355 (6 February 2019)


Welcome to week 355!  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.

(28 January 2019):The Cost of Dirty MoneyBloomberg.com

********This is a global map with text of some of the larger instances of money laundering.  The former Wachovia Bank of Charlotte, since acquired by Wells Fargo, makes an appearance.  “Mexican drug cartels used accounts at Wachovia to finance their operations and launder money.  From 2004 through 2007, the bank . . . processed at least $373 billion in wire transfers from Mexican currency houses.”  In consequence of its actions, Wachovia was fined $160 million.

(29 January 2019):Lawmakers want to cut California’s pot taxes to help lagging legal marketThe Los Angeles Times

——–“Frustrated that California’s licensed marijuana industry is struggling to compete against the black market, a group of state officials is pressing to slash taxes on legal pot shops and growers.  Lawmakers acknowledged that a year after the state began issuing licenses for growing and selling marijuana for recreational purposes, the legal market has been stunted by red tape, the refusal of cities to allow pot businesses and the burden of paying state and local taxes.”  According to Assemblyman Rob Bonta, the primary author of the measure, “The tax cut . . . will help ‘keep customers at licensed businesses and help ensure the regulated market survives and thrives.’”  It was anticipated that pot tax revenues would be $630 million “this fiscal year, which ends June 30, but the number was revised down this month to $355 million.”

********As the article makes clear, the higher the legal price of marijuana, the larger the black market for it.  No surprise here.  But as consumers direct more of their purchases to the black market, state tax revenues fall.  So, lower tax rates on marijuana will move some consumers from the black market to the legal market.  Will that be enough to increase state tax revenues, too?  That is an empirical question.

********California State Treasurer Fiona Ma is an advocate of reduced marijuana taxation, saying that “We are helping legal cannabis business with their transition into the marketplace, just like we would for any start-up industry.”  All this reminds me of the infant-industry argument for trade protection.  In that case, the nascent industry in one country is protected from the established industry in another country by trade barriers of one sort or another, on a “temporary” basis.  In this case, it seems, legal marijuana must be exposed to low taxes until it can get established in relation to the black market, no doubt also on a “temporary” basis.

(31 January 2019):Culture of ‘Bending Rules’ in India Challenges U.S. Drug AgencyBloomberg.com

——–“Mylan is the world’s second-largest manufacturer of generic drugs, and though it’s run from Canonsburg, Pennsylvania, its operations three hours inland from Mumbai exemplify the central role India has come to play in the global generic-drug industry. . . . One of the drugs made in that plant is destined for the U.S., where it’s the second-best-selling generic version of Lipitor, taken by millions of Americans to control cholesterol and lower their risk of heart attack.  But a review of thousands of reports submitted to the U.S. Food and Drug Administration shows Mylan’s version of Lipitor is more likely to be associated with negative side effects than its rivals: 60 percent more than the top-selling generic version made by a Canadian company and quadruple that of the third-best-selling generic made by an India-based company.” 

——–Although doubts about generic drugs aren’t limited to India, “veterans of India’s pharmaceutical industry” point to the word jugaad.  “The Hindi word, translated as ‘creative improvisation’ . . . has been elevated to something of a national ideal in India.  It’s credited with the rise of the country’s two global industries, technology and drugmaking.  In both, Indian companies with far fewer resources than foreign rivals came up with cheaper, more effective ways of doing things that ended up being a competitive advantage.  But the word can have a darker connotation.  According to Jagdish Dore of Mumbai’s pharmaceutical-industry consultancy Sidvim LifeSciences, “It’s kind of bending the rules, breaking the rules, and finding shortcuts—and in some cases, outright misdemeanors.” 

——–The emergence of jugaad is traced to India’s colonial era, “When laws and regulation were often in service of British interests, rather than Indian ones, and so fair game to be skirted, bent or broken.  After independence in 1947, the period of heavy handed government control and regulation of the economy knowns as the ‘License Raj’ further cemented a flexible approach to the rules as a precondition for success in India.”

********This is a nice instance of social and historical forces at work, i.e., the invisible handshake, although legal and political forces, the invisible foot, and economic forces, the invisible hand, are clearly intertwined.  Laws and regulations, if sufficiently onerous, will be circumvented as the occasion presents.  Perhaps it isn’t culture so much as ill-formed institutions.

