198 (4 February 2015)

Welcome to week 198!  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 a title search.

You can find a pdf of this issue, a cumulative pdf for issues 1-156, and a cumulative pdf for issues 157-present at: https://sites.google.com/site/brucedeanlarson/the-invisible-forces.

(8 January 2015): “No, the Internet is Not Killing Culture” (http://www.slate.com/articles/arts/books/2015/01/culture_crash_the_killing_of_the_creative_class_reviewed.html)

********A review of Culture Crash: The Killing of the Creative Class (2015), by Scott Timberg.  I found this review appeared the book was reviewed in the 31 January 2015 issue of The Wall Street Journal, but required a subscription.  The book seeks to provide insight into what the author believes to be the recent decline of the creative class, one might say its immiseration.  The reviewer is skeptical of such a representation, noting that it has always been a challenge to make a living as a creative person, especially in the   However, it seems that the book provides a broad view of recent developments in the arts and I’m eager to see the book for myself.

********One comment made by the reviewer seemed very useful and not simply as it relates to the book.  He writes: “Here and elsewhere, Timberg falls prey to the professional Jeremiah’s tendency to focus only on what has disappeared—without attending to what has risen up in its place.  Timberg is right to blanch at the astonishing number of jobs in publishing and journalism that have been lost since 2008 . . . This has, indeed, been a disaster for the creative class.  But he fails to note that there are signs of life as well . . . [in] new media companies like BuzzFeed and Vox Media.”  This is an interesting variation of what 19th century economic writer Frédéric Bastiat wrote: “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”  Evidently one can err both by focusing too much on what is seen and on what is not seen.

(29 January 2015): “Cocoa, Once Hot, Is Facing a Chill” [SR](http://www.wsj.com/articles/cocoa-once-hot-is-facing-a-chill-1422493124)

——–Cocoa futures “ended at a one-year low on Wednesday, down 6.7% since the start of the year.  Investors expect the declines to continue as demand falls from North America to Europe to Asia.  Processors in those regions ground nearly 590,000 metric tons of cocoa beans into products . . . during the fourth quarter of 2014, the lowest quarterly total in more than two years, according to trade groups’ data.  Grindings are considered a barometer of cocoa demand.”  In September, “Cocoa futures had soared to just shy of $3,400 a ton . . . boosted by strong demand in emerging markets and fears that the Ebola outbreak could choke off the flow of beans from farms to ports in West Africa, where 70% of the world’s cocoa is grown.”  Those fears did realize, as the crop of the Ivory Coast, “the world’s top-grower, came in at a record at the end of the season in September,” when the price of cocoa began to fall.

********A simple demand-and-supply story about cocoa: market demand is falling and market supply is increasing (contrary to expectation).  Consequently cocoa prices fell.  Demand must have fallen a bit more, however, as cocoa quantity fell.

(29 January 2015): “Transit Agencies Brace for Low Gas Prices to Siphon Away Riders” [SR](http://www.wsj.com/articles/transit-agencies-brace-for-low-gas-prices-to-siphon-away-riders-1422470065)

——–High gasoline prices in recent years may have helped fuel an upsurge in the use of public transportation, resulting in U.S. ridership number that are the best in half a century.  With the fall of gasoline in some places to below $2 a gallon, there is some concern that “an extended run of low gas prices could change the cost calculus for future transit riders.  And a lasting shift could boost pressure on governments from Seattle to Salt Lake City to Cleveland to re-evaluate expansion plans for buses, subways and trains amid limited funding for infrastructure spending.”  Nonetheless, “a number of factors support strong ridership even in the face of lower gas prices.  Steady job growth has more commuters taking transit to work.  Smartphone apps offering real-time schedules make riding buses more predictable and convenient.  And, historically, consumers have been more likely to shift behavior in response to energy prices rising, rather than falling, transit experts say.”  According to Michael Melaniphy, the CEO of the American Public Transportation Association, “Once riders have found transit they tend to stay . . . When you look at millennials, they’re less car-centric.  They’re moving downtown and want transportation options.”

********The argument seems direct—with the price of gasoline falling relative to the price of mass transit, we would expect, all other things being equal, consumers to shift somewhat from mass transit to autos.  Of course, a lower price of gasoline probably is also a lower variable cost for mass transit.  That is, mass transit authorities could choose to (1) lower mass transit prices or (2) increase the frequency of mass transit.  Either one (or both) of these adjustments would seek to reduce the shift from mass transit to autos.  I found the point about smartphones in the article to be appealing, i.e., improved information about wait times should reduce the uncertainty associated with mass transit and make it more appealing to slightly more affluent groups.

