Author: Art Diamond

Outsiders in France Defend McDonald’s

(p. A4) MARSEILLE, France — The nearly 20-year-old images have entered French folklore: peasants, farmers and ex-hippies dismantling a rural McDonald’s, panel by panel, in what became a symbol of France’s resistance to American fast food.
Today that aging newsreel is being played in sharp reverse. A group of workers and their union leaders in Marseille are fighting tooth-and-nail to save a McDonald’s from closing in a working-class, largely immigrant neighborhood. A so-called “Festival of Dignity” protest was recently organized by the McDonald’s employees in an effort to save their roughly 70 jobs.
Even though McDonald’s was once seen as a cultural menace to a glorious French tradition, the workers say this particular McDonald’s, in its quarter-century of existence, has played a vital role as a social integrator in one of France’s most troubled districts — providing employment and shielding local youth from pervasive drug-dealing, getting them out of jail and helping them stay out.
“Look, we’re not thugs here,” said Kamel Guemari, the restaurant’s assistant manager, who was hired at age 16 and is now 37. “We’re working. And we’re setting an example for the others. We’re playing a social role.”

For the full story, see:
Adam Nossiter. “MARSEILLE DISPATCH; French Workers Fight to Save a Beloved McDonald’s.” The New York Times (Thursday, Sept. 6, 2018): A4.
(Note: the online version of the story has the date Sept. 5, 2018, and has the title “MARSEILLE DISPATCH; Yes, There Is a French McDonald’s That Is Beloved (by Its Staff).”)

Natural Gas Helps U.S. Reduce Carbon Emissions

(p. A11) BONN, Germany — Industrial emissions of carbon dioxide are projected to rise to record highs in 2017 after a three-year plateau, scientists said Monday [Nov. 13, 2017]. It’s a sign that the world is still far from achieving its goals to limit global warming.
. . .
. . . , after a brief dip last year, China’s emissions are projected to rise approximately 3.5 percent this year. Local governments invested heavily in infrastructure and construction projects to stimulate growth, while unfavorable rainfall patterns have reduced output from the nation’s hydropower dams, said Lauri Myllyvirta, who analyzes China’s energy trends for Greenpeace.
. . .
Much of the fall in American emissions has come as increasing supplies of natural gas, wind and solar power have driven hundreds of coal plants into retirement. .

For the full story, see:
BRAD PLUMER and NADJA POPOVICH . “Carbon Emissions, Once Flat, Are on the Rise.” The New York Times (Tuesday, NOV. 14, 2017): A11.
(Note: ellipses, and bracketed date, added.)
(Note: the online version of the story has the date NOV. 13, 2017, and has the title “CO2 Emissions Were Flat for Three; Years. Now They’re Rising Again.”)

Growing Percent of Firms in Developed Countries Are Zombies

ZURICH–The number of profit-constrained “zombie” firms has risen sharply since the late 1980s, according to research published Sunday by the Bank for International Settlements, a sign of the lingering effects from ultralow interest rates since the financial crisis.
Zombie firms are generally defined as companies that can’t service their debt from profits during an extended period. These types of companies, which first gained attention in Japan decades ago and have since gained prevalence in Europe, steer resources away from healthier parts of the economy, weighing on productivity and economic growth.
“The prevalence of zombie firms has ratcheted up since the late 1980s,” according to a paper published Sunday by the Switzerland-based BIS, a consortium of central banks, in its quarterly review of financial market developments.
Under a broad definition–the ratio of earnings before interest and taxes to interest paid is less than one for three-straight years in companies more than 10-years old–the percentage of zombie companies rose from 2% in the late 1980s to 12% in 2016. The data used by the authors covered 14 developed economies including the U.S., Japan, Germany and France.
And they seem to stay that way for longer. The authors found that whereas in the late 1980s zombie firms had a 60% chance of staying in that condition the following year, the probability reached 85% in 2016. Low interest rates have helped these firms stay afloat by reducing their financial pressure to reduce debt.
“Lower rates boost aggregate demand and raise employment and investment in the short run. But the higher prevalence of zombies they leave behind misallocate resources and weigh on productivity growth,” the authors wrote.

For the full story, see:

Brian Blackstone. “Rise of the Zombies: Ranks of Non-Viable Firms Up Sharply Since 1980s, Study Says; Low rates have helped these firms stay afloat by reducing their financial pressure to reduce debt.” The Wall Street Journal (Sunday, Sept. 23, 2018 URL: https://www.wsj.com/articles/rise-of-the-zombies-ranks-of-non-viable-firms-up-sharply-since-1980s-study-says-1537718401?mod=searchresults&page=1&pos=2
(Note: at least as of Oct. 1, 2018, this article appears only to have been published online.)

