388 (25 September 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. 

(12 September 2019)Banks Are Finally Starting to Account for Climate Change RiskBloomberg Businessweek

——–“Behind the scenes at some of the world’s biggest banks, small teams of employees are busy trying to calculate what might prove to be one of the most important numbers any financial institution will ever disclose: how much the assets on their balance sheet are contributing to global warming.”  Climate change, it seems, is at last being recognized as one of the “unaccounted-for vulnerabilities” concealed by conventional balance sheets.  This topic is directly connected to the ongoing work of the Task Force on Climate-related Financial Disclosures

******** One of the things the article makes clear is that accounting for climate change is a very challenging problem.  Well-known environmentalist Bill McKibben is the author of a related article: “Money is the Oxygen On Which the Fire of Global Warming BurnsThe New Yorker.  McKibben suspects that “the key to disrupting the flow of carbon into the atmosphere may like in disruption the flow of money to coal and oil and gas.”  Toward that end he discusses the roles played by banking, asset managers, and insurers in funding carbon-based fuels.  He uses [American] football knowledge to good effect when he writes “The last minutes of a football game are different from the rest; if you are far enough behind, you dispense with caution.  Since gaining a few yards cannot help you, you resort to more desperate, lower-percentage plays.  You heave the ball and you hope, and, every once in a while, you win.”  It seems to be argued that we have reached this point in the climate change game.

(18 September 2019) Profits or the Public Interest: The Debate ContinuesThe New York Times

********Discussion continues about the recent statement of the Business Roundtable promoting a broader stakeholder value over the narrower shareholder value as the purpose of the corporation.  This piece adds a bit by sharing the views of Treasury Secretary Steven Mnuchin and Blackstone Chairman Stephen A. Schwarzman, as well as adding context about Milton Friedman’s oft-stated views about shareholder value.  The relevant article for Friedman’s thought is “The Social Responsibility of Business is to Increase its Profits.”  The article concludes with a sort of surprise, noting that Friedman held that “if corporate executives want to use their influence, ‘then they must be elected through a political process.’  In other words, he was suggesting that business should stay out of politics.”  It seems, then that Friedman had aspired to build some sort of wall between business and politics.  Certainly this is not the way things are.

********A related article of interest, by reporter Tim Wu, is “The Virtuous Corporation Is Not an Oxymoron” The New York Times.  It notes: “At a time when the federal government is doing little to nothing on matters of great public concern—gun control, paid parental leave, higher wages, you name it—the corporate sector has been urged, pushed and sometimes shamed to fill in the gaps. . . . It’s all part of a trend toward ‘corporate virtue.’  This is a loosely organized movement that encompasses various efforts to promote or make high-minded policy changes.  It also includes a commitment to so-called stakeholder capitalism.”  Some of those on the right hold with Milton Friedman’s that profit is the only thing that should matter to corporate executives, while some on the left view corporate expressions of stakeholder capitalism as a charade.  As Wu sees things, “the virtuous corporation is not an oxymoron but a necessity. . . . It is essential to dispel the myth that chief executives have a legal duty to maximize short-term profit and are therefore powerless to act responsibly.”  Wu makes an excellent point by bringing short-term profits into view.  An expression that one used to hear used a lot in bygone days—enlightened self-interest—seems to have been lost sight of.  It takes into consideration longer periods of time and, no doubt, the effects of one’s actions on others.  This is why, as Wu indicates, culture matters.

********Finally, the article “The New Capitalism Is Looking a Lot Like the Old Capitalism” Bloomberg.com, relates the findings from a survey distributed to the 181 signers of the Business Roundtable statement; roughly two dozen responded, all men.  The responses said: “Our companies are already run with customers, employees, suppliers and communities in mind.  And shareholders, of course.  Otherwise we’d have gone out of business long ago.” 

(22 September 2019) [SR]’That Will Never Work’ Review: Streaming AheadThe Wall Street Journal

——–“Starting a business is tough enough.  Why would any sane person choose to start a business in a dying industry?  One answer to that question can be found in ‘That Will Never Work” The Birth of Netflix  and the Amazing Life of an Idea,’ a charming first-person account of the early days of one of the most successful tech startups ever.  The author, Marc Randolph, co-founded Netflix and helped run the company from its inception in 1997 until 2003.  His book is a conversational exploration of the successes and missteps of those early days.”  The book “offers an engaging offers an engaging read that will engross any would be entrepreneur.” 

********Here is the link to the book.  The article makes clear that the initial idea that Randolph and Reed Hastings had was to send video tapes through the mail, which turned out to be a non-starter.  So they turned to DVDs, even though “neither Mr. Hastings nor Mr. Randolph had ever seen a DVD.”  What turned out to be the inspired idea was to use a “monthly subscription service.”  Not only would it make Netflix successful, the “subscription model would point many other internet-based companies to a reliable source of revenue.”  Finally, when streaming became the dominant mode of conveying programs, Netflix was. 

********Also interesting is the reason why Randolph left Netflix.  A serial entrepreneur, he knew that he was not cut out for a conventional management position.  Specifically, he said: “I missed the late nights and early mornings, the lawn chairs and card tables.  I missed the feeling of all hands on deck, and the expectation that every day you’d be working on a problem that wasn’t strictly tied to your job description.”