(29 January 2015): “Criminals, Terrorists Find Uses for Drones, Raising Concerns” [SR](http://www.wsj.com/articles/criminals-terrorists-find-uses-for-drones-raising-concerns-1422494268)

——–“Drones are becoming a tool for criminals and terrorists, worrying authorities who say the small unmanned aircraft are difficult to detect and stop, a concern heightened this week by the accidental crash of a drone at the White House.”  Last week, in Tijuana, Mexico, a drone “apparently crashed while attempting to carry a load of drugs to the U.S.”  As a result of these concerns, the Chinese manufacturer of drones, SZ DJI Technology Co., plans to “change software on its drones to prevent them from flying over Washington.  DJI added that it plans to disable its drones from crossing national borders” after the Tijuana incident.  More broadly, an industry is emerging to deal with drone-related problems, “offering systems to detect incoming drones and alert authorities.”  One firm in the emerging industry is Resilient Solutions Ltd., which is “working with a European defense contractor to develop a sophisticated system that can detect and track a drone and identify whether it is a threat.”

********I was surprised, last week, when I saw the story about the Tijuana drone, although it was surely predictable that drones would be used in that way.  What struck me while reading this article is how the emergence of one industry—drones—has now given rise to another industry to counteract or defend against them.  No doubt there are many examples of this.

(29 January 2015): “The Technology that Unmasks Your Hidden Emotions” (http://www.wsj.com/articles/startups-see-your-face-unmask-your-emotions-1422472398)

——–Psychologist Paul Ekman pioneered “the study of facial expressions in the 1970s, creating a catalog of more than 5,000 muscle movements to show how the subtlest wrinkling of the nose or lift of an eyebrow reveal hidden emotions.  Now, a group of young companies with names like Emotient Inc., Affectiva Inc. and Eyeris are using Dr. Ekman’s research as the backbone of a technology that relies on algorithms to analyze people’s faces and potentially discover their deepest feelings.  Collectively, they are amassing an enormous visual database of human emotions, seeking patterns that can predict emotional reactions and behavior on a massive scale. . . . So far, the technology has been used mostly for market research.”  The potential uses of the technology are many but they have also led to privacy concerns.  Privacy advocate Ginger McCall notes, “I can see few things more invasive than trying to record someone’s emotions in a database.”

********In the 1960s I can remember reading an article on the subject of pupillometrics in Popular Science and it seemed to aspire to get at some of the emotional responses that the modern approach to facial expressions approach more closely.  While trying to hunt that article down—unsuccessful—I found the Wikipedia article on Pupillometry (http://en.wikipedia.org/wiki/Pupillometry).  Surprising to me were some papers on the subject co-authored by D. Kahneman, who won the Nobel Prize in Economics in 2002.  You can learn more about him at: http://en.wikipedia.org/wiki/Daniel_Kahneman; you can learn more about his Nobel Prize at: http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2002/kahneman-bio.html.  It seems that people have long been searching for physical expressions of emotional states and will, no doubt, continue to do so for a host of reasons.

(29 January 2015): “How a Two-Tier Economy Is Reshaping the U.S. Marketplace” [SR](http://www.wsj.com/articles/how-a-two-tier-economy-is-reshaping-the-u-s-marketplace-1422502201)

——–According to the Federal Reserve, “incomes have been flat or falling for all but the top 10th of U.S. income earners between 2010 and 2013.”  This development is “reshaping markets for everything from housing to clothing to groceries to beer.”  Says Glenn Kelman of Seattle real-estate brokerage Redfin, which operates in 25 states, “It’s a tale of two economies . . . There is a high-end market that is absolutely booming.  And then there’s everyone in the middle class.  They don’t have much hope of wage growth.”  Real estate has been especially affected.  “With fewer potential customers, builders have largely abandoned the entry-level market” because there is no money to be made.  While some builders are now constructing more expensive homes, others are turning to the construction of apartments, where rentals are booming; “Apartment construction has neared its fastest pace since 1989.”  Whether there is resurgence in the number of new homes sold “will depend, in part, on whether builders revive their interest in first-time buyers.”

