358 (27 February 2019)


Welcome to week 358!  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.

(13 February 2019):Bigger Is Not Always Better for Team ScienceThe Scientist

——–“To make breakthroughs that shatter the scientific status quo, researchers may be better off working in small teams, a paper in Nature . . . concludes.  The report, which examines the citations of tens of millions of research papers and patents, indicates that big teams tend to work on existing theories rather than instigating new ones.” 

********The Abstract of the article, available at the above link to Nature, gives a clear sense of the article’s methods, findings, and importance.  While we are on the subject of teams, it is worth calling attention to “Men still pick ‘blue’ jobs and women ‘pink’ jobsThe Economist.  Mining company BHP Billiton has found that its “most diverse teams outperform the average by around 15% on measures such as meeting production forecasts, sticking to timetables and—because female miners are gentler on gears and more likely to respond to alarm lights—cutting maintenance costs.  The number of injuries is about half that in male-dominated teams doing similar work.”  The article addresses much more than team performance.

(15 February 2019):The New Way to DeregulateBloomberg Businessweek

——–“Sandboxes are the hot trend in financial regulation.  Or rather, deregulation.  China, Singapore, Australia, Canada, and more than 20 other countries have them.  U.S. regulatory agencies are starting them.  Arizona has one, and other states my follow suit.  Sandbox programs are supposed to be a kind of safe space to allow digital entrepreneurs to test products without regulators breathing down their necks.  Governments are willing to stay their regulatory hand because the startups that emerge from such experiments might lead to new jobs and expanded access to financial services.  They also provide competition to big banks. . . . But as sandbox initiatives proliferate, critics worry that the concept has become a covert effort to neuter consumer protection laws.”

********A different kind of sandbox than those of my childhood.  Evidently the term ‘sandbox’ derives from software development.  Wikipedia notes: “A sandbox is a testing environment that isolates untested code changes and outright experimentation from the production environment or repository.”  Experimentation in a controlled environment seems to be the core idea, although it did remind me of special economic zones that have been around for some time.  Wikipedia notes that a special economic zone (SEZ) “is an area in which the business and trade laws are different from the rest of the country.”  The Wikipedia article goes on to note that “Free zones and Entrepots have been used for centuries to guarantee free storage and exchange along trade routes. . . . Modern SEZs appeared from the late 1950s in industrial countries.  The first was in Shannon Airport in Clare, Ireland.”

(20 February 2019):How meat producers are trying to avoid becoming like dairy farmers competing with nut ‘milks’The Washington Post

——–Kevin Kester is a recent president of the National Cattlemen’s Beef Association (NCBA).  In that role he was the beef industry’s top lobbyist and one of his primary concerns was “fake” meat, i.e., things like “plant-based burgers from Beyond Meat and Impossible Foods, which have elbowed their way into grocery-store meat cases next to the sirloins and ground round. . . . Even more worrisome is the much-ballyhooed, but not yet commercially available, ‘lab’ or ‘cultured’ meat, cultivated from animal cells without raising or slaughtering an animal.”  A variety of laws have been passed, and more are being considered, to regulate the use of the word ‘meat’ and expressions such as ‘clean meat’. 

********In its efforts to find a regulatory solution to reduce competition for its product from new substitutes, the meat industry is mindful of approaches taken by the dairy industry in relation to butter—oleomargarine was the new substitute—and by the dairy industry in relation to milk—nut milks of all kinds are the new substitutes.  In Kester’s view, “the dairy industry’s lackadaisical approach to competitors and the FDA’s lax enforcement of its definition of milk . . . created the problem” facing them, that being decreased demand for its products.  Overall, Kester is “confident that U.S. tastes won’t change.”  He states: “Personally, I’d choose a tasty, traditionally produced rib-eye steak over a tofu burger or something out of a petri dish every single day of the week . . . And I’m guessing that the vast majority of American consumers will do the same.”  Regarding taste change, please see the article on Kraft Heinz—(22 February 2019)—below.

(21 February 2019):A new book argues weakened communities threaten liberal democracyThe Economist

——–“Until recently, economists’ prescription for struggling places was bloodless: let them die. . . . But the electoral successes of Donald Trump and the campaign to yank Britain out of the European Union (EU) have shaken the dismal science. . . . The reconsideration of place-based policies can often seem grudging . . . Economists’ reluctance is understandable: efforts to help struggling communities might well deter people from moving when they would otherwise have relocated to more promising places.  But it is also short-sighted, argues Raghuram Rajan, an economist at the University of Chicago and the former head of India’s central bank.  In a compelling new book, ‘The Third Pillar: How Markets and the State Leave the Community Behind’, he argues that communities are not so much a source of friction inhibiting the smooth operation of the global economy, as an indispensable part of a healthy society.”

