378 (17 July 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.

(9 July 2019):How the Department of Defense Bankrolled Silicon ValleyThe New York Times

——–[A review of The Code: Silicon Valley and the Remaking of America, by Margaret O’Mara.]  “How an otherwise unexceptional swath of suburbia came to rule the world is the central question animating ‘The Code,’ Margaret O’Mara’s accessible yet sophisticated chronicle of Silicon Valley. An academic historian blessed with a journalist’s prose, O’Mara focuses less on the actual technology than on the people and policies that ensured its success.”  In doing so, she has much to say about the roles of the Defense Department, Stanford University, and “California’s longstanding prohibition on noncompete clauses” that helped unleash creativity and left other would-be Silicon Valleys behind.

********The book appears to provide a good illustration of the invisible forces in action.  I first learned of The Code from the review [SR]How Green Was the ValleyThe Wall Street Journal.  While lifting up many of the same points as the review in the Times, it notes that The Code tells “the Valley’s story with a skeptical eye, capturing is unlikely blossoming without being caught up in its self-serving myths, including the idea that it embodies pure meritocracy.  With individual profiles that provide glimpses into the experiences of underrepresented groups, Ms. O’Mara illustrates how the Valley’s networks were insular and self-perpetuating, to the exclusion of women, African-Americans and Latinos.”

(10 July 2019):Road-Tripping With The Amazon NomadsThe Verge

——–An Amazon nomad is “part of a small group of merchants who travel the backroads of America searching clearance aisles and dying  chains for goods to sell on Amazon.  Some live out of RVs and vans, moving from town to town, only stopping long enough to pick the stores clean and ship their wares to Amazon’s fulfillment centers.”  As such, they are part of “more than 2 million merchants who use the company’s platform as their storefront and infrastructure.  Some of these sellers make their own products, while other practice arbitrage, buying and reselling wares from other retailers.  Amazon has made this easy too, first by launching Fulfillment by Amazon, which allows sellers to send their goods to company warehouses and have Amazon handle storage and delivery, and then with an app that lets seller scan goods to instantly check whether they’d be profitable to sell on the site.”  As one nomad comments, “It’s almost like I’m the front end of the business and Amazon is just an extension of my arm . . . I find the products, and then they mail them to people.”

********This article says a lot about our consumption-driven lives.  Interestingly, the Amazon nomads are often offended, almost nauseated, by the surfeit of goods that fill their waking hours.  The author of the article provides a glimpse of some to the things you will find within: “When you spend weeks on end traveling the strip malls and big-box stores of America, you start to appreciate small differences in what can seem like archipelagos of sameness: the way the Targets get cleaner as you approach corporate headquarters in Minneapolis; the novelty of an unusually small Walmart in Indiana; the McDonald’s in Pomeroy, Ohio, that served pizza, the remainder of an abandoned experiment in the ‘80s.”

(11 July 2019):As Fresh Water Grows Scarcer, It Could Become a Good InvestmentThe New York Times

——–“Water is easy to take for granted.  It falls from the sky, and, thought it’s vital, we sometimes treat it as if it’s worthless.  How often have you seen sprinklers running in the rain?  Yet the prospect of shortages in the years ahead could make water a precious commodity.  That represents an opportunity for investors.  A small group of traditional mutual funds and exchange-traded funds already invest in it, mainly in companies that contribute to the delivery, testing and cleaning of potable water.  Those companies stand to grow as governments around the globe strive to stem the expected water shortfalls.”

********The article reports on recent rates of return on water funds—quite good—and various ways of constructing such funds.  It is noteworthy that “One way water investments differ from those in some other sectors is their greater exposure to regulatory and political risk.  In the developed world, water supplies are often closely regulated, and in the United States, governments are both big customers and potential competitors.”  Among other things, the article  raises ethical issues around profiting from a commodity that is essential for human life.  The article concludes with a statement of the “diamond-water paradox” developed by Adam Smith in The Wealth of Nations.

********A nice companion article is [SR]Neighbors Face Off Over Texas’ Other Lucrative Resource: WaterThe Wall Street Journal.  The case discussed examines the desire of the Williams family of the Fort Stockton, Texas, area, “to pipe as much as 25 million gallons a day away from its property at the edge of the Chihuahuan Desert and sell it to oil companies, cities and anyone else with deep pockets and an unquenchable thirst.  The plan is pitting neighbor against neighbor and rekindling a debate over who should control fresh water in aa bone-dry region.”  In the process of developing argument, the presumably old saw “whiskey is for drinking, water is for fighting” is related.  An important factor in legal wrangling around water is that “Texas follows the rule of capture, a common law tenet dating to Henry IV that holds anything below a property belongs to its owner.”

********The Wikipedia entry for “Rule of capture”  is clear and stunning.  “The general rule is that the first person to ‘capture’ . . . a resource” like groundwater, oil, gas, and game animals owns that resource, so “landowners who extract or ‘capture’ groundwater, oil, or gas from a well that bottoms within the subsurface of their land acquire absolute ownership of the substance, even if it is drained from the subsurface of another’s land.  The landowner that captures the substance owes no duty of care to other landowners.”

(12 July 2019):Why Carmakers Want You to Stop Buying Cars, SomedayBloomberg Businessweek

********This is a Bloomberg QuickTake.  The short answer to the question seems to be, it will be more profitable for them.  What leads to that conclusion, though, is the growth of Mobility as a Service (MAAS).  This involves “a network of coordinated forms of transportation that each handle the parts of a journey in the cheapest and most convenient way.”  Eventually, “Car payments and parking fees will be replaced by buying transportation by the mile on a subscription service similar to Netflix.”  It is estimated that “mobility services could grow to a $10 trillion business, with profit margins double the 10% that automakers clear in their best years in their traditional business.”  Presumably this is why companies like Lyft and Uber, though consistent money losers, have significant market value.

May you have a good week!

Bruce 

377 (10 July 2019)

Welcome to week 377!  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. 

(2 July 2019):Chobani Turns to Fair-Trade Program to Help Struggling Dairy IndustryThe New York Times

——–“The fair-trade label was created decades ago to help artisans in developing nations.  Now, there are fair-trade soccer balls, fair-trade soaps and fair-trade ice pops.  Next up for movement: the American dairy industry.  The yogurt maker Chobani is working with Fair Trade USA, a nonprofit group in Oakland, Calif., on creating a label that would signal that the milk in its products came from farms that treated their workers and cows humanely. . . . Chobani’s fair-trade initiative—and likely marketing push—could help the company continue to stand out in an increasingly competitive yogurt market.  Chobani says it believes the premium can help farmers hit by persistently low milk prices and highlight good practices in an industry that’s under enormous strain and scrutiny.  Environmentalists are concerned about carbon emissions from cows, critics question the health benefits of milk, and many small farmers are deep in debt and suffering from mental health issues as their livelihood is threatened.”

********As the article indicates, fair-trade designation is one way to differentiate one’s product from one’s competitors.  Additional costs are expected from the fair-trade program but, at present, Chobani is “not planning to pass the added cost on to consumers.”  Here is the link for Fair Trade USA.

********A related story appears in [SR]World’s Coffee Growers Seek to Set Minimum Price to Help Poor FarmersThe Wall Street Journal.  Although Chobani can seek to increase the economic status of some dairy farmers by product differentiation, countries (or groups of countries) can seek to increase the economic status of coffee farmers by remaking the market as a whole,  something that can be done by an effective cartel.  Inspired by the success of “the two biggest cocoa producers, Cote d’Ivoire and Ghana, in pushing buyers to agree to pay more for the key ingredient in chocolate,” growers from “Brazil, Colombia and more than two dozen other countries will meet in Brazil this week to talk about how to get more money to farmers suffering from the lowest prices on world markets in more than decade.”  It is much more difficult, however, to coordinate the activities of a cartel with dozens of producers than one with effectively two producers.  A coffee cartel is not a new idea.  Check out the 1993 article “World Markets; A New Coffee Cartel Tries Its HandThe New York Times.

