Posts Tagged ‘economics’
“Those who live by the sea can hardly form a single thought of which the sea would not be part”*…
If only. All of us on this interconnected planet are deeply beholden to our oceans; but all too few of us, all too infrequently, pay them heed. Surabhi Ranganathan explores one too-seldom considered dimension in which we need to address that deficit: the “Law of the Sea.” As she explains, the growing international competition for reclamation, navigation, cabling, and undersea resource rights, against the backdrop of climate change, demand a radically-revised approach…
I write this essay in an office in Singapore, where I have just learned an arresting fact. The legal historians Antony Anghie and Kevin Tan have informed me that in the course of my arrival, via Terminal 3 of Singapore’s Changi Airport, I must have crossed – on foot – the probable spot where, more than 400 years ago, the Dutch East India Company (VOC) Captain Jacob van Heemskerk captured the Santa Catarina, a Portuguese ship. This makes sense: in Martine van Ittersum’s rich description of the incident, she notes that it took place at the entrance of the Singapore Straits. Heemskerk, the story goes, made a wild dash to Johor from Tioman Island upon receiving news that two Portuguese carracks laden with spices, silks, and porcelain, would be moving through the Straits. Having missed the first, he awoke on the morning of February 25, 1603, to find the second, the Catarina, right before his eyes. He swiftly captured the ship just off Singapore’s eastern shoals. In the time since that event, projects of reclamation have increased Singapore’s total land area by 25 percent, and Changi airport occupies one such reclaimed part, sitting where the shoals used to be.
The Catarina’s capture occupies an important place in the history of international law. The incident was part of an imperial struggle between European states over access to trade with the East Indies. Such trade promised fabulous wealth: the goods recovered from this event alone sold for over three million guilders in the markets of Amsterdam, an amount that was roughly double the capital of the English East India Company. Portugal was outraged by the loss, while the VOC was keen to defend its actions. On retainer from the company, the jurist Hugo Grotius—then just in his early twenties!—wrote a brief that is now regarded as a foundational text, Mare Liberum, or The Free Sea.
Grotius argued that the sea was entirely unlike land. Land, being fixed, cultivable and, most importantly, exhausted by its use, could be regarded as divisible, subject to public and private ownership, and demarcated by national boundaries. The sea was fluid and constantly in movement; it was indivisible, unoccupiable, inexhaustible, indeed unalterable for better or worse via human activity. As such, it was irreducible to private ownership or state sovereignty. That being the case, it was Portugal that had acted wrongfully in claiming exclusive rights of maritime navigation and commerce with the Indies.
The Grotian imaginary of the sea persisted for centuries. The principle of the freedom of the seas came to define oceanic activities from navigation to fishing. Indeed, modern international law continues to express a principle of maritime freedom, though it is a far narrower form of freedom than Grotius initially claimed.
Today, international treaties, states, institutions, corporations, and courts all recognize that the ocean is divisible and, in parts even appropriable, in the same way as land. Oceanic resources are exhaustible and can also be enhanced by human endeavor: cultivation through new methods like aquaculture is increasingly seen as essential to assure the global supply of fish. In the decades since the Second World War, a dense network of legal rules on access, use-rights, and responsibilities have developed to regulate the crowding conglomerations of interests and territorial claims upon the oceans.
Moreover, international law has been increasingly called upon not only to articulate the ways land and sea resemble each other, but also to address the mutability of those very categories. Thanks to legal and technological innovations, what was once sea might become land: the reclamation projects that have accounted for the site of Changi Airport are but one example. In the other direction, rising sea levels and intensifying critical weather events can quickly turn what was once land into sea. Down in the deep, the binary between land and sea is confounded by formations which appear as neither fully one nor quite the other.
The shifting relation between land and sea reflects the scale of human impact on the environment. This unstable relation forces us to confront the consequences of climate change, as the fixed certainties — soil, resources, infrastructure – that have for so long governed our imagination of land begin to fall apart. As a result, we must contend with new expectations of, and investments in, the sea…
Down in the deep, the legal distinction between land and sea no longer holds– and that’s a problem: “The Law of the Sea,” from @SurabhiRanganat in @thedialmag.
* Hermann Broch
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As we go deep, we might recall that it was on this date in 1911 that RMS Titanic was launched from the boatyard in Belfast in which it was built, the largest passenger ship of its day. A state-of-the-art steamship, it set sail from Southampton on its maiden voyage on march 10th of the following year, bound for New York City. Four days later, after calls at Cherbourg in France and Queenstown (now Cobh) in Ireland, the “unsinkable” Titanic collided with the iceberg that sent it under in the North Atlantic, 375 miles south of Newfoundland.
When the location of the wreck of Titanic was discovered in 1985, there was fear that extant Admiralty law would allow for the “looting” of what its discoverer believed should be “a monument.” In an example that the Law of the Sea can in fact be revised, the RMS Titanic Maritime Memorial Act was passed in 1986. (After the Act’s passing, the Department of State proposed an agreement with the United Kingdom, Canada and France (as well as other interested countries) to enact the policies from the 1986 Act on an international scale… the U.K. ratified it briskly, but the U.S. didn’t get around to it until 2019. France and Canada are pending. In the meantime, the wreck of Titanic has been revisited on numerous occasions by explorers, scientists, filmmakers, tourists and salvagers, who have recovered thousands of items from the debris field for conservation, public display… and sale.
“The only advantage of not being too good a housekeeper is that your guests are so pleased to feel how very much better they are”*…
Roomba is on the rise, but is the humble carpet sweeper poised for a rebound? Edward Tenner considers…
Every so often technology critics charge that despite the exponential growth of computer power, the postwar dreams of automated living have been stalled. It is true that jetpacks are unlikely to go mainstream, and that fully autonomous vehicles are more distant than they appear, at least on local roads. And the new materials that promised what the historian of technology Jeffrey L. Meikle has called
“damp-cloth utopianism”—the vision of a future household where plastic-covered furnishings would allow carefree cleaning—have created dystopia in the world’s oceans.Yet a more innocent dream, the household robot, has come far closer to reality: not, it is true, the anthropomorphic mechanical butler of science-fiction films, but a humbler machine that is still
impressive, the autonomous robotic vacuum cleaner. Consider, for example, the Roomba®. Twenty years after introducing the first model, the manufacturer, iRobot, sold itself to Amazon in August 2022 for
approximately $1.7 billion in cash. Since 2013, a unit has been part of the permanent collection of the Smithsonian’s National Museum of American History.As the museum site notes, the first models found their way by bumping into furniture, walls, and