373 (12 June 2019)

Welcome to week 373!  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.

(20 May 2019):How Legalization Changed Humboldt County MarijuanaThe New Yorker

——–“For more than forty years, the epicenter of cannabis farming in the United States was a region of northwestern California called the Emerald Triangle, at the intersection of Humboldt, Mendocino and Trinity Counties.  Of these, Humboldt County is the most famous.  It was here, in hills surrounding a small town called Garberville, that hippies landed in the nineteen-sixties, after fleeing the squalor of Berkeley and Haight-Ashbury.”  Over time, they learned how to produce marijuana and avoid arrest, and pursued a life of voluntary simplicity.  Things began to change, however, when California passed Proposition 215 in 1995, which “exempted patients and caregivers from criminal marijuana laws” and Proposition 64 in 2016, which legalized marijuana use more generally.  Since then, Humboldt County hasn’t been the same.

********A fascinating look at some of the consequences of marijuana legalization in Humboldt County.  The County thrived when marijuana was illegal, but the laws were weakly enforced, in contrast to now when marijuana is legal and relevant laws are rigorously enforced.  Among other things, the article points to the consequences of incorporating a relatively isolated area into a broader region via legal change that also led to much more extensive market integration

********The greatest integrator of markets, of course, is the Internet.  If you can connect to the Internet (and all you need is a satellite linkage and a source of electricity) you can connect from anywhere.  That makes stories like “They Just Won’t Die: Dark Web Drug Sellers Resist Police Crackdowns” in The New York Times of related interest.  Although Dark Web sites where a cornucopia of drugs are sold clandestinely are continually being taken down by legal authorities, “the fight against online drug sales is starting to resemble the war on drugs in the physical world: There are raids.  Sites are taken down; a few people are arrested.  And after a while the trade and markets pop up somewhere else.”  Whac-A-Mole provides a model for so many things.

(1 June 2019):New Study of Old Real Estate Bubbles (1582-1810) Finds Two Surprising Similarities With Modern BubblesReal Estate Decoded

——–“Amsterdam had three large real estate bubbles from 1582 to 1810.  The real estate market was entirely different 200-400 years ago but those Amsterdam bubbles shared at least two similarities with modern real estate bubbles.  Changes in the amount of mortgage money chasing homes, however, was not one of the similarities because mortgages were uncommon in Amsterdam back then.  Credit booms are not necessary for real estate booms but an increase in the amount of money chasing homes is.”

********The post is based on a working paper by Ph.D. candidate Matthijs Korevaar of Maastricht University.  You can read its 57 pages here.  Korevaar looked at 164,000 home sales in Amsterdam from 1563 until 1811 and found three real estate bubbles from 1604 to 1810 where “House prices doubled or tripled and then fell back to their initial values.  Each bubble lasted decades.”  So what are the two similarities?  They seem to be: (1) the natural “extreme” inelasticity of the supply of houses, and (2) price momentum.  One supply-side factor and one on the demand side.  What might the data reveal, say, for Asheville, North Carolina?

********It was interesting to read that the reason that the time series of Amsterdam housing prices came to an end is that Napoleon annexed Holland in 1811 and “the land title system changed.”  Another post I read this week also showed the impact of Napoleon: “How War Revolutionized Ireland’s Linen IndustryJSTOR Daily.  As there noted, “During the Napoleonic Wars, Irish women, who had traditionally only spun flax into thread, took over the traditionally male job of weaving linen as well.”  The image of “Rosie the Riveter” is famous in the U.S., but many such Rosies lost their jobs when GIs returned after WWII ended.  But in Ireland, “when soldiers returned to civilian life . . . The market was too hot, even with the massive drop in war demand.  By 1851, at least a third of Irish linen weavers were women.”  The foundation article for the post, “War, Gender, and Industrial Innovation: Recruiting Women Weavers in Early Nineteenth-Century Ireland,” can be accessed at the end of the post.

(4 June 2019):’Food deserts’ become ‘food swamps’ as drugstores outsell major grocersThe Guardian

——–“In 2017, CVS held a 3.9% share of the grocery market.  Walgreens came in at 2.4%.  That may not seem like much, but it far outpaced both Whole Foods and Trader Joe’s, which had 1.4% and 1% respectively.  The eyebrow-raising figure probably comes down to an issue of scale—last year CVS and Walgreens each had close to 10,000 stores in the US, while Trader Joe’s and Whole Foods each had fewer than 500 locations.  While the ubiquitous nature of pharmacies may help fill the grocery gap where affordable options are scarce, some researchers are concerned that this low-priced convenience comes with a high cost.”