(2 July 2019):Yes, You Can Buy HappinessBloomberg.com

********This seven-minute video uses humor to provide clear, research-based answers regarding how to use money “to buy” happiness.  Three points are made: (1) spend money on building social relationships: (2) spend money on experiences and less on things; and (3) know what makes you happy.  Early on in the video there is a slide that shows what might be referred to as the diminishing marginal utility of money.  Such behavior was once used as an argument for increasing marginal (income) tax rates.  If the goal is to maximize overall societal satisfaction and if all satisfactions can be measured on one scale, overall satisfaction can be increased by increasing the marginal tax rate on the very wealthy and distributing the proceeds to the very poor.  The sticky point, of course, is finding one scale on which all satisfactions can be measured.  Much has been written on the “interpersonal comparison of utility”—you can learn more here.

(4 July 2019):Beyond Meat fever turns the tiny pea into America’s hot new cropThe Los Angeles Times

——–Although there seems to be nothing but bleak news in U.S. agricultural markets, “there is one bright spot: the pea.  Long an afterthought for most farmers—largely just something plant to help with crop rotations—the tiny legume has suddenly gotten pulled into the alt-protein craze fueled by the likes of Beyond Meat Inc. and the Impossible Burger.  Prices are moving higher, buoyed as well by rising demand from pet-food makers, and growers in the U.S. and Canada are rushing to put more peas in the ground.”  Even meat-oriented farmers are taking note, planting peas as a possible growth market as the demand for traditional crops has been flat.  With peas “fetching close to $5 a bushel, up from about $2.80 a few years ago, which was roughly a break-even price,” farmers like Tony Fast of Montana, which is the top U.S. pea-growing state, is “excited for new markets for the peas.”  Government data shows that growers “in Canada and the U.S. are expected to seed about 20% more field peas this year . . . That’s happening even as U.S. farmers cut acres of principal crops including corn, soy and wheat by about 3%.”

********The article goes on to point out, “Plant-based companies have been around for decades, but products were aimed at vegans and vegetarians, a tiny market . . . Now that even meat-eating consumers are trying to get more of their protein from alternative sources, demand is taking off.”  All this provides an excellent example of how a change in the demand for a product can lead to significant increases in the (derived) demands of the inputs used to produce them.  In-depth knowledge of supply chains can yield significant opportunities for gain by the entrepreneurial minded.

********Soybeans is the main crop that has suffered from the current trade “war” with China.  A lengthy, historical look at how soybeans became dominant and how the U.S. Soybean Export Council is trying to maintain its Chinese customers is provided by [SR]Farmers Built a Soybean Empire Around China.  Now They’re Fighting to Save It.The Wall Street Journal.  As the article notes, “Seed companies, grain traders, railroads and other businesses have all been part of the soybean-industry buildup—investing heavily, rolling out new varieties and adding capacity to ferry crops to market.”  The value of those investments depends upon maintain the Chinese demand for U.S. soybeans.  The problem is, though, that “China is building alternatives for soybean imports so it will never again be so dependent on a single source.”  Brazil’s ambassador to China has indicated that “his country was working to become China’s most reliable supplier.”

(5 July 2019):The Midwest’s Record Wet Spring Is Interfering With The Corn De-Tasseling Job MarketNPR

********This is a four-minute broadcast, with transcript, of a story about a summer job held my many farm-country kids: de-tasseling seed corn.  Although machines “can now remove about 90% of corn tassels” seed companies need more.  “Kids help them get to near 100% . . . One detasseling company owner estimates an average worker will earn about $1,500 for a few weeks of work.  Beginner detasselers make less, usually around minimum wage.”  In my hometown of Watertown, Wisconsin, many high-school students “picked pickles.”  I’m sure that the pay was no where near as attractive, but I’m also sure, like detasseling, that the jobs were seen to build character.  Some interesting thoughts are expressed about compensation and working conditions.

(7 July 2019):All that online grocery shopping causing a cold storage shortageThe Los Angeles Times

——–Changes in the way people shop “have the ‘cold chain’ scrambling to keep up.  Consumers, particularly younger buyers, are turning more and more to online grocery shopping and prepared meal services, which means more refrigerated warehouses are needed to keep that stuff cold.  To keep pace, the country will need 100 million square feet of new cold storage warehouse space over the next five years . . . It’s a particularly hot corner in the mushrooming warehouse business, fed by demand from Amazon.com and other e-commerce operations.” 

********I was particularly struck by this statement: “Demand for cold storage is also being elevated by consumers’ growing aversion to chemical food preservatives.  Refrigeration  a highly effective food preservative that can keep crops such as apples fresh-tasting for months without chemicals slowing ripening and decay.”  As Spencer Levy of real estate brokerage CBRE notes, “Now, even hamburger buns need delivery through the cold chain . . . You are seeing there as demand for non-preservative food rises.”  Thus an increased desire for foods without preferences has led to an increased demand for refrigerated food, which leads to an increased demand for refrigeration services.  No doubt this increased demand will lead to an increase in the demand for energy, some of which will be CO2 emitting and contribute to climate change (global warming).  As ecologists have long said, you can’t do only one thing.

May you have a good week!

Bruce 

376 (3 July 2019)

Welcome to week 376!  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. 

(24 August 2016):Why Behavioral Economics Is Really Marketing ScienceEvonomics

********Yes, the date is correct.  This piece, by much-published marketing professor Philip Kotler, was noted by Bloomberg writer Barry Ritholtz earlier this week.  It provides some interesting comments about the development of the disciplines of economics and marketing, ultimately arguing that behavioral economics shares with marketing science an empirical orientation that conventional (neoclassical) economic theory shares with neither.  Part of that empirical orientation is due to a desire to determine what really affects individual human behavior, which leads one to take a careful at the institutions. 

(31 May 2019):Half of Americans Are Effectively Poor Now.  What The?Eudaimonia

********The value of this piece, which has an edge to it, is that it introduced me to the term ALICE (Asset Limited, Income Constrained, Employed).  In a sense it provides an indication of the number of people who are working but still find themselves unable to “afford a budget that includes housing, food, childcare, healthcare, transportation, and a cellphone.”  As far as I can tell, ALICE is a project of The United Way—you can learn more about ALICE here.  Access to state and county level data is available here.  The United Ways of some states produce individual ALICE reports, as can be found here, but North Carolina is not one of them.

(24 June 2019):Why Transparency on Medical Prices Could Actually Make Them Go HigherThe New York Times

——–“It makes intuitive sense—publish prices negotiated within the health care industry, and consumers will benefit.  That’s the argument behind the executive order issued Monday by President Donald Trump that is intended to give patients more information about what health care will cost before they get it.  But the peculiarities of the United States health care system, with its longstanding secrecy around negotiated health care prices, mean there is very little research on the possible effects” of the order.  “That means that scholars examining the question have had to reach far beyond the health care industry, and even beyond the United States, for answers about what might happen.  Their favorite studies come from markets like Chilean gasoline, Israeli supermarkets and Danish ready-mix concrete.  The scholarship suggests that more transparency in health care could backfire, causing prices to rise instead of fall.”  The case of Danish concrete, “Government-Assisted Oligopoly Coordination?  A Concrete Case,” is much cited by health economists.  “The Danish government, in an effort to improve competition in the early 1990s, required manufacturers of ready-mix concrete to disclose their negotiated prices with their customers.  Prices for the product then rose 15 percent to 20 percent.”  The question remains, how similar is “Danish ready-mix concrete in the 1990s . . . to American health care today”?

