310 (29 March 2017)

Welcome to week 310!  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.

Upcoming Sabbatical.  Please note that TIF Weekly will be on sabbatical for one year following the distribution of 312, which will complete its sixth year.  More details will be provided when 312 is distributed.  TIF Weekly 313 will be distributed on Wednesday, April 18th, 2018.

(23 March 2017): “How The ‘Scarcity Mindset’ Can Make Problems Worse” (http://www.npr.org/2017/03/23/521195903/how-the-scarcity-mindset-can-make-problems-worse)

********This seven-minute audio broadcast by NPR reporter Shankar Vedantam discusses some of the research on scarcity by economist Sendhil Mullainathan and psychologist Eldar Shafir on the cognitive consequences of scarcity.  They are the authors of Scarcity: The New Science of Having Less and How It Defines Our Lives (https://www.amazon.com/Scarcity-Science-Having-Defines-Lives/dp/125005611X/).  Their work, which falls squarely in the universe of behavioral economics, is discussed at some length in Harvard Magazine (http://harvardmagazine.com/2015/05/the-science-of-scarcity).

(23 March 2017): “America’s Farmers Say There’s a Conspiracy to Steal Their Milk Money” (https://www.bloomberg.com/news/articles/2017-03-23/dairy-farmers-say-someone-is-stealing-their-milk-money)

——–“As far as staples go, dairy is pretty central to the American diet.  After all, knowing  cost of a gallon of milk remains a campaign-trail test for whether a politician is out of touch.”  With milk sales in decline, dairy farmers have fallen on hard times.  But some of those hard times appear to be the result of people who are supposed to looking after their interests.  In a long-running class action, farmers claim that they “haven’t been getting their fair share in this multi-billion dollar industry.  The litigation, filed by dairy farmers in 2009, names DairyAmerica and its affiliate California Dairies as defendants.  The plaintiffs allege that DairyAmerica and its members, cooperatives like California Dairies which acquire dairy products from farmers and sell them in bulk, have been actively misleading U.S. regulators about the price they charge for nonfat dry milk, which goes into everything from infant formula to candy bars.  In doing so, the farmers claim, the cooperatives sought to boost profits at their expense—by millions of dollars.”

********As the article points out, “the dairy market operates very differently from other segments of the U.S. economy.”  As Andrew Novakovic of Cornell University notes, “I don’t think there’s another industry in the U.S. economy that is as heavily price regulated.”  This price regulation has apparently left the industry open, if those bringing the class action are correct, to widespread pricing fraud made possible through the development of two sets of accounting figures at DairyAmerica: “The first set of figures would consist of accurate figures from the actual sales of nonfat dry milk in the export market to foreign customers.  The second set of figures would consist of fabricated export sales figures that were created internally at DairyAmerica.”  The first, lower, set of figures were used as to (under) compensate dairy farmers.  This makes for an astonishing read.

(23 March 2017): “’Deaths of Despair’ Are Surging Among the White Working Class” (https://www.bloomberg.com/news/articles/2017-03-23/white-working-class-death-rate-to-be-elevated-for-a-generation)

——–New research by Anne Case and Angus Deaton, both of Princeton University, has drawn additional attention to the climb of mortality and morbidity, “which measure chances of death or illness within and age group,” since the late 1990s for less-educated whites between 45 and 54.  That came as progress against “heart disease and cancer slowed and drug overdoses, suicide and alcoholism—so-called ‘deaths of despair’—became pervasive.”  According to Case and Deaton, “Distress born of globalization and technological change probably drove the deadly outcome.”

********Sir Angus Deaton won the Nobel Prize in Economics in 2015 (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2015/deaton-facts.html).  The new research mentioned in the article is “Mortality and morbidity in the 21st century,” a pdf of which can be downloaded at: https://www.brookings.edu/bpea-articles/mortality-and-morbidity-in-the-21st-century/; the paper is 60 pages long but contains a lot of discussion as well as a substantial number of figures toward its end, i.e., starting on page 45 of the pdf.  At the same link, you can view a four-minute video with Case and Deaton discussing their work.  Also useful is the five-minute NPR interview at: http://www.npr.org/sections/health-shots/2017/03/23/521083335/the-forces-driving-middle-aged-white-peoples-deaths-of-despair.

********The new research has been widely covered in the media, so this is just one of many articles that could have been mentioned.  The articles I’ve seen have tended to focus on Figure 1.1 (p. 45) of the pdf.  This is a dramatic figure in that it shows a “crossing” of mortality rates for White non-Hispanics high school or less and Black non-Hispanics, an image that is easy to misconstrue since the Black non-Hispanics group doesn’t appear to be constrained to be high school or less.  That is, the two groups seem not to be directly comparable in relation to education.  To get greater comparability, you need to look at Figure 1.2 (p. 45).  There you will see that Blacks continue to have higher mortality rates than Whites throughout the study period for non-Hispanics with a high school degree or less.  What clearly is true, however, is that the mortality gap between Blacks and Whites have fallen dramatically, with Black rates generally falling and White rates generally increasing.  In recent years, though, rates for Blacks and Whites have been increasing.  The many Figures of the paper that start on page 45 are, to say the least, shocking.

