312 (12 April 2017)

Welcome to week 312!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

Sabbatical

According to Wikipedia (https://en.wikipedia.org/wiki/Sabbatical),

Sabbatical or a sabbatical . . . is a rest from work, or a break, often lasting from two months to a year. The concept of sabbatical has a source in shmita, described in several places in the Bible. For example, in Leviticus 25, there is a commandment to desist from working the fields during the seventh year. Strictly speaking, this means a sabbatical would last one year.

With this definition, I am announcing that, after six years—312 weeks—I am taking a sabbatical in the strict sense, i.e., one year.  That means that issue 313 of The Invisible Forces Weekly will appear on Wednesday, April 18th, 2018.  I hope you will be open to receiving my “briefs” and comments at that time, whatever form they might take.

Let me say that I don’t intend to write the great American novel during the next year, although I will probably read a few, and I don’t intend to climb Mount Everest, although I do hope to climb a few mountains in western North Carolina.  Without going into detail, I look at the next year as a time to “freshen up,” in effect, spring cleaning for the rest of my life.

While I am “freshening up” you might want to check out a few of the many “substitutes” for TIF Weekly.  I suggest two sources to investigate: the listings of Blogs and Journalists presented at Economic Principals (http://www.economicprincipals.com/) and the Blogs, Commentaries, and Podcasts listed by Resources for Economists (https://www.aeaweb.org/rfe/showCat.php?cat_id=96).  I am confident that you will find something that will address your interests.  With that said, thank you for your interest in TIF Weekly.

(6 April 2017): “Cannabis Two-Step: Raise Cash in Canada, Spend It in U.S.” (https://www.bloomberg.com/news/articles/2017-04-06/pot-companies-flock-to-canada-as-u-s-laws-stymie-share-listings)

——–“When Hadley Ford created a company for investing in the fast-growing business of legal marijuana, the former Goldman Sachs Group Inc. investment banker left New York and headed north of the border.  While more than half of U.S. states allow marijuana for medical or recreational use, the drug is still outlawed by the federal government, starving pot entrepreneurs of institutional capital. . . . So Ford created a public company that raises money in Canada, where medical marijuana is allowed. . . . The move gave Ford entrée into a vibrant public market for cannabis and a way to fund investments in the U.S. . . . Ford, 57, is among a growing list of entrepreneurs who are capitalizing on the difference between the two nations when it comes to marijuana.”

********Different legal treatments for the same product almost always create an opportunity for gain.  People like Hadley Ford, who identify these differences and are able to conceive of a business model that will realize those gains, have the potential to reap large financial gains.  In essence, differences in social and historical forces (the invisible handshake) give rise to differences in legal and political forces (the invisible foot), which give rise to differences in economic forces (the invisible hand).  I think we need more educational opportunities for students to range broadly over the disciplines of sociology, political science and law, and economics.  Those students would benefit, too, from the knowledge being constructed by researchers on complexity.  Melanie Mitchells’ book Complexity: A Guided Tour (https://www.amazon.com/Complexity-Guided-Tour-Melanie-Mitchell/dp/0199798109/) provides an introduction to the subject.

(10 April 2017): “Fewer Tomatoes in Ketchup?  East Europeans Pursue Parity at the Grocery” (https://www.nytimes.com/2017/04/09/world/europe/fewer-tomatoes-in-ketchup-east-europeans-pursue-parity-at-the-grocery.html)

——–“The countries of Eastern and Central Europe have long bridled at being treated like the poor cousins of the European Union family.  It does not help that even after more than a dozen years in the bloc, wages remain lower, corruption persists and public services, like schools and hospitals, are far scruffier.  But now that sense of resentment—of being treated as second-class citizens by more prosperous neighbors—is reaching even into the regions refrigerators and cupboards.  With rising passion, prominent politicians and local news media have taken up the issue of whether Eastern Europeans are being sold inferior products.”

********The article clearly indicates that there is evidence to suggest that Eastern and Central European countries are being sold products that are different from, indeed inferior to, those sold in adjacent countries like Austria and Germany.  It seems like the time is right for a more comprehensive comparative study of products in the EU countries.  The article indicates that product differentiation, for whatever reason, is being seized upon by politicians in Eastern and Central European countries.

(10 April 2017): “The Birth of Planned Obsolescence” (https://daily.jstor.org/the-birth-of-planned-obsolescence/)

********In this post, Livia Gershon outlines “the story of how we became a nation that buys stuff and then throws it away at an astonishing pace.”  She does this by summarizing Nigel Whiteley’s 1987 article “Toward a Throw-Away Culture.  Consumerism, ‘Style Obsolescence’ and Cultural Theory in the 1950s and 1960s.”  Important to this development was the 1932 book Consumer Engineering: A New Technique for Prosperity, by Roy Sheldon and Egmont Arens, in which the expression “creative waste” was introduced.  1932 was not an auspicious time to introduce a book espousing creative waste, to say the least.  But “for a rising middle class in the 1950s, possessions—particularly cars—became a way to advertise a family’s social position.”  All this is, of course, an echo of Thorstein Veblen’s “conspicuous consumption” as developed in his classic 1899 book The Theory of the Leisure Class (https://www.amazon.com/gp/product/0199552584/).

(11 April 2017): “Book Pins Corporate Greed on a Lust Bred at Harvard” (https://www.nytimes.com/2017/04/10/business/dealbook/11-andrew-sorkin-harvard-business-school.html)

——–“If you were to look for one ingredient that binds together the nation’s chief executives, top managers and boards of directors, you’d find a remarkably consistent commonality, now and in generations past: A disproportionate number of them are graduates of Harvard Business School. . . . It is hard to overstate the school’s influence on corporate America.  That’s why a new, exhaustive history of the school is causing a stir before it is even out.  The book, “The Golden Passport,” by the veteran business journalist Duff McDonald, is a richly reported indictment of the school as a leading reason that corporate America is disdained by much of the country.”  McDonald points to the arrival of financial economist Michael C. Jensen in 1985 as contributing to an “ideologically driven hijacking of the study of finance [that] served as a cynical repudiation of everything that come before him at the school.”

********You can learn more about McDonald’s book at: https://www.nytimes.com/2017/04/10/business/dealbook/11-andrew-sorkin-harvard-business-school.html.  At 672 pages, this is a lengthy indictment of H.B.S.  As the reviewer, Andrew Ross Sorkin, notes, “in example after example, Mr. McDonald sets out his thesis that money and influence have distorted both the school’s curriculum and the worldview espoused by its professors, who themselves are on the payroll of corporate America as part-time advisers and consultants.”  This seems like a book that will repay careful reading when it is released later this month.  I encountered the George Bernard Shaw story related in the review when I took my first undergraduate course in microeconomics.

********The relationship between the university and business, as developed by McDonald, has long been a matter of discussion.  I see some of this in President Eisenhower’s Farewell Address, which is amply discussed in the book Unwarranted Influence: Dwight D. Eisenhower and the Military-Industrial Complex (https://www.amazon.com/Unwarranted-Influence-Eisenhower-Military-Industrial-Complex/dp/0300177623/).  But a much fuller development is provided in the post “Scientists Have Always Been Political” (https://daily.jstor.org/scientists-have-always-been-political/) and its foundation article (2009) “The Professional and the Scientist in Nineteenth-Century America.”