********The Third Pillar was released on February 19th.  The review goes on to note that “the places where people grow up, live and work are not simply agglomerations of economic activity.  They shape people’s identities and ‘anchor the individual in real human networks’.”  Reading this, I see a connection to the invisible forces: markets (the invisible hand), state (the invisible foot), and community (the invisible handshake).  I’m intrigued.  In 2010 Rajan’s book Fault Lines received the Financial Times and Goldman Sachs award for Business Book of the Year.  You can learn more about Rajan at Wikipedia.

(21 February 2019):Made on the Inside, Worn on the OutsideThe New York Times

********Danish fashion company Carcel was started “to create a positive impact on the world through fair employment and wages for women in prison, using only the best, natural materials and making quality designs that last.”  This article discusses Carcel and its use of women prisoners in a penitentiary center in Cusco, Peru to produce the clothing it sells.  It raises important questions to ponder. 

(22 February 2019): Kraft Tests How Much Costs Can Be Cut as Tastes ChangeThe New York Times

——–“The reputations of some of the world’s most powerful investors rest on a huge but humdrum challenge: getting consumers excited again about Kraft macaroni and cheese.”  Food giant Kraft Heinz lost 28% of its market value on Friday after it announced: “poor earnings, a multibillion-dollar write-down and an accounting investigation by the Securities and Exchange Commission.”  Brazilian investment firm 3G Capital “led the merger of Kraft and Heinz in 2015 and steers the combined company.”  3G is known for its “stringent, cost-cutting approach to running companies . . . Bu Kraft’s problems suggest that unremittingly squeezing expenses can make it harder to stay competitive.”  In fact, “Kraft Heinz may soon need to spend more.  Consumers are increasingly drawn to products they perceive to be healthier and fresher over processed products.  Kraft Heinz will have to show that it can win them back with innovative new products and engaging marketing.  And that could weigh on future profits.”  In assessing the situation of Kraft Heinz, professor David Kass of the University of Maryland notes: “They did not anticipate this major change in consumer tastes, and they really focused their efforts instead on cost-cutting and doing acquisitions.”  The approach of large mergers with an eye toward cost cutting has also been followed by Anheuser-Busch InBev, the share price of which has fallen 20% over the last year.

********Evidently a focus on cost cutting when tastes are changing is not a winning strategy. 

(22 February 2019): More houses are rolling off the assembly lineMarketplace

——–Prefab homes are getting a second look from affordable housing advocates.  One reason is quick turnaround.  The largest U.S. producer, Clayton Homes, can produce a home “From start to finish . . . [in] about four to five days.”  A second reason is price.  “A typical factory-built house costs as much as 50 percent less per square foot than a traditional home” according to Allan McCargo of the Urban Institute.  Shipments of such homes were 97,000 in 2018; Clayton Homes produced about 47,000 in 2018.  Prefab homes are now getting a boost from mortgage giants Fannie Mae and Freddie Mac, which “have started funding traditional mortgages for manufactured houses.”  Previously factory-built home were “paid for with ‘chattel’ loans, which often carry higher interest rates.”

********Chattel loan was not in my mental dictionary.  If that is true of you, take a look at the definition of chattel mortgage at Investopedia.  Lower interest rates on loans, of course, will make manufactured homes a little more attractive as a housing alternative. 

(22 February 2019):How To Analyze An IPOBloomberg.com

********This is a 26-minute episode of the Odd Lots podcast, this time focusing on initial public offerings.  Co-host Joe Weisenthal interviews Rett Wallace of Triton.ai, a company that analyzes IPOs.  I was very impressed by the interest, quality, and fluidity of the responses that Wallace gave to Weisenthal’s questions.  Two points have stuck in my mind.  First, IPOs are now happening later in a company’s life larger due to regulatory reasons.  Why put up with the hassle of being the CEO of a public company if you don’t have to?  Second, private investors often know more about the overall circumstances of a business than public investors, largely because public investors tend to focus on—have access to—dollar-denominated metrics.  You can learn more about Triton.ai here.  It is interesting to see that Triton’s CEO, Rett Wallace, has a Bachelor of Science in Foreign Service from Georgetown University.