********An important point is made later in the article regarding who has what knowledge.  “The question is whether the [price] transparency will be more useful to hospitals or to consumers.  If you think the answer is consumers, you think transparency will lower prices.”  But consumers and producers can benefit from the knowledge of health-care substitutes.  And, at least in the concrete case, may especially benefit producers.

********While we are on the topic of concrete, I was intrigued by “Cement Produces More Pollution Than All the Trucks in the WorldBloomberg.com.  Specifically, the manufacture of concrete “is responsible for 7% of global carbon dioxide emissions, more than what comes from all the trucks in the world.”  In some quarters the push is to on to user greener (and more expensive) concrete.  This article is a partner of another Bloomberg piece “What’s Wrong With Modern Buildings?  Everything, Starting With How They’re Made.”  It notes that construction, not just concrete, “is responsible for 11% of global carbon emissions, according to a report from C40, a group of leading metropolitan authorities.”  You can download the report here.  You can learn more about C40 here.

(28 June 2019):Subway Got Too Big.  Franchisees Paid a Price.The New York Times

——–”Subway is the largest fast-food company in the world by store count, with more than 24,000 restaurants in the United States alone.  It got that way thanks in large part to entrepreneurial immigrants.  Unlike at chains such as McDonald’s and Burge King, where many franchises are operated by investment firms, Subway owners are mostly individuals and families.  The company’s co-founder, Fred DeLuca, made stores easy to  open; most new franchisees are charged a $15,000 initial fee, compared to $45,000 at McDonald’s.  In exchange, Subway operators must hand over more revenue than at other chains—8 percent of gross sales—while also agreeing to other fees and stipulations.”  Among those stipulations, embedded in more than 600 pages of text, Subway notes that it can revise its rules “at any time during the term of your Franchise Agreement under any condition and to any extent.”

********The article takes a close look at the alleged mis-dealings of Subway with some of its franchisees.  At the center of these allegations is a system of evaluation that uses “development agents” to oversee franchisees, where some of these agents stand to benefit by seeing some of Subway’s franchisees fail.  This is highly reminiscent of principal-agent problems, where an agent, in pursuing her self-interest, does not simultaneously pursue the interest of the principal.  A central figure in the article is Rebecca Husler, a former inspector for Subway, who notes that “her boss ordered her to find violations at stores” and thus cause franchisees to lose their businesses.  In this way, she served as kind of a “hit man” for her boss.  The article clearly shows the dramatic power differential between company and franchisee.  Perhaps that is why the number of Subway’s in the U.S. has decreased “by more than 2,000 since 2015.”

(30 June 2019): [SR]Drink Makers Seek More Recycled PlasticThe Wall Street Journal

——–“Beverage companies with ambitious goals to use more recycled plastic in their packaging are facing a shortage of discarded containers from recycling programs.  Less than a third of the six billion pounds of plastic most commonly used for drink bottles and food containers is recovered by U.S. recycling programs.  Most of what is recovered becomes polyester fiber for rugs and clothing or plastic sheeting.  Just a fifth, some 330 million pounds, ends up in new bottles and food containers.  Big drink0and-food makers will need four or five times that much recycled plastic to meet the targets they have set to satisfy consumer calls o was less and reuse more, according to the Association of Plastic Recyclers.”  However, “the volume of plastic or bottles—technically known as polyethylene terephthalate, or PET—has been stagnant for years.”  Ironically, “beverage companies also have worked for decades against one of the most effective recycling practices: deposit programs that pay a nickel or dime for each bottle returned,” arguing that the programs are effectively a tax on their product and give rise to logistical costs handling containers.  Instead, companies are calling for enhanced curb-side recycling.  But “Fees for curb-side recycling service have been rising to counter falling prices for scrap materials caused by lower exports of old paper, cardboard and plastics to China.”

********Presumably the cost of curb-side recycling falls on individual waste producers i.e., households, businesses, and other organizations, rather than on beverage companies. 

(1 July 2019): [SR]’VC: An American History’ Review: The Seed SpreadersThe Wall Street Journal

********VC stands for Venture Capital and the reviewer is Marc Levinson, author of The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, which is still one of my favorite books.

——–“The question of whether the venture-capital industry creates any social benefit looms over Tome Nicholas’s” book.  “Mr. Nicholas, a professor at Harvard Business School, is evidently a fan of American-style venture capital . . . But his book doesn’t demonstrate that venture capital is promoted in the U.S. is the best way, or even a good way, to support risk-taking.”  As Nicholas makes clear, “the venture-capital industry in its modern incarnation is a creation of the U.S. government.  The Small Business Investment Act of 1958 led to the creation of hundreds of venture-investment  companies, which were entitled to federal loans and extremely favorable tax treatment.  A 1979 aw allowed pension funds to invest in venture capital.  And reductions of tax rates on capital gains since the 1970s have allowed venture capitalists to collect their pay mainly through capital gains rather than more highly taxed wages, minimizing their tax bills.  At the same time, the federal government has been a major customer of VC-funded startups in computing, software and semiconductors.  As Mr. Nicholas puts it: ‘Government policy had powerful supply-and demand-side effects.’”  Although the U.S. approach to venture capital has contributed to economic dynamism, by some measures “other countries may have more dynamic economies . . . The Bloomberg Innovation Index has ranked the U.S. eighth among the most innovative countries in 2019 . . . the leaders for this year are South Korea and Germany, which don’t provide venture capital the American way. . . . So perhaps the history of U.S. venture-capital investing is not quite the triumph the Mr. Nicholas would have us believe.”

********Here is the link to the book.  It will be released on July 9th.  Although certainly not a positive review, perhaps it shouldn’t be taken to task for not addressing the question “What is the best way to support risk taking?”  What comes through for me is the importance of federal government policies in creating the U.S. approach to venture capital.

(3 July 2019):Sun, Sand, and the $1.5 Trillion Dark Offshore EconomyBloomberg Businessweek

——–“The British Virgin Islands is home to more than 400,00 companies that hold $1.5 trillion in assets.  You wouldn’t know it if you walked through Road Town, the capital of this Caribbean archipelago.  Hens and roosters compete brazenly with cars on the single narrow lane of Main Street.  Law firms that set up and serve thousands of offshore companies occupy modest buildings next to brightly painted wooden houses that host cheap beauty salons and clothing shops with names like Goodfelllas.  Besides a few mangled green street signs on Main Street, few roads are marked.  The BVI doesn’t have mail delivery its businesses and 32,000 residents use post office boxes as their addresses, which is why one P.O. box in Road Town can be the nominal home to thousands of companies from around the world.  Hundreds of lawyers, accountants, and company agents work from buildings dotted around the main island of Tortola.  In some tax havens—Luxembourg, Monaco, or even parts of the Cayman Islands—money is dripping off every corner.  In the BVI, the wealth passes through almost without a trace.”

********So begins the story about the BVI and its place “in the dark offshore economy,” which was “illuminated by the 2016 Panama Papers leak, in which 11.5 million documents from the law firm Mossack Fonseca were released by the International Consortium of Investigative Journalists.”  The disclosures “sparked probes worldwide into money laundering, sanctions violations, and tax avoidance, and it didn’t pass without notice that more than half the companies outed in the leak were registered in the BVI.”  Subsequently, the U.K. Parliament passed a law requiring Overseas Territories to create public registers that would make company ownership more transparent, starting in 2020, but that may extend as far as 2023.  Interestingly, as I write this on July 4th, “Parliament can legislate for the territories, but islanders, who are U.K. citizens, can’t vote in U.K. elections unless they live in the U.K.”

