Welcome to week 356! 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.
(5 February 2019): “Ikea will soon offer furniture rentals because the end of ownership is near” Vox.com
——–“Ikea, the world’s largest furniture seller, is trying out a new business model: renting. In an interview with the Financial Times, Ikea’s Torbjorn Loof, who is
charge of the company’s brand and concept arm, Inter Ikea, said the company would soon be starting to experiment with furniture rentals.” Loof noted: “We will work together with partners so you can actually lease your furniture . . . When that leasing period is over, you hand it back and you might lease something else. And instead of throwing those away, we refurbish them a little and we could sell them, prolonging the life cycle of the products.” A move toward furniture rentals is connected to Ikea’s desire to have smaller, more centralized stores in keeping with a move to greater sustainability. But it also in keeping with developments related in The End of Ownership: Personal Property in the Digital Economy, by Aaron Perzanowski and Jason Schultz.
********The buy-lease decision is frequently encountered in courses on corporate finance and management accounting. Now, it seems, this decision will be increasingly faced by households. All this is sure to be wrapped up in The Experience Economy, where some, who can afford it, will opt for the more varied decors that furniture rentals can provide. In moving from purchasing to rentals, transaction costs of many kind will likely loom large.
(7 February 2019): “Seven Fixes for American Capitalism” Bloomberg Businessweek
——–“For the past few decades there’s been a rough consensus about how to run a modern capitalist economy.” But this “centrist consensus is losing its power. Republicans are being drawn toward the protectionism of President Trump, Democrats toward the socialism of Representative Alexandria Ocasio-Cortez, the freshman congresswoman from New York City.” So, this seems like “a good time to look at some of the ideas for fixing American capitalism that will be debated in the 2020 presidential campaign.”
********Here are the seven fixes: (1) Antitrust Pivot; (2) Supply-Side Economics; (3) German Model; (4) Modern Monetary Theory; (5) Tech to the Rescue; (6) Tariff Truthers; and (7) Libertarianism. A brief, but not too brief, discussions of each fix is provided. Most of these will be somewhat familiar, except perhaps for the German Model, in which there is substantial labor representation on the boards of large public corporations, and Modern Monetary Theory (MMT). If you want to learn a bit more about MMT, Marketplace has a nice piece: “Every heard of modern monetary theory?” The broadcast is seven minutes long and the article includes has some schematics illustrating how MMT works. The broadcast includes an interview with Stephanie Kelton, who “is almost universally acknowledge as the person to talk to about MMT.” You can learn more about Kelton here.
(7 February 2019): “The Bad News About Helicopter Parenting: It Works” The New York Times
——–“It’s a familiar story. Psychologists, sociologists and journalists have spent more than a decade diagnosing and critiquing the habits of ‘helicopter parents’ and their school obsessions. They insist that hyper-parenting backfires—creating a generation of stressed-out kids who can’t function along. Parents themselves alternate between feeling guilty, panicked and ridiculous. But new research shows that in our unequal era, this kind of parenting brings lifechanging benefits.” That research is discussed in Love, Money and Parenting: How Economics Explains the Way We Raise Our Kids, by economists Matthias Doepke (Northwestern University) and Fabrizio Zilibotti (Yale University). “It’s true that high-octane, hardworking child-rearing has some pointless excesses, and it doesn’t spark joy for parents. But done right, it works for kids, not just in the United States but in rich countries around the world.”
********This book seems to be an empirical and historical study, rather than simply an exercise in economic thinking, for which I am grateful. I’ve ordered a copy and look forward to reading it sooner rather than later. It seems like helicopter parenting does make a difference in life outcomes, but not everyone can afford the time and money to be a helicopter parent and some who can choose not to because of their beliefs.
(7 February 2019): “The Resurrection of American Labor” Bloomberg Businessweek
——–“According to the official records, U.S. workers went on strike seven times during 2017. That’s a particular nadir in the long decline of organized labor: the second-fewest work stoppages recorded by the U.S. Bureau of Labor Statistics since the agency started keeping track in the 1940s. There was little reason to believe 2018 would be different, especially with the U.S. Supreme Court, in two decisions, making it harder for public employees unions to fund themselves and restricting workers’ rights to bring class actions. The power of employers appeared to be almost limitless. The unions were, if not busted, then certainly on the verge. Aggrieved workers, however, took matters into their own hands, using social media and other tech tools to enhance their campaigns.” As a result, the “official number of major work stoppages recorded by the BLS in 2018 nearly tripled, to 20. Off the picket line, workers also won a wide range of concessions.”
********As the article goes on to show, the decline of union power has not necessarily meant the decline of employee power, but the means of giving “voice” to employment concerns has changed, making substantial use of social media. As Tom Kochan of MIT’s Sloan Institute for Work and Employment Research has noted: “Workers aren’t waiting for the traditional forms of organizing, as provided under labor law . . . They’re looking for new options, whether that’s Google employees on a one-day walkout or workers filing online petitions with their management about everything from scheduling to fringe benefits.” This is an interesting development, especially when considered in relation to greater advocacy for “the German Model” noted in the article above on “Seven Fixes for American Capitalism.”
(11 February 2019): “A hedge fund’s ‘mercenary’ strategy: Buy newspapers, slash jobs, sell the buildings” The Washington Post
——–Alden Global Capital is a hedge fund that has a newspaper business Digital First Media that “is bidding to buy Gannett, operator of the nation’s largest chain of daily newspapers by circulation, including USA Today—as well as its $900 million in remaining property and equipment—for more than $1.3 billion. The tactics employed by Alden and Digital First Media are well-chronicled: They buy newspapers already in financial distress, . . . reap the cash flow and lay off editors, reporters and photographers to boost profits. In a 2018 court case, Alden disclosed it has a series of affiliated real estate companies whose business is focused primarily on efficiently buying, selling, leasing and redeveloping newspapers’ offices and printing plants.”
********This article, on the lengthy side, provides a clear look at how Alden and its affiliated real estate company Twenty Lake Holdings operate. One real estate transaction is close to home:
In April of last year, Gannett sold Twenty Lake the headquarters of the Asheville Citizen-Times in North Carolina for $3.2 million. In a transaction the county recorded on the same day, Twenty Lake flipped the property to a local developer for $5.3 million.
The practices of Alden are very general. Look for “undervalued” assets, buy them, resell them, and reap the profit. All this, of course, is the invisible hand doing its work. But often these workings are not pretty. The activities of this hedge fund (and its like) are similar to those of a butcher—a business may be more valuable in pieces than as a whole going concern.
May you have a good week!