244 (23 December 2015)

Welcome to week 244!  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.

(18 December 2015): “HMO giant Kaiser Permanente plans to open a medical school in Southern California” (http://www.latimes.com/business/la-fi-kaiser-school-of-medicine-20151217-story.html)

——–“HMO giant Kaiser Permanente plans to launch a medical school in Southern California, bucking the healthcare establishment and promoting a new generation of physicians that looks more like the community it serves.”  The nonprofit health system plans to “enroll its first class in 2019 . . . the Oakland company said that its approach will differ markedly from that of many established medical schools.  It will hew closer to the company’s commitment of rapidly adopting new technology and adhering to the latest medical evidence in patient care.”  In contrast to traditional fee-for-service hospitals, Kaiser “collects an upfront premium from customers to cover all of their care and has an incentive to keep patients healthy as opposed to the conventional . . . model that can trigger wasteful spending.”  Nationwide Kaiser “runs 38 hospitals . . . , owns hundreds of clinics and has nearly 18,000 doctors on salary at its affiliated medical groups.”

********According to the article, “Kaiser has been a leader nationally at adopting electronic medical records and offering doctor visits online.”  Another factor driving Kaiser’s decision was diversity: “It wants to recruit more minority students and teach all doctors how to better care for an increasingly diverse patient population.”  Evidently Kaiser studied a new medical school on Long Island, New York which “accepted its first class only four years ago.  The school, affiliated with Hofstra University” differs from the traditional model in that “Incoming students are immediately sent out to train as emergency medical technicians on ambulances” instead of an initial two years of classroom study.  All this is consistent with the plausible claim that the best way to learn how to do something is to do it.

(18 December 2015): “This Year’s Worst Commodity . . . [Molybdenum]” (http://www.bloomberg.com/news/articles/2015-12-18/this-year-s-worst-commodity-is-one-you-probably-can-t-pronounce)

——–Molybdenum, a metal “used to make steel has become this year’s worst-performing commodity, after China’s stumbling economy and a collapse in the energy industry drove outsized losses.”  During the year its price “plunged 49 percent, the most among 79 raw materials tracked by Bloomberg.”  The metal “is used in many steel building materials and to help harden the drills used to extract oil and natural gas from deep underground.”  According to global market strategist Paul Christopher, the outlook on metals, including molybdenum, is not positive “because they’ve been overproduced.  They will continue to do the worst, not just because China’s demand is slipping still, but also because there’s not been enough supply adjustment.”  Bank of America Corp. expects “the market will remain oversupplied through 2020.”

********An interesting element of the supply adjustment story is that “About half of molybdenum is produced as a byproduct of extracting other metals, mainly copper.  Because it makes up a small portion of revenue for mining companies, suppliers are slower to respond with output cuts when prices tumble.”  For some producers, however, “molybdenum is a primary extract from ore, rather than a byproduct” and they are likely to adjust to price declines more quickly.  Such a mine is the Henderson mine in Colorado.  In looking at these two cases—byproduct product and primary extract—one begins to see the connection of the market for molybdenum to the market for copper, as well as to the composition of molybdenum production.  A nice opportunity for economic modelling.

(18 December 2015): “Why CRISPR-Cas9 is being hailed as the scientific ‘Breakthrough of the Year’” (http://www.latimes.com/science/sciencenow/la-sci-sn-crispr-cas-9-20151218-story.html)

——–The gene-editing technology CRISPR is having its year.  The editors of Science declared it the “Breakthrough of the Year” and Chinese researcher Junjiu Huang was named by Nature as “one of the 10 people who mattered in 2015 for being the first to use the CRISPR system to edit the DNA of human embryos (albeit ones that weren’t viable).”  What sets CRISPR “apart from other gene-editing technologies is how easy it is to use.”  That ease of use is one of the reasons why, “just a few weeks ago, hundreds of geneticists, biologists, ethicists and scientific policymakers convened in Washington for a three-day conference to address the ethics of using this powerful—and controversial—technology.”

