395 (13 November 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.

(4 November 2019)The Talk Market: How Stories and Psychology Shape Our Economic LivesHidden Brain on NPR

********This 37-minute podcast has Hidden Brain host Shankar Vedantam interviewing Nobel Laureate Robert J. Shiller in the context of the publication of Narrative Economics. Shiller relates “the role stories play in our economic lives—not just the purchases we make as individuals, but the fate of entire economic systems.”  Shiller makes the case for the power of narratives, especially as spread through person-to-person and via the media. 

            An example of Shiller’s use of narrative is provided in “How Lying and Mistrust Could Hurt the American EconomyThe New York Times.  Shiller notes that “There is substantial evidence that if an atmosphere filled with lies or presumed lies spreads throughout a society, the effect might reduce economic growth rates.  Years of incremental damage would result in a substantially lower level of economic well-being than would otherwise have existed.  The central reason is basic: An atmosphere generated by a steady flow and variety of lies is like a dark cloud over the facts.  Businesses can’t plan effectively when they don’t know who or what can be trusted.”

            What then can we make out of the recent book by Andrew Marantz Antisocial: Online Extremists, Techno-Utopians, and the Hijacking of the American Conversation?  Terry Gross of “Fresh Air” interviewed Marantz who touched upon many types of deception used to great effect during the 2016 presidential election.  It is clear that the people Marantz interviewed and wrote about have mastered the skill of how to disseminate disinformation.  Presumably their activities act to create mistrust of institutions and one another.  Gross’s 36-minute interview is sobering.

(7 November 2019) Taxing the Ultra-Wealthy Forces Democrats to Get CreativeBloomberg.com

********This article discusses an array of considerations relating to the wealth taxes being touted by Democratic presidential candidates, from constitutionality to avoidability.  Bloomberg’s Bottom Line is “The very wealthy may never have to sell the majority of their assets, which makes them harder to tax.  One way to change that: Put a levy on their unrealized gains.”  The article “What if America introduces a wealth tax?The Economist explores constitutionality, avoidability  and other considerations, like wealth valuation, in its exploration of the wealth tax.  As it notes, “In 1990, 12 rich countries levied . . . [wealth taxes].  By 2017 only four did: France, Switzerland, Spain and Norway.  France has since mostly scrapped its levy, fearing that it made the country unfriendly to investors.”  The Washington Post argues, however, that the proposed wealth taxes for the U.S. are different than those that failed in Europe.  To learn more, read “Wealth taxes often failed in Europe.  They wouldn’t here.”  All this makes it clear that it isn’t enough to discuss the notion of ‘wealth tax’—its precise form matters.

            Estate taxes are one way for states—or the federal government—to increase tax receipts from the very wealthy.  Of course, at the state level, the very wealthy have the ability to move from states with estate taxes to states without estate taxes (and they do).  However, a recent study showed that “estate taxes raised more money for states that had them than they lost in income tax revenue when billionaires left.”  These points and more are discussed in “Estate Tax Can Pay Off for States, Even if the Superrich FleeThe New York Times.

(8 November 2019)A Candy Land-Inspired Journey Through the Books to Boost Your CareerBloomberg.com

********A colorful tour of nine books that have valuable things to say about various stages of a career.  Two books that stood out for me were Pivot, by Jenny Blake, which appears under the heading Career-Killing Chasm, and Age-Proof, by Jean Chatzky and Michael Roizen, which appears under the heading Peaceful Peak.  Many of these books are classic contributions.  Blake was the former career guru at Google.  She notes that “If change is the only constant, then it’s time to get better at it.”

(9 November 2019) [SR]A $45,000 Loan for a $27,000 Ride: More Borrowers Are Going Underwater on Car LoansThe Wall Street Journal

——–“Consumers, salespeople and lenders are treating cars a lot like houses during the last financial crisis: by piling on debt to such a degree that it often exceeds the car’s value.  this phenomenon—referred to as negative equity, or being underwater—can leave car owners trapped.  some 33% of people who traded in cars to buy new ones in the first nine months of 2019 had negative equity, compared with 28% five years ago and 19% a decade ago . . . Those borrowers owed about $5,000 on average after they traded in their cars, before taking on new loans.  Five years ago the average was about $4,000.  Rising car prices have exacerbated an affordability gap that is increasingly getting filled with auto debt.  Easy lending standards are perpetuating the cycle, with lenders routinely making car loans with low or no down payments that can last seven years or longer.”

********This article is a reminder that the next recession, whether great or not, will likely manifest in an area other than housing.  This is a bit like the adage “generals always fight the last war.”  What should we be looking at?  Auto indebtedness?  Or?

(11 November 2019)A Surprising Finding on Paid Leave: ‘This Is Not the Way We Teach This’The New York Times

——–“One of the biggest arguments for paid leave for new parents has been an economic one: Research has repeatedly shown that women with paid time off after childbirth are more likely to keep working.  But a new study, the largest to be done in the United States, found the opposite.  In California, which in 2004 became the first state to offer paid family leave, new mothers who took it that year ended up working less and earning less a decade later.  They averaged $24,000 in cumulative lost wages, it found.”

********The paper title, with Abstract, can be found here.  The article goes on to point out that “Keeping women in the labor force isn’t the only goal of paid leave policies.  Another is enabling parents to spend time with your children—and on that, the paper indicates that California’s policy was a success.  Children benefit from breastfeeding, bonding, consistent caregiving and hands-on parental involvement—things that are easier for parents to provide with paid leave.” 

(12 November 2019) [SR]Boomers Want to Stay Home.  Senior Housing Now Faces a Budding GlutThe Wall Street Journal

——–“The rise of technologies that help the elderly stay in their homes threatens to upend one of commercial real estate’s biggest bets: Aging baby boomers will leave their residences in droves for senior housing. . . . Venture capital and other firms are expected to invest about $1 billion this year in . . . so-called ‘aging in place’ technologies, according to 4Gen Ventures, a new venture-capital firm focusing on such startups.  That is about double the amount spent three years ago.”  Aging-in-place technologies mark “a challenge to the numerous real-estate developers who have been rushing to build senior housing to accommodate the roughly 72 million Americans born between 1946 and 1964 . . . In about one decade, boomers will start reaching their mid-80s, the typical move-in age for senior housing.”  It appears that builders of senior housing have not anticipated this change, giving rise to surplus housing in some areas.

