403 (8 January 2020)

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.

(17 December 2019)The African cocoa farmers who are taking on Big ChocolateThe Los Angeles Times

********This article appeared previously in The Financial Times.  It is the first of three articles—two follow below—that discuss the chocolate industry, particularly the conditions of those who grow cocoa; “two-thirds of the global supply of cocoa” is produced in Ghana and Ivory Coast of West Africa.  Those who produce cocoa tend to be impoverished, resting at the bottom of a “multibillion-dollar pyramid” in which little “trickles down” to cocoa farmers.  It is estimated that “Chocolate is a $100-billion industry” the raw material of which “makes less than $6 billion” for farmers.  Attempts by farmers to capture more of that $100 billion by further processing raw materials have run into high electricity costs, thereby keeping “most of the added value near the Western consumer markets it serves.”  One of the initiatives being embraced in Ghana and Ivory Coast is the imposition of a $400 per ton premium above the market price of cocoa.  The consequences of the premium are discussed inn [SR]Cocoa Cartel Stirs Up Global Chocolate MarketThe Wall Street Journal.

            Typically companies would resist attempts to increase the price of the raw materials they use, but this has not been the case for major cocoa purchasers, like Mars Wrigley and Mondelez, as is discussed in “Chocolate companies ask for a taste of government regulationThe Washington Post.  This has resulted from a recognition that voluntary efforts to “eradicate child labor” have failed.  The companies have “also acknowledged that cocoa is a ‘major driver’ of deforestation, an environmental abuse linked to global warming”  Companies are directing their regulatory efforts tow the European Union, “where most cocoa is imported.”  As an aside, the “seven institutions of the European Union . . . are seated in four different cities, viz. Brussels, Frankfurt, Luxembourg City and Strasbourg.”  This contrasts with the African Union which is located in Addis Ababa, Ethiopia.  There are interesting comments made about Ethiopia in the 2019 Nobel Peace Prize lecture.

(2 January 2020)Other People’s Money Was the Tech Innovation of the DecadeBloomberg.com

——–[This is the Opinion of Shira Ovide of Bloomberg.]  “Technology changed every molecule of life in the 2010s. . . . Because tech is changing everything, it’s hard to pick a single transformative technology for the 2010s.  But my big for the biggest impact of the decade isn’t a technology at all: It’s money—and lots of it.”  Many of the companies that are shaking things up—Tesla, Netflix, and Uber, for example—“couldn’t exist in their current form without an unprecedented flood of investment money that flowed into tech startups after the financial crisis.” 

Cash availability was the result “of post-financial crisis policy-making that created conditions for economic growth and incentives for people to put their money into assets that had more risk and more promise.  In a feedback loop, once technology changes started seeping into more corners of life and business, investors were motivated to hunt for more areas in which technology could apply its disruptive magic.”

********When I read Eccentric Orbits: The Iridium Story, I was struck my how very difficult it was for a very well-established business executive to chase down $200 million to buy the functioning assets of Iridium.  Compare this to the seemingly endless amounts of money that have been directed toward Uber, which is still struggling to find a way to profitability.  That considered, I can see that “other people’s money” took on an especially important role in the 2010s.

(3 January 2020)Older People Need Geriatricians.  Where Will They Come From?The New York Times

——–There is a rising need for geriatricians.  “These doctors not only monitor and coordinate treatment for the many ailments, disabilities and medications their patients contend with, but also help them determine what’s most important for their well-being and quality of life.”  Geriatrics as a field is relatively young, becoming “a board-certified medical specialty only in 1988.”  And the field has training programs for geriatricians have shown “virtually no growth when adjusted for the rising United States population.”  One estimate of future needs shows that “the nation will need 33,200 such doctors in 2025.  It has about 7,000, only half of them practicing full time.”  It will be hard to fill the gap because “geriatrics fails to attract enough young doctors to the graduate fellowships it does offer.  Leaving aside geriatric psychiatry, more than a third of 384 slots went unfilled last year.”

********As the article points out, the compensation of geriatricians pales in comparison to that received by anesthesiologists, radiologists, and cardiologists.  Additionally, the field does not yield “much glamour or the prospect of medical heroics.”  Still, “geriatricians reported higher career satisfaction than most.”  One point made by the article was especially striking.  “Health professionals increasingly recognize that if they’re not in pediatrics, they will be seeing lots of seniors, whatever their specialty.