(12 April 2017): “In the Tennessee Delta, a poor community loses its hospital—and sense of security” (http://wapo.st/2nAF1Z8)

——–Haywood Park Community Hospital of Brownsville, Tennessee closed its doors three years ago this summer.  Its closing is one story in “an epidemic of dying hospitals across rural America.  Nearly 80 have closed since 2010, including nine in Tennessee, more than in any state but Texas.  Many more are considered fragile—downstream victims of federal health policies, shifts in medical practice and the limited tolerance of distant corporate owners for empty beds and financial losses.  In every rural community, the ripple effects of a lost hospital are profound, reverberating beyond the inability of would-be patients to get immediate care.  Many of the best jobs in town vanish.  Local leaders trying to recruit new industry face an extra hurdle.”  People needing emergency health care do not vanish, however, leading Brownsville mayor Bill Rawls to say, “The emergency room now is the back of an ambulance.”

********A brief summary of state-by-state rural hospital closings can be found a t: http://www.beckershospitalreview.com/finance/a-state-by-state-breakdown-of-80-rural-hospital-closures.html.  The summary, in turn, seems to be based upon the work of the North Carolina Rural Health Research Program (http://www.shepscenter.unc.edu/programs-projects/rural-health/rural-hospital-closures/).  The latter resource is especially interesting and flexible as it provides the ability to sort on various criteria and provides a map of closed-hospital locations.  There are some discrepancies regarding numbers, e.g., the article indicates that 9 Tennessee hospitals have closed but I only see 8 in the sources but probably not a matter of concern.  This is another indicator of how the changing conditions of life in rural areas.

May you have a good year!

Bruce

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311 (5 April 2017)

Welcome to week 311!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

Upcoming Sabbatical.  Please note that TIF Weekly will be on sabbatical for one year following the distribution of 312, which will complete its sixth year.  More details will be provided when 312 is distributed.  TIF Weekly 313 will be distributed on Wednesday, April 18th, 2018.

(29 March 2017): “Chase Had Ads on 400,000 Sites.  Then on Just 5,000.  Same Results.” (https://www.nytimes.com/2017/03/29/business/chase-ads-youtube-fake-news-offensive-videos.html)

——–“As of a few weeks ago, advertisements for JPMorgan Chase were appearing on about 400,000 websites a month. . . . Now, as more and more brands find their ads popping up next to toxic content like fake news sites or offensive YouTube videos, JPMorgan has limited its display ads to about 5,000 websites it has preapproved, said Kristin Lemkau, the bank’s chief marketing officer.  Surprisingly, the company is seeing little change in the cost of impressions or the visibility of its ads on the internet, she said. . . . The change illustrates the new skepticism with which major marketers are approaching online ad platforms and the automated technology placing their brands on millions of websites.”

********As the article notes, the practice of preapproving sites is known as “whitelisting.”  When one considers the care that businesses and other organizations give to nurturing their brand, it is hard to believe that JP Morgan Chase is just becoming aware of its importance.  The terms ‘whitelists’ and ‘blacklists’ are both in common use.  Blacklisting is the practice of disapproving sites.

(29 March 2017): “Elephants Get a Reprieve as Price of Ivory Falls” (https://www.nytimes.com/2017/03/29/world/africa/ivory-elephants-china.html)

——–“The price of ivory in China, the world’s biggest market for elephant tusks, has fallen sharply, which may spell a reprieve from the intense poaching of the past decade.  According to a report released on Wednesday by Save the Elephants, a respected wildlife group in Kenya, the price of ivory is less than half of what it was just three years ago, showing the demand is plummeting.  Tougher economic times, a sustained advocacy campaign and China’s apparent commitment to shutting down its domestic ivory trade this year were the drivers of the change, elephant experts said.”

********You can find the press release from Save The Elephants at: http://www.savetheelephants.org/about-ste/press-media/?detail=dramatic-changes-in-china-s-ivory-trade.  At that site it is possible to download a pdf of the 88-page report “Decline in the Legal Ivory Trade in China in Anticipation of a Ban,” by Lucy Vigne and Esmond Martin.  STE is based in Nairobi, Kenya.

(1 April 2017): “Free exchange: Will robots displace humans as motorized vehicles ousted horses?” (http://www.economist.com/news/business-and-finance/21719761-probably-not-humans-have-lot-learn-equine-experience-will-robots)

——–“In the early7 20the century the future seemed bright for horse employment.  Within 50 years cars and tractors made short work of equine livelihoods.  Some futurists see a cautionary tale for humanity in the fate of the horse: it was economically indispensable until it wasn’t.  The common retort to such concerns is that humans are far more cognitively adaptable than beasts of burden.  Yet as robots grow more nimble, humans look increasingly vulnerable.”

********This appeared as “Remember the mane” in the print edition of The Economist.  The article appears to be based upon “Robots and Jobs: Evidence from US Labor Markets,” by Daron Acemoglu and Pascual Restrepo.  A pdf of this lengthy mathematical paper can be downloaded at: http://www.nber.org/papers/w23285.  The abstract of the article notes: “According to our estimates, one more robot per thousand workers reduces the employment to population ratio by about 0.13-0.34 percentage points and wages by 0.25-0.5 percent.”

********If robots have something to say about the demand for human labor, so-called labor-saving devices do, too.  This second dimension shows up, albeit in a minor way, in the JSTOR Weekly post “How America Tried (And Failed) To Solve Its ‘Servant Problem’” (https://daily.jstor.org/how-america-tried-and-failed-to-solve-its-servant-problem/).  “In 1928, a group called the National Council on Household Employment brought together working servants, labor activists, efficiency experts, and even future First Lady Eleanor Roosevelt to try to solve the so-called ‘servant problem.’”  When it released its report, the concluded that “not only was domestic service undesirable because of its low pay and unlimited hours, but that the terms ‘servant’ and ‘maid’ alienated would-be domestics.”  The unwillingness of the employers of servants to pay more (or enhance the prestige of servant labor), as well as the expansion of non-servant employments led to the virtual elimination of servants as an employment category.  The article on which this post is based, “Experts and Servants: The National Council on Household Employment and the Decline of Domestic Service in the Twentieth Century,” is downloadable as a pdf.

(2 April 2017): “A Real Estate Boom, Powered by Pot” (https://www.nytimes.com/2017/04/01/business/a-real-estate-boom-powered-by-pot.html)

——–“Legalized marijuana has already upset societal norms, created a large legal gray area and generated a lucrative source of tax revenue.  Now it is upending the real estate market, too.  In the more than two dozen states that have moved to legalize pot, factories, warehouses and self-storage facilities are being repurposed for the cultivation and processing of potent marijuana plants and products.  Suburban strip malls and Beaux-Arts buildings have been reimagined as storefronts selling pre-rolled joints and edibles.  And because the marijuana business comes with added baggage, landlords and property owners are charging a premium for new tenants working in the cannabis business.”

********This article, in fact the paragraph above, shows all the invisible forces at work.  The shifting boundaries of marijuana law at the state level, take center stage; federal law regarding marijuana, but not its enforcement, has remained unchanged in recent years.  This has increased the demand for warehouse-type buildings suitable for growing marijuana.  Of particular interest is the role of uncertainty in marijuana operations.  Increased enforcement of federal law would diminish the retail and wholesale markets for marijuana, as well as property values.  Legalization of marijuana at the federal level would decrease the risk of participating in the industry and likely lead to an increase in supply and lower prices at retail and wholesale, reducing property values.  Then there is the interesting question of interstate commerce, mentioned in the article.  Moving marijuana across state lines is currently illegal, effectively creating as many (legal) markets for marijuana as there are states in which it is legal.  But a federal law legalizing marijuana and its movement across state lines would dramatically change where marijuana is grown, no doubt leading it to be cultivated where energy costs are low, although some brands will promote that their product is locally grown.  Is there another market where so much seems to be in play?

