The Invisible Forces comprise a system that influences and is influenced by human behavior.  This system is made up of the invisible hand (economic forces), the invisible foot (legal and political forces), and the invisible handshake (social and historical forces).  The invisible forces stem from David Colander, Microeconomics, 2nd ed. (1995), pp. 17-19. The Invisible Forces Weekly is the work of Bruce Larson.  Its purpose is to provide a broader view of economics by considering human behavior, as reported online, in light of the invisible forces.

361 (20 March 2019)

Welcome to week 361!  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.

(13 March 2019):Amazon gets an edge with its secret squad of PhD economistsCNN.com

——–“Estimating inflation is a tricky and complex task.  In the United States, the government’s Bureau of Labor Statistics sends testers to stores to record the price of everything from chees to ties, and surveys consumers over the phone about what they spend on gas and funeral services.  Amazon thinks it could do it better.  With help from outside researchers, the company’s economists are working on a way to measure inflation using thousands of transactions across its own platform. . . . That’s just one way Amazon is using the squad of economists it has recruited in recent years.  The company has turned so many businesses, from retailing to cloud computing, inside out.  Now Amazon is upending the traditional role of economists within companies, as well as the field of economics.”  In recent years, “Amazon has hired more than 150 PhD economists, making it probably the largest employer in the field behind institutions like the Federal Reserve, which has hundreds of economists on staff.”

********The changing role of the economist in private business is one of the key points of this article, a role change that is especially clear in the context of Amazon but applies more generally to tech companies.  One of the factors attracting economists to companies—aside from money—is the ability to work with extraordinarily large data sets.  One of the factors that are concerning is that most of the research that they perform will not see the light of day; economists are often required to sign non-disclosure agreements, somewhat equivalent to research performed for the CIA classified Secret.  Historian of economics Beatrice Cherrier expands upon the significance of the rise of private data: “Before, economists used to work on public data . . . And now, if they want to study behavior, the tech companies have it, and it’s proprietary.”

(14 March 2019): “One Way to Make Reparations Work: Address the black-white wealth gap” Bloomberg.com——–[A column by Bloomberg writer Noah Smith, who previously was an assistant professor of finance at Stony Brook University.]  “The issue of reparations for African Americans, is, of course, full of moral and historical issues that one column, even by someone with much greater understanding and deeper knowledge than me, could ever resolve.  But since the proposal is now being taken seriously, it’s worth thinking about the economics of how it could and should work.”  This is a valuable article that suggests the power of the market to influence a discipline.

********I am going to let the words of Noah Smith speak for themselves.  Please read the article to get a sense of some of the issues.  Among familiar figures noted are Ta-Nehisi Coates, Democratic presidential candidates Julian Castro, Kamala Harris, and Elizabeth Warren, and conservative columnist David Brooks of The New York Times.  Smith raises an essential question: “what the goal of reparations would actually be.”  He goes on to state that “One obvious target is to reduce the persistent black-white wealth gap.”  Such a focus allows him to bring economic thinking into the picture, however successfully you will have to judge for yourself.  To get a glimpse of some of the complexity that exists without that focus, a look at the column of David Brooks is important.  As he sees it, “I don’t think one can grasp the full amplitude of racial injustice without invoking the darkest impulses of human nature.”

********One approach to reduce the wealth divide is the use of “baby bonds,” a policy advance “by economists William Darity and Darrick Hamilton.  If done as a form of reparations, the program would simply endow every black child with a government trust fund, worth perhaps $21,000 to $47,000.  The proposal would have to be modified to give some money to the parents, grandparents and other family members of the recipients, but that’s the basic idea.”  But there are many additional issues raised by Smith that make this proposal fraught with difficulties.  What a fascinating, challenging, and important course would “The Economics of Reparations” be.  So much could follow from it.

(14 March 2019):How Big Tobacco Hooked Children on Sugary DrinksThe New York Times

——–What do “ads featuring Joe Camel, Kool-Aid Man and the maniacal mascot for Hawaiian Punch have in common?  All three were created by Big Tobacco in the decades when cigarette makers, seeking to diversify their holdings, acquired some of America’s iconic beverage brands.  They used their expertise in artificial flavor, coloring and marketing to heighten the products’ appeal to children.  That tobacco companies sold sugar-sweetened drinks like Tang, Capri un and Kool-Aid is not exactly news.  But researchers combing through a vast archive of cigarette company documents at the University of California, San Francisco stumbled on something revealing: Internal correspondence showed how tobacco executives, barred from targeting children for cigarette sales, focused their marketing prowess on young people to sugary beverages in ways that had not been done before. . . . Using child-tested flavors, cartoon characters, branded toys and millions of dollars in advertising, the companies cultivated loyalty to sugar-lade products that health experts said had greatly contributed to the nation’s obesity crisis.”

********This article draws heavily upon “Tobacco industry involvement in children’s sugary market” published in The BMJ.  It is all too easy to understand that a company prohibited from using its intellectual skills and know how in one area will look for other areas to use them.  A forthcoming book—May 2019—may be of related interest.  Its title is The Age of Addiction: How Bad Habits Became Big Business.  Written by David T. Courtwright, “a leading expert on addiction,” the book is a “singularly authoritative history of how sophisticated global businesses have targeted the human brain’s reward centers, driving us to addictions ranging from oxycodone to Big Macs to Assassin’s Creed to Snapchat—with alarming consequences.”  I ran across this book in a very short book excerpt of The Atlantic.

(15 March 2019): [SR]How Sears Lost the American ShopperThe Wall Street Journal

********This article provides a broad overview of events and circumstances that resulted in the fall of Sears from its hay day in the 1970s to its current state.  It is not a pretty story, but it is an interesting one.  Here is the story, “told by eight people who lived it (edited from interviews).  Mr. Lampert, who is poised to steer a vastly shrunken Sears out of bankruptcy, declined to be interviewed.” 

(18 March 2019):In the age of the selfie, a younger market for cosmetic proceduresMarketplace

********The title pretty much says it all, driven by image-sensitive social media, younger people are making use of cosmetic procedures once primarily used by more mature customers.  In particular, the number of Botox injections “administered to 18 to 37-year-olds have increased more than 20 percent in the past five years. . . . Carrie Strom, Allergan’s vice president for medical aesthetics, described Botox as ‘the gateway to all aesthetics’.”  As a result, “Allergan is tripling its marketing budget to $150 and paying social media influencers to promote the products.”

(18 March 2019):Alan Krueger Led a Quiet Economics RevolutionBloomberg.com

——–Princeton University economist Alan Krueger “died over the weekend at the age of 58.  In his outstanding but too-brief career, Krueger helped turn the economics profession into a more empirical, more scientific enterprise.  His research shed light on many of the most important policy issues facing the U.S., and he put that knowledge to good use working for two presidential administrations.”  Krueger’s respect for evidence made him “an important voice in an economics profession in the midst of rapid change.  In recent decades, the theory-heavy economics of the 1970s and 1980s has given way to more empirical approaches.  The most important change has been what economists Joshua Angrist and Jörn-Steffen Pischke call the ‘credibility revolution’—using carefully designed studies to isolate cause from effect, instead of simply looking at correlations or relying on a theoretical model that might be wrong.”  Indeed, Krueger was “a key figure in this revolution, helping to pioneer the use of natural experiments.”

********The survey article in which Krueger is one of the prominent figures is the 2010 article “The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics.”  You can download a copy of the article, aimed at a more general audience, here.  Many articles have been appearing upon the death of Alan Krueger.  The article in The New York Times provides additional information, as well as the cause of his death.  RIP Alan Krueger.