(23 September 2019) [SR]Meat Is Getting Pricier Because China Is Peckish for ProteinThe Wall Street Journal

——–“China is on a global meat-buying spree, pushing up beef, pork and poultry prices around the globe as the world’s most populous nation scrambles to fill a large void in its meat supply.”  The reason for surging prices is the swine disease that “hit hog farms across the country and reduced its pig herd—the world’s largest—by more than a third.”  Pork prices in China “have jumped as much as 50%” and there have been “some attempts by Chinese government officials to ration pork or encourage people to buy chicken and other meat instead.” 

********Nothing complicated about the market processes underlying these developments, but it is interested to see them at work.

May you have a good week!                                

Bruce

387 (18 September 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.

(1962) Silent Spring, by Rachel Carson

********At last I have read the environmental classic Silent Spring, widely regarded as the most influential book on environmental matters.  It is just as relevant today as it was 57 years ago.  Those who would deny its “inconvenient truths” need to hear its message and care about it.

Although there is much in the book to discuss, I’ll restrict myself to something that falls within the scope of the invisible forces.  On pages 258-59, Carson writes about the research underway on chemical vs biological control of insect pests:

In was reported in 1960 that only 2 per cent of all the economic entomologists in the country were then working in the field of biological controls.  A substantial number of the remaining 98 per cent were engaged in research on chemical insecticides.

            Why should this be?  The major chemical companies are pouring money into the universities to support research on insecticides.  This creates attractive fellowships for graduate students and attractive staff positions.  Biological-control studies, on the other hand, and never so endowed—for the simple reason that they do not promise anyone the fortunes that are to be made in the chemical industry.  These are left to state and federal agencies, where the salaries paid are far less.

And so it is that the knowledge produced by educational institutions is influenced by the expected monetary payoff of that knowledge.  Only state and federal governments were able to take a longer view and support biological control.  This discussion takes place in chapter 15, “Nature Fights Back,” which focuses on genetic selection and resistance.  Insects, as opposed to human beings, adapt quickly to insecticides.  In relation to this, it is important to remember that “Resistance is not something that develops in an individual. . . . [It] is something that develops in a population.”

As a final thought, the illustrations that grace each new chapter are well worth a look.  They are the work of Lois Darling and Louis Darling.

(14 September 2019)In Coal Country, the Mines Shut Down, the Women Went to Work and the World Quietly ChangedThe New York Times

——–“From 2010 to2017, Letcher County in Kentucky saw a greater shift in the gender balance of its labor force than almost any other county in the United States.”  The men went to work in the mines and the women stayed home to raise the children.  But “a rash of coal mine bankruptcies and layoffs” changed everything.  With the “coal business . . . going under” the one question was “what would keep everyone afloat.  These days, the answer has been: women.”  From the perspective of Billy Thompson, a director the United Steelworkers union, the story isn’t complicated: “The mines have shut down and the women have gone to work.”  One result of this has been that some women have a greater sense of independence.  As Ciara Bowling, who is employed in health care, notes: “Women now, they got a little taste of freedom. . . Men has been able to do whatever the hell they want for so long while women has had to sit in a chair and keep their legs closed and be nice and polite. Now they don’t have to. . . . All these men, they just don’t know what’s about to happen.”

********A clear illustration of how employment, at the least a source of money for making ends meet, can bring about changes in thoughts and culture.  Since, in Letcher County, many of the women are finding work in health care, the article “US healthcare is booming.  So why done in five workers live in poverty?The Guardian is of related interest.

(16 September 2019)Business Book of the Year Award 2019—the shortlistThe Financial Times

********The shortlist—six books— for the Financial Times and McKinsey Business Book of the Year Award is now out.  The winner of the Award will be announced on December 3rd.  Here are the books, in alphabetical order by author:

You can read just a little more about each book at the FT link.  The Award goes to “the book that is judged to have provided the most compelling and enjoyable insight into modern business issues.”  Although I haven’t read it, Invisible Women would seem to have an edge.  If half of the world’s population truly is so poorly understood, it would seem that there are enormous opportunities for gain to be made by those who discover the differences and create products and experiences that reflect those differences.  It seems like Surveillance Capitalism is the mechanism to learn about those differences.

(16 September 2019)A Shadowy Industry Group Shapes Food Policy Around the WorldThe New York Times

********This article provides an overview of International Life Sciences Institute (ILSI), an American nonprofit that was founded “four decades ago by a top Coca-Cola executive . . . and now has branches in 17 countries.  It is almost entirely funded by Goliaths of the agribusiness, food and pharmaceutical industries.”  ILSI is a controversial group, having “championed tobacco interests during the 1980s and 1990s in Europe and the United States.”  More recently, ILSI has “expanded its activities in Asia and Latin America, regions that provide a growing share of food company profits.”  This is an opportunity to learn a bit about ILSI and the concerns being voiced about its influence on the regulatory processes of the countries in which it has branches.  Here is the ILSI website.

May you have a good week!

Bruce

386 (11 September 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. 

(3 September 2019): [SR]The U.S. Wants to Adopt a Cap-and-Trade Plan for Water That Isn’t WorkingThe Wall Street Journal

——–“Australia’s Darling River was once filled with fleets of paddle steamers carrying wool to ships bound for England.  For nearly two centuries, it provided fresh water to farmers seeking to tame Australia’s rugged interior.  No longer.  The Darling River hasn’t flowed for eight months, with long stretches completely dried up. . . . Australia’s water-trading market is drawing blame.  The problems with the system, created more than a decade ago, have arisen as similar programs are being considered in the U.S.”  Australia thought it had the answer to water crises: “a cap-and-trade system that would create incentives to use water efficiently and effectively in the world’s driest inhabited continent.  But the architects of water trading didn’t anticipate that treating water as a commodity would encourage theft and hoarding.”  As noted by Mike Young of the University of Adelaide, “Once you create something of real value, you should expect people to attempt to steak it and search for ways to cheat. . . . It’s not rocket science.  Manage water like money, and you are there.”  Contributing to the problems of the water-trading system is seller concentration.  “Just four license holders control 75% of the water extracted from the Barwon-Darling river system.  The national government, concerned that its water-trading experiment hasn’t turned out as intended, last month requested an inquiry by the country’s antitrust regulator into water trading.”  Evidently California and Nevada are considering plans related to the one used in Australia to combat some of its water issues. 

