332 (29 August 2018)

Welcome to week 332!  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.

(21 August 2018): The Bipartisan Cry of ‘Not in My Backyard’The New York Times

——–“Ben Carson, the secretary of the Department of Housing and Urban Development, wants to spur construction of mixed-income, multifamily housing all over the country.  If we had more of it, he argues, homes would be affordable to more families, and they’d have more options of where to live.  He is probably right.  But the kind of housing he describes is impractical, illegal or too costly to build in much of the United States today, in suburbs and big cities alike.  Blocking it are: zoning rules that allow only single-family homes; laws that dictate the size of yards; elaborate permits that drive up development costs; and rules that grant neighbors a veto over what is built.”  Although “Liberals and conservatives clearly prefer to live in different kinds of communities. . . studies show that homeowners of both parties support restricting development around them.  And they do so in spite of their own ideologies—whether conservative voters might otherwise value free markets, or whether liberals value policies that that aid the poor.”

********The article goes on to note the land use and is regulation is primarily a local rather than national issue, and what really matters at the local level is desire to protect property values.  According to Jessica Trounstine, a political scientist at the University of California, Merced, “Local control in the history of land use is synonymous with the generation of exclusivity, or the funneling of people into bad neighborhoods, or building refuse and recycling plants right in the heart of the black neighborhood.”  All this reminded me of The Color of Law: A Forgotten History of How Our Government Segregated America, by Richard Rothstein.  It is positively reviewed in “A Powerful, Disturbing History of Residential Segregation in AmericaThe New York Times.

(22 August 2018): [SR]The Next Big Bet in Fracking: WaterThe Wall Street Journal

——–“Some investors see fortunes to be made in the U.S.’s hottest oil field—by speculating in water, not crude.  Fledgling companies, many backed by private equity, are rushing to help shale drillers deal with one of their trickiest problems: what to do with the vast volumes of wastewater that are a byproduct of fracking wells.”  A fracked well not only unlocks “oil and gas, but also massive quantities of briny water long buried beneath the surface.  Drillers in the Permian Basin in New Mexico and Texas currently generate more than 1,000 Olympic-size swimming pools full of this murky, salty water every day.  Handling it amounts to up to 25% of a well’s lease operating expense.”  Roughly a dozen new companies are working to move wastewater from fracking sites. Some are building pipelines to move water at lower cost than trucks and others are looking to recycle wastewater and sell it back to drillers for reuse.  Christopher Manning, of Trilantic Capital Management LP, which has invested in Solaris Water Midstream, has noted, “The math on this is really, really easy . . . If the Permian goes up by one million barrels per day in oil production, it’s going up six million barrels in water.  That’s an opportunity.”

********It is estimated that “Moving water by pipe costs anywhere from 60 cents to $1.50 a barrel compared with more than $2 by truck.”  From the article it appears that fresh water must be brought in to frack wells, and then the salty water that is liberated from the fracked wells must be taken out.  So there is a lot of water being moved about in the fracking process.  Therein lies an opportunity: “water companies are setting up their networks with an eye on treating produced water so it can be reused for fracking and resold t the shale drillers who paid them to take it away in the first place.”

(22 August 2018):What Will the World Eat in the Next Decade?Bloomberg.com

——–“India will eat more butter and drink more milk.  Africa’s sweet tooth will grow bigger.  But China’s appetite for pork is on the wane.  Each of these trends will reshape global trade flows in agriculture, creating new winners—and forcing companies to adjust their food chains to serve shifting tastes.”

********This article provides multiple graphs to provide a glimpse of what food consumption patterns at the macro level in China, India, and Sub-Saharan Africa are projected to be over the outlook period 2018-2027.  The graphs entitled Food Demand Growth are especially enlightening.  Cereal grains dominate consumption is Sub-Saharan Africa.  Dairy is dominant in India with almost no meat; the influence of Hinduism stands out.  Fish dominates in China, with meat not far behind.  Taken together, one sees the role of the invisible handshake—social and historical factors—and the invisible hand—economic factors—at work.

(23 August 2018):The exiles fight back: Hayek, Popper and Schumpeter formulated a response to tyrannyThe Economist

——–“As the second world war raged, Western intellectuals wondered if civilization could recover.  George Orwell, the most brilliant of the pessimists, wrote ‘Animal’ and began work on ‘1984’, which saw the future as a ‘boot stamping on a human face—forever’.  Among the optimists were three Vienne exiles who launched a fightback against totalitarianism.  Instead of centralization, they advocated diffuse power, competition and spontaneity.  In Massachusetts Joseph Schumpeter wrote “Capitalism, socialism and Democracy’, published in 1942.  In New Zealand Karl Popper wrote “The Open Society and its Enemies’ (1945).  Friedrich Hayek wrote “The Road to Serfdom’ (1944) in Britain.”

