236 (28 October 2015)

Welcome to week 236!  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.

(16 October 2015): “The Way That France Makes Wine Is About to Change Forever” (http://www.bloomberg.com/news/articles/2015-10-15/merlot-faces-the-heat-as-bordeaux-seeks-climate-proof-vineyards)

——–[This appeared in the October 26-November 1 paper edition of Bloomberg Businessweek.]  “This summer was a scorcher in France, the second-hottest on record.  For Bordeaux wine growers, those searing temperatures were the latest reminder that global warming is threating to upend their world.”  According to Agnes Destrac, “a researcher with France’s National Institute for Agricultural Research, ‘You have to keep in mind the limits of the grape . . . We’re not going to keep merlot no matter what.”  Presently, 60 percent of Bordeaux’s red-wine area is planted in merlot grapes, a mainstay in the region’s $4.2 billion wine industry.  As a result, the hunt is one “for grapes that can better withstand heat.”  Since the naming system of French wines limit the grape varieties that can be used in wine production, the Bordeaux wine board has proposed, as an experiment, “to add four red-wine grapes to the six allowed.”  Destrac notes, “Portuguese varieties could be good candidates . . . We know they can stand high temperatures and they’re on an ocean front.”

********A good example of how people whose livelihood depends upon the weather are responding to current conditions.  The possibility that red Bordeaux wines will be produced with currently unapproved grapes provides an interesting connection to the book I am currently reading—Standards: Recipes for Reality, by Lawrence Busch.  Is the wine the “same” when its constituents change?  I am about half way through the book, which provides many examples of the omnipresence of standards in everyday life.  You can learn more about the book at: http://www.amazon.com/Standards-Recipes-Infrastructures-Lawrence-Busch/dp/0262525054/.  You can learn more about the economics of wine at: http://wineeconomist.com/.

********In 2013 InsideClimate News won a Pulitzer Prize for National Reporting on its series on its reporting of a Canadian tar sands oil spill into Michigan’s Kalamazoo River.  Now they a running the series “Exxon: The Road Not Taken” (http://insideclimatenews.org/content/Exxon-The-Road-Not-Taken).  The series describes “how Exxon conducted cutting-edge climate research decades ago and then, without revealing al that it had learned, worked at the forefront of climate denial, manufacturing doubt about the scientific consensus that its own scientists had confirmed.”  It is a fascinating and deeply troubling series that deserves to be widely known.  Please see, below, the (22 October 2015) entry that cites the book Merchants of Doubt.  I wonder if the authors knew about Exxon’s research activities?

(22 October 2015): “To See Fines Dry Up, Californians Pour Into Water School” (http://www.wsj.com/articles/to-see-fines-dry-up-californians-pour-into-water-school-1445476942)

——–[This is the A-Hed, quirky article.]  California’s drought, now stretching into its fifth year, is causing cities to get “more creative to get people to save water.”  In Santa Cruz, people who make excessive use of water are required to pay a fine.  “Or they can attend Santa Cruz Water School, the environmental equivalent of traffic school.  At the end of two hours of the free class, the offenders must take a test to be officially pardoned.”  The test is self-graded but the class can only be used to avoid a fine once, leading some “water consumers . . . to ration their water ration violations.”

********Water School came into existence due to previous experience with drought during 1976-77, which left city clerks “drowning in appeals against water fines long after the dry spell ended.”  Education, some might call it re-education, seems an appropriate alternative to paying a fine even if it reduces the financial yield to the city.  I found the reference to “drought shaming” to be interesting, as well as the term used to describe those who have grass lawns that are green.