********It is on the subject of cap-and-trade that we take the opportunity to observe the passing of economist Martin Weitzman.  An obituary appears in The New York Times as “Martin Weitzman, Virtuoso Climate Change Economist, Dies at 77.”  Early in his career he wrote The Share Economy: Conquering Stagflation (1984), but his primary contributions were to the economics of climate, especially his work on what has come to be called “the Dismal Theorem,” which drew attention to the difficulty of addressing the catastrophic consequences of low probability events in cost-benefit analysis.  He evidently had hopes that his work would receive the most recent Nobel Prize in Economics, but it was not to be.  That Prize was shared by another climate economist William Nordhaus and economic growth theorist Paul Romer.  Weitzman’s death by suicide follows the suicide of economist Alan B. Krueger earlier this year.

(7 September 2019): [SR]When Corporations Changed Their Social Role—And Upended Our PoliticsThe Wall Street Journal

********This piece was written by Nicholas Lemann, the author of the forthcoming book Transaction Man: The Rise of the Deal and the Decline of the American Dream.  It is an impressively concise, rich, and involved article.  Something simpler was published in Kirkus Review, which sketches the structure of the book and its exploration of “the fracturing of social bonds between and among the ultrawealthy, middle-class residents, and those struggling with poverty.”  Lemann does this in three phases, dating back about 100 years.”  The first is the era of “powerful institutions, including government, political parties, massive corporations, massive labor unions, and affinity groups based on ethnicity,” an era symbolized by “Institutional Man” and embodied by author Adolf Berle.  The second is the era of “transactions that often bypassed those institutions, mostly through Silicon Valley and Wall Street,” an era symbolized by “Transaction Man” and embodied by Michael Jensen.  The third is the era of “internet-enabled entities such as Google, Apple, and Facebook,” an era symbolized by “Network Man” and embodied by Reid Hoffman, the co-creator of LinkedIn. 

********Another valuable review, by Sebastian Mallaby, appears in September issue of The Atlantic.  Here Mallaby reviews Transaction Man and Binyamin Appelbaum’s The Economists’ Hour.  Both books seems to be taking somewhat similar, idea-based approaches, to explicating recently economics events and their meanings.  As Keynes once said, “The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood.”

********There are two pieces that show that Lemann has been working on this project for a long time.  Consider, first, “The Tanner Lectures” given October 10-11, 2012 at Stanford University.  Then there is a piece in The New Yorker on Mitt Romney entitled “Transaction Man” published.  (Searching through the lectures, I see Berle and Jensen prominently mentioned, but no mention of Reid Hoffman, all of which are prominent in Transaction Man.)  For the visually inclined, you can watch videos of the lectures, as well as commentator discussions of them.  You can find the videos here.  Lemann is dean emeritus of Columbia University Graduate School of Journalism. 

(7 September 2019):Big agencies and studios have a lock on Hollywood.  I’s high time to apply antitrust law”  The Washington Post

——–“If they ever make a movie of the history of American antitrust law, Hollywood would certainly play a support role.”  Events in 1948, 1962, and 1970 illustrate the impact of the Supreme Court, the Justice Department, and he Federal Communications Commission on the activities of Hollywood-based media.  But in recent decades, “because of new technology and the government’s willful neglect of the antitrust laws,” many prohibitions “have fallen by the wayside.  As a result, Hollywood is once again organizing itself around a handful of studios and talent agencies that use their control of distribution networks and access to superstar talent to dominate the entertainment business in ways that would make” former media giant Sam Goldwyn of MGM, Lew Wasserman of MCA, and Bill Paley of CBS proud.  At this time, however, one group “has decided to take a stand against this new Hollywood oligopoly: the writers who create the script for movies and TV series.  Five months ago, more than 7,000 writers fired their agents, complaining that the agents too often are working harder for themselves and their investors than they are for their clients.

********This is a complex story, showing just how involved the contracting among creative workers, their agents, and the media companies can get.  Particularly at issue is the “packaging” of creative workers, actors as well as writers, and who does it.  What is packaging?  It is the situation where “a talent agency has put together a group of its clients—actors, directors, writers and other talent—to participate in a project.  For this, they earn a packaging fee.”  These packaging fees for the traditional “commissions that writers, actors and directors would otherwise be required to pay their agents.”  Writers contend that “whatever they are saving in commission is more than offset by the lower salaries they earn when product budgets are squeezed to pay packaging fees to their agents.”  In addition to packaging fees vs commissions, the article raises the issue of “back-end” profits, i.e., the additional monies that can be earned from hit shows.  Streaming companies, like Amazon and Netflix, “don’t share back-end profits.”  Paying, instead, bigger fees upfront.  As the article notes, too date, neither the Justice Department nor the FCC have shown much appetite for taking on the Big Four Hollywood talent agencies that have done so much to throw the market for writers into disarray.

