233 (7 October 2015)

Welcome to week 233!  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 an Internet title search.

(25 September 2015): “Review: ‘Strangers Drowning’ Examines Extreme Do-Gooders” (http://www.nytimes.com/2015/09/25/books/review-strangers-drowning-examines-extreme-do-gooders.html)

——–[This book was reviewed in the Wall Street Journal on October 1st but this review is more generally available.]  In her first book, New Yorker staff writer Larissa MacFarquhar, reports about “extreme do-gooders, people whose self-sacrifice and ethical commitment are far outside what we think of as the normal range. . . . Ms. MacFarquhar’s book—its subtitle is ‘Grappling With Impossible Idealism, Drastic Choices, and the Overpowering Urge to Help’—both streamlines and complicates the issues surrounding deep ethical scruples. . . . In part, this book is a series of profiles, some of which have appeared in The New Yorker in different form. . . . These profiles work because they’re as taut and evocative as parables.  Also, there are not too many. . . . If her book does not provoke and unsettle you, you may not have a pulse.”

********Any book that focuses on choice and choosing generally catches my attention, as the choice is such an important structuring device in microeconomic thinking.  That was, in fact, a central feature of the review in the Journal [SR](http://www.wsj.com/articles/too-much-is-never-enough-1443656764).  Opportunity cost, i.e., the value of the highest-valued displaced alternative.  For example, one advocate of animal rights won’t wash dishes because the “time spent washing dishes could be time spent working for animal rights, which were more important.”  Strangers Drowning seems like a good opportunity to examine and reflect upon the role of moral values, ethical principles, and choice.

(1 October 2015): “High Cost of Inmates’ Phone Calls May End” (http://www.nytimes.com/2015/10/01/us/fcc-seeks-to-limit-and-lower-costs-of-inmates-phone-calls.html)

——–Next month the FCC will decide “whether to limit rates and service fees for phone calls made by prison and jail inmates . . . Rates for phone calls from jails and prisons are typically far more expensive than normal commercial charges and can cost as much as $14 a minute. . . . The proposed rules would impose a rate of 11 cents a minute on state or federal prison calls and cap the cost of calls made from local jails at 14 to 22 cents a minute, based on the size of the jail.”  In recent years, “Jails and prisons around the country have . . . become financially reliant on revenue received from prison phone companies, which pay millions of dollars in concession fees, called commissions, to win exclusive contracts.  High concession fees drive up the cost of phone calls because the companies say they must try to recover their investment.”

********The concession fees referred to in the article are not uncommon in publicly-funded organizations.  Contracts with campus bookstores and food-service providers often reflect similar payments, thereby increasing the price of the books and meals.

(2 October 2015): “How Temp Jobs Changed Everything” (http://daily.jstor.org/how-temp-jobs-changed-everything/)

——–“In late August, the National Labor Relations Board (NLRB) ruled that companies who use temporary agencies to hire workers should be considered joint employers.  The means the client companies have to take more responsibility for the way temps are treated.  The board said the decision will help address ‘changing economic circumstances, particularly the recent dramatic growth in contingent employment relationships.’”  According to a 2007 paper by Jamie Peck and Nik Theodore, “the growth of temporary employment helped change the nature of U.S. employer-employee relationships since the 1990s.”  In discussing the temp agencies that match temporary employees with businesses that want to use them, the authors note that the “shock absorber” function of the agencies might be better thought of as “shock displacement,” as “the agencies pass the cost and risks traditionally associated with employment down to their workers.”

********This JSTOR Daily article provides a link to the original article.  The key phrase in this literature appears to be ‘temporary staffing industry’.  A search at Google Scholar will generate a large literature, with 47 results restricted to 2015.  An accessible book on this topic appears to be The Temp Economy: From Kelly Girls to Permatemps in Postwar America, by sociologist Erin Hatton.  You can learn more about it at: http://www.amazon.com/Temp-Economy-Permatemps-Postwar-America/dp/1439900817/.  There is a useful nine-minute video on the temp economy at: http://billmoyers.com/content/the-new-temp-economy/.

