277 (10 August 2016)

Welcome to week 277!  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.

(4 August 2016): “The Hottest Start-Up Market?  Baby Boomers” (http://www.nytimes.com/2016/08/04/business/smallbusiness/the-hottest-start-up-market-baby-boomers.html)

——–“With an estimated 74.9 million baby boomers, according to Pew Research Center, the biggest market opportunity for start-ups is older Americans rather than hip millennials.  As members of the generation that defined rock ‘n’ roll grow older, they are adding a wide range of goods and services to their lifestyles.”  Boomers are a large part of the so-called “longevity” market, i.e., “the over-50 demographic . . . whose annual economic activity currently amounts to $7.6 trillion, according to AARP. . . . The staggering size of the total longevity economy . . . has been attracting more entrepreneurs, deep-pocketed financiers and places to pitch new ideas in the past few years.”  Boris Mordkovich is one of those entrepreneurs.  He and his brother Yevgeniy founded the electric bike company Evelo, which is profitable and is projected to double its revenue to $4 million.  Regarding the bike, he notes: “Electric bikes are an equalizer . . . They let the rider decide how much or how little they will pedal.”  Funding for start-ups, like Evelo, seems to be readily available as more venture capitalists recognize the opportunities provided by the longevity market.

********This article addresses the consumption habits of Baby Boomers.  In a related article, “For Economy, Aging Population Poses Double Whammy,” by Wall Street Journal columnist Greg Ip [SR](http://www.wsj.com/articles/for-economy-aging-population-poses-double-whammy-1470249965), some of the negative consequences of Boomers retirees are examined.  He notes, “Economists have long expected an aging population to hamper growth for the simple reason that it means a smaller labor force.  But new research has identified a potentially more powerful impact: Rapid retirements deprive companies of critical experience and knowledge, which undermines productivity across the entire economy.”  An examination of the consequences of an aging population is provided by “a new paper by Nicole Maestas of Harvard University and Kathleen Mullen and David Powell of the Rand Corp., a think tank.  Because the 50 states are aging at different rates, they were able to tease out the impact of aging on economic growth.  Their conclusion: On average, every 10% increase in the share of state’s population over the age of 60 reduced per capital growth in [state] gross domestic product by 5.5%.”

********The article by Maestas, Mullen, and Powell is “The Effect of Population Aging on Economic Growth, the Labor Force and Productivity” can be read at: http://www.nber.org/papers/w22452.

(5 August 2016): “Colombia’s New, Legal Drug Barons Focus on Medical Marijuana” (http://www.nytimes.com/2016/08/05/business/international/colombia-medical-marijuana-drugs.html)

——–“Like many drug barons in Colombia, Federico Cock-Correa wants to sell his product globally.  Just 15 miles outside Medellin, Mr. Cock-Correa is looking to replace vast acres of flowers with marijuana plants, with plans to export the harvest.  But unlike the brutal heroin and cocaine trade that once flourished nearby, his operation has the government’s stamp of approval.”  During the last year Colombia overhauled 30-year-old drug laws, formally legalizing medical marijuana for domestic use and allowing “the commercial cultivation, processing and export of medical marijuana products—like oils and creams—although not the flower, the part of the plant normally rolled into a joint.”  One company looking to benefit from the legal change is Toronto-based PharmaCielo, which has received a license “to manufacture cannabis products . . . [and] is still waiting for licenses for cultivation. . . . Once it receives approval, PharmaCielo will start growing marijuana and then process the material into medical products that can be exported to Canada and other countries that allow the importation of medical cannabis.  The United States, for now, remains a long way off.”  When production is fully underway, “PharmaCielo expects to produce a gram of marijuana flowers for about 5 cents.  The same amount costs at least 10 times as much to produce in the United States and Canada.”

********The cost differences for growing marijuana flowers are dramatic and stem from geography, climate, and soil.  Since the equator runs through Colombia, as it does for Ecuador and Brazil (and some other countries), days and nights tend to be near 12 hours each, thereby keeping plants in the vegetative state in which flowers grow for longer periods of time and without artificial lighting.  To achieve the same results in the U.S. or Canada, extensive use of artificial lighting must be made, hence one dimension of the production cost differential.

********There is, of course, an extensive back story to this article, one that includes Colombia’s historical role in the production of cocaine, Colombia’s role as a large supplier of cut flowers, e.g., and the slow evolution of legal marijuana, medical and otherwise, in the U.S. and Canada.  As Colombian growers redeploy their resources from cut flowers to marijuana, no doubt the short-run effect will be higher flower prices, although longer term some flower production will likely increase elsewhere.  Likewise, it is easy to see a day when a U.S. marijuana trade group lobbies hard against the importation of marijuana into the country, possibly even seeking to increase penalties on those who smuggle it into the country.  I’ve been reading, as part of my efforts to become better informed on the global market for illegal drugs, Cocaine: An Unauthorized Biography (https://www.amazon.com/Cocaine-Unauthorized-Biography-Dominic-Streatfeild/dp/0312286244/), by Dominic Streatfeild, and it does a nice job of providing background for the development of cocaine products and Colombia’s role in it.  It has been an engaging read and shows many of the impacts that the cocaine trade has had in the U.S. and globally.