********TV writers are not the only ones who are finding their compensation diminished in recent years.  Song writers, too, are finding things challenging, as is made evident in “Songwriters Aren’t Getting Paid Enough and Here’s WhyMusic Industry Blog.  This is a fascinating piece on how streaming and its compensation scheme for writers and performing artists have contributed to the marginal position of songwriters.  Particularly interesting is the section “Songwriters don’t sell t-shirts” that discusses how songwriters and artists earn income, but in particular when they earn income.  The argument is that streaming results in songwriter income taking on the form of an annuity, i.e., distributed across long time passages, rather than upfront.  Since they earn so little—see the section “The four factors shaping songwriter income”—it is hard to survive in the business.  Artists, on the other hand, are not totally dependent of streaming revenues—they can sell t-shirts and play concerts.  Consequently, artists are able to weather financial storms that songwriters cannot.  Or so the argument goes.  All this is whetted my interest to learn more about how media markets, especially those for writers and performers, work.

(11 September 2019):Nearly 3,000 illegal marijuana businesses found in California audit, dwarfing legal tradeThe Los Angeles Times

——–“California’s black market for cannabis is at least three times the size of its regulated weed industry, according to an audit made public Wednesday, the latest indication of the state’s continued struggle to tame a cannabis economy that has long operated in legal limbo.  The audit, conducted by the United Cannabis Business Assn., found approximately 2,835 unlicensed dispensaries and delivery services operating in California.  By comparison, only 873 cannabis sellers in the state are licensed, according to the Bureau of Cannabis Control.”  The figures are the latest sign of California’s rocky rollout of its legal marketplace, which promised better regulations and control beginning in 2018. . . . This year, an industry-backed financial audit projected that roughly $8.7 billion will be spend on unregulated cannabis products in California in 2019, compared with just $3.1 billion spent on cannabis sold by legal businesses.”

********This article clearly points out some of the challenges that arise when a previously illegal product becomes legal.  An important contributing factor is that in the case of California, the previously illegal product was widely grown and readily accessible.  With the introduction of licenses and regulation as part of legalization, the category “illegal product” did not disappear, it merely shifted.  It would be interesting to read a history of a business that made the shift from illegal to legal producer, whether it was marijuana or some other product.  I guess there are services, too, that have made that transition—I have abortion services in mind. 

(12 September 2019):Thomas Piketty Is Back With a 1,200-Page Guide to Abolishing BillionairesBloomberg.com

——–“Thomas Piketty’s last blockbuster helped put inequality at the center of economic debates.  Now he’s back with an even longer treatise that explains how governments should fix it—by upending capitalism.  The French edition of ‘Capital and Ideology,’ weighing in at 1,232 pages, comes out on Thursday (English speakers will have to wait till next year for a translation).  It’s a sequel to ‘Capital in the 21st Century,’ which has sold more than 2.5 million copies in 40 languages since 2013, according to its publisher.”  Piketty says, “his new book addresses two shortcoming of the last one, which was too focused on Western economies, and didn’t give enough space to the political ideologies that lie behind inequality.”

********A nice companion for this piece is the Quicktake “The Future of Capitalism Bloomberg.com.  It makes the interesting point that “Inequality has gotten both better and worse. Inequality between nations has diminished with the rise of China, India and other nations that have turned to capitalism and free markets. At the same time, inequality between rich and poor within nations has gotten worse.”  The article concludes, “The upshot: Some on the left embrace capitalism, and some on the right mistrust it.”  Something to consider as the presidential season becomes more insistent.

May you have a good week!

Bruce

385 (4 September 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.

(25 January 2017):Planet Money: The Chicken Taxnpr.org

********This episode of Planet Money relates the story of the automobile industry and how a tariff set by Germany on U.S. chickens resulted in the dominance of American-made pickup trucks in the U.S. market.  The chicken tax seems to be well-known by U.S. auto executives and they are in no hurry to make it go away.  It is said that “as the twig is bent, so grows the tree” and that applies to the lasting effects of tariffs, too.  Among the matters included in this 17-minute broadcast, with transcript, is a description of the efforts that non-U.S. companies make to evade the chicken tax.  My thanks to a reader of TIF Weekly for drawing my attention to this article.

********While we are on the subject of tariffs, ”How 4 Companies Struggle to Navigate Trump’s Trade UncertaintyThe New York Times, is a good companion.  The chicken tax seems to have remained in place since its imposition in XXXX, but current tariffs seem as evanescent as a thought while meditating.  This article explores how four companies are trying to deal with the tariff of the day.  The president seems to be aware of the problems he is creating for business owners, apologetically noting: “Sorry.  It’s the way I negotiate . . . It’s done very well for me over the years, and it’s doing even better for the country.”

(11 June 2019):No, Renting Isn’t Throwing Your Money AwayBloomberg.com

********This is a light-hearted look at the perennial question of whether to rent or buy a home.  Young potential home buyers are more likely to be saddled with large student loans, making their ability to buy a home more problematic.  Then there is the issue of frequent job changes—given the large closing costs associated with buying and selling a home, those who change job and location are less likely to recoup their investments.  Finally, but not exhaustively, rental and house markets in some areas favor rental decisions.  Obviously, one cannot examine all of the factors relevant to the rent vs. buy decision in a five-minute video, much less do the necessary analysis, but it does provide a solid starting point.

