213 (20 May 2015)

Welcome to week 213!  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.

(3 May 2015): “America’s trailer parks: the residents may be poor but the owners are getting rich” (http://www.theguardian.com/lifeandstyle/2015/may/03/owning-trailer-parks-mobile-home-university-investment)

——–[This appeared in the print edition of The Guardian Weekly on 15 May 2015.]  “Trailer parks are big and profitable business—particularly after hundreds of thousands of Americans who lost their homes in the financial crisis created a huge demand for affordable housing.  According to US Census figures, more than 20 million people, or 6% of the population, live in trailer parks.”  The largest owner of mobile home parks is Sam Zell’s Equity LifeStyle Properties, “with controlling interest in nearly 140,000 parks.”  [Emphasis added.]  Warren Buffet, with a wealth of $72 billion, owns “the biggest mobile home manufacturer in the US, Clayton Homes, and the two biggest mobile home lenders.”  The profitability of mobile home parks is such that people now take classes to learn how to set them up and make them pay.  A case in point is Frank Rolfe, who co-founded Mobile Home University.

********You can learn more about Mobile Home University at: http://www.mobilehomeuniversity.com/.  Evidently, it is frequently the case when a mobile home park is purchased, the first thing that is done is “raise the rent” because the renters have no other place to go.  The article relates a story about Florida mobile home Lori Lee and how she found her niche.

********It is interesting that The Economist chose to devote a leader and a substantial article on debt this same week.  The leader is “Tax-free debt: The great distortion” (http://www.economist.com/news/leaders/21651213-subsidies-make-borrowing-irresistible-need-be-phased-out-great-distortion), which argues for the elimination, albeit gradual, of the deductible of mortgage interest payments from personal income taxes and for the elimination of interest payments in arriving at taxable income for corporations.  They recognize that debt has an important role to play in personal and corporate decisions, but perhaps it shouldn’t be encouraged unduly.  The time is right because “When interest rates are low, as now, the sweeteners for debt are smaller and thus easier to remove.  When rates rise—as, inevitably, they will—the subsidy will become more valuable.”  More detailed information and analysis appears in “Ending the debt addiction: A senseless subsidy” (http://www.economist.com/news/briefing/21651220-most-western-economies-sweeten-cost-borrowing-bad-idea-senseless-subsidy).  The one factoid that I noticed was this: “global debt stands at 286% of GDP today.”  I appreciated the point that the deductible of mortgage interest is not the natural order of things: “The full deductibility of interest was eventually permitted in 1918 as part of a package to help companies struggling with the effects of the first world war. . . . It was only after the second world war that this perk became associated with the political aim of boosting home-ownership.”

(14 May 2015): “Shale-Oil Producers Ready to Raise Output” [SR](http://www.wsj.com/articles/shale-oil-producers-ready-to-raise-production-1431556302)

——–“After reducing production for months, U.S. shale-oil companies say they are ready to bring rigs back into service, setting up the first big test of their ability to quickly react to rising crude prices.”  This, along with increased supply from foreign producers, “could put a cap on the 40% rally in crude prices since March and even push them lower later in the year, some analysts say.”  In response to price declines in 2014, shale-oil producers cut production in “Twenty-two consecutive weeks . . . [and] left the industry with 930 fewer rigs, a 58% cut from their 1,609 peak in October.”  Although shale-oil producers have reined in production, “other global producers, including the Organization of the Petroleum Exporting Countries, haven’t reined in production at all, and in many cases are pumping more.”

********According to the article, the “start-up price” for shale-oil wells is in the range of $65-70 a barrel.  The article also touches upon the alleged “agility” or nimbleness of shale producers, which tend to be small.  Certainly the conventional view is that “small” firms are entrepreneurial and quick to respond to market conditions, whereas “large” firms are bureaucratic and plodding.  One aspect of that nimbleness shows upon in the statement “Shale producers’ rapid response helped put a floor under oil prices when WTI [West Texas Intermediate] dipped below $44 a barrel less than a year ago.”  However, “Shale producers’ agility isn’t a given.  OPEC has enjoyed a position as a flexible producer because several key member governments have invested billions of dollars in developing spare capacity—wells they can quickly turn on and off in a crisis. Shale producers, by contrast, are typically much smaller, independent actors, who react to prices—not to the whims of their governments.  It is still unclear whether the flood of money that helped start and propel the shale boom can be turned on and off as quickly as the oil.”  How long does it take different-sized producers to respond to the same price change?

