Welcome! 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.
(3 September 2019): [SR] “The U.S. Wants to Adopt a Cap-and-Trade Plan for Water That Isn’t Working” The Wall Street Journal
——–“Australia’s Darling River was once filled with fleets of paddle steamers carrying wool to ships bound for England. For nearly two centuries, it provided fresh water to farmers seeking to tame Australia’s rugged interior. No longer. The Darling River hasn’t flowed for eight months, with long stretches completely dried up. . . . Australia’s water-trading market is drawing blame. The problems with the system, created more than a decade ago, have arisen as similar programs are being considered in the U.S.” Australia thought it had the answer to water crises: “a cap-and-trade system that would create incentives to use water efficiently and effectively in the world’s driest inhabited continent. But the architects of water trading didn’t anticipate that treating water as a commodity would encourage theft and hoarding.” As noted by Mike Young of the University of Adelaide, “Once you create something of real value, you should expect people to attempt to steak it and search for ways to cheat. . . . It’s not rocket science. Manage water like money, and you are there.” Contributing to the problems of the water-trading system is seller concentration. “Just four license holders control 75% of the water extracted from the Barwon-Darling river system. The national government, concerned that its water-trading experiment hasn’t turned out as intended, last month requested an inquiry by the country’s antitrust regulator into water trading.” Evidently California and Nevada are considering plans related to the one used in Australia to combat some of its water issues.
********It is on the subject of cap-and-trade that we take the opportunity to observe the passing of economist Martin Weitzman. An obituary appears in The New York Times as “Martin Weitzman, Virtuoso Climate Change Economist, Dies at 77.” Early in his career he wrote The Share Economy: Conquering Stagflation (1984), but his primary contributions were to the economics of climate, especially his work on what has come to be called “the Dismal Theorem,” which drew attention to the difficulty of addressing the catastrophic consequences of low probability events in cost-benefit analysis. He evidently had hopes that his work would receive the most recent Nobel Prize in Economics, but it was not to be. That Prize was shared by another climate economist William Nordhaus and economic growth theorist Paul Romer. Weitzman’s death by suicide follows the suicide of economist Alan B. Krueger earlier this year.
(7 September 2019): [SR] “When Corporations Changed Their Social Role—And Upended Our Politics” The Wall Street Journal
********This piece was written by Nicholas Lemann, the author of the forthcoming book Transaction Man: The Rise of the Deal and the Decline of the American Dream. It is an impressively concise, rich, and involved article. Something simpler was published in Kirkus Review, which sketches the structure of the book and its exploration of “the fracturing of social bonds between and among the ultrawealthy, middle-class residents, and those struggling with poverty.” Lemann does this in three phases, dating back about 100 years.” The first is the era of “powerful institutions, including government, political parties, massive corporations, massive labor unions, and affinity groups based on ethnicity,” an era symbolized by “Institutional Man” and embodied by author Adolf Berle. The second is the era of “transactions that often bypassed those institutions, mostly through Silicon Valley and Wall Street,” an era symbolized by “Transaction Man” and embodied by Michael Jensen. The third is the era of “internet-enabled entities such as Google, Apple, and Facebook,” an era symbolized by “Network Man” and embodied by Reid Hoffman, the co-creator of LinkedIn.
********Another valuable review, by Sebastian Mallaby, appears in September issue of The Atlantic. Here Mallaby reviews Transaction Man and Binyamin Appelbaum’s The Economists’ Hour. Both books seems to be taking somewhat similar, idea-based approaches, to explicating recently economics events and their meanings. As Keynes once said, “The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood.”
********There are two pieces that show that Lemann has been working on this project for a long time. Consider, first, “The Tanner Lectures” given October 10-11, 2012 at Stanford University. Then there is a piece in The New Yorker on Mitt Romney entitled “Transaction Man” published. (Searching through the lectures, I see Berle and Jensen prominently mentioned, but no mention of Reid Hoffman, all of which are prominent in Transaction Man.) For the visually inclined, you can watch videos of the lectures, as well as commentator discussions of them. You can find the videos here. Lemann is dean emeritus of Columbia University Graduate School of Journalism.
(7 September 2019): “Big agencies and studios have a lock on Hollywood. I’s high time to apply antitrust law” The Washington Post
——–“If they ever make a movie of the history of American antitrust law, Hollywood would certainly play a support role.” Events in 1948, 1962, and 1970 illustrate the impact of the Supreme Court, the Justice Department, and he Federal Communications Commission on the activities of Hollywood-based media. But in recent decades, “because of new technology and the government’s willful neglect of the antitrust laws,” many prohibitions “have fallen by the wayside. As a result, Hollywood is once again organizing itself around a handful of studios and talent agencies that use their control of distribution networks and access to superstar talent to dominate the entertainment business in ways that would make” former media giant Sam Goldwyn of MGM, Lew Wasserman of MCA, and Bill Paley of CBS proud. At this time, however, one group “has decided to take a stand against this new Hollywood oligopoly: the writers who create the script for movies and TV series. Five months ago, more than 7,000 writers fired their agents, complaining that the agents too often are working harder for themselves and their investors than they are for their clients.