(14 August 2019):Mass Pig Deaths in China Cause Short Supply of U.S. Blood ThinnerBloomberg.com

——–“A Chinese outbreak of African swine fever that has killed millions of pigs in the country has also led to falling U.S. supplies of a widely used drug derived from the animals, the anti-clotting drug heparin.  Heparin’s active ingredient is derived from pig intestines.  It’s a critical drug for hear attack patients and is used in surgery to stop clots.  Much of the world’s supply of active pharmaceutical ingredient, or API, for the blood thinner comes from China, a byproduct of the nation’s massive pork consumption.”  Thus far, China “has lost as many as 150 million to 200 million animals” to African swine fever, “a dire example of how problems can ripple around the world.”  This is not the first time that the supply of heparin has been at risk: “Heparin manufacturers used bovine materials up until the 1990s but stopped given concerns over mad cow disease.”  The FDA “has been in contact with several companies, both domestic and foreign, regarding reintroduction of bovine heparin to the U.S. market.”

********For reasons that are more likely personal rather than the text of the article itself, the interdependence of markets, as related by economics, and the interdependence of life, as related by ecology, asserted itself.  These twin interdependencies are a never-ending source of fascination.  The connections between ecology and economy are explored to some extent in Nature’s Economy: A History of Ecological Ideas.  It is probably time for a second reading.  It is certainly a theme of Rachel Carson’s Silent Spring, first published in 1962, which I am currently reading.  Its content is chilling today—how much more so it must have been in 1962.

(27 August 2019):Corporate Culture Matters MostBloomberg.com

********This 50-minute podcast features Ron Williams, a former CEO of Aetna during a time when it was “named Fortune’s most admired health-care company three years in a row.  Williams made it profitable, and eventually the firm was sold to CVS for $69 billion.”  Starting from a very modest background in Chicago, he is the author of Learning to Lead: The Journey to Leading Yourself, Leading Others, and Leading an Organization (2019).  This wide-ranging interview covers Williams’s education, formative work experiences (working at a car wash), business experience, book, and personal interests.  It was his MBA education at MIT, after undergraduate studies at Roosevelt University, that familiarized him with “the operational management of services” that helped enable him to have a stellar career in health.  When he was asked “What do you know now that you wished you had known twenty years ago?” he simply replied “Listen.” 

********No doubt the transformation of health care in North Carolina is something that would require much listening.  The article “Inside North Carolina’s Big Effort to Transform Health Care” The New York Times has interesting things to say about what’s up in the Old North State.  The gist of the article is that:

North Carolina is in the early stages of turning away from the traditional fee-for-service model, in which doctors and hospitals are paid for each office visit, test or operation. Instead, providers will often be paid based on health outcomes like controlling diabetes patients’ blood sugar or heart patients’ cholesterol. The better the providers do, the more they can earn. If they perform poorly, money could eventually come out of their pocket.

As Dr. Mandy Cohen, the secretary of North Carolina’s health department notes, “I want to buy health with our dollars, not necessarily buy health care.”  Cohen served in the Obama administration.

(30 August 2019):Flaring, or Why So Much Gas Is Going Up in FlamesBloomberg.com

********This Quicktake takes a look at why gas flares are so prevalent in oil-producing regions.  In short, it is a question of money—local gas prices have gone negative multiple times in the Permian Basis of Texas, meaning that drillers were “paying customers to haul their gas”—and regulatory—the Texas Railroad Commission, which regulates gas and oil in Texas—“has never denied a request for a flaring permit.”  Not all countries follow the U.S.—Russia “requires oil drillers to make use of 95% of the gas they produce.”

(2 September 2019):If Business Roundtable CEOs are serious about reform, here’s what they should do The Washington Post

********Economist Lawrence H. Summers poses five questions for the executives who comprise the Business Roundtable in light of their seeming adoption of stakeholder capitalism.  It would make for a very interesting set of answers, were they to be forthcoming.  I wonder, too, how the economics profession might respond to these questions?  In particular, what does competition look like in the context of stakeholder competition? 

********Writing these words reminded me of David Warsh’s post in Economics Principals entitled “The Listener’s Hour.”  It provides a review of Binyamin Appelbaum’s book The Economists’ Hour: False Prophets, Free Markets and the Fracture of Society.  The book was mentioned last week.  There is a good deal more here than what appeared in Appelbaum’s piece in The New York Times.  Here, of course, shareholder capitalism is center stage and its star is Milton Friedman.

(3 September 2019):Review of Fashionopolis: The Price of Fast Fashion and the Future of Clothes, by Dana Thomas” The New York Times

——–In Fashionopolis, “Dana Thomas, a veteran style writer, convincingly connects our fast-fashion wardrobes to global economic and climate patterns and crises, rooting the current state of the fashion biosphere as a whole—production methods, labor practices and environmental impacts—in the history of the garment industry.  Her narrative is broken up into three manageable sections.  The first focuses on today’s global fast-fashion and regular fashion industries and how they came to be so enormous, voracious, so seemingly uncontainable. . . . The second presents alternative, even opposite, approaches to making clothing that Thomas terms ‘slow fashion’ . . . Lastly, she meets people who are trying to reform the system entirely, from the materials we use to how clothes are produced and the ways we shop.  Throughout, Thomas reminds us that the textile industry has always been one of the darkest corners of the world economy.”

********You can learn more about the book at Amazon.  This book has drawn some attention, with reviews on it in The Wall Street Journal and npr.  No doubt there will be others.  One dramatic statistic stood out for me from the WSJ review: “In 1991, the Bureau of Labor Statistics says, 56.2% of all clothing purchased in the U.S. was American-made; by 2012, it was down to 2.5%.  Much of that clothes is now produced in Bangladesh, where it generates “20% of GD and over 80% of export earnings, while employing 4.5 million people, mostly women.”