********It appears that the dark offshore economy of the BVI is legal, although the uses of the opportunities provided by the BVI often have an illegal dimension, e.g., money laundering.  This seems, then to notice the recent “Heist Issue” of Bloomberg Businessweek.  I read two—“America’s Busiest Bank Robber Was a Product of the Opioid Crisis” and “It Took Only 16 Minutes for Thieves to Swipe a Million-Dollar Gold Coin.”  Surely these are premeditated, and presumably rationally planned, acts.

May you have a good week!

Bruce 

375 (26 June 2019)

Welcome to week 375!  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. 

Given that I live in the Asheville, North Carolina area, any article that mentions craft breweries catches my attention.  This week the article (21 June 2019)Where Microbrewery Jobs Are OverflowingBloomberg.com did just that.  Upon inspection there was no mention of the Asheville area, but I did learn about something called the “employment location quotient” (ELQ) that “measures an industry’s share of total jobs in an area divided by its share nationwide.”  I.e., it provides an indication of the degree to which a region’s industry stands out (or not) in relation to the nation as a whole.  For example, the Bend-Redmond Metropolitan Statistical Area of Oregon has a brewery-employment location quotient of 18.43, which means that in that place “one is effectively 18 times more likely to run into a brewery worker than in the country as a whole.”  Please note that the article was based on Metropolitan Statistical Areas.  When one looks at the county level, as I did, things look a bit different.  Buncombe County, where Asheville is located, had a fourth quarter 2018 ELQ of 10.30.  Nelson County, Virginia had an ELQ of 109.98!

The employment location quotients are found in “the Quarterly Census of Employment and Wages, the hyper-detailed jobs report that the Bureau of Labor Statistics compiles from state unemployment insurance data.”  Here is the starting page from which you can construct tables, with ELQs for a variety of purposes.  For example, looking at Buncombe County, again, I was interested in the industries with the highest ELQ.  Here are the results: Education and Health Services came in first (1.95), Leisure and Hospitality second (1.70), Other Services third (1.17), and Manufacturing fourth (1.13).  Take a look at the starting page and investigate your interests.

The author of the microbrewery article is Justin Fox, who has had a distinguished career in business journalism, including serving as the executive editor of the Harvard Business Review.  You can learn considerably more about him at his site.  Among his books is The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street.  He used his new-found knowledge about the Quarterly Census of Employment and Wages, as well as the ELQ, to write a series of articles this week.  Here they are:

(22 June 2019):Financial Jobs Aren’t Just in New York

(23 June 2019):A Booming Local Health-Care Industry Isn’t Always a Good Thing

(24 June 2019):The Internet Is Everywhere, But Internet Jobs Aren’t

(25 June 2019):The New Yorkiest Jobs in New York, Revealed

(22 June 2019):Facebook’s Libra Crypto Coin: 5 Things We Know, and 5 We Don’tBloomberg.com

********In this article five different reportorial teams write about Facebook’s projected cryptocurrency, Libra.  One thing that it makes clear is that the Federal Government is unprepared for the rise of cryptocurrencies, especially one as all-encompassing as the Libra.  For example: “More than half a dozen regulators have some jurisdiction over cryptocurrency” with the “Securities and Exchange Commission and the Commodity Futures Trading Commission” being leading candidates for influence “because of their expertise monitoring markets.”  Congressional action to help set new rules is “an unlikely prospect before the 2020 U.S. elections.”  Of course, Libra will be global in scale.  Are international organizations any better prepared to deal with the rise of cryptocurrencies?  Highly unlikely.

********There is a twelve-page white paper on Libra.  Some useful background on Libra is provided by Wired in “The Ambitious Plan Behind Facebook’s Cryptocurrency, Libra.”  David Marcus, a former President of PayPal who is heading up the Libra effort, figures prominently in the article.  You can watch a 12-minute interview with Marcus here.

(22 June 2019):The Trade War’s Latest Casualty: TreesBloomberg.com

——–“The global economy is the most obvious casualty of the U.S.-China trade war.  The most profound and damaging impact, however, might be on the world’s forests.  That’s because two trends are converging.  Despite a slowing economy and a swine-fever outbreak  . . . , China’s appetite for meat continues to grow inexorably. . . . That means the country can’t afford to cut down on its imports of soybeans, used as feed for livestock, despite tariffs that have raised the cost of U.S. soy. .  . . Shifting soybean purchases from the U.S. to other countries such as Brazil . . . raises another threat: rampant deforestation. . . . Between 2001 and 2006, soybean fields expanded by 1 million hectares in the Amazon Basin.  Nearly 30% of the area was formerly virgin forest.”  The pressures on virgin forests continue today, although the threatened regions of Brazil are now different.

********Land use adapts to prevailing and anticipated market conditions, which depend, in turn, upon legal and political factors, as well as social and historical factors.  This article shows clearly how tariff-driven changes in the soybean imports of China have encouraged deforestation in Brazil.

(23 June 2019):It’s time we tear up our economics textbooks and start overThe Washington Post

********This is a column by Robert J. Samuelson, who answered a question I’ve long had in my mind: “Is he related to the late Nobel Laureate Paul Samuelson?”  No.  The gist of the article is that contemporary events (and contemporary thinking) is leading to a reconsideration of what should be taught (and what should happen) in the introductory economics course.  Standing in as the status quo is N. Gregory Mankiw, whose Principles of Economics is now in its eighth edition.  An estimated 4 million copies of the book have been sold.  One counter to the status quo is an introductory e-book by Samuel Bowles and Wendy Carlin.  In a forthcoming issue of The Journal of Economic Literature, Bowles and Carlin, as well as Mankiw, will be sharing their thoughts about introductory economics.  By accessing the appropriate links in Samuelson’s column, you can read them now.

(23 June 2019):As seniors go into twilight years, some of them privately mull ‘rational suicide’The Washington Post

——–“Ten residents slipped away from their retirement community one Sunday afternoon for a covert meeting in a grocery store café.  They aimed to answer a taboo question: When they feel they have lived long enough, how can they carry out their own swift and peaceful death?  The seniors, who live in independent apartments at a high-end senior community near Philadelphia, showed no obvious signs of depression.  They’re in their 70s and 80s and say they don’t intend to end their lives soon.  But they say they want the option to take ‘preemptive action’ before their health declines in their later years, particularly because of dementia.  More seniors are weighing the possibility of suicide, experts say, as the baby boomer generation—known for valuing autonomy and self-determination—reaches older age at a time when modern medicine can keep human bodies alive far longer than ever.”

********As the article notes, the “concept of rational suicide is highly controversial; it runs counter to many societal norms, religious and moral convictions, and the efforts of suicide prevention workers who contend that every life is worth saving.”  The economic study of suicide was given its first influential statement by Daniel S. Hamermesh in “An Economic Theory of Suicide” (1974).  The literature has since grown.  It was reviewed and given a restatement by Dave E. Marcotte in “The Economics of Suicide, Revisited” (2003).   