********I was surprised, but perhaps I shouldn’t have been, to learn that “the average age that people enter senior housing has been rising . . . It is about 84 or 85 years today, compared with 82 one decade ago.”  As the article indicates, improving health is one of the likely reasons for entering senior housing later in life.  One of the reasons people enter senior housing, aside from health issues, is the ability to connect with others and escape the loneliness that other housing situations may have.  Technology is not likely to solve the loneliness problem, as Cindy Baier, the chief executive of Brookdale Senior Living Inc. notes.  Robots, such as those used in Japan, are likely to be a poor substitute for human interaction.

May you have a good week!  

Bruce

394 (6 November 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.

(30 October 2019) [SR]Recipe Behind Coca-Cola’s Milk Success: Less Sugar, More ProteinThe Wall Street Journal

——–“For decades, conventional dairies tried to attract customers by making milk faster and cheaper.  But an unexpected competitor changed the market by favoring trends over tradition. . . . In 2014, Coca-Cola Col. partnered with Select Milk Producers Inc., a dairy wholesaler, to launch Fairlife ultrafiltered milk with 50% more protein and 50% less sugar than regular milk.  The product now represents 3% of the dairy-milk market . . . In comparison, after nearly 30 years in the business, Horizon, the largest organic-milk brand, represents 3.7% of the market . . . In part, Fairlife has succeeded by capitalizing on the latest food trends: Fat is back.  Sugar is out.  Protein is in.”  According to John Crawford, what analyzes the dairy industry for Information Resources, “Fairlife’s rapid growth is unheard of in the mike category . . . and what it’s been able to do, others would like to replicate.”  Ultrafiltered Fairlife and Organic Valley Ultra “sell for $7.88 to $10 a gallon . . . more than double the price of traditional milk.”   

********In the last four years milk sales “fell by 330 million gallons” and 60 million gallons of that decline were due to an increase in “plant-based milk sales.”  The other 270 million gallons seem to have been competed away by water.  Paul Zieminsky of Dairy Management Inc. notes: “We’re losing over 50% to bottled water . . . No. 2 is ready-to-drink coffee.”  These changes are coming at a time when, according to Eric Rimm of Harvard’s T.H. Chang School of Public Health, “There’s not a lot of people who are protein-deficient.”  Columnist Jo Craven McGinty ends her article, noting, “the products may be popular.  But the makers are simply milking the latest fad.”

(31 October 2019)In Napa Valley, Winemaker Fight Climate Change on All FrontsThe New York Times

********This is the fourth and final installment of wine columnist Eric Asimov on wine and climate change.  Links to the other articles can be found here.  The article provides a glimpse of some of the things that individual winemakers—“notorious individualists”—are doing to “combat climate change” in “the absence of government greenhouse-gas regulations or other mandatory environmental rules.”  John Williams of Frog’s Leap Winery notes that in order to “compel Napa [California] winemakers to change methods that have brought . . . great success” it is necessary “to show people that it’s in their self-interest . . . [their] enlightened self-interest.”

(2 November 2019)The East India Company Invented Corporate LobbyingJSTOR Daily

——–“It’s become a commonplace for corporate lobbyists to write bills passed in state legislatures.  The influence of corporate lobbyists in the U.S. Congress may be more subtle, but the combined power of lobbyists, many of them former politicians, is a major driver of the influence of corporate power in American government today.  There is a historical precedent to contemporary American corporate lobbying in the British East India Company.”  The joint-stock company, “chartered in 1600, went on to conquer India in the eighteenth century.”  William Dalrymple, in his book The Anarchy: The East India Company, Corporate Violence, and the Pillage of an Empire, argues that “the Company’s looting of India” was “the supreme act of corporate violence in world history.”  The Company “couldn’t have done it without the help of the British state—or without the invention of corporate lobbying.”

********You can learn more about The Anarchy here; a laudatory review of the book appears in The New York Times.  It should come as no surprise that organizations have, throughout time, sought to affect the nature of the environment in which they operate.  The corporate form of governance has provided for increased resources to bring about change and decreased risk while bringing it about.  If would seem, though, that the British East India Company operated at a level that was unprecedented.

(2 November 2019) [SR]The Making of the World’s Greatest InvestorThe Wall Street Journal

——–In early summer 1978, Jim Simons “ditched a distinguished mathematics career to try his hand trading currencies.  Forty years old, with a slight paunch and long, graying hair, the former professor hungered for serious wealth.  But this wry, chain-smoking teacher had never take a finance class, didn’t know much about trading, and no clue how to estimate earnings or predict the economy.”  But his believe that the ups and downs of financial market had “structure” ultimately led him to adopt an algorithmic approach to trading that made him the most successful investor of his era, earning for his clients from 1988 to 2018 an average annual return after fees of 39%; from 1969 to 2000 George Soros earned an average return of 32% and from 1965 to 2018 Warren Buffet earned 21%.  As a result, “Simons amassed a $23 billion fortune” leading the way to the quantitative approach of investing.

********This article was written by Gregory Zuckerman, the author of The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution.  The article points to the importance of identifying patterns in daily trading and focusing on the short run, so that the Medallion Fund that he ran could operate much like a casino, “handling so many daily bets they’d only need to profit from a bit more than half of their wagers.”

(5 November 2019)Muni Bonds Contain New Fine Print: Beware of Climate ChangeBloomberg.com

——–“Investment banks have begun quietly sounding alarm bells about climate change.  Their worries are showing up in the documents that accompany municipal bonds they underwrite.”  Risk disclosures for state and local government debt are increasingly including “language about climate change, hurricane risks, and risking seas.”  Bloomberg News “analyzed more than a dozen due diligence questionnaires prepared by banks or legal counsels and sent to governments in coastal Florida, and over 40 official statements for prospective bond investors.  About half of the  questionnaires and the majority of the statements included language on storm-related risks or climate change.”

********One wonders what the case in North Carolina would be (or any other coastal state).  It was surprising to read that “Climate risk isn’t necessarily showing up in muni bond pricing yet—communities that are more susceptible to these hazards do not seem to have to pay a penalty in the form of higher yields.”

(5 November 2019)Farm Country Feeds America.  But Just Try Buying Groceries There.The New York Times

——–Small farm  towns like Winchester, Illinois “that produce beef, corn and greens to feed the world are becoming America’s unlikeliest food deserts as traditional grocery stores are force out of business by fewer shoppers and competition from dollar-store chains.  Their exodus has left rural town worried about how they can hold on to families, businesses and their future if there is nowhere to buy even a banana.”  According to the USDA, about “5 million people in rural areas have to travel 10 miles or more to buy groceries.”  Although dollar-store chains “selling cheap food are entering hundreds of small towns, . . . their shelves are mostly stocked with frozen, refrigerated and packaged foods.”

