249 (27 January 2016)

Welcome to week 249!  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.

(21 January 2016): “Dry-Bulk Shipping Firms Face Unprecedented Crisis” [SR](http://www.wsj.com/articles/dry-bulk-shipping-firms-face-unprecedented-crisis-1453293892)

——–“Falling demand from China is wreaking havoc among the world’s biggest shipping companies, forcing some to offload vessels at a discount to survive one of the industry’s deepest crisis. . . . The shipping industry’s pain has been worse for dry-bulk shipping companies—whose vessels carry much of the raw materials of global trade, from grain to iron ore.  The Baltic Dry Bulk Index, sometimes viewed as a proxy for global trade, peaked out just before the 2008 financial crisis at 11000 [eleven thousand] points.  On Wednesday, it closed at 358.  The index has hit fresh record lows every day since the beginning of the year.  That is forcing some shipping companies to offload vessels at bargain-basement prices.”  Describing this situation, New York-based maritime adviser says, “It’s a bloodbath, which calls into questions the survival of many dry-bulk shipping companies.”

********The situation of dry-bulk carriers struck me as similar to that of the U.S. coal industry in that many firms are going bankrupt.  Perhaps less coal is being shipped, contributing to the fall in dry-bulk shipping?  A brief search shows that coal is included in the commodities of dry-bulk shipping (http://www.gencoshipping.com/industry.html), so it seems likely that the decline of coal is contributing to the fall in the Baltic Dry Bulk Index.  Incidentally, dry-bulk carriers are distinguished from liquid-bulk carriers, that carry such items as oil, chemicals and liquefied petroleum gas (https://en.wikipedia.org/wiki/Bulk_carrier).  Reflection on the situation of the dry-bulk carriers makes me wonder how the liquid-bulk carriers are doing.  Do they have their own index?  One starts to get a sense of the extensive restructuring of shipping that might take place if (when) solar and wind begin to make up much larger portions of the energy supply.

********You can learn more about the Baltic Dry Bulk Index at: https://en.wikipedia.org/wiki/Baltic_Dry_Index.  The Wikipedia article includes a time series for the Index from 1985 to 2013 and shows the dramatic crash of the Index during 2008-09.  Click on the graph for a larger image.

(21 January 2016): “The Wharton Grad Sensing a Fortune in the World’s Most Toxic Air” (http://www.bloomberg.com/news/articles/2016-01-20/the-wharton-grad-sensing-a-fortune-in-the-world-s-most-toxic-air)

——–“Murky air means money for New Delhi businessman Jai Dhar Gupta.  The 43-year-old Wharton graduate began selling pollution masks last year in India, home to some of the planet’s most toxic cities.”  He notes, “India is going to be the biggest market for the masks.”  Gupta expects “he’ll sell 60,000 from January to March—as much as the whole of 2015.”  According to the World Health Organization, India has four of the five most (air) polluted cities in the world.  So, “From masks to purifiers and even nebulizers that ease lung spasms, India is seeing a spurt in purchases of products designed to deliver a basic human right: the ability to breathe.”  Japanese nebulizer seller Omron Corp. “sold 200,000 nebulizers in India last year and expects as much as 30 percent compound annual growth over the next three to five years.”

********It is interesting to think about this situation.  Today, Gupta provides a good that provides clean air services to those who use it.  That opportunity exists because of the state of air quality in various locations in India, which is in part due to the lack of air quality regulation or the failure of air quality enforcement.  There may come a day, however, when there will be movement to increase air quality regulation or improve air quality enforcement.  At that time, no doubt, incumbent firms selling goods that provide clean air services will—if they consider only their financial interests—oppose the movement.  Not such an unusual situation.

(23 January 2016): “Schumpeter: The collaboration curse” (http://www.economist.com/news/business/21688872-fashion-making-employees-collaborate-has-gone-too-far-collaboration-curse)

——–“In modern business, collaboration is next to godliness. . . . The fashion for collaboration makes some sense.  the point of organisations is that people can achieve things collectively that they cannot achieve individually.”  But, “a backlash is setting in: the current Harvard Business Review (HBR) has a cover story on ‘collaborative overload’’ and Cal Newport of Georgetown University has just brought out a book called ‘Deep Work” Rules for Focused Success in a Distracted World’.  A growing body of academic evidence demonstrates just how serious the problem is.  Newport, in particular, notes that the “biggest problem with collaboration is that it makes . . . ‘deep work’ difficult, if not impossible.”

