Month: December 2014


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.

Assorted links

1. Don’t let your Texas plumber truck end up in the Syrian war.

2. An outsider looks at the upcoming AEA job market.  And Yakut ponies are cold.

3. The best book covers of 2014?

4. Vera Te Velde says visit Cuba now.  And Daniel Drezner on Cuba.

5. Mobile phone data and African food consumption.

6. “There is such negativity about clouds written into our language…”  And don’t be too shocked: “Half of Cloud Appreciation Society members – the group celebrates its 10th anniversary next year – are British.”

7. Jonathan R. Macey on the Bebchuk/SEC kerfluffle (I agree with him).

Smuggling Cubans

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

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.

The culture that is Dutch

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.

Who will win and lose the Facebook attention lottery?

Felix Salmon writes:

Facebook’s algorithm is already working overtime on trying to slim down a virtually infinite range of possible News Feed posts to a much smaller number. A significant chunk of the NewsFeed is already ads, so in order to make it into the News Feed if you’re not an ad, you need to be really, really good. Like, one close friend announcing her engagement, or a video of another friend pouring a bucket of ice water over her head, or a long and hilarious comment thread on a third friend’s status update. What’s not really, really good? A link to some random website which has a user experience which Facebook can’t control, and which is probably suboptimal on mobile.

In 2015, then, the winners of the Facebook attention lottery are going to be more videos, as well as genuinely native, in-app content from advertisers. The losers are going to be external websites who have become reliant on the Facebook traffic firehose. That traffic is going to start falling, in 2015, for the first time. And the repercussions are likely to be huge.

And here is a very good Nicholas Carson piece on the future of Google, I found this point (among others) interesting:

The only reason search makes money for Google is that people use it to search for products they would like to buy on the internet, and Google shows ads for those products. Increasingly, however, people are going straight to Amazon to search for products. Desktop search queries on Amazon increased 47% between September 2013 and September 2014, according to ComScore.

I often find that people take the current landscape of the web for granted when they try to imagine the future of media.

How to make America more like Disneyland

David Cay Johnston takes a trip to Disneyland some 60 years after his first visit. It looks better than ever, even as America has declined.

broken fountain detroitEvery night Disneyland gets freshened up. When the park closes at midnight, the lights go up, and crews steam gum off the sidewalks, daub fresh paint where needed, water the flowers, polish the streetlights and examine the walkways. I had to look hard just to find unrepaired cracks on Main Street and the paved walkways. By chance, I got to walk backstage, where the asphalt and concrete surfaces were in near perfect shape, the walls painted, the handrails free of rust.

…Yet outside the gates, America fails to invest in its infrastructure, costing us lives from accidents, floods, sinkholes from water-main failures and explosions from faulty natural gas lines. Sidewalks buckle or heave after winter freezes, making many hazardous to walk on. America’s roads deteriorate, costing the economy in efficiency, though the front-end-alignment shops and tire dealers do well.

…The water fountains at Disneyland all worked, while in city halls and airports, many barely dribble because there is no budget to replace their filters before sediment clogs them.

Johnston’s piece is titled America should be more like Disneyland but instead of thinking seriously about what this means he fumbles on the 20 yard line and concludes that what makes Disneyland different is….happy thoughts. If only we were more like W.D., he says, “we could make America into a happy place.”

No, what makes Disney invest in infrastructure is not happy thoughts. Johnston is in fact clear about this:

The Walt Disney Co. invests in infrastructure because it makes the company money.

The problem with America is that our public infrastructure has been turned over to a fickle political process that is not governed by a rational calculation of cost and benefit, market test and experimentation but by a pursuit of power, glory and advantage that only rarely coincides with the public interest.

America should be more like Disneyland and to do that we need to develop institutions that allow more infrastructure to built by the private sector. Most ambitiously we need more cities as hotels, more proprietary cities. As Rajagopolan and I wrote in our study of India (in Cities and Private Planning):

The lesson of Gurgaon, Walt Disney World, and Jamshedpur is that a system of proprietary, competitive cities can combine the initiative and drive of private development with the planning and foresight characteristic of the best urban planning. A proprietary city will build infrastructure to attract residents and revenues. A handful of proprietary cities built within a single region will create a competitive system of proprietary cities that build, compete, innovate, and experiment.

The Russian ruble

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.

Joseph Grundfest responds on the SEC, Bebchuk, and academic freedom

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!

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!

Is the peace dividend from trade as large as traditional gains from trade?

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.”

A dangerous precedent from the SEC, in opposition to academic freedom

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.