********I recently read The Economics of Prohibition (https://www.amazon.com/Economics-Prohibition-Mark-Thornton/dp/1610160479/), by Mark Thornton.  I was looking for a book that took a broad view of prohibitive activities, not just alcoholic prohibition, and the book provided an entry into the literature.  Thornton is a member of the Austrian school of economics (https://en.wikipedia.org/wiki/Mark_Thornton) and those ideas are reflected in the book.  What struck me as particularly valuable in the book was its emphasis on the existence of substitutes, sometimes many substitutes, for any given product.  What is true for a Toyota Corolla is also true for marijuana.  That being the case, the recent Guardian article “Big Pharma’s anti-marijuana stance aims to squash the competition, activists say” is very interesting.  The gist of the article is that marijuana is viewed by pharmaceutical companies as a substitute for some of their products.  It is no surprise, then, that Insys (http://www.insysrx.com/) is reported as having contributed $500,000 to (successfully) defeat a recent marijuana legalization effort in Arizona and not long afterward obtained FDA approval for its own “lab-made liquid form of tetrahydrocannabinol (THC).”  The product, Syndros (http://syndros.com/), is “approved for use in treating anorexia associated with weight loss in patients with AIDS, and nausea and vomiting associated with cancer chemotherapy in patients who have failed to respond adequately to conventional antiemetic treatments.”

********While we are on the subject of marijuana, here is a related piece on hemp and the N.C. Industrial Hemp Commission, the latter of which was create by the General Assembly in 2015.  The Commission is considering joining a suit against the DEA and its ruling that “products made with CBD or cannabidiol hemp, which are in the same cannabis family as marijuana, are illegal and cannot be transported across state lines.”  From what I gathered from the article, it is currently legal “to import [hemp] seed from Europe or Canada” but it is illegal to purchase hemp seed from another state.  It is easy to understand the frustrations of would-be and actual hemp producers of having to operate in such a legal environment.  The article includes an informative two-minute video with David Schmitt of Industrial Hemp Manufacturing that discusses how hemp is processed and its economic benefits for farmers.

(5 April 2017): “Minority Neighborhoods Pay Higher Car Insurance Premiums Than White Areas With the Same Risk” (https://www.propublica.org/article/minority-neighborhoods-higher-car-insurance-premiums-white-areas-same-risk)

********An interesting piece of investigative journalism by ProPublica.  The introductory material for the article notes: “Our analysis of premiums and payouts in California, Illinois, Texas and Missouri shows that some major insurers charge minority neighborhoods as much as 30 percent more than other areas with similar accident costs.”  The article is lengthy but you can get a clear picture of instances of disparate premiums from two graphical figures showing GEICO premiums in Illinois and Missouri.  A very attractive feature of the article is that it provides detailed information about how it did its study (https://www.propublica.org/article/minority-neighborhoods-higher-car-insurance-premiums-methodology).  Consequently, it should be (relatively) easy to use their work to study other states.

May you have a good week!

Bruce

310 (29 March 2017)

Welcome to week 310!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

Upcoming Sabbatical.  Please note that TIF Weekly will be on sabbatical for one year following the distribution of 312, which will complete its sixth year.  More details will be provided when 312 is distributed.  TIF Weekly 313 will be distributed on Wednesday, April 18th, 2018.

(23 March 2017): “How The ‘Scarcity Mindset’ Can Make Problems Worse” (http://www.npr.org/2017/03/23/521195903/how-the-scarcity-mindset-can-make-problems-worse)

********This seven-minute audio broadcast by NPR reporter Shankar Vedantam discusses some of the research on scarcity by economist Sendhil Mullainathan and psychologist Eldar Shafir on the cognitive consequences of scarcity.  They are the authors of Scarcity: The New Science of Having Less and How It Defines Our Lives (https://www.amazon.com/Scarcity-Science-Having-Defines-Lives/dp/125005611X/).  Their work, which falls squarely in the universe of behavioral economics, is discussed at some length in Harvard Magazine (http://harvardmagazine.com/2015/05/the-science-of-scarcity).

(23 March 2017): “America’s Farmers Say There’s a Conspiracy to Steal Their Milk Money” (https://www.bloomberg.com/news/articles/2017-03-23/dairy-farmers-say-someone-is-stealing-their-milk-money)

——–“As far as staples go, dairy is pretty central to the American diet.  After all, knowing  cost of a gallon of milk remains a campaign-trail test for whether a politician is out of touch.”  With milk sales in decline, dairy farmers have fallen on hard times.  But some of those hard times appear to be the result of people who are supposed to looking after their interests.  In a long-running class action, farmers claim that they “haven’t been getting their fair share in this multi-billion dollar industry.  The litigation, filed by dairy farmers in 2009, names DairyAmerica and its affiliate California Dairies as defendants.  The plaintiffs allege that DairyAmerica and its members, cooperatives like California Dairies which acquire dairy products from farmers and sell them in bulk, have been actively misleading U.S. regulators about the price they charge for nonfat dry milk, which goes into everything from infant formula to candy bars.  In doing so, the farmers claim, the cooperatives sought to boost profits at their expense—by millions of dollars.”

********As the article points out, “the dairy market operates very differently from other segments of the U.S. economy.”  As Andrew Novakovic of Cornell University notes, “I don’t think there’s another industry in the U.S. economy that is as heavily price regulated.”  This price regulation has apparently left the industry open, if those bringing the class action are correct, to widespread pricing fraud made possible through the development of two sets of accounting figures at DairyAmerica: “The first set of figures would consist of accurate figures from the actual sales of nonfat dry milk in the export market to foreign customers.  The second set of figures would consist of fabricated export sales figures that were created internally at DairyAmerica.”  The first, lower, set of figures were used as to (under) compensate dairy farmers.  This makes for an astonishing read.

(23 March 2017): “’Deaths of Despair’ Are Surging Among the White Working Class” (https://www.bloomberg.com/news/articles/2017-03-23/white-working-class-death-rate-to-be-elevated-for-a-generation)

——–New research by Anne Case and Angus Deaton, both of Princeton University, has drawn additional attention to the climb of mortality and morbidity, “which measure chances of death or illness within and age group,” since the late 1990s for less-educated whites between 45 and 54.  That came as progress against “heart disease and cancer slowed and drug overdoses, suicide and alcoholism—so-called ‘deaths of despair’—became pervasive.”  According to Case and Deaton, “Distress born of globalization and technological change probably drove the deadly outcome.”

********Sir Angus Deaton won the Nobel Prize in Economics in 2015 (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2015/deaton-facts.html).  The new research mentioned in the article is “Mortality and morbidity in the 21st century,” a pdf of which can be downloaded at: https://www.brookings.edu/bpea-articles/mortality-and-morbidity-in-the-21st-century/; the paper is 60 pages long but contains a lot of discussion as well as a substantial number of figures toward its end, i.e., starting on page 45 of the pdf.  At the same link, you can view a four-minute video with Case and Deaton discussing their work.  Also useful is the five-minute NPR interview at: http://www.npr.org/sections/health-shots/2017/03/23/521083335/the-forces-driving-middle-aged-white-peoples-deaths-of-despair.