********This is a clear example of a time allocation problem as it involves time spend collaborating and time spent not collaborating.  The gist of the article is that modern businesses, and surely this applies to many other organizations, have moved too far in the direction of collaboration time.  The article asks why that is happened and points to the measurability of collaboration, which is held to be “much easier to measure than ‘deep work’.  This emphasis on measurability is likely to affect people differently depending upon their career stage: “The more junior the knowledge worker is, the more likely he is to spend his time doing things that are easy to measure rather than engaging in more demanding but nebulous work.”

(23 January 2016): “To Fight Growing Threats From Germs, Scientists Try Old-Fashioned Killer” [SR](http://www.wsj.com/articles/to-fight-growing-threat-from-germs-scientists-try-old-fashioned-killer-1453490328)

——–Bacteriophages, “Little known among doctors in the West, . . . have been part of the antibacterial arsenal in countries of the former Soviet Union for decades.”  These “natural-born killers of bacteria” stopped being used in the U.S. and much of Europe “when penicillin and other antibiotics were introduced in the 1940s.  Now, though, Western scientists are turning back to this Stalin-era cure to help cure the dramatic growth of bacterial resistance to antibiotics.  That resistance has become one of the biggest health-care crises of our time.”  The “biggest hurdle” to the expanded use of phages is that “phage therapy hasn’t been subjected to rigorous clinical trials. . . . [But more] labs and biotechnology firms are researching phages as fast as they can.”  One such firm is AmpliPhi Biosciences Corp. (http://www.ampliphibio.com/) of Richmond, Virginia.

********You can learn more about bacteriophages at: https://en.wikipedia.org/wiki/Bacteriophage.  You can learn more about phage therapy at: http://www.nature.com/news/phage-therapy-gets-revitalized-1.15348.  As mentioned in the article, phage use was noted in the White House document “National Action Plan For Combating Antibiotic-Resistant Bacteria” (https://www.whitehouse.gov/sites/default/files/docs/national_action_plan_for_combating_antibotic-resistant_bacteria.pdf), see p. 44.  Interesting to see that antibiotics effectively drove bacteriophages out of use, only to (apparently) reassert themselves later as the resistance to antibiotics has increased.  The question that arises for me is, “What were the reasons behind the continued used of phages in the former countries of the Soviet Union?”

(24 January 2016): “S.E.C. Is Criticized for Lax Enforcement of Climate Risk Disclosure” (http://www.nytimes.com/2016/01/24/business/energy-environment/sec-is-criticized-for-lax-enforcement-of-climate-risk-disclosure.html)

——–“As recently as 2011, shares in Peabody Energy, he world’s biggest private sector coal company, trade at the equivalent of $1,000.  Today, they hover around $4 each.  Over that time, investors who held the stock lost millions.”  These losses have drawn attention to the adequacy of Peabody’s regulatory filings with respect to climate change, attention which resulted in a November settlement with the New York attorney general to “disclose more about climate change risks in its regular filings with the S.E.C.  In theory, however, Peabody should have been making such disclosures all along.”  Such disclosure has been required since 2010, when the S.E.C. “told companies how it expected them to address the risks posed by climate change in their regular securities filings.”  Under Mary Schapiro, then the chair of the S.E.C., “49 comment letters to companies addressing the adequacy of their climate change disclosures” were issued in the two years after interpretive guidance was issued.  Since then, the number of letters have dropped off from three in 2012 to none in 2013.  “To advocates of more robust climate change disclosure, the impression was that the S.E.C. had taken its eye off the ball.”