********This is one of four articles that are the result of “A yearlong investigation by Bloomberg News into the generic-drug industry.”  Here are the articles:

(29 January 2019):America’s Love Affair With Cheap Drugs Has a Hidden Cost

(30 January 2019):How a Tainted Heart Drug Made in China Slipped Past the FDA

(31 January 2019):Culture of ‘Bending Rules’ in India Challenges U.S. Drug Agency

(1 February 2019):The $4.3 Billion Deal That Blew Up Over Shoddy Drug Production

(4 February 2019): Bud Light Picks Fight With Corn Syrup in Super Bowl AdThe New York Times

********Well, I didn’t watch Super Bowl LIII and I didn’t see the ad until now, but this article does raise thoughts about intention and consequence in ads, which are raised in the article.  Surely the ad annoyed many corn growers in the U.S., and it brought about some appropriate responses from the producers of Miller Lite and Coors Light to the effect that although Bud Light does not use corn syrup, some of Anheuser-Busch InBev’s prominent products do.  And then there is issue of corn syrup versus high fructose corn syrup.  The result of all this has been to divert attention away from Bud Light and to corn syrup, about which few drinkers care.  As Wendy Clark, the chief executive of advertising agency DDB Worldwide, notes: “I don’t know if anyone watching the Super Bowl necessarily cares about corn syrup, and it kicked up much ado about nothing . . . It’s taken off into this corn syrup thing and not a Bud Light thing . . . and I don’t know if that was the goal.” 

********Done well, an ad campaign can be transformative, both for its company and for society.  The article “Cutex Hooked Americans on ManicuresJSTOR Daily provides an example.  As the article begins, “Nail art is a huge trend now, but in 1916 it didn’t really exist.  Enter Cutex, a company that helped hook Americans on the little pleasures of polished nails.”  See the bottom of the post to download the primary article from Journal of Design History.

(5 February 2019):The Rise of the Robot ReporterThe New York Times

——–“As reporters and editors find themselves the victims of layoffs at digital publishers and traditional newspaper chains alike, journalism generated by machine is on the rise.  Roughly a third of the content published by Bloomberg News uses some form of automated technology.  The system used by the company, Cyborg, is able to assist reporters in churning out thousands of articles on company earnings reports each quarter. . . . Untiring and accurate, Cyborg helps Bloomberg in its race against Reuters, its main rival in the field of quick-twitch business financial journalism, as well as giving it a fighting chance against a more recent player in the information race, hedge funds, which use artificial intelligence to serve their clients fresh facts.”  But financial information companies are not the only ones going robot: “robot reporters have been prolific producers of articles on minor league baseball for The Associated Press, high school football for The Washington Post and earthquakes for The Los Angeles Times.”  Journalism executives say that the growing use of artificial intelligence “is not a threat to human employees.  Rather, the idea is to allow journalists to spend more time on substantive work.”

********Many other large, main-stream newspapers are reported as using or experimenting with robot reporting, so we can expect more of it in the future.  (How will one know if a story is robot reported?  Does it matter?)  Although The New York Times is said to have no plans for machine-generated news articles, “the company has experimented with using A.I. to personalize newsletters, help with comment moderation and identify images as it digitizes its archive.”

********Evidently The Washington Post  has “an in-house robot reporter called Heliograf, which demonstrated its usefulness with its coverage of the 2016 Summer Olympic Games and the 2016 elections.”  As a result of Heliograf, it won an award for “Excellence in Use of Bots at the annual Global Biggies Awards, which recognize accomplishments in the use of big data and artificial intelligence.”  Here is the list, with description, of all 39 winners of 2018 Global Biggies Awards

********This article raises the question of the impact of robots on the work force, generally.  This is taken up in “Tech Is Splitting the U.S. Work Force in TwoThe New York Times.  The context examined is Phoenix, Arizona, where it is hard to miss its “dogged technological ambition.”  But Phoenix “cannot escape t he uncomfortable pattern taking shape across the American economy: Despite all its shiny new high-tech businesses, the vast majority of n jobs are in workaday service industries, like health care, hospitality, retail and building services, where pay is mediocre.”  These are just the jobs where technology seems little able to increase productivity.  Tech, of course, cannot do everything, as reporter Emily Badger notes in “Why Technology Hasn’t Fixed the Housing CrisisThe New York Times.  There are larger forces at work: “Pull a thread in the housing market, and it leads to the decline of good working-class jobs, or the federal government’s long-term retreat from housing, or the fundamental tension that Americans want housing to be both affordable and a good investment.”

(6 February 2019):Yacht Influencers and Food SommeliersBloomberg.com

********These are today’s morning reads of Barry Ritholtz , which I continue to find useful to scan.  What caught my attention and followed up were the links on Impact Investing, which you might recognize as Socially Responsible Investing or ESG (Environmental, Social, and corporate Governance) Investing.  Evidently Boise, Idaho-based Matthew Weatherley-White—no pun intended—is a big name in the field.  Here are the links:

The Debate About Impact Investing We Should Be HavingBarron’s.  This is an article by Matthew Weatherly-White.

MiB: Matthew Weatherly-WhiteThe Big Picture.  MiB stands for Masters in Business.  This is an interview with Matthew Weatherly-White conducted by Barry Ritholtz.  The podcast is one hours and 25-minutes long.  I listened to about the first four minutes and many come back to it.  It sounds like a good way to get a broad overview of impact investing and its history, as well as its possibilities.

You might also be interested in learning a bit more about Barry Ritholtz.  From what I read, impact investing is likely to continue to expand as the approach is particularly attractive to women and millennials, the latter of which are likely to be inheriting impressive sums of money over the years to come.

May you have a good week!

Bruce

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