********One of the companies discussed in relation to an upcoming IPO was Uber, which was used to exemplify the analytic approach of Triton.  Quartz has an interesting article that shares “What an economist learned by driving for Uber.”  Paul Orr, a professor at the Stanford Graduate School of Business spent some time as a driver so that he might better understand the platform and gig work in general.  In the process he learned a bit about the value of work flexibility and why “male Uber drivers make more than female drivers.”

********While we are on the topic of gig work, I found “Are you an employee or a contractor?  Carpenters, strippers and dog walkers now fact that questionThe Los Angeles Times.  The article elaborates on the consequences of the California Supreme Court ruling in Dynamex Operations West, Inc. v. Superior Court of Los Angeles.  The Court “embraced a standard presuming that all workers are employees instead of contractors, and placed the burden [of proof] on any entity classifying an individual contractor of establishing that such classification is proper” under a newly adopted test of the Court.  What the “Are you an employee” article makes clear is that it is not universally advantageous for an individual to move from contractor status to employee.  Some examples are given.  The main point is encapsulated in this statement:

Each sector may have workers who want to remain contractors, collecting untaxed wages upfront without deductions for benefits, and having control over their hours.  And it may include others who prefer to be employees, with unemployment insurance, greater job stability and the right to join unions.

(22 February 2019):The Shutdown Made Sara Nelson Into America’s Most Powerful Fight Attendant” The New York Times

——–Sara Nelson is the president of the Association of Flight Attendants union.  “At an A.F.L.-C.I.O. gathering on Jan. 20, Ms. Nelson called for a general strike, an idea so radical that it has scarcely been invoked in public by the head of a national union in generations.  The suggestion . . . put her in the same frame as the phenom congresswoman Alexandria Ocasio-Cortez.”  Ms. Nelson is convinced that, “while a vanishing fraction of Americans belong to unions, workers are increasingly fed up with their lot and amenable to the idea of taking on their bosses directly.”  Building connections to other labor groups has been a priority for Ms. Nelson.  “In speeches to miners and postal workers, she has pushed workers to band together to fight for better contracts, higher wages and more benefits, often leading crowds in chants of ‘I’ve got your back.’” 

********Nelson played a central role in developing the communications strategy that made evident the danger to airplane personnel and passengers as a result of the federal government’s partial shutdown.  As the article notes, she is considered as a serious candidate to head the A.F.L.-C.I.O. when the term of its current presidents, Richard Trumka, is over.  Cleary Sara Nelson is someone to watch.  You can learn more about her at Wikipedia.

(23 February 2019):Why peppercorns are being smuggled by the ton from Vietnam to Sri LankaQuartz

——–“The world’s top exporter of peppercorns is Vietnam, where local farmers have shifted away from other formerly popular crops, such as coffee.”  [Vietnam is the world’s largest producer of Robusta coffee beans.]  Vietnam’s peppercorns are “sold around the world, but seldom to India, where government price-fixing sets local peppercorn prices way above the going rate in other markets.  Because of that, there’s money to be made by selling Vietnamese peppercorns at Indian prices—if you can find a way to bypass India’s high tariffs and minimum import prices.  Some rogue traders are now doing just that: they reportedly ship the peppercorns to Sri Lanka, relabel them, and sell them on in India for a much higher profit than if they had exported them directly to the large, pepper-loving nation.”

********In both Vietnam and India, peppercorns and coffee seem to be substitutes-in-production in that they can be produced using the same resources.  India’s tariffs and minimum import prices apparently stem from the fact that peppercorns are a secondary and important source of income for coffee planters. 

(25 February 2019):Trump is treating our allies like his old contractors: Not wellThe Washington Post

——–“The president needs an economist.  Not just any economist; he desperately needs a game theorist, someone who can impress upon him why the negotiating strategy that has (mostly) served him well in his private business utterly fails him now.  Specifically: He needs someone to explain ‘repeated play’—and the idea that players may want to strategize differently if they’re going to face off multiple times rather than just once.”

********This is an opinion piece that makes an excellent point.  The approach one takes to a repeated game is likely to be very different than the approach to a game that takes place only once.  Thus, the “Art of the Deal” for repeated games is likely to be very different than that for a game that a “one-off.”  As columnist Catherine Rampell puts it: “negotiating on behalf of the United States is different from negotiating a one-off contract with a plumber.”  As she argues, “In government, there is necessarily repeated play; there is no inexhaustible supply of sovereign nations or political parties to haggle with.”  The importance of repeated games is nicely captured in Robert Axelrod’s classic and still-relevant 1984 book, The Evolution of Cooperation.

May you have a good week!

Bruce

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