********Climate change is just one of the Risk Factors that must be addressed in the annual Form 10-K filings companies make to the S.E.C.  You can search for such filings at the S.E.C.’s EDGAR tool: http://www.sec.gov/edgar/searchedgar/companysearch.html.  For an example, you might do a search for Ingles Markets.  You can learn more about Form 10-K, as well as Forms 10-Q and 8-K, at: http://www.sec.gov/answers/form10k.htm.  The Press Release for Mary Schapiro’s 2010 climate disclosure statement can be found at: https://www.sec.gov/news/press/2010/2010-15.htm.  I was curious about what the interpretive guidance looked like—you can find it in the nine-page document at: https://www.sec.gov/rules/interp/2010/33-9106fr.pdf.  I am reminded that responding to the various questions of Form 10-K is very much like that of demonstrating compliance with the accrediting bodies of higher education.  You can learn a good deal more about the S.E.C. at: http://www.sec.gov/.

(25 January 2016): “Why Big Companies Keep Getting Disrupted” [SR]http://www.wsj.com/articles/why-bigcompanies-keep-getting-disrupted-1453698061)

——–“Anshu Sharma, a venture capitalist at Storm Ventures, thinks he knows why so many companies that should have all the resources and brainpower required to build the next big thing so often fail to.  He calls his thesis the ‘stack fallacy,’ and though he sketched its outline in a recent essay, I [Christopher Mims] found it so compelling that I thought it worth a more thorough exploration of the implications of his theory.”  According to Sharma, the “Stack fallacy is the mistaken belief that it is trivial to build the layer above yours.”  To understand this, it helps to know that “in tech, the ‘stack’ is the layer cake of technology one level of abstraction sitting atop the next, that ultimately delivers a product or service to the user. . . . In tech, there are countless examples of how companies have violated the stack fallacy by attempting to move up the stack and subsequently failing.”  Sharma argues that the reason companies fail when they try to move up the stack is “They don’t have firsthand empathy for what customers of the product one level above theirs in the stack actually want.”  In support of this, “it helps to recognize that companies move ‘down’ the stack all the time, and it often strengthens their position.  It is the same thing as vertical integration.”  Finally, it should be noted that “the stack fallacy is just that: a fallacy and not a law of nature.  There are ways around it.  The key is figuring out how to have true firsthand empathy for the needs of the customer for whatever product you’re trying to build next.”

********Intriguing article.  The essay by Anshu Sharma can be found at: http://techcrunch.com/2016/01/18/why-big-companies-keep-failing-the-stack-fallacy/.  The essay includes an interesting comic, which makes the point nicely and leads me to ask, “Where would economists be placed in the comic?”  As indicated by Mims in the article, Sharma’s fallacy seems to be testable.  If he is correct, attempts to vertically integrate upward should be more likely to fail than attempts to vertically integrate downward.  Is there literature on this?

(25 January 2016): “’Landmark’ Pacific Rim trade deal could boost U.S. exports” (https://www.washingtonpost.com/politics/landmark-pacific-rim-trade-deal-could-boost-us-exports/2016/01/24/ab2c9af0-c2b1-11e5-8965-0607e0e265ce_story.html)

——–On Monday, the Peterson Institute for International Economics released a report by economics Peter A. Petri and Michael G. Plummer assessing the likely impact of the Trans-Pacific Partnership (TPP).  “The Peterson Institute study is the most thorough independent assessment of the economic impact of the TPP, the largest regional trade accord in history.”  According to the analysis, the accord “would yield considerable economic gains for the United States and 11 other nations, boosting exports by 9 percent a year and increasing wages . . . But the . . . TPP would not increase job creation overall, and it could force 50,000 U.S. workers each year to find new jobs, a process that might require them to pursue new training . . . Those workers, mostly in low-wage manufacturing, ‘may experience serious transition costs including lasting wage cuts and unemployment,’ . . . an equal number of about 50,000 new jobs could be created each year in high-tech manufacturing and service sectors as the U.S. economy undergoes structural changes.”  The World Bank has also studied the implications of the TPP, showing a smaller payoff from the agreement.  “Both studies, however, agree that the deal would benefit other trading partners much more than it would benefit the United States.”