********The new research has been widely covered in the media, so this is just one of many articles that could have been mentioned.  The articles I’ve seen have tended to focus on Figure 1.1 (p. 45) of the pdf.  This is a dramatic figure in that it shows a “crossing” of mortality rates for White non-Hispanics high school or less and Black non-Hispanics, an image that is easy to misconstrue since the Black non-Hispanics group doesn’t appear to be constrained to be high school or less.  That is, the two groups seem not to be directly comparable in relation to education.  To get greater comparability, you need to look at Figure 1.2 (p. 45).  There you will see that Blacks continue to have higher mortality rates than Whites throughout the study period for non-Hispanics with a high school degree or less.  What clearly is true, however, is that the mortality gap between Blacks and Whites have fallen dramatically, with Black rates generally falling and White rates generally increasing.  In recent years, though, rates for Blacks and Whites have been increasing.  The many Figures of the paper that start on page 45 are, to say the least, shocking.

(24 March 2017): “UPS Loses N.Y. Trial Over Reservations’ Untaxed Cigarettes” (https://www.bloomberg.com/news/articles/2017-03-24/ups-found-liable-in-new-york-lawsuit-over-untaxed-cigarettes)

——–“United Parcel Service Inc. was found by a judge to have turned a blind eye to shipments of untaxed cigarettes to New Yorkers from American Indian reservations that undermined anti-smoking efforts. . . . U.S. District Judge Katherine B. Forrest in Manhattan on Friday ruled that UPS failed to comply with a 2005 deal it struck with the state to fix the problem without going to court.”  New York “has the highest state cigarette tax at $4.35 a pack on top of a $1.50 local New York City tax.”  Over 50 percent of the “total cigarette market in New York consists of smuggled cigarettes.”

********The article appears to be based upon a study of the Tax Foundation, “Cigarette Taxes and Cigarette Smuggling by State, 2014,” (https://taxfoundation.org/cigarette-taxes-and-cigarette-smuggling-state-2014/), date 17 January 2017.  The list of Key Findings contains such notable points as “New York has the highest inbound smuggling activity” at 55.4 percent of cigarettes consumed and “New Hampshire has the highest level of outbound smuggling at 81.1 percent of consumption, likely due to its relatively low tax rates and close proximity to high tax states in the northeastern United States.”  Figure 1 shows a positive correlation between excise tax rates and cigarette smuggling as a percentage of consumption.  I’m sure the correlation would have been even tighter had proximity been considered.  In any event, the relationship between excise tax rates and smuggling is not the least bit surprising.  Tax differentials provide opportunities for gain and some will be enticed by them regardless of legality.

(27 March 2017): “Mexican Farmers Fight to Oust Border Brewery” [SR](https://www.wsj.com/articles/mexican-farmers-fight-to-oust-border-brewery-1490616001)

——–Thousands of farmers in Mexicali, Mexico [about 100 miles ESE of San Diego] “are rallying to an unusual cause: driving a big U.S. manufacturer out of town, ideally with help from U.S. President Donald Trump.”  At issue is the construction of a $1.4-billion-dollar brewery being built by Constellation Brans, “the third-largest U.S. beer producer and the brewer of Corona, the best-selling beer in Mexico. . . . None of the beer to be brewed in Mexicali is destined for the Mexican market.”  Farmers are concerned that “the plant will use too much water, taxing the aquifer in an area where aging irrigation infrastructure and a naturally low water table have already forced farmers to pull tens of thousands of acres out of production.”  In recent decades, “Mexico has re-engineered its economy to focus on exports.  While hundreds of thousands of workers have benefited from higher wages, mainly in large cities and in border assembly plants known as maquiladoras, the agricultural sector has suffered from a lack of investment and increased competition from larger, more technologically advanced farms in the U.S.”

********Carlos de la Parra, a professor of environmental- and urban-studies at the College of the Northern Frontier in Tijuana, provides a prototypically economic comment when he notes that “Historically, the Mexicali Valley was all about farming, but more and more, if you want to increase the aggregate value of the use of water, you want to attract more industry.”  I.e., water can be used in agriculture and it can be used in industry.  From the perspective expressed, the water goes to the use that generates the greatest monetary value.  As the article points out, the “local water table is getting lower and lower.”  In the 1990s “wells used to be 100 feet deep,” but now they must go down to 250 feet.”  So, the addition of more industry has increased the unit-cost of production for agricultural products, a classic example of a negative production externality (http://www.economicsonline.co.uk/Market_failures/Externalities.html).

********A related article that also deals with Mexican agriculture, this time corn production, appeared in The Los Angeles Times as “Mexico’s bargaining chips with Trump?  How about a corn boycott” (http://www.latimes.com/world/mexico-americas/la-fg-mexico-corn-boycott-20170329-story.html).  In 2016 the U.S. exported 13.9 million tons of corn to Mexico, as compared to 3.1 million tons in 1994, the year NAFTA went into effect.  So, yes, U.S. corn farmers would stand to lose a lot from a boycott of corn by Mexico.  It is interesting to me that NAFTA enabled a decrease in industrial jobs in the U.S. and an increase of industrial jobs in Mexico, and simultaneously enabled a decrease in agricultural jobs in Mexico and an increase of agricultural jobs in the U.S.  This is the way it is supposed to work, but in both the U.S. and Mexico, the people who lost their jobs are not happy about it.  No doubt there has been a diminution of knowledge and skill in relation to both types of activity over the last 23 years.

May you have a good week!

Bruce

309 (22 March 2017)

Welcome to week 309!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(17 March 2017): “Wages rise on California farms.  Americans still don’t want the job” (http://www.latimes.com/projects/la-fi-farms-immigration/)

——–Farmers in California “are being forced to make difficult choices about whether to abandon some of the state’s hallmark fruits and vegetables, move operations abroad, import workers under a special visa or replace them altogether with machines.  Growers who can afford it have already begun raising worker pay well beyond minimum wage.  Wages for crop production in California increased by 13% from 2010 to 2015, twice as fast as average pay in the state . . . Some farmers are even giving laborers benefits normally reserved for white-collar professionals, like 401(k) plans, health insurance, subsidized housing and profit-sharing bonuses. . . . But the raises and new perks have not tempted native-born Americans to leave their day jobs for the fields.  Nin in 10 agriculture workers in California are still foreign born, and more than half are undocumented, according to a federal survey.”  Growers with high-value crops, such as the Cabernet Sauvignon grapes of Napa Valley, “are luring employees from fields in places like Stockton that produce cheaper wine grapes or less profitable fruits and vegetables.  Growers who can’t raise wages are losing their employees and dealing with it by mechanizing, downsizing or switching to less labor-intensive crops.”

********A clear example of the impact of more restrictions on the international movement of labor.  Much of the article is built around the experience of growers of “low value” grapes near Stockton and that of growers of “high value” grapes in Napa.  Low-value growers are losing their workers because they are being bid away by high-value growers.  Although higher wages might be expected to entice American workers to compete for these jobs, even hourly wages of $19.50 have been unable to draw and retain them.  Low-value grape growers who are unable to higher workers are looking to mechanize their processes or move into products like almonds and olives that require much less labor.  Growers who mechanize will have some transition costs, too, as the planting of vines—spacing of plants and the like—will need to be adjusted so they can be mechanically harvested.  For a look at another domestic industry being affected by a reduction in international workers, see the Wisconsin-focused article “Dairy farms fear Trump’s immigration policies” (http://www.jsonline.com/story/money/business/2017/03/06/dairy-farms-fear-trumps-immigration-policies/98700808/).  “By some estimates, up to about 80% of the hired help on large Wisconsin dairy operations is immigrant labor — with a large percentage of those workers being undocumented. . . . Dairy farmers say they get almost “zero response” from native-born job applicants, even when the pay is comparable with nearby factories.