********Of course, those start-up costs do not, at present, include consideration of the negative externalities associated with shale-oil production.  The article “Farmers Fight a New Kind of Pipeline Spill—Salty Wastewater” [SR](http://www.wsj.com/articles/farmers-fight-a-new-kind-of-pipeline-spill-salty-wastewater-1431684181).  Although farmers in North Dakota have coexisted peacefully with wildcatters, “a dispute has broken out between the two groups over pipeline spills, not of oil but of salty wastewater.  The latest such leak came last week, when some 220,000 gallons of brine leaked on an Indian reservation.  In particular, agricultural interests are frustrated that oil drillers and pipeline companies haven’t agreed to use technology that farmers say could quickly detect brine leaks.”  The problem?  According to farmer Troy Coons, “There’s probably nothing more toxic to land than salt water.”  Connecting to shale oil, but on a global scale, are the negative externalities of climate change.  In a recent study by economists at the International Monetary Fund, reported in The Financial Times (http://www.ft.com/intl/cms/s/0/7c6512a6-fd27-11e4-b072-00144feabdc0.html#axzz3bB3yQYWT), it was found that this year “Governments around the world will subsidise the cost of oil, gas and coal to the tune of $5.3 tn [trillion].”  Giving rise to that subsidy was “one of the largest negative externalities . . . ever estimated.”  You can read the IMF study at: http://www.imf.org/external/pubs/ft/wp/2015/wp15105.pdf.

(15 May 2015): “Global Art Free-For-All Sends Prices Soaring” (http://www.wsj.com/articles/art-market-sees-new-auction-highs-new-rules-1431653315)

——–The dizzying prices at recent New York art auctions “signal a new era for the global art market in which no one region reigns supreme. . . . Gone . . . the days when collectors in Europe and the U.S. dictated tastes and drove prices.  Today’s art market is being steered by a bigger and more geographically diverse pool of collectors than the blue-chip buyers of a generation ago.”  These new global buyers “have been joined by an influx of investors eager to store more of their cash in art—particularly now that interest rates remain low.  And unlike the olds days, when serious collectors typically clung to pieces over the long term, many buyers have become comfortable trading artists often to reap tidy profits.”  As a result, the art world is “churning through younger, untested artists at a faster clip than ever before.  The new buying patterns are more in sync with the fashion industry than with museums, which ostensibly buy art with intentions to won it forever.”  Now, the market tends to resemble “a workshop more than a treasure chest.  Collectors are continually stocking up and shedding artists at a pace once unheard of. . . . It is a market that is also starting to correct itself in continual micro doses, rather than wait to be swayed by tremors in the broader financial markets.”

********There is a lot going on in this article.  For one, many people with sizable wealth simply consider art as another investment to hold in their portfolio, with low interest rates resulting in the need to rebalance their portfolios.  In addition, more geographically-diverse art buyers are likely to have different tastes and may be unwilling to channel their expressions of them, i.e., their purchases, into the Western art canon.

(15 May 2015): “When E. Coli Becomes a Business Opportunity” [SR](http://www.wsj.com/articles/new-food-safety-rules-sprout-new-businesses-1431641581)

——–“Dozens of companies are sprouting to help U.S. food makers tackle a wave of new federal safety regulations and intensified enforcement of the nation’s food laws.  The startups are racing to capitalize on the need by farms and food processors to step up vigilance of food-borne pathogens after a string of outbreaks in the last decade have sickened thousands, prompting a major overhaul of U.S. food safety laws and stepped-up criminal prosecutions of executives at companies implicated in the cases.”  One such company is iFoodDecisionSciences, “which sells mobile applications that enable food producers and processors to collect and analyze data to prevent disease outbreaks and product recalls.”  Using the company’s app, “growers and food processors can log data from a field or plant floor and receive instant alerts about hazards, such as the presence of animal droppings . . . or high chlorine levels in a water tank.  They then can receive instructions to remedy the problem instantly.”

********You can learn more about iFoodDecisionSciences at: http://www.idsfoodsafety.com/.  According to the article, the main federal rules for the 2010 U.S. Food and Drug Administration’s Food Safety Modernization Act, “the most sweeping revision of federal food-safety laws in more than 70 years,” will be finalized next spring.  They will likely give rise to significant new opportunities for those providing expertise in food safety and its certification.

********One current example of the consequences of the lack of food safety is the recent listeria outbreak connected to Blue Bell ice cream.  For more information, see “Blue Bell Will Lay off 1,450 Employees” (http://www.wsj.com/articles/blue-bell-will-lay-off-1-450-employees-1431721160).