(4 September 2019):Anti-hunger advocates eye latest food insecurity dataMarketplace

********Today the USDA released its annual report “Household Food Security in the U.S. in 2018.”  It shows that an “estimated 11.1 percent of U.S. households were food insecure at least some time during the year in 2018 . . . down from 11.8 percent in 2017 and from a peak of 14.9 percent in 2011.”  A webinar discussing the report will be held on Monday, September 9th at 1:00 pm EDT.  You can learn more about it (and register for it) here

May you have a good week!

Bruce

384 (28 August 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.

Last week I wrote a bit about David Epstein’s Range: Why Generalists Triumph in a Specialized World, which I have now finished.  As the book neared its end, chapter 11 “Learning to Drop Your Familiar Tools,” really caught my attention.  I don’t want to spoil things for those who might read it, but it did point to the importance of intellectual flexibility when confronting problems, especially in “wicked” environments, and gives good examples.  I was especially drawn to David Epstein’s distinction between “the chain of command” and “the chain of communication.”  Historically, excessive commitment to the chain of command has resulted in informational failures with dramatic consequences.

(23 August 2019):Lost Jobs of North Carolina Are Gone for Good.  Few Seem to MindBloomberg.com

——-The stretch “of U.S. 321 from Hickory to Lenoir, known locally as Furniture Row, is littered with closed showrooms.  While [President] Trump won this area 2-to-1

[during the 2016 election]

, few locals expect his 25% tariffs to bring back lost jobs.  Civic leaders are eager to attract skilled trades and emerging technologies.  Meanwhile, Hickory’s made-to-order upholstered furniture sector—which survived the foreign onslaught—is thriving, and managers complain more about an aging workforce than Chinese competition.  If any lost jobs did return, it’s not clear who would fill them.  Manufacturing is a tough sell for many young people.  While factories now have air conditioning and on-site health clinics, it’s still physically demanding, sometimes risky work.”  Indicative of this—“The median age of a U.S. manufacturing workers rose to 44.1 years in 2018 from 40.5 years in 2000.”  Chinese manufacturing jobs that conceivably return to the U.S. as a result of tariffs seem to be headed to Vietnam instead.  As Michael Shelton, of North Carolina’s Valdese Weavers, notes: “In our world, everyone who’s in China is trying to move into Vietnam.”

********This is a clear example of how bilateral thinking can lead to incorrect inferences in a multilateral world.  If U.S. manufacturing jobs have declined due to the growth of China as the “factory of the world,” a bilateral view might conclude that new tariffs on China’s goods will result in an increase in U.S. manufacturing.  But in a multilateral world, those tariffs are more than likely to find another low-cost producer, in this case Vietnam.  But Vietnam is not without its problems, as the article “Trade war pushing companies from China to Vietnam, but experts warn they may have missed the boatSouth China Morning Post.  Vietnam has neither the infrastructure not the highly developed production ecosystem of China.

********At this moment, the Quicktake “How the U.S.-China Trade War Go to This PointBloomber.com might be interest. 

(24 August 2019):Blame Economists for the Mess We’re InThe New York Times

********This column, by NYT Editorial Board member Binyamin Appelbaum, is based upon his forthcoming book The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society.  It argues that economists played an important role in reworking of government and markets that have done so much to increase the inequality of income and wealth, especially in the United States.  The book will surely do a more thorough job of making (and documenting) the argument than is possible in a few paragraphs.  In the article an unnamed “British acolyte” of “small government” is quoted as saying the world needed “more millionaires and more bankrupts,” a statement that is sure to touch a nerve.  It turns out that the unnamed person was Keith Joseph, who was a member of the British Conservative Party under Prime Minister Margaret Thatcher.  You can read the quote here

*******I was especially taken by Appelbaum’s statement that “Markets are constructed by people, for purposes chosen by people — and people can change the rules.”  Whether markets are ‘constructed’ or not, certainly they are conditioned by and emerge from the purposes of people and the rules of the game.  How nicely these relate to the invisible forces: markets (the invisible hand), purposes (the invisible handshake), and rules (the invisible foot).

(28 August 2019):What to Know About Recessions, Including the Next OneBloomberg.com

——–“Economists now see a one-in-three chance that the U.S. economy is headed into recession in the next year, following its longest expansion in history. . . . So much time has passed since the Great Recession of 2007-2009 that many adults haven’t experienced an economy that’s contracting rather than growing in their working lives.  But slowing global growth and the U.S.-China trade war, among other strains, have flamed fears that the next recession is around the corner.”

********For the reasons given above, this Quicktake provides some information that is valuable to know.  It does a couple of very nice things.  First, it clearly discusses the relationship between U.S. and global recession.  Although the National Bureau of Economic Research holds that the “U.S. has experienced 11 recessions since the end of World War II,” the International Monetary Fund “counts only four global recessions” since 1960.  Second, it provides a useful sampling of U.S. recessions since 1929.  There is a table that summarizes recession duration, GDP change, and peak unemployment rate that gives rise to thought.  It would be instructive to run these U.S. numbers up against global recession numbers.  As always, The Reference Shelf provides a number of ways to learn more.

May you have a good week!

Bruce

383 (21 August 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. 

(26 April 2019):The law that made the Internet what it is todayThe Washington Post

********This is a review of The Twenty-Six Words that Created the Internet, by Jeff Kosseff, a cybersecurity law professor at the United States Naval Academy.  The book was reviewed in The Wall Street Journal on August 19th but requires a subscription to read.  There you would find the 26 words of Section 230 of the Communications Decency Act, a part of the Telecommunications Acts of 1996.  Here are the words:

No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.