(3 October 2015): “Meth v alcohol: The heirs of Al Capone” (http://www.economist.com/news/united-states/21669951-dry-counties-have-more-meth-labs-heirs-al-capone)

——–“Although meth-usage rates are reported to be highest in the West, states in the Bible belt have the most meth labs.  A survey in 2010 noted that counties containing meth labs tend to be disproportionately poor, white and evangelical.  Those same communities also happen to be the ones with stiffest restrictions on the sale of alcohol.”  Social scientists have wondered “whether alcohol is a complement to, or a substitute for, drugs.  A new paper by Jose Fernandez, Stephan Gohmann and Joshua Pinkston of the University of Louisville claims the latter, suggesting that lifting the ban on alcohol would lead to a drop in meth use.”  According to their estimates, “legalizing the sale of alcohol would result in a 37% drop in meth production in dry counties in Kentucky, or by 25% in the state overall.”

********As far as I can tell, this is the paper referred to in the article is “Breaking Bad: Are Meth Labs Justified in Dry Counties?”  A copy of it is available at: https://www.aeaweb.org/aea/2015conference/program/retrieve.php?pdfid=731. (I’m not sure if this is generally accessible.)  The article also makes an interesting comment based upon Bruce Yandle’s 1983 paper “Bootleggers and Baptists—The Education of a Regulatory Economist.”  You can view the first page of the article at: http://heinonline.org/HOL/LandingPage?handle=hein.journals/rcatorbg7&div=26&id=&page.

(4 October 2015): “Beef Isn’t For Dinner Anymore as Americans Devour Cheaper Pork” (http://www.bloomberg.com/news/articles/2015-10-04/beef-isn-t-for-dinner-anymore-as-americans-devour-cheaper-pork)

——–“Americans’ love affair with beef is fizzling.  In the U.S., a country known for drive-thru burger joints and over-sized steaks, demand for the meat on a per-person basis is slumping to the lowest in more than four decades.  With consumers bracing themselves for another slow patch in the economy, shoppers are increasingly choosing cheaper pork and chicken as alternatives.”  In 2014, both “beef and pork prices soared . . . after years of drought whittled the U.S. cattle herd down to a six-decade low, and a piglet-killing virus tightened hog supplies.  While producers of both animals expanded to capture profits, pigs multiply far more rapidly.  Pork output will be a record in 2015, while beef production is set to shrink from last year.  Beef’s premium to pork is more than 20 percent higher than the 10-6ear average, and as job growth slows, Americans are opting to buy the cheaper meat.”

********A concise article that contains a good deal of economic reasoning.  Aside from the role of relative prices.  In addition, a comment that stood out for me is “Because beef is among the most expensive proteins, it’s more sensitive to changes in the economy.”  This seems a clear assertion that the ‘income elasticity of demand’ for beef is greater than that of, say, pork or chicken.  You can view a PowerPoint presentation on the income elasticity of demand at: http://www.cals.ncsu.edu/course/are012/lectureppt/lectur18.ppt.  Slide 9 provides estimates for beef, pork, and chicken.  According to the USDA (http://www.agcensus.usda.gov/Publications/2012/Online_Resources/Highlights/Hog_and_Pig_Farming/), North Carolina is the number two (behind Iowa) producer of hogs and pigs.

********On the supply side, of course, there is the simple fact that animals that are the source of beef, pork, and chicken, must be killed.  Colorado State University professor Temple Grandin has done more than anyone else to ensure that cattle led to slaughter suffer as little as possible.  You can learn more about her work at: http://www.economist.com/news/united-states/21671150-jungle-no-more-how-design-slaughterhouse.  Is a Temple Grandin for hog and chicken slaughtering?

(5 October 2015): “Vegas Casinos Fight to Buy Their Own Electricity” [SR](http://www.wsj.com/articles/vegas-casinos-fight-to-buy-their-own-electricity-1443999633)

——–“Three big casino companies that run glittering resorts on the Las Vegas Strip are trying to break free from Nevada’s electric power monopoly, NV Energy. . . . they say they could cut millions of dollars from their electric bills if they could buy power directly from solar farms or power-plant owners.  But NV Energy, which is owned by Warren Buffett’s Berkshire Hathaway Inc., is pushing state regulators to make it very expensive for the casinos to stop buying its power, according to documents released by the state’s Public Utilities Commission. . . . The same struggle is occurring across the country as large power users watch wholesale energy prices fall while their utility bills rise.  New York, Texas and 11 other states allow residents and businesses to buy their electricity from competitive suppliers, but Nevada is among the majority of states that require most customers to buy power from monopoly utilities.”  An additional factor under discussion for the casinos is their desired “to use more renewable energy to live up to commitments they have made to shareholders and customers.”

