Category: Economics and Business

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Brian Eno talks to Ha-Joon Chang about free-market capitalism, Terry Riley’s In C, and wasting time.

BRIAN ENO: One of the characteristics of people, whether on the left or the right, is that they can’t tolerate uncertainty. They don’t want a system with any leaks in it. They want to think they’re capable of battening everything down – and if only people would fucking stick to the rules, it would work. When those systems don’t work, it’s always because, in their opinion, somebody didn’t play the game correctly.

ᔥ The Morning News

Some links: 62/a

Two recent articles pertaining to food labeling: First, Gustave Axelson recaps the labels vying for your attention as you shop for bird-friendly coffee.

…coffee sellers don’t always advertise that their coffee is Bird Friendly. “Probably about only 10 percent of coffee from Bird Friendly certified farms carries the Bird Friendly stamp on the package,” said Robert Rice, a research scientist at the Smithsonian Migratory Bird Center.

For example, Starbucks and Whole Foods sell some coffee from Bird Friendly certified farms. But they don’t see the need to make room on their packaging for a separate label that appeals to a relatively small—and silent—minority: birders.

Next, Mark Bittman proposes labels for packaged food that put the information you need right up front. A caption to the print version of the story recommends scanning the standardized list of ingredients in today’s packaging, not necessarily reading it in full:

…if the list of ingredients spans an entire paragraph, chances are you don’t need it.

I like Bittman’s red-yellow-green color codes, and I like the prominence of the Welfare measure. It would be nice to give more visibility to ingredients to which various consumers are allergic or intolerant.

Snyders everywhere

A new insurance product, one that I wish there was no need for: A grantor of a conservation easement sells his property. The new owner (usually one with deep pockets, because conservation land trusts don’t use easements to protect economically valueless land) decides to do what he likes with the property, contracts be damned. The volunteer-run, cash-strapped trust (if it weren’t poorly funded, it would have bought the land outright) has to take the new owner to court, and that gets expensive.

Now, as Felicity Barringer reports, a new non-profit insurance company, Terra Firma, is there to offer a policy to the trust to mitigate the legal fees needed to defend the easement.

Land trusts usually win in court — though many cases are settled, according to alliance records. One common denominator: the wealth of the property owners challenging restrictions.

Inconclusive

Morgan and Rego challenge the claims by Reichheld and crew that Net Promoter Score is the single customer satisfaction metric necessary to explain business performance. While their peer-reviewed work does identify measures (e.g., Top 2 Box Satisfaction) that do correlate with short- and long-term success (Tobin’s Q, market share, etc.), their computation of “net promoters” is flawed: it is only a rough approximation of the ratio promulgated by Bain and Satmetrix, based on the “how likely to recommend” 0-10 scale. This shortcoming in the work is pointed out by Timothy L. Keiningham et al. Nevertheless, that follow-up note says

Despite the problems with the Net Promoter and Number of Recommendations metrics, Morgan and Rego (2006) have provided valuable insight regarding the relationship between business performance and other commonly used customer metrics…. We are unaware of another longitudinal study that examines the predictive value of satisfaction and loyalty metrics in such a comprehensive way.

And five years after the publication of The Ultimate Question, I’m waiting to see independent research that backs up its claims.

Too bad Reagan didn’t listen in ’81

David Stockman, Ronald Reagan’s first budget director, speaks out amidst the clangor of the fiscal and monetary policy debate in Washington. Ever a deficit hawk, these days he starts to sound reasonable:

In attacking the Bush tax cuts for the top 2 percent of taxpayers, the president is only incidentally addressing the deficit. The larger purpose is to assure the vast bulk of Americans left behind that they will be spared higher taxes — even though entitlements make a tax increase unavoidable. Mr. Obama is thus playing the class-war card more aggressively than any Democrat since Franklin D. Roosevelt….

On the other side, Representative [Paul D.] Ryan fails to recognize that we are not in an era of old-time enterprise capitalism in which the gospel of low tax rates and incentives to create wealth might have had relevance. A quasi-bankrupt nation saddled with rampant casino capitalism on Wall Street and a disemboweled, offshored economy on Main Street requires practical and equitable ways to pay its bills.

His op ed piece relies a bit too much on the the thesaurus (the spirit of William Safire is about). But the message that we will all have to give up something to get along is spot on.