The study published in BIS Quarterly Review, and mentioned above, is:
Banerjee, Ryan Niladri, and Boris Hofmann. “The Rise of Zombie Firms: Causes and Consequences.” BIS Quarterly Review (Sept. 2018): 67-78.

Origin of False Memories

(p. A19) Memories are subject to serious flaws, given the limitations and imperfections of the biological and psychological processes of recording, retaining and recalling them. Memories aren’t computer files with exacting recall and retrieval functions. They are often disassembled and stored in “packets” in multiple brain locations. People don’t store the fine details of all daily experiences, because of neuron capacity limitations. Even important details can be missed or lost.
Hence the brain must be selective in which memories it stores and must condense them so that many details are left out. Many eyewitnesses and even victims of crimes don’t take note of the facial features of gun-toting assailants or the make and color of getaway cars.
. . .
My colleague Elizabeth Loftus was able to “implant” false memories in a significant subset of laboratory subjects by showing them an official-looking poster of Disney characters, including Mickey Mouse and Bugs Bunny. Many subjects later remembered meeting Bugs Bunny on a childhood trip to Disneyland. Some of them even reported that Bugs had touched them inappropriately.
That was impossible. Bugs Bunny isn’t a Disney character.

For the full commentary, see:
Richard B. McKenzie. “A Stumble Down Memory Lane; Like Kavanaugh’s latest accuser, people often have ‘gaps.’ They don’t always fill them with truth..” The Wall Street Journal (Tuesday, September 25, 2018): A19.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Sept. 24, 2018.)

The commentary quoted above is partly based on McKenzie’s book:
McKenzie, Richard B. A Brain-Focused Foundation for Economic Science: A Proposed Reconciliation between Neoclassical and Behavioral Economics. Basingstoke, UK: Palgrave Macmillan, 2018..

“An Insular Fortress of Thought Coercion”

(p. A3) WASHINGTON–A day before Google’s chief was set to meet with high-ranking Republicans, critics in a congressional hearing accused the internet giant and other tech firms of being “insular” and dismissive of the free-speech rights of conservatives.
. . .
At Thursday’s House subcommittee hearing, Rep. Steve King (R., Iowa) warned that tech companies’ alleged bias is beginning to be noticed by the public. “Americans are beginning to recognize this quiet trend in our society in which one group or another systemically silences another’s beliefs with which they disagree,” he said in his opening statement.
Harmeet Dhillon, an attorney representing a group of conservative Google employees claiming employment discrimination by the company, directed lawmakers to media reports concerning its alleged blacklisting of phrases, articles and websites, and the blocking of conservative YouTube videos.
“Big Tech has become an insular fortress of thought coercion and vindictive behavioral control,” she said.

For the full story, see:
McKinnon, John D. “Tech Firms Face Political Bias Accusations.” The Wall Street Journal (Wednesday, September 28, 2018): A3.
(Note: ellipsis added.)
(Note: the online version of the story has the date Sept. 27, 2018, and has the title “Tech Firms Face Bias Accusations at Congressional Hearing.” The online version includes additional paragraphs, but the passages quoted above appear in both the online and print versions. The formatting above, follows the print version.)

Low Interest Rates Increased Zombie Firms After Economic Crisis of 2008

ZombieFirmsIncreaseGraph2018-10-03.png

Source of graph: online version of the WSJ article quoted and cited below.

(p. A1) Italian clothing maker and retailer Stefanel SpA became famous for its knitted coats and cardigans.

Many economists, investors and bankers know Stefanel as something starkly different: a zombie company. It has posted an annual loss for nine of the last 10 years and restructured its bank debt at least six times, including several grace periods when Stefanel only had to pay interest on what it owed.
After booming during Italy’s post-World War II expansion, Stefanel and its lumbering factories were overwhelmed by Spanish fast-fashion giant Zara and then battered by the economic slowdown that hit Italy in 2008.
Stefanel is still alive but staggering. So are hundreds of other chronically unprofitable, highly indebted companies being kept afloat with new infusions from lenders and shareholders, especially in Southern Europe.
Economists and central bankers say zombies undercut prices charged by healthier competitors, create artificial barriers to entry and prevent the flushing out of (p. A10) weak companies and bad loans that typically happens after downturns.
Now that the European economy is in growth mode, those zombies and their related debt problems could become a drag on the entire continent.
“The zombification of the corporate sector and banks [is] a risk for future living standards,” Klaas Knot, a European Central Bank governor and the head of the Dutch central bank, said in an interview.
. . .
In some ways, zombie firms are an unintended side effect of years of easy money from the ECB, which rolled out aggressive stimulus policies, including negative interest rates, to support lending and growth. Those policies have been sharply criticized in some richer eurozone countries for making it easier for banks to keep struggling corporate borrowers alive.