********This brief is the fourth of six Philosophy Briefs on Liberal thinkers.  This is a concise introduction to the broad orientation of three important and different thinkers, each providing a response to the rise on Nazism, the second World War, and the devastation of the “jewel of the Danube” that was Vienna.

(23 August 2018):Insuring intangible risks: In search of a jelly mouldThe Economist

——–“The development, hundreds of years ago, of ship and cargo insurance was revolutionary.  It marked the start of commercial insurance; protection against loss from looting, fir and  perils of the high seas fostered global trade.  But in the 21st century the value of companies consists less of solid objects, such as boats and buildings, than of weightless, intangible elements, such as intellectual property (IP), data and reputation.”  According to Inga Beale, chief executive of Lloyd’s of London, “Today the most valuable assets are more likely to be stored in the cloud than in a warehouse.”  This change indicated by estimates of the merchant bank Ocean Tomo.  In 2015, intangible assets “accounted for 84% of the value of S&P 500 firms, up from just 17% in 1975.”  Protecting against damage or loss to intangible assets has grown, therefore, but that is difficult.  Such “intangible risks” are of two types: “damage to intangible assets (eg, reputational harm caused by a twee or computer hack); or posed by the (say, physical change or theft resulting from a cyberattack).  However, insurance against such risks has lagged behind their rise.”  According to Christian Reber of the Boston Consulting Group, “the insurance industry is only at the early stage of finding solutions to close the gap.”

********In short, insurance companies have developed a wide array of insurance products to deal with tangible assets, but they have barely scratched the surface of intangible assets.  This is all the more important at a time when a company is a tweet away from a dramatic loss of market value—the example of Snapchat (Snap) is related, but Elon Musk’s recent tweet about taking Tesla private could have served just as well—and then there hacking of corporate information, like credit card numbers.  (It is estimated that cybercrime caused losses of roughly $550 billion in the last year.)  Clearly there is a need for insurance products for intangible assets.

(23 August 2018):E-Verify Laws Across Southern Red States Are Barely EnforcedBloomberg Businessweek

——–“In 2011 states across the Southeast passed laws that threatened private employers with dire consequences—including losing their license to do business—if they didn’t enroll with a federal data service called E-Verify to check the legal status of new hires.  Modeled after 2008 measures in Arizona and Mississippi and billed as a rebuke to a do-nothing Obama administration, the laws went further than those in the 13 states that required checks for new hires only by state agencies or their contractors.  Seven years later, those laws appear to have been more political bark than bite.  None of the Southern states that extended E-Verify to the private sector have canceled a single business license, and only one, Tennessee, has assessed any fines.  Most businesses caught violating the laws have gotten a pass.”

********In a statement that was telling for me, “Even in deep-red states enamored of immigration crackdowns, punishing business is bad politics.”  As Cato Institute analyst Alex Nowrasteh notes, “Lawmakers got all the political benefits of supporting immigration enforcement but not the political cost of hurting business.”  This makes all-too-much sense to me.

(23 August 2018):Are U.S. Companies Too Big and Powerful?  The Fed Wants to KnowBloomberg.com

——–“Have U.S. companies gotten too big and powerful?  Does growing concentration—more market share in fewer corporate hand—explain why wage growth has stagnated, income inequality has gotten worse and investment and innovation have fallen behind?  These are some of the hottest questions in economic circles these days, and the U.S. Federal Reserve is looking for answers.  As central bankers start to meet in Jackson Hole, Wyoming, for the Federal Reserve Bank of Kansas City’s annual symposium, it will be the main topic.”

********The article goes on to explore nine questions which touch upon economic size and power, concluding with The Reference Shelf—four sources for further exploration.  It was interesting to see a reference to Robert Bork’s book The Antitrust Paradox.  The pendulum of thought regarding antirust seems to be moving away from Bork’s permissive view.

********One of the reasons why there is such interest in size, right now, is that the national unemployment rate is at 3.9% and there continues to be little upward pressure on prevailing wage rates.  Perhaps the mega-corps of Facebook, Amazon, Apple, and Google and their network economies are a substantial cause of this.  But maybe there are structural reasons, too.  This perspective is adopted in “What’s Holding Back Wages in America?Bloomberg Businessweek.  In the article a look is taken at workers in construction, trucking, and child care to see what barriers are at work.