(24 March 2017): “UPS Loses N.Y. Trial Over Reservations’ Untaxed Cigarettes” (https://www.bloomberg.com/news/articles/2017-03-24/ups-found-liable-in-new-york-lawsuit-over-untaxed-cigarettes)

——–“United Parcel Service Inc. was found by a judge to have turned a blind eye to shipments of untaxed cigarettes to New Yorkers from American Indian reservations that undermined anti-smoking efforts. . . . U.S. District Judge Katherine B. Forrest in Manhattan on Friday ruled that UPS failed to comply with a 2005 deal it struck with the state to fix the problem without going to court.”  New York “has the highest state cigarette tax at $4.35 a pack on top of a $1.50 local New York City tax.”  Over 50 percent of the “total cigarette market in New York consists of smuggled cigarettes.”

********The article appears to be based upon a study of the Tax Foundation, “Cigarette Taxes and Cigarette Smuggling by State, 2014,” (https://taxfoundation.org/cigarette-taxes-and-cigarette-smuggling-state-2014/), date 17 January 2017.  The list of Key Findings contains such notable points as “New York has the highest inbound smuggling activity” at 55.4 percent of cigarettes consumed and “New Hampshire has the highest level of outbound smuggling at 81.1 percent of consumption, likely due to its relatively low tax rates and close proximity to high tax states in the northeastern United States.”  Figure 1 shows a positive correlation between excise tax rates and cigarette smuggling as a percentage of consumption.  I’m sure the correlation would have been even tighter had proximity been considered.  In any event, the relationship between excise tax rates and smuggling is not the least bit surprising.  Tax differentials provide opportunities for gain and some will be enticed by them regardless of legality.

(27 March 2017): “Mexican Farmers Fight to Oust Border Brewery” [SR](https://www.wsj.com/articles/mexican-farmers-fight-to-oust-border-brewery-1490616001)

——–Thousands of farmers in Mexicali, Mexico [about 100 miles ESE of San Diego] “are rallying to an unusual cause: driving a big U.S. manufacturer out of town, ideally with help from U.S. President Donald Trump.”  At issue is the construction of a $1.4-billion-dollar brewery being built by Constellation Brans, “the third-largest U.S. beer producer and the brewer of Corona, the best-selling beer in Mexico. . . . None of the beer to be brewed in Mexicali is destined for the Mexican market.”  Farmers are concerned that “the plant will use too much water, taxing the aquifer in an area where aging irrigation infrastructure and a naturally low water table have already forced farmers to pull tens of thousands of acres out of production.”  In recent decades, “Mexico has re-engineered its economy to focus on exports.  While hundreds of thousands of workers have benefited from higher wages, mainly in large cities and in border assembly plants known as maquiladoras, the agricultural sector has suffered from a lack of investment and increased competition from larger, more technologically advanced farms in the U.S.”

********Carlos de la Parra, a professor of environmental- and urban-studies at the College of the Northern Frontier in Tijuana, provides a prototypically economic comment when he notes that “Historically, the Mexicali Valley was all about farming, but more and more, if you want to increase the aggregate value of the use of water, you want to attract more industry.”  I.e., water can be used in agriculture and it can be used in industry.  From the perspective expressed, the water goes to the use that generates the greatest monetary value.  As the article points out, the “local water table is getting lower and lower.”  In the 1990s “wells used to be 100 feet deep,” but now they must go down to 250 feet.”  So, the addition of more industry has increased the unit-cost of production for agricultural products, a classic example of a negative production externality (http://www.economicsonline.co.uk/Market_failures/Externalities.html).

********A related article that also deals with Mexican agriculture, this time corn production, appeared in The Los Angeles Times as “Mexico’s bargaining chips with Trump?  How about a corn boycott” (http://www.latimes.com/world/mexico-americas/la-fg-mexico-corn-boycott-20170329-story.html).  In 2016 the U.S. exported 13.9 million tons of corn to Mexico, as compared to 3.1 million tons in 1994, the year NAFTA went into effect.  So, yes, U.S. corn farmers would stand to lose a lot from a boycott of corn by Mexico.  It is interesting to me that NAFTA enabled a decrease in industrial jobs in the U.S. and an increase of industrial jobs in Mexico, and simultaneously enabled a decrease in agricultural jobs in Mexico and an increase of agricultural jobs in the U.S.  This is the way it is supposed to work, but in both the U.S. and Mexico, the people who lost their jobs are not happy about it.  No doubt there has been a diminution of knowledge and skill in relation to both types of activity over the last 23 years.

May you have a good week!

Bruce

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