237 (4 November 2015)

Welcome to week 237!  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.

(29 October 2015): “India Wants to Ban Birth Surrogacy for Foreigners” (http://www.nytimes.com/2015/10/29/world/asia/india-wants-to-ban-birth-surrogacy-for-foreigners.html)

——–“The Indian government says it wants to prevent Indian women from becoming surrogate birth mothers for foreigners, according to an affidavit filed Wednesday with the Supreme Court.  The filing represented the latest development in a recent push to regulate an industry that has been booming in India.  Estimates of the size of the surrogacy trade in India vary, with one study . . . measuring it at more than $400 million. . . . India has long tried to get approval of legislation to standardize surrogacy, which is run through thousands of clinics throughout the count.  The cost of surrogacy in India can be a third of the cost in wealthier countries.”  According to the Indian Ministry of Health and Family Welfare, surrogacy should be available “to Indian married infertile couples only and not to foreigners.”

********Surrogacy in India, along with a host of other topics, is covered in The Red Market (http://amazon.com/Red-Market-Brokers-Thieves-Traffickers/dp/0061936464/), by Scott Carney.  A more recent, scholarly, and focused on Indian surrogacy is Globalization and Transnational Surrogacy in India: Outsourcing Life (http://www.amazon.com/Globalization-Transnational-Surrogacy-India-Outsourcing/dp/1498525202/), edited by Sayantani DasGupta and Shamita Das Dasgupta.  As the article notes, “Some experts, however, are concerned that banning surrogacy for foreigners would do more harm than good.”  What is it about surrogacy for foreigners that is more problematic than surrogacy for Indians?

(29 October 2015): “Inside Europe’s Migrant-Smuggling Rings” [SR](http://www.wsj.com/articles/inside-europes-migrant-smuggling-rings-1446079791)

——–“Across Europe, longtime criminal networks, best-known for smuggling guns and drugs, have shape-shifted to take advantage of the cash bonanza created by record migration from war-torn Syria and beyond. . . . Over just a few months, the crisis has created a migrant-smuggling opportunity between Turkey and Germany that European security officials estimate at billions of dollars.”  According to Col. Gerald Tatzgern, who is chief of Austria’s vice squad, the smuggling trade is estimated generate “more money in Europe than drug-running or weapons-trafficking.”  For criminals, “moving migrants is safer than trafficking drugs or guns and carries lighter sentences.  In Bulgaria, most convicted people-smugglers escape with a fine.”  Demetrios Papademetrious of Washington’s Migration Policy Institute notes, “In this part of the world . . . migrant-smuggling has become an integral part of the local economy.”  Mayor Gergo Gergov of Vidin, Bulgaria has learned that the income derive from it is very important to some.  When he sought to crack down on smuggling, “his house was attacked with Molotov cocktails. . . . Nobody was seriously injured, but his family is under 24-hour guard.”

********The article clearly illustrates the entrepreneurial character of criminals in Bulgaria and other countries along the migration route from Syria to Germany.  They are clearly responding to changes in income-generating possibilities, as well as the relative risk of alternative illegal activities.

(30 October 2015): “Taxes Drive Potential Merger of Pfizer, Allergan” [SR](http://www.wsj.com/articles/allergan-confirms-pfizer-talks-1446126062)

——–“Pfizer Inc. is pursuing what could be the biggest overseas takeover to lower U.S. corporate tax liability, showing that effort in Washington to stem such deals have amounted to little.”  The deal being pursued by Pfizer “could be structured as a so-called inversion, in which a U.S. company buys a smaller foreign rival to move its legal home to a lower-tax jurisdiction abroad.  American firms have seized on these transactions, drawing a regulatory crackdown last year and widespread political opposition.”  CEO Ian Read is “unapologetic about his desire to reduce Pfizer’s tax rate, saying Thursday that U.S. corporate tax rates have put the company at a disadvantage to its foreign rivals.”  Lawmakers and candidates in both parties want to reduce the tax advantage of incorporating abroad, “but they disagree on how to do it.  Republicans support a revamp of the tax system that includes lowering the corporate rate.  Democrats, meanwhile, favor tougher rules that would stop U.S. companies from pursuing these deals.”

********You can find an additional and accessible source for this story at: http://www.reuters.com/article/2015/10/30/us-allergan-m-a-pfizer-idUSKCN0SN01P20151030.  As the WSJ article notes, the present tax rate for Pfizer (in the U.S.) is 25.5% and the present rate for Allergan (in Ireland) is 15%.  If Pfizer pays taxes at the 15% rate on the profits it expects to make this year, it “would save nearly $2 billion in taxes.”  Given the size of this benefit, it is hard to see how Pfizer, and a host of other U.S. companies, could ignore relocation.  Is it better to change the corporate tax rate or to develop a new set of rules?