********Food deserts, this article makes clear, is a broad phenomenon.  The irony is great, though, that many of these rural areas are large food producers themselves.  A somewhat related article appeared this week in Fast Company: “The first map of America’s food supply chain is mind boggling.”  The piece is very general but serves as a basis for wondering what the second map might contain.

(5 November 2019)Stocks Are Soaring Because Supplies Are LimitedBloomberg.com

********This article touches upon a variety of factors that may be contributing to the record high closures of some of the most-watched stock indices.  What struck me as especially noteworthy was this statement that “The number of publicly traded companies has dropped by about half in 20 years, from about 7,000 to about 3,500.  This means there is more money chasing fewer shares.  The boom in stock buybacks has likely reduced outstanding shares even more.” Although mergers certainly have contributed to this shrinkage in publicly traded firms, there are also very many firms that have been “taken private” via private equity investors.  It would be interesting to see what happened to those 3,500 firms that are no longer publicly traded.

            To learn more about the causes and meaning of the decrease in the number of publicly traded firm, a good source appears to be “Why We Shouldn’t Worry About the Declining Number of Public CompaniesHarvard Business Review.  It notes that there are three developments that can lead to the delisting of a firm: “1) bankruptcy, failure, or closure of listed firms, 2) delisting of firms going private or acquired, and 3) decrease in number of initial public offerings (IPOs).”

            Another article that follows on the “supplies are limited” theme also appears in Bloomberg.com: “How California Became America’s Housing Market Nightmare.”  As the article points out, housing supply been limited by “outdated zoning laws” and “a 40-year-old tax provision that benefits long-time homeowners at the expense of everyone else.”  According to David Garcia of the University of California, Berkeley, “there is no solution to the California housing crisis without the construction of millions of new houses.”

(5 November 2019)How Is a Wealth Tax Like a Cigarette Tax?The New York Times

********An interesting comparison of wealth taxes, now much in the news due to Democratic presidential candidates Bernie Sanders and Elizabeth Warren, and cigarette taxes.  With cigarette taxes, as columnist Neil Irwin notes, “discouraging the thing being taxed is at least partly the point.  Tobacco taxes are intended not just to raise money, but also to increase the prices of cigarettes so that fewer people smoke.”  The wealth taxes proposed by Sanders and Warren, he holds, “would, if enacted, deplete current fortunes and result in fewer such fortunes in the future.”  (Ceteris paribus, one might add.)  What struck me as especially interesting the likely consequence of the revenues raised from a wealth tax when considered as the funding source of expanded health care.  Irwin notes, when taxes like those on cigarettes “work as intended, the revenue they generate will tend to decline over time. . . . [So,] a president seeking to pay for a policy agenda with taxes on extreme wealth might want to think ahead to what should be done if those taxes result in a lot less extreme wealth to tax.”

May you have a good week!  

Bruce

393 (30 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.

(22 October 2019)A brilliant economist diagnoses the U.S. healthcare system—from beyond the graveThe Los Angeles Times

——–“When the economist Uwe Reinhardt died unexpectedly in November 2017, his colleagues and followers lamented the silencing of one of the most penetrating, objective and effective voices in the healthcare debate. . . . With the posthumous publication this month of his final work, a book entitled “Priced Out: The Economic and Ethical Costs of American Health Care,” Reinhardt’s reputation for cutting to the quick of the issues in U.S. healthcare reform is only enhanced.  The book should be required reading for anyone who professes to have an interest in the debate — economists, journalists, legislators, doctors and patients.”

            Reinhardt’s book raises a question that few have been willing to raise explicitly: “To what extent should the better-off members of society be their poorer and sick brothers’ and sisters’ keepers in health care?”  As he notes, “Every other developed country has long since pondered this fundamental question and concluded that healthcare is a social good that should be ‘available to all on roughly equal terms.’” 

********Reinhardt’s book seems to have grown out of a celebrated article that he co-authored published in 2003: “It’s The Prices, Stupid: Why The United States Is So Different From Other Countries.”  An updated of the article was published in 2019 by his co-authors: “It’s Still the Prices, Stupid: Why The US Spends So Much On Health Care, And A Tribute To Uwe Reinhardt.”  The 2003 article indicates that higher U.S. prices are largely due to “the private insurance sector, which played a much larger role in America than in other countries; the public sector, represented here [in the U.S.] mostly by Medicare and Medicaid, was roughly as cost-effective as public health programs elsewhere.”  The updated version “came to the same conclusion.”  In the book, Reinhardt attributes much of the price differences between the U.S. and other countries to “the insane administrative complexity of the American system, especially in the private sector.”  An example given reports that “the Duke University hospital system, which had 956 beds in 2017, employed 1,600 billing clerks.”

            A great example of “insane complexity,” provided by my son in a different context, is “Death Star Thinking and Government Reform,” by Jennifer Pahlka.  It shows how the concatenation of perfectly reasonable rules, considered one at a time, can easily result in unreasonable complexity for the system as a whole.  “Death Star Thinking” comes from the first Star Wars movie and is easily recognizable as the familiar term “Magic Bullet.”  To counter “Death Star Thinking,” Pahlka argues that the “interconnected, complex, self-adaptive systems” characteristic of government require creating “new conditions, new capabilities, and new sensibilities.” 

            Two articles related to “Death Star Thinking,” largely because they shed light on ignorance and faulty thinking patterns, are “Unknown Unknows: The Problem of Hypocognition” and “Different Kinds of Stupid.”  I became award of these interesting pieces via Ritholtz’s Reads.  In the former article the notion of hypercognition—a malady suffered by many experts—is introduced.  It is the over-application of “a familiar concept to circumstances where it does not belong.”  A lengthier exposition of hypocognition can be found here by downloading the relevant pdf. 

(22 October 2019)The New Economics: Data, Inequality, and PoliticsThe New Yorker

********This is a review of Unbound: How Inequality Constricts Our Economy and What We Can Do About It, by Heather Boushey.  Boushey “assimilates a great deal of recent economic research and argues that” what amounts to a paradigm shift is underway, moving from an emphasis on theory to policy-oriented work that embodies “data-driven discoveries.”  As columnist John Cassidy notes, “The book’s footnotes, which reference hundreds of different studies, are a treasure trove.”  Unbound has three parts: (I) How Inequality Obstructs; (II) How Inequality Subverts; and (III) How Inequality Distorts.  In exploring them she shows that “inequality of various kinds impedes economic development at the individual and aggregate levels.”  At 304 pages, this seems like a good companion for ethically-based arguments for reducing inequality.