********The Times article showed a graph summarizing recent use of natural experiments and quasi-experiments, laboratory experiments, and randomized controlled trials in National Bureau of Economic Research publications on public economics.  That graph came from a series of 42 slides by Henrik Jacobsen Kleven on “Language Trends in Public Economics.”  It seems like a useful of Themes, Methods, and Specific Terms being employed in economics.

May you have a good week!

Bruce

360 (13 March 2019)


Welcome to week 360!  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.

(5 March 2019):Here’s Where to Find the World’s Super Rich, From Paris to TokyoBloomberg.com

********Articles about the super rich don’t draw me in but maps and graphs about them do.  This piece show’s the world’s top 10 cities and the number of their inhabitants with wealth of at least $30 million.  London has the largest number (4,944), followed by Tokyo (3,732), Singapore (3,598), and New York City (3,378).  The data behind the map comes from The Wealth Report for 2019 from Knight Frank, see page 87 of the report for city-level data.

(9 March 2019):Money to Launder?  Here’s How Hint: Find a BankBloomberg.com

********Money laundering, i.e., making ill-gotten money look good, can be done in many ways.  This Quicktake takes a tour through some of the most commonly used methods: shell companies, countries with poor regulatory oversight, seemingly legitimate trade, mirror trades, mixing clean and dirty money, and (my favorite) “smurfing.”  The website of Global Financial Integrity, an organization that “works to curtail illicit financial flows by producing groundbreaking research, promoting pragmatic policy solutions, and advising governments” seems like a good place to learn more.

(11 March 2019):Women Made Butter a BehemothJSTOR Daily

——–“Do you put butter on your toast?  If so, you likely use a product that’s as mass-produced as they come: the final product of a long chain from cow to kitchen.  But between 1750 and 1850, butter was produced in small batches by farm women in the American colonies and early United States.”  Jensen’s story begins with buttermaking in rural Pennsylvania in the late eighteenth century, where there were few cows and women “began to make and sell butter, in addition to what they already produced for their families.”  At that time “Women used the revenue from butter sales to buy household goods . . . while men used the revenue from selling grain and animals to buy farm equipment and more land.”  But changing economic conditions and soil depletion increased the importance of butter relative to grain.  “Soon, men were seeing the value of butter and began investing in more dairy cattle, especially on land that wasn’t good for growing grain.”  Ultimately, “men took over dairying entirely, denigrating women-made butter as ‘unscientific’ and of lower quality—but not before women made the entire industry possible.”

********The post is brief and clearly shows how once buttermaking became a central activity of the dairy farm, the role of women in its production was diminished.  This seems like the work of the invisible handshake.  You can download the 18-page article at a link at the end of the post.  Of related interest is “When Margarine Was ContrabandJSTOR Daily.

(11 March 2019): [SR]’Extension Cord’ to Carry Green Power From Midwest to EastThe Wall Street Journal

——–“Two European firms are backing an ambitious $2.5 billion project to carry renewable electricity underground through the American heartland.”  The 349-mile electrical transmission line . . . would carry wind and solar energy from Iowa into the Chicago area . . . The link would allow renewable energy from the Upper Midwest to travel all the way into the eastern U.S. by hooking up to the PJM Interconnection, the power grid that serves all or part of 13 states, including Illinois, Ohio and Pennsylvania.”  Called the SOO Green Renewable Rail the “vast majority of the line will run in a Canadian Pacific railroad corridor.  The project’s developers expect that going underground on an existing railroad right of way will make it easier to obtain permits and local permission.”  Although investors “have tried to build more than a half-dozen long-distance, direct-current power line

[like the one the SOO project will be using]

in the U.S.  So far, the aboveground efforts have been delayed or derailed by permitting delays as well as local and political opposition.”  It is expected that building belowground will be “nearly twice as expensive per mile as an aboveground line on towers” but there will be fewer risks of power interruption from tornados and other weather-related events.

********The article goes on to note that developers hope “to take advantage of electricity price arbitrage, as well as abundant renewable energy in the Upper Midwest and Great Plains.”  I.e., moving electricity from regions with relatively low prices to those with relatively high prices.  Very reminiscent, this, to the movement of crude oil in recent history.  I’m especially impressed by the strategy of going underground and using existing rail corridors.

********Another aspect of energy greening involves lightbulbs, as made clear by “America’s Light Bulb Revolution” The New York Times.  In 2010, 68% of bulbs installed in homes were traditional incandescent bulbs and 31% were compact fluorescent.  In 2016, traditional incandescents had fallen to 6% and compact fluorescents had grown to 44%.  Most surprising to me is the growth of halogen incandescent bulbs, from virtually none to 37%; LEDS rose from none to 14%.  See the graph in the article for additional detail.  The shift in light bulb usage is perhaps the main reason why “After climbing for decades, electricity use by American households has declined over the past eight years.”  Will this decline in energy use be reversed by the declared intention of the Department of Energy to “withdraw an Obama-era regulation at nearly doubled the number of light bulbs subject to energy-efficient requirements”?  Such a change will be muted because newer light bulbs last longer than traditional incandescents.

(11 March 2019):Voodoo Economics of Keynes Redux?  How Lawrence Summers and MMT AlignBloomberg.com

********Modern Monetary Theory is going to be in the news for some time.  My guess is that it will now be a continuing part of macroeconomic policy debate, as this article, by putting matters in historical perspective, does.  To me it seemed like a more even-handed discussion of its place in macroeconomic thinking that other articles, for or against, have provided.  For an exposition of leading themes of MMT, there is the article by “Stony Brook University professor and MMT proponent Stephanie Kelton” entitled “Modern Monetary Theory Is Not a Recipe for DoomBloomberg.com.  (Kelton was described by Kai Ryssdal as “almost universally acknowledged as the person to talk to about MMT.)  In thinking about these matters, it is important to keep in mind that the conditions under which policies are likely to work are often forgotten—if ever known at all—in policy debates.  Likewise, political action seldom proceeds on a linear path.

(12 March 2019):Baby Nancy, the first ‘black’ doll, woke the toy industryThe Los Angeles Times

——–“This month marks the Barbie doll’s 60th birthday, with a lot of attendant hoopla. . . . Barbie deserves her party, but that celebration has overshadowed another doll anniversary that is arguably more relevant to our cultural moment.  Fifty years ago this month, Baby Nancy made her debut at the American Toy Fair.  A 13-inch black baby doll, Nancy transformed what was racially acceptable in Toyland.  The revolutionary doll’s manufacturer was a newcomer to the trade: Shindana Toys.  Nancy was its maiden doll, a product of the rebirth of Los Angeles after the 1965 Watts rebellion.”  It was important for Shindana to make “an authentic doll representing African American children” and not, as had been the case, “a white doll ‘dipped in chocolate,’ . . . with stereotypically Caucasian facial features and hair that had had been merely tinted brown.”  Toward that end, with few exceptions, “the company’s employees—in the front office, in research and design and on the factory floor—were black.”

********An interesting look at the context and some of the challenges of bringing Baby Nancy to market.  One of those challenges dealt with hair.  “The toy industry had never genuinely attempted to replicate short, natural African American hair before.”  To do so, “Shindana imported a special oven from Italy and slid synthetic doll hair under the heat to achieve a crimped, matted texture.  The factory line workers used a hair comb to fluff out the natural and give it a more realistic appearance and texture.”  The result was a doll that “employees called Natural Nancy.”  An unexpected part of this story is the role that toy giant Mattel played by providing financial and technical support, as well as industry contacts, to the organization that helped birth Shindana.  Mattel, presumably, could have undertaken this project itself but did not.  Surely there is a story to be told.  Perhaps when Rob Goldberg publishes his book “on the politics of toys during the 1960s and 1970s” we will know the answer.

