Welcome to week 328! The articles below caught my attention this week. What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********). Article titles preceded by [SR] require a subscription to be read in their entirety, although complete articles might be found by an Internet title search.
Please let me know if you have questions or comments.
(26 July 2018): “’Sin’ taxes—eg, on tobacco—are less efficient than they look” The Economist
——–So-called “sin” taxes, i.e., “levies on socially harmful practices . . . are seen as a double win—useful sources of revenue that also improve public health.” Traditionally imposed on alcohol and tobacco, they have been extended in recent years to sugar as one approach to combat obesity. Studies have shown that “Sin taxes do change behaviour. Alcohol and tobacco are addictive, so demand for them is not as responsive to price changes as, say, the demand for airline tickets to fly abroad. . . . Estimates vary from study to study, but economists find that on average, a 1% increase in prices is associated with a decline of around 0.5% in sales of both alcohol and tobacco . . . Data on the efficacy of sugar taxes are scantier, but the available evidence shows that they, too, lower consumption.”
——–Sin taxes are, however, relatively blunt instruments. “People who only occasionally drink or smoke do their bodies little harm, yet are taxed no differently from heavy smokers and drinkers.” Furthermore, groups are differentially affected by them. For example, “Britons who bought only a few drinks a week were far more sensitive to price fluctuations than heavy drinkers.” As a result, the Institute for Fiscal Studies “suggests that it might make more sense to place higher levies on the tipples more in favour with heavy drinkers, such as spirits.”
********The article provides a nice overview of sin taxes in relation to alcohol, sugar, and tobacco. I was especially interested in the suggestions made—some perhaps tongue in cheek?—to reduce their bluntness. (MIT’s Jonathan Gruber said that “if he were king” he would of obesity by imposing “taxes on sugar and fat . . . based on individual’s body-mass indices.) The article is paired with a Daily Chart on “Taxes on tobacco, alcohol and sugar really do curb vice” that explores the “three main justifications for imposing a tax on a specific good.” I.e., raise funds, account for negative externalities, and discourage the use of undesirable products.
(26 July 2018): “Alaska: Front Line in the Global Trade War” Bloomberg.com
********This is an 18-minute podcast on the Alaskan seafood industry and the potential impact on it of tariffs imposed by the U.S. and China. As it turns out, the seafood industry is the largest private-sector employer in Alaska and roughly one-third of its production is sold to China. Also noteworthy is that China processes much of the seafood it imports and then exports a good deal of it to the U.S., the EU, and Japan. Thus the Alaskan seafood industry is hit twice by tariffs: once on exports to China of unprocessed seafood and once on imports to the U.S. of processed seafood. Given the global character of supply chains, this is situation may be encountered with some regularity. I was impressed by all four individuals participating in the podcast: an intern, an industry representative, an economist, and the program host.
********The podcast takes a somewhat narrow view of the consequences of the trade “war” between the U.S. and China. For a broader perspective oriented towards “early warnings” The New York Times offers this article: “If the Trade War Starts to Damage the Economy, Here’s How You’ll Be Able to Tell.” It provides a range of indicators that “are likely to provide early signs of trouble: data that is more big picture than individual anecdotes, but more timely than things like G.D.P. and the unemployment rate.” GDP and the unemployment rate are good examples of economic data that operate “with long time lags. By the time there would be solid evidence that the trade war was doing damage, the damage would already have been done.” These lags are much like those that operate in the context of climate change, except that lags involved with climate change are much longer.
(28 July 2018): [SR] “U.S. Almond Farmers Are Reeling From Chinese Tariffs” The Wall Street Journal
——–“U.S. almond farmers are getting crunched from all sides as they head into what is likely to be a record harvest season. Prices for California almonds have fallen by more than 10% over the past two months, reflecting expectations for a bumper crop and steep tariffs imposed this year by China, which until recently was the second-largest importer of U.S. almonds after the European Union.” In addition to tariffs on U.S. almonds, “China has quietly closed a trading loophole that for years allowed large volumes of American almonds to be transported into the country via Vietnam without incurring import taxes. Beijing is also cracking down on commodities that have been illegally smuggled into the country or brought in via transshipments, where they are routed to other countries and then shipped to China.” The object of these moves by China is “to make its tariffs on U.S. agricultural products as effective as possible.”
********The closing of so-called “gray shipping channels” combined with higher tariffs has left many almond growers and exporters “worried about the coming months, when the U.S. harvest season commences and shipment volumes peak.” As noted by Zach Williams of Stewart & Jasper Orchards in Newman, California, “No one wants to take an advance position on contract because they’re afraid that there will be another tariff down the line that they didn’t account for.” Gray shipping channels are akin to grey markets, about which you can learn more here.