********The agricultural labor situation in California is being affected directly by a decrease in the supply of agricultural labor due to changes in federal government policy regarding the international movement of labor.  Decisions made by the European Union regarding the production of beet sugar in the EU will affect the supply of sugar in the EU and bring about significant turmoil in countries that have traditionally large-scale exported of cane sugar.  This topic is developed at reasonable length in “Europe Is Waving Goodbye to Sugar Cane” (https://www.bloomberg.com/news/articles/2017-03-16/sugar-trade-that-made-our-modern-world-longs-for-sweet-hereafter).  As the article notes, “The European Union’s decision to remove limits on its own beet-sugar output from October means less demand for cane growers from Jamaica in the Caribbean, to the Pacific Island of Fiji, and Swaziland in southern Africa.”  Especially hard hit will be high-cost producers like Belize and Guyana, which “produce less than 6 tons of sugar per hectare cultivated, compared with an average of about 10 for giants like Brazil.”  On the international scene, Belize and Guyana are in much the same position as low-value grape growers in Stockton, California.

(17 March 2017): “The Upshot: What if Sociologists Had as Much Influence as Economists?” (https://www.nytimes.com/2017/03/17/upshot/what-if-sociologists-had-as-much-influence-as-economists.html)

——–“Walk half a city block in downtown Washington, and there is a good change that you will pass an economist.  People with advanced training in the field shape policy on subjects as varied as how health care is provided, broadcast licenses auctioned or air pollution regulated. . . . And there are economists sprinkled throughout the government—there is an entire council of them advising the president in most administrations [the Council of Economic Advisers], if not yet in this one.  But . . . there just may be a downside to this one academic discipline having such primacy in shaping public policy. . . . Another academic discipline may not have the ear of presidents but may actually do a better job of explaining what has gone wrong in large swaths of the United States and other advanced nations in recent years.”  The discipline?  Sociology.  This is not a new idea.  “In 1967, [Minnesota] Senator Walter Mondale actually proposed a White House Council of Social Advisers; he envisioned it as a counterpart to the well-entrenched Council of Economic Advisers.”  The CSA was never created, but if it had been it would have broadened the perspective beyond that of the CEA.  “For starters, while economists tend to view a job as a straightforward exchange of labor for money, a wide body of sociological research shows how tied up work is with a sense of purpose and identity.”

********You can read a one-paragraph description of the CSA at: http://moses.law.umn.edu/mondale/publicwelfare.php.  If you then google “The Full Opportunity and Social Accounting Act” you will find much information about the proposed act, which never passed despite repeated submissions in 1967, 1969, 1971, and 1973.  It would be very interesting to study the history of the proposal, especially the questioning and testimony of the hearings.  Can the arguments for a CSA be much different in 2017 than in 1967?  I just noticed that it is the fiftieth anniversary of the proposed act.

(20 March 2017): “U.K. Trade Policy After Brexit Must Reckon With Gravity” (https://www.wsj.com/articles/u-k-trade-policy-after-brexit-must-reckon-with-gravity-1489928402)

——–“Economists have for decades observed that the volume of trade between economies is tightly linked to their size and proximity.  Countries export more to big economies than they do to small ones, and they trade more with neighbors than with markets further away.  For the economists who first discerned them, these patterns recalled the effect of gravity on celestial bodies in classical physics, where the force exerted by one object on another is determined by mass and distance. . . . The role of gravity in international trade highlights a potential problem for Prime Minister Theresa May as she begins complex negotiations to withdraw the U.K. from the European Union.  The EU is big and nearby, making it a critically important trade partner for the U.K.”  Dutch economist Jan Tinbergen, who shared the first (1969) Nobel Memorial Prize in economics, is typically credited with the idea of describing international trade as a gravity-like relationship between countries.

********The gravity model of international trade is discussed and formalized in Wikipedia (https://en.wikipedia.org/wiki/Gravity_model_of_trade).  You can learn more about Tinbergen’s life and work at: http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1969/tinbergen-facts.html.

May you have a good week!

Bruce

308 (15 March 2017)

Welcome to week 308!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(8 March 2017): “Big Tobacco Has Caught Startup Fever” (https://www.bloomberg.com/news/features/2017-03-08/big-tobacco-has-caught-startup-fever)

——–Big Tobacco, specifically Phillip Morris International Inc. and Reynolds American Inc., are working hard to bring technology to bear on nicotine delivery, thereby producing a relatively safer product and appealing to tech- and design-oriented college graduates, too.  Previously relatively few grads were looking to sign on at companies that produce a product that is estimated to kill, according to the CDC, “almost 500,000 people a year.”  Supporting this development is a new perspective.  “Tobacco executives often sound like media-owners talking about content.  That is, they’re open to delivering their drug via whatever pipe the consumer chooses—be it e-cigarettes, hear-not[burn devices, gum, lozenges, dip, or some medium that hasn’t been invented yet.  They are, as the media gurus would say, ‘platform-agnostic.’”

********A fascinating article that shows some of the many “pipes” that tobacco companies, perhaps it might be better to say nicotine-delivery companies, are developing for consumers.  A product featured in the article is IQOS, which employs tobacco and heat-not-burn technology that is described as a “modified risk” product.  You can learn more about IQOS and the sister-product TEEPS at: https://www.pmi.com/science-and-innovation/heated-tobacco-products.

********Regulatory oversight in the area of alternative nicotine-delivery products is relatively new.  “All tobacco products released after 2007—including e-cigarettes—must now seek the . . . [FDA’s] permission to remain on store shelves.”  In relation to this, “Jan Verleur, co-founder and CEO of VMR Products LLC, owner of V2, the largest independent e-cigarette brand in the U.S. accuses the FDA of becoming ‘the handmaiden of Big Tobacco.’  He estimates that going through the approval process will cost his company from $300,000 to $1 million per product.  That’s more, he says, than most independent vaping companies can afford.”  He goes on to note, “A higher barrier to entry to bring new technology to market in the sector is a very, very good thing for Big Tobacco.”  We see, then, as small organic food growers have commented, the costs associated with attaining certification or regulatory approval, will make an industry less competitive.  Larger firms, generally, will be better able to “foot the bill” required to enter the market.  Best of all, of course, is the practice of increasing the barriers once market entry has ben gained.

(9 March 2017): “Upgrade your jail cell—for a price” (http://www.latimes.com/projects/la-me-pay-to-stay-jails/)

——–“In what is commonly called ‘pay-to-stay’ or ‘private jail,’ a constellation of small city jails—at least 26 of them in Los Angeles and Orange counties—open their doors to defendants who can afford the option.  But what started out as an antidote to overcrowding has evolved into a two-tiered justice system that allows people convicted of serious crimes to buy their way into safer and more comfortable jail stays. . . . Pay-to-stay jail assignments involve only a small fraction of the tens of thousands of inmates sent to detention centers in Southern California each year.  But allowing some defendants to avoid the region’s notoriously dangerous county jails has long rankled some in law enforcement who believe it runs counter to the spirit of equal justice.”  Pay-to-stay prices vary, “with each city setting its own rate.  Defendants can get a bargain-basement bed in La Verne for $25 a night or pay a modest $75 a night in Hawthorne.  Or they can splurge, paying $198 a night in Redondo Beach of $251 a night in Hermosa Beach.”

