392 (23 October 2019)

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.

On September 3, 2019 Binyamin Appelbaum’s The Economists’ Hour was released.  It was widely reviewed by mainstream media outlets, e.g., The Atlantic, The Washington Post, The New York Times, and The Economist.  David Warsh also discusses the book in Economic Principals.  And now I have read it and have a few words to share. 

The book takes its name from the title of chapter 7 of Thomas K. McGraw’s book Prophets of Regulation, which won the Pulitzer Prize in History for its examination of the significance of Charles Francis Adams, Louis D. Brandeis, James M. Landis, and Alfred E. Kahn for the evolution of regulation in the United States.  The years comprising “the hour” begin in 1969 and end in 2008, a period that begins with economists convincing President Nixon to end the draft and ends with the onset of the Great Recession.  Prior to “the hour,” economists were often little more than “back office” number crunchers whose views were little considered, much less respected, by politicians and policy makers.  During “the hour,” economists came to be viewed as people who had knowledge and perspectives that were worthy of consideration (and sometimes respect).

As the book argues, the perspectives were not infrequently those of what might be called free-market fundamentalists, although Appelbaum does not use this exact expression in the book.  In my teaching I defined an FMF as “someone who believes that markets, if left alone, always generate socially optimal outcomes.”  Certainly there were a lot of FMFs advising government during that time and Milton Friedman, unsurprisingly, plays a central role.  To round off the terminology, a crusading interventionist is “someone who believes that markets, if left alone, never generate socially optimal outcomes” and an economic pragmatist is “someone who believes that markets sometimes generate socially optimal outcomes and sometimes market do not generate socially optimal outcomes.” 

One surprise of the book is that there little attention given to James Buchanan in the book.  Given the prominence of Buchanan in Nancy McLean’s Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America, one would have expected him to play an important role.  Perhaps this is simply a case of book publication timelines.  Would Appelbaum’s narrative have changed if he had read McLean’s book (he doesn’t cite it)? 

I think the book tells a coherent story and it should be widely read.  Economists will feel the occasional barb, but that goes with the territory.  What the book made me reflect upon is the danger of applying ideas beyond their proper bounds, i.e., the conditions that make them valid, and the importance of humility.  Perhaps that is why the recent Nobel Prize in Economics on the use of experimental methods in economic development is so hopeful.  It seems to be pragmatic, with little ideological baggage, and aspires not so much to an answer for everything but to discovery on a smaller scale.

(14 October 2019)How Climate Change Impacts WineThe New York Times

********This is the first of four articles, by NYT wine critic Eric Asimov on winemaking and climate change.

——–“Wine, which is among the most sensitive and nuanced of agricultural products, demonstrates how climate change is transforming traditions and practices that may be centuries old. . . . Farmers have been on the front line, and grape growers especially have been noting profound changes in weather patterns since the 1990s.”  They have responded in a variety of ways, including: (1) growing grapes further north in the northern hemisphere and further south in the southern hemisphere; (2) expanding into higher elevations; (3) curtailing sunlight, i.e., growing grapes on slopes that are less exposed to the sun; (4) using different grapes; and (5) being mindful of weather that is less predictable.

********The second article in the series is “In Oregon Wine Country, One Farmer’s Battle to Save the Soil.”  It considers “chemical agriculture,” cultivation methods, and climate change at Hope Well Vineyard, in Oregon, where “regenerative agriculture” is practiced.

So how do the invisible forces figure in all this?  First, climate change is affecting product quality, and thus the market value of the products farmers produce (the invisible hand).  Second, there are long traditions associated with land and its fruits.  In Europe, wine and food have co-evolved over centuries, and regional cuisines have become established (the invisible handshake).  If regional wines change, how will the way people eat respond?  Third, climate change is not inevitable—it can be ameliorated by legal and political action (the invisible foot). 

The first article reminded me of the work of Alexander von Humboldt (1769-1859), which is so impressively related by Andrea Wulf in The Invention of Nature.  Humboldt developed his Naturgemälde, a sketch of the Andean mountain Chimborazo, which “showed different zones of plants, along with details of how they were linked to changes in altitude, temperature and so on.  All this information could then be linked to the other major mountains across the world . . . The Naturgemälde showed for the first time that nature was a global force with corresponding climate zones across continents” (pp. 88-89).  In our current age, we are seeing how the Naturgemälde is being transformed, with isotherms being moved to higher elevations and closer to the poles.  The article “The Pioneering Maps of Alexander von Humboldt” provides a concise and informative discussion of Humboldt’s impressive maps, how he used them, and how they are being used today.