May you have a good week!

Bruce

359 (6 March 2019)


Welcome to week 359!  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.

(26 February 2019):You asked, we answered: Why didn’t any Wall Street CEOs go to jail after the financial crisis?  It’s complicated.Marketplace

********This is a 41-minute podcast that ran in multiple parts on NPR, starting on February 26th, thus the date.  It is well worth a listen and falls nicely in the invisible foot part of the TIF.  The podcast begins with a look back at two previous financial events: the savings and loan debacle and the collapse of Enron.  In both of these events many people were charged and went to prison but in the most recent financial crisis almost no one did.  Thus question: Why?  As the title of the podcast indicates, “It’s complicated.”  But what was clear to me is that the absence of criminal convictions is that almost none were sought.  Early on criminal charges against executives at Bear Stearns were brought but no convictions resulted.  As a result, it seems that  the Justice Department decided to take a different road, pursuing cases civilly rather than criminally.  This resulted financial settlements but no criminal convictions. 

********At the end of the link there is a list of books to learn more.

(1 March 2019):Dairy farmers are in crisis—and it could change Wisconsin foreverThe Milwaukee Journal Sentinel

********This is part of the series “Dairyland in Distress: A USA Today Network-Wisconsin Special Report.”  As the title indicates, it is about the plight of small and smallish dairy farms in Wisconsin.  But the challenges of Wisconsin dairy farmers are the challenges of dairy farmers throughout the United States.  This article gives sort of a macro view, indicating the elimination of small forms due to lower prices at which they are unable to continue to operate.  For a more micro view, there is another article, “How four family dairy farms in Wisconsin are fighting to survive,” that clearly indicates the circumstances of some individual dairy farmers.  There are videos interspersed that allow the dairy farmers to tell their own stories.   Five videos—about 15 minutes—are gathered together here.  The despair of some of these farmers is obvious.  Industry exit, so easy to talk about in the abstract, is hard to take in the concrete.

(1 March 2019):Banning payday loans sends desperate borrowers running to pawn shopsQuartz

——–Eleven years ago the state of Ohio passed legislation that made payday loans “prohibitively expensive to offer.”  The Short-Term Loan Law limited the annual percentage rate of interest to 28%, “slashing the margins of predatory lenders, and effectively banning payday loans in the state.  But while the law was intended to protect the poor, it seems to have instead sent them scurrying to other, equally insecure, alternatives.”  A paper by Stefanie R. Ramirez of the University of Idaho, which was published in Empirical Economics, examines the effects of the legislation.  “Though it succeeded in ending the loans . . . it had the unintended effect of shifting the problem to other industries favored by people with few alternatives and bad credit.  Would-be borrowers are now relying on pawnbrokers, overdraft fees, and direct deposit advances to get themselves quickly into the black when times get tough.”

********The article on which this piece is based is Stefanie R. Ramirez, “Payday-loan bands: evidence of indirect effects on supply,” Empirical Economics 56,3 (March 2019): 1011-1037.  You can download what I presume is an earlier version of the article here.  It is interesting to consider this in light of the article on dairy farmers in crisis. 

(4 March 2019):Yes, Americans Owned Land Before ColumbusJSTOR Daily

——–“There’s a myth that Europeans arrived in the Americas and divided the land up, mystifying Native Americans who had no concept of property rights.  In reality, historian Allen Greer writes, various American societies had highly-developed systems of property ownership and use.  Meanwhile, European colonists sometimes viewed land as a common resource, not just as individual property.”

********Greer’s article, “Commons and Enclosure in the Colonization of North America,” can be downloaded at the end of the linked post.  As is usually the case, the stories we learn first tend to stick with us, despite their incompleteness and sometimes their error.  I recently ran across a quotation in The Wall Street Journal that touches upon this.  Jonathan Swift is said to have written, “Falsehood flies, and the truth comes limping after it.”  You can read a fuller statement of Swift’s thoughts here

(4 March 2019):There are more $100 bills in circulation than $1 bills, and it makes no centsThe Washington Post

——–“A puzzling surge in the number of $100 bills in circulation and the planned demise of the 500-euro bank note have resurrected debate on the need for three-digit currency at all—given their favor with criminals around the globe.  A decade ago, the number of $100 bills lagged well behind $1 and $20 notes.  But the tally has doubled since the end of the financial crises, according to data from the Federal Reserve; by 2017, the $100 note eclipsed the $1 to become the most widely distributed U.S. currency.”  According to Torsten Slok, chief international economist of Deutsche Bank, the growth in the $100 bill “could be driven by a global fear of negative interest rates in Europe and Japan, or it could be a savings vehicle for U.S. households worried about another financial crisis, or it could be driven by more demand from the global underground economy.”  As it turns out, the “vast majority of these bills” aren’t in the U.S.  A 2018 research paper from the Federal Reserve Bank of Chicago “estimates as much as 80 percent of the 12 billion $100 bills in circulation live outside the country.”  Global corruption and criminal activity is one possible reason for the desire to hold $100 bills.  “A 2016 paper claims that “high denomination notes are ‘the preferred payment mechanism’ of criminals, because of ‘the anonymity and lack of transaction record they offer, and the relative ease with which they can be transported and moved.’”

********The article points out that “$1 million in $20 bills would weigh more than 50 pounds.  In 500-euro notes, it would be a little over two pounds.”  (Just for fun, the gold spot price at 7:12 pm on March 6th was $1,290 per ounce.  That means that $1 million in gold would weigh 48.45 pounds.  I can see why criminals might want to conduct their transactions in 500-euro notes rather than gold.)  All of this provides the setting for “Big-Money Bills Get Little Love—Except in Switzerland” The Wall Street Journal [SR].  Switzerland has issued one-thousand franc ($999) notes at a time when “other countries are scaling back big-value bank notes due to worries that they make life easier for criminals.”  This is in contrast to the European Central Bank which “stopped issuing new €500 ($567) notes in early 2019.”  Interestingly, these one-thousand franc notes cannot be stored indefinitely.  “Switzerland typically issues new bank note series every 20 years, and once that is done the existing notes lose all of their value after another 20 years and can’t be exchanged, meaning that around 2060, this batch of 1,000-franc notes will be little more than expensive wallpaper.”

(5 March 2019):White Meat of Dark?  Brexit Muddles the PictureThe New York Times

——–Most British customers want their poultry “cut up, boneless and, most vexingly to farmers, white, not dark. . . . For decades, the answer to that problem was the European Union: a frictionless market with idiosyncratic tastes, in which eastern countries crave the dark meat that Britons do not.”  So, dark meat travels to plates in Eastern Europe, while white meat travels the opposite way.  Britons can eat what they want while farmers export what they do not.  But now, as with so many other areas of trade and business, Britain’s impending withdrawal from the bloc, the process known as Brexit, stands to throw off the gustatory balance. . . . Farmers know this little-noticed quirk of the meat trade as carcass balance: One country’s leftovers are another’s prized cuts.”

********The article goes on to discuss some of the consequences of less-free trade, in particular, higher British prices for white meat and the substitution of dark meat for white meat when appropriate product adjustments can be made.  This article makes very clear the role of tastes in determining the direction of trade.