********The article goes on to provide a series of questions and answers on the CRISPR—it is an acronym—technology.  Included in the article is a 4-minute video that explains and illustrates the process, as well as a 16-minute TED talk by CRISPR-Cas 9 co-inventor Jennifer Doudna.  The three-day conference mentioned in the article published a final statement about the technology, which you can read at: http://www8.nationalacademies.org/onpinews/newsitem.aspx?RecordID=12032015a.

********The fact that the CRISPR-Cas 9 technology is much easier to use strongly suggests that its (marginal) cost of use is much lower, too, which will almost certainly result in its being employed much more frequently and in a wider variety of applications.  This, no doubt, explains the interest of German pharmaceutical group Bayer AG in establishing “a joint venture with gene-editing startup Crispr Therapeutics AG.”  Bayer will “invest at least $300 million in the partnership in five years, in an effort to develop new medicines based on the emerging technology.”  In this fast-developing field, “Swiss pharmaceuticals giant Novartis AG has linked up with a rival of Crispr Therapeutics that specializes in the same gene-editing technology.”  You can learn more about Bayer’s joint venture in the article “Bayer in Venture With Gene-Editing Startup” [SR](http://www.wsj.com/articles/bayer-in-venture-with-gene-editing-startup-1450644397).  You can read Bayer’s press release on the joint venture at: http://www.press.bayer.com/baynews/baynews.nsf/id/462E2A13E1FEFA22C1257F220032642A.

(19 December 2015): “The force is strong in this firm” (http://www.economist.com/news/briefing/21684138-disney-making-fortune-and-safeguarding-its-future-buying-childhood-piece-piece)

********In a week when the world seems to have embraced Star Wars mania, The Economist provides a broad perspective on its approach to the entertainment business.  The entire article provides interesting insights but what I found especially interesting (and impressive) was a flow chart developed in 1957 that “elegantly lays out the company’s strategy, with films at the centre surrounded by theme parks, merchandise, music, publishing and television.  Each piece of the business provides content and leads to sales for the others.”  I wonder how it should be altered to accommodate current technology and concerns?  This “briefing” is accompanied by a leader, which you can find at: http://www.economist.com/news/leaders/21684156-how-one-company-came-master-business-storytelling-star-wars-disney-and-myth-making.

(22 December 2015): “Why Chemical Firms Are Seeking More U.S. Regulation” [SR](http://www.wsj.com/articles/trade-groups-for-chemical-firms-in-a-twist-seek-more-u-s-regulation-1450348202)

——–“Chemicals used to make baby bottles, paint strippers and furniture have become lightning rods for consumer activism, state regulation and restrictions by big chain stores.  That has prompted manufacturers to do something unusual: ask for more federal regulation of their products.”  Both the U.S. House of Representatives and the Senate have past differing legislation this year to update the Toxic Substances Control Act of 1976, “which governs the federal government’s scientific examination and regulation of chemicals sold in the U.S.”  The Act “makes it almost impossible for the government to control chemicals that were already in the marketplace when the law went into effect.”  Trade groups representing chemical makers are asking for new rules that will “make it easier to regulate some of the tens of thousands of those chemicals.”  By proposing new rules industry proponents hope to “stop momentum and states to ban particular chemicals in consumer products—a practice the industry calls ‘retail regulation’ when done by stores.”  Beyond “retail regulation,” “nearly 30 states, led by California, have passed more than 100 laws regulating chemicals, creating a patchwork of regulations that manufacturers must navigate.”

********The express “retail regulation” is a new one for me and I think that is misleading as it is a matter of customers wanting certain product characteristics.  There is no legal, just financial, requirement at work.   The economics behind the move to federal regulation seems pretty clear.  As Adam Smith said in The Wealth of Nations, “the division of labor is limited by the extent of the market.”  Thus, the greater the number of individual regulations, by state, county, or municipality, the smaller the potential market for any particular set of product characteristics, the higher the cost of servicing that market, and presumably the lower the profitability of servicing markets overall.