            In light of the historical background provided by Unbound, this week’s (27 October 2019) edition of Economic Principals is a nice companion.  David Warsh writes “And Now, the ‘Methods Revolution’.”  In doing so he adds to the recent coverage of the 2019 Nobel Prize in economics, providing references that expand upon and are critical of randomized controlled trials, which were at the heart of the work of the latest Nobel laureates.  Nonetheless, Warsh holds that the 2019 Prize “is the first step in what will surely be a series of prizes to be given for new methods-driven results.  There will be many more.”  A nice complement to Warsh’s post is “Why Are Random Trials So Common in Anti-Poverty Work?JSTOR Daily, which builds upon “The Success of Randomized Controlled Trials: A Sociographical Study of the Rise of J-PAL to Scientific Excellence and Influence.”

(24 October 2019)The Great Antitrust Awakening Can’t Be StoppedBloomberg Businessweek

********This article provides a brief summary of antitrust thinking and behavior from the publication of Robert Bork’s 1978 book The Antitrust Paradox, which enshrined the “consumer-welfare standard” as the basis for antitrust deliberation to Lina Khan’s 2017 paper “Amazon’s Antitrust Paradox,” which takes a much different view in light of changing technological circumstances.  Bipartisan consider among politicians about the uncompetitive nature of firms such as Facebook, Amazon, Apple, Netflix, and Google have proceeded apace.  Democrats, as exemplified by Senators Cory Booker and Elizabeth Warren have expressed their concerns.  “But it’s “not just Democrats . . . Josh Hawley, Missouri’s new Republican senator, is a harsh critic of the tech companies.  Other Republicans complain that Facebook and Google, in particular, are biased against conservative viewpoints and want to reduce their power over public discourse.”

            On the theme of the antitrust awakening, further evidence for it is provided by NYU finance professor Thomas Phillopon in his just-released book The Great Reversal: How America Gave Up on Free Markets.  He provides an overview of its argument in “The U.S. Only Pretends to Have Free MarketsThe Atlantic.  The article notes that the EU prices of a variety of widely used services have declined significantly for the EU relative to the U.S. “The irony is that the free-market ideas and business models that benefit European consumers today were inspired by American regulations circa 1990. Meanwhile, in industry after industry in the United States . . . incumbent companies have increased their market power by acquiring nascent competitors, heavily lobbying regulators, and lavishly spending on campaign contributions.”  Interestingly, “In Europe, greater integration among national economies turned out to be a force for greater competition within individual economies.  The very same politicians who disliked free markets at home agreed to promote the at the European level.  Why?  Because everyone understood that the single market required independent regulators as well as a commitment that individual countries would not subsidize their domestic champions.”

(25 October 2019)Freelancers fear California’s new gig worker law will wipe them outThe Los Angeles Times

——–The Dynamex decision of the California Supreme Court “tightened the rules for when a worker must be considered a company’s employee rather than an independent contractor.”  But California Assembly Bill AB 5, “a statute enacted this year that codified the Dynamex decision and expanded its reach,” has generated “angst among the freelancers in journalism.”  Now “Writers and photographers who submit more than 35 published works per year to a publisher must be treated as an employee of the publisher. . . . Although every employer located in California is subject to the law, freelancers fear that AB 5 will discourage more employers from out of state from hiring Californians to avoid the paperwork and legal liabilities implicit in the law.” 

            The free lancers “may have a point.  Gig economy ride-hailing firms such as Uber and Lyft—the most prominent targets of AB 5—have no choice but to employ California drivers if they want to participate in the lucrative California market. . . . That’s not true of the writing trade, which often can be pursued from anywhere.”  As San Diego writer David Swanson notes, “AB 5 simply makes it unattractive to hire writers from California.”

********A good example of a presumably unintended consequence of AB 5.  As the article notes, “AB 5 specifically exempts about a dozen work categories from its provisions, such as doctors, accountants, fisherman, stockbrokers and travel agents.”  But journalists were not excluded and now another challenge is being presented to an industry that is in decline.

(29 October 2019)America’s Middle  Class Is Addicted to a New Kind of CreditBloomberg.com

——–“The payday-loan business was in decline.  Regulators were circling, storefronts were vanishing and investors were abandoning the industry’s biggest companies en masse.  And yet today, just a few years later, many of the same subprime lenders that specialized in the debt are promoting an almost equally onerous type of credit . . . the online installment loan, a form of debt with much longer maturities but often the same sort of crippling, triple-digit interest rates.  If the payday loan’s target audience is the nation’s poor, then the installment loan is geared to all those working-class Americans who have seen their wages stagnate and unpaid bills pile up in the years since the Great Recession.”

********The article indicates that the imposition of limitations on payday lending was the impetus for the development of new financial products, i.e., payday loans were largely supplanted by online installment loans.  The article references The Unbanking of America: How the New Middle Class Survives, by Lisa Servon of the University of Pennsylvania.  Servon worked in a variety of financial institutions to learn how entrepreneurs are reacting to “the unbanking of America by designing systems likely to change how we bank and how we live our financial lives.”­

May you have a good week!  

Bruce

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

391 (16 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.

(7 October 2019)Big Tobacco, war and politicsNature

********This is a review of The Cigarette: A Political History, by Sarah Milov; Milov is an assistant professor of history at the University of Virginia.  This excerpt gives a sense of its subject matter and importance:

The history of the tobacco industry . . . might seem fully explored.  Yet in her chronicle The Cigarette, historian Sarah Milov manages to bring fresh insight into how the industry’s power hooked government treasuries, the advertising business and scientists for hire, to trump public health for so long. . . . What Milov adds [to previous histories] is a nuanced account of the interplay between corporate machinations and government support for the industry from the 1930s until very recently. . . . Her focus is the United States, but the arguments apply to the global industry.  And the parallels with, say, the spread of junk food long linked to obesity are all too clear—with companies using the same strategies and even the same lobby groups.

(9 October 2019) [SR] Miners’ New Worry: Other People’s PollutionThe Wall Street Journal

——–“Global miners have spent years trying to shrink their carbon footprint.  Now they face the threat of lost business if they don’t help customers do the same.  An Australian regulator recently told Peabody Energy Corp. and Glencore PLC they couldn’t export coal from a new mine to countries that haven’t signed the Paris climate agreement.  Two other Australian coal projects were scuttled this year, partly out of concern about greenhouse-gas emissions overseas. . . . BHP Group said its scope 3 emissions-pollution mostly created when customers transport and use the commodities it produces—are almost 40 times greater than those generated at its own operations.”  Paul Mitchell, who leads Ernst & Young’s global mining and metals group, notes that “Saying you won’t buy from someone is relatively easy.  Saying you won’t sell to someone is really hard.”  But Mitchell indicates that it is “almost inevitable that miners’ scope 3 emissions will be regulated in some way in the future.”

