359 (6 March 2019)


Welcome to week 359!  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.

(26 February 2019):You asked, we answered: Why didn’t any Wall Street CEOs go to jail after the financial crisis?  It’s complicated.Marketplace

********This is a 41-minute podcast that ran in multiple parts on NPR, starting on February 26th, thus the date.  It is well worth a listen and falls nicely in the invisible foot part of the TIF.  The podcast begins with a look back at two previous financial events: the savings and loan debacle and the collapse of Enron.  In both of these events many people were charged and went to prison but in the most recent financial crisis almost no one did.  Thus question: Why?  As the title of the podcast indicates, “It’s complicated.”  But what was clear to me is that the absence of criminal convictions is that almost none were sought.  Early on criminal charges against executives at Bear Stearns were brought but no convictions resulted.  As a result, it seems that  the Justice Department decided to take a different road, pursuing cases civilly rather than criminally.  This resulted financial settlements but no criminal convictions. 

********At the end of the link there is a list of books to learn more.

(1 March 2019):Dairy farmers are in crisis—and it could change Wisconsin foreverThe Milwaukee Journal Sentinel

********This is part of the series “Dairyland in Distress: A USA Today Network-Wisconsin Special Report.”  As the title indicates, it is about the plight of small and smallish dairy farms in Wisconsin.  But the challenges of Wisconsin dairy farmers are the challenges of dairy farmers throughout the United States.  This article gives sort of a macro view, indicating the elimination of small forms due to lower prices at which they are unable to continue to operate.  For a more micro view, there is another article, “How four family dairy farms in Wisconsin are fighting to survive,” that clearly indicates the circumstances of some individual dairy farmers.  There are videos interspersed that allow the dairy farmers to tell their own stories.   Five videos—about 15 minutes—are gathered together here.  The despair of some of these farmers is obvious.  Industry exit, so easy to talk about in the abstract, is hard to take in the concrete.

(1 March 2019):Banning payday loans sends desperate borrowers running to pawn shopsQuartz

——–Eleven years ago the state of Ohio passed legislation that made payday loans “prohibitively expensive to offer.”  The Short-Term Loan Law limited the annual percentage rate of interest to 28%, “slashing the margins of predatory lenders, and effectively banning payday loans in the state.  But while the law was intended to protect the poor, it seems to have instead sent them scurrying to other, equally insecure, alternatives.”  A paper by Stefanie R. Ramirez of the University of Idaho, which was published in Empirical Economics, examines the effects of the legislation.  “Though it succeeded in ending the loans . . . it had the unintended effect of shifting the problem to other industries favored by people with few alternatives and bad credit.  Would-be borrowers are now relying on pawnbrokers, overdraft fees, and direct deposit advances to get themselves quickly into the black when times get tough.”

********The article on which this piece is based is Stefanie R. Ramirez, “Payday-loan bands: evidence of indirect effects on supply,” Empirical Economics 56,3 (March 2019): 1011-1037.  You can download what I presume is an earlier version of the article here.  It is interesting to consider this in light of the article on dairy farmers in crisis. 

(4 March 2019):Yes, Americans Owned Land Before ColumbusJSTOR Daily

——–“There’s a myth that Europeans arrived in the Americas and divided the land up, mystifying Native Americans who had no concept of property rights.  In reality, historian Allen Greer writes, various American societies had highly-developed systems of property ownership and use.  Meanwhile, European colonists sometimes viewed land as a common resource, not just as individual property.”

********Greer’s article, “Commons and Enclosure in the Colonization of North America,” can be downloaded at the end of the linked post.  As is usually the case, the stories we learn first tend to stick with us, despite their incompleteness and sometimes their error.  I recently ran across a quotation in The Wall Street Journal that touches upon this.  Jonathan Swift is said to have written, “Falsehood flies, and the truth comes limping after it.”  You can read a fuller statement of Swift’s thoughts here

(4 March 2019):There are more $100 bills in circulation than $1 bills, and it makes no centsThe Washington Post

——–“A puzzling surge in the number of $100 bills in circulation and the planned demise of the 500-euro bank note have resurrected debate on the need for three-digit currency at all—given their favor with criminals around the globe.  A decade ago, the number of $100 bills lagged well behind $1 and $20 notes.  But the tally has doubled since the end of the financial crises, according to data from the Federal Reserve; by 2017, the $100 note eclipsed the $1 to become the most widely distributed U.S. currency.”  According to Torsten Slok, chief international economist of Deutsche Bank, the growth in the $100 bill “could be driven by a global fear of negative interest rates in Europe and Japan, or it could be a savings vehicle for U.S. households worried about another financial crisis, or it could be driven by more demand from the global underground economy.”  As it turns out, the “vast majority of these bills” aren’t in the U.S.  A 2018 research paper from the Federal Reserve Bank of Chicago “estimates as much as 80 percent of the 12 billion $100 bills in circulation live outside the country.”  Global corruption and criminal activity is one possible reason for the desire to hold $100 bills.  “A 2016 paper claims that “high denomination notes are ‘the preferred payment mechanism’ of criminals, because of ‘the anonymity and lack of transaction record they offer, and the relative ease with which they can be transported and moved.’”

********The article points out that “$1 million in $20 bills would weigh more than 50 pounds.  In 500-euro notes, it would be a little over two pounds.”  (Just for fun, the gold spot price at 7:12 pm on March 6th was $1,290 per ounce.  That means that $1 million in gold would weigh 48.45 pounds.  I can see why criminals might want to conduct their transactions in 500-euro notes rather than gold.)  All of this provides the setting for “Big-Money Bills Get Little Love—Except in Switzerland” The Wall Street Journal [SR].  Switzerland has issued one-thousand franc ($999) notes at a time when “other countries are scaling back big-value bank notes due to worries that they make life easier for criminals.”  This is in contrast to the European Central Bank which “stopped issuing new €500 ($567) notes in early 2019.”  Interestingly, these one-thousand franc notes cannot be stored indefinitely.  “Switzerland typically issues new bank note series every 20 years, and once that is done the existing notes lose all of their value after another 20 years and can’t be exchanged, meaning that around 2060, this batch of 1,000-franc notes will be little more than expensive wallpaper.”

(5 March 2019):White Meat of Dark?  Brexit Muddles the PictureThe New York Times

——–Most British customers want their poultry “cut up, boneless and, most vexingly to farmers, white, not dark. . . . For decades, the answer to that problem was the European Union: a frictionless market with idiosyncratic tastes, in which eastern countries crave the dark meat that Britons do not.”  So, dark meat travels to plates in Eastern Europe, while white meat travels the opposite way.  Britons can eat what they want while farmers export what they do not.  But now, as with so many other areas of trade and business, Britain’s impending withdrawal from the bloc, the process known as Brexit, stands to throw off the gustatory balance. . . . Farmers know this little-noticed quirk of the meat trade as carcass balance: One country’s leftovers are another’s prized cuts.”

********The article goes on to discuss some of the consequences of less-free trade, in particular, higher British prices for white meat and the substitution of dark meat for white meat when appropriate product adjustments can be made.  This article makes very clear the role of tastes in determining the direction of trade.

May you have a good week!

Bruce

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