May you have a good week!

Bruce

358 (27 February 2019)


Welcome to week 358!  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.

(13 February 2019):Bigger Is Not Always Better for Team ScienceThe Scientist

——–“To make breakthroughs that shatter the scientific status quo, researchers may be better off working in small teams, a paper in Nature . . . concludes.  The report, which examines the citations of tens of millions of research papers and patents, indicates that big teams tend to work on existing theories rather than instigating new ones.” 

********The Abstract of the article, available at the above link to Nature, gives a clear sense of the article’s methods, findings, and importance.  While we are on the subject of teams, it is worth calling attention to “Men still pick ‘blue’ jobs and women ‘pink’ jobsThe Economist.  Mining company BHP Billiton has found that its “most diverse teams outperform the average by around 15% on measures such as meeting production forecasts, sticking to timetables and—because female miners are gentler on gears and more likely to respond to alarm lights—cutting maintenance costs.  The number of injuries is about half that in male-dominated teams doing similar work.”  The article addresses much more than team performance.

(15 February 2019):The New Way to DeregulateBloomberg Businessweek

——–“Sandboxes are the hot trend in financial regulation.  Or rather, deregulation.  China, Singapore, Australia, Canada, and more than 20 other countries have them.  U.S. regulatory agencies are starting them.  Arizona has one, and other states my follow suit.  Sandbox programs are supposed to be a kind of safe space to allow digital entrepreneurs to test products without regulators breathing down their necks.  Governments are willing to stay their regulatory hand because the startups that emerge from such experiments might lead to new jobs and expanded access to financial services.  They also provide competition to big banks. . . . But as sandbox initiatives proliferate, critics worry that the concept has become a covert effort to neuter consumer protection laws.”

********A different kind of sandbox than those of my childhood.  Evidently the term ‘sandbox’ derives from software development.  Wikipedia notes: “A sandbox is a testing environment that isolates untested code changes and outright experimentation from the production environment or repository.”  Experimentation in a controlled environment seems to be the core idea, although it did remind me of special economic zones that have been around for some time.  Wikipedia notes that a special economic zone (SEZ) “is an area in which the business and trade laws are different from the rest of the country.”  The Wikipedia article goes on to note that “Free zones and Entrepots have been used for centuries to guarantee free storage and exchange along trade routes. . . . Modern SEZs appeared from the late 1950s in industrial countries.  The first was in Shannon Airport in Clare, Ireland.”

(20 February 2019):How meat producers are trying to avoid becoming like dairy farmers competing with nut ‘milks’The Washington Post

——–Kevin Kester is a recent president of the National Cattlemen’s Beef Association (NCBA).  In that role he was the beef industry’s top lobbyist and one of his primary concerns was “fake” meat, i.e., things like “plant-based burgers from Beyond Meat and Impossible Foods, which have elbowed their way into grocery-store meat cases next to the sirloins and ground round. . . . Even more worrisome is the much-ballyhooed, but not yet commercially available, ‘lab’ or ‘cultured’ meat, cultivated from animal cells without raising or slaughtering an animal.”  A variety of laws have been passed, and more are being considered, to regulate the use of the word ‘meat’ and expressions such as ‘clean meat’. 

********In its efforts to find a regulatory solution to reduce competition for its product from new substitutes, the meat industry is mindful of approaches taken by the dairy industry in relation to butter—oleomargarine was the new substitute—and by the dairy industry in relation to milk—nut milks of all kinds are the new substitutes.  In Kester’s view, “the dairy industry’s lackadaisical approach to competitors and the FDA’s lax enforcement of its definition of milk . . . created the problem” facing them, that being decreased demand for its products.  Overall, Kester is “confident that U.S. tastes won’t change.”  He states: “Personally, I’d choose a tasty, traditionally produced rib-eye steak over a tofu burger or something out of a petri dish every single day of the week . . . And I’m guessing that the vast majority of American consumers will do the same.”  Regarding taste change, please see the article on Kraft Heinz—(22 February 2019)—below.

(21 February 2019):A new book argues weakened communities threaten liberal democracyThe Economist

——–“Until recently, economists’ prescription for struggling places was bloodless: let them die. . . . But the electoral successes of Donald Trump and the campaign to yank Britain out of the European Union (EU) have shaken the dismal science. . . . The reconsideration of place-based policies can often seem grudging . . . Economists’ reluctance is understandable: efforts to help struggling communities might well deter people from moving when they would otherwise have relocated to more promising places.  But it is also short-sighted, argues Raghuram Rajan, an economist at the University of Chicago and the former head of India’s central bank.  In a compelling new book, ‘The Third Pillar: How Markets and the State Leave the Community Behind’, he argues that communities are not so much a source of friction inhibiting the smooth operation of the global economy, as an indispensable part of a healthy society.”

********The Third Pillar was released on February 19th.  The review goes on to note that “the places where people grow up, live and work are not simply agglomerations of economic activity.  They shape people’s identities and ‘anchor the individual in real human networks’.”  Reading this, I see a connection to the invisible forces: markets (the invisible hand), state (the invisible foot), and community (the invisible handshake).  I’m intrigued.  In 2010 Rajan’s book Fault Lines received the Financial Times and Goldman Sachs award for Business Book of the Year.  You can learn more about Rajan at Wikipedia.

(21 February 2019):Made on the Inside, Worn on the OutsideThe New York Times

********Danish fashion company Carcel was started “to create a positive impact on the world through fair employment and wages for women in prison, using only the best, natural materials and making quality designs that last.”  This article discusses Carcel and its use of women prisoners in a penitentiary center in Cusco, Peru to produce the clothing it sells.  It raises important questions to ponder. 

(22 February 2019): Kraft Tests How Much Costs Can Be Cut as Tastes ChangeThe New York Times

——–“The reputations of some of the world’s most powerful investors rest on a huge but humdrum challenge: getting consumers excited again about Kraft macaroni and cheese.”  Food giant Kraft Heinz lost 28% of its market value on Friday after it announced: “poor earnings, a multibillion-dollar write-down and an accounting investigation by the Securities and Exchange Commission.”  Brazilian investment firm 3G Capital “led the merger of Kraft and Heinz in 2015 and steers the combined company.”  3G is known for its “stringent, cost-cutting approach to running companies . . . Bu Kraft’s problems suggest that unremittingly squeezing expenses can make it harder to stay competitive.”  In fact, “Kraft Heinz may soon need to spend more.  Consumers are increasingly drawn to products they perceive to be healthier and fresher over processed products.  Kraft Heinz will have to show that it can win them back with innovative new products and engaging marketing.  And that could weigh on future profits.”  In assessing the situation of Kraft Heinz, professor David Kass of the University of Maryland notes: “They did not anticipate this major change in consumer tastes, and they really focused their efforts instead on cost-cutting and doing acquisitions.”  The approach of large mergers with an eye toward cost cutting has also been followed by Anheuser-Busch InBev, the share price of which has fallen 20% over the last year.

********Evidently a focus on cost cutting when tastes are changing is not a winning strategy. 

(22 February 2019): More houses are rolling off the assembly lineMarketplace

——–Prefab homes are getting a second look from affordable housing advocates.  One reason is quick turnaround.  The largest U.S. producer, Clayton Homes, can produce a home “From start to finish . . . [in] about four to five days.”  A second reason is price.  “A typical factory-built house costs as much as 50 percent less per square foot than a traditional home” according to Allan McCargo of the Urban Institute.  Shipments of such homes were 97,000 in 2018; Clayton Homes produced about 47,000 in 2018.  Prefab homes are now getting a boost from mortgage giants Fannie Mae and Freddie Mac, which “have started funding traditional mortgages for manufactured houses.”  Previously factory-built home were “paid for with ‘chattel’ loans, which often carry higher interest rates.”