For the full story, see:
Eric Sylvers and Tom Fairless. “Zombie Companies Haunt Europe’s Economic Recovery.” The Wall Street Journal (Thursday, November 16, 2017): A1 & A10.
(Note: ellipsis added.)
(Note: the online version of the article has the date Nov. 15, 2017, and the title “A Specter Is Haunting Europe’s Recovery: Zombie Companies.”)

Drug Middlemen Create “Perverse Incentive” for Higher List Prices

(p. B1) The Department of Health and Human Services is scrutinizing the system of rebates and discounts paid to middlemen as medicine flows from manufacturers to patients. Those middlemen, such as drug wholesalers, pharmacies, and pharmacy-benefit managers, are often compensated as a percentage of a drug’s list price. That creates a perverse incentive for higher list prices throughout the system.
. . .
Pfizer , which made headlines earlier this month by pausing a slate of planned price increases due to White House criticism, sounds ready for reform. Chief Executive Ian Read on a conference call with analysts last week predicted that rebates are “going away” over the long term. Mr. Read added that the larger gaps between list and net prices amounted to a “subsidy” for companies in the drug supply chain and blamed those subsidies for the relatively weak sales of certain lower-priced versions of blockbuster drugs.

For the full commentary, see:
Charley Grant. ” HEARD ON THE STREET; Skies Darken for Drug Middlemen.” The Wall Street Journal (Wednesday, Aug. 8, 2018): B1.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Aug. 7, 2018.)

Visionary Manifesto for Driverless Cars

(p. A13) Not surprisingly, optimism leaps off the pages of Lawrence D. Burns’s “Autonomy: The Quest to Build the Driverless Car–and How It Will Reshape Our World,” a combination of memoir and visionary manifesto. In contrast to “the personally owned, gasoline-powered, human-driven vehicles that have dominated the last century,” Mr. Burns writes, “we’re transitioning to mobility services based on electric-powered and driverless vehicles, paid for by trip or through subscriptions.” These services, he says, will get us around “safely and conveniently.” Meanwhile, we will avoid the “hassles of car ownership” and the time lost in parking and pumping gas, not to mention the costs that having a car entails.
. . .
After leaving GM during its 2009 bankruptcy, Mr. Burns became an ever-more emphatic advocate for the reinvention of the automobile, soon teaming up with Mr. Urmson and other technology pioneers at Google. This front-row seat at the project that popularized autonomous cars informs some of the most lively parts of “Autonomy.” At one point, a milestone goal is thought to be needed, with a payout bonus, so when Larry Page (Google’s co-founder) says, “I want this thing on any street in California to drive one hundred percent autonomous,” the Larry1K challenge is launched. The development of Waymo’s “Firefly” low-speed driverless car takes longer than expected and teaches the Silicon Valley team a new respect for Detroit’s skills. In turned out that “designing a vehicle was comparatively easy,” Mr. Burns writes. What was difficult was ” ‘hardening’ the vehicle’s various components”–making every part work under every driving condition. This was “the process at which Detroit engineering talent excelled.” A deal with Ford Motor Co. fails, but an investment banker and analyst, inspired by one of Mr. Burns’s visionary papers, does join Ford on a driverless-car project. As Mr. Burns recounts, personality clashes eventually blew up Google’s dream team and led to a lawsuit over intellectual-property theft against Uber, which had bought a driverless-trucking company founded by a Waymo veteran.

For the full review, see:
Edward Niedermeyer. “BOOKSHELF; Fast-Tracking A Driverless Car.” The Wall Street Journal (Tuesday, August 28, 2018): A13.
(Note: ellipsis added.)
(Note: the online version of the review has the date Aug. 27, 2018, and has the title “BOOKSHELF; ‘Autonomy’ Review: Fast-Tracking a Driverless Car; A period of remarkable progress seems to be giving way to a host of challenges that can’t be solved with engineering talent alone.”)

The book under review, is:
Burns, Lawrence D., and Christopher Shulgan. Autonomy: The Quest to Build the Driverless Car–and How It Will Reshape Our World. New York: Ecco, 2018.