********Evidently pay-to-stay has been in use in California for some time, as The New York Times published an article on in it in 2007 (http://www.nytimes.com/2007/04/29/us/29jail.html).  There is a bit more general information about pay-to-stay in Wikipedia (https://en.wikipedia.org/wiki/Pay-to-stay_(imprisonment)), which includes a link to a 24-page study done by the ACLU of Ohio in 2015 (http://www.acluohio.org/wp-content/uploads/2015/11/InJailInDebt.pdf).  My sense is that there is some fluidity to the practice of pay-to-stay.  The California practice seems to be like “if you want to stay in our jail, you will pay this fee, whereas the practice described in Ohio seems to be more like “you are in our jail and you will pay a fee.”  Both practices raise justice issues.  A more scholarly look at this subject is “Paying for Your Time: How Charging Inmates Fees Behind Bars May Violate the Excessive Fines Clause” (https://www.brennancenter.org/analysis/paying-your-time-how-charging-inmates-fees-behind-bars-may-violate-excessive-fines-clause).

********This is probably as good a time as any to make notice of Locked In: The True Causes of Mass Incarceration and How to Achieve Real Reform (https://www.amazon.com/Locked-Causes-Incarceration-Achieve-Reform/dp/0465096913/).  This might well be viewed as a companion to Michelle Alexander’s book The New Jim Crow: Mass Incarceration in the Age of Colorblindness (https://www.amazon.com/New-Jim-Crow-Incarceration-Colorblindness/dp/1595586431/).  My attention was drawn to Locked In through a review in The Wall Street Journal [SR](https://www.wsj.com/articles/the-prosecutors-prison-state-1489356145).  In Pfaff’s view, politicians and prosecutors bear much of the blame for exploding prison populations; politicians pass draconian laws and prosecutors want political careers that show them to be tough on crime.  A brief review of the book can be read at: https://www.kirkusreviews.com/book-reviews/john-pfaff/locked-in-true-causes/.

(9 Marcy 2017): “More Men Are Taking ‘Women’s’ Jobs, Usually Disadvantage Men” (https://www.nytimes.com/2017/03/09/upshot/more-men-are-taking-womens-jobs-at-least-certain-men.html)

——–“Even as women moved into men’s jobs, in fields like medicine, law and business, men did not flock to the lower-status jobs that women mostly did.  That’s changing.  Over the last 15 years, according to a new study, men have been as likely to move into predominantly female jobs as the other way around—but not all men.  It’s those who are already disadvantaged in the labor market: black, Hispanic, less educated, poor and immigrant men.  While work done by women continues to be valued less, the study demonstrates, job opportunities divide not just along gender lines but also by race and class.”  The women who are making “inroads into more prestigious male-dominated professions in that period are likely to be white, educated, native-born and married, according to the [unpublished] research.”

********The authors of the study are Patricia A. Roos, a Rutgers University sociologist, and Lindsay M. Stevens, “a sociology doctoral student there.”  Evidently the gist of this research is not new.  “Race, ethnicity and gender have always contributed to who does what work.  Women have typically entered occupations when men find better ones, and immigrants have filled the ones women left behind.  In the 1800s, according to previous research by Ms. Roos and Barbara Reskin of the University of Washington, Irish men replaced native-born white women in textile mills.  The women moved to middle-class jobs like teaching—which native-born white men were leaving.”  To me the importance of this article stems from a point that has been made repeatedly in the news the last few weeks, i.e., the importance of looking below the broad categories of class and region to the underlying characteristics of people who make them up.  It is misleading at best and dangerous at worst to speak about all members of a group like class as being “the same” in some sense.  This is not a new idea but one that must continually be surfaced in our discussions of current events and policies.

(11 March 2017): “Behind the Quiet State-by-State Fight Over Electric Vehicles” (https://www.nytimes.com/2017/03/11/business/energy-environment/electric-cars-hybrid-tax-credits.html)

——–“Today, the economic incentives that have helped electric vehicles gain a toehold in America are under attack, state by state.  In some states, there is a move to repeal tax credits for battery-powered vehicles or to let them expire.  And in at least nine states, including liberal-leaning ones like Illinois and conservative-leaning ones like Indiana, lawmakers have introduced bills that would levy new fees on those who own electric cars.  That state actions could put the business of electric vehicles, already rocky, on even more precarious footing.”

********The article relates a plethora of proposed and actual tax, fee, and regulatory changes by states, and some by the federal government, that are likely to affect the demand for electric vehicles.  Electric cars (and marijuana) are subject to extensive invisible-foot risk.

(14 March 2017): “Should Agencies Decide Law?  Doctrine May Be Tested at Gorsuch Hearing” (https://www.nytimes.com/2017/03/14/business/dealbook/neil-gorsuch-chevron-deference.html)

——– “Chevron deference” is likely to play a role in the Supreme Court confirmation hearings of Judge Neil M. Gorsuch next week.  Named after the legal case from “which it arose, Chevron U.S.A. v. Natural Resources Defense Council,” it “addresses what courts should do when Congress passes a law with an ambiguous interpretation.”  Surprisingly, the views of Gorsuch vary greatly from those of deceased Supreme Court justice Antonin Scalia.  Scalia “loved Chevron deference, arguing that ‘in the long run Chevron will endure’ because it ‘accurately reflects the reality of government, and thus more adequately serves its needs.’  Judges, in his view, are just not as capable as administrators in interpreting laws that the regulators themselves put into effect and know on a daily basis.”  In the view of Gorsuch, thought, Chevron deference gives “too much power to federal agencies.”

********You can learn more about Chevron v. NRDC at: https://en.wikipedia.org/wiki/Chevron_U.S.A.,_Inc._v._Natural_Resources_Defense_Council,_Inc..  At that link it is noted that “Chevron is probably the most frequently cited case in American administrative law.”  Presumably Chevron deference is an important element of the “administrative state” that White House chief strategist Stephen K. Bannon has said he wants to deconstruct (http://wapo.st/2mGmFls?tid=ss_mail).

(15 March 2017): “How to Restore Faith in Economics” (https://www.bloomberg.com/view/articles/2017-03-15/how-to-restore-faith-in-economics)

********I’m not sure why anyone would want to restore “faith” in economics or any other discipline that purports to be a science, but perhaps that is just a poorly chosen word.  The article dredges up for me memories of courses in economic methodology that provided good arguments why economics cannot be a science in the same way that, say, chemistry is—the principle reason being that it deals with human beings who can exercise volition.  Be that as it may, the article provides an interesting figure that shows “The Changing Nature of Economic Research” from 1963 through 2011 on a decadal basis, excepting 2011.  The most dramatic change is the decrease in the percentage of papers devoted to theory and the increase in the percentage of papers devoted to empirical work employing its own data; there has also been a sizeable decrease in the percentage of papers devoted to empirical work employing borrowed data.  This categorization, I suspect, is somewhat misleading because most empirical is highly theory laden.

May you have a good week!

Bruce

307 (8 March 2017)

Welcome to week 307!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(2 March 2017): “Why Do We Have ‘Free Trade’ For Televisions, But Not For Corn?” (https://daily.jstor.org/why-do-we-have-free-trade-for-tvs-but-not-for-corn/)

********In this post, Livia Gershon summarizes an argument developed by Judith Goldstein in “The Impact of Ideas on Trade Policy: The Origins of U.S. Agricultural and Manufacturing Policies” in 1989.  Simply put, Goldstein’s argument is that the post-WWII economic boom “froze” the economic policies in place at that time, i.e., policy makers embracing a post hoc, ergo propter hoc argument (https://en.wikipedia.org/wiki/Post_hoc_ergo_propter_hoc).  The policies that were “frozen” were those that resulted from attempts to deal with the Great Depression and the Smoot-Hawley Tariff Act of 1930 (https://en.wikipedia.org/wiki/Smoot%E2%80%93Hawley_Tariff_Act), the latter of which “raised U.S. tariffs on over 20,000 imported goods.”  The National Recovery Administration adopted extensive government regulation in both the agricultural and industrial sectors.  However, the differential treatment of them resulted “not in the objective results of intervention in the two industries but in the way experts looked at the problem.  Agriculture, having been stressed even before the Depression, seemed more fundamentally in need of help.”  In short, this article provides a valuable look at how the policy ideas of experts have affected economic regulation.  Goldstein appears to develop these ideas more extensively, including over a longer time period, in her 1994 book Ideas, Interest, and American Trade Policy (https://www.amazon.com/Interests-American-Cornell-Studies-Political/dp/0801499887/).

