Economics

Printing Cancer Killing Viruses

by on December 19, 2014 at 4:50 am in Economics, Science | Permalink

Cell biologist Andrew Hessel of Autodesk is designing viruses in software to attack a specific individual’s cancer and then using DNA Printers to create the viruses as a drug. Here from an interview with New Scientist (gated).

It’s really about making a specific medicine tailored to one person–”N-of-1″ medicine–rather than try to make it a best fit for a whole population. My vision is to create a personalized treatment that can be made in a day by printing bespoke cancer-fighting viruses.

I’m not fully convinced by his economic model but it may be useful as a vision-goal:

I see the business model shifting away from the blockbuster-drug model of the pharma industry–getting the best product for the most people and charging the most for it–to more of a Netflix model, in which you might purchase a subscription for all-that-you-need medicine to manage your cancer.

…I’m pretty sure I can get the virus printing costs down to a dollar a dose. The virus itself is designed by algorithms using diagnostic data from the patient. That info is put into a program that will design the cancer-fighting virus, so the cost of design is cheap. Then there’s testing, and there is no simpler test than on the patient’s own cancer cells in a dish. So that whole process should cost less than $100 end-to-end. If you are on a cancer subscription model paying $100 a month, I see that as ultimately profitable.

Hessel is also far too sanguine about the FDA who he thinks will allow this under “compassionate use.” No way – not today when the FDA prohibits 23andMe from even providing information about DNA and its probable consequences, see my post Our DNA, Our Selves. To make this a reality we will need scientific breakthroughs and also A New FDA for the Age of Personalized Medicine.

I now regularly find that when I buy something from a cashier — especially small ticket items — that I have the option of tipping the salesperson.  There will be a cup for tips, or the space to write a tip into the credit card transaction.  If I buy a gelato, or a newspaper in the airport, these tipping chances present themselves.

I take it there are a few classes of customer:

1. Those who are looking for chances to tip more, to feel good about themselves.

2. Those who are uncertain about when they should be tipping, and who will now enter a tip to avoid feeling bad, out of fear that the social default has shifted toward tipping in some additional arena.  They don’t prefer to tip, but they figure they are supposed to, and do not therefore hold a grudge.

3. Those who are indifferent to this new possibility, or perhaps who actively resent it, and who will leave no tip at all and do not feel guilty about that.

4. Those who aren’t sure what they should be doing, ultimately decide against the tip, feel bad about this, identify the establishment which made them feel bad, and avoid that establishment in the future.

If the share of individuals described by #4 is sufficiently large, suppliers will be reluctant to create new tipping opportunities, but it seems that is not the case.  And so the practice of tipping is spreading.  Note that as new tipping opportunities spread, uncertainty about the true social defaults increases (“hmm…maybe coffee servers do deserve a tip…”) and that increases the share of individuals who fall into #2.  Which in turn raises the profitability of creating new tipping opportunities, which in turn muddies the understanding of social defaults, and so on.  That is indeed the Dantean inferno we live in these days.

As a good Coasian, I feel tipping makes most sense when the quality of service potentially varies, and is elastic to the effort of the server.  Those are not the boosts in tipping opportunities which I am observing.  I’ve never had anyone scoop me a bad gelato, but service quality at the supermarket checkout varies a good deal, mostly depending on whether the cashier knows not to engage the (other) customers in too much chatter.

The words of Gillian Tett are worth a ponder:

…corporate leverage in regions such as Asia is considerably higher today, relative to gross domestic product, than it was before the 1998 Asian financial crisis, as Frank Neumann of HSBC notes. What is even more alarming is that these numbers might understate the risk since many emerging market companies have been using offshore vehicles to raise funds — and those flows are not well tracked.

The BIS reckons that about half of the debt securities sold between 2009 and 2013 by emerging market entities, along with a large chunk of loans, were channelled via offshore entities, not onshore parent companies. These offshore entities typically swap this money from dollars into domestic currency and repatriate it to the head office.