********This is a complex story, showing just how involved the contracting among creative workers, their agents, and the media companies can get. Particularly at issue is the “packaging” of creative workers, actors as well as writers, and who does it. What is packaging? It is the situation where “a talent agency has put together a group of its clients—actors, directors, writers and other talent—to participate in a project. For this, they earn a packaging fee.” These packaging fees for the traditional “commissions that writers, actors and directors would otherwise be required to pay their agents.” Writers contend that “whatever they are saving in commission is more than offset by the lower salaries they earn when product budgets are squeezed to pay packaging fees to their agents.” In addition to packaging fees vs commissions, the article raises the issue of “back-end” profits, i.e., the additional monies that can be earned from hit shows. Streaming companies, like Amazon and Netflix, “don’t share back-end profits.” Paying, instead, bigger fees upfront. As the article notes, too date, neither the Justice Department nor the FCC have shown much appetite for taking on the Big Four Hollywood talent agencies that have done so much to throw the market for writers into disarray.
********TV writers are not the only ones who are finding their compensation diminished in recent years. Song writers, too, are finding things challenging, as is made evident in “Songwriters Aren’t Getting Paid Enough and Here’s Why” Music Industry Blog. This is a fascinating piece on how streaming and its compensation scheme for writers and performing artists have contributed to the marginal position of songwriters. Particularly interesting is the section “Songwriters don’t sell t-shirts” that discusses how songwriters and artists earn income, but in particular when they earn income. The argument is that streaming results in songwriter income taking on the form of an annuity, i.e., distributed across long time passages, rather than upfront. Since they earn so little—see the section “The four factors shaping songwriter income”—it is hard to survive in the business. Artists, on the other hand, are not totally dependent of streaming revenues—they can sell t-shirts and play concerts. Consequently, artists are able to weather financial storms that songwriters cannot. Or so the argument goes. All this is whetted my interest to learn more about how media markets, especially those for writers and performers, work.
(11 September 2019): “Nearly 3,000 illegal marijuana businesses found in California audit, dwarfing legal trade” The Los Angeles Times
——–“California’s black market for cannabis is at least three times the size of its regulated weed industry, according to an audit made public Wednesday, the latest indication of the state’s continued struggle to tame a cannabis economy that has long operated in legal limbo. The audit, conducted by the United Cannabis Business Assn., found approximately 2,835 unlicensed dispensaries and delivery services operating in California. By comparison, only 873 cannabis sellers in the state are licensed, according to the Bureau of Cannabis Control.” The figures are the latest sign of California’s rocky rollout of its legal marketplace, which promised better regulations and control beginning in 2018. . . . This year, an industry-backed financial audit projected that roughly $8.7 billion will be spend on unregulated cannabis products in California in 2019, compared with just $3.1 billion spent on cannabis sold by legal businesses.”
********This article clearly points out some of the challenges that arise when a previously illegal product becomes legal. An important contributing factor is that in the case of California, the previously illegal product was widely grown and readily accessible. With the introduction of licenses and regulation as part of legalization, the category “illegal product” did not disappear, it merely shifted. It would be interesting to read a history of a business that made the shift from illegal to legal producer, whether it was marijuana or some other product. I guess there are services, too, that have made that transition—I have abortion services in mind.
(12 September 2019): “Thomas Piketty Is Back With a 1,200-Page Guide to Abolishing Billionaires” Bloomberg.com
——–“Thomas Piketty’s last blockbuster helped put inequality at the center of economic debates. Now he’s back with an even longer treatise that explains how governments should fix it—by upending capitalism. The French edition of ‘Capital and Ideology,’ weighing in at 1,232 pages, comes out on Thursday (English speakers will have to wait till next year for a translation). It’s a sequel to ‘Capital in the 21st Century,’ which has sold more than 2.5 million copies in 40 languages since 2013, according to its publisher.” Piketty says, “his new book addresses two shortcoming of the last one, which was too focused on Western economies, and didn’t give enough space to the political ideologies that lie behind inequality.”
********A nice companion for this piece is the Quicktake “The Future of Capitalism” Bloomberg.com. It makes the interesting point that “Inequality has gotten both better and worse. Inequality between nations has diminished with the rise of China, India and other nations that have turned to capitalism and free markets. At the same time, inequality between rich and poor within nations has gotten worse.” The article concludes, “The upshot: Some on the left embrace capitalism, and some on the right mistrust it.” Something to consider as the presidential season becomes more insistent.
May you have a good week!