********The mention of the views of experts reminded me of a recently published book: “Escape from Democracy: The Role of Experts and the Public in Economic Policy (https://www.amazon.com/Escape-Democracy-Experts-Public-Economic/dp/1316507130/), by David Levy and Sandra Peart.  I have not read the book but it does seem to provide a historically-based examination of the role of experts and the role of democracy in the development and execution of policy ideas.  Their arguments are surely worthy of consideration.

(3 March 2017): “How Uber Deceives the Authorities Worldwide” (https://www.nytimes.com/2017/03/03/technology/uber-greyball-program-evade-authorities.html)

********Uber has been in the news a lot of late and not in good ways.  Its so-called “Greyball” program is one of those ways.  According to the article, Greyball “uses data collected from the Uber app and other techniques to identify and circumvent officials who were trying to clamp down on the ride-hailing service.”  This use seems to have grown out of Uber’s development of a tool to monitor any “violation of terms of service.”  In the article an example of given of the attempt by an employee of Portland, Oregon to call an Uber ride in a “sting operation against the company.”  Evidently the Greyball program had identified this employee as a potential problem and “served up a fake version of the app.”  The result was that the sting failed.  This does seem to be, in some sense, akin to the use of radar detectors to evade speed traps.  But, as Wayne State University law professor Peter Hennings notes, “With any type of systematic thwarting of the law, you’re flirting with disaster . . . We all take our foot off the gas when we see the police car at the intersection up ahead, and there’s nothing wrong with that.  But [Uber’s use of Greyball] . . . goes far beyond avoiding a speed trap.”  This is simply the latest cat-and-mouse game between those who would entrap and those who do not wish to be trapped.

********While we are on the subject of taxi-like transportation, it turns out that taxi drivers will take advantage of the information asymmetry of its riders.  This is explored briefly in “Moral hazard: Taken for a ride” (http://www.economist.com/news/finance-and-economics/21717842-if-service-provider-knows-someone-else-paying-your-bills-he-more-likely).  As it turns out, “The most common form of overcharging was not, as might be expected, taking a longer route.”  Rather, the overcharging, since riders do care about time, was in the form of “bogus surcharges (a fee for airport pickup, for example), or charged the night-time fare in the daytime.”

(4 March 2017): “The Disturbing New Facts About American Capitalism” [SR](https://www.wsj.com/articles/the-disturbing-new-facts-about-american-capitalism-1488580706)

——–“New research by economists Gustavo Grullon of Rice University, Yelena Larkin of York University and Roni Michaely of Cornell University argues that U.S. companies are moving toward a winner-take-all system in which giants get stronger, not weaker, as they expand.”  This runs counter to the commonly expressed view that, in capitalism, “as companies get big, they become fat and happy, opening themselves up to lean and hungry competitors that can underprice and overtake them.”  According to the authors “The U.S. had more than 7,000 public companies 20 years ago . . . nowadays, it’s fewer than 4,000.”  Profitability of the largest companies has increased, too, as well as profit margins.

********The paper by the economists appears to be “Are US Industries Becoming More Concentrated” (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2612047), which was last revised on 26 February 2017.  The question is, of course, why has concentration increased?  According to the paper’s Abstract, the authors propose that “lax enforcement of antitrust regulations and increasing technological barriers to entry appear to be important factors behind this trend, resulting in weakened competition.”  Globalization might also be a part of the story;.  (Note: I haven’t read the paper.)  Perhaps businesses have had to get bigger to compete on a global scale.

********Jason Zweig, who wrote this piece, is the columnist for “Weekend Investor.”  In his column he notes how this information could have been used to guide investing in the stock market.  The strategy relies upon the number of firms in a given industry and the value of the eponymous Herfindahl-Hirschman Index (https://en.wikipedia.org/wiki/Herfindahl_index).

(8 March 2017): “Who’s to Blame for the Trucker Shortage?” [SR](https://www.wsj.com/articles/whos-to-blame-for-the-trucker-shortage-1488898803)

——–“In 2015, American Trucking Associations [ATA] estimated that for-hire trucking companies had nearly 50,000 fewer drivers than they needed.  The shortage was less severe in 2016, but the trade group expects it to worsen in coming years.  As policy makers wring their hands over the shortage, an Ivy League sociologist who spent time as a long-haul driver says the deficit is largely the industry’s own doing.”  Although the ATA “largely blames the grueling demands of a job that puts workers on the road for long periods[,]” sociologist Steve Viscelli, the author of The Big Rig: Trucking and the Decline of the American Dream, “says the shortage is the product of an industry labor model that relies heavily on inexperienced drivers and independent contractors.”  Owner-operators of big rigs “are attracted by promises of being their own bosses, but the arrangement often saddles them with unsustainable debt and high expenses.”  Wages for drivers have been rising in recent years and signing bonuses are being used, too.  “Such measures helped bring down industrywide turnover from nearly 100% in 2012 to just over 90% in 2014.  More recently, driver turnover has declined to around 80% due to less freight being shipped.”

********You can learn more about Viscelli’s book at: https://www.amazon.com/gp/product/0520278127/.  No doubt the Department of Transportation, under the leadership of Elaine Chao (https://en.wikipedia.org/wiki/Elaine_Chao), will play a role in the number of truckers and their quality of life.  The U.S. DOT website (https://www.transportation.gov/) provides information on the various transportation modes in the U.S.

********No doubt the regulation of U.S. transportation will be one area where a reconsideration of the scope and nature of regulation will be reconsidered in the Trump administration.  This week The Economist shared its thoughts on this subject, first in a leader, “Red tape in America: Doing regulation right” (http://www.economist.com/news/leaders/21717815-america-needs-regulatory-reform-not-crude-cull-environmental-rules-right-way-get-rid), and then in its companion article, “Regulation: Grudges and kludges” (http://www.economist.com/news/united-states/21717838-republicans-and-democrats-have-been-equally-culpable-adding-rulebook-too-much).

May you have a good week!

Bruce

Welcome to week 306!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(23 February 2017): “A.T.F. Filled Secret  Bank Account With Millions From Shadowy Cigarette Sales” (https://www.nytimes.com/2017/02/22/us/alcohol-tobacco-firearms-cigarettes-millions-secret-bank-account.html)

——–“Working from an office suite behind a Burger King in southern Virginia, operatives used a web of shadowy cigarette sales to funnel tens of millions of dollars into a secret bank account.  They weren’t known smugglers, but rather agents from the Bureau of Alcohol, Tobacco, Firearms and Explosives.  The operation, not authorized under Justice Department rules, gave agents an off-the-books way to finance undercover investigations and pay informants without the usual cumbersome paperwork and close oversight, according to court records and people close to the operation.  The secret account is at the heart of a federal racketeering lawsuit brought by a [Raleigh, North Carolina-based] collective of farmers who say they were swindled out of $24 million. . . . The scheme relied on phony shipments of snack food disguised as tobacco.  The agents were experts: Their job was to catch cigarette smugglers, so they knew exactly how it was done.”

