260 (13 April 2016)

Welcome to week 260!  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.

(7 April 2016): “Upstart Brewers Rise Against Craft-Beer Founding Father Samuel Adams” [SR](http://www.wsj.com/articles/upstart-brewers-rise-against-craft-beer-founding-father-samuel-adams-1459935001)

——–“When Jim Koch launched what would become the nation’s best-known craft beer in 1984, he named it after Samuel Adams because he wanted to start a beer revolution.  He succeeded . . . But after years of thriving as the main craft alternative to Budweiser and Miller Lite, the craft beer boom he helped begin is turning on him.  Craft breweries are springing up at a rate of nearly two a day, according to the Brewers Association, which represents 3,000-plus small-scale beer producers.  The newcomers are taking tap handles, shelf space and sales, making it harder for Sam Adams to stand out from the crowd.”  In its most recent year, Boston Beer Co., which makes Sam Adams, saw its sales grow by just 3.6% following “back-to-back years of more-than-20% gains.”  The challenge facing Sam Adams “is on display at Hop City, a popular Atlanta craft-beer store, where four varieties of Sam Adams beer are competing on 7-foot-tall shelves overflowing with 6,500 different beer options from more than 250 breweries.”  Younger drinkers often prefer more exotic brews, says Hop City salesman Caleb Raubenolt; forty-year-olds may regard Sam Adams as a “gateway into craft.”

********A great example of competition at work.  Evidently Koch intends to address some of these challenges by an expanded product line and improving beer freshness.  Craft beer’s market share “is projected to nearly double to 20% by 2010” and Koch “foresees a downturn in craft-beer quality because more people are opening breweries to cash in than make great beer.” noting that “If we give drinkers better tasting beer, they’ll drink more of it.”  All this brings to mind the advertising campaign “This is not your father’s Oldsmobile” (http://www.slate.com/articles/business/moneybox/2000/12/oldsmobile_victim_of_its_own_brand.html).  Beer goes stale—perhaps brands do, too.

********While we are on the subject of competition, consider the markets for soft drinks and sparkling water, as described in “Sparkling-Water Race Bubbles Up” [SR](http://www.wsj.com/articles/lacroix-bubbles-up-in-sparkling-water-brand-competition-1460047940).  LaCroix sparkling water was once a sleepy regional brand of National Beverage Company, but its sales “have more than doubled in the past two years to $225.5 million, second to . . . Perrier.”  Consumer Aimee Buckert of Plainfield, Illinois explains the reasoning: “Pop right now is a big no-no, and diet pop is an even bigger no-no.”  Like many consumers, “she doesn’t want the calories of regular soda or the artificial sweeteners of diet drinks.”  Novel, low-cost advertising and bright packaging has helped steer customers to LaCroix from Perrier, just sweetening considerations have helped steer customers to LaCroix from “pop.”  In looking at the two cases, it seems that in the craft brewing segment of beer, there is something like monopolistic competition at work, i.e., many “small” producers selling differentiated products.  But in the sparkling water segment of water, there is something like oligopolistic competition at work, i.e., a few “large” producers selling differentiated products.

(8 April 2016).  On this day I received the March 2016 contents of Isis: A Journal of the History of Science Society and in it was referenced a review of Banking on the Body: The Market in Blood, Milk, and Sperm in Modern America, by Kara W. Swanson.  According to the first page of its review (http://www.journals.uchicago.edu/doi/pdfplus/10.1086/686206), Swanson, a legal practitioner and historian, traces “the history of blood, milk, and sperm procurement and distribution in the United States.  Joining a rich historical, sociological, and anthropological literature that deals with the labor of donation, the material history of preservation, and the lived experience of donors, Swanson distinguishes her account by concentrating on the history of body fluids as ‘property’—both civic and market.”  As a point to consider, “Unlike organs and blood, milk and sperm are freely bought and sold in the present-day United States, although historically for rather different reasons.”  The book sounds fascinating and should provide ample opportunities for viewing the invisible forces in action.

