218 (24 June 2015)

Welcome to week 218!  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.

(18 June 2015): “The Watchdogs of College Education Rarely Bite” (http://www.wsj.com/articles/the-watchdogs-of-college-education-rarely-bite-1434594602)

——–“Most colleges can’t keep their doors open without an accreditor’s seal of approval, which is needed to get students access to federal loans and grants.  But accreditors hardly ever kick out the worst-performing colleges and lack uniform standards for assessing graduation rates and loan defaults.”  Regarding the purpose of accreditation, Judith Eaton, the president of the Council for Higher Education Accreditation, notes: “You’re not there to remove an institution . . . You’re there to enhance the operation.”  Currently, the U.S. Department of Education “is barred by law from telling accreditors how to do their job. . . . [But] In 2013, President Barack Obama proposed tying access to loans and grants to a new ratings system that would compare colleges on measurements such as graduation rate, student debt and income after graduation.”  According to Ted Mitchell, undersecretary at the Department of Education, “We are concerned that accreditors are not doing enough to protect students.”

********The article provides some useful information about accreditation and access to federal student loans and grants.  Clearly the demand for the higher education experiences provided by a school depends upon access to loans and grants, with the exception of Michigan’s Hillsdale College that eschews such funding sources (http://www.hillsdale.edu/about/history).  As the article notes, there are accredited schools that have graduation rates, I believe these are six-year graduation rates, of less than 10%.  Would students still study at such colleges and universities, and taken on the significant risk of not succeeding as well as the near certainty of substantial loans to repay, if they were better and more consistently informed prior to admission?  It seems doubtful to me.  This may well be a case where focused and consistent information about likely educational and financial outcomes has much to say for it.  In short, students ought to have a better sense of what they are getting themselves into when they enroll.

(18 June 2015): “Steel Firms in U.S. Strive to Cope with Imports” [SR](http://www.wsj.com/articles/steel-firms-in-u-s-scrap-old-methods-to-compete-1434574049)

——–In 2015 the U.S. has two major steel producers: Nucor and U.S. Steel.  Last year Nucor, based in Charlotte, North Carolina, overtook U.S. Steel “to become America’s biggest steelmaker by production capacity.”  The steelmaking processes used by these producers are quite different.  Nucor produces steel from scrap with electric arc furnaces that allow “for stopping and starting production when there isn’t enough demand to keep churning out steel.”  On the other hand, U.S. Steel has used “iron-ore reliant blast furnaces.”  Another difference: U.S. Steel’s workforce is unionized, where Nucor’s isn’t.  Thus U.S. Steel’s recent move to build its first electric arc furnace in decades is a signal that it is adopting its competitors approach to making steel.

********The article relates some factual tidbits about U.S. Steel and Birmingham, Alabama, most notable being that the Birmingham region is “one of the few places on the planet where coal, iron and limestone [all needed to make steel the “old school” way] are found together. . . . During World War II, U.S. Steel employed over 40,000 in Birmingham.”  In 2014, U.S. Steel’s total U.S. employment was 23,000; Nucor’s was 21,800.  Despite the small difference in employment, Nucor is much more profitable, earning $714 million in 2014.  During the same year, U.S. Steel earned $102 million.

(18 June 2015): “Nestlé Works to Navigate India’s Regulatory Tangle” (http://www.wsj.com/articles/nestle-works-to-navigate-indias-regulatory-tangle-1434571408)

——–“A steady flow of delivery trucks rolled into Nestlé SA’s distribution center in northern India this week, disgorging thousands of instant-noodle packets that had been pulled from store shelves after Indian authorities found high lead levels in some samples.”  The packets will be destroyed, costing the company about $50 million in sales and will take months to complete.  According to Nestlé, “the root of the problem is a difference of opinion over the proper methodology for testing foods.”  Its experience “highlights the kind of regulatory uncertainty that is a fact of life for many companies doing business in India—even those like Nestlé which has a century of history in the subcontinent.”