Brazilian, Russian and Chinese firms, for example, are thought to have created some $35bn of these internal intra-company flows in the first quarter of 2013 alone. But these flows are often recorded in the data as a “foreign direct investment flow”, not debt. The risk, then, is that companies are exposed to currency mismatches that will only become clear at a later date.

The full FT article is here.  Here is a related article, focusing on Claudio Borio.  Here are Borio and Hyum Shin from the BIS.

Pallets

by on December 18, 2014 at 2:16 pm in Economics, History | Permalink

On the topic of pallets, Jacob Hodes writes:

There are approximately two billion wooden shipping pallets in the United States. They are in the holds of tractor-trailers, transporting Honey Nut Cheerios and oysters and penicillin and just about any other product you can think of: sweaters, copper wire, lab mice, and so on. They are piled up behind supermarkets, out back, near the loading dock. They are at construction sites, on sidewalks, in the trash, in your neighbor’s basement. They are stacked in warehouses and coursing their way through the bowels of factories.

The magic of these pallets is the magic of abstraction. Take any object you like, pile it onto a pallet, and it becomes, simply, a “unit load”—standardized, cubical, and ideally suited to being scooped up by the tines of a forklift. This allows your Cheerios and your oysters to be whisked through the supply chain with great efficiency; the gains are so impressive, in fact, that many experts consider the pallet to be the most important materials-handling innovation of the twentieth century.

And there is this:

Not all pallets belong to the world of whitewood. The most important other category—and whitewood’s chief antagonist—is the blue pallet. These blues are not just a different color; they are also built differently, and play by different rules, and for the past twenty-five years, the conflict between blue and white has been the central theme in the political economy of American pallets.

The full story is here, and it is one of the best long reads of the year.  For the pointer I thank Michael Tamada.

Smuggling Cubans

by on December 18, 2014 at 7:30 am in Economics, Law, Sports | Permalink

This post isn’t about smuggling Cuban cigars it’s an incredible story about smuggling Cuban baseball players.

The average wage in Cuba is about $20 per month so a typical Cuban might earn 50 times more in the United States but a star Cuban baseball player (who also earns about $20 per month in Cuba) might earn 10,000 times more in the United States. Markets abhor a price differential so there is an active market in smuggled Cubans.

Yasiel Puig, now a star player for the Los Angeles Dodgers, was smuggled out of Cuba in 2012. The smuggling operation was paid for by a group of Miami businessmen:

Investigators and court documents say Suarez was one of the Miami-based financiers of the 2012 smuggling venture in which Puig was taken by boat from Cuba to a fishing village near Cancun, Mexico, eventually crossing into the U.S. at Brownsville, Texas, on July 3 of that year. In return, the financiers were getting a percentage of the seven-year, $42 million contract Puig signed with the Dodgers.

The story is not unique

The plea is the second in Miami federal court this year involving the smuggling of a Cuban baseball player into the U.S. Last month, 41-year-old Eliezer Lazo was sentenced to 14 years in federal prison for conspiring to smuggle 1,000 Cubans, including baseball players such as Texas Rangers outfielder Leonys Martin.

Puig did in fact pay Suarez $2.5 million. A high price for a relatively simple operation–the going rate to smuggle an ordinary Cuban is about $10,000–but, as we will see, more than smuggling was involved. It took five attempts before Puig reached the shores of Mexico. On one of the earlier attempts Puig was captured by the US Coast guard who sent him back–after some of the crew asked for his autograph!

On the fifth attempt, Puig, along with “a boxer, a pinup girl, and a Santeria priest, the latter of whom blessed their expedition with a splash of rum and a sprinkle of chicken blood” managed to escape Cuba guided by the smugglers and their accomplices—“The Chinaman” and “The Hungarian”. Once in Mexico, however, the operation got messy because Mexico’s Zetas gang were acting as intermediaries and with Puig in hand they demanded a greater share of the proceeds.

“If they didn’t receive the money, they were saying that at any moment they might give him a machetazo”—a whack with a machete—“chop off an arm, a finger, whatever, and he would never play baseball again, not for anyone.” 