Natural Experiment on Consumer Effects of Net Neutrality

(p. A25) TORONTO — The Federal Communications Commission is planning to jettison its network neutrality rules, and many Americans are distraught. Such a move, the Electronic Frontier Foundation warned, “invites a future where only the largest internet, cable and telephone companies survive, while every start-up, small business and new innovator is crowded out — and the voices of nonprofits and ordinary individuals are suppressed.”
Critics worry that getting rid of neutrality regulation will lead to a “two-tier” internet: Internet service providers will start charging fees to websites and apps, and slow down or block the sites that don’t pay up. As a result, users will have unfettered access to only part of the internet, with the rest either inaccessible or slow.
Those fears are vastly overblown.
. . .
So why am I not worried? I worked for a telecommunications company for 25 years, and whatever one may think about corporate control over the internet, I know that it simply is not in service providers’ interests to throttle access to what consumers want to see. Neutral broadband access is a cash cow; why would they kill it?
. . .
The good news is that we will soon have a real-world experiment to show who is right and who is wrong. The United States will get rid of its rules, and the European Union and Canada will keep their stringent regulations. In two years, will the American internet be slower, less innovative and split into two tiers, leaving Canadians to enjoy their fast and neutral net?
Or, as I suspect, will the two markets remain very similar — proving that this whole agonized debate has been a giant waste of time? Let’s check back in 2019.

For the full commentary, see:
Ken Engelhart. “Losing Net Neutrality: Nothing to Be Afraid Of.” The New York Times (Tuesday, Dec. 5, 2017): A25.
(Note: ellipses added.)
(Note: the online version of the commentary has the date Dec. 4, 2017, and has the title “Why Concerns About Net Neutrality Are Overblown.” The online version says that the New York edition ran the commentary on p. A27, instead of the A25 page on which it appeared in my National Edition copy.)

Wrecking Ball for Bureaucracy That “Is Killing the Country”

(p. B4) America’s big tech companies are facing some of their toughest political challenges as they flirt with or surpass trillion-dollar valuations. Before lawmakers try to rein them in, Reid Hoffman argues government officials better be careful what they wish for.
Mr. Hoffman was chief operating officer of PayPal while it was still a small payments startup before he co-founded the professional social-network LinkedIn.
. . .
WSJ: You’re vociferously opposed to President Trump and even commissioned an anti-Trump card game. Does Silicon Valley have a problem with liberal bias?
Mr. Hoffman: I do think that there is a reflexive bias to liberalism that causes discomfort. I think you have that kind of left bias within the Silicon Valley culture, too, which is, “I’m so convinced that’s idiotic, I’m not listening to anything about it.” And that’s the problem. The problem is not actively listening. But that’s human. It’s not only here. Part of the reason [for strong negative reactions] to Trump is the flat-out lies.
WSJ: When you talk politics with Peter Thiel, PayPal’s co-founder and a well-known Trump supporter, what are those conversations like?
Mr. Hoffman: He’s a friend of mine, but we’ve disagreed about politics since we were college undergraduates. One thing we argue about is how much does Trump lie? I’ve been trying to advance him the case that there’s always been some lying around politicians, but Trump is one or two orders of magnitude worse than ever before. He says Obama is a bigger liar than Trump–based on, for example, the claim that under Obamacare you’d be able to spend as much time with your primary doctor as you did before Obamacare.
Peter thinks that the bureaucracy is killing the country and that you need a wrecking ball to shake it up, and maybe Trump is the only wrecking ball you get. His pro-Trump arguments are that someone needed to stand up to China. Trump at least is, [while] everyone else gave it lip service.

For the full interview, see:
Rolfe Winkler, interviewer. “A Silicon Valley Warning.” The Wall Street Journal (Thursday, Sept. 27, 2018): B4.
(Note: ellipsis added; bolded and bracketed words in original.)
(Note: the online version of the interview has the date Sept. 26, 2018, and the title “LinkedIn’s Co-Founder Warns of Perils in Regulating Big Tech.” The last question and answer quoted above, is included in the online, but not the print, version of the interview.)

Free Trade Benefits Harley-Riding Econometricians (and All Other Consumers Too)

Roughly 40 years ago, I completed a very useful econometrics course at the University of Chicago taught by the author of the commentary quoted below. Life is hard to predict, with or without econometrics. Who could have predicted that Eddie Lazear would end up on a Harley?

(p. A15) When I served in the George W. Bush administration, a group of Harley-Davidson -riding cabinet members and White House principals led the 2008 Memorial Day Rolling Thunder motorcycle parade. I own a 100th Anniversary Year Road King Classic. I am disappointed to see President Trump singling out the iconic American motorcycle company for harassment–a precedent that could inflict long-run damage on the U.S. economy.

. . .
Mr. Trump may genuinely believe his trade tactics will pressure other countries to reduce their tariffs, resulting in freer trade overall. This is unlikely. In the meantime his policies impose steep costs on American firms, like Harley-Davidson, and the people who want to buy from them. The best way to get others to buy American is to produce high-quality goods inexpensively. Those American products that do well abroad, Harley-Davidson motorcycles among them, succeed because consumers value them, not because tariffs and trade-war threats force them to buy American.

For the full commentary, see:
Edward Lazear. “Keep Your Tariffs off My Harley.” The Wall Street Journal (Tuesday, Aug. 28, 2018): A15.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Aug. 27, 2018.)