(24 June 2019):You can enter a drawing to buy rare liquor in Utah.  Just don’t call it a lotteryThe Los Angeles Times

——–“Utah isn’t exactly a heavy-drinking state.  Almost two-thirds of the population is Mormon, a faith that bars the consumption of alcohol.  But for thirsty apostates, a limited release of $270-a-bottle Pappy Van Winkle 23-year reserve bourbon is game-on.”  According to Terry Wood of the Utah Department of Alcohol and Beverage Control, what happened last year when the state’s 46 liquor stores received a total of 110 bottles “was just nuts . . . People would race from store to store . . . Some people were trying to game the system or bet on what stores would have it and show up there.”  All agreed that something had to be done, perhaps a lottery like those used in other states?  It turns out that “If alcohol is frowned upon in Utah, gambling is even more so.  With a criminal code that spends 12 sections detailing all manner of wagering that is illegal, Utah is just one of two states in the country with no lottery.”  After years of effort, the state alcohol agency got the go ahead from the state’s attorney general.  The term being used is ‘a distribution system for a limited-quantity product.’

********The opening for a “lottery” in Utah seems to have been the hunting permit system used by the state.  Although the two cases are not identical, they were close enough to get people to think more creatively about a method of allocating Pappy that does not result in long lines and, as Terry Wood describes it, chaos.

********Long ago one of the bread-and-butter topics of introductory economics was “capitalism vs socialism” and the lines that resulted from socialism (and ostensibly didn’t result from capitalism).  During this political season capitalism vs socialism seems to be in the news—a lot.  Perhaps that is why “Democrats point to Nordic nations as models of socialism.  Here’s how they actually work” caught my attention.  The article draws upon a report published by JPMorgan Chase, which notes: “copy the Nordic model if you like, but understand that it entails a lot of capitalism and pro-business policies, a lot of taxation on middle class spending and wages, minimal reliance on corporate taxation and plenty of co-pays and deductibles in its healthcare system.”  As the report goes on to note, “On many measures, the Nordic approach to the private sector is even more business-friendly than the US.”

(26 June 2019):Frackers Go Electric as Low Natural Gas Prices Spur Fuel SwitchBloomberg.com

——–“Thrifty drillers have found a new use for the glut of natural gas that’s sent prices for the fuel below zero in America’s biggest shale patch: Use it to power fracking operations.  For decades, explorers have used massive diesel engines mounted on tractor-trailers to shoot a mixture of water, sand and chemicals down wells and blast open layers of oil-soaked shale rock.  That’s changing now that soaring output has crushed gas prices, especially in West Texas’ Permian Basin, where the fuel is a byproduct of crude oil extraction.  Explorers are switching to so-called e-fracking, using gas from their own wells to run turbines for electric motors that power drilling pumps.  The move helps in two ways: It cuts . . . fuel costs . . . and it lessens the excess gas burned off at the well site.”  It is predicted that “electric pumps will represent about a third of the market in roughly the next five years, from about 3% now”

********It is expected that switching to “gas-powered electric motors could reduce flaring, which releases carbon dioxide into the atmosphere.  The practice has reached record levels in the Permian as the oil boom leads to escalating output of gas.” Astonishingly, the “total amount of gas burned off a waste worldwide in 2018 would have been enough to supply all of Central and South America, according to the World Bank.”  Still, conversion to e-fracking faces some hesitation.  Initial capital costs are higher than diesel, and the technology is in its early stages, but “the horse has left the barn.”  E-fracking “will likely allow the best pumpers to differentiate themselves from the rest of the pack the same way land drillers did with their higher-technology rigs at the turn of the century.”

May you have a good week!

Bruce 

374 (19 June 2019)

Welcome to week 374!  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.

(12 June 2019):Martin Feldstein, 79, a Chief Economist Under Reagan, DiesThe New York Times

********The passing of Harvard economist Martin Feldstein was much covered by all the major media outlets this last week.  This article provides a nice overview of his work, including his work as an advisor for multiple presidential administrations.  Perhaps most impressive, though, is the roughly 30 years he served as a transformative president of the National Bureau of Economic Research.  For a look at Feldstein as teacher and mentor, the article “The economist who connected across politicsThe Harvard Gazette is worth reading.  I was especially impressed by this: Feldstein “advocated hard for the public policies he believed in, but taught, mentored, and advanced people without regard to his own views.”

(13 June 2019):Free Exchange: Votes of ConfidenceThe Economist

********This is basically a review of Democracy and Prosperity: Reinventing Capitalism through a Turbulent Century,” by Torben Iversen and David Soskice, a book that provides reasons why those countries that get into the “club of rich democracies . . . tend to stay there.  Since the dawn of industrialization, no advanced capitalist democracy has fallen out of the ranks of high-income countries or regressed permanently into authoritarianism.”  The authors argue that “capitalism and democracy as potentially mutually supporting, with three stabilizing pillars.  One is a strong government, which constrains the power of large firms and labour unions, and ensures competitive markets. . . . The second is a sizeable middle class, forming a political bloc that shares in the prosperity created by a capitalist economy. . . . [and] a third pillar . . . large firms that are not very mobile.”  Although one might quibble with the details of their argument, “the overarching story—immobile companies giving governments a degree of sovereignty, which they self-interestedly use to boost the middle classes—seems a plausible account of the stability of advanced capitalist democracies.”  That being said, “It leaves plenty to be concerned about, [as it] hinges on the middle classes feeling confident about the economy.”

********The word ‘pillars’ reminded me of the recent book The Third Pillar: How Markets and the State Leave the Community Behind, by Raghuram Rajan.  It seems that the invisible forces—economic forces, legal and political forces, and social and historical forces—are also pillar-like.  What these three ways of looking at things seem to share is a sense of system, i.e., the pillars are interdependent, and that there is a broader sense of equilibrium for the system than that of the economy (market) itself.  This idea of a general social equilibrium is most familiarly developed by engineer-economist-sociologist Vilfredo Pareto in his four-volume 1916 work Mind and Society.   

(14 June 2019):I’m a Financial Journalist Who Was Bored Silly by Mergers.  Not Anymore.The New York Times

********This article relates how reporter Peter Eavis came to think that reporting on mergers is of general interest.  First, there is the rise of big tech companies like Facebook and Google that are enormously profitable.  But second, there is increasingly a sense that “people in power might do something.  For reporters, antitrust action is far more interesting than antitrust theory, and President Trump has raised the prospect that he might take a more aggressive antitrust approach.”  Finally, it seems like “the antitrust debate will be in the air for some time.”  Now, “when a big deal comes up, reporters might best serve readers by looking closely at whether it will hurt competition, squelch innovation or have other ill effects.  The days of relying on the insights of stock analysts and investors, who are typically much more focused on whether the merger will bolster the stock price, are over.” 

(17 June 2019):Climate Change Is Coming for the $3.6 Billion Cognac BusinessBloomberg Businessweek

——–“Since at least the 15th century, the gentle hills of the Cognac region in southwestern France with the Ugni Blanc vine, which yields an acidic, yellowish-white grape.”  After processing, including two distillations, the resulting “liquid is poured into barrels made of oak from nearby forests, to emerge anywhere from 2 to 200 years later as the brandy known globally as cognac.  Climate change threatens all that.  Warmer summers and longer growing seasons mean the grapes get sweeter and less acidic on the vine, which dramatically changes the character of the wine, and thus the cognac it makes. . . . And European Union provenance laws mean producers can’t simply move to higher-and cooler-ground outside the region and still call the harvest cognac.”  As a result, cognac producers are spending significant sums on research to identify vines that will enable them to continue to produce cognac familiar to consumers.

********One producer, BNIC, says that “each increase of 1C (1.8F) in maximum daytime temperature during the growing season accelerates the harvest by about 10 days.”  Concerns about grape quality “began to mount in the early 2000s, when several exceptionally hot and dry summers resulted in September harvests—about a month earlier than usual—and unusually sweet grapes.” 

