250 (3 February 2016)

Welcome to week 250!  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.

(28 January 2016): “Who Owns The Sun?” (http://www.bloomberg.com/features/2016-solar-power-buffett-vs-musk/)

********During 2015 the Nevada Public Utilities Commission changed the way it regulates solar power.  By doing so it supported the investment of Warren Buffet in state-regulated NV Energy and undercut the investment of Elon Musk in solar energy giant SolarCity.  This case clearly illustrates the power of start regulators to affect the return on investments made by large individual investors, as well as the many homeowners who invested in solar systems only to see regulators remove the conditions that made those systems viable.

********Somewhat related to this article is  “The Supreme Court just gave a great explanation of our baffling electricity system” (https://www.washingtonpost.com/news/energy-environment/wp/2016/01/26/the-supreme-court-just-gave-a-great-explanation-of-our-baffling-electricity-system/), which provides background and insight into the recent 6-2 Supreme Court decision in the case Federal Energy Regulatory Commission vs. Electric Power Supply Association.  In this decision the Court “blessed ‘demand response’—the idea that big companies (and maybe, someday, aggregated groups of individuals) can get paid for using less electricity at key times when it eases pressure on the grid.  Demand response is as important as it is difficult to understand.  And that’s why the Supreme Court’s majority opinion, written by Justice Elena Kagan, is a marvel.  People should read it for something bordering on electrical literacy—a rarity these days, understandably but also unfortunately.”  You can read the Court’s 48-page opinion at: http://www.supremecourt.gov/opinions/15pdf/14-840_k537.pdf.

(29 January 2016): “The crazy sequence of events that’s making almonds cheap again” (https://www.washingtonpost.com/news/wonk/wp/2016/01/29/too-many-almonds/)

——–“After years of steady price increases, thanks in large part to sky-rocketing demand, the [almond] . . . has suddenly become much cheaper.  Almond prices, which reached record highs early last year, have fallen by about 25 percent compared with late 2014. . . . The price plunge, while a welcome bit of news for almond eaters, is putting a strain on the industry dealing with suddenly lower prices.  And it’s also exposing the complicated and often unpredictable circumstances that dictate why certain nuts cost what they do.”  Between 2005 and 2012, the per-capita consumption of almonds grew “by more than 200 percent” and surpassed peanut consumption while doing so.

********I am a little confused by some of the analysis of the almond market but it does provide some exposure to the roles of elasticity of demand, weather and its timing, and exchange rates in determining the price of almonds.

(29 January 2016): “Shares of These Companies Are Moving As the Zika Virus Spreads” (http://www.bloomberg.com/news/articles/2016-01-29/shares-of-these-companies-are-moving-as-the-zika-virus-spreads)

********News affects the demand and supply of the shares of individual companies and that is certainly the case for the Zika virus that is said to be spreading explosively (http://www.bbc.com/news/world-us-canada-35425731).  This article shows the upward pull on stock prices companies working to combat it and the downward push of stock prices of a cruise line that plies the waters of the region affected by the virus.  No surprises, here, just clear examples.  For information about some of the challenges and time required to develop a Zika vaccine, see “Drug Industry Starts Race to Develop Zika Vaccine” [SR](http://www.wsj.com/articles/sanofi-to-launch-zika-vaccine-research-1454421279).

********The New York Times has published a very informative set of “Short Answers to Hard Questions About Zika Virus” (http://www.nytimes.com/interactive/2016/health/what-is-zika-virus.html).

(30 January 2016): “The economics of corruption: The wages of sin” (http://www.economist.com/news/finance-and-economics/21689642-theory-higher-pay-cuts-corruption-practice-opposite-happens-wages)

——–“Whether the miscreants are African policemen, European politicians or American university basketball players, the same remedy for corrupt behaviour is offered: pay people more money.  It sounds intuitive.  But does legitimate lucre really drive out the filthy kind?  New research involving a natural experiment in West Africa suggests that it does not—and that conventional economic theories of corruption are wrong.”

