211 (6 May 2015)

Welcome to week 211!  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 1-208, and a cumulative pdf for issues 209-present at: https://sites.google.com/site/brucedeanlarson/the-invisible-forces.

(25 April 2015): “Billionaires versus big oil” (http://fortune.com/2015/04/25/billionaires-versus-big-oil/)

——–Ward McNally is the great-great-great-grandson of the founder of the Rand McNally map company.  He is also the co-founder and managing partner of McNally Capital, “a Chicago firm that advises wealthy families on their private equity investments.”  In that role he came to ask “why not build a network of billionaire clean-tech investors who could share knowledge, share capital, and share deals to achieve their goals?”  From that question he came to create the Clean Tech Syndicate that “consists of a pool of 11 family offices . . . that wish to invest in the clear-tech space.  In total, the families have a new worth of some $60 billion.  So far the syndicate has pledged to invest $1.4 billion in clean tech.”  The Syndicate “is just one example of an important, emerging trend in the world of energy finance: America’s ultrawealthy class has begun to put its money to work in clean in a big, big way.”  Although motivations vary, “they all expect to make a healthy profit.

********An article that provides some perspective on the ultrawealthy, their motives, and their actions, in which the concept of ‘stranded assets’ plays a meaningful role.  What especially struck me was the role of ‘family’ in the article, which appears in its variants 30 times.  Clearly there is an intergenerational transfer of wealth just as there is one for political power.

(30 April 2015): “U.S. Ports See Costly Delays as Cargo Ships, Volumes Grow” (http://www.wsj.com/articles/u-s-ports-see-costly-delays-as-cargo-ships-volumes-grow-1430340113)

——–Congestion “is becoming increasingly common at major U.S. ports” where truckers come to retrieve and deliver cargo containers to ships carrying up to 14,000 containers on the West Coast and 10,000 containers on the East Coast.  “Of the 10 busiest U.S. ports by container volume . . . at least seven are grappling regularly with congestion.”  East Coast congestion is expected to increase when an enlarged Panama Canal begins to allow ships carrying 13,000 containers.  An example of the consequences of these delays is provided by Audax Transportation, which works out of the Port of Virginia.  Bottlenecks there “have reduced the amount of goods its truck drivers can move in a day by 50% in the past year.”  To make up for lost revenue, the company “has raised prices for customers by about 35%.”  Such congestion problems “didn’t happen overnight.  Investment by federal, state and local governments in U.S. ports and surrounding infrastructure . . . mostly dried up during the recession.”

********This is an interesting story in light of the ongoing efforts of the Obama administration to advance the Trans-Pacific Partnership, which will assuredly increase trade volume, especially on the West Coast but likely on the East Coast, too, as larger ships pass through the Panama Canal.  One source of information about the partnership is the Office of the United States Trade Representative: https://ustr.gov/tpp.  If you go to the U.S. map, you will see a statement of how each state will benefit from the Partnership.  It is a common tactic of those who would change things to focus on benefits and ignore (or minimize) the costs.

********A clearer sense of the time delays and their effects can be seen in the three-minute video that accompanies the article.  The Journal now has a dedicated page on logistics, which you can see at: http://www.wsj.com/news/logistics-report.  If supply chains matter to you, this contains useful and interesting information.  As a final note, this article connects nicely with one in the Asheville Citizen-Times on “Bikers, walkers, WNC shortchanged in $1.4B road bond plan?” (http://www.citizen-times.com/story/news/local/2015/05/04/road-bond-plan-raises-environmental-political-issues/26837419/).  The budget provides $200 million for state ports.

(2 May 2015): “For De Beers, There’s a Diamond in the Mining Waste” [SR](http://www.wsj.com/articles/for-de-beers-theres-a-diamond-in-the-mining-waste-1430299981)

——–De Beers is “the world’s biggest diamond miner, with operations in Namibia, Botswana, Canada and South Africa.  The company stopped mining in Kimberley [South Africa] nine years ago, but as new deposits of the scarce mineral grows even harder to find, exploiting waste pits now represents a lucrative niche . . . Mining companies say processing tailings, as former waste rock is known, is increasingly becoming an economic imperative.”  Copper producers are also adopting this method.  According to Ruban Yogarajah, a spokesman the world’s largest mining company, BHP Billiton, “Over the past century, the average copper grade has fallen to 1% from 4%, and production has gone up 16-fold . . . So every year, it gets harder and harder.”

********A clear example, in both instances, of diminishing (marginal) returns from mining efforts.  All this reminds me of William Stanley Jevons’ first important book, The Coal Question, which was published in 1865.  I read the book decades ago and I do wonder how his arguments hold up in light of current discussions on coal.  I do recall substantial similarity between his argument and that of Thomas Robert Malthus in The Principle of Population (1798).  The Coal Question has not been forgotten—it figures in contemporary literature as a search on its title at Google Scholar (https://scholar.google.com/) will reveal.