********I found the grocery market shares of CVS and Walgreen’s to be very surprising; the 2016 information came from Business Insider by way of UBS.  A broader view of the market for groceries is provided by prolific food writer Michael Ruhlman in his 2017 book Grocery: The Buying and Selling of Food in America.

(6 June 2019):The Car Industry Is Under SiegeThe New York Times

——–“The internal combustion engine is under attack from electric challengers.  Car ownership is becoming optional in the age of Uber.  Regulators around the world are fining companies that don’t do enough to cut carbon dioxide emissions, even as buyers demand gas-guzzling S.U.V.s.  Global auto sales are slipping for the first time in a decade, disrupted by President Trump’s escalating trade war. . . . New technology has unraveled industries like entertainment, media, telecommunications and retailing, weakening the job security of millions of workers and helping to fuel populism.  Carmakers, clearly, are next.”  The stakes are high as established companies “like Volkswagen, General Motors or Toyota are among the last employers that operate vast factories where thousands of workers pour in and out of the gates at shift changes.  Worldwide, eight million people work directly for auto manufacturers, and many times more work for companies that supply brakes, tires, sensors and other components.”

********As the article notes, “Increasingly, car ownership is a luxury rather than a necessity.”  Contributing to the rethinking about cars is “the emergence of climate change as a potent political issue, as well as worsening air quality in major cities.”  Evidently potential fines from failing to meet the fuel economy requirements of the European Union—57 miles per gallon by 2021—is one of the factors driving the (now aborted) merger of Fiat Chrysler with Renault.  All in all, a nice summary of the “perfect storm” in which the auto industry finds itself. 

********I thought this interview with Ryan Popple, the CEO of electric bus producer Proterra, provided some useful perspective.  In particular it stresses the importance of the routine nature of bus procurement, routine in the sense that not much thought is given to it.  A correspondent pointed out to me that electric school buses are natural, as they run in the morning and the afternoon, and have plenty of recharge time in between.

(6 June 2019):Advertising may make people miserable, but it still has its usesThe Economist

********This article plays upon the familiar ideas of the two economic functions of advertising—information and persuasion, especially the latter.  In doing so it brings up forthcoming research by Chloé Michel, Michelle Sovinsky, Eugenio Proto, and Andrew Oswald, which “attempts to unpick the effect of advertising on welfare.”  They found that “a doubling of ad spending is associated with a subsequent drop in reported satisfaction of 3% . . . their findings may illustrate an aspect of the economy that has puzzled some economists for more than a century.” In his 1899 book The Theory of the Leisure Class, Thorstein Veblen “argued that consumption is not merely about satisfying needs, but it is also used to signal status and prestige.”  One might say that every product has the possibility of function AND distinction, but the desirability of most products is strongly dominated by function, with distinction playing little or no role.  As the article notes, “For goods to grant high status, there must be consumers who want but cannot have them.  Ad campaigns featuring sleek cars bedecked with oversized bows add to the value of luxury brands by informing the masses of how desirable they are—and how inaccessible.”  The article concludes noting that ”Perpetual dissatisfaction may well boost economic growth by keeping highly productive workers who might otherwise enjoy more time with their families chained to their desks.  But it is a funny sort of prosperity that depends on people never being satisfied with their lot.”

********For a book that provides a valuable counterpoint to the perpetual dissatisfaction of contemporary workers, Stone Age Economics, by Marshall Sahlins, has much to offer.  First published in 1972, the book is a “classic of modern anthropology and arguably one of the founding works of anthropological economics. . . . Sahlins concludes, controversially, that the experiences of those living in subsistence economies may actually have been better, healthier and more fulfilled than the millions enjoying the affluence and luxury afforded by modern industrialization and agriculture.”  I ran across Sahlins’s book in a call for papers on “Marshall Sahlins’s Stone Age Economics, a Semicentenary Estimate.”

(8 June 2018):Here’s a Guide to the U.S. Antitrust Case Against Big Tech CompaniesBloomberg.com

********Big Tech in this instance is Apple, Facebook, Google, and Amazon.  This article takes a look at recent investigations against these four companies and summarizes The Case against each of them and The Defense of each of them.  This is a good way to get up to speed on current and potential inquiries by the federal government in relation to them.  The House Judiciary Committee began its investigation on Tuesday, June 11th, with a focus on how traditional journalism has been affected by the loss of ad revenues to Facebook and Google.  You can learn more about the investigation in this article in The New York Times.