********The above story of change differs dramatically from the story of constancy in “A French Wine With a 900-Year-Old VintageThe New York Times.  It notes that “Savagnin blanc—not to be confused with the sauvignon blanc the sommelier recommended with your cheese course—as a fruity, acidic grape from the vine-encrusted hills of Jura, near France’s border with Switzerland.  And if you visit and sip the region’s white wines today, you’ll be tasting the exact same grape, down to the genetic level, that has gone into its wines for at least 900 years.”  This statement is backed up by a study just published in Nature Plants.  Its findings “reinforce how winemakers can devote centuries, if not milleniums, or loyalty to certain varieties of grapes.  Faced with the choice of letting nature take its course and allowing new grape varieties to develop, or sticking with a reliable fruit by grafting vines to create perfect clones, most growers have spent the last 10 or 20 centuries learning how to better produce what works.”

(17 June 2019):World’s Top Bicycle Maker Says the Era of ‘Made in China’ Is OverBloomberg.com

********This is an article on the trade war between the U.S. and China, and how once company—Giant Manufacturing—is adapting to it.  The first two paragraphs provide a clear statement of the words of President Trump and how Giant’s chairwoman Bonnie Tu has responded to them.

Giant Manufacturing Co. saw the writ on the wall early on.  The world’s biggest bicycle maker started moving production of U.S.-bound orders out of its china facilities to its home base in Taiwan as soon as it heard Donald Trump threaten tariff action in September.  ‘When Trump announced the plan of 25% tariffs, we took it seriously,’ Chairwoman Bonnie Tue said in an interview at Giant’s Taichung City headquarters in Taiwan.  ‘We started moving before he shut his mouth.’

As Wu goes on to note, “The world is no longer flat,” a reference to Thomas Friedman’s book The World is Flat, “The concept is no loner affordable in every place.”  If “a level playing field” is no longer the appropriate metaphor for companies and trade, what is?  What word should fill in the blank of The World is ________? 

(18 June 2019):Quicktake: Why Facebook Is Minting a Coin and How You Can Use ItBloomberg.com

********Here is a brief look at the essential ideas behind and characteristics of Facebook’s proposed cryptocurrency—like Bitcoin—called Libra.  As news reports indicate, the scale of Facebook’s operations gives Libra a credibility that cryptocurrencies generally lack.  One of the characteristics of note is that Libra “is a so-called stablecoin, 100% backed by a basket of securities and fiat currencies, such as the dollar, euro, pound and yen.  Because these fiat currencies don’t fluctuate in value much, the Libra coins’ value” will likely not fluctuate much, too.  Read points (5) and (6) in the article to learn more about stablecoins.  There will be a lot of discussion about Libra in the months ahead.

May you have a good week!

Bruce 

373 (12 June 2019)

Welcome to week 373!  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.

(20 May 2019):How Legalization Changed Humboldt County MarijuanaThe New Yorker

——–“For more than forty years, the epicenter of cannabis farming in the United States was a region of northwestern California called the Emerald Triangle, at the intersection of Humboldt, Mendocino and Trinity Counties.  Of these, Humboldt County is the most famous.  It was here, in hills surrounding a small town called Garberville, that hippies landed in the nineteen-sixties, after fleeing the squalor of Berkeley and Haight-Ashbury.”  Over time, they learned how to produce marijuana and avoid arrest, and pursued a life of voluntary simplicity.  Things began to change, however, when California passed Proposition 215 in 1995, which “exempted patients and caregivers from criminal marijuana laws” and Proposition 64 in 2016, which legalized marijuana use more generally.  Since then, Humboldt County hasn’t been the same.

********A fascinating look at some of the consequences of marijuana legalization in Humboldt County.  The County thrived when marijuana was illegal, but the laws were weakly enforced, in contrast to now when marijuana is legal and relevant laws are rigorously enforced.  Among other things, the article points to the consequences of incorporating a relatively isolated area into a broader region via legal change that also led to much more extensive market integration

********The greatest integrator of markets, of course, is the Internet.  If you can connect to the Internet (and all you need is a satellite linkage and a source of electricity) you can connect from anywhere.  That makes stories like “They Just Won’t Die: Dark Web Drug Sellers Resist Police Crackdowns” in The New York Times of related interest.  Although Dark Web sites where a cornucopia of drugs are sold clandestinely are continually being taken down by legal authorities, “the fight against online drug sales is starting to resemble the war on drugs in the physical world: There are raids.  Sites are taken down; a few people are arrested.  And after a while the trade and markets pop up somewhere else.”  Whac-A-Mole provides a model for so many things.

(1 June 2019):New Study of Old Real Estate Bubbles (1582-1810) Finds Two Surprising Similarities With Modern BubblesReal Estate Decoded

——–“Amsterdam had three large real estate bubbles from 1582 to 1810.  The real estate market was entirely different 200-400 years ago but those Amsterdam bubbles shared at least two similarities with modern real estate bubbles.  Changes in the amount of mortgage money chasing homes, however, was not one of the similarities because mortgages were uncommon in Amsterdam back then.  Credit booms are not necessary for real estate booms but an increase in the amount of money chasing homes is.”

********The post is based on a working paper by Ph.D. candidate Matthijs Korevaar of Maastricht University.  You can read its 57 pages here.  Korevaar looked at 164,000 home sales in Amsterdam from 1563 until 1811 and found three real estate bubbles from 1604 to 1810 where “House prices doubled or tripled and then fell back to their initial values.  Each bubble lasted decades.”  So what are the two similarities?  They seem to be: (1) the natural “extreme” inelasticity of the supply of houses, and (2) price momentum.  One supply-side factor and one on the demand side.  What might the data reveal, say, for Asheville, North Carolina?

********It was interesting to read that the reason that the time series of Amsterdam housing prices came to an end is that Napoleon annexed Holland in 1811 and “the land title system changed.”  Another post I read this week also showed the impact of Napoleon: “How War Revolutionized Ireland’s Linen IndustryJSTOR Daily.  As there noted, “During the Napoleonic Wars, Irish women, who had traditionally only spun flax into thread, took over the traditionally male job of weaving linen as well.”  The image of “Rosie the Riveter” is famous in the U.S., but many such Rosies lost their jobs when GIs returned after WWII ended.  But in Ireland, “when soldiers returned to civilian life . . . The market was too hot, even with the massive drop in war demand.  By 1851, at least a third of Irish linen weavers were women.”  The foundation article for the post, “War, Gender, and Industrial Innovation: Recruiting Women Weavers in Early Nineteenth-Century Ireland,” can be accessed at the end of the post.

(4 June 2019):’Food deserts’ become ‘food swamps’ as drugstores outsell major grocersThe Guardian

——–“In 2017, CVS held a 3.9% share of the grocery market.  Walgreens came in at 2.4%.  That may not seem like much, but it far outpaced both Whole Foods and Trader Joe’s, which had 1.4% and 1% respectively.  The eyebrow-raising figure probably comes down to an issue of scale—last year CVS and Walgreens each had close to 10,000 stores in the US, while Trader Joe’s and Whole Foods each had fewer than 500 locations.  While the ubiquitous nature of pharmacies may help fill the grocery gap where affordable options are scarce, some researchers are concerned that this low-priced convenience comes with a high cost.”

********I found the grocery market shares of CVS and Walgreen’s to be very surprising; the 2016 information came from Business Insider by way of UBS.  A broader view of the market for groceries is provided by prolific food writer Michael Ruhlman in his 2017 book Grocery: The Buying and Selling of Food in America.