********Chattel loan was not in my mental dictionary.  If that is true of you, take a look at the definition of chattel mortgage at Investopedia.  Lower interest rates on loans, of course, will make manufactured homes a little more attractive as a housing alternative. 

(22 February 2019):How To Analyze An IPOBloomberg.com

********This is a 26-minute episode of the Odd Lots podcast, this time focusing on initial public offerings.  Co-host Joe Weisenthal interviews Rett Wallace of Triton.ai, a company that analyzes IPOs.  I was very impressed by the interest, quality, and fluidity of the responses that Wallace gave to Weisenthal’s questions.  Two points have stuck in my mind.  First, IPOs are now happening later in a company’s life larger due to regulatory reasons.  Why put up with the hassle of being the CEO of a public company if you don’t have to?  Second, private investors often know more about the overall circumstances of a business than public investors, largely because public investors tend to focus on—have access to—dollar-denominated metrics.  You can learn more about Triton.ai here.  It is interesting to see that Triton’s CEO, Rett Wallace, has a Bachelor of Science in Foreign Service from Georgetown University.

********One of the companies discussed in relation to an upcoming IPO was Uber, which was used to exemplify the analytic approach of Triton.  Quartz has an interesting article that shares “What an economist learned by driving for Uber.”  Paul Orr, a professor at the Stanford Graduate School of Business spent some time as a driver so that he might better understand the platform and gig work in general.  In the process he learned a bit about the value of work flexibility and why “male Uber drivers make more than female drivers.”

********While we are on the topic of gig work, I found “Are you an employee or a contractor?  Carpenters, strippers and dog walkers now fact that questionThe Los Angeles Times.  The article elaborates on the consequences of the California Supreme Court ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles.  The Court “embraced a standard presuming that all workers are employees instead of contractors, and placed the burden [of proof] on any entity classifying an individual contractor of establishing that such classification is proper” under a newly adopted test of the Court.  What the “Are you an employee” article makes clear is that it is not universally advantageous for an individual to move from contractor status to employee.  Some examples are given.  The main point is encapsulated in this statement:

Each sector may have workers who want to remain contractors, collecting untaxed wages upfront without deductions for benefits, and having control over their hours.  And it may include others who prefer to be employees, with unemployment insurance, greater job stability and the right to join unions.

(22 February 2019):The Shutdown Made Sara Nelson Into America’s Most Powerful Fight Attendant” The New York Times

——–Sara Nelson is the president of the Association of Flight Attendants union.  “At an A.F.L.-C.I.O. gathering on Jan. 20, Ms. Nelson called for a general strike, an idea so radical that it has scarcely been invoked in public by the head of a national union in generations.  The suggestion . . . put her in the same frame as the phenom congresswoman Alexandria Ocasio-Cortez.”  Ms. Nelson is convinced that, “while a vanishing fraction of Americans belong to unions, workers are increasingly fed up with their lot and amenable to the idea of taking on their bosses directly.”  Building connections to other labor groups has been a priority for Ms. Nelson.  “In speeches to miners and postal workers, she has pushed workers to band together to fight for better contracts, higher wages and more benefits, often leading crowds in chants of ‘I’ve got your back.’” 

********Nelson played a central role in developing the communications strategy that made evident the danger to airplane personnel and passengers as a result of the federal government’s partial shutdown.  As the article notes, she is considered as a serious candidate to head the A.F.L.-C.I.O. when the term of its current presidents, Richard Trumka, is over.  Cleary Sara Nelson is someone to watch.  You can learn more about her at Wikipedia.

(23 February 2019):Why peppercorns are being smuggled by the ton from Vietnam to Sri LankaQuartz

——–“The world’s top exporter of peppercorns is Vietnam, where local farmers have shifted away from other formerly popular crops, such as coffee.”  [Vietnam is the world’s largest producer of Robusta coffee beans.]  Vietnam’s peppercorns are “sold around the world, but seldom to India, where government price-fixing sets local peppercorn prices way above the going rate in other markets.  Because of that, there’s money to be made by selling Vietnamese peppercorns at Indian prices—if you can find a way to bypass India’s high tariffs and minimum import prices.  Some rogue traders are now doing just that: they reportedly ship the peppercorns to Sri Lanka, relabel them, and sell them on in India for a much higher profit than if they had exported them directly to the large, pepper-loving nation.”

********In both Vietnam and India, peppercorns and coffee seem to be substitutes-in-production in that they can be produced using the same resources.  India’s tariffs and minimum import prices apparently stem from the fact that peppercorns are a secondary and important source of income for coffee planters. 

(25 February 2019):Trump is treating our allies like his old contractors: Not wellThe Washington Post

——–“The president needs an economist.  Not just any economist; he desperately needs a game theorist, someone who can impress upon him why the negotiating strategy that has (mostly) served him well in his private business utterly fails him now.  Specifically: He needs someone to explain ‘repeated play’—and the idea that players may want to strategize differently if they’re going to face off multiple times rather than just once.”

********This is an opinion piece that makes an excellent point.  The approach one takes to a repeated game is likely to be very different than the approach to a game that takes place only once.  Thus, the “Art of the Deal” for repeated games is likely to be very different than that for a game that a “one-off.”  As columnist Catherine Rampell puts it: “negotiating on behalf of the United States is different from negotiating a one-off contract with a plumber.”  As she argues, “In government, there is necessarily repeated play; there is no inexhaustible supply of sovereign nations or political parties to haggle with.”  The importance of repeated games is nicely captured in Robert Axelrod’s classic and still-relevant 1984 book, The Evolution of Cooperation.

May you have a good week!

Bruce

357 (20 February 2019)


Welcome to week 357!  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.

(12 February 2019):The Biggest Economic Divides Aren’t Regional.  They’re Local.  (Just Ask Parents.)The New York Times

——–“Regional inequality is often cited to explain just about every challenge the United States faces: political conflict, joblessness, drug overdoses, even the decline of marriage.”  Furthermore, “Research confirms that workers are in fact more productive in densely populated metropolitan areas.  but it’s a mistake to think that regional divides are the source of the nation’s core economic problems. . . . In places other than big metropolitan areas, research shows it’s easier for parents to give children opportunities to become higher-earning adults because the cost of living in a high-quality neighborhood is usually lower.”

********This is a lengthy and involved article with many important points.  But its essence is driven home in its discussion of worker productivity and family productivity, as follows:

Superstar cities are generally excellent places to achieve a satisfying and high-paying career applying specialized skills.  But just as workers can be more productive at their jobs in big cities, parents can be more productive at family life in smaller places.  For the parents, it’s through cheaper access to high-quality neighborhoods and social capital, the networks of trust and cooperation that often make a place work.  These attributes are understandably appealing, and they help explain why everyone doesn’t simply move to the nearest major metropolitan area in search of better career prospects. . . . [Any] policymaker trying to tackle the country’s most significant problems will quickly find the biggest divides in America are not regional.  They remain within metropolitan areas—across neighborhoods and local jurisdictions.”