The case has lots of interesting asides: Why flee to Mexico first and only then to the United States? It’s all about the money and the weird rules of MLB:

A foreign-born player who immigrates without a contract is treated as an amateur by MLB; he can negotiate only with the team that drafts him. By declaring himself a free agent before arriving, that player can entertain all comers; the difference is worth millions. Federal law, of course, bars Americans from paying money to Cubans—or “trading with the enemy”—so a ballplayer like Puig needs not only to defect but also to establish legal residency in a country that he does not actually intend to live in.

Now back to the Zetas and the hostage negotiations.

As the standoff entered its third week, the smugglers began looking elsewhere to recoup their costs. The idea occurred to them that they could auction Puig off.

Eventually a rescue operation was staged by the Miami businessmen (details are unclear) and Puig escapes to Mexico City where in essence an auction is held in which the Dodgers win with a bid of $42 million over seven years. 

Puig, however, continued to be threatened by the Zetas, hence, it seems, the aforementioned $2.5 million dollar payment to the Miami businessman who in turn paid off the Zetas (a murder also appears to be related).

As if all of this isn’t astounding enough these details have come to light only because of a US civil case against Puig. Puig had been approached a few years earlier when he was just 19 by another would be smuggler. Fearing the state police who monitored him constantly, Puig alerted the sports ministry to the offer and they notified state security. The alleged smuggler was arrested by the Cuban police, jailed, and perhaps tortured. Now here is where it gets really strange. The alleged smuggler, still in jail in Cuba, and his mother are suing Puig in American court for $12 million dollars for turning the smuggler over to the Cuban authorities and thus potentially violating the Torture Victim Protection Act.

There are many lessons here about open(ing) borders, rent seeking, the law, and how making some trades illegal creates black markets often ruled by violence. Thankfully an opening of relations with Cuba may cause this market to wither away. Next up, college athletes.

Taxing the safe haven demand

by on December 18, 2014 at 6:19 am in Current Affairs, Economics | Permalink

Switzerland is introducing a negative interest rate on the deposits it holds for lenders, its central bank said on Thursday, moving to hold down the value of the Swiss franc amid the turmoil in global currency markets.

The Swiss National Bank said in a statement from Zurich that it would begin charging banks 0.25 percent on bank deposits exceeding a certain threshold.

There is more here.  Here is the market reaction.

This cracks me up:

The illustrations on the banknotes show generic examples of architectural styles such as renaissance and baroque rather than real bridges from a particular member state, which could have aroused envy among other countries. “The European Bank didn’t want to use real bridges so I thought it would be funny to claim the bridges and make them real,” Stam told Dezeen.

The article headline is “Fictional bridges on Euro banknotes constructed in the Netherlands.”  Perhaps this will prove a broader and subtle metaphor for making the eurozone actually work…

For the pointer I thank Joel Cazares.

The Russian ruble

by on December 17, 2014 at 1:00 am in Current Affairs, Economics | Permalink

From Neil Irwin:

As Russia has deployed its reserves to (so far unsuccessfully) stop the currency collapse, it has made traders betting against the ruble richer while leaving the Russian government poorer. Poorer by $80 billion, to be precise.

Paul Krugman has a good treatment of the basic theory, scroll through a few of his posts hereFrom Leonid Ragozin:

Many commentators were especially annoyed that the discrepancy between the ruble and other currencies means Russians are essentially barred from traveling outside the country. “So now we are under a travel ban. … They didn’t even need to introduce exit visas [like the ones people needed in Soviet times] or build an iron curtain,” Boris Yunanov, the deputy editor of the liberal New Times magazine, wrote on Facebook

The most popular vacation spots for Russians will be hurt, they left out Goa.

Let us not forget intertemporal substitution:

Retailers had to change prices multiple times to keep up with the rouble’s fall. Shoppers, on the other hand, rushed to beat the price hikes.