(9 June 2019):A Drama of Trump’s Own Making Ends With a Familiar HeroThe New York Times

********To me what is interesting about this article is its suggestion that the president uses threats as a tactic to further larger ends.  Take tariffs on Mexico as an example.  “Nine days in spring offered a case study in Mr. Trump’s approach to some of the most daunting issues confronting him and the nation: When the goal seems frustratingly out of reach through traditional means, threaten drastic action, set a deadline, demand concessions, cut a deal—real or imagined—avert the dire outcome and declare victory.”  The Wall Street Journal makes a similar point in [SR]For Trump, Threats Become Part of Diplomatic Playbook” (9 June 2019).  Are these threats effective?  It depends whether they are credible or not.  Credible threats are behavior influencing but non-credible threats, i.e., threats that one doesn’t believe will be acted upon are not.  There is a nice discussion of these two types of threats in a post by Presh Talwalkar.  Presumably there is some type of learning that takes place in the threat making.  As more empty threats are made, the more likely they will be viewed as non-credible.

********This article led me to think about market movements brought on by presidential threats.  Presumably one could catalog and time the threats made by the president and see how, say, the stock market responded.  Does the type of threat matter, e.g., a military threat or an economic threat?  Does repeated threat-making lead to reduced market response of a particular type?  To my mind, oral or tweeted threats is a type of “jawboning” made familiar during the administration of president John F. Kennedy when he took on U.S. Steel.  An article that explores Kennedy’s jawboning of U.S. Steel will Trump’s comments toward Amazon can be found here

********The Economist has also picked up on the theme of President Trump’s weaponization of the U.S. economy.  Check out its June 6th option piece “Weapons of mass disruption.”

(10 June 2019):Welcome to the Age of Surveillance CapitalismBloomberg.com

********The term ‘surveillance capitalism’ seemingly entered public vocabulary with the January 15th publication of Shoshanna Zuboff’s book The Age of Surveillance Capitalism.  Much attention was given to the book when it was published.  This piece by Noah Smith explores a bit more some of the darker uses of surveillance capitalism.  Some of these uses are well-known, e.g., ad targeting.  Some of these are less well-known—price discrimination, i.e., charging different prices to different people based upon some criteria, and “the ability to deny people essential services based on their past deeds.”  Those past deeds could conceivably be based upon identity, as in “the chance that Uber drivers will systematically give lower ratings to riders of races, religions or genders they don’t like.”  As Davis sees it, “Surveillance and control by corporate behemoths requires an even greater leviathan to balance it out.  Governments in free countries must place limits on the amount and types of data companies are allowed to collect on citizens, the ways they are allowed to transfer that data, the length of time they are allowed to retain it, and the harshness of the consequences they can impose on people because of it.”  But government surveillance “is known to be fairly ubiquitous.”  What leviathan will oversee it?

(10 June 2019):What Boy Band Sensations BTS Can Teach Us About EconomicsBloomberg.com

********This is a 35-minute podcast with a highly misleading title: BTS is scarcely mentioned; a BTS video can be viewed here.  So what is the podcast about?  Essentially it explores the close relationship between the South Korean government and private industry in the intentional development of cultural goods aimed at a global audience.  In the U.S. this has been scornfully called, by some, as “picking winners.”  But that doesn’t seem to be a problem in South Korea, which though market oriented also has the capability of operating as a command economy.  This approach reminded me of indicative planning, although perhaps the French term dirigisme captures things better.  Whatever the correct term, South Korea has made a great success out of its directed efforts to develop cultural goods for a global audience.  Evidently the inspiration for all of this was the commercial success of the movie Jurassic Park.

********The guest interviewed for the podcast is Euny Hong, who wrote The Birth of Korean Cool: How One Nation Is Conquering the World Through Pop Culture.  The book was published in 2014 and looks to be historically informed and entertaining.  You can learn more about Hong here.

(11 June 2019):’The migration problem is a coffee problem’The Washington Post

——–“Guatemala is now the single largest source of migrants attempting to enter the United States—more than 211,000 were apprehended at the Southwest border in the eight months from October to May.  Here is western Guatemala, one of the biggest factors in that surge is the falling price of coffee, from $2.20 per pound in 2015 to a low this year of 86 cents . . . Since 2017, most farmers have been operating at a loss, even as many sell their beans to some o the world’s best-known specialty-coffee brands.  A staggering number of those farmers have decided to migrate.”

********A very clear story about one cause of migration to the U.S.—loss of economic opportunity at home, in this case driven by falling prices in global coffee markets.  Whenever I read stories like this, I am always led to think about The Camp of the Saints, by French author Jean Raspail.  Wikipedia describes it as “controversial and has often been denounced as racist and xenophobic, especially due to its anti-immigration themes.”  The book “depicts the destruction of Western civilization through Third World mass immigration to France and the West.” 

May you have a good week!

Bruce 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s