(30 January 2015): “Nuclear-Dump Cleanup Gets Complicated” [SR](http://www.wsj.com/articles/pennsylvania-nuclear-dump-cleanup-gets-more-complicated-1422558579)

——–On Tuesday night officials from the Army Corps of Engineers discussed its revised plan “for the so-called Shallow Land Disposal Area in Parks Township, Pa., some 23 miles from Pittsburgh.”  It involves the “cleanup of a radioactive-waste dump in a small Pennsylvania town [which] will likely be more complicated and potentially riskier than originally envisioned, and cost nearly 10 times as much . . . Meanwhile, some officials spurred by a citizen activist, are trying to determine whether all the waste in the area has been located.”  There are more than two dozen sites in 10 states “that are being cleaned up . . . as part of a decades-old program to remediate sites that had been contaminated from work in the nation’s atomic-weapons program and other federal nuclear efforts.”

********The citizen activist is Patricia Ameno, who has spent more than twenty-five years researching the contaminated site.  The Journal had a more extensive report on this site during 2014.  You can learn more about the Shallow Land Disposal Area at: http://www.lrp.usace.army.mil/Missions/Planning,ProgramsProjectManagement/HotProjects/ShallowLandDisposalArea.aspx.  This is another example of the great cost uncertainty that exists with regard to the production of nuclear energy and its associated costs.

(30 January 2015): “Super Bowl Challenge for Box Makers: 12.5 Million Pizzas” [SR](http://www.wsj.com/articles/super-bowl-challenge-for-box-makers-12-5-million-pizzas-1422579110)

——–“Super Bowl Sunday is the biggest day of the year for takeout pizza.  Americans are expected to order about 12.5 million pies . . . That also makes it the pinnacle for the companies that make corrugated pizza boxes, and Rock-Tenn [Co.] is at the top of the heap.  The company, based in Norcross, Ga., produces the boxes for half the freshly baked takeout pizzas sold in [the] U.S.”  The company makes “about three million pizza boxes a day at 17 plants, six of which produce nothing else.”  Although short-lived, the boxes aren’t simple.  Bruce Perkin, who heads up R&D for Pizza Hut, notes: “There’s a very fine balance between keeping heat in and getting steam out . . . Too much steam and the pizza will end up being soggy, but if you let too much steam out, the pizza ends up being cold.”

********This is one of those “derived demand” articles that are often so interesting.  The demand for takeout pizza, it turns out, is also a demand for pizza boxes.  The pizza box, though seemingly prosaic, has its own intricacies, as Mr. Perkin comments.  The peaks and seasonality of pizza also caught my attention—the Super Bowl as the peak.  In order for box makers to “meet the peak,” Rock-Tenn “increases production of pizza boxes by 10% starting in the middle of December.  Some of its smaller rivals begin even earlier.”  The pizza industry’s busy season “runs from Halloween through the college basketball tournament in March.”

(31 January 2015): “Debate Heightens Over Measuring Health-Care Quality” (http://www.wsj.com/articles/debate-heightens-over-measuring-health-care-quality-1422661664)

——–“The Obama administration’s goal of tying more Medicare payments to the quality—not the quantity—of health care by 2018 has intensified the debate over how ‘quality’ is defined and measured.  Many doctors, hospitals, insurers and cost experts want to move away from the myriad quality metrics that largely measure process . . . toward broader measures that assess patient outcomes.”  Contributing to this discussion is the release on Friday of 199 performance measures for Health and Human Services by the National Quality Forum, a nonprofit advisory group.  These measures will be considered in 20 federal programs.  Some doctors, however, question whether measures exist that “can adequately measure quality.”

********You can learn more about the National Quality Forum at: http://www.qualityforum.org/Home.aspx.  It will hold its annual conference on March 23-24.  Compensation based on quality and how to measure quality are large concerns in health care, as well as in education at all levels.  Both are difficult to measure, no doubt because both are multidimensional rather than unidimensional.  As a result, the likelihood of “Measurement fatigue,” such as mentioned in the article, is significant.  Seeking perfect measurement, the marginal cost of better measurement may well exceed its marginal benefit.  Contributing to the necessity of measurement, though, is the method by which health and education are financed, frequently with large doses of local, state, and federal funds.

********Culture is also hard to measure but it is becoming increasingly more important to do so, especially for big banks.  It is evidently “the buzzword of the moment” at them “and a puzzle that regulators and Wall Street firms are wrestling to solve.”  But it is important—“the Federal Reserve and other agencies in recent weeks have made it clear that they believe bad behavior at banks goes deeper than a few bad apples and are advising firms to track warning signs of excessive risk taking and other cultural breakdowns.  Still, even regulators acknowledge culture is a difficult thing to measure.”  This topic is discussed in “As Regulators Focus on Culture, Wall Street Struggles to Define It” [SR]( http://www.wsj.com/articles/as-regulators-focus-on-culture-wall-street-struggles-to-define-it-1422838659).

