291 (16 November 2016)

Welcome to week 291!  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.

(13 November 2016): “Teslas in the Trailer Park: A California City Faces Its Housing Squeeze” (http://www.nytimes.com/2016/11/14/business/mountain-view-california-confronts-housing-crisis.html)

——–“If there is anything that just about every Californian agrees with, it is that it costs too much to live in the state. . . . The town of Mountain View, Google’s home, wants to do something about that. . . . Mountain View is looking to increase its housing stock by as much as 50 percent—including as many as 10,000 units in the area around Google’s main campus.”  The current shortages, in Mountain View and elsewhere in the state, stem from cities and suburbs “dominated by anti-growth politics that seek to maximize the construction of tax-generating offices while minimizing the number of budget-depleting residents.”  Thus, “the crux of the state’s housing crisis is clear: Everyone knows housing costs are unsustainable and unfair, and that they pose a threat to the state’s economy.  Yet every city seems to be counting on its neighbors to step up and fix it.”  As a result, people like Rebecca an Steven Callister, “a couple in their late 20s . . . live in a double-wide trailer in a Mountain View mobile home park.”  An engineer at LinkedIn, Mr. Callister would typically own a home.  “But given the cost of housing in Mountain View and the brutal commute times from anywhere they could afford, a trailer makes the most sense and lets him spend more time with the couple’s two young children.”  Mrs. Callister jokes “that it’s the only mobile home park with Mercedeses and Teslas in the driveway . . . It’s like the new middle class in California.”

——–In the wake of recent elections, the City Council of Mountain View “is studying how to add a total of 17,000 [housing] units.”  To process the requests to build them, councilman Lenny Siegel notes that the city is seeking to hire additional planners, but few want the jobs because prospective planners “can’t afford to live here.”

********The article provides an excellent overview of some of the many considerations involved in expanding the housing stock of a city.  In brief, cities seem to be more interested in the revenues generated by offices than the costs generated by residents.

(13 November 2016): “Legal-Weed Crowd’s Euphoria Fades Because of Trump Concerns” (http://www.bloomberg.com/news/articles/2016-11-13/legal-weed-crowd-s-election-night-euphoria-turns-wary-on-trump)

——–“The legal-weed industry that celebrated victories in eight states last week is now warily eyeing the coming Trump administration. . . . While President-elect Donald Trump has sent mixed signals, many in his inner circle are no fans of legalization.  The next U.S. Justice Department could easily ditch the noninterference policy in force since 2013.  Pot is illegal under federal law.”

********As the article notes, in consequence of the recent election “One-in-five adults will be living in legal-weed states by the time Trump is inaugurated.  In 28 states, including four that just voted to join, medicinal marijuana will be lawful.”  The evolving status of marijuana in the United States is interesting to compare with the history of Prohibition in the U.S.  (I just finished reading the highly readable history Last Call: The Rise and Fall of Prohibition  (https://www.amazon.com/Last-Call-Rise-Fall-Prohibition/dp/074327704X/), by Daniel Okrent, and I am looking forward to viewing Prohibition (https://www.amazon.com/Ken-Burns-Prohibition/dp/B004NJC0R0/), by Ken Burns and Lynn Novick.  Also of interest is the book Smuggler Nation: How Illicit Trade Made America (https://www.amazon.com/Smuggler-Nation-Illicit-Trade-America/dp/0199360987/), by political scientist Peter Andreas.)  It turns out that a great deal of commerce can (and does) thrive when the government averts its eye.  Much commerce can, and does, thrive when government averts its watchful eye.  But when that watchful eye refocuses and is backed up by determined enforcement, the consequences can be dramatic.  In the case of prohibition, a constitutional amendment for repeal.  In the case of smuggling, the American Revolution.

(14 November 2016): “Dirty Linen: A Bed Sheets Scandal Hits the Cotton Industry” (http://www.bloomberg.com/news/articles/2016-11-14/dirty-linen-a-bed-sheets-scandal-is-roiling-the-cotton-industry)

——–“Huddled inside Target Corp.’s headquarters in downtown Minneapolis, a team of investigators spent the summer trying to answer what should have been a simple question: What were hundreds of thousands of the retailer’s sheets actually made of?  What they discovered has undermined trust in a global luxury product and set off a salvo of class-action lawsuits that have created a king-size public relations challenge for the Indian textiles industry and the U.S. companies it supplies.  Turns out that major American retailers, including Target and Wal-Mart Stores Inc., have been selling premium-priced sheets purportedly made of Egyptian cotton—a byword for luxury in linens—but that may in reality be woven with lower-quality cotton blends.”  Target investigators found that 750,000 of its “Egyptian cotton” sheets, which “sold for as much as $75 a pop, didn’t contain any Egyptian cotton at all, but an amalgam of lower-quality fibers from cheaper sources.”  The Cotton Egypt Association certifies Egyptian cotton, “But once a certification is granted, producers are mostly left alone until they need to renew their label a year later.”

********The article points to challenges faced by all certification processes, i.e., it is generally too expensive to have each unit of a product certified, so certification tends to employ methods that are less costly and thereby less likely to provide trustworthy certification.  In the present case, Egyptian cotton production has fallen dramatically over the last 10 years, from 970,000 bales in 2006-7 to a projected 160,000 bales in 2016-17.  As a result, the monetary gain from representing a lower-quality product as Egyptian cotton has increased.  Clearly, consumers are not in a position to do their own testing of such products, despite the adage caveat emptor (https://en.wikipedia.org/wiki/Caveat_emptor).  While reading the Wikipedia article, I came across the expression caveat lector, “let the reader beware.”  Clearly an expression that should be used more frequently in this “fake news” era.

(15 November 2016): “The Invisible Digital Hand” (http://www.wsj.com/articles/the-invisible-digital-hand-1479168252)

——–[A review, by Burton G. Malkiel, of Virtual Competition: The Promise an Perils of the Algorithm-Driven Economy [SR](https://www.amazon.com/Virtual-Competition-Promise-Algorithm-Driven-Economy/dp/0674545478/), by Ariel Ezrachi and Maurice E. Stucke.]  “We are all aware of the enormous potential benefits to consumers from the use of the internet. . . . But in ‘Virtual Competition,’ Ariel Ezrachi and Maurice E. Stucke, two legal scholars, make a convincing argument that there can be a darker side to the growth of digital commerce.  The replacement of the invisible hand of competition by the digitized hand of internet commerce can give rise to anticompetitive behavior that the competition authorities are ill equipped to deal with.”  Issues of price fixing and collusion get “murky when the computer algorithms of sellers are designed to learn what others are charging and to change prices in response.  Will computers learn to collude?  Can the use of artificial intelligence allow computer self-learning to produce the same results as tacit collusion and actually raise prices?  The authors present several scenarios whereby computers can cartelize a market by monitoring ‘cheating’ and punishing all defections.”

********As Malkiel notes, “The most controversial issue raised by the book concerns what governmental responses and intervention are appropriate. . . . At the very least we need to ask ourselves if the 20th-century regulatory framework is appropriate for the 21st-century digital economy.”  Given that the authors’ arguments are illustrated “with relevant case law as well as references to studies in economics and behavioral psychology,” this seems like a good place to get up to speed on the co-evolution of the invisible hand and the invisible foot in relation to digital competition.

May you have a good week!

Bruce

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