********Another aspect of the California drought is its impact on the fruit and vegetables, there; the agricultural economy of the state run about $45 billion, as noted in “California’s Growers Bear Brunt of Drought Woes” [SR](http://www.wsj.com/articles/californias-growers-bear-brunt-of-drought-woes-1445765403).  Oddly, even though the drought “is forcing farmers . . . to fallow hundreds of thousands of acres and spend millions of dollars to access water . . . U.S. grocery shoppers are barely feeling an impact.  Average retail prices for fresh fruits are down 3% so far this year and vegetables are up 1% . . . That compares with a nearly 2% gain in overall U.S. food prices.”  These small changes in light of harsh growing conditions “highlights a tough reality of the produce business: It is difficult for growers and packers to boost prices because the sector is so fragmented, giving retailers and other wholesale buyers many options.  When U.S. farmers cut output, increased imports from Mexico, Chile and elsewhere have helped fill the gap.  Prices also have been kept low because some California farmers have shifted fields to fruits and vegetables from more water-intensive crops like grains.”

********In one last article on climate, we have the recurring column “Free exchange” on “Putting Goldilocks to work” (http://www.economist.com/news/finance-and-economics/21676821-new-study-shows-climate-change-likely-sap-productivity-rich).  The essence of the article is that recent research shows that there is a nonlinear (unimodal) relationship between temperature change and GDP per person.  In effect, there seems to be an optimal temperature, so that countries with temperatures below the optimum will increase per capita GDP when temperatures increase and countries with temperatures above the optimum will decrease per capita GDP when temperatures increase.  This is contrary to previous work that found a linear (and inverse) relationship between temperature change and per capita GDP.  The article arguing for the nonlinear relationship is “Global non-linear effect of temperature on economic production.”  You can learn more about it at: http://www.nature.com/nature/journal/vaop/ncurrent/full/nature15725.html.  The authors, Solomon M. Hsiang, Marshall Burke, and Edward Miguel, previously wrote on the relationship between climate and conflict.  You can learn more about their work in this area at: http://www.sciencemag.org/content/341/6151/1235367.abstract.  A 57-minute lecture on this topic can be viewed at: https://www.youtube.com/watch?v=rVVb2sGS6Pk.

(23 October 2015): “Why Miners Keep Expanding, as Prices Collapse” [SR](http://www.wsj.com/articles/why-miners-keep-expanding-as-prices-collapse-1445535172)

——–“Even as iron ore prices have collapsed, Brazilian giant Vale SA is building a $16 billion iron-ore operation that it touts as ‘the biggest project in our history and in international mining.’  How?  Because its costs are collapsing as well.  From South America to Australian, plunging currencies in mineral-rich nations are helping some companies expand their mines—and contributing to a glut of production that has saturated markets and driven prices down.”  According to Jeff Currie, the head of commodities research for Goldman Sachs, the cost of producing many commodities is “dropping like a stone.”  The key to the expansion is that “Companies receive U.S. dollars for the gold, iron ore and coal they dig up.  But they pay wages, electricity and many other expenses in local currency.”

********As the article notes, “for the world’s top miners, which operate mostly outside the U.S., currency declines have dulled the pain of lower commodity prices.”  All this points to the need to take into consideration cost changes, price changes, and exchange rate changes when looking at output changes in internationally traded commodities.

(24 October 2015): “The Chicago school of economics: Going off the rails” (http://www.economist.com/news/books-and-arts/21676745-how-libertarians-hijacked-liberal-economics-going-rails)

——–“Since its foundation in 1890, the University of Chicago has built a world-class reputation for economics.  Since 1969 it has produced no fewer than 28 winners of the Nobel prize for economics, including Friedrich Hayek, Milton Friedman and George Stigler, far outnumbering any other institution.”  In Chicagonomics, Lanny Ebenstein “sets out to investigate the history of the Chicago school of economics, to see what can be learnt for today from its past.”  In doing so he “chronicles the intellectual history of what began life in the 1890s as the Department of Political Economy.  Before the 1940s, Chicago’s professors were much closer to the liberalism of British political economists such as Adam Smith, Jeremy Bentham and John Stuart Mill than the libertarianism of Hayek and Friedman in the 1980s and early 1990s.  Mr Ebenstein looks at the ideas of scholars such as Jacob Viner and Frank Knight, and concludes that while they favoured individual freedom, their policy prescriptions did not exclude government action.”

