns that much of North Carolina’s post-recession growth is bypassing the so-called ‘routine’ middle-income vocations and exacerbating the state’s growing regional gap and income inequality.  Walden’s report . . . shows that the most dramatic job growth in the state has taken place at the extremes of the pay scale.”  Said Walden, “The routine jobs are much more being taken over by technology . . . The changes in economic structure are really behind the regional disparities that we see.”  According to Walden, “Ret[r]aining displaced workers and training new workers for the jobs of the future will require a significant commitment from the state to avoid massive ‘technological unemployment.’”

********It is interesting to see at the state level changes that are taking place nationally and globally.  You can read the 22-page “Economic Outlook” prepared by Walden at: http://pulse.ncpolicywatch.org/wp-content/uploads/2016/07/Mike-Walden-Economic-Outlook-July-2016.pdf.  On page 18 of the report it is noted that “Unfortunately, one region—the Rocky Mount metropolitan area—has continued to lose payroll employment since 2010.”  No doubt that is one reason why Rocky Mount (successfully) pursued the location of the just-announced $272 million CSX rail hub and its 149 jobs averaging $64,000 each.  You can learn more about the hub at: http://www.newsobserver.com/news/local/counties/johnston-county/article90484642.html.

May you have a good week!

Bruce

273 (13 July 2016)

Welcome to week 273!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(12 May 2016): “Open the Cages!” (http://www.nybooks.com/articles/2016/05/12/humane-economy-open-the-cages/)

********On 11 July 2016 a review of The Humane Economy, by Wayne Pacelle appeared in The Wall Street Journal.  The review was brief, very positive, but not accessible to non-subscribers of the Journal.  Here, instead, is a lengthy review by philosopher Peter Singer, who is well-known in the academic world for his article “Animal Liberation.”  Singer notes:

When my article “Animal Liberation appeared in these pages forty-three years ago, many people told me that we will not stop exploiting animals until we get rid of capitalism.  Wayne Pacelle, president and CEO of the country’s largest animal protection organization, the Humane Society of the United States (HSUS), takes the opposite view.  In The Humane Economy he describes how “capitalism at its best” is a force against animal suffering, “applying human creativity to answer the demands of a morally informed market.

This book will undoubtedly provide much food for thought.  The review in the Journal is “The Savviest Lobbyist” [SR](http://www.wsj.com/articles/the-savviest-lobbyist-1468183798), and contains a great story about how a call from activist investor Carl Icahn helped change the policy of McDonald’s.

(7 July 2016): “More than 1 million OxyContin pills ended up in the hands of criminal and addicts.  What the drugmaker knew.” (http://www.latimes.com/projects/la-me-oxycontin-part2/)

——–[This article, part 2 of a series, lifts up the excessive prescribing of OxyContin by a Los Angeles-area physician.]  In a single week in September 2008, Dr. Eleanor Santiago of the Lake Medical clinic “issued orders for 1,500 pills, more than entire pharmacies sold in a month. . . . By December, she had prescribed more than 73,000, with a street value of nearly $6 million.”  Purdue Pharma, which makes OxyContin, knew about the situation and investigated it.  Eventually it concluded that the clinic at which the physician worked “was working with a corrupt pharmacy in Huntington Park to obtain large quantities of OxyContin.”  But when sales manager Michele Ringler asked company officials, “Shouldn’t the DEA be contacted about this?” no action was taken.  Purdue “did not tell authorities what it knew about Lake Medical until several years later when the clinic was out of business and its leaders indicted.  By that time, 1.1 million pills had spilled into the hands of Armenian mobsters, the Crips gang and other criminals.”  The Lake Medical case was not an isolated one.  “A Los Angeles Times investigation found that, for more than a decade, Purdue collected extensive evidence suggesting illegal trafficking of OxyContin and, in many cases, did not share it with law enforcement or cut off the flow of pills.”

********This article clearly shows how hard it can be to “Do the right thing” when doing so will reduced sales, and perhaps earnings and future career prospects.  It also shows how the failure to do the right thing tends to give rise to moral dilemmas for others, e.g., pharmacist Tihana Skaricic who “raised questions about prescriptions from the Lake Medical clinic.”  Evidently, identifying unusual sales patterns at pharmacies was relatively easy for employees of drug companies (and the DEA) to do.  What wasn’t easy was determining if there was a problem or not.  For example, DEA investigators had access to a databased that “encompassed dozens of drugs sold by more than a thousand companies” but the database was unwieldy.

********Part 1 of the OxyContin series, published on 5 May 2016, can be found at: http://www.latimes.com/projects/oxycontin-part1/.  Prescription pain relieve abuse has become so prevalent that it has even shown up in the comic strip “Mary Worth” (http://maryworthcomics.com/comics/july-10-2016/).  Of course, Vicodin played a continuing role in the television series “House.”

********In thinking about this, the JSTOR Daily post “Why We Make Doctors Get Licenses” (http://daily.jstor.org/why-we-make-doctors-get-licenses/) is relevant.  As the article points out, there was a time when doctor licensing was problematic.  But the 1910 Flexner Report, “pushed the nation toward new medical licensing laws by arguing for professionalization of medical practice in the service of the social good.”  As it turned out, licensing did more than serve the social good, or so Stephen J. Kunitz argued in “Professionalization and Social Control in the Progressive Era: The Case of the Flexner Report.”  In that article, accessible via the post, he “describes the public health function of physician licensing as inseparable from the service of elite interests.”

(9 July 2016): “America’s forests: Ravaged woodlands” (http://www.economist.com/news/briefing/21701751-stricken-trees-provide-clues-about-how-america-will-adapt-global-warmingbut-little-hope)

——–“Politicized, documented and culturally sensitive, the ravaging of America’s forests is an important gauge of man’s ability to mitigate and adapt to the warming he has caused.  The scale of the tree loss is staggering.  Last year over 10m of America’s 766m acres of forest were consumed by wildfires, sparked by lawn mowers, campers or lightning . . . The growth of wildfires is a worldwide problem, with even bigger burns elsewhere.  Siberia, Tasmania, Canada and Indonesia have seen record-breaking fires in recent years.”  Although fires have been damaging, “The devastation wreaked in American forests by insects is less headline-grabbing but ecologically as dramatic.  Last month the United States Forest Service . . . said that, since October, it had recorded 26m trees killed by the mutually-reinforcing effects of bugs and drought in the southern part of California’s Sierra Nevada range alone. . . . Such destruction, caused partly by warming, will itself cause more warming.

********The invisible forces, of course, are both conditioned by and influencing of the physical environment.  I.e., the invisible forces and the physical environment are part of a system.  Consequently, the condition of the forests of the United States are both conditioned by the invisible forces and influence them, too.  What modifications of the invisible forces must take place if the ravaging of the forests is to be attenuated?

May you have a good week!

Bruce