(16 May 2015): “Startups Upend Japan’s Famous—And Famously Old-Fashioned—Fish Market” [SR](http://www.wsj.com/articles/startups-upend-japans-fish-market-1431682201)

——–“Though the world’s largest seafood market at Tsukiji is only a 20-minute train ride away, Tomohiro Mamashita doesn’t buy fish there for his small Tokyo restaurant.  He buys them on an iPad. . . . Despite Japan’s reputation as a leader in technology, its seafood industry still operates much as it did nearly a century ago.  Layers of wholesalers and retailers move hundreds of tons of fish daily through markets like Tsukiji.  The system relies on decades-old business relationships, phones and faxes.”  Large purchasers, like supermarkets and chains, “are bypassing the old wholesale-market system and buying directly from big distributors.  As these and other large retailers have pursued lower prices by buying fish that have passed through as few hands as possible the volume of fresh fish purchased through Japan’s wholesale markets has fallen to about half, according to government figures, compared with three-quarters more than two decades ago.”  At the heart of this development in the fish market is the startup Hachimenroppi, which “gives restaurants “an iPad preloaded with an application that lists the day’s catch.  Store owners tap in their orders and Hachimenroppi delivers the next day, in volumes as small as one fish—or a single piece of a larger fish.”  By doing so the company “buys from wholesalers all along the supply chain, often cutting out several layers of distributors.”

********Once more one sees what a powerful force toward disintermediation internet-based technology is.  The fact that 50% of wholesaler sales have disappeared as a result of these developments makes it clear why such developments are encountering such resistance.  There is a three-minute video that accompanies the article.  You can access it at: http://www.wsj.com/video/a-tokyo-fish-story/D039264E-302F-46A1-BC3C-51DD76CAD96D.html.

(16 May 2015): “How Homo Economicus Went Extinct” (http://www.wsj.com/articles/how-homo-economicus-went-extinct-1431721255)

——–[A review of Richard Thaler’s Misbehaving: The Making of Behavioral Economics (2015).  You can learn more about the book at: http://www.amazon.com/Misbehaving-Behavioral-Economics-Richard-Thaler/dp/0393080943/.]  “As the offspring of traditional economics and experimental social psychology, behavioral economics shows remarkable hybrid vigor, and Richard Thaler, one of the new field’s founds, acknowledges its debt to psychological science throughout his highly enjoyable intellectual autobiography, ‘Misbehaving.’  Indeed his opening aphorism is Vilfredo Pareto’s 1906 claim that ‘the foundation of political economy and, in general, of every social science, is evidently psychology.  A day may come when we shall be able to deduce the laws of social science from the principles of psychology.’  That day is here, as Mr. Thaler explains.”  Misbehaving “is both chronological, describing Mr. Thaler’s discoveries over time and productive collaborations with scholars from other fields, and topical, devoting long sections to findings from four areas of particular interest to him.”  They are “mental accounting . . . self-control . . . finance . . . , and fairness games.”

********This looks like a fascinating and worthwhile book.  “Behavioral economics” is clearly a “new wave” of economics and this seems like an excellent way to gain insight into what it is and what’s at issue.  It has long been the case that people, including economists, have railed against the abstract notion of “homo economicus,” but little constructive work came forth.  That is no longer the case.

(17 May 2015): “For Americans Who Served Time, Landing a Job Proves Tricky” [SR](http://www.wsj.com/articles/for-americans-who-served-time-landing-a-job-proves-tricky-1431900037)

——–“Over the past 40 years, as the U.S. prison population grew from fewer than 400,000 inmates to about 1.5 million, states and the federal government enacted thousands of civil sanctions that are triggered by a criminal conviction.”  The case of Hashim Lowndes of Ohio, exemplifies them.  He served three years in prison for cocaine trafficking, but upon his release “there were other consequences for him: more than 500 of them scattered throughout Ohio’s laws.”  Such restrictions affect many, since in 2013 “one in 35 adults was under some sort of correctional supervision.”  The scope of the restrictions was examined by the American Bar Association in a four-year study, which collected “more than 46,000 restrictions imposed on convicted felons at the state and federal levels—about 60% to 70% of which are employment-related.

********You can learn more about the “collateral consequences” offenders face in the article “Ex-offenders face tens of thousands of legal restrictions, bias and limits on their rights” at: http://www.abajournal.com/magazine/article/ex-offenders_face_tens_of_thousands_of_legal_restrictions.  The collection of all the consequences appears in the National Inventory of the Collateral Consequences of Conviction, which you can find at: http://www.abacollateralconsequences.org/.

May you have a good week!

Bruce

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