********You can learn more about the book at: http://www.amazon.com/gp/product/0230621953.  The book seems to have real potential given the cast of characters with which it deals.  The possibility of following the evolution of the Chicago school from its inception seems very appealing.  Another book that seems to cover much of the same ground is The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business (http://www.amazon.com/Chicago-School-University-Assembled-Revolutionized/dp/1932841199/).

********A book that should be useful to run up against Ebenstein’s book, as well as the Chicago tradition, is The Evolution of Everything: How New Ideas Emerge, by Matt Ridley.  You can learn more about the book in the author-bylined article “The Myth of Basic Science” (http://www.wsj.com/articles/the-myth-of-basic-science-1445613954).  The interest in running the books together is that Ridley takes the view that bottom up, rather than top down, processes are the key to understanding the world, a perspective that is quite compatible with the Chicago school and its focus on emergence, which has been given increased attention in the literature of economics.

(24 October 2015): “Management: Reinventing the company” (http://www.economist.com/news/leaders/21676767-entrepreneurs-are-redesigning-basic-building-block-capitalism-reinventing-company)

——–After “a century of utter dominance, the public company is showing signs of wear.  One reason is that managers tend to put their own interests first. . . . The rise of big financial institutions (that hold about 70% of the value of America’s stockmarkets) has further weakened the link between the people who nominally own companies and the companies themselves. . . . Lastly, a public listing has become onerous.”  These three factors have their costs and currently “public companies are struggling to squeeze profits out of their operations.  In the past 30 years profits in the S&P 500 index of big American companies have grown by 8% a year.  Now, for the second quarter in a row, they are expected fall, by about 5% . . . It is no accident that other corporate organisations are on the rise. . . . The central difference lies in ownership: whereas nobody is sure who owns public companies, startups go to great lengths to define who owns what.”  Now rights and responsibilities are meticulously defined in contracts drawn up by lawyers.  This aligns interests and creates a culture of hard work and camaraderie.  Because they are private rather than public, they measure how they are doing using performance indicators (such as how many products they have produced) rather than elaborate accounting standards.”

********The article above is one of the leader articles for the issue.  It is closely tied to the briefing “American capitalism: Reinventing the deal” (http://www.economist.com/news/briefing/21676760-americas-startups-are-changing-what-it-means-own-company-reinventing-deal).  This article gives careful and extensive attention to the multiple agency problems that arise in public companies.  As it notes, “Interests are misaligned along the entire chain.”  One eye-catching observation in the article is this: “Individuals have been net sellers of shares for decades; in their place institutions have expanded relentlessly.  Financial institutions now hold in excess of 70% of the value of America’s stock exchanges.”  It seems, therefore, that the democratizing tendencies of the public corporation are on the wane.  This is an article worth reading two or three times.

(26 October 2015): “Cash-Strapped Missionaries Get a New Calling: Home” (http://www.wsj.com/articles/cash-strapped-missionaries-get-a-new-calling-home-1445765402)

——–Hundreds of “Southern Baptist missionaries working abroad . . . are being summoned home in a move to slash costs.”  The International Mission Board of the Southern Baptist Convention plans to cut 600 to 800 of its 4,800 missionaries and 450 support staff, a reduction in workforce of 15%, a result of the organization spending $210 million more than it took in since 2010.  “The cuts to the program, considered America’s flagship evangelical missionary organization, underscore a fundamental change as the church becomes more global and the tradition of lifetime assignments for Christian missionaries sent ‘from the West to the rest’ declines.”  According to Jim Ramsay, vice president of the Mission Society, notes that as Christianity spreads, people wonder if it still makes sense to send Americans abroad to preach.  He asks, “Why would I pay for an American to go to Sri Lanka when I can send an Indian? . . . Americans are more expensive.”  The International Mission Board spends $50,000 a year per missionary on average.

********Ramsay raises an interesting point about the substitutability of missionaries.  The article includes a graph that shows, intriguingly, that the U.S. both sends the most Christian missionaries and receives the most; Brazil is second in both categories.  As has long been known, there are some elements of religious life that lend themselves well to economic analysis.  Sociologists Rodney Stark and William Sims Bainbridge, in A Theory of Religion (http://www.amazon.com/Theory-Religion-Rodney-Stark/dp/0813523303/), provided a perspective for such a project.