********Regulatory uncertainty is a commonplace, internationally and at home.  Next to it is legislative uncertainty, something that even government bodies must bear.  One current case in point is the distribution of sales tax revenues in the state of North Carolina.  Legislation currently under consideration would change fund distribution.  Currently, “Three-quarters of local governments’ share of sales taxes collected in North Carolina is distributed according to where the tax is collected and a quarter is parceled out by population.  Language in the Senate’s state budget bill that cleared that chamber Thursday would over four years’ time, shift the allocation to 80 percent by population and 20 percent by point of collection.”  It is generally thought that this change favors rural counties at the expense of urban counties.  (I’d like to see the formula and the numbers resulting therefrom.)  You can learn more about this legislative uncertainty at: http://www.citizen-times.com/story/news/local/2015/06/20/nc-senate-tax-plan-pits-rural-urban/29030537/.

(19 June 2015): “Pope Blames Markets for Environment’s Ills” (http://www.wsj.com/articles/pope-delivers-powerful-message-on-climate-change-1434621606)

——–“Pope Francis in his much-awaited encyclical on the environment offered a broad and uncompromising indictment of the global market economy, accusing it of plundering the
Earth at the expense of the poor and of future generations.  In passionate language, the pontiff attributed global warming to human activity, blamed special interests for holding back policy responses and said the global North owes the South ‘an ecological debt.’”

********This article is more of a summary rather than a review of the encyclical.  Understandable, no doubt, given that it was just published and there was little time to digest its contents.  Contained within the article is a good deal of Related Coverage, including a complete English translation of Laudato Si.  I intend to read this in the weeks to come.  My hope is that someone with the acumen and religious training of Michael Novak, the author of The Catholic Ethic and the Spirit of Capitalism (http://www.amazon.com/Catholic-Ethic-Spirit-Capitalism-Michael/dp/002923235X/), will do for Pope Francis what Novak did for the encyclical Centesimus Annus (https://en.wikipedia.org/wiki/Centesimus_annus) by Pope John Paul II.  The New York Times article on Laudato Si sought to place the encyclical in the context of encyclicals starting with Pope Leo XIII’s Rerum Novarum (https://en.wikipedia.org/wiki/Rerum_novarum) of 1891.  You can read the article at: http://www.nytimes.com/2015/06/19/world/in-footsteps-of-popes-seeking-worldly-change.html.

(20 June 2015): “Rural U.S. Struggles to Combat IV Drug Abuse” [SR](http://www.wsj.com/articles/heartland-battles-needle-drug-scourge-1434726103)

——–“A wide swath of middle America, particularly Appalachia and Midwestern communities east of the Mississippi River, is finding itself ill-prepared to cope with a problem that many big cities tackled long ago: injection-drug abuse and the blood-borne infections that accompany it.  As drug users with no memory of the AIDS crisis decades ago put themselves in harm’s way, public-health officials are bracing for the huge expense of treating a wave of chronic disease.”  Exemplifying this are new hepatitis C infections nationwide, which “rose 150% between 2010 and 2013, with the largest increases in rural areas, according to the Center for Disease Control and Prevention.  Last month, the CDC said new hepatitis C infections in young adults more than quadrupled in four states—Kentucky, Tennessee, Virginia and West Virginia—from 2006 to 2012.”  Contributing to the problem is the fact that “in rural areas and smaller cities, young users have no memory of the 1980s AIDS epidemic and typically view such risks as urban problems.”  The lack of health facilities and programs such as needle exchanges, which have been shown to slow the spread of infections, contribute to the problem.  Federal law prohibits the federal funds for needle exchanges.

********With North Carolina bordering Kentucky, Tennessee, and Virginia, it is plausible that there are serious IV drug abuse issues in North Carolina, too.  The statistics for acute hepatitis C can be viewed at: http://www.cdc.gov/hepatitis/statistics/2012surveillance/index.htm#tabs-501600-1.  The page that led me to it seems to inaccurately state that there were “no cases reported in North Carolina.”  You can see the statement at: http://www.cdc.gov/hepatitis/statistics/2012surveillance/commentary.htm.  All this reminds me directly of Methland: The Death and Life of an American Small Town (http://www.amazon.com/Methland-Death-Life-American-Small/dp/1608192075/), by Nick Redding; the small town Oelwein, Iowa.  Slightly more removed is Broken Heartland: The Rise of America’s Rural Ghetto (http://www.amazon.com/Broken-Heartland-Americas-Rural-Ghetto/dp/0877455546/), by Osha Gray Davidson.  The former book was published in 2010 and the latter in 1996, but both point to the seriousness of rural poverty and its consequences.  Perhaps rural counties should be receiving a greater percentage of sales tax revenues.