(31 January 2015): “States Dash to Regulate E-Cigarettes” (http://www.wsj.com/articles/states-dash-to-regulate-e-cigarettes-1422668141)

——–“As the Food and Drug Administration continues to figure out how to regulate the rapidly accelerating use of electronic cigarettes, states are taking matters into their own hands.  California on Wednesday declared e-cigarettes a health threat and issued a 21-page report warning young people could become nicotine addicts if lawmakers don’t step in to regulate the fast-growing industry soon.”  Presently, more than 60 bills seeking to limit “the fast-growing ‘vape’ industry are being considered in 21 state legislatures stretching from Oregon to Virginia.”  Last year, 11 such bills were under consideration in 10 states.  State officials have expressed frustration with the speed at which the FDA is responding to e-cigarettes and are moving forward with their own legislation.

********Legislation in Indiana seems to be designed to increase the cost of entry into the “vape” business, as well as increase operating costs.  Other states are seeking to increase the purchase cost of e-cigarettes.  Thus both supply-and-demand side approaches to limiting e-cigarettes seem to be underway.  What caught my attention in the article was the role of regulatory speed in relation to the level of regulatory action.  It seems that the deliberateness of the FDA has encouraged regulatory action by the states.  Eventually this will result in a diverse assemblage of state regulations that will be difficult, if not impossible, to untangle.  This is probably a predictable pattern with many historical examples.

(1 February 2015): “Climate Change’s Bottom Line” (http://www.nytimes.com/2015/02/01/business/energy-environment/climate-changes-bottom-line.html)

********An update, of sorts, on the Risky Business Project “an unusual collection of business and policy leaders determined to prepare American companies for climate change.”  Although its members differ on many matters in relation to perspective and policy, “they all do agree on one issue: Shifts in weather over the next few decades will most likely cost American companies hundreds of billions of dollars, and they have no choice but to adapt.”  The Project is in the news again largely as a result of its second publication, “Heat in the Heartland: Climate Change and Economic Risk in the Midwest” (http://riskybusiness.org/uploads/files/RBP-Midwest-Report-WEB-1-26-15.pdf), which it appears to define as Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio, and Wisconsin.  It will be followed by a report on California.  An aspect of the Project’s approach is its embrace of adaptation, a way of thinking about drastic environmental change that was “basically considered taboo.”  It appears that the Project aims to get the business community, policy makers, and law makers to build climate change into their thinking and examine its likely consequences.

(2 February 2015): “The Smart Way to Teach Children About Money” (http://www.wsj.com/articles/the-smart-way-to-teach-children-about-money-1422849602)

——–“For all the effort parents put into helping their children understand dollars and cents, and for all the effort schools put into formal lessons in personal finance, most children still grow up into adults who can’t properly save, spend and budget.  Now researchers—from psychologists to economists to communications experts—have started asking why.  And the one theme that comes out of their research loud and clear is that we’re doing it all wrong.  We focus on teaching finance in school when regular math is much more effective at helping children manage money.”  A 2014 study in which Harvard Business School finance professor Shawn Cole participated examined a broad array of factors affecting the financial outcomes of students.  It found one school subject that has an impact: math.  “Students required by states to take additional math courses practiced better credit management than other students, had a greater percentage of investment income as part of their total income, reported $3,000 higher home equity and were better able to avoid both home foreclosure and credit-card delinquency.”

********As best I can tell the study that forms the backdrop of this article is “High School Curriculum and Financial Outcomes: The Impact of Mandated Personal Finance and Mathematics Courses,” by Shawn Cole, Anna Paulson, and Gauri Kartini Shastry (http://www.hbs.edu/faculty/Publication%20Files/13-064_c7b52fa0-1242-4420-b9b6-73d32c639826.pdf).  The article has a four-minute video interview with Cole which complements the article.

********On the same topic of financial literacy for kids, we have “New Magazine Teaches Children Financial Lessons” (http://www.nytimes.com/2015/02/02/business/new-magazine-teaches-children-financial-lessons.html).  The magazine is to be called Your $ and “will be distributed monthly during the school year to roughly two million students in schools nationwide.  Each four-page issue will cover an aspect of finance, like budgeting, investing and taxes.”  Hopefully these folks will read the work of Cole, Paulson, and Shastry.  You can see the January and February issues of Your $ at: http://www.timeforkids.com/extras.

