374 (19 June 2019)

Welcome to week 374!  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.

(12 June 2019):Martin Feldstein, 79, a Chief Economist Under Reagan, DiesThe New York Times

********The passing of Harvard economist Martin Feldstein was much covered by all the major media outlets this last week.  This article provides a nice overview of his work, including his work as an advisor for multiple presidential administrations.  Perhaps most impressive, though, is the roughly 30 years he served as a transformative president of the National Bureau of Economic Research.  For a look at Feldstein as teacher and mentor, the article “The economist who connected across politicsThe Harvard Gazette is worth reading.  I was especially impressed by this: Feldstein “advocated hard for the public policies he believed in, but taught, mentored, and advanced people without regard to his own views.”

(13 June 2019):Free Exchange: Votes of ConfidenceThe Economist

********This is basically a review of Democracy and Prosperity: Reinventing Capitalism through a Turbulent Century,” by Torben Iversen and David Soskice, a book that provides reasons why those countries that get into the “club of rich democracies . . . tend to stay there.  Since the dawn of industrialization, no advanced capitalist democracy has fallen out of the ranks of high-income countries or regressed permanently into authoritarianism.”  The authors argue that “capitalism and democracy as potentially mutually supporting, with three stabilizing pillars.  One is a strong government, which constrains the power of large firms and labour unions, and ensures competitive markets. . . . The second is a sizeable middle class, forming a political bloc that shares in the prosperity created by a capitalist economy. . . . [and] a third pillar . . . large firms that are not very mobile.”  Although one might quibble with the details of their argument, “the overarching story—immobile companies giving governments a degree of sovereignty, which they self-interestedly use to boost the middle classes—seems a plausible account of the stability of advanced capitalist democracies.”  That being said, “It leaves plenty to be concerned about, [as it] hinges on the middle classes feeling confident about the economy.”

********The word ‘pillars’ reminded me of the recent book The Third Pillar: How Markets and the State Leave the Community Behind, by Raghuram Rajan.  It seems that the invisible forces—economic forces, legal and political forces, and social and historical forces—are also pillar-like.  What these three ways of looking at things seem to share is a sense of system, i.e., the pillars are interdependent, and that there is a broader sense of equilibrium for the system than that of the economy (market) itself.  This idea of a general social equilibrium is most familiarly developed by engineer-economist-sociologist Vilfredo Pareto in his four-volume 1916 work Mind and Society.   

(14 June 2019):I’m a Financial Journalist Who Was Bored Silly by Mergers.  Not Anymore.The New York Times

********This article relates how reporter Peter Eavis came to think that reporting on mergers is of general interest.  First, there is the rise of big tech companies like Facebook and Google that are enormously profitable.  But second, there is increasingly a sense that “people in power might do something.  For reporters, antitrust action is far more interesting than antitrust theory, and President Trump has raised the prospect that he might take a more aggressive antitrust approach.”  Finally, it seems like “the antitrust debate will be in the air for some time.”  Now, “when a big deal comes up, reporters might best serve readers by looking closely at whether it will hurt competition, squelch innovation or have other ill effects.  The days of relying on the insights of stock analysts and investors, who are typically much more focused on whether the merger will bolster the stock price, are over.” 

(17 June 2019):Climate Change Is Coming for the $3.6 Billion Cognac BusinessBloomberg Businessweek

——–“Since at least the 15th century, the gentle hills of the Cognac region in southwestern France with the Ugni Blanc vine, which yields an acidic, yellowish-white grape.”  After processing, including two distillations, the resulting “liquid is poured into barrels made of oak from nearby forests, to emerge anywhere from 2 to 200 years later as the brandy known globally as cognac.  Climate change threatens all that.  Warmer summers and longer growing seasons mean the grapes get sweeter and less acidic on the vine, which dramatically changes the character of the wine, and thus the cognac it makes. . . . And European Union provenance laws mean producers can’t simply move to higher-and cooler-ground outside the region and still call the harvest cognac.”  As a result, cognac producers are spending significant sums on research to identify vines that will enable them to continue to produce cognac familiar to consumers.

********One producer, BNIC, says that “each increase of 1C (1.8F) in maximum daytime temperature during the growing season accelerates the harvest by about 10 days.”  Concerns about grape quality “began to mount in the early 2000s, when several exceptionally hot and dry summers resulted in September harvests—about a month earlier than usual—and unusually sweet grapes.” 

********The above story of change differs dramatically from the story of constancy in “A French Wine With a 900-Year-Old VintageThe New York Times.  It notes that “Savagnin blanc—not to be confused with the sauvignon blanc the sommelier recommended with your cheese course—as a fruity, acidic grape from the vine-encrusted hills of Jura, near France’s border with Switzerland.  And if you visit and sip the region’s white wines today, you’ll be tasting the exact same grape, down to the genetic level, that has gone into its wines for at least 900 years.”  This statement is backed up by a study just published in Nature Plants.  Its findings “reinforce how winemakers can devote centuries, if not milleniums, or loyalty to certain varieties of grapes.  Faced with the choice of letting nature take its course and allowing new grape varieties to develop, or sticking with a reliable fruit by grafting vines to create perfect clones, most growers have spent the last 10 or 20 centuries learning how to better produce what works.”

(17 June 2019):World’s Top Bicycle Maker Says the Era of ‘Made in China’ Is OverBloomberg.com

********This is an article on the trade war between the U.S. and China, and how once company—Giant Manufacturing—is adapting to it.  The first two paragraphs provide a clear statement of the words of President Trump and how Giant’s chairwoman Bonnie Tu has responded to them.

Giant Manufacturing Co. saw the writ on the wall early on.  The world’s biggest bicycle maker started moving production of U.S.-bound orders out of its china facilities to its home base in Taiwan as soon as it heard Donald Trump threaten tariff action in September.  ‘When Trump announced the plan of 25% tariffs, we took it seriously,’ Chairwoman Bonnie Tue said in an interview at Giant’s Taichung City headquarters in Taiwan.  ‘We started moving before he shut his mouth.’

As Wu goes on to note, “The world is no longer flat,” a reference to Thomas Friedman’s book The World is Flat, “The concept is no loner affordable in every place.”  If “a level playing field” is no longer the appropriate metaphor for companies and trade, what is?  What word should fill in the blank of The World is ________? 

(18 June 2019):Quicktake: Why Facebook Is Minting a Coin and How You Can Use ItBloomberg.com

********Here is a brief look at the essential ideas behind and characteristics of Facebook’s proposed cryptocurrency—like Bitcoin—called Libra.  As news reports indicate, the scale of Facebook’s operations gives Libra a credibility that cryptocurrencies generally lack.  One of the characteristics of note is that Libra “is a so-called stablecoin, 100% backed by a basket of securities and fiat currencies, such as the dollar, euro, pound and yen.  Because these fiat currencies don’t fluctuate in value much, the Libra coins’ value” will likely not fluctuate much, too.  Read points (5) and (6) in the article to learn more about stablecoins.  There will be a lot of discussion about Libra in the months ahead.

May you have a good week!

Bruce 

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