(31 October 2015): “In West Texas, Oil Drillers Keep Pumping” [SR](http://www.wsj.com/articles/in-west-texas-oil-drillers-keep-pumping-1446254165)

——–“As a financial storm lashes the U.S. oil patch, energy companies are seeking shelter in the closest thing the industry has to a port: a sprawling expanse of West Texas known as the Permian Basin.  In fact, as drillers pull back in oil fields across the U.S., they are pumping more crude than ever in the Permian, according to some federal data.  And companies from giant Exxon Mobil Corp. on down have been vying to add to their acreage in the oil field that stretches north from Midland almost to Lubbock.”  The crude of the area is so abundant “that the most efficient companies can make money even with oil prices 50% below their peak last year.”  This stands in contrast to “many drilling sites perched above shale formations from Louisiana to Colorado to North Dakota.  Oil in those areas is less plentiful and harder to find and pump . . . And in some cases, like the Bakken in North Dakota, a lack of infrastructure makes shipping or storing oil expensive.”

********One of the companies operating in the Permian is Pioneer Natural Resources Co.  The COO of the company, Tim Dove, says the company “earns a 35% return on its best wells even when oil trades at between $45 and $50 a barrel.”  Contributing to those earnings are lower costs, which have fallen “by about 30%.”  So, although some high-cost shale fields have fallen upon hard times due to the global price decline of crude oil, some have not.  Good news for “the University of Texas, which owns millions of acres in the area from land grants made before oil was discovered there.”

(1 November 2015): “The Upshot: The Power of Nudges, for Good and Bad” (http://www.nytimes.com/2015/11/01/upshot/the-power-of-nudges-for-good-and-bad.html)

********This offering of The Upshot is by Richard Thaler, a professor of economics and behavioral science at the University of Chicago.  Thaler and Cass Sunstein wrote Nudge: Improving Decisions About Health, Wealth, and Happiness (http://www.amazon.com/Nudge-Improving-Decisions-Health-Happiness/dp/014311526X/).  As the title of the article suggests, a distinction is made between ‘good’ and ‘bad’ nudges.  Thaler clearly states three principles that “should guide the use of nudges” and illustrates them.  As he points out, sometimes these nudges are used to “improved the welfare of those being nudged” and sometimes they are used to improve the welfare of the nudger.  As I looked at his examples of the latter, I saw that I have been nudged in exactly this way with “one-month trials.”

(2 November 2015): “Massive Nuclear Cleanup Hobbled by Funding Shortfall” [SR](http://www.wsj.com/articles/massive-nuclear-cleanup-hobbled-by-funding-shortfall-1446409369)

——–The U.S. Energy Department is struggling “to clean up America’s 70-year-old nuclear-weapons program.”  Cost estimates are ballooning, with “2,700 structures on its to-do list.  Officials said more than 350 additional unneeded facilities controlled by other programs in the Energy Department are likely eligible for transfer to the cleanup operation.  But that office said its funds are limited and it isn’t accepting any more projects for now, no matter their significance.  That means some of the nation’s toughest threats are now on the back burner, possibly for decades, while some relatively low-priority work moves forward.”  Contributing to the clean-up challenge is the fact that there is a “budgetary tug of within the agency.  One part of the department maintains the U.S.’s atomic arsenal, and another is in charge of cleaning up the contamination from nuclear work.  Funds for both come from the same pot, and in a shift from the 1990s, an increasing portion is going toward ensuring the readiness of the weapons arsenal, an Obama administration priority.”

********The article notes that some of the highest-priority sites go uncleaned because they are too expensive, while low-priority sites are addressed because they are relatively cheap.  As it turns out, one of the “most expensive and complicated challenges” is in eastern Tennessee, at the Y-12 site at Oak Ridge.  You can learn more about Y-12 at: https://en.wikipedia.org/wiki/Y-12_National_Security_Complex.  Eastern Tennessee is likely to receive large inflows of money from the Energy Department whether it is from clean up or weapons development, as in 2010, “the White House laid out a schedule to spend $80 to $85 billion on the weapons complex in the coming 10 years, compared with $65.8 billion in the prior decade.”  All of this points to the importance of clear and comprehensive thinking about budgets, consequently the usefulness of the broad field of public economics.  A classic (and technical) work on this subject, co-authored by Nobel laureate Joseph Stiglitz, appeared in a fourth edition earlier this year (http://www.amazon.com/Economics-Public-Sector-Fourth-Stiglitz/dp/0393925226/).

********I ran into a number of nuclear-related articles each of which provide useful connections.  First, there is “Chernobyl: Can Wildlife Return after the Blast?” (http://daily.jstor.org/chernobyl-can-wildlife-return-blast/).  The answer is “Yes,” although people won’t be part of that mix for thousands of years.  The article also relates experiences from French underwater nuclear explosions during the 1970s which had pressure waves that “instantly wiped out every fish in the surrounding area.”  I had that of the non-human “collateral damage” of these blasts.  The article references two articles, one on the French blasts and one on Chernobyl.  The latter (popular) article can be read in its entirety at: http://www.americanscientist.org/issues/feature/growing-up-with-chernobyl/.  Among other things of interest, it includes eight lessons the authors learned from their work on Chernobyl relating to “politics, bias, and the challenges of doing good science.”  Here is Lesson 5: Scientist must have a single agenda: the truth.