(2 May 2015): “Submarines Resurface as Growth Business” [SR](http://www.wsj.com/articles/submarines-resurface-as-growth-business-1430493456)

——–“For the first time since the Cold War, the world sub fleet is growing.  Driven by changing strategic threats, surging global trade and new technologies, countries are buying or upgrading subs, even as some scale back on land and air equipment.”  This growth is, in part, a response “to China’s expansion of its navy with ships including its first aircraft carrier and large nuclear subs.”  A new development, though, is a “new demand for subs powered by diesel engines and electricity, not just for those with nuclear reactors.”  Last year the global fleet of diesel-electric subs was 256, “compares to 463 such vessels 15 years ago . . . But in the 10 years through 2024, navies world-wide will double annual spending on conventional subs, to an average $11 billion from $5.5 billion in 2014.”  In contrast to a nuclear sub that costs about $2 billion each, a convention sub costs about $500 million.  “Growing demand for conventional subs is notable because the U.S., the world’s biggest arms exporter, only makes nuclear military subs . . . and doesn’t export them.  This leaves the market for conventional subs to others.”

********Another factor contributing to the demand for conventional subs is their “endurance and stealth.”  According to the article, conventional subs can run more quietly than nuclear subs, making them more difficult to detect.  Furthermore, such subs can now stay underwater as long as 18 days, perhaps longer; at least one contractor classifies submersion time.

(2 May 2015): “Schumpeter: Shredding the rules” (http://www.economist.com/news/business/21650142-striking-number-innovative-companies-have-business-models-flout-law-shredding)

——–“Pioneering entrepreneurs have often had an uneasy relationship with the law.  America’s ruthless 19th-century ‘robber barons’ believed it was easier to go ahead and do something, and seek forgiveness later, than to ask permission first. . . . The tension between innovators and regulators has been particularly intense of late.”  The names of some of these innovators are now familiar: Uber, Lyft, Airbnb; and Tesla.  “There are two big reasons for this growing friction.  The first is that many innovative companies are using digital technology to attack heavily regulated bits of the service economy that are ripe for a shake-up. . . . The second is the power of network effects: there are huge incentives to get to the market early and grow as quickly as possible, even if it means risking legal challenges.”

*******As the article points out, the law can take a while to catch up with technological change.  Such “legal perils mean that companies need to be capable of pivoting rapidly to a new strategy if they cannot get the law changed in their favor.”  An article in the Wall Street Journal connects nicely with the one in the The Economist, “There’s an Uber for Everything Now” (http://www.wsj.com/articles/theres-an-uber-for-everything-now-1430845789).  It notes that “A concierge economy is sprouting up on phones, and no place more so than in . . . San Francisco, the capital of Internet La La Land.  These startups like to say they’re just like Uber, the car service that has upended transportation, because they use phones to connect customers with nearby workers on demand.  There’s an Uber for everything now.”  The article discusses 10 “people-powered apps.”  If you live in a large urban area, it is likely available now or will be soon.

********Somewhat related, there is a recent article (http://www.citizen-times.com/story/news/local/2015/05/03/beer-barrel-conflict-interests-lawmakers/26837647/) about the failure of the North Carolina state legislature to pass legislation that would facilitate partial disintermediation of the beer distribution system.  Incumbents will surely use all of the tools at their disposable to protect their current market position.

(2 May 2015): “Roland Fryer: From the hood to the Harvard” (http://www.economist.com/news/united-states/21650164-hotshot-economist-lessons-baltimore-and-other-trouble-spots-hood)

——–On April 24th the American Economic Association awarded the John Bates Clark medal, which is given to “most promising American economist under 40,” to Roland Fryer, an economist at Harvard University.  “He is its first black winner.”  The award was given for improving “our understanding of the sources, magnitude, and persistence of US racial inequality.”  In an early study he “asked why black kids do worse than whites at school.  He found that, after controlling for such things as income, there was no gap in kindergarten.  But over time, black pupils lost ground in virtually every subject.  By the middle of third grade (at around nine), they were 20% less likely than whites to be able to perform tasks such as multiplication.”  Peer pressure, he found, plays an important role.

********My thanks to the The Economist for carrying this story, it is the first I saw of it.  I didn’t find it in The New York Times and there is only a brief reference in a blog at The Wall Street Journal (http://blogs.wsj.com/economics/2015/04/24/harvards-roland-fryer-wins-john-bates-clark-medal/).  Fryer’s work is interesting and important and you can find the official release on it at: https://www.aeaweb.org/honors_awards/bios/Roland_Fryer.php.

(5 May 2015): “How a U.S. Textile Maker Came to Embrace Free Trade” [SR](http://www.wsj.com/articles/how-a-u-s-textile-maker-came-to-embrace-free-trade-1430793654)

——–“Milliken & Co., of the largest U.S. textile makers, has been on the front lines of nearly every recent battle to defeat free-trade legislation.  It has financed activists, backed like-minded lawmakers and helped build a coalition of right and left-wing opponents of free trade.  With Congress now gearing up for another trade fight, this time over whether to give President Barack Obama authority to negotiate sweeping trade deals in Asia and Europe, Milliken is in an unfamiliar place.  Its executives are urging lawmakers to support the free-trade measure.”  Milliken’s new stance “reflects a metamorphosis of modern commerce. . . . as business becomes more international, American industries that once pushed for protection—apparel, automobiles, semiconductors and tires—now rarely do so.  As Dartmouth College economic historian Douglas Irwin notes, “There’s a new generation of CEOs . . . It’s part of their DNA that they operate in an international environment.”

May you have a good week!

Bruce

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