212 (13 May 2015)

Welcome to week 212!  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.

(7 May 2015): “Whole Foods Calls the Shots for Startups” (http://www.wsj.com/articles/whole-foods-calls-the-shots-for-startups-1430904782)

——–“When a Whole Foods Market Inc. representative contacted Heidi Lovig about carrying her tiny line of vegan cheese substitutes, she felt like she had hit the jackpot. . . . The meeting four years ago launched her then five-month-old company from Portland, Ore., base onto the shelves of Whole Foods across the country.  But it also brought lots of work: She has had to change ingredients, pay to achieve organic certification, and change her brand’s name twice.”  Although Whole Foods does not dominate its retailing niche like it once did, “for startups targeting American’s growing hunger for natural and organic fare, it remains the ultimate gatekeeper.”  Even when firms meet Whole Foods’ druthers, companies can become too big, as was the case of yogurt-maker Chobani, which was told in late 2013 by Whole Foods that it would stop carrying its product, wanting “to make more room for niche brands and especially those that were organic or made with genetically modified organisms and not sold at mainstream grocery stores.”

(7 May 2015): “Big Oil’s Disruptive Climate Change” [SR](http://www.wsj.com/articles/big-oils-disruptive-climate-change-1430934533)

——–“Even as oil rallies back above $60 a barrel, obituaries are being drafted.  Oil majors face questions from shareholders worried that the threat of climate change means some of their reserves will never be produced.  HSBC recently recommended planning for this risk of ‘stranded assets.’”  The” risk is real and Saudi Arabia appears to be considering it, as well as an evolving regulatory environment, in its “decision to keeping pumping despite the fall in oil prices.”  Regarding regulation, there have been “Almost 1,400 climate policies . . . enacted globally by 2013, according to the International Energy Agency, up from less than 200 in 2005.”

********’Stranded assets’ are certainly in the news, primarily associated with energy sources, like coal, gas, and oil, that generate carbon dioxide and methane.  There is a succinct and useful definition of the term at: http://en.wikipedia.org/wiki/Stranded_asset.  Of additional interest is “The Stranded Assets Programme at the University of Oxford’s Smith School of Enterprise and the Environment.”  The Programme was established in 2012 “to understand environment-related risks driving asset stranding in different sectors and systemically.”  You can learn more about the Programme at: http://www.smithschool.ox.ac.uk/research-programmes/stranded-assets/.  The first Global Conference on Stranded Assets and the Environment will take place in 24-25 September 2015.  You can learn more about it at: http://www.strandedassets2015.org/about.html.

********I find my mind going in multiple directions on this.  Asset stranding must be a regular part of economic development and, in the realm of human capital, must be a regular part of intellectual development, too.  This lies behind the words of physicist Max Planck, as modified by Joseph Schumpeter, that “Science progresses by the old professors dying off.”  You can read Planck’s words at: http://www.goodreads.com/author/quotes/107032.Max_Planck.  Before that happens, however, some incumbents with “old ideas” will resist.

********This brings us to another potential example of asset stranding, knowledge of petroleum engineering.  This is taken up in the article “Who Will Hire a Petroleum Engineer Now?” [SR](http://www.wsj.com/articles/who-will-hire-a-petroleum-engineer-now-1431130173).  The situation of Walt Baker, a May graduate of the Colorado School of Mines, is discussed.  “His employment offers disappeared in December, following a monthslong plunge in oil prices.  That is a big disappointment for Mr. Baker and his fellow students, who started their studies amid a drilling boom that provided newly minted engineers with six-figure salaries and signing bonuses.”  This is, of course, another example of derived demand.  A decrease in the demand for a particular good or service also implies a decrease in the demand for the resources used to produce that good or service.

********Connected to all this is a recent study (February 2015) done by Georgetown University’s Center on Education and the Workforce reported on by the Journal in the article “College Majors Figure Big in Earnings” (http://www.wsj.com/articles/college-majors-figure-big-in-earnings-1430971261).  The three-minute video accompanying the article was especially useful in taking the viewer behind the medians of earnings of a computer science majors and history majors to show their variations. You can find the report From Hard Times to Better Times: College Majors, Unemployment, and Earnings at: https://cew.georgetown.edu/report/hardtimes2015/.  Financial assets that are exposed to more systematic risk yield, on average, higher rates of return.  I wonder if this is applicable to college majors, too?

(10 May 2015): “The Sweet Science of Syrup” (http://www.nytimes.com/2015/05/10/jobs/the-sweet-science-of-syrup.html)

********This is a brief Q&A with a tree tapper for Crown Maple, which produces maple syrup.  It deepened my (shallow) understanding of maple syrup production and made me think a bit.  There is a six-minute “How It’s Made” video that illustrates some of the very things mentioned in the article.  You can find it at: https://www.youtube.com/watch?v=I_YZmUrNueo.  The series has yet to let me down when I’ve searched on a topic.  You can learn about the program at: http://en.wikipedia.org/wiki/How_It%27s_Made.  The program is broadcast in many different languages.  You can find a complete list of “How It’s Made” episodes (2001-2015) at: http://en.wikipedia.org/wiki/List_of_How_It%27s_Made_episodes.  My thanks to the Canadian province of Quebec and Productions MAJ 2 in the UK for producing this series.