********On one side of the economic divide one finds mobile homes, payday loans, and dollar stores.  Here are three articles that say a bit about them:

The dollar store article was especially interesting, as it raises the question whether such stores are the effect or cause of economic distress.  Evidently a report by the Institute for Local Self-Reliance was an essential foundation for the article.  The report was done for Tulsa, Oklahoma.  It would be nice to see a similar report for the Asheville area

(15 February 2019): Fixing the Lopsided Economics of Workplace HarassmentBloomberg.com.

——–“The economics of complaining to your employer are lopsided.  That imbalance in financial power helps explain the prevalence of controversial non-disclosure agreements that critics claim keep a lid on allegations of workplace bullying, sexual harassment and racial abuse.”  Although reforming non-disclosure agreements “to balance the rights of accuser and accused” has its challenges, it is worth pursuing as “investors and customers need to be empowered to make more informed decisions about where to put their money—and prospective employees about where to put . . . their labor.”

********The lopsidedness of the relationship between employer and employee in the workplace is a matter of real concern.  This opinion piece presents some ideas on how to address it.

(15 February 2019): [SR]In Roundup Case, the Science Will Go on Trial FirstThe Wall Street Journal

——–“In a San Francisco courtroom this month, a jury will be asked to weigh a complicated question: Did Roundup Weedkiller cause a man’s cancer? . . . But unlike in a prior trial brought against the herbicide’s maker, Bayer AG, the jurors won’t simultaneously hear allegations that the company d dangers about its product from the public.  Instead, they’ll take part in an unusual split trial focused first on the science, and then, only if they find the plaintiff’s claims valid, on the question of negligence. . . . The approach is the latest attempt by courts to resolve a long-funning debate over how to ensure the fairest decisions in cases concerning complicated science.  The results could influence hundreds of similar Roundup cases—and guide judges in other cases that hinge on science.”

********An informative and somewhat lengthy discussion about the assessment of scientific information in the context of trial involving product liability.  How do judges, much less jurors, make reasonable scientific assessments in the context of a trial?  The split trial framework described in this article is one attempt to make such assessment easier. 

********The article goes on to discuss two standards used by judges to vet scientific experts: the Daubert standard, which is “employed in all federal courts and many states,” and the Frye standard, which is “still used in some states.”  In the Daubert standard, judges must “consider the soundness of scientific methods employed by experts as well as whether the expert is qualified and the evidence is relevant.”  The Frye standard “looks at whether the scientific evidence has gained general acceptance in its field.”  Different standards that, presumably, might yield different assessments.  Further discussion of the Daubert and Frye standards can be found here, as well as separately in Wikipedia. 

********After having run across the Roundup article, I saw “Scientist says some pollution is good for you—a disputed claim Trump’s EPA has embraced” on the front page of The Los Angeles Times.  I was drawn in immediately, learning how EPA administrator Clint Woods “reached out to a Massachusetts toxicologist best known for pushing a public health standard suggesting that low levels of toxic chemicals and radiation are good for people.”  Ed Calabrese of the University of Massachusetts is that toxicologist and hormesis is “the idea that dangerous chemicals and radiation are beneficial at low doses.”  Traditionally the EPA has relied upon the “linear no-threshold model” that assumes that “if a substance is dangerous at some level, it is harmful at any level. . . . the risk doesn’t entirely disappear until the substance is removed.”  Replacing the linear no-threshold model with the hermetic model, therefore, would provide a non-economic rationalization for not reducing a toxic substance below a particular level.  You can learn more about hormesis, including a graph of the “typical” relationship, at Wikipedia.  It is frightening to contemplate what a broad embrace of the hermetic model might mean.  The main consideration for me is how to proceed in the absence of knowledge.  I find the conservative approach of the linear no-threshold model to be compelling.  Ultimately, though, it would simply be good to find out rather than make assumptions.

(17 February 2019):American affluence: The past isn’t prologueThe Washington Post

********This article is an appreciative rereading of John Kenneth Galbraith’s 1958 book The Affluent Society, written by Post columnist Robert J. Samuelson.  Samuelson notes that the book “survives as one of the most influential books of the last half of the 20th century.”  Galbraith’s main point in Society was that affluence had reached a point where “the social usefulness of private spending was reaching its limits. . . . Meanwhile, the public sector—aside from defense—was starved for funds . . . Schools, hospitals, local roads, police and other public services were all shortchanged.  The solution, he said, was to expand the public sector.  This would provide useful services and help stabilize the economy.” 

********The Affluent Society is the second of the so-called American Capitalism trilogy.  The first is the 1952 American Capitalism, which introduced the concept of countervailing power.  The third book is the 1967 The New Industrial State.  You can learn just a bit more about each book here.  I have read two books by Galbraith—The New Industrial State and the 1973 Economics and the Public Purpose—and I watched with interest the videotapes (it has been awhile) of his 1977 tv series The Age of Uncertainty.  But I’ve never read The Affluent Society and it is time to repair that omission.  As I understand its argument, that the marginal social product of expenditure in the public sector is much larger than the marginal social product of expenditure in the private sector.  All other things being equal, it would seem to follow that more expenditure in the public sector should take place.  I think that is all I should say given that I have not read the book.  I do wonder what Galbraith has to say about the sectoral production of public sector goods.  Goods consumed by the public sector could be produced by the private sector. 

********Galbraith had a long and eventful life, which is amply captured in the Wikipedia article on him.  His work was not that of the technical economist, whose works bristle with mathematical models or statistics, but rather that of the literary economist, who works with words.  In an age of technical economics, we are fortunate to have his example of what literary economics can be.

********For those wanting to learn much more about Galbraith’s life and times, the biography to turn to appears to be John Kenneth Galbraith: His Life, His Politics, His Economics, by Richard Parker.  At 832 pages it is a project.  However, as a reviewer notes, Parker “managed to sift through a mountain of material from Galbraith’s long and lively years to distill an engaging narrative that, like Galbraith’s own books, is easily accessible to non-economists.”

May you have a good week!

Bruce

356 (13 February 2019)


Welcome to week 356!  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.

(5 February 2019):Ikea will soon offer furniture rentals because the end of ownership is nearVox.com

——–“Ikea, the world’s largest furniture seller, is trying out a new business model: renting.  In an interview with the Financial Times, Ikea’s Torbjorn Loof, who is

[in]

charge of the company’s brand and concept arm, Inter Ikea, said the company would soon be starting to experiment with furniture rentals.”  Loof noted: “We will work together with partners so you can actually lease your furniture . . . When that leasing period is over, you hand it back and you might lease something else.  And instead of throwing those away, we refurbish them a little and we could sell them, prolonging the life cycle of the products.”  A move toward furniture rentals is connected to Ikea’s desire to have smaller, more centralized stores in keeping with a move to greater sustainability.  But it also in keeping with developments related in The End of Ownership: Personal Property in the Digital Economy, by Aaron Perzanowski and Jason Schultz.

********The buy-lease decision is frequently encountered in courses on corporate finance and management accounting.  Now, it seems, this decision will be increasingly faced by households.  All this is sure to be wrapped up in The Experience Economy, where some, who can afford it, will opt for the more varied decors that furniture rentals can provide.  In moving from purchasing to rentals, transaction costs of many kind will likely loom large.

(7 February 2019):Seven Fixes for American CapitalismBloomberg Businessweek

——–“For the past few decades there’s been a rough consensus about how to run a modern capitalist economy.”  But this “centrist consensus is losing its power.  Republicans are being drawn toward the protectionism of President Trump, Democrats toward the socialism of Representative Alexandria Ocasio-Cortez, the freshman congresswoman from New York City.”  So, this seems like “a good time to look at some of the ideas for fixing American capitalism that will be debated in the 2020 presidential campaign.”