********Scope 3 emission?  This is one of three scopes that are addressed in the Greenhouse Gas Protocol, about which there is much information here.  The GHG Protocol provides a set of accounting tools for greenhouse gases—click here for a discussion of some of the tools.  Scope 1, 2, and 3 emissions are briefly described here, see paragraph 1.  Here are the definitions:

Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from the generation of purchased energy. Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions.

All this looks like challenging and important work.  Clearly Australia is already wrestling with it.

(9 October 2019) [SR]The Food Industry Looks to Turn Garbage Into GoldThe Wall Street Journal

——–“Food and beverage companies are combing through their garbage looking for potential profits.  Mondelez International Inc., Starbucks Corp. an Anheuser-Busch InBev SA are among the industry giants developing foods and dinks from foodstuffs like cocoa husks and spent brewing grain that they and their suppliers have long discarded.  They’re hoping to attract consumers who say they want companies to waste less and lessen their environmental impact.”  There is much raw material that could be used.  “U.S. farmers and manufacturers create around 11 million tons of food waste a year, according to ReFED, a nonprofit focused on reducing that amount.”  According to ReFED, more than “40 companies and organizations have opened in the past five years to turn discarded foodstuffs into new products . . . And those new products aren’t limited to food.  Fabrics, for instance, also can be created from food waste.”

********The website for ReFED is quite informative.  The 2018 Annual Report of ReFED gives a broad view of the vision, mission, and activities of the organization.

********While we are on the subject of waste, consider “The Huge Waste in the U.S. Health SystemThe New York Times.  According to a new study in The Journal of the American Medical Association, “roughly 20 percent to 25 percent of American health care spending is wasteful.”  The lead author of the study, William Shrank, notes that “One contribution of our study is that we show that we have good evidence on how to eliminate some kinds of waste, but not all of it.”  The study indicates that following the best evidence available, “would eliminate only one-quarter of the waste—reducing health spending by about 5 percent.”  The study notes that the “largest source of waste . . . is administrative costs, totaling $266 billion a year. . . . Despite this high cost, the authors found no studies that evaluate approaches to reducing it.”  Moving to a “single-payer system . . . would largely eliminate the vast administrative complexity by attending to the payment and reporting requirements of various private payers and public programs.  But doing so would run up against powerful stakeholders whose incomes derive from the status quo.” 

(10 October 2019) The Radical Guidebook Embraced by Google Workers and Uber DriversThe New York Times

——–“Just before 20,000 Google employees left their desks last fall to protest the company’s handling of sexual harassment, a debate broke out among the hundreds of workers involved in formulating a list of demands.  Some workers argued that they could win fairer pay policies and a full accounting of harassment claims by filing lawsuits or seeking to unionize.  But the argument that gained the upper hand, especially as the debate escalated in the weeks after the walkout, held that those approaches would be futile, according to two people involved.  Those who felt this way contended that only a less formal, worker-led organization could succeed, by waging mass resistance or implicitly threatening to do so.  This view, based on century-old ideas, did not emerge in a vacuum.  It can be traced in part to a book called ‘Labor Law for the Rank and Filer,’ which many Googlers had read and discussed.” 

——–The authors of the book  are Staughton Lynn, a longtime labor historian, and Daniel Gross, a lawyer and organizer.  “They identify with a strain of unionism popularized in the early 1900s by the Industrial Workers of the World, a radical labor group known as the Wobblies that defined itself in opposition to mainstream trade unions.”  In brief, Lynd and Gross “lay out a practical guide for staging a kind of workplace revolution that upends the balance of power between management and labor.”  More broadly, “the book serves as a polemic contrasting mainstream ‘business unions’ with what the Wobblies refer to as solidarity union’—that is, worker-led groups that are not typically certified as exclusive bargaining agents under federal law and therefore don’t need to win majority support to exist.”

********The 2011 edition of Labor Law for the Rank and Filer: Building Solidarity While Staying Clear of the Law can be found here.  The distinction between business unions, which are more formal, more bureaucratic, and more “top down,” and solidarity unions, which are less formal, less bureaucratic, and more “bottom up,” seems important.  “Mr. Gross sees a key advantage of the solidarity model in some of the recent successes by nonunionized workers.  The need to win a majority of workers, typically in a secret ballot election, makes formally certified unions relatively easy to resist . . . But solidarity unions can challenge employers for years without an election.”  In an era in which business unions, as so described, are declining in relevance, perhaps the era of the solidarity union is upon us.  Reading the review of Labor Law, I was reminded of a well-regarded book by a well-regarded student—Waging Nonviolent Struggle: 20th Century Practice and 21st Century Potential, by Gene Sharp.  It would be interesting to run these two books up against one another to see what emerges.

(13 October 2019)In the rush to harvest body parts, death investigations have been upendedThe Los Angeles Times

********This is the first of two investigative articles looking into the consequences of body-part procurers on potential criminal investigations.  The argument is simple, since the “body is the primary evidence in a death investigation,” any modification of the body by body-part procurers before a coroner’s examination can derail the investigation.  Yet it is not infrequent that procurers get to the body before the coroner’s examination takes place, thereby raising the likelihood that crucial evidence will be destroyed.  As the article notes, “a singly body can supply raw materials for products that sell for hundreds of thousands of dollars,” thereby providing a strong incentive to procurers to access as many bodies as possible as soon as possible.  The article provides a graphic indicating how much various body parts are worth.

********The second article in the series, “How organ and tissue donation companies worked their way into the county morgue,” is well titled, clearing indicating its content.  While following various leads, I happened upon an investigative series by Reuters entitled “The Body Trade.”  It has nine parts, seven of which are clearly indicated on the “Body Trade” webpage and includes “Add to Cart” (Part 8) and “Made in America” (Part 9).  You can find an appreciative appraisal of the series on “The Body Trade” at the Center for Health Journalism

(14 October 2019)Nobel Economics Prize Goes to Pioneers in Reducing PovertyThe New York Times

——–Abhijit Banerjee, Esther Duflo, and Michael Kremer have received the 2019 Nobel Memorial Prize in Economic Sciences for “developing new ways to study-and help—the world’s poor.”  In awarding the prize, the Royal Swedish Academy of Sciences noted that “In just two decades, their new-experiment-based approach has transformed development economics, which is now a flourishing field.”  Although “Nobels are often awarded for theoretical achievements, but this year’s laureates distinguished themselves with real-world trials.”