(16 October 2019)How Amazon Has Transformed the Hasidic EconomyThe New York Times

——–Hasidic Jews “are a religious community known for clinging to 18th-century fashions and mores . . . But when it comes to doing business, . . .  [they] have become enamored with a distinctly 21st-century company: Amazon.  The ability to sell merchandise easily and relatively anonymously on Amazon has transformed the economies of Hasidic enclaves in Brooklyn, suburban New York and central New Jersey, communities where members prefer to keep to themselves and typically do not go to college, let alone graduate from business programs.  But Amazon allows Hasidim to start selling without much experience and without making the investments required by a brick-and-mortar store.  It permits Hasidic sellers to deal with the public invisibly—almost entirely by mail, by email or through package-delivery firms.”

********As the article continues, “if Amazon takes over the packing and shipping, according to some interpretations of Jewish law, owners can operate their businesses through the Sabbath and on holidays like Rosh Hashana and the Sukkot festival without violating the proscription against working on sacred days.”  Many more examples of the relationship between Amazon and the Hasidic life are presented.

(17 October 2019)Bank Regulators Present a Dire Warning of Financial Risks From Climate ChangeThe New York Times

——–“Home values could fall significantly.  Banks could stop lending to flood-prone communities.  Towns could lose the tax money they need to build sea walls and other protections.  These are a few of the warnings published on Thursday by the Federal Reserve Bank of San Francisco regarding the financial risks of climate change.  The collection of 18 papers by outside experts amounts to one of the most specific and dire accountings of the dangers posed to businesses and communities in the United States—a threat so significant that the nation’s central bank seems increasingly compelled to address it. . . . The research, conducted by 38 academics and practitioners from around the country . . . presents in precise language a dire picture of the risks of a changing climate, and warns that local governments don’t have the means to deal with them.”

********The research mentioned appears in the October 2019 issue of Community Development Innovation Review.  The article “Climagration and the Private Sector” struck me as especially interesting.  It notes that “As the effects of climate change grow more severe, millions of people in the United States and around the world will relocate away from hazards.  This climate-induced relocation, or ‘climagration,’ will have significant consequences for the private sector.”

This is a good time to call attention, once more, to the Task Force on Climate-related Financial Disclosures.  Its work is especially important given that Exxon is now on trial for allegedly misleading investors about risks associated with climate change, as reported here by NPR.  Although the article says that Exxon’s trial is “only the second climate change trial in the U.S.” there will surely be more.

(18 October 2019) [SR]The Rental Economy Is at Risk in a DownturnThe Wall Street Journal

——–“Americans don’t own stuff like they used to. . . . The shift away from ownership to what KKR’s Paula Campbell Roberts has called the asset-light consumer represents a reshaping of the economy, borne of a confluence of factors, including the scars left by the 2008 financial crisis and the advent of new technologies.  It is giving households increased flexibility in how they finance their lives, lowering the debt burden that often comes with ownership.  Investors are loving the rental economy too, paying up for businesses with steady cash flows  But the asset-light consumer’s behavior remains largely untested in a downturn—a risk risk—and could hold nasty surprises.”

********The article goes on to note that, “One reason more people are renting may be that, after the financial crisis, homes aren’t seen as such a safe investment.  In an economic downturn it can be easier for renters to lower their housing costs by moving into a lower-rent home or to move for job opportunities elsewhere.  Homeowners, stuck with mortgage payments, have it harder.  The flexibility comes at the cost of not building up home equity.”  This is an argument with generality, which applies to the purchase of any durable good verses purchasing its uses, i.e., renting.  The article concludes with a warning to rental businesses: “If times get tough, how many companies will find that the rental checks they were counting on aren’t in the mail?”  To learn more about ”asset-light consumers” by reading Paula Campbell Roberts’s article.

A related article, also in The Wall Street Journal, is [SR]What’s an Experience Worth?  The Math Is Tricky.”  Unsurprisingly, the article only contains anecdotes, no math.  Still it makes some good points about the relationship between buying things and buying experiences.  Although a one-week trip to the beach with friends is over in a week, those memories linger of the trip and the times shared persist.  Thus time-limited experiences, due to memory, have durability just like a durable good has durability.  My recollection is that the role of memory and relationships is not considered in the usual analysis of purchase vs. rental decisions.  It should be.  The article that is the foundation of this piece is “A wonderful life: experiential consumption and the pursuit of happiness,” which appeared in the Journal of Consumer Psychology.

May you have a good week!                                

Bruce

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