(29 July 2018): “British farmers worry: Who will pick the fruit after Brexit?” The Washington Post
——–“Britain today is completely dependent on foreign workers to pick its fruit and vegetables. According to the National Farmers Union, an industry lobbying group, of the 60,000 seasonal workers in the fields last year, barely 1 percent was British. The vast majority come from Eastern Europe, particularly Bulgaria and Romania.” So, “as Britain prepares to leave the E.U., brining the era of free movement [of labor] to a close, farmers have begun to panic: Who will pick the crops next spring?” A sense of the challenge facing farmers is provided by “Stephanie Maurel, the chief executive of Concordia, a recruitment company that supplies workers to about 200 British farms,” who notes that “We’ve had two applications out of 10,000 . . . It’s statistically quite damning.”
********I was struck by the similarity of the British situation to that of the U.S., i.e., most of the agricultural harvesting is done by people who migrate to the country, do the work, and then return home. If foreign workers can’t do the work due to migration restrictions and domestic workers won’t do the worker due to the nature of the work (as argued in the article), then more off the harvesting will be done my machines, possibly robots as the article mentions. Still, some produce, e.g., berries, “are notoriously difficult to pick mechanically.” Left out of this discussion, of course, is the role of agricultural tariffs. With the weather, farmers have plenty to worry about, then there are the vagaries of the invisible foot.
********The NYT article “Brexit Plans Raise Fears of Food Shortages and Jammed Ports” provides some additional perspective on the British food supply in the wake of Brexit. In the event of a departure from the EU without an agreement, a scenario is envisaged “that could mean new border checks, log-jammed ports, marooned trucks, and food, drugs and other essential supplier drying up.” Some seem to think that food supplier will stockpile goods, but the British Retail Consortium holds that “Stockpiling of food is not a practical response to a no-deal on Brexit and industry has not been approached by Government to begin planning for this.” All this reminds me of economic debates about the efficacy of central planning in comparison to the market. I would have thought that this had been settled long ago but the authoritarian temptation can sometimes be too hard to resist. A book that deals directly with this question is Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered, by Don Lavoie.
(29 July 2018): “TCA 2018: Netflix’s Cindy Holland says ‘taste communities’ help drive programming” The Los Angeles Times
——–“Netflix’s proprietary algorithms are some of the most tightly guarded corporate secrets since the formula for Coca-Cola. On Sunday, the streaming service shed a little bit of light on the ‘taste communities’ that help guide many of its decisions about programming and user recommendations. Cindy Holland, who serves as vice president of original series for Netflix, told reporters gathered at the Television Critics Assn. press tour in Beverly Hills that the company doesn’t make programming decisions based on demographics, but rather on the tastes of broadly defined groups of subscribers who gravitate toward the same shows.”
********Netflix’s approach to programming was mentioned a few weeks ago, see TIF Weekly 326. At that time a piece in The Economist was discussed where the term ‘taste clusters’ was used. The expression ‘taste communities’, used here, seems to be more frequently used, using Google hits as a measure (11,900 hits for ‘taste communities’ and 4,300 for ‘taste clusters’). Whatever the term, this is the way Netflix does it, drawing upon its massive data base to make programming development decisions, rather than the intersection of various demographics. You can learn a bit more about Holland’s presentation from an article in Adweek.
(30 July 2018): “World’s Biggest Toilet-Building Spree Is Under Way in India” Bloomberg.com
——–“India is on the greatest toilet-building spree in human history, and it’s a windfall for companies. Prime Minister Narendra Modi’s $20 billion ‘Clean India’ mission aims to construct 111 million latrines in five years. Besides promising to improve the health, safety and dignity of hundreds of millions of Indians, the national hygiene drive has spurred an 81 percent jump in sales of concrete building materials and 48 percent increase in bathroom and sanitaryware sales . . . The scale-up of latrines and a nationwide campaign to encourage their use is driving a market for toilet-related products and services that’s predicted to double to $62 billion by 2021.” As Val Curtis, director of the London School of Hygiene and Tropical Medicine’s Environmental Health Group notes, “It’s the biggest, most successful behavior-change campaign in the world.”
********This is meaningful infrastructure development on a very large scale. What, I wonder, would $20 billion spent on U.S. infrastructure look like?
(31 July 2018): “A little Wisconsin root in a big trade war” Marketplace
——–“Journalists love to list the disparate items caught up in the trade war. . . . There’s something giddy about the seeming randomness of it. But lists of tariffs are not random. They’re made by actual people looking very carefully at products and politics across international borders. Former U.S. trade official Matt Gold used to help make those lists. He makes us smart on how governments in a trade war take a gimlet eye to literally every product that exists in the world.” One of those products is ginseng. “It’s a pretty obscure little medicinal root to most of us. But it’s a highly prized crop grown mostly in Wisconsin, sold mostly to China, and a target for the trade war.”
********This is episode 75 of “Make Me Smart With Kai and Molly,” a program of Marketplace, “a radio program that focuses on business, the economy, and events that influence them.” I have not been a listener of Marketplace but when our local NPR station changed its evening lineup, I became a little more aware of it. They provide a lighter touch to business and economic news that is appealing. The current episode on ginseng provides a glimpse of how products are identified as tariff candidates. This is a podcast. The relevant parts of it run from 7:48 to 24:10, so a good sixteen minutes of content on tariff setting with ginseng as the test case.
May you have a good week!