********The report of the Peterson Institute is in the news this week, with additional articles on it being published in The New York Times and The Wall Street Journal on January 26th—no doubt there are many others.  Given that the TPP is showing up with some frequency in statements by presidential candidates, this seemed like a good time to assemble some materials about it.  First, the full text of the TPP can be found at: https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-textSecond, a broad overview of the TPP, although not one based on the full text, can be found at: http://www.nytimes.com/2015/05/12/business/unpacking-the-trans-pacific-partnership-trade-deal.html.  I like it because it captures some of the conciseness of an earlier summary at: https://www.washingtonpost.com/news/wonk/wp/2013/12/11/everything-you-need-to-know-about-the-trans-pacific-partnership/Third, a pdf of the recent Peterson Institute report can be found at: http://www.iie.com/publications/interstitial.cfm?ResearchID=2906Fourth, a pdf of the World Bank report can be found at: http://www.worldbank.org/en/publication/global-economic-prospects/GEP-Jan-2016-Implications-Trans-Pacific-PartnershipFinally, an article indicating that Democratic candidates Hillary Clinton and Bernie Sanders and Republican candidates Ted Cruz and Donald Trump oppose the TPP agreement.

(25 January 2016): “Is American Olive Oil About to Have Its Moment?” (http://www.bloomberg.com/features/2016-california-olive-oil/)

——–Olive trees have the ability to live 1,000 years and have done so in Europe, where olives tend to be hand harvested.  But “an 18-year-old company called California Olive Ranch is upsetting tradition and muscling into the ancient industry by fixing the tree itself.  The company’s 2,200-acre orchard, an hour north of Sacramento, is an industrial marvel.  The 1.3 million trees there are more like bushes, 6 to 10 feet tall and planted in neat, tight rows” and they are harvested mechanically, with no olive touched by hand.  “California Olive Ranch, a privately held company, estimates it accounted for 65 percent of the olive oil produced in the U.S. in 2015. . . . [It] is trying to do with olives what California did with wine.  It’s marrying a fastidious, technology-driven approach . . . with California’s self-appointed role as the world’s regulator.”

********You can learn more about California Olive Ranch at: http://californiaoliveranch.com/.  The article provides much information about olive oil production and consumption, all in the context of its potential development in the U.S. (California).  The article helped surface a memory, i.e., the claim that the Greek philosopher Thales made a fortune by monopolizing olive presses during an abundant harvest.  You can read the story at: http://epochproducts.com/blog/the-first-monopoly-in-the-world-was-about-olive-oil/.  Not surprisingly, this episode is discussed in the article “What is the Fair Rent Thales Should Have Paid?” (http://www.aueb.gr/pympe/hercma/proceedings2005/H05-FULL-PAPERS-1/MAKROPOULOU-MARKELLOS-1.pdf).

(27 January 2016): “The Road to Utopia: A Conversation With Juliet Schor” (http://daily.jstor.org/the-road-to-utopia-a-conversation-with-juliet-schor/)

——–Juliet Schor is a Professor of Sociology at Boston University.  She has a Ph.D. in economics and “spent 17 years in Harvard’s econ department.”  Her books, “starting with 1992’s The Overworked American and continuing through Plenitude in 2010—have found an audience among readers interested in thinking critically about the environmental and the human costs of the work-spend cycle.  In a review for Contemporary Sociology, the University of Minnesota’s Rachel Schurman described Plenitude as ‘a clarion call to abandon our self-destructive consumption practices and to create a new economy that values, nurtures, and produces a very different sort of wealth.’”

********I’m unfamiliar with Schor’s work but I intend to learn more.  In 2011 she gave one of the E.F. Schumacher lectures associated with the Schumacher Center for a New Economics (http://www.centerforneweconomics.org/).  Schumacher was a development economist who was best known for his book Small is Beautiful: Economics as if People Mattered (http://www.amazon.com/Small-Beautiful-Economics-People-Mattered/dp/0061997765/).  You can view Professor Schor’s 51-minute lecture, as well as read its transcript, by going to the Lectures and Publications page (http://www.centerforneweconomics.org/publications), where you can also view the names of all those who’ve given a Schumacher lecture, and clicking on her name.  According to the writer of the JSTOR article, Livia Gershon, “Schor summed up much of her vision in a short 2001 paper for the Berkeley Journal of Sociology.  A link to the article is provided.  Gershon’s article—and Schor’s ideas—are provocative.  It leads me to think that one could show that ever-increasing human welfare and ever-decreasing GDP are consistent.  Easy to show, perhaps, in a model but difficult to report on the evening news.

May you have a good week!

Bruce

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