(11 May 2015): “Case of the Vanishing Worker” [SR](http://www.wsj.com/articles/case-of-the-vanishing-worker-1431299722)

——–“By one key gauge of economic health . . . [Decatur, Illinois] is well on the way to recovery.  Hit hard by the recession, when its unemployment rate topped 14%, Decatur over the past year has seen one of the swiftest declines in joblessness in the country, with the rate dropping to 7% in March from 10.2% a year earlier.  But look closer, and this city of 75,000 resembles many communities across the industrial Midwest, where the unemployment rate is falling fast in part because workers are disappearing: moving away, retiring or no longer looking for a job.”  As regional economist Karl Kuykendall of HIS Global Insight notes, “In cases like that, the unemployment rate makes things look better than they really are.”  In relation to economic growth, “A decline in population and workforce is devastating.”

********A nice article that makes a simple point—rates don’t tell the whole story.  The charts accompanying the story show clearly that, although, the cities of Decatur, Rockford, Illinois, Flint, Michigan, and Niles-Benton Harbor, Michigan have had unemployment rate declines that largely trace that of the U.S. as a whole, they have also been accompanied by significant declines in their labor forces.

********While on the subject of unemployment, the Journal also has an article on “Can the Sharing Economy Provide Good Jobs?” (http://www.wsj.com/articles/can-the-sharing-economy-provide-good-jobs-1431288393).  This is part of a Journal Report on Big Issues and it takes the form of “Yes” and “No” responses to the question.  Some of this material will be familiar but it is brought together in a concise form.  On the “Yes” side, Rachel Botsman draws attention to “a historical cycle of technological innovation outpacing employment law,” something that appeared in The Economist a week ago.  On the “No” side, Andrew Keen introduces (I think) a new word, the ‘precariat’, which captures “the increasingly precarious nature of 21st-century labor.”  What, I wonder, are the consequences of increasingly networked labor for the (a) unemployment rate and (b) the total labor force, as conventionally defined?  You can find a conventional definition at: http://www.bls.gov/dolfaq/bls_ques23.htm.

(11 May 2015): “The New Calculations of TV Scheduling” [SR](http://www.wsj.com/articles/the-new-calculations-of-tv-scheduling-1431250441)

——–“This is busy season for Andy Kubitz, head of scheduling for ABC, as he lines up shows the way a baseball manager arranges the batting order. . . . Similar calculations are happening at NBC, CBS and Fox, and will culminate in the networks’ ‘upfront’ presentations the week of May 11, annual ritual when they unveil their lineup of new programming to concert halls packed with advertisers.”  This rite has become more challenging in recent years as the number of networks has expanded and as “People are getting more flexibility to watch shows whenever they want” due to time-shifting options like Netflix, DVR, and video-on-demand.  Time-shifting has been influential but according to Nielsen, “76% of broadcast prime-time viewing still happens the old-fashion way, as shows are airing.”

********I thought the reference to “the batting order” was apt and it immediately led me to think about game theory in relation to the TV scheduling problem.  In recent times, it would appear, that the number of players has expanded dramatically and the playing field, itself, has changed.  A standard textbook on game theory, now in its fourth edition, can be found at: http://www.amazon.com/Games-Strategy-Fourth-Edition-Avinash/dp/0393919684/.

(12 May 2015): “Bourbon Feels the Burn of a Barrel Shortage” [SR](http://www.wsj.com/articles/bourbon-makers-feel-the-burn-of-a-barrel-shortage-1431371621)

——–“In 50 years of making bourbon barrels, no one had ever offered Leroy McGinnis more than what he charged for them.  But over the past six months, multiple distillers have offered to pay him $250 a barrel—a 70% premium above the $150 list price.  The offer illustrates just how scarce bourbon barrels have become.  As bourbon sales have soared, both barrel production and the lumber industry have struggled to keep up.”  Like most off his competitors, McGinnis turns down most of these offers, choosing instead to serve longtime customers.  “The shortage reflects a supply-chain conundrum.  Upstream, barrel makers face a wave of demand because a half dozen established bourbon distilleries and 300 new, craft distilleries are increasing production amid a bourbon boom.  Downstream, they face a shortage of white oak wood used in barrels because the lumber industry hasn’t rebounded from the housing market’s collapse” in 2008.

********The article provides a nice example of the price consequences of a substantial increase in bourbon demand at a time when it is difficult to expand the supply of bourbon barrels.  As a result, some large distilleries are buying logging operations at new locations to increase the number of available barrels.

(13 May 2015): “The $179 Million Picasso That Explains Global Inequality” (http://www.nytimes.com/2015/05/14/upshot/the-179-million-picasso-that-explains-global-inequality.html)

——–“We don’t yet know who agreed to pay $179.4 million for a Picasso in an auction Monday night . . . But this much we do know: The astronomical rise in prices for the most-sought-after works of art over the last generation is in large part the story of rising global inequality.  At its core, this is the simplest of economic math.  The supply of Picasso paintings . . . is fixed.  But the number of people with the will and the resources to buy top-end art is rising, thanks to the distribution of extreme wealth.”

********Neil Irwin, the writer for The Upshot, is using ‘supply’ in the sense of the amount in existence.  The point is that with expanding wealth and no more Picasso paintings being produced, their prices are rising.  This poses a nice contrast to the article on bourbon barrels immediately above—there demand (and thus the increase in price) was being driven by a change in fashion, although increase in income may have also played a role.  The author of this offering of The Upshot employs wealth statistics imaginatively, assuming that “no one would spend more than 1 percent of his total net worth on a single painting . . . That would imply, based on the Forbes Billionaires list, that there are exactly 50 plausible buyers of the paining worldwide.”  This excludes, of course, governments and other organizations that would also have the means to make such a purchase.

May you have a good week!

Bruce

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