********The “natural experiment” mentioned relates to the compensation of police officers in Ghana.  It turns out that one of the mechanisms that officers use to extract additional money is the roadblock, the delays at which can be reduced by appropriate payments.  After police salaries were significantly increased, though, officers “erected more roadblocks, detained lorries for longer . . . and extracted more money.  Economic theory suggests the opposite should have happened.”  What “economic theory is” for any particular issue, of course, is almost never just one thing.  It is a flexible, perhaps too flexible, way of thinking about things.  A few alternative explanations are provided in the article but the one that drew me in was that the “pay rise may have  . . . [increased the officers’] sense of . . . worth, leading them to demand more money.”  I.e., the higher status of the person being bribed, the larger the bribe must be.

********The paper upon which this article is based appears to be “Do Higher Salaries Lower Petty Corruption?  A Policy Experiment on West Africa’s Highways” (https://www.aae.wisc.edu/events/papers/DevEcon/2014/foltz.11.06.pdf).  A précis, of sorts, can be found at: http://independentevaluation.afdb.org/fileadmin/uploads/opev/Documents/IEM_-_Evaluations_Can_Help_Policymakers_Understand_Corruption.pdf.

(1 February 2016): “The Historic Achievement of the Pullman’s Porter’s Union” (http://daily.jstor.org/historic-achievement-pullman-porters-union/)

——–“In the 1920s, the largest private employer of African Americans was the Pullman Palace Car Company. . . . For black men, working as a porter was one of the few available jobs that paid a bit better than field labor. . . . But it was tough work.  The porters had to carry baggage, shine shoes, clean the berths, and respond courteously to any passenger requests. . . . Porters often worked 400 hours a month with little rest.  The Pullman rule book allowed for three hours of sleep the first night out and none for the remainder of the trip.”  With the help of the Colored Women’s Economic Council, “founded by the wives of Pullman porters” the American Federation of Labor, in 1934, finally “accepted the porters’ union as a full member and helped it convince the federal government to extend protections for their union activity.”

********You can learn more about the porters and their unionization in the very readable article (link provided) grounding this article, “’A Greater Victory’: The Brotherhood of Sleeping Car Porters in St. Paul.”  The Pullman Company gained notoriety for its role in the Pullman Strike of 1894, in which thirty people were killed (https://en.wikipedia.org/wiki/Pullman_Strike).

(2 February 2016): “How Free Electricity Helped Dig $9 Billion Hole in Puerto Rico” (http://www.nytimes.com/2016/02/02/business/dealbook/puerto-rico-power-authoritys-debt-is-rooted-in-free-electricity.html)

——–The Puerto Rico Electric Power Authority (Prepa) “has been giving free power to all 78 of Puerto Rico’s municipalities, to many of its government-owned enterprises, even to some for-profit businesses—although not to its citizens.  It has done so for decades, even as it has sunk deeper and deeper in debt, borrowing billions just to stay afloat.”  Although efforts are underway to limit free electricity, “the free electricity is so tightly woven into the fabric of society that unwinding it would have vast ramifications and, some say, only worsen the plight of the people who live here.”  The free power dates from 1941 when Prepa was established by Rexford Tugwell, “the last American governor of Puerto Rico to be appointed by the president of the United States.  He contended that for electricity to benefit the people, it had to be owned by the people, and he created Prepa by nationalizing the handful of private electric companies then on the island.”

********Rexford G. Tugwell was an economist who played an important role in Franklin D. Roosevelt’s “brain trust” that helped develop the New Deal and served as Governor of Puerto Rico from 1941-46 (https://en.wikipedia.org/wiki/Rexford_Tugwell).  I wonder if he provided a systematic rationalization for free electricity in his many works.  I can understand that some energy-rich countries might be persuaded to keep energy prices low for its citizens.  That some do—Venezuela is the leading example with its gas prices but it has considerable company, as is readily seen: http://www.globalpetrolprices.com/gasoline_prices/.  On 1 February 2016, the price of gas in Venezuela was 6 cents per gallon; Libya comes in second at 53 cents per gallon.