********A second nuclear-related article is “What Killed America’s Climate-Saving Nuclear Renaissance?” (http://www.bloomberg.com/news/articles/2015-10-27/what-killed-america-s-climate-saving-nuclear-renaissance-).  For me the article shows how profoundly attitudes to nuclear energy have been affected by three events: Three-Mile Island (United States), Chernobyl (Russia), and Fukushima (Japan).  This is the history (invisible handshake) part of the invisible forces.  While trying to identify a book that would meaningfully survey the three events—I didn’t find one—I did find a book that would be of use in framing one’s thoughts about nuclear energy: The Ethics of Nuclear Energy: Risk, Justice, and Democracy in the post-Fukushima Era (http://www.amazon.com/Ethics-Nuclear-Energy-Democracy-post-Fukushima/dp/1107054842/).

(2 November 2015): “Drug Makers Buy Pricey Vouchers to Speed Products to Market” (http://www.wsj.com/articles/drug-firms-buy-pricey-vouchers-to-speed-products-to-market-1445333403)

——–The U.S. Food and Drug Administration, in accordance with legal provisions enacted in 2007 and 2012, is required to issue “priority review vouchers” as rewards “to developers of drugs for rare pediatric conditions or tropical diseases, such as malaria. . . . The vouchers require the FDA to shorten its decision deadline to six months from the standard 10 months . . . Because companies can also sell the vouchers, a lucrative secondary market has emerged.”  Drug company “AbbVie agreed in August to pay $350 million for a voucher from United Therapeutics Corp., which received it for developing a pediatric cancer treatment.  That was $105 million higher than the previous voucher sale, and five times the first in July 2014, for $67.5 million.”

********To say the least, the secondary market the vouchers is thin, as “only eight have been issued.”  You can learn much more about priority review vouchers at: http://www.raps.org/Regulatory-Focus/News/2015/07/02/21722/Regulatory-Explainer-Everything-You-Need-to-Know-About-FDA%E2%80%99s-Priority-Review-Vouchers/.  The advantage provided by first-to-review for a drug is reminiscent of the electronic trading; people are willing to spend a lot of money to trade sooner given access to earlier information.  Both are examples of first-mover benefits (and costs).

(4 November 2015): “Canadian Crude Still Flows to U.S. Despite Keystone Pipeline Delay” [SR](http://www.wsj.com/articles/canadian-crude-still-flows-to-u-s-despite-keystone-pipeline-delay-1446570798)

——–“TransCanada Corp.’s move to postpone the Keystone XL pipeline won’t have much effect on the U.S. energy industry, experts say, largely because American refiners have found other ways to get crude oil from Canada.”  According to the U.S. Energy Department, “Oil imports from Canada set a record in August, averaging 3.4 million barrels a day . . . In fact, the U.S. has bought 64% more Canadian crude so far this year than it did in the same stretch of 2008, the year TransCanada first asked the U.S. government for permission to build the pipeline that would run from Alberta to Texas.”  The additional oil flowing to the U.S. from Canada is “45% more crude than Keystone XL would have carried had it been constructed.”  A variety of means have been used to move crude to the U.S., with railroads—rolling pipelines—playing an important role.  But there has also been more effective use of existing pipelines.  Enbridge Energy Partners LP “has increased the pressure on its lines so that it can move oil fasters, and in some cases mixes chemicals into Canadian crude to reduce drag inside the lines.  In the future, Enbridge may expand capacity even further by converting some of its pipelines that carry light, sweet-crude to move heavier oil.”  Last month Enbridge told investors that “it had identified another 800,000 barrels a day of pipeline expansion opportunities that would cost the company about $1.3 billion.  That is roughly the capacity of Keystone XL at a significant discount to its price tag of $8 billion.”

*******It appears from the above that the extended approval period for the Keystone XL pipeline allowed oil exporters to identify and developer alternative oil conveyances that may not have been known at the time the pipeline was initially proposed in 2008.  I wonder if that is true.  Worth noting, though, is the fact that both TransCanada (http://www.transcanada.com/) and Enbridge (http://www.enbridge.com/) are energy infrastructure companies and appear to compete with one another.  It would seem, then, the Enbridge stands to benefit significantly from TransCanada’s recent statement that it wishes to withdraw from the Keystone XL approval process.  You can learn more about the differences between Enbridge and TransCanada at: http://www.fool.ca/2015/04/27/2-key-differences-between-enbridge-inc-and-transcanada-corporation/.

May you have a good week!

Bruce

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