(5 August 2016): “This Company Has Built a Profile on Every American Adult” (http://www.bloomberg.com/news/articles/2016-08-05/this-company-has-built-a-profile-on-every-american-adult)

——–“The most important tools for America’s 35,000 private investigators are database subscription services.  For more than a decade, professional snoops have been able to search troves of public and nonpublic records . . . and condense them into comprehensive reports costs as little as $10.  Now they can combine that information with the kinds of things marketers know about you, such as which politicians you donate to, what you spend on groceries, and whether its weird that you ate in last night, to create a portrait of your life and predict your behavior.  IDI, a year-old company in the so-called data-fusion business, is the first to centralize and weaponized all that information for its customers.”  According to its CEO, Derek Dubner, the company has “already built a profile on every American adult.”  He says that the “personal profiles include all known addresses, phone numbers, and e-mail addresses; every piece of property ever bought or sold, plus related mortgages; past and present vehicles owned; criminal citations, from speeding tickets on up; voter registration; hunting permits; and names and phone numbers of neighbors.  The report also includes photos of cars taken by private companies using automated license plate readers—billions of snapshots tagged with GPS coordinates and time stamps to help PIs surveil people or bust alibis.”

********You can learn more about IDI (Interactive Data Intelligence) at: http://ididata.com/.  The expression ‘data fusion’ seems useful and is widely used in a variety of contexts.  Its Wikipedia entry is suggestive: https://en.wikipedia.org/wiki/Data_fusion.  One can only imagine what a really determined organization with extensive resources could pull together for one person.  Private investigators in North Carolina are licensed.  You can learn more at: http://www.ncdps.gov/About-DPS/Bobaards-Commissions/Private-Protective-Services-Board.

(6 August 2016): “Tariffs and wages: An inconvenient iota of truth” (http://www.economist.com/news/economics-brief/21703350-third-our-series-looks-stolper-samuelson-theorem-inconvenient-iota)

********This is the third of six briefs on economics.  It explores the eponymous Stolper-Samuelson Theorem of international trade and relates it to current economic deliberations.  The presentation is probably as easy as it gets, although not exactly easy.  Among other things, it points to the relatively ease that goods have in moving from country to country and the relatively difficulty that labor has in doing the same thing.  It was the movement of labor, of course, that was one of the issues behind the recent Brexit vote in the UK.

(6 August 2016): “Think You Bought Red Snapper?  Don’t Be So Sure” (http://www.wsj.com/articles/think-you-bought-red-snapper-dont-be-so-sure-1470428804)

——–Three years ago the environmental group Oceana studied whether those buying fish were getting what they paid for.  “Scientists performed DNA tests on more than 1,200 samples from nearly 700 different stores and restaurants in 21 states.  One out of three fish were mislabeled . . . and the numbers were even worse in big cities such as New York, Los Angeles and Boston.  The poster child for the problem is red snapper, which many experts cite as the most faked species.”  According to researcher Mark Stoeckle, of Rockefeller University, “When you buy [red snapper], you almost never get it.”  Behind the broader issue is that “Seafood uniquely lends itself to fraud.  The supply chain for it is opaque and convoluted, and most white-fleshed fish—which is to say, most fin fish—looks similar when filleted.  For unethical suppliers, it is easy to substitute a lower-cost fish for a pricier one.”

********The article concludes with some suggestions on how to avoid fish fraud.  The final suggestion might have come from one of the cows in the (old) Chick-fil-A ads: “it might be smart to order the chicken instead.”

(9 August 2016): “Maple Syrup Cartel Battles a Black Market Rebellion” (http://www.bloomberg.com/news/features/2016-08-10/maple-syrup-cartel-battles-a-black-market-rebellion)

——–“After eight years of tightly limiting output to keep prices high, the Federation of Quebec Maple Syrup Producers next year will boost its quota by 12 percent for 13,500 sap farmers who operate in the Canadian province.  The goal is twofold: Reclaim the 10 percent of market share lost to the U.S. over the last decade, and quell a rebellion by producers increasingly turning to black market sales for growth.”  Output restrictions had frustrated some, leading them “to sell on the black market.”  According to Simon Trepanier, executive director of the Federation, “If we allow producers to add more taps . . . , they will not be interested in selling on the black market . . . It will help to have a clean market, instead of a black market.”  Farmer Jim Dempsey of Inverness, Quebec, indicated that “looser restrictions may not work as planned.  He’s concerned that the additional syrup will end up in the group’s strategic reserve, unless the federation can find more markets to sell into or lowers its prices, which he believes they won’t do.”

********The concerns voiced by Jim Dempsey are real ones.  The article caught my attention because the shifting of the output restriction moves the boundary between legal and black markets.  In the short run, that boundary will undoubtedly reduce the size of the black market as more existing producers with their existing production participate in the legal market.  In the long run, however, the incentives that led some to access the black market will return and the size of the black market will increase once more.

********Nicely connected to the last comment above is the expression “For every regulatory action, there is a reaction.”  This is the first sentence of “A Payday-Loan Rival Gains Ground” [SR](http://www.wsj.com/articles/a-payday-loan-alternative-gains-ground-1470603307).  The instance examined in the article notes: “The latest example: A government effort to crack down on payday loans has given new energy to installment loans.”  Restrictions on the availability of payday loans will almost surely lead to more installment loans which, although they may also have high interest rates, have longer repayment lengths.  All this is reminiscent of the ecological saying “You cannot do only one thing.”  This is true of all adaptive systems, of which markets are a prime example.

May you have a good week!

Bruce

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