As the WSJ article writes, “Section 230 shields online platforms from legal liability for content generated by third-party users.”  This shield has effectively provided immunity to corporations like Facebook that simply pass through the thoughts of others.  Evidently the so-called “Internet exceptionalism” provided by Section 230 has created opportunities far different than those available in Canada or the EU, where “laws don’t shield online platforms from liability to the degree Section 230 does.”  I have seen the statement “Words create worlds” and, in the case of Section 230, we have a prime example.  The impact of the invisible handshake could hardly be clearer.

(10 August 2019):Business Book of the Year Award 2019—the longlistThe Financial Times

——–The longlist for the Financial Times and McKinsey Business Book of the Year Award has been released.  “Sixteen titles will compete for the £30,000 prize, including a weighty history of capitalism, two books about subtle—and not-so-subtle—bias against women, and an account of how the financial crisis was contained by the policymakers who led the battle to save the global economy.  Four years after Martin Ford’s The Rise of the Robots became the first tech title to win the award, books analyzing the impact of advances in artificial intelligence, digitization and online communication stand out.”

********All 16 books are very briefly described in the article.  I’m currently reading one of them, Range: Why Generalists Triumph in a Specialized World, and I am finding it to be very engaging.  Early on it discusses the early athletic adventures of Tiger Woods, seemingly born with a golf club in his hands, and Roger Federer, who sampled many sports as a youth coming to commit to tennis relatively late.  Specifically, Tiger is the specialist and Roger the generalist, but both came to be dominant in their sports.  In developing this idea, the distinction is made between “kind” and “wicked” environments, and the argument is that specialization tends to work better for kind (relatively certain and static) environments and generalization for wicked (relatively uncertain and dynamic) environments.  This theme recurs in the two-thirds of the book I’ve read.  It is an engaging read.  No doubt the other 15 books on the list are, too.

(14 August 2019):As California’s recycling industry struggles, companies and consumers are forced to adaptThe Los Angeles Times

********The main lines of this article are familiar.  The demand for recycled products in the U.S. has shrunk, because China will no longer accept, much less buy, our recycled products due to contamination.  As a result, U.S. prices for recycled materials have fallen, so that recyclers are now making a loss where previously there has been a profit.  Recycled materials, therefore, are piling up, some materials are heading to the landfill, and some recyclers are shutting their doors.  This article dilates a bit about one of those recyclers, RePlanet, “California’s largest operator of recycling redemption centers,” which just shut down “and laid off 750 employees.”  All this points to the need for “Consumers and industry alike . . . to brace for big changes.”

********I was intrigued by the new word, for me, ‘wishcycling,’ i.e., “the assumption that everything in the blue bin gets recycled—consumers will need to change their purchase practices, avoiding single-use containers and packaging that have no recycling value.”  At the legislative level, efforts have been made “to regulate single-use containers” but lobbyists have been able to fend off these efforts to date.  Ultimately, as Kreigh Hampel, recycling coordinator for Burbank, California has said, “Recycling is not going to undo the damage done by consumption.”  Consumption patterns must change instead.

(20 August 2019):CEOs Spurn Investor-First Model.  Now Critics Ask ‘What’s Next’?Bloomberg.com

********One of the surprising things that happened this week was the release of a 300-word statement by some members of the Business Roundtable, chaired by Jamie Dimon of JPMorgan Chase & Co.  The gist of it is to restate the purpose of the corporation, moving from an exclusive focus on “shareholder value” to one where the five stakeholders—consumers, employees, suppliers, communities, and shareholders—have “pride of place.”  There have been a variety of stories this week on the statement, but this one, with a bit more time for reflection, provides a more comprehensive look at what the impact of the statement might be.  In addition, it lifts up not only those who signed the statement, but also some of those that did not.  Regardless of how corporations want to direct their activities, the so-called “market for corporate control” will still be at work for those corporations that focus too much on non-shareholder stakeholders.

May you have a good week!

Bruce

382 (14 August 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.

(5 August 2019):You 2.0: Tunnel VisionHidden Brain

********Economists talk a lot about scarcity.  Simply put, individual wants are effectively infinite but means to satisfy wants are clearly finite.  One can’t satisfy every want, so one must choose.  This is the abstract idea of scarcity.  But for many people scarcity is not abstract—it is a lived experience.  This 37-minute episode of Hidden Brain, first broadcast in 2017, points to the cognitive consequences of scarcity—a shrinking of perspective that results in a focus on what is  lacking.  Here are some examples:

When you’re hungry, it can be hard to think of anything other than food. When you’re desperately poor, you may constantly worry about making ends meet. When you’re lonely, you might obsess about making friends. . . . Researchers say this form of tunnel vision can affect our ability to see the big picture and cope with problems in our lives.

This is developed in interviews with psychologists.  You can read the transcript here.

********A point that intrigued me occurred late in the episode, around is the notion of design for “fault tolerance,” which begins at 31:06.  Evidently airplane cockpits are now designed with an expectation that pilots will make mistakes.  When a mistake is made, the flight system alerts the pilot of the mistake so it can be corrected.  What if design for fault tolerance became a part of our thinking about poverty and education?