(3 February 2016): “Noncompete Agreements Hobble Junior Employees” [SR](http://www.wsj.com/articles/noncompete-agreements-hobble-junior-employees-1454441651)

——–“Noncompete agreements—common in computing and engineering jobs, where proprietary technology can be at stake—are spreading to other industries and stretching further down the corporate ladder.  Labor-law experts say some employers appear to be using them to prevent turnover among rookie employees they have spent time and money training.  Since the agreements are private contracts, they generally are enforced through lawsuits.  New York Attorney General Eric Schneiderman has launched an investigation into the practice to see if it violates New York labor laws, according to people familiar with the matter.”  It is difficult to find broad data on noncompete agreements.  “A working draft of one of the first extensive studies of them, by researchers at the University of Michigan, came out last year.  Its preliminary findings were that more than 12% of American workers have signed such contracts . . . It also found that more than 40% of those who had signed an agreement read it quickly or not at all, suggesting many workers didn’t understand the consequences.”  The enforcement of noncompete agreements varies by state.  “California doesn’t enforce them, and some researchers say that has encouraged startups, a cornerstone of Silicon Valley’s success.”

********The research in question appears to be “Noncompetes in the U.S. Labor Force,” by Evan Starr, Norman Bishara, and J.J. Prescott.  The pdf of the article can be found by searching on its title.  Wikipedia provides useful information about noncompete clauses, which are also known as covenants not to compete (https://en.wikipedia.org/wiki/Non-compete_clause).  It makes specific reference to California, where noncompete clauses are invalidated “for all but equity stakeholders in businesses.”  Such clauses appear to serve as a barrier to exit from a particular firm and a barrier to entry into a particular industry.  This seems like a promising area of study.  I suspect a law degree would be helpful in that regard.  The Boston law Firm Beck Reed Riden (http://www.beckreedriden.com/) has a downloadable 50 State Noncompete Chart.  You can find it at its site under Resources.

(3 February 2016): “China’s 1.4 Billion Mouths Behind ChemChina’s Syngenta Pursuit” (http://www.bloomberg.com/news/articles/2016-02-03/china-s-1-4-billion-mouths-behind-chemchina-s-syngenta-pursuit)

——–“The logic behind what would be the biggest acquisition by a Chinese firm comes down to the growing gap between two numbers—population and available agricultural land.  China has 21 percent of the world’s population with just 9 percent of its arable land . . . That’s where China National Chemical Corp.’s purchase of Syngenta AG comes in.  The Basel, Switzerland-based company’s position as the world’s largest pesticide maker and its yield-boosting genetically modified crops will help increase the amount of food China produces per acre and give it muscle to take on rivals including Monsanto Co.  With about 1.4 billion mouths to feed, China needs a sharp boost in farm productivity, which has been hurt by damaged soil, contaminated water, and overuse of fertilizer and pesticides.”

********The article includes an impressive five-minute video discussing the implications of the acquisition, with a focus of why the price of Syngenta’s stock has such a small response.  Behind it seems to be concern about “completion risk,” which is explained in the video.  Regulatory issues, both in the EU and the U.S., but especially in the U.S., seem to the reason for it.

(3 February 2016): “Tax Food, not Just Fuel, to Save the Planet” (http://www.bloomberg.com/news/articles/2016-02-03/tax-food-not-just-fuel-to-save-the-planet)

——–“Climate change debates often dwell on the price of things that go round and round, like power-generating turbines or the wheels on the bus.  That’s where the tie to climate pollution is clearest: burn, churn, emit.  That may not be enough.  Every year that global carbon dioxide levels go up, countries need more ways to cut emissions.  A new paper published on Wednesday in the journal BMC Public Health reasons that growing food, the source of about one-third of carbon dioxide pollution, should also be a target for taxation.”  Meat produced from “methane-belching cattle and sheep” are of special concern.

********The article in question is “Simulating the impact on health of internalizing the cost of carbon in food prices combined with a tax on sugar-sweetened beverages” (http://bmcpublichealth.biomedcentral.com/articles/10.1186/s12889-016-2723-8).  The Bloomberg article aptly points out that “If the push-back from the energy industry . . . over increased regulation tied to climate change is any sign, a similar fight with agribusiness . . . would be long and arduous.”  The movie Cowspiracy (http://www.cowspiracy.com/) provides a fascinating look at issues relating to cattle, methane, and environmental organizations that is highly relevant to this article.

May you have a good week!

Bruce

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