********Duflo is the youngest person to the receive the Nobel Prize in Economics.  In 2010 she received the John Bates Clark Medal given to the “American economics under the age of forty who is judged to have made the most significant contribution to economic thought and knowledge.”  You can read: the press release for the 2019 Nobel Prize here; the popular science background—7 pages—here; and the scientific background—43 pages—here.  No doubt randomized field experiments will be increasingly used in a variety of real-world economic problems, not just development.

(16 October 2019)Overrun by Tourists, American Cities Are Taking Aim at HotelsBloomberg Businessweek

********This article is included because of its multiple references to Asheville, North Carolina, which is one of many “small cities” addressing extensive tourism and its impact on local economic and social conditions.  For the most part, the perceived problem is examined and some of the solutions being adopted are related.  I was especially taken by the “cultural irritation index” mentioned by Kristopher King,  the head of the Preservation Society of Charleston, South Carolina.  The literature on this subject seems to stem from a 1975 paper by G.V. Doxey, “A causation theory of visitor-resident irritants: Methodology and research inferences,” Travel and Tourism Research Association Sixth Annual Conference Proceedings, San Diego, California, pp. 195–198.  (My search failed to turn up a digital copy of the paper.)  Doxey is recognized at the founder of the Irritation Index “Irridex” model that suggests that

over time the relationship of hosts towards guests moves from euphoria (industry, visitors and investors are welcome) to apathy (tourists are taken for granted; contact between residents and outsiders becomes more formal) to irritation (residents begin to show misgivings about tourism) and eventually to antagonism (outsiders are seen as problems, personal and societal).

The quotation immediately above appears in “Stage-based tourism models and resident attitudes towards tourism in an emerging destination in the developing world,” Journal of Sustainable Tourism.  Of the four stages euphoria, apathy, irritation, and antagonism, Asheville seems to be somewhere between irritation and antagonism.  The article develops a model of the “tourism area life cycle” that might be of use in small cities (and towns) addressing high levels of tourism.

May you have a good week!                                

Bruce

390 (9 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.  TIF Weekly is available on the web.

Robert Shiller’s book Narrative Economics: How Stories Go Viral an Drive Major Economics Events has been released.  You can read an excerpt from it in “Robert Shiller on Infectious Narratives in Economics: ExcerptBloomberg Businessweek.  The book consists of four parts: The Beginnings of Narrative Economics, The Foundations of Narrative Economics, Perennial Economic Narratives, and Advancing Narrative Economics; the Preface of the book poses the question, “What Is Narrative Economics?”  As noted in TIF Weekly 352 (16 January 2019), the book is an outgrowth of Shiller’s 2017 presidential address to the American Economic Association, the title of which is “Narrative Economics,” which might be the gateway to the book.

(9 September 2019) Mike Isaac’s Uber Book Has ArrivedThe New York Times

********This is a review of Super Pumped: The Battle for Uber, by Mike Isaac.  This book seems to follow in the vein of Bad Blood: Secrets and Lies in a Silicon Valley Startup, by John Carreyrou, except that instead of following the steps and missteps of Elizabeth Holmes of Theranos, we get to follow in those of Travis Kalanick of Uber.  “Isaac depicts Kalanick as an evil bro-genius, bent on world domination through ride-sharing.  A charmer when he wanted to be and a math whiz since childhood, Kalanick understood that Uber could succeed only if it grew faster than any competitor, attracting large numbers of riders and drivers in cities across the globe.  He let nothing get in the way of growth.”  In thinking about Holmes and Kalanick—and I’m sure the list could be extended indefinitely—the word hubris came to mind.  There is a nice nine-minute YouTube video that discusses it at some length, with historical examples.

(1 October 2019)

********Robert Shiller’s book

(2 October 2019) [SR] “Why Your Used Shirts Are Destined for the Dump and Not the Recycling Center” The Wall Street Journal

——–“Shoppers are buying more clothes and discarding them faster than ever, a trend that is sending an increasing amount of textiles to the dump and propelling the fashion industry to search for new technology to recycle used garments. . . . Globally, the number of garments purchased annually by the average consumer jumped 60% from 2000 to 2014, according to McKinsey & Co.  The number of times an item is worn before it is discarded dropped 36% between 2002 and 2016 . . . In the U.S., clothes are worn for around a quarter of the global average.  Despite the buildup of used clothes, the technology to recycle old textiles into fiber to make new ones has remained embryonic, meaning clothes eventually end up in the dump or incinerator.”  Overall, less “than 1% of the fiber used to produce clothes is recycled into new garments, the Ellen MacArthur Foundation says.”

********As the article notes, “The environmental impact of clothing is set to keep growing,” even though apparel companies say they are trying to find ways to turn old clothing into new.”  One of the challenges they face is separating blended fabrics, like polyester and cotton, and do this in a way that is competitive with new, unblended textiles.  It seems like many recycling challenges come down to sorting.

(2 October 2019)Federal government has dramatically expanded exposure to risky mortgagesThe Washington Post

********This lengthy and intricate article exceeds my ability to summarize.  Let’s just say that it argues that the “federal government has dramatically expanded its exposure to risky mortgages, as federal officials over the past four years took steps that cleared the way for companies to issue loans that many borrowers might not be able to repay.”  This should sound familiar.  “This risk is the direct result of pressure from the lending industry, consumer groups and political appointees, who clamored for the government to intervene when homeownership rates fell several years ago.”

(4 October 2019)Why the Dakota Only Traded among People with Kinship BondsJSTOR Daily

********Livia Gershon draws upon on the article “Dakota Indian Economics and the Nineteenth-Century Fur Trade,” by Mary K. Whelan, discuss the role of kinship patterns as a basis for trade.  In doing so she examines two economics models, the one with which we are all familiar, i.e., someone has a product and trades them with anyone who wants it, and another in which trading takes place only with people with shared kinship.  In this latter case, to “enter into trading relationships, white fur traders became part of the family” with whom they wanted to trade through marriage.  “Marrying into a family meant that a trader’s relative were obligate to trade with him, while he was obligated to provide gifts and support as needed.”  As the post points out, things did not necessarily go smoothly under these conditions as “Different conceptions of reciprocity and debt . . . often confused trade relations.”  Gershon concludes, noting that “the continuing fight over the Dakota Access Pipeline’s path through Dakota and Lakota land suggests, the clash between profit-centered Euro-American economics and other ways of thinking about the material world continues.”  Whelan’s article can be accessed in its entirety from the JSTOR post.