(6 June 2019):The Car Industry Is Under SiegeThe New York Times

——–“The internal combustion engine is under attack from electric challengers.  Car ownership is becoming optional in the age of Uber.  Regulators around the world are fining companies that don’t do enough to cut carbon dioxide emissions, even as buyers demand gas-guzzling S.U.V.s.  Global auto sales are slipping for the first time in a decade, disrupted by President Trump’s escalating trade war. . . . New technology has unraveled industries like entertainment, media, telecommunications and retailing, weakening the job security of millions of workers and helping to fuel populism.  Carmakers, clearly, are next.”  The stakes are high as established companies “like Volkswagen, General Motors or Toyota are among the last employers that operate vast factories where thousands of workers pour in and out of the gates at shift changes.  Worldwide, eight million people work directly for auto manufacturers, and many times more work for companies that supply brakes, tires, sensors and other components.”

********As the article notes, “Increasingly, car ownership is a luxury rather than a necessity.”  Contributing to the rethinking about cars is “the emergence of climate change as a potent political issue, as well as worsening air quality in major cities.”  Evidently potential fines from failing to meet the fuel economy requirements of the European Union—57 miles per gallon by 2021—is one of the factors driving the (now aborted) merger of Fiat Chrysler with Renault.  All in all, a nice summary of the “perfect storm” in which the auto industry finds itself. 

********I thought this interview with Ryan Popple, the CEO of electric bus producer Proterra, provided some useful perspective.  In particular it stresses the importance of the routine nature of bus procurement, routine in the sense that not much thought is given to it.  A correspondent pointed out to me that electric school buses are natural, as they run in the morning and the afternoon, and have plenty of recharge time in between.

(6 June 2019):Advertising may make people miserable, but it still has its usesThe Economist

********This article plays upon the familiar ideas of the two economic functions of advertising—information and persuasion, especially the latter.  In doing so it brings up forthcoming research by Chloé Michel, Michelle Sovinsky, Eugenio Proto, and Andrew Oswald, which “attempts to unpick the effect of advertising on welfare.”  They found that “a doubling of ad spending is associated with a subsequent drop in reported satisfaction of 3% . . . their findings may illustrate an aspect of the economy that has puzzled some economists for more than a century.” In his 1899 book The Theory of the Leisure Class, Thorstein Veblen “argued that consumption is not merely about satisfying needs, but it is also used to signal status and prestige.”  One might say that every product has the possibility of function AND distinction, but the desirability of most products is strongly dominated by function, with distinction playing little or no role.  As the article notes, “For goods to grant high status, there must be consumers who want but cannot have them.  Ad campaigns featuring sleek cars bedecked with oversized bows add to the value of luxury brands by informing the masses of how desirable they are—and how inaccessible.”  The article concludes noting that ”Perpetual dissatisfaction may well boost economic growth by keeping highly productive workers who might otherwise enjoy more time with their families chained to their desks.  But it is a funny sort of prosperity that depends on people never being satisfied with their lot.”

********For a book that provides a valuable counterpoint to the perpetual dissatisfaction of contemporary workers, Stone Age Economics, by Marshall Sahlins, has much to offer.  First published in 1972, the book is a “classic of modern anthropology and arguably one of the founding works of anthropological economics. . . . Sahlins concludes, controversially, that the experiences of those living in subsistence economies may actually have been better, healthier and more fulfilled than the millions enjoying the affluence and luxury afforded by modern industrialization and agriculture.”  I ran across Sahlins’s book in a call for papers on “Marshall Sahlins’s Stone Age Economics, a Semicentenary Estimate.”

(8 June 2018):Here’s a Guide to the U.S. Antitrust Case Against Big Tech CompaniesBloomberg.com

********Big Tech in this instance is Apple, Facebook, Google, and Amazon.  This article takes a look at recent investigations against these four companies and summarizes The Case against each of them and The Defense of each of them.  This is a good way to get up to speed on current and potential inquiries by the federal government in relation to them.  The House Judiciary Committee began its investigation on Tuesday, June 11th, with a focus on how traditional journalism has been affected by the loss of ad revenues to Facebook and Google.  You can learn more about the investigation in this article in The New York Times.

(9 June 2019):A Drama of Trump’s Own Making Ends With a Familiar HeroThe New York Times

********To me what is interesting about this article is its suggestion that the president uses threats as a tactic to further larger ends.  Take tariffs on Mexico as an example.  “Nine days in spring offered a case study in Mr. Trump’s approach to some of the most daunting issues confronting him and the nation: When the goal seems frustratingly out of reach through traditional means, threaten drastic action, set a deadline, demand concessions, cut a deal—real or imagined—avert the dire outcome and declare victory.”  The Wall Street Journal makes a similar point in [SR]For Trump, Threats Become Part of Diplomatic Playbook” (9 June 2019).  Are these threats effective?  It depends whether they are credible or not.  Credible threats are behavior influencing but non-credible threats, i.e., threats that one doesn’t believe will be acted upon are not.  There is a nice discussion of these two types of threats in a post by Presh Talwalkar.  Presumably there is some type of learning that takes place in the threat making.  As more empty threats are made, the more likely they will be viewed as non-credible.

********This article led me to think about market movements brought on by presidential threats.  Presumably one could catalog and time the threats made by the president and see how, say, the stock market responded.  Does the type of threat matter, e.g., a military threat or an economic threat?  Does repeated threat-making lead to reduced market response of a particular type?  To my mind, oral or tweeted threats is a type of “jawboning” made familiar during the administration of president John F. Kennedy when he took on U.S. Steel.  An article that explores Kennedy’s jawboning of U.S. Steel will Trump’s comments toward Amazon can be found here

********The Economist has also picked up on the theme of President Trump’s weaponization of the U.S. economy.  Check out its June 6th option piece “Weapons of mass disruption.”

(10 June 2019):Welcome to the Age of Surveillance CapitalismBloomberg.com

********The term ‘surveillance capitalism’ seemingly entered public vocabulary with the January 15th publication of Shoshanna Zuboff’s book The Age of Surveillance Capitalism.  Much attention was given to the book when it was published.  This piece by Noah Smith explores a bit more some of the darker uses of surveillance capitalism.  Some of these uses are well-known, e.g., ad targeting.  Some of these are less well-known—price discrimination, i.e., charging different prices to different people based upon some criteria, and “the ability to deny people essential services based on their past deeds.”  Those past deeds could conceivably be based upon identity, as in “the chance that Uber drivers will systematically give lower ratings to riders of races, religions or genders they don’t like.”  As Davis sees it, “Surveillance and control by corporate behemoths requires an even greater leviathan to balance it out.  Governments in free countries must place limits on the amount and types of data companies are allowed to collect on citizens, the ways they are allowed to transfer that data, the length of time they are allowed to retain it, and the harshness of the consequences they can impose on people because of it.”  But government surveillance “is known to be fairly ubiquitous.”  What leviathan will oversee it?

(10 June 2019):What Boy Band Sensations BTS Can Teach Us About EconomicsBloomberg.com

********This is a 35-minute podcast with a highly misleading title: BTS is scarcely mentioned; a BTS video can be viewed here.  So what is the podcast about?  Essentially it explores the close relationship between the South Korean government and private industry in the intentional development of cultural goods aimed at a global audience.  In the U.S. this has been scornfully called, by some, as “picking winners.”  But that doesn’t seem to be a problem in South Korea, which though market oriented also has the capability of operating as a command economy.  This approach reminded me of indicative planning, although perhaps the French term dirigisme captures things better.  Whatever the correct term, South Korea has made a great success out of its directed efforts to develop cultural goods for a global audience.  Evidently the inspiration for all of this was the commercial success of the movie Jurassic Park.