(3 January 2020)Factory closures may have helped fuel the opioid crisis.  Here’s howThe Los Angeles Times

——–“For the last wo decades, U.S. communities stricken by automotive closures have been hurting.  And death rates among working-age adults have been rising.  Researchers have long suspected these dual trends, especially evident across the national’s industrial heartland, are linked by an American epidemic of despair.  Economic distress, population flight and the loss of local sports teams, lunch joints and barber shops have hollowed out communities that were long solidly middle class.  The resulting hopelessness has been corrosive to the health of those who live in them.”  Now a new study appearing in JAMA Internal Medicine “suggests that in recent years, opioid drugs have done much of the actual killing.”  Comparing areas with auto plants that did and did not shut down between 1999 and 2016, the researchers found “that in the five years after an automotive plant shut down, counties within commuting distance of the shuttered factory experienced a far sharper rise in fatalities related to opioids than did counties in which major automotive factories remained open.”  To be specific, “In the 29 counties affected by closures, there were 20.6 opioid deaths per 100,000 people each year.  That increase was 85% higher than the rates at which opioid deaths grew in the 83 counties without closures.” 

********The researchers “believe their findings provide new evidence that communities in major distress are more prone to so-called ‘deaths of despair’—a much-debated topic as a collection of disparate trends has driven down average U.S. life expectancy.”

            The expression ‘deaths of despair’ reminded me of the forthcoming (March 2020) book Deaths of Despair and the Future of Capitalism, by Anne Case and Angus Deaton.  I have long been intrigued by the downside of the business cycle and their book should provide some relevant information, although, it must be said, that the business cycle is a macroeconomic phenomenon, but the microeconomic phenomenon of despair from plant closings is one that is always with us.  For an Opinion piece that gives names and context to deaths of despair, read “Who Killed the Knapp Family,” by Nicholas Kristof and Sheryl WuDunn.

(6 January 2020)What if a Vaping Tax Encouraged Cigarette Smoking?The New York Times

——–“The surging popularity of vaping among young Americans is driving lawmakers to use one of their favorite tools to discourage unwanted behavior: taxes. . . . But what if a vaping tax actually encouraged smoking instead of reducing it?  A new study suggests that these new taxes have the potential to do just that—by discouraging adult smokers from considering nicotine vaping, a safer way to ingest nicotine, or encouraging vapers to switch to cigarettes instead.  The study . . . examined what happened in Minnesota, one of the first states to impose a steep vaping tax (95 percent).  The effect was that declines in smoking there leveled off, while they continued to fall in similar states that hadn’t imposed such taxes.”  Vanderbilt University economist W. Kip Viscusi, who was not involved in the study, explained the results: “By decreasing the extent to which people use e-cigarettes, you decrease quitting of conventional cigarettes.”

********Simply put, imposing a new tax on e-cigarettes but not imposing a new tax on cigarettes implies that the price of cigarettes relative to e-cigarettes means that the relative price of cigarettes has fallen, making cigarettes relatively more attractive, ceteris paribus.  The article goes on to develop the distinction between those who are already smoking one or the other, like many adults, for whom the just-made argument is especially appropriate.  However it is clear that the vaping tax is meant to apply to those who are not already smoking, e.g., children and teens.  In light of the above, it seems like any legislature that aspires to do something about vaping (e-cigarettes) must also consider cigarettes.

(10 January 2020) [SR]Everything Must Go: Record Pace of Shut Stores Fuels Business for ‘the Closers’The Wall Street Journal

——–“In the hollowed-out retail economy, Jerry Robertson finds himself almost continuously in demand.  He specializes in closing stores. . . . Part sales guru, part therapist, Mr. Robertson has deployed to 28 states, from Amish country in Indiana to West Hollywood, slashing prices for deal-hungry customers while consoling longtime employees and managers who are often working the final days of their jobs.”  Robertson and others “are part of a nomadic segment of workers thriving  amid industry chaos.  Last year, retailers announced plans to shutter more than 9,300 U.S. stores, a record, according to Coresight Research.  Liquidation companies that help close stores report that they are busier than ever.  As consumers shift more of their spending online and Amazon.com Inc. continues to reshape the landscape, many expect more fallout.”

********A giant among liquidation firms is Great American Group, which “has closed more than 6,800 stores since 2013.”  You can learn more about GAG, which is “a leading provider of asset disposition solutions and valuation and appraisal services,” here.

May you have a good week!

Bruce

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