********Swanson’s book has met with interest.  There is a lengthy, downloadable, and highly positive review of it in Journal of Legal Education (http://jle.aals.org/home/vol65/iss1/13/).  More informally, there is an interview with Swanson in The Atlantic (http://www.theatlantic.com/business/archive/2014/07/banks-of-blood-and-sperm/375341/).  Finally, you can listen to a 21-minute interview with her at: http://www.hup.harvard.edu/catalog.php?isbn=9780674281431.

(8 April 2016): “A Short Primer on the Panama Papers” (http://daily.jstor.org/short-primer-panama-papers/)

——–“The so-called ‘Panama Papers’ files released last weekend detail wide-spread tax-evasion among the world’s elites. . . . Jane G. Gravelle speaks out how this system of international tax avoidance and evasion works in the National Tax Journal.  Tax havens are places where both individuals and corporations can deposit money to hide it from their own national taxation systems. . . . The havens essentially sell secrecy to overseas investors.  It is, needless to say, very profitable for those host countries.”

********Gravelle’s 27-page article (2009) is “Tax Havens: International Tax Avoidance and Evasion” and a link is provided to it at the bottom of the article.  She provides information about individual and corporate tax evasion, where it takes place, and ways it might be managed.

********While on the subject of taxation, April 15th is coming up and taxes are on the minds of many.  The Wall Street Journal’s Saturday Essay deals with income taxation in “Taxation Without Exasperation” (http://www.wsj.com/articles/taxation-without-exasperation-1460129434), which calls for the U.S. to embrace a Value-Added Tax (VAT) like “almost all of the world’s rich market democracies.”  Canada has had a VAT since 1991 and Australia since 2000.  Although VAT’s can take many different forms, there is one in particular that seems especially promising.  “For almost two decades, Michael J. Graetz, a professor at Columbia Law School and one of the country’s leading experts on tax law, has been urging Americans to adopt a saner, more sensible tax system, which he calls the Competitive Tax Plan. . . . The centerpiece of Mr. Graetz’s plan is a VAT” that should “be as visible as possible.  Every time you buy something, you would see the amount of VAT you paid listed on your receipt.”  No doubt a great deal of detail about Graetz’s plan is provided in his 2010 book 100 Million Unnecessary Returns: A Simple, Fair, and Competitive Tax Plan for the United States; With a New Introduction (http://www.amazon.com/100-Million-Unnecessary-Returns-Introduction/dp/0300164572).  The WSJ article, toward its end, makes some useful comments about the challenges facing any meaningful change in the U.S. tax code, one of the main obstacles being that many things happen at once, rather than one thing at a time.

(9 April 2016): “Small, Piecemeal Mergers in Health Care Fly Under Regulators’ Radars” (http://www.nytimes.com/2016/04/09/business/small-piecemeal-mergers-in-health-care-fly-under-regulators-radars.html)

——–On Monday federal officials are expected to argue “that a large hospital merger in the Chicago area could hurt consumers and should be stopped. . . . But a frenzy of smaller transactions is also profoundly changing the [health] landscape, many of which face little regulatory resistance.  The deals are often for a couple of doctors here, or a hospital there, making them too small to attract much attention.  But as those deals add up, they are creating groups that in some cases dominate local or regional markets.  And they are raising questions about whether the gaze of antitrust officials is directed in the right place.”  According to Dr. Farzad Mostashari, formerly a health official in the Obama administration, the process of “creeping consolidation” is “being done at a pace that keeps it away from prying eyes . . . If you move slowly enough, maybe nobody will notice.”  Some small deals “go unreported, leaving any tally of them incomplete.  But at least 940 health care service transactions took place last year, up from about 480 in 2010.”

********Quality and price of services are at the heart of the desirability of merger discussions and health care raises particularly challenging issues relating to them.  Knowledge about the price care is especially difficult to know and the same is true for quality.  Still, it will be difficult to know if mergers are affecting them if mergers, even the tiny ones of one physicians practice being bought up by a local medical center, go unreported.  Consequently, the approach of Massachusetts, which “now requires that any health care transactions be reported to a state agency” seems essential.  Health economics must be a fascinating (and challenging) field.