********The occasional desire for one universal set of regulations rather than a multiplicity of individual regulations is also at the heart of “Ban on Microbeads Proves Easy to Pass Through Pipeline” (http://www.nytimes.com/2015/12/23/science/ban-on-microbeads-proves-easy-to-pass-through-pipeline.html).  As the article points out both the U.S. House and Senate passed identical legislation—The Microbead-Free Waters Act of 2015—to protect the environment from plastic microbeads in early December.  In brief, “The growing number of state and local laws, with conflicting restrictions and timelines, motivated [the cosmetic] industry to support the law.”

(21 December 2015): “As Pot-Growing Expands, Electricity Demands Tax U.S. Grids” (http://www.bloomberg.com/news/articles/2015-12-21/as-pot-growing-expands-power-demands-tax-u-s-electricity-grids)

——–“Pot’s not green.  The $3.5 billion U.S. cannabis market is emerging as one of the nation’s most power-hungry industries, with the 24-hour demands of thousands of indoor growing sites taxing aging electricity grids and unraveling hard-earned gains in energy conservation.  Without design standards or efficient equipment, the facilities in the 23 states where marijuana is legal are responsible for greenhouse-gas emissions almost equal to those of every car, home and business in New Hampshire.  While reams of regulations cover everything from tracking individual plants to package labeling to advertising, they lack requirements to reduce energy waste.”

********The article notes that “Electricity represents as much as 50 percent of an operator’s overhead,” so presumably marijuana growers have an incentive to get their electrical usage under control.  It is easy to see how the person or people who will help growers reduce their electrical usage will benefit many.

(22 December 2015): “Theater World Applauds New Tax Credits” (http://www.wsj.com/articles/theater-world-applauds-new-tax-credits-1450745050)

——–“Leaders and luminaries from the Broadway theater industry gathered Monday to celebrate last week’s passage of a long-sought measure that will give live productions the same tax credits as movies and TV shows.  Starting next year, live theater and concerts will be able to deduct up to $15 million in costs if at least 75% of their budgets are spent in the U.S.  Movie and TV productions already enjoy that ability.”  During the presentation U.S. senator Charles Schumer, “who spent more than four years advocating in Congress for the change,” was lauded.  The measure “was part of the Protecting Americans from Tax Hikes Act of 2015” and was signed by President Obama on Friday.  “While the tax benefit will apply to live performances broadly, Broadway was seen as the biggest beneficiary.”

********As mentioned by Christopher Cacace of Marks Paneth’s theater, media and entertainment group, “The tax credit will make it more likely that investors would find theater an attractive investment.”

(22 December 2015): “Would a Potato Chip Lover Tire of Eating Only Chips?”   (http://www.nytimes.com/2015/12/22/science/would-a-potato-chip-lover-tire-of-eating-only-chips.html)

********The article brings to mind the so-called Law of Diminishing Marginal Utility and seems to provide evidence, in the form of a link to a review article.  It indicates that “boredom with taste was one of the two biggest reasons to stop eating; fullness is the other.”  As Adam Smith wrote in The Wealth of Nations, “The desire of food is limited in every man by the narrow capacity of the human stomach.”

(23 December 2015): “Sued Over Old Debt, and Blocked From Suing Back” (http://www.nytimes.com/2015/12/23/business/dealbook/sued-over-old-debt-and-blocked-from-suing-back.html)

********This is the fourth article in the series “Beware of the Fine Print.”  There are links to the previous article—Part 1, Part 2, and Part 3—in the article.  Each of them takes on the issue of arbitration.  The gist of this article is that the insertion of “arbitration clauses into the fine print of consumer contracts” have enabled companies “to block access to the courts and ban class-action lawsuits.”  The resulting arbitration between an individual consumer and a “deep-pocketed corporation” has led many consumers to abandon their efforts for redress of their complaints.

May you have a good week!

Bruce

 

 

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