It is obvious that the nation’s desperate fiscal condition requires higher taxes on the middle class, not just the richest 2 percent.

Some links: 44

In a well-done piece, Paul Krugman explains the difference between a carbon tax and cap-and-trade in terms an economist understands, and in terms a politician understands. And while the former might be preferable in economic terms, a cap-and-trade system has a chance of actually happening. And that’s important:

So what I end up with is basically Martin Weitzman’s argument: it’s the nonnegligible probability of utter disaster that should dominate our policy analysis. And that argues for aggressive moves to curb emissions, soon.

Counting rules

The editors of Nature come out in support of abandoning Gross Domestic Product (GDP) as the primary measure of social development and economic wealth:

…GDP is known to be flawed as an indicator. For example, a developing country can accelerate its GDP growth by over-logging its forests, even though this could destroy a sustainable resource and carbon sink that would be far more valuable over time. A similar problem rears its head for the construction of environmentally destructive dams, power plants and industries. The focus on GDP growth can make it hard for local politicians to take pollution and other long-term threats seriously.

Shade-grown coffee: state of play

The Birding Community E-Bulletin points to two reports: first, a recent summary by Robert Rice of the Smithsonian Migratory Bird Center on the supply of and market for the SMBC’s branded Bird Friendly® Coffee. It’s interesting that nearly 40% comes from Peru; Mexico and Guatemala are other major producers. On the demand side, nearly 350,000 pounds were consumed in 2008 (the last period for which full-year figures are available), divided almost evenly between Japan and the United States.

Amid the clutter of labelling and badging at the turn of the decade, the SMBC established criteria for coffee agriculture specifically designed to protect bird life, and chose to protect them with a mark. These criteria go beyond relatively simple organic certification. Rice’s precis:

… the coffee is:

  • Certified organic
  • Certified shade-grown (according to SMBC criteria developed in 1997 and based on scientific fieldwork)

Criteria include: a minimum canopy height of 12 meters; a species list of at least 10 trees in addition to the major or “backbone” species; at least 40% foliage density; and three strata or layers of vegetation that provide structural diversity. Criteria apply to the coffee production area itself, and industry and certification specialists consider them to be the strictest shade standards in the world.

Rice states that growers see a 5 to 10 cent per pound premium for meeting BFC standards, in addition to any price bump for being organic.

Unfortunately, as Ezra Fieser reports, that price differential has narrowed over the past few years from a 30-40% markon mid-decade to about 20% now. This trend is driving farmers back to conventional agricultural methods. According to the Center for Tropical Agricultural Research and Higher Education, costs to the organic grower run 15% higher (certification fees, losses to pests), while yields are 40% lower. As my old B school teacher liked to say, “Sell below cost, and in the long run, you’re out of business.”

He wrote the book

A belated memorial to Paul Samuelson, who died on 13 December at the age of 94. From The Economist‘s obituary:

“To understand economics you need to know not only fundamentals but also its nuances,” Mr Samuelson would explain. “When someone preaches ‘Economics in one lesson’ I advise: Go back for the second lesson.”

I learned the fundamentals of macroeconomics from Robert Eisner lecturing out of the 9th edition of Samuelson’s Economics (today’s edition, co-authored by William Nordhaus, is the 19th). Maybe the best thing about the book was its endpapers: the IBC gave a family tree of economic thought, from Aristotle and Aquinas to the post-Keynesian synthesis; while the IFC charted real per capita GNP on a log scale over the period 1870-1973 for six countries: the U.S., Germany, Great Britain, Japan (fourth overall but with the steepest growth), the Soviet Union, and (way down at the bottom of the chart) India (and notice we were talking about national product and not domestic product back then).

One show at a time

The good news (as reported by Missy Frederick) is that Theater Alliance, a local performing company with some great work to its credit, has received a grant of federal economic stimulus money from the D.C Commission on the Arts and Humanities, sufficient to fund half a year’s salary for its artistic director. The appalling news is that the grant is all of $12,500.

“I was in danger of being laid off,” explained [Paul Douglas] Michnewicz. “Theater Alliance only employs one full-time person and that’s me. I’m the one writing the grants that keeps us going and paying the bills, so it was a pretty simple argument to make.”

Mamas, don’t let your babies grow up to be professional theater people.