The main reseller of Apple in Moscow, re:Store, saw sales two to three times higher than normal at one central branch, according to a salesman, reports Jack Farchy in Moscow.

Since then Apple has shut down on-line sales.  Here are a few photos.

Kevin Drum speculates about historical parallels.  Will selling gold be their next move?  You can follow the very latest on Twitter.

I received this email:

A colleague forwarded your post this morning, and there is an easy reply to your concerns.

Nothing in our analysis implicates academic freedom in the least, and the paper addresses this point directly in the text at page 12:

“The Harvard Proposal’s incomplete and categorical analysis of the academic literature could be published in any academic journal without raising any risk of violating the federal securities laws. But when scholars avail themselves of SEC regulations to force issuers to place statements describing academic research in the corporation’s proxy materials, the scholars voluntarily subject themselves to standards of legal liability that do not apply in other venues. There is no “professor exemption” from the requirement that a proxy proposal not be materially false or misleading.”

Thus, the salient point is that the proposal appears in the proxy only because the Harvard SRP voluntarily decides to avail itself of an SEC rule that forces the company to put the statement on the company’s proxy. In order to benefit from this rule, the proponent has to agree to abide by SEC rules that prohibit proposals from making statements that suffer from material omissions. The Harvard SRP can write or say whatever it wants without any of the concerns raised in the paper, provided that those statements don’t appear in Rule 14a-8 proposals. But, once the statements are submitted as a Rule 14a-8 proposal, they have to abide by the same rules as any other 14a-8 proposal.

The article’s analysis therefore suggests no constraint on academic freedom. We academics can write and say what we want without any concern regarding any of these SEC rules, provided we are not submitting shareholder proposal. And, for what it’s worth, to the best of my knowledge, the Harvard SRP is the only university-run program that engages in Rule 14a-8 campaigns, and no research by any Harvard scholar is at all affected by our article’s analysis, other than the materials that appear within the four corners of the shareholder proposals voluntarily submitted by the SRP.

Indeed, as an academic who benefits from academic freedom, I too would be concerned about any suggestion that our analysis has any effect on academic freedom whatsoever. It doesn’t.

Hope that’s responsive to your concerns.

Here is the home page of Joseph A. Grundfest.  Here is his Wikipedia page.

Modern Principles, 3rd ed!

by on December 16, 2014 at 7:31 am in Books, Economics, Education | Permalink

Modern Principles 3rd
The third edition of the best written, most interesting principles of economics textbook, Modern Principles (economics, microeconomics and macroeconomics), hits the shelves any day now. The 3rd edition features a brand new chapter on asymmetric information, more material on economic growth including geography and growth, a new section on nominal GDP targeting and updated data and graphs throughout. Plus we have a very exciting and brand new feature used throughout the book…but I am going to hold off discussing that for a few more weeks. More to come soon!

There is a new article by Seitz, Tarasov, and and Zakharenko:

This paper develops a quantitative model of trade, military conflicts, and defense spending. Lowering trade costs between two countries reduces probability of an armed conflict between them, causing both to cut defense spending. This in turn causes a domino effect on defense spending by other countries. As a result, both countries and the rest of the world are better off. We estimate the model using data on trade, conflicts, and military spending. We find that, after reduction of costs of trade between a pair of hostile countries, the welfare effect of worldwide defense spending cuts is comparable in magnitude to the direct welfare gains from trade.

There are ungated versions here, and for the pointer I thank the excellent Kevin Lewis.  Kevin also directs our attention to this paper: “…these results provide evidence for a relationship between feelings of disgust and the endorsement of equality-promoting political attitudes.”

Just this week, Commissioner Daniel M. Gallagher and former Commissioner Joseph A. Grundfest issued a draft of a paper that takes on the Harvard Shareholder Rights Project.  The Harvard SRP describes itself as “a clinical program operating at Harvard Law School and directed by Professor Lucian Bebchuk.”  From 2012 through 2014, the Harvard SRP focused on proposing precatory shareholder resolutions under Rule 14a-8 seeking the elimination of staggered boards.  It claims that 121 companies receiving these proposals “have agreed to move toward annual elections following the submission of board declassification proposals for 2012, 2013 and/or 2014 meetings.”