********The article goes on to note that “Despite a 2001 law that allows large energy users to switch power suppliers, the Public Utilities Commission of Nevada has never granted customers permission to leave the Las Vegas Utility.”  Under consideration in Nevada is the payment of a hefty “exit fee” for leaving the utility.  In the nomenclature of economics, this is a ‘barrier to exit’.  If they are sufficiently large, of course, no consumer will exit the system.  It is very interesting to me that Berkshire Hathaway is involved in these matters.

(5 October 2015): “Disney Parks Consider Off-Peak Prices” [SR](http://www.wsj.com/articles/disney-parks-consider-higher-prices-during-busy-times-1443960001)

——–“For the first time in the 60 years since Disneyland opened, Walt Disney Co. is considering switching to demand-based pricing at its domestic parks, where tickets would cost less or provide added benefits on slower days and cost extra or come with more restrictions on dates when there tend to be too many people. . . . This week, Disney will begin surveying previous visitors to gauge their reactions to different variable pricing options. . . . The company has offered tiered pricing at Disneyland Paris since last year, currently ranging from $64 for an adult ticket good only during ‘low season’ to $94 for one that works year-round.”

********Suppliers of goods and services now tend to have much more information about consumers than formerly and it is now easier to employ that information to make pricing decisions.  Uber employs price differentiation for its services, e.g., on busy days or busy times of day, and Stockholm, Sweden uses it for cars tolls; Wisconsin and other states employ time-of-day pricing for electricity.  It is likely that price differentiation will become more and more a part of our everyday experience.

********Pricing was in the news this week and especially noteworthy is the investigative article on “For Prescription Drug Makers, Price Increases Drive Revenue” [SR](http://www.wsj.com/articles/for-prescription-drug-makers-price-increases-drive-revenue-1444096750).  The article further develops recent stories relating to very high increases in drug prices, one example of which is a multiple sclerosis drug sold by Biogen Inc., the price of which has increase 21 times during the last decade at an annual rate of 16%.  It is “an example of drug companies’ unusual ability to boost prices beyond the inflation rate to drive their revenue, even when demand for the drugs doesn’t cooperate.”  What especially caught my attention was the statement: “In most markets, products are ordered, paid for and consumed by the same party,” a point made my Sara Fisher Ellison, an economist at MIT.  However, “prescription drugs are ordered by a physician, used by a patient and usually paid for by a third party, either an insurer or a large employer.  Neither doctors nor patients typically have much of a sense of drugs’ prices.  That blunts what economists call price sensitivity, the tendency of higher prices to curb demand.”  According to Ellison, this situation “confuses incentives and dampens the normal economic dynamics.”  This is a useful article, one that is well worth searching for using its title—you just might be able to read it in its entirety.

(6 October 2015): “Are Activist Investors Helping or Undermining American Companies?” [SR](http://www.wsj.com/articles/activist-investors-helping-or-hindering-1444067712)

——–“The rise of activist investing has sparked debate across markets, boardrooms and even during the presidential campaign: Are activist shareholders good or bad for business?  The Wall Street Journal examined that question with a comprehensive look at what happens to large U.S. companies after an activist arrives.  The conclusion: Activism often improves a company’s operational result—and nearly as often doesn’t.”  This conclusion is based upon an examination of “71 campaigns against companies with market capitalizations of more than $5 billion over a period dating back to 2009, the start of the surge of agitation.”

********This article, along with the previous one on prescription drug makers, shows the Journal at its best—an extensive data-based analysis on a timely issue.  You can find a summary of the outcomes of activist investors at: http://graphics.wsj.com/activist-investor/#FBHS.  Included in the list are the activities of Pershing Square Capital Management, which is led by William Ackman, who was featured in an article noted in last week’s TIF Weekly.

May you have a good week!


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s