342 (7 November 2018)

Welcome to week 342!  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.

(29 October 2018):Life, Death And The Lazarus Drug: Confronting America’s Opioid CrisisNPR.com

********This is a 49-minute podcast with “Hidden Brain” reporter Shankar Vedantam.  The broad topic is the opioid crisis, but it is especially focused on Narcan, the so-called “Lazarus Drug” in the podcast title.  An essential point made early in the podcast deals with the problem of moral hazard, i.e., the notion that taking steps to mitigate the consequences of certain behavior is likely to bring about more of that behavior.  For example, the ability to insure one’s home against hurricane damage or floods may lead more people to build more homes where hurricane damage is likely or where flooding is probable.  In this particular case, moral hazard manifests with the existence of Narcan.  Since it is very effective in saving lives from opioid overdoses, will more people engage in opioid use if it is available?  Unsurprisingly, some economists and people working in addictions have differing views, and the discussion is worth a listen.  There are four Additional Readings at the link that provide much more information.

********The modern source from which stems economic writings on moral hazard is Sam Peltzman, “The Effects of Automobile Safety Regulation,” Journal of Political Economy, 83,4 (August 1975): 677-726.  Oddly, Peltzman’s name does not appear in the Wikipedia article on moral hazard.

(31 October 2018):  “Why do we have a 30-year mortgage, anyway?Marketplace

********This five-minute podcast explores the origin of the 30-year mortgage.  As one interviewee notes, the 30-year mortgage “did not come down engraved in a tablet” but was the outcome of historical processes growing out of the Great Depression, with the administration of FDR playing a central role.  In the 1920s, mortgages were typically 3-5-year interest-only loans with a variable interest rate, i.e., in repaying the mortgage, one made interest payments for 3-5 years, after which the entire loan was repaid (the so-called “balloon” payment).  Most people, though, simply went out and got another loan.  (This reminds me of payday loans.)  With the advent of the Great Depression, opportunities for refinancing disappeared, and new loan mechanisms needed development.  And they were.  Cornell historian Louis Hyman was interviewed for this story and he is the author of a 2011 book that looks like essential reading on the subject, as well as consumer debt generally: Debtor Nation: This History of America in Red Ink.

********Debtor Nation appears to be a revision of a highly-decorated doctoral dissertation at Harvard.  According to an Amazon reviewer, “Hyman was awarded the prize for best dissertation in history at Harvard and best dissertation in business history nationally for his effort” (from Amazon review).  A more popular version of the book seems to be the 2012  Borrow: The American Way of Debt.  While we are discussing Hyman’s oeuvre, his most recent (2018) book is Temp: How American Work, American Business, and the American Dream Became Temporary.  Hyman seems to be able to bring history to bear on essential issues of our times.

(2 November 2018):Where ‘Yes! To Affordable Groceries’ Really Means No to a Soda TaxThe New York Times

——–“In the run-up to Election Day, residents of Washington and Oregon have been bombarded” with ads from “groups with names like Yes! To Affordable Groceries.  The organizations have spent more than $25 million on commercials that feature plain-spoken farmers and penny-pinching moms urging support of ballot measures that would prohibit municipalities from taxing food sales.  But what most voters don’t know is that Coca-Cola, PepsiCo and other American beverage companies are largely financing the initiatives—not to block taxes on stables like milk and vegetables but to choke off a growing movement to tax sugary drinks.”

********As the article points out, soft drink companies have devised a strategy that avoids explicit mention of soda taxes, thereby protecting them from arguments of special pleading.  Historically, “The strategy of pushing pre-emptive laws and ballot measures was pioneered four decades ago by the tobacco industry and the National Rifle Association as a way to stop localities from passing antismoking ordinances or limitations on gun ownership.”  In so doing the N.R.A. “has been wildly successful.”  That is, pre-emption can work.

********So here are the results.  In Washington, I-1634 is on track to be approved by the voters, thereby prohibiting the enactment of “new food and beverage taxes” but not reversing Seattle’s existing “1.75-cents-per-ounce sweetened beverage tax.”  In Oregon, a similar ballot item to change the state constitution, Measure 103, was soundly rejected, “failing 57 percent to 43 percent.”  The item would have prohibited “taxes on the ‘sales or distribution’ of food and nonalcoholic beverages.  Early in 2018, California’s state legislature passed legislation, subsequently signed by Governor Jerry Brown, to prohibit “California cities and counties” from taking soda “for the next 12 years.”  .”  I’m sure that soda companies and others will be carefully studying these outcomes as they prepare for future political action.

(5 November 2018):We’re All Climate Catastrophe Preppers NowBloomberg.com

********This is quick jaunt through some of the economic and financial issues connected to climate change.  Most of these will be familiar, some probably not.  One thing that seems sure to happen is slower economic growth: “Humans are far less productive at high temperatures.”  And physical capital may grow more slowly, too, due to storm damage and increased costs of “rebuilding and damage-prevention efforts.”  The author concludes the article noting “If fears of material financial loss for ourselves and our children can’t motivate us to change our ways, then perhaps nothing will.  In the meantime, assume asset returns will be lower than they might otherwise have been and try to put aside more money today.  We are all preppers now.”

********One item that I found interesting to look at is the University of Notre Dame’s rankings in relation of climate vulnerability.  There are three: an overall GAIN index, a Vulnerability index, and a Readiness index.  You can see all three here.  No great surprises—there seems to be an inverse relationship between economic development and vulnerability, and a direct relationship between economic development and readiness.

May you have a good week!

Bruce

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