********The guest interviewed for the podcast is Euny Hong, who wrote The Birth of Korean Cool: How One Nation Is Conquering the World Through Pop Culture.  The book was published in 2014 and looks to be historically informed and entertaining.  You can learn more about Hong here.

(11 June 2019):’The migration problem is a coffee problem’The Washington Post

——–“Guatemala is now the single largest source of migrants attempting to enter the United States—more than 211,000 were apprehended at the Southwest border in the eight months from October to May.  Here is western Guatemala, one of the biggest factors in that surge is the falling price of coffee, from $2.20 per pound in 2015 to a low this year of 86 cents . . . Since 2017, most farmers have been operating at a loss, even as many sell their beans to some o the world’s best-known specialty-coffee brands.  A staggering number of those farmers have decided to migrate.”

********A very clear story about one cause of migration to the U.S.—loss of economic opportunity at home, in this case driven by falling prices in global coffee markets.  Whenever I read stories like this, I am always led to think about The Camp of the Saints, by French author Jean Raspail.  Wikipedia describes it as “controversial and has often been denounced as racist and xenophobic, especially due to its anti-immigration themes.”  The book “depicts the destruction of Western civilization through Third World mass immigration to France and the West.” 

May you have a good week!

Bruce 

372 (5 June 2019)

Welcome to week 372!  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. 

(25 May 2019):What Are Frontier Markets and Why Invest in Them?Bloomberg Businessweek

——–[This is a QuickTake.]  “If emerging markets are the wild child of the investment family, offering potentially higher rewards in return for greater risk, then what about their small sibling, frontier markets?  These include countries such as Sri Lanka, Kazakhstan and Nigeria where stock exchanges and currency markets are too small or underdeveloped to be classified as emerging markets.  While frontier markets may bring investors more exotic thrills, and spills, they also somewhat counterintuitively can be a safe haven when markets are rocky.”

********This QuickTake follows the usual format, i.e.,  concise and clear statements of essential points.  Investors discern three types of markets: developed, emerging, and frontier.  A lengthier discussion of the three types can be found here.  Perhaps the most interesting point is “6.  How are they [frontier markets] safe havens?”.  Frontier markets are “less correlated with one another due to their geographic diversity.”

(29 May 2019):Single Mothers Are Surging Into the Work ForceThe New York Times

——–Since 2015, “something surprising has happened: The  share of young single mothers in the work force has climbed about four percentage points, driven by those without college degrees . . . It’s a striking rise even compared with other groups of women who have increased their labor force participation during this period of very low unemployment.  The last time single mothers’ labor force participation grew so rapidly was during the 1990s, driven by a thriving economy and major federal policy changes, including welfare overhaul and tax incentives.  In recent years, though, there has been no new federal policy that would obviously encourage single mothers to work in large numbers.  Instead, they seem to be responding to a patchwork of policies, both carrots and sticks.  At the federal level, the safety net has become less reliable, so working for pay is increasingly their only option.  But at the local one, new policies like paid leave and minimum wage increases have made it more feasible for single mothers to work.  Together, these appear to have primed them to take advantage of the biggest driver of all: a highly competitive labor market.”

********A lengthy article that relates many of the institutional factors affecting the employment of single mothers.  As in gravity models of migration, single mothers can be pushed and pulled into the labor market by a variety of positive and negative incentives.

(30 May 2019):The Bond Market Is Trying to Tell Us Something (Worry)The New York Times

——–“Let’s face it: Bonds are boring.  Usually, stock markets are the source of hyperventilation and headlines.  But right now, all the action is in the bond market.  It is sending powerful signals that there’s trouble ahead for the United States economy.  They’re powerful enough they’re even rattling the parts of Wall Street that people do talk about.  Does it mean a recession is imminent?  Certainly not.  Part of what makes the bond market so ominous is that it’s not terribly specific.  But there is good information buried in the weeds.”

********The remainder of the article reveals what is “buried in the weeds.”  They include, falling bond yields, yield curve inversions, and dropping inflationary expectations. 

(1 June 2019):The Economics of Rihanna’s SuperstardomThe New York Times

********This piece was written by the late Alan Krueger on  the occasion of the publication of his book Rockonomics: A Backstage Tour of What the Music Industry Can Teach Us about Economics and Life.  Since Krueger passed away on March 16, 2019, this must have been written some time ago, which makes me wonder about the placement of such Opinion pieces more generally.  Here Krueger asks, “Why has the economy become more a winner-take-all affair?”  In answering his question, he points to “scale and uniqueness” as been necessary “to create a superstar market” (one in which winner takes most, if not all).  Two forerunners of the serious analysis of “superstar markets” are Alfred Marshal, Principles of Economics (1890 and later editions) and Sherwin Rosen, “The Economics of Superstars,” a technical piece published in 1981.  So-called “power laws” are important in the study of income distribution for superstar markets.  You can learn a bit about them here

(3 June 2019):Why does California’s public health department treat CBD like poison?The Los Angeles Times

********This article discusses two bills making their way through the California state legislature.  One dealing with cultivation of hemp and the other with the medicinal properties of cannabidiol (CBD).  Cultivation looks promising as hemp uses one-third the water of alfalfa in a water-challenged area.  But CBD is problematic and ironic.  In a state where “psychoactive CBD from marijuana can be legally sold in pot shops” CBD “derived from hemp is currently not allowed in any of the items” regulated by the California Department of Public Health, “including conventional foods, drugs and cosmetics.”

(4 June 2019):The Beginning of the End of the Old World Appellation System?The Wine Economist

********This is a blog post by economist Mike Veseth, who produces The Wine Economist and is professor emeritus of International Political Economy at the University of Puget Sound.  The appellation system, or systems, of which he writes, pertains to the rules for describing the provenance and product of wines most highly developed in Europe.  While discussing the goals of appellation systems—protecting regional producers from fraud and protecting quality standards—he discusses the two forces threatening existing appellation systems: the global market and climate change.  In doing so he provides clear and compelling analysis.  I was especially interested in his discussion of what vintners the world over are doing experimentally to deal with climate change, even in well-established producing regions like Bordeaux.  A nice example of how individual producers are adapting to the market and climate change.

(4 June 2019): [SR]Fast Food Embraces Meatless Burgers, but There Aren’t Enough to Go AroundThe Wall Street Journal

——–“Fast-food restaurants are rushing to add meat-free burgers to their menus, hoping these higher-priced alternatives will help them capture additional traffic and dollars even as suppliers have struggled to fill all the orders.  Imitation meats made by Beyond Meat Inc and Impossible Foods Inc. are on sale at nearly 20,000 restaurants across the U.S., according to those companies. . . . Restaurants’ embrace of vegetarian-friendly fare reflects competition among fast-food chains to attract younger diners who prioritize sustainability and healthfulness.”  But, rapid growth in demand “is straining the ability of Beyond Meat and Impossible Foods to meet it.  Still, investors have signaled that they believe the companies will be able to bring plant-based products to the masses.  Beyond Meat’s shares have nearly quadrupled from its May initial public offering prices, valuing the company at $6 billion.”  These non-meat burgers are not inexpensive.  Beyond Meat’s burger tends to cost double the price of standard ground beef.  Presently delivery is a problem.  Both Beyond Meat and Impossible are finding it impossible to meet the demand for its burgers.

********Closely related to the WSJ article is this informative three-minute video from Yahoo! Finance.  For a look at the Asheville, North Carolina food scene, check out the piece from food writer Mackensy Lunsford, “Impossible to find: Restaurants report vegetarian Impossible Burger shortage.”

May you have a good week!

Bruce