(27 August 2018):Trump offers trade aid to farmers, but some question its fairnessPolitic.com

——–“The Trump administration on Monday detailed how it will dole out $6.3 billion in aid to assist farmers stung by retaliatory tariffs—and it’s already sparking backlash from some sectors where industry leaders say growers won’t get their fair share. . . . The plan unveiled by the Agriculture Department includes $4.7 billion in direct payments to row crop growers, including corn, wheat and cotton, as well as to pork and dairy producers.  The vast majority of the direct payments—some $3.6 billion—will go to growers of soybeans, America’s top agricultural exports.  Soybeans now fetch $2 less per bushel than they did in March, when President Donald Trump began to slap new tariffs on Chinese exports, setting off a tit-for-tat trade battle that has resulted in billions of dollars of lost value for a crop that earlier this year surpassed corn as America’s most widely grown commodity.  The overwhelming share of direct payments that are slated for soy has incensed other agricultural sectors, prompting industry groups to point out that their slice of the pie is not even close to covering losses that their growers have suffered from retaliation brought on by Trump’s aggressive trade tactics.”

********I saw a related article in The Wall Street Journal, with its paywall, so I went looking for an article with similar content and found this at Politico.com.  I’m glad I did.  This article provides an excellent example of the consequences of tariffs and the political attempts to “make whole” or “kind of make whole” those who lost due to their imposition.  Basically, there is a lot of political discretion of who gets what and how much.  The article lays out quite clearly and, to my mind, descriptively, how the current aid programs work—it is a great example of how the political economy, as opposed to the market economy, does its work.

********All this makes me think of the “compensation principle” in economics, i.e., that notion that one social state, say B, is to be preferred to another social state, say A, if in moving from A to B the “winners” could, in concept, compensate “the losers” even though that compensation isn’t paid.  It appears that the policy being followed by the USDA accepts the notion that compensation should be paid, but to a degree that depends upon political considerations.

(28 August 2018): “The Treasury Yield Curve Is Finally Going Mainstream” Bloomberg.com

********The Treasury Yield Curve is viewed by many as an indicator of the “health” of the economy.  See here for a definition of yield curve.  An inverted yield curve, i.e., one that has lower yields for bonds of longer maturity, is conventionally held to be a harbinger of a future recession.  See here for yield curve data.  So there is a lot of current interest in the behavior of the yield curve as the current economic expansion reaches and surpasses historical records

********I found this article to be of interest because it shows a creative way of using Google Trends to develop information based upon large numbers of people with little effort.  By entering a search term, you can then focus it by Geographic Region, Time Period, Category, and Search Type.  I played around with this a bit and found it to be tantalizing.  I did searches on Aretha Franklin (cultural icon) and Martin Shubik (economist), both of whom passed away recently, and found the results sobering.  More relevant to this story is the term NAFTA.  Do a search on it or the United States during the Past 7 days using all categories and Web Search and take a look at the behavior over time.  It strikes me that one could learn a lot about the persistence of news by studying these graphs for a variety of search terms.  Unsurprisingly, other people have had this idea.  The March 2018 article “Ten years of research change using Google Trends: From the perspective big data utilizations and applications” provides an entry into this literature.  I found it using the search terms: research Google Trends.

(28 August 2018):California Gov. Jerry Brown signs overhaul of bail system, saying now ‘rich and poor alike are treated fairly’The Los Angeles Times

——–On Tuesday, California Governor Jerry Brown “ushered in one of the most sweeping criminal justice reforms of his administration, signing a bill abolishing the state’s current money bail system, and replacing it with one that grants judges greater power to decide who should remain incarcerated ahead of trial.  The legislation virtually eliminates the payment of money as a condition of release. . . . The law, which will go into effect on Oct. 1, 2019, is expected to decimate the bail-bond industry, and many unanswered questions remain about how the shift will alter the criminal justice system.”

********An excellent example of how the demand for a service depends upon legal and political factors, i.e., the invisible foot.  In this case, seemingly, a stroke of a governor’s pen can  eliminate an industry.  For products, a drug for example, the law would simply give rise to an illegal market.  What tends to result when a service is made illegal?  The article also points to some of the concerns that people have now that bail bonds are going away.

May you have a good week!


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