********One thing that caught my attention in the article was its discussion of the path to heroin use, something that relates to a previous article in the Journal that was summarized in TIF Weekly 216, relating to the book Dreamland.  Many current users of heroin developed their addiction by way of the painkiller OxyContin.  When the supply of OxyContin was restricted by more restrictive prescription writing and reformulation of the drugs themselves, heroin became relatively less expensive and people first addicted to OxyContin and related drugs moved on to heroin.  Meanwhile, changes in state drug laws relating to marijuana has made it less profitable and, for example, Mexican producers who previously trafficked in pot now traffic in heroin.  This week The Economist had a Briefing on American prisons (http://www.economist.com/news/briefing/21654578-americas-bloated-prison-system-has-stopped-growing-now-it-must-shrink-right-choices), noting the familiar fact that the U.S. leads the world, by far, in the imprisonment of its population “America, with less than 5% of the world’ population, accounts for around 25% of the world’s prisoners.”  One can only wonder how the developments noted above will affect the number of people imprisoned in local, state, and federal prisons, who those imprisoned people are.

(22 June 2015): “Why Railroads Can’t Keep Enough Boxcars in Service” [SR](http://www.wsj.com/articles/why-railroads-cant-keep-enough-boxcars-in-service-1434879182)

——–“A shrinking supply of [railroad] boxcars . . . is causing a freight-hauling crunch for the industries that continue to use them.  The number of boxcars in service in North America fell by 41% in the past decade.”  Now there are just 125,000 in service “as 101,600 cars were scrapped and only about 13,800 replacements were added.”  The decline has come about a railroads have shifted “to more specialized railcars and intermodal carriers that allow shipping containers to hop from trucks to trains.”  Especially impacted by the fall have been “paper manufacturers, lumber producers and other companies that rely heavily on boxcars to protect and move heavy shipments.”  This is part of a “looming crisis” as “Federal regulations limit boxcars to 50 years in service . . . [and] More than 75,000 will reach that age over the next 15 years.  Without significantly more new boxcars, paper-company executives say they will have to rely more on trucks, which by some estimates cost 20% more per ton than shipping by rail.”  Contributing to the situation has been the price of a new boxcar, about $135,000, and the rates paid by shippers for boxcar services, which range from $450 to $700 per month.  “That is decent revenue on a 30-year-old boxcar that is long since paid for itself, but well below the $940 to $1,100 in monthly car-hire fees needed to profitably deploy a new boxcar,” according to Richard Kloster, a senior vice president of AllTranstek [(http://www.alltranstek.com/)].  Contributing to the problem are production constraints on new boxcar, as “car manufacturers . . . are devoting more assembly-line capacity and engineering resource to meeting a deluge of orders for tank cars to haul crude oil.”  At the end of the first quarter “There were more than 52,000 orders outstanding for tank cars . . . compared with just 4,363 orders for boxcars,” according to the Railway Supply Institute.

********You can learn more about the Railway Supply Institute—“the only trade association representing the entire rail supply industry”—at: http://rsiweb.org/.  Some shippers are advocating a longer life for boxcars—65 years—as a way of dealing with the boxcar problem.  It would be interesting to take a look at the way the various financial considerations such as interest rates, service life, purchase price, and service rates enter into the boxcar supply.

(24 June 2015): “Mobile Banking Provides Lifeline for Bangladeshis” [SR](http://www.wsj.com/articles/mobile-banking-provides-lifeline-for-bangladeshis-1435043314)

——–The most popular mobile-money service in Bangladesh is bKash, which was launched in 2011 and “is now used by over 17 million Bangladeshis, and handles more than 70 million transactions a day.”  In a country of 16illion people, bKash allows people to send money via text messages using basic phones; less than 30% of Bangladeshis have a bank account.  People using the service “typically have the pay . . . 2% of the transferred amount as a fee.”  Sabina Begum, a seamstress in the garment industry, routinely uses the service to send money to her 70-year-old father who lives 300 kilometers away.  “Her only day off is Friday, the weekend in Bangladesh.”  She notes, “Of course, the bank is also closed then.”

********You can learn more about bKash at: http://www.bkash.com/.

May you have a good week!

Bruce

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