********The Raleigh-based collective is the U.S. Tobacco Cooperative (http://www.usleaf.com/about/), which is “made up of about 700 tobacco farmers—from Virginia to Florida.”  As the article notes, “The basics of cigarette smuggling are simple.  Each state sets its tobacco taxes.  Buying cigarettes in low-tax states, like Virginia, and secretly selling them in higher-tax states, like New York, generates large profits.  More complicated schemes have shipped cigarettes to Indian reservations, where they are not taxed, they rerouted them for sale on the black market.”  As this article clearly illustrates, legal walls constructed around geographic areas frequently provide opportunities for smuggling.  Goods and services will tend to move toward the location of greatest value, whether the activity is legal or not.

(23 February 2017): “California Farmers Are Bulldozing Their Vineyards, As Appetite for Raisins Shrivels” [SR](https://www.wsj.com/articles/california-raisins-sing-the-blues-1487768402)

——–“California grapes fill America’s extra-large wine glasses, but 30 years ago they were most famous for spawning celebrity raisins.  Today, farmers in California’s Central Valley are ripping up tens of thousands of acres of vines, as Americans’ appetite for the dried fruit has waned.  Countries like Turkey and Iran have flooded the global raisin market with cheaper products.  Meanwhile, the increasingly upscale U.S. wine market is no longer as hot on the region’s grapes.”  In Selma, California, “a place that is called the world’s raising capital, growers are bulldozing vineyards and planting almonds and pistachios, which bring a higher return. . . . Many who can’t afford the reboot are choosing to sell off their land.  Today 165,000 acres in the Central Valley are planted in raisin grapes, down from a high of 280,000 in 2000.  Farmers pulled up 34,000 acres of vines between the 2015 and 2016 harvests, according to Allied Grape Growers.”

********Although this article hides behind a pay wall, there is a five-minute video that is accessible.  It features a spokesman for the raisin industry as well as a grape grower who is faced with ripping out his vines and replacing them with, perhaps, almond trees.  Here we see the impact of relative prices on land utilization.  I wonder if the recent lessening of drought conditions in California will affect the “rebooting” that is underway?

(25 February 2017): “Clean energy’s dirty secret: Wind and solar power are disrupting electricity systems” (http://www.economist.com/news/leaders/21717371-thats-no-reason-governments-stop-supporting-them-wind-and-solar-power-are-disrupting)

********This is one of the leaders for the week.  It is accompanied by the longer (but not long) briefing “Renewable energy: A world turned upside down” (http://www.economist.com/news/briefing/21717365-wind-and-solar-energy-are-disrupting-century-old-model-providing-electricity-what-will).  Both the leader and the briefing expand upon the challenges that the increasing use of (intermittent) renewable energy sources are creating for grids, energy markets, and energy market regulations that were devised for energy sources that were (are) more centralized and largely not intermittent.  Since renewable energy will be comprising an ever-growing part of the energy portfolio going forward, it is best that we figure out how to deal with them, through appropriate tweaking of the invisible forces.  No doubt changes in economic, legal and political, and social and historical factors will all be needed.

(25 February 2017): “The future of forever: A report from De Beer’s new diamond mine” (http://www.economist.com/news/international/21717369-production-worlds-most-valuable-gem-may-be-about-peak-report-de-beerss)

——–The world’s largest diamond company, De Beer’s, “marked the opening of its Gahccho Kué mine in September” in the Northwest Territories of Canada.  This is the “biggest new mine in the world in over a decade.  De Beers has no plans for another.”  Although De Beers remains the world’s biggest diamond producer by value, it now accounts “for only a third of global sales, down from 45% in 2007.”  In addition to additional competitors for natural diamonds, “It faces many uncertainties, from synthetic diamonds to changing relationships with polishers and cutters.”  Furthermore, “the source of the demand that drives sales—the link between diamonds and love—looks weaker than it used to.  But one forecast seems solid: there will be fewer new diamonds.  De Beers continues to seek new places to mind, but has slashed its exploration budget.  Another big find is unlikely.  The supply of new diamonds is expected to peak in the next few years, before beginning a slow decline.”

********This article provides a clear overview of the market for diamonds.  Of particular interest to me was its brief description of the role that advertising played in managing the demand for diamonds.  In 1938, as noted in the article, De Beers hired the New York-based advertising agency N.W. Ayer “to coax Americans to buy more rocks.  It dreamed up the notion that a diamond ring should be an essential display of love and status, its gift a rite of passage.  In the ensuing decades De Beers and its marketers penned slogans—memorably, ‘a diamond is forever’—and invented social rules, urging men to spend two months’ pay on a gift for their affianced.”  (I wasn’t aware of the two-months rule.  Here is a brief note about it: http://www.goodhousekeeping.com/life/money/a32609/two-months-salary-engagement-ring-rule-origin/.)

********The article provides a nice example of the role that advertising can play in creating a want.  In an introductory economics course, for example, one would typically distinguish between two aspects of advertising: information provision and persuasion.  Want creation (or expansion) would be an example of persuasive advertising at work.  That persuasive advertising would give rise to a greater demand for the product advertised.  When coupled with a company like the historic De Beers, which held a near-monopoly in production and distribution for many years, this could lead to significant and lasting profits.

********As another example of the significance of persuasive advertising, I am reminded of the book The Gunning of America: Business and the Making of American Gun Culture (https://www.amazon.com/Gunning-America-Business-American-Culture/dp/0465048951/), by Pamela Haag.  It focuses, but not exclusively, on the Winchester Repeating Arms Company, which was one of the first gun makers to make intentional and extensive use of interchangeable parts to make guns.  As its output increased, its founder Oliver Winchester became increasingly aware that the war-based demand for guns was highly variable and unreliable for the extensive and constant production of guns.  His answer was to set out to create a substantial consumer demand for guns.  It is this consumer demand that helped result in an “American gun culture” noted in the title of the book.  An interesting aspect of the book is its discussion of the life and house-building activities of daughter-in-law Sarah Winchester, which resulted in what is now known as the Winchester Mystery House (https://www.amazon.com/Captive-Labyrinth-Winchester-Heiress-Fortune/dp/0826219837/).

(28 February 2017): “Real Cork Is Fighting Back Against Screwcaps” (https://www.bloomberg.com/news/articles/2017-03-01/sunken-champagne-gives-amorim-armor-in-great-stopper-debate)

——–177 years ago, a ship sank in the Baltic Sea with 162 bottles of champagne.  When the bottles were salvaged, 79 bottles were still drinkable, a testimony to the quality seal provided by real cork stoppers.  This was good news to cork producers, which are primarily located in Portugal, as the traditional cork stopper has been losing market share to screw tops and synthetics in the wine closure market.  Screw tops and synthetics avoid the so-called “corked” taste of wines caused by contaminated corks.  Major cork producer Corticeira Amorim claims that it is the “first cork company to produce a taint-free natural cork stopper, a laborious process that requires all of the corks to be individually screened on the production line to eliminate the risk of contamination.  The new NDtech corks are currently used in icon and ultra-premium wines but the company’s goal is to scale up production in coming years to supply most of the wine industry.”

********So, even such an item as the cork wine stopper is subject to innovation.  The source of “cork taint” is the chemical Trichloroanisole (TCA).  Too much of it gives rise to a musty flavor, as noted by The Wine Institute (https://www.wineinstitute.org/initiatives/issuesandpolicy/tca).  You can learn more about the NDtech cork and how it protects wine from excessive TCA at: http://www.amorimcork.com/en/products/ndtech/.  I am amazed that “NDtech individually tests each wine cork for TCA.”  It does this “using unprecedented fast chromatography technology.”  The machine can “analyse each cork in seconds.”

May you have a good week!

Bruce