The Commissioners take issue with the Harvard SRP’s reliance on academic research finding that staggered boards are inimical to shareholder interests.  They note that the Harvard SRP omits the larger body of academic research that contradicts the research relied upon by the Harvard SRP.  They claim not to take sides in the debate over the merits of board classification, but they do conclude:

  • The Harvard SRP proposal could be described as materially false and misleading because it omits the contradictory research…

There is more to the story, but that is already enough to make me nervous.  Here is Matt Levine on the same:

Here is an utterly loony paper by Securities Exchange Commissioner Daniel Gallagher and former SEC commissioner Joseph Grundfest arguing that Harvard is violating the securities laws in its Shareholder Rights Project. That project, run by Harvard professor Lucian Bebchuk, submits shareholder proposals to public companies asking them to de-stagger their boards, so that all directors are elected every year instead of electing one-third of directors a year to three-year terms. Staggered boards make activism hard and hostile takeovers nearly impossible, and so are often viewed as shareholder-unfriendly. There is some empirical evidence that they are in fact bad for shareholders. There is other empirical evidence that they are good for shareholders. There is yet other empirical evidence that they are sometimes good and sometimes bad. (This is how empirical corporate governance research always works out, by the way.) Harvard, in advocating against staggered boards, cites the research that supports its side, and doesn’t cite the research that supports the other side. Gallagher and Grundfest argue that this could be “a material omission that violates” the proxy rules. Umm? It is not exactly news that some people think staggered boards are good and others think they are bad, and that the ones who think they are bad will, you know, say that they’re bad. It would be hard to argue that Bebchuk et al. don’t believe that their arguments are true.

“If the SEC took the more draconian step of suing Harvard, the agency would be ‘in my opinion, very likely to prevail,’ Mr. Grundfest said in an interview,” though, I mean, it won’t? The purpose of this paper is to make life a bit easier for companies that are targeted by the Harvard Shareholder Rights Project. First, it will probably drive Harvard to soften the language of its proposal a bit. Second, and more importantly, it will give companies that oppose de-classification a very authoritative-sounding source of empirical data for their position (“Look, the SEC says staggered boards are good!”). And third, it may allow companies to exclude the Harvard proposal from their proxies entirely, by arguing to the SEC that it is false and misleading.

*Se acabó la clase media* is now out

by on December 16, 2014 at 12:41 am in Books, Economics | Permalink

seacabo

Now out in Spanish.

Here for instance is the CR symposium on John Tomasi’s Free Market Fairness.  I believe there will be more to come.

From Arthur R. Kroeber, here is the summary on his economics:

This popular reading is unduly negative. Here is another that fits the facts at least as well: After a brief scare, the property market stabilized, in large measure thanks to the removal of unreasonable restrictions on house purchases, rather than an unsustainable blowout in credit growth. By the end of the year the economy was still growing at the fastest pace of any major economy (7.3 percent), although a slowdown next year seems likely given the apparent intention to constrain credit growth. In June the Politburo approved the biggest fiscal reform in 20 years, which aims to restructure troublesome local-government debts and revamp the tax structure to cut back on perverse incentives. November saw a significant opening of the capital account, as the “Hong Kong-Shanghai Stock Connect” program permitted investors in those two financial hubs to put money directly in each others’ stock markets. Partly in anticipation of this event, Chinese stocks staged a big rally in the second half of the year which made Shanghai the world’s second best performing market in 2014. And in December the People’s Bank of China released draft rules for deposit insurance, setting limits on the government’s unlimited guarantee of the financial system and setting the stage for full deposit-rate liberalization in the next year or two.

That is not exactly my view, but this is an intelligent, optimistic account of the current China.  The post is interesting throughout, and most of it is not on economic issues at all: “This record is stronger than that of any other major world leader in the last two years”  Recommended.