********Here are the seven fixes: (1) Antitrust Pivot; (2) Supply-Side Economics; (3) German Model; (4) Modern Monetary Theory; (5) Tech to the Rescue; (6) Tariff Truthers; and (7) Libertarianism.  A brief, but not too brief, discussions of each fix is provided.  Most of these will be somewhat familiar, except perhaps for the German Model, in which there is substantial labor representation on the boards of large public corporations, and Modern Monetary Theory (MMT).  If you want to learn a bit more about MMT, Marketplace has a nice piece: “Every heard of modern monetary theory?”  The broadcast is seven minutes long and the article includes has some schematics illustrating how MMT works.  The broadcast includes an interview with Stephanie Kelton, who “is almost universally acknowledge as the person to talk to about MMT.”  You can learn more about Kelton here.

(7 February 2019):The Bad News About Helicopter Parenting: It WorksThe New York Times

——–“It’s a familiar story.  Psychologists, sociologists and journalists have spent more than a decade diagnosing and critiquing the habits of ‘helicopter parents’ and their school obsessions.  They insist that hyper-parenting backfires—creating a generation of stressed-out kids who can’t function along.  Parents themselves alternate between feeling guilty, panicked and ridiculous.  But new research shows that in our unequal era, this kind of parenting brings lifechanging benefits.”  That research is discussed in Love, Money and Parenting: How Economics Explains the Way We Raise Our Kids, by economists Matthias Doepke (Northwestern University) and Fabrizio Zilibotti (Yale University).  “It’s true that high-octane, hardworking child-rearing has some pointless excesses, and it doesn’t spark joy for parents.  But done right, it works for kids, not just in the United States but in rich countries around the world.”

********This book seems to be an empirical and historical study, rather than simply an exercise in economic thinking, for which I am grateful.  I’ve ordered a copy and look forward to reading it sooner rather than later.  It seems like helicopter parenting does make a difference in life outcomes, but not everyone can afford the time and money to be a helicopter parent and some who can choose not to because of their beliefs.

(7 February 2019):The Resurrection of American LaborBloomberg Businessweek

——–“According to the official records, U.S. workers went on strike seven times during 2017.  That’s a particular nadir in the long decline of organized labor: the second-fewest work stoppages recorded by the U.S. Bureau of Labor Statistics since the agency started keeping track in the 1940s.  There was little reason to believe 2018 would be different, especially with the U.S. Supreme Court, in two decisions, making it harder for public employees unions to fund themselves and restricting workers’ rights to bring class actions.  The power of employers appeared to be almost limitless.  The unions were, if not busted, then certainly on the verge.  Aggrieved workers, however, took matters into their own hands, using social media and other tech tools to enhance their campaigns.”  As a result, the “official number of major work stoppages recorded by the BLS in 2018 nearly tripled, to 20.   Off the picket line, workers also won a wide range of concessions.” 

********As the article goes on to show, the decline of union power has not necessarily meant the decline of employee power, but the means of giving “voice” to employment concerns has changed, making substantial use of social media.  As Tom Kochan of MIT’s Sloan Institute for Work and Employment Research has noted: “Workers aren’t waiting for the traditional forms of organizing, as provided under labor law . . . They’re looking for new options, whether that’s Google employees on a one-day walkout or workers filing online petitions with their management about everything from scheduling to fringe benefits.”  This is an interesting development, especially when considered in relation to greater advocacy for “the German Model” noted in the article above on “Seven Fixes for American Capitalism.”

(11 February 2019):A hedge fund’s ‘mercenary’ strategy: Buy newspapers, slash jobs, sell the buildingsThe Washington Post

——–Alden Global Capital is a hedge fund that has a newspaper business Digital First Media that “is bidding to buy Gannett, operator of the nation’s largest chain of daily newspapers by circulation, including USA Today—as well as its $900 million in remaining property and equipment—for more than $1.3 billion.  The tactics employed by Alden and Digital First Media are well-chronicled: They buy newspapers already in financial distress, . . . reap the cash flow and lay off editors, reporters and photographers to boost profits.  In a 2018 court case, Alden disclosed it has a series of affiliated real estate companies whose business is focused primarily on efficiently buying, selling, leasing and redeveloping newspapers’ offices and printing plants.”

********This article, on the lengthy side, provides a clear look at how Alden and its affiliated real estate company Twenty Lake Holdings operate.  One real estate transaction is close to home:

In April of last year, Gannett sold Twenty Lake the headquarters of the Asheville Citizen-Times in North Carolina for $3.2 million. In a transaction the county recorded on the same day, Twenty Lake flipped the property to a local developer for $5.3 million.

The practices of Alden are very general.  Look for “undervalued” assets, buy them, resell them, and reap the profit.  All this, of course, is the invisible hand doing its work.  But often these workings are not pretty.  The activities of this hedge fund (and its like) are similar to those of a butcher—a business may be more valuable in pieces than as a whole going concern.

May you have a good week!

Bruce

355 (6 February 2019)


Welcome to week 355!  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.

(28 January 2019):The Cost of Dirty MoneyBloomberg.com

********This is a global map with text of some of the larger instances of money laundering.  The former Wachovia Bank of Charlotte, since acquired by Wells Fargo, makes an appearance.  “Mexican drug cartels used accounts at Wachovia to finance their operations and launder money.  From 2004 through 2007, the bank . . . processed at least $373 billion in wire transfers from Mexican currency houses.”  In consequence of its actions, Wachovia was fined $160 million.

(29 January 2019):Lawmakers want to cut California’s pot taxes to help lagging legal marketThe Los Angeles Times

——–“Frustrated that California’s licensed marijuana industry is struggling to compete against the black market, a group of state officials is pressing to slash taxes on legal pot shops and growers.  Lawmakers acknowledged that a year after the state began issuing licenses for growing and selling marijuana for recreational purposes, the legal market has been stunted by red tape, the refusal of cities to allow pot businesses and the burden of paying state and local taxes.”  According to Assemblyman Rob Bonta, the primary author of the measure, “The tax cut . . . will help ‘keep customers at licensed businesses and help ensure the regulated market survives and thrives.’”  It was anticipated that pot tax revenues would be $630 million “this fiscal year, which ends June 30, but the number was revised down this month to $355 million.”

********As the article makes clear, the higher the legal price of marijuana, the larger the black market for it.  No surprise here.  But as consumers direct more of their purchases to the black market, state tax revenues fall.  So, lower tax rates on marijuana will move some consumers from the black market to the legal market.  Will that be enough to increase state tax revenues, too?  That is an empirical question.

********California State Treasurer Fiona Ma is an advocate of reduced marijuana taxation, saying that “We are helping legal cannabis business with their transition into the marketplace, just like we would for any start-up industry.”  All this reminds me of the infant-industry argument for trade protection.  In that case, the nascent industry in one country is protected from the established industry in another country by trade barriers of one sort or another, on a “temporary” basis.  In this case, it seems, legal marijuana must be exposed to low taxes until it can get established in relation to the black market, no doubt also on a “temporary” basis.