(7 October 2019)U.S. Using Trade Deals to Shield Tech Giants From Foreign RegulatorsThe New York Times

——–“The Trump administration has begun inserting legal protections into recent trade agreements that shield online platforms like Facebook, Twitter and YouTube from lawsuits, a move that could help lock in America’s tech-friendly regulations around the world even as they are being newly questioned at home.”  The protections stem from American rules “codified in Section 230 of the Communications Decency Act. [which] shield online platforms from many lawsuits relate to user content an protect them from legal challenges stemming from how they moderate content.  Those rules are largely credited with fueling Silicon Valley’s rapid growth.  The language in the trade deals echoes those provisions but contains some differences.”

********It struck me as interesting how provisions of U.S. laws might become embodied in trade deals, thus extended the scope of American laws beyond the borders of the U.S.  That, of course, is something that any country can try to do.  Section 230 is the subject of the recent book The Twenty-Six Words That Created the Internet, by Jeff Kosseff.

(7 October 2019)American Railroads Are Already in Recession With No End in SightBloomberg

——–“This year’s railroad slump is getting worse as a slowdown in manufacturing threatens broader weakness in the U.S. economy. . . . Shipments are down for autos, coal, grain, chemicals and consumer goods, with crude oil the only bright sport.  The rail downturn underscores the damage from the U.S.-China trade war, which is making shippers more cautious and crimping freight—validating earlier warnings from railroad executives. . . . Adding to the cargo drop, a brief rise is coal exports has fizzled and bad weather has delayed crop harvests and dragged down grain carloads.”  Trucking, like railroading, is “also feeling the pain.  Less-than-truckload cargo, which tends to be tied to industrial production, plummeted 12$ in August from a year earlier.”

********The demand for logistic services, whether it be for railroads or trucks, is derived from the demand for the products that are being moved.  Thus a decrease in the demand for products, especially those traded internationally, results in a decrease in the demand for railroad and trucking services.  It is interesting to look at this article and the one immediately above.  They both show how Federal law and initiatives affect the demand for goods and services in predictable, if not necessarily desirable, ways.

(8 October 2019) [SR]Déjà View: The Psychology Behind the ‘Rewatch’The Wall Street Journal

——–“Kate Galyon, a “21-year-old baker in Denton, Texas, recently finished watching all 201 episodes of the comedy series [“The Office”] for the 10th time.  She tried sampling other shows but didn’t feel the same spark.  So she started her 11th cycle.”  She notes, “I have connected with those characters.  It’s tedious to try doing that again” with a new series, “Why would I waste my time when I could watch a show that I know that I love?”  So it is that “Rewatchers slip back into reliable shows to summon certain moods, like music lovers teeing up playlists of nostalgia-inducing songs. . . . According to the ‘paradox of choice,’ a psychological concept popularized by a 2004 book of the same name, an overabundance of options stymies consumers’ ability to choose among them.”

********Here is the link to the 2016 revised edition of The Paradox of Choice: Why More is Less, by Barry Schwartz.  Such situations always bring to mind Joni Mitchell’s lyric “none of the crazy you get from too much choice,” in her song “Barangrill,” which can be heard here.  Trying to understand why people would sometimes rather reach for the familiar than for something new seems important, and not only for economic matters—consider politics and religion.  The “rise of rewatching” has certainly caught the attention of media.  “Rewatching is one of the forces driving a spate of blockbuster TV deals, as rival streamers lay claim to classic shows that can help keep subscribers locked in. . . . Rewatch potential is among the indicators that help measure a show’s value in the streaming market.”

********I suspect there is a growing literature examining familiarity, novelty, and choice.  My brief search turned up this: “Novelty vs. Familiarity Principles in Preference Decisions: Task-Context of Past Experience Matters,” Frontiers in Psychology (18 March 2011). 

May you have a good week!                                

Bruce

389 (2 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.

(27 September 2019)The Fall of Juice and the Rise of Fresh FruitBloomberg.com

——–“Americans consumed 5.2 gallons of fruit juice per capita in 2017 . . . this is the lowest fruit juice number since the USDA began tracking its consumption in 1970.  The rise and fall of orange juice is at the heart of this story.  Consumption took off in the U.S. in the late 1940s, after USDA scientists figured out how to make frozen orange-juice concentrate that could be reconstituted into a palatable beverage. . . . For decades, OJ was successfully marketed as the healthy, vitamin-rich way to start the day.  Then, around the beginning of the new millennium, it got caught up in a turn against sugar that swept through medicine and popular discourse.  Blame for rising obesity and heart disease rates shifted from fats and meats to sugars and carbs.  This anti-sugar turn stripped orange juice of its reputation as a health food. . . . Whole oranges and other fruits are still considered healthy, though, and consumption of fresh fruit has been rising.”

********Although orange juice is the feature of the article, grapefruit consumption also figures prominently.  There has been a “spectacular decline in grapefruit consumption, from a peak of 9 pounds per capita in 1976 to just 1.9 in 2017, [that] appears to have been caused mainly by a collision between older Americans’ breakfast preferences and their prescriptions.  Grapefruit and grapefruit juice . . . can interact in dangerous ways with medications for high cholesterol, high blood pressure and a variety of other ailments likely to afflict the elderly.”  Also of note is the dramatic rise, and recent tapering, of high fructose corn syrup as a sweetener, an expansion that mostly came at the expense of sugar.

********The article concludes noting that things can change, as dietary recommendations are seemingly driven by shifting research conclusions.  However, the “U.S. may truly have passed peak fruit juice and peak caloric sweetener.  That’s probably a good thing.”

(27 September 2019) [SR]GM’s Electric Ambitions Rattle Below the Surface of the UAW StrikeThe Wall Street Journal

——–“Even as General Motors Co. and the United Auto Workers union come closer to resolving their biggest work confrontation in decades, a larger, unsettled issue is the inevitable pain for U.S. workers from GM’s long-range bet on electric cars.  GM’s need to free up cash to invest in electrics has led it to make deep cuts in its core business, including its decision to close four U.S. factories—a main point of friction in the longest walkout at GM since 1970.  For the UAW, there’s no avoiding the harsh reality of a wider transition taking hold across the auto industry: Building electric vehicles requires far fewer workers, making it near-impossible to avoid job losses and wage cuts.  In addition, fewer components are needed, and many of them are imported.”

********As the article notes, “Union officials worry that GM and its two Detroit rivals—Ford Motor Co. and Fiat Chrysler Automobiles NV—could over time outsource much of the mechanical guts of an electric car to nonunion suppliers.”  It seems clear that a shift to electric vehicles from conventional gas- and diesel-powered vehicles, will result in a substantial decrease in the demand for auto workers, a change exacerbated by the possibility of an increased use of nonunion laborers.