(9 April 2016): “Schumpeter: The grey market” (http://www.economist.com/news/business/21696539-older-consumers-will-reshape-business-landscape-grey-market)

——–“Those over 60 constitute the fastest-growing group in the populations of rich countries, with their number set to increase by more than a third by 2030, from 164m to 222m.  Older consumers are also the richest thanks to house-price inflation and generous pensions. . . . Yet companies have been relatively slow to focus on this expanding market—certainly slower than they were to attend to the youth-quake” of the 1960s.  “One reason for this tardiness is that young people dominate marketing departments and think that the best place for the old is out of sight and mind.”  In addition, many of the old “don’t relate to television advertising.  “But the biggest reason is that oldies are such slippery customers.”  But some companies “are trying to understand older people better”—like Kimberly-Clark and Ford.  Research by the Boston Consulting Group suggests that older people “are less eager to acquire material possessions than preceding generations and much keener to acquire experience, particularly through travel and study.”  People should take heed.  “Baby-boomers have spent their lives making noise and demanding attention.  They are not going to stop now.  They will be the biggest and richest group of pensioners in history.”

********All this, of course, seems to augur well for communities and geographic areas that focus of “older people” and what they want and need.  What they want, apparently are experiences like travel, study, and attractive environs.  What they need, though, will be a health care system that will better attend to them.  Consequently, addressing an older population is something that both private and public sectors will need to address.

********An article that provides an opportunity to think more deeply about aging and expenditure is “The Rich Live Longer Everywhere.  For the Poor, Geography Matters” (http://www.nytimes.com/interactive/2016/04/11/upshot/for-the-poor-geography-is-life-and-death.html).  This article is based upon the article “The Association Between Income and Life Expectancy in the United States, 2001-2014” (http://jama.jamanetwork.com/article.aspx?articleid=2513561) in The Journal of the American Medical Association.  “Once conclusion from this work . . . is that the gap in life spans between rich and poor widened from 2001 to 2014.  The top 1 percent in income among American men life 15 years longer than the poorest 1 percent; for women, the gap is 10 years.”  Still, place seems to matter with regard to the life expectancy of the poor as well as for those below median income.  The differences between life expectancy, for example, are dramatic between those who live in the New York area and the Detroit area, with the latter being substantially lower.

********Along the same lines as the above, there is “Birth-cohort studies: Lifelong learning” (http://www.economist.com/news/books-and-arts/21696494-lifelong-learning), which is a brief review of The Life Project: The Extraordinary Story of Our Ordinary Lives, by Helen Pearson (http://www.amazon.com/Life-Project-Extraordinary-Story-Ordinary/dp/1593766459/).  The book examines five cohorts “begun in 1946, 1958, 1970, 1991 and 2000” totaling about 70,000 Britons.  The “sad message that has emerged from the studies, from the birth of the 1946 cohort to the present day, is that being poor remains a huge source of risk to health and well-being.  While it is possible to triumph over adversity . . . the odds are stacked against some people from before they are even born.”  A useful complement, no doubt, for the research related in JAMA.  The University of Wisconsin seems to have work underway that relates to the approach of The Life Project.  You can learn more about it at: http://www.ssc.wisc.edu/wlsresearch/.

********Finally, those who are turning 70 soon and not taking their Social Security benefits will need to begin doing so or face penalties.  This and other matters are discussed in “Watch Out, Boomers, Here Comes 70” (http://www.bloomberg.com/news/articles/2016-03-24/watch-out-boomers-here-comes-70).

(9 April 2016): “Russia’s dairy embargo: War and cheese” (http://www.economist.com/news/europe/21696571-land-where-european-cheese-banned-one-man-dares-make-his-own-war-and-cheese)

********This brief article tells the story of Russian Oleg Sirota, who sold his information technology company to fulfill a childhood ambition to make cheese.  That ambition only became feasible when Vladimir Putin banned farm imports from the European Union due to sanctions put in place after Russia annexed Crimea.  Prior to that, Sirota saw “no way to compete with European imports.”  Last year “Mr Putin announced plans to spend some 2.5 trillion roubles ($37 billion) on 2,500 import-substitution projects.  The results have been unimpressive.  Most industries have a hard time replacing foreign components and know-how.  Yet agriculture has been a bright spot of sorts, as ‘anti-sanctions’ have cleared space for Russian producers.”  Although Mr Sirota must “fend off domestic rivals who substitute palm oil for dairy fats” his principal concern is that the West may lift sanctions too soon.  He notes” “If Obama and Merkel extended sanctions for another 10 years, I’d build them a monument in bronze right out front.”