(2 February 2015): “The ‘Pay What You Want’ Experiment at Synagogues” (http://www.nytimes.com/2015/02/02/us/the-pay-what-you-want-experiment-at-synagogues.html)

——–“In what amounts to the first systematic rethinking of synagogue financing in a century, about 30 Reform, Conservative and independent synagogues across the United States have eliminate mandatory dues—all but a handful of them in the past five years.”  According to Rabbi Dan Judson, who teaches at Hebrew College Rabbinical School in Massachusetts and is an expert on the history of financing American synagogues, “The dues system has fallen out of alignment with the zeitgeist. . . . People want to feel that whatever they want to give to a religious community should be valued as a gift . . . They don’t want to feel like they’re giving money and still it’s not good enough.”  Although most synagogues retain the dues tradition, “the leaderships of the Reform and Conservative movements have acknowledged questions about its sustainability.”  In Orthodox congregations, “dues are still considered an obligation, not a form of discretionary spending.”

********The comment about congregational contributions as obligatory or discretionary caught my attention.  It does seem to reflect a very different view of what it means to be a part of a religious community and how the community views itself.  In a sense it involves the question, “Where does non-discretionary spending end?”  It sounds as though dues in Orthodox congregations are included in non-discretionary spending.  Synagogues, of course, are not the only congregations that wrestle with this question, as well as the unpredictability associated with voluntary contributions.

********All this reminds me of the article “Why Strict Churches Are Strong,” by economist Laurence Iannaccone.  You can learn more about his paper at Slate (http://www.slate.com/articles/life/faithbased/2005/05/the_power_of_the_mustard_seed.html) and at his webpage (http://www.chapman.edu/research-and-institutions/institute-religion-economics-society/iannaccone-laurence.aspx).

(3 February 2015): “Fields of Gold: GMO-Free Crops Prove Lucrative for Farmers” [SR](http://www.wsj.com/articles/fields-of-gold-gmo-free-crops-prove-lucrative-for-farmers-1422909700)

——–“Last spring, for the first time in 20 years, Indiana farmer Jim Benham planted his fields entirely with soybean seeds that hadn’t been genetically modified to withstand herbicides.    It wasn’t because the 63-6year-9ld suddenly had embraced the anti-GMO movement.  Instead, he was drawn to a nearly 14% per-bushel premium for non-GMO soybeans offered by a local grain terminal, which sells them to Asian feed processors.”  More U.S. consumers “are seeking out non-GMO foods . . . [and] packaged-food companies such as General Millis Inc. and Post Holdings Inc . . . have moved to strip genetically modified ingredients from some products.”  In addition to higher prices, non-GMO seeds typically cost less than biotech seeds.  For some farmers planting, though, “switching to the non-GMO crops means deploying a broader array of pesticides.”  Farmers say that “Savings on typically cheaper non-GMO seeds mostly offsets the cost of additional chemicals.”

********The article didn’t report anything on the productivity of the two crops.  I thought it was noteworthy, but not surprising, that “Many Midwestern farmers who have made the switch say their motives are economic and not an embrace of the anti-GMO movement that has intensified in the U.S. in the past few years.”  This reminded me of the article “Climate Change’s Bottom Line,” mentioned above, in its focus on profit rather than principle.

(4 February 2015): “Talk Radio’s Advertising Problem” [SR](http://www.wsj.com/articles/talk-radios-advertising-problem-1423011395)

——–“More than 50 million people in the U.S. tune in each week to news-talk radio stations that carry advertising, making it radio’s second-most popular format, behind country music, according to Nielsen.  But many national advertisers have fled from such stations in recent years, seeking to avoid associating their brands with potentially controversial programming.”  According to radio executives, the resultant “erosion of ad dollars from talk stations was driven in part by a series of organized social-media campaigns by liberal activists in early 2012 that scared away advertisers.”  Now radio stations “have to consider what the fallout will before taking” on talk shows.  Because of this, “syndicators are now focused on creating more sports and entertainment news programming that can air on music-oriented stations.”

********A good example of the impact of social media, both intended and unintended.  The intended—fewer dollars from national advertisers and an overall decline in advertising revenues; the unintended—more sports and entertainment programming due to a decline in the number of talk shows.  The latter consequence flows from the fact that “advertising on talk stations now costs about half what it does on music stations, given comparable audience metrics.”

May you have a good week!

Bruce

 

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