(7 August 2019):The Birth of the Modern American Debt CollectorJSTOR Daily

********This post briefly relates the story of how the Massachusetts Hospital Life Insurance Company (MHLIC), created in 1823, reconfigured how agricultural loans were made, transforming relatively personal relationships with lots of flexibility, to relatively impersonal relationships with great rigidity, thereby creating “a new, bureaucratic way of doing business.”  In doing so the company sought “to teach farmers to accept the demands of the growing financial order.”  This story is reminiscent of the imposition of the “discipline of the clock” in lab in labor markets as industrialization grew.  The post is built upon the article “’A Great Machine’ or a ‘Beast of Prey’” A Boston Corporation and its Rural Debtors in an Age of Capitalist Transformation,” a link to which can be found at the end of the post.

(8 August 2019):Being Paid to Borrow Money Isn’t So BadBloomberg.com

********This piece is about the increasingly prevalent phenomenon of negative interest rates, the “being paid borrow money” part of the title.  The article concludes with this: “Negative interest rates can be unsettling, and not just for savers.  But they’re merely reflective of the world around us.  The developed world is aging, and uncertainty—whether political, economic or technological—is rising everywhere.  The supply of risk-free investments is scarce, and savers will have to be willing to pay for them.”

(9 August 2019):America’s Obsession With Beef is Killing LeatherBloomberg.com

——–“U.S. consumers are eating more beef, more than they have in a decade.  But a byproduct of the carnivorous hankering is piling up, unloved and unwanted.  Shoppers who once coveted leather jackets and shoes are instead scooping up cheaper, synthetic alternatives, reflecting a growing ambivalence toward this former staple of American closets.  The glut of cowhides has caused prices to plummet, rendering many worthless.  And just as the American love for meat has caught on around the globe, so too has the abandonment of leather, from clothing to car seats.  Hides are even starting to go to landfills while the smaller leather processors are going out of business.”

********Briefly, the increase in the demand for meat leads to an increase in the supply of hides, which is happening at the same time there has been a decrease in the demand for hides due to consumers wanting fewer leather items for ethical reasons or the fashion of the moment.  Taken together, the price of hides has plummeted, with many going to the landfill rather than being turned into a product.  An important early treatment of the joint supply of meat and hides was developed by Alfred Marshall, Principles of Economics, 8th ed, (1920), Book V, Chapter VI, “Joint and Composite Demand.  Joint and Composite Supply.”

(13 August 2019):’Kochland’ Measures the Reach of a Politically Influential Corporate GiantThe New York Times

********This is a review of Kochland: The Secret History of Koch Industries and Corporate Power in America, by Christopher Leonard.  The reviewer, Jennifer Szalai, notes that Leonard “adds to a growing shelf that includes Jane Mayer’s” Dark Money and Daniel Schulman’s Sons of Wichita.  “Schulman focused on the Koch family story, while Mayer investigated the Koch-funded war chest for a conservative political agenda, including a stubborn denial of climate science.  Leonard peers into the black box of the enormous energy conglomerate itself: ‘Kochland’ is a corporate history, lucidly told.”  A corporate history of a private company presents challenges, as it “isn’t beholden to the same transparency requirements of a publicly traded company, where shareholders expect to see the books.”  But seven years of research on Koch Industries have provided a compelling story of “one of the largest privately owned companies in the world.”

********Two things in the review especially caught my attention.  First, the idea of “Market-Based Management . . . , which boiled down to treating employees like entrepreneurs and exposing them to market discipline.”  I searched for that title and find two books by Charles G. Koch: Market Based Management: The Science of Human Action Applied in the Organization (2007), which is rather pricey, and The Science of Success: How Market-Based Management Built the World’s Largest Private Company (2007), which is not too pricey.  The two books seem closely related and seem to draw inspiration from Human Action: A Treatise on EconomicsSecond, the negative experiences from that violating regulations led Koch to “imprint” on employees the need for “10,000 percent compliance” with the law, i.e., the importance of “obeying 100 percent of the laws 100 percent of the time.”  But Koch Industries “has also looked for ways to transform the regulatory regime—hence the vociferous lobbying by a division blandly called Koch Companies Public Sector and the ‘dark money’ chronicled in Mayer’s book.”  Koch certainly seems to be able to follow an argument wherever it goes.

(13 August 2019):A Boom Time for the Bunker Business and Doomsday CapitalistsThe New York Times

——–“Americans have, for generations, prepared themselves for society’s collapse.  They built fallout shelters during the Cold War and basement supply caches ahead of Y2K.  But in recent years, personalized disaster prep has grown into a multimillion-dollar business, fueled by a seemingly endless stream of new and revamped threats, from climate change to terrorism, cyberattacks and civil unrest.  Bunker builders and brokers have emerged as key players in this field.  And they see the interior of the country, with its wide-open spaces, as a prime place to build.  Aiding them is history.  During the Cold War, the military spent billions of dollars constructing nuclear warheads and hiding them in underground lairs around the nation, often in Kansas, Nebraska, Oklahoma and New Mexico.  Those hideaways, emptied of their bombs, are now on the market and enterprising civilians are buying them (relatively) cheap and flipping the properties.  Eager customers abound.”

********The story of how missile silos are being repurposed as condominiums for the fearful is not to be missed.  (University of Kansas anthropology professor John W. Hoopes, who has studied end-of-world myths, notes that “Fear sells even better than sex . . . If you can make people afraid, you can sell them all kinds of stuff . . . and that includes bunkers.”  The Survival Condo of Larry Hall in Kansas has sold all 12 apartments at prices beginning at $1.3 million, selling all of the units within months.  More development is underway.  I was instantly curious when I read about “Prepper Camp, a three-day disaster-preparedness and homesteading expo in North Carolina, [that] has turned into a survivalist’s Burning Man.”  It is being held in Saluda September 27-29.

May you have a good week!

Bruce