(26 October 2015): “The Cost of Going Hybrid” (http://daily.jstor.org/cost-going-hybrid/)

********JSTOR’s Livia Gershon notes that “Gasoline prices have been on the decline this year, and, predictably, so has consumer interest in fuel-efficient cars.  Of course, even if we’re less concerned about the cost of gas, the environmental problems of gas-guzzling vehicles are as pressing as ever.”  She then goes on to summarize findings from the 2011 paper “Gasoline Prices, Government Support, and the Demand for Hybrid Vehicles in the United States.”  In addition to how various factors affect “the growth in hybrid sales” they also examined federal tax incentives for hybrids, indicating that they could be improved.  Improvement would likely lead to increased purchases of hybrids by those with “low to moderate income.”

(27 October 2015): “Red Meats Linked to Cancer, Global Health Group Says” (http://www.wsj.com/articles/red-meats-potentially-cause-cancer-group-says-1445860101)

********This article is largely predictable but interesting nonetheless.  A report by a World Health Organization agency indicating that “Red and processed meats have the potential to cause cancer in humans” draws fire from the North American Meat Institute (NAMI), “a Washington, D.C., group that represents and lobbies for meat and poultry.”  Its representatives then seek to discredit the findings.  As Bonnie Liebman of the Center for Science in the Public Interest notes, “There is no group that could convince the meat industry that the science is definitive on the link to cancer, because the playbook of every industry under attack is to instill doubt in the evidence.”  NAMI’s response, as well as Liebman’s thoughts, could well have appeared in Merchants of Doubt (http://www.amazon.com/Merchants-Doubt-Handful-Scientists-Obscured/dp/1608193942/).  From an economic perspective, the likely consequences of consumer acceptance of the report are lower prices in the short run, due to a ceteris paribus decrease in market demand, and lower quantity in the long run, due to a ceteris paribus decrease in market supply.  With both demand and supply decreasing, the long-run effect on price is indeterminate.  Of course, with less red meat being sold, it is likely that land use in cattle raising areas will change.

********The New York Times has an article on the WHO report at: http://www.nytimes.com/2015/10/27/health/report-links-some-types-of-cancer-with-processed-or-red-meat.html.  But I am especially intrigued by what appears in “How Red Meat Joined the 478 Other Things That Might Give You Cancer” (http://www.bloomberg.com/graphics/2015-red-meat-cancer/).  It has a graphic classifies a wide range of studies—not just red meat—into five categories: definitely carcinogenic, probably carcinogenic, possibly carcinogenic, not classifiable, and probably not carcinogenic.  This is worth a look.

(28 October 2015): “Mexico Moves to Scale Back a Successful Tax on Soda” (http://www.nytimes.com/2015/10/28/world/americas/mexico-moves-to-scale-back-a-successful-tax-on-soda.html)

——–Two years ago “the Mexican government consulted public health experts and imposed a national tax of about 10 percent on sugary drinks.  The tax turned Mexico, where more than 70 percent of adults and a third of elementary school children are overweight, into an international experiment.  The idea was to see whether raising the price of soft drinks would encourage consumers to switch to healthier beverages.  Now, just as the evidence suggests that the tax is beginning to work, a proposal to lower it has popped up in Congress.”  Already passed by “Mexico’s lower legislative house, the Chamber of Deputies,” it is under review by Mexico’s Senate.

********A preliminary study “but the national health institute and the University of North Carolina found that Mexicans over all cut back on soft drinks by 6 percent last year. . . . the trade association that represents Mexico’s $15 billion soft drink industry, Anprac, has disputed those findings, arguing that sales of soft drinks have fallen only 2 percent since the tax was imposed.”  So, the tax apparently has decreased soft drink purchases.  Still, the question remains (at least as reported), did consumers switch to healthier beverages?  More generally, what beverages did consumers switch to?

May you have a good week!


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