(27 September 2019)Climate Risk in the Housing Market Has Echoes of Subprime Crisis, Study FindsThe New York Times

——–“Banks are shielding themselves from climate change at taxpayers’ expense by shifting riskier mortgages—such as those in coastal areas—off their books and over to the federal government, new research suggests.”  Researchers Amine Ouazad and Matthew Kahn “examined the behavior of mortgage lenders in areas hit by hurricanes between 2004 and 2012 . . . They found that, after those hurricanes, lenders increased by almost 10 percent the share of those mortgages that they sold to Fannie Mae and Freddie Mac, government-sponsored enterprises whose debts are backed by taxpayers.”  Ouazad and Kahn “found that the odds of an eventual foreclosure rise by 3.6 percentage points for a mortgage originated in the first after a hurricane, and by 4.9 percentage points for a mortgage originated in the third year. . . . [But, the] regulations governing Fannie and Freddie do not let them factor the added risk from natural disasters into their pricing, which means banks and other lenders can offload mortgages in vulnerable areas without financial penalty.  The increases the incentive for banks to make the loans and them move them off their books, the authors said.”

********Clearly, a well-functioning market would account for the risk differentials of different properties.  Ouazad and Kahn seem to have identified as serious issue.  You can read their paper, “Mortgage Finance in the Face of Rising Climate Risk,” here.

(30 September 2019)The World’s Most-Used Cryptocurrency Isn’t BitcoinBloomberg.com

********This article caught my attention simply because Bitcoin is the most talked about cryptocurrency.  So, if not Bitcoin, then what?  Tether.  Although Bitcoin “accounts for about 70% of all the digital-asset world’s market value, . . . data from CoinMarketCap.com show that the token with the highest daily and monthly trading volume is Tether . . . With Tether’s monthly trading volume about 18% higher than that of Bitcoin, it’s arguably the most important coin in the crypto ecosystem.”  Tether is a stablecoin, “a category of tokens that seek to avoid price fluctuations, often through pegs or reserves.”

********Facebook’s proposed cryptocurrency, Libra, is supposed to be a stablecoin, like Tether; Bitcoin is not a stablecoin.  The article contains a list of the top 10 cryptocurrencies by daily trading volume, which may be of interest.   For those interested in the latest news on cryptocurrencies, Bloomberg devotes a continuing part of its site to them under the heading Crypto.

(30 September 2019) [SR]Egg Glut Deepens Problems in Farm EconomyThe Wall Street Journal

——–“Too many hens laying too many eggs are pushing down prices for the consumer staple, hurting sales at producers such as Cal-Maine Food Inc. and adding more stress to the U.S. farm economy. . . . The egg glut is adding to pressure on a US. agricultural economy in turmoil. . . . The trade war has sapped demand for soybeans and other crops from China, a top customer, after years of high production.  That has led to a bounty of stockpiled grain that is contributing to the expansion of U.S. livestock herds and flocks. . . . Retailers have been quick to pass the drop in egg prices on to customers, eager to make more sales of a consumer staple. . . . That is pushing up egg sales by volume.”  For Cal-Maine, the fall in egg prices have led to a substantial decline in revenues, it reported “sales of $241.2 million for the quarter, down 29% compared with a year earlier.”  This led to a reported “loss of $45.8 million, . . . compared with a profit of $12.4 million” a year earlier.

********Looking at the numbers, it appears that the demand for eggs is inelastic as an increase in supply led to a fall in revenue from egg sales. 

(30 September 2019)What Kind of Problem Is Climate Change?The New York Times

********Alex Rosenberg, who previously published under the name of Alexander Rosenberg, is a philosophy professor at Duke University, who has long written on matters touching upon economics.  He is one of the contributing faculty of the joint Duke-UNC Philosophy, Politics, and Economics program.  In this article Rosenberg take a look at the climate change problem from the PPE perspective.  There are some connections to be seen between PPE and the invisible forces.  Clearly politics and economics are shared by both.  However, whereas PPE has philosophy as “the third leg,” the invisible forces has culture/history as its third leg.  In either case, I sense, what the third leg is “bringing to the table” is an emphasis on ethics and mores.

(1 October 2019)India Isn’t Letting a Single Onion Leave the CountryThe New York Times

——–“Truckloads of onions are being turned back at the Indian border.  Officials are threatening raids to prevent onion smuggling.  India’s neighbors, reliant on hundreds of millions of pounds of the crop, are reeling from the news: Not a single onion can leave India.  Hit first by drought and then by monsoon rains, India suffered an onion shortage that nearly tripled the price in recent months, edging close to a third rail of politics in many countries: the national diet.  In India, onions—so important to the cuisine all around the country and across South Asia—are central to foreign policy and domestic harmony alike.  Indian governments have been brought down over inflated food prices before.”  Prime Minister Narendra Modi “decided to tackle the onion shortage this week.  Not only did his administration ban onion exports, it is also cracking down on onion hoarding.  Retailers and wholesalers now have strict limits on what they can keep on hand.  They have to sell the rest.”

********An engrossing look at the importance of onions in Indian cuisines.  It evokes Marie Antoinette’s infamous “Let them eat cake” of 1789 and Gandhi’s salt march of 1930.  No doubt the salt march is never too far below the consciousness of Indian politicians.   All this led me to think about the relationship between food and revolution, not a new idea, to be sure, but I did wonder if someone had written something systematic and historical on the subject.  I didn’t find a book but would be glad to have someone direct me to one.  Two pieces that address the idea are: (1) “A Revolution Marches on Its StomachSlate and (2) “The people are hungry: The link between food and revolutionGrist.

(1 October 2019) [SR]The Seven-Year Auto Loan: America’s Middle Class Can’t Afford Its CarsThe Wall Street Journal

——–“Walk into an auto dealership these days and you might walk out with a seven-year car loan. . . . Car loans that are increasingly stretched out are a pronounced sign that some American middle class buyers can’t afford a middle-class lifestyle. . . . A lending machine has revved up in response, making it possible for more Americans to procure a vehicle by spreading the debt over longer periods.  Wall Street investors snap up these loans, which are bundled into bonds.  Dealers now make more money on the loans their customers take than on the cars they sell.”

********The article provides a graph that shows that the percentage of car loans that are 73-84 months have grown from approximately 10% in 2011 to 35% in 2019.  As the article points out, incomes have grown sluggishly in recent years, but “car prices have grown rapidly.  New technological and safety features, such as larger and more sophisticated multimedia displays, have made even the most basic cars more expensive.  U.S. consumers have also veered toward pricier rides . . . The result is that consumers are seeking bigger loans than ever to purchase a car.”

May you have a good week!                                

Bruce