(31 January 2019):Culture of ‘Bending Rules’ in India Challenges U.S. Drug AgencyBloomberg.com

——–“Mylan is the world’s second-largest manufacturer of generic drugs, and though it’s run from Canonsburg, Pennsylvania, its operations three hours inland from Mumbai exemplify the central role India has come to play in the global generic-drug industry. . . . One of the drugs made in that plant is destined for the U.S., where it’s the second-best-selling generic version of Lipitor, taken by millions of Americans to control cholesterol and lower their risk of heart attack.  But a review of thousands of reports submitted to the U.S. Food and Drug Administration shows Mylan’s version of Lipitor is more likely to be associated with negative side effects than its rivals: 60 percent more than the top-selling generic version made by a Canadian company and quadruple that of the third-best-selling generic made by an India-based company.” 

——–Although doubts about generic drugs aren’t limited to India, “veterans of India’s pharmaceutical industry” point to the word jugaad.  “The Hindi word, translated as ‘creative improvisation’ . . . has been elevated to something of a national ideal in India.  It’s credited with the rise of the country’s two global industries, technology and drugmaking.  In both, Indian companies with far fewer resources than foreign rivals came up with cheaper, more effective ways of doing things that ended up being a competitive advantage.  But the word can have a darker connotation.  According to Jagdish Dore of Mumbai’s pharmaceutical-industry consultancy Sidvim LifeSciences, “It’s kind of bending the rules, breaking the rules, and finding shortcuts—and in some cases, outright misdemeanors.” 

——–The emergence of jugaad is traced to India’s colonial era, “When laws and regulation were often in service of British interests, rather than Indian ones, and so fair game to be skirted, bent or broken.  After independence in 1947, the period of heavy handed government control and regulation of the economy knowns as the ‘License Raj’ further cemented a flexible approach to the rules as a precondition for success in India.”

********This is a nice instance of social and historical forces at work, i.e., the invisible handshake, although legal and political forces, the invisible foot, and economic forces, the invisible hand, are clearly intertwined.  Laws and regulations, if sufficiently onerous, will be circumvented as the occasion presents.  Perhaps it isn’t culture so much as ill-formed institutions.

********This is one of four articles that are the result of “A yearlong investigation by Bloomberg News into the generic-drug industry.”  Here are the articles:

(29 January 2019):America’s Love Affair With Cheap Drugs Has a Hidden Cost

(30 January 2019):How a Tainted Heart Drug Made in China Slipped Past the FDA

(31 January 2019):Culture of ‘Bending Rules’ in India Challenges U.S. Drug Agency

(1 February 2019):The $4.3 Billion Deal That Blew Up Over Shoddy Drug Production

(4 February 2019): Bud Light Picks Fight With Corn Syrup in Super Bowl AdThe New York Times

********Well, I didn’t watch Super Bowl LIII and I didn’t see the ad until now, but this article does raise thoughts about intention and consequence in ads, which are raised in the article.  Surely the ad annoyed many corn growers in the U.S., and it brought about some appropriate responses from the producers of Miller Lite and Coors Light to the effect that although Bud Light does not use corn syrup, some of Anheuser-Busch InBev’s prominent products do.  And then there is issue of corn syrup versus high fructose corn syrup.  The result of all this has been to divert attention away from Bud Light and to corn syrup, about which few drinkers care.  As Wendy Clark, the chief executive of advertising agency DDB Worldwide, notes: “I don’t know if anyone watching the Super Bowl necessarily cares about corn syrup, and it kicked up much ado about nothing . . . It’s taken off into this corn syrup thing and not a Bud Light thing . . . and I don’t know if that was the goal.” 

********Done well, an ad campaign can be transformative, both for its company and for society.  The article “Cutex Hooked Americans on ManicuresJSTOR Daily provides an example.  As the article begins, “Nail art is a huge trend now, but in 1916 it didn’t really exist.  Enter Cutex, a company that helped hook Americans on the little pleasures of polished nails.”  See the bottom of the post to download the primary article from Journal of Design History.

(5 February 2019):The Rise of the Robot ReporterThe New York Times

——–“As reporters and editors find themselves the victims of layoffs at digital publishers and traditional newspaper chains alike, journalism generated by machine is on the rise.  Roughly a third of the content published by Bloomberg News uses some form of automated technology.  The system used by the company, Cyborg, is able to assist reporters in churning out thousands of articles on company earnings reports each quarter. . . . Untiring and accurate, Cyborg helps Bloomberg in its race against Reuters, its main rival in the field of quick-twitch business financial journalism, as well as giving it a fighting chance against a more recent player in the information race, hedge funds, which use artificial intelligence to serve their clients fresh facts.”  But financial information companies are not the only ones going robot: “robot reporters have been prolific producers of articles on minor league baseball for The Associated Press, high school football for The Washington Post and earthquakes for The Los Angeles Times.”  Journalism executives say that the growing use of artificial intelligence “is not a threat to human employees.  Rather, the idea is to allow journalists to spend more time on substantive work.”

********Many other large, main-stream newspapers are reported as using or experimenting with robot reporting, so we can expect more of it in the future.  (How will one know if a story is robot reported?  Does it matter?)  Although The New York Times is said to have no plans for machine-generated news articles, “the company has experimented with using A.I. to personalize newsletters, help with comment moderation and identify images as it digitizes its archive.”

********Evidently The Washington Post  has “an in-house robot reporter called Heliograf, which demonstrated its usefulness with its coverage of the 2016 Summer Olympic Games and the 2016 elections.”  As a result of Heliograf, it won an award for “Excellence in Use of Bots at the annual Global Biggies Awards, which recognize accomplishments in the use of big data and artificial intelligence.”  Here is the list, with description, of all 39 winners of 2018 Global Biggies Awards

********This article raises the question of the impact of robots on the work force, generally.  This is taken up in “Tech Is Splitting the U.S. Work Force in TwoThe New York Times.  The context examined is Phoenix, Arizona, where it is hard to miss its “dogged technological ambition.”  But Phoenix “cannot escape t he uncomfortable pattern taking shape across the American economy: Despite all its shiny new high-tech businesses, the vast majority of n jobs are in workaday service industries, like health care, hospitality, retail and building services, where pay is mediocre.”  These are just the jobs where technology seems little able to increase productivity.  Tech, of course, cannot do everything, as reporter Emily Badger notes in “Why Technology Hasn’t Fixed the Housing CrisisThe New York Times.  There are larger forces at work: “Pull a thread in the housing market, and it leads to the decline of good working-class jobs, or the federal government’s long-term retreat from housing, or the fundamental tension that Americans want housing to be both affordable and a good investment.”

(6 February 2019):Yacht Influencers and Food SommeliersBloomberg.com

********These are today’s morning reads of Barry Ritholtz , which I continue to find useful to scan.  What caught my attention and followed up were the links on Impact Investing, which you might recognize as Socially Responsible Investing or ESG (Environmental, Social, and corporate Governance) Investing.  Evidently Boise, Idaho-based Matthew Weatherley-White—no pun intended—is a big name in the field.  Here are the links:

The Debate About Impact Investing We Should Be HavingBarron’s.  This is an article by Matthew Weatherly-White.

MiB: Matthew Weatherly-WhiteThe Big Picture.  MiB stands for Masters in Business.  This is an interview with Matthew Weatherly-White conducted by Barry Ritholtz.  The podcast is one hours and 25-minutes long.  I listened to about the first four minutes and many come back to it.  It sounds like a good way to get a broad overview of impact investing and its history, as well as its possibilities.

You might also be interested in learning a bit more about Barry Ritholtz.  From what I read, impact investing is likely to continue to expand as the approach is particularly attractive to women and millennials, the latter of which are likely to be inheriting impressive sums of money over the years to come.

May you have a good week!

Bruce