********A companion story, of sorts, is provided by “A Tale of Two Nafta Towns.”  You can listen to an 11-minute radio broadcast of it at: http://www.bloomberg.com/news/audio/2016-04-08/a-tale-of-two-nafta-towns.  In it reporter Thomas Black makes an important point about freer trader—the benefits tend to be highly dispersed, whereas the costs tend to be concentrated.  So, whereas “the consuming public” benefits by prices lower than they would otherwise be, particular communities, like Scottsville, Kentucky, population 4,226, which lost its largest employer, get hammered.  An earlier print version of this story can be found at: http://www.eldailypost.com/news/2016/03/trumps-trade-war-16-an-hour-job-lost-2-an-hour-job-gained/.  Some additional materials on the topic of NAFTA and its effects center around the book Boom, Bust, Exodus: The Rust Belt, the Maquilas, and a Tale of Two Cities (http://www.amazon.com/Boom-Bust-Exodus-Maquilas-Cities/dp/0199765618/), by Chad Broughton and published by Oxford University Press.  A review of the book can be found at: https://www.texasobserver.org/how-nafta-transformed-a-mexican-border-town/.

(12 April 2016): “Climate Change, Fungal Change” (http://daily.jstor.org/climate-change-fungal-change/)

——–“Climate change is incontrovertibly causing a host of problems.  Beyond the more obvious changes in temperature, ocean acidity, and weather patterns, these changes can have further downstream effects that we are only just learning about.  For instance, the cumulative effects of climate change are also driving shifts in the composition of fungi found in soil.”  While these fungal communities “and their symbiotic relationships to plants are all but invisible to us—except for mushrooms . . . the presence and composition of such microscopic communities are a good metric of how healthy an ecosystem is.  Soil, after all, is the foundation of plant life.”

********One might well say that soil is the foundation of all life.  The Behavior-Choice-Environment Model with the Invisible Forces Fully Extended (https://theinvisibleforces.files.wordpress.com/2014/12/the-bce-model-with-the-invisible-forces-fully-extended.pdf) shows how changes in the soil (Earth) influence the alternatives and valuations involved in choice, behavior, and their consequences.  It is easy to envision how the changes described in the article will influence the demand for and supply of a variety of different resources and products.

(13 April 2016): “Corn Imports Surge in U.S., Despite Record Harvests at Home” [SR](http://www.wsj.com/articles/corn-imports-surge-in-u-s-despite-record-harvests-at-home-1460485875)

——–“There is something unusual going on in the U.S. corn market.  Even as record harvests have left the U.S. awash in corn, imports of the crucial animal feed are surging.  It is happening because moves in currencies, ocean-shipping fees and railroad rates have combined to produce an unexpected result: Bringing in corn from places like Brazil and Argentina can be cheaper for poultry and livestock producers in the Southeast U.S. than buying it from the Midwest.”  Regarding transportation costs, “In April, it could cost about 80 cents to $1.50 a bushel to ship corn from west to east in the U.S. by rail, while per-bushel costs to ship corn from South America to the U.S. recently have ranged from about 35 cents to 50 cents.”  As noted by senior vice president of Prestage Farms, John Prestage, in Clinton, North Carolina: “It’s crazy that we’re able to bring in corn from South America a lot of times cheaper than U.S. corn, but it’s only because rail rates are so ridiculously high.”

********The article is an excellent reminder that a country can be both an importer and an exporter of a commodity depending upon location and transportation cost.  What is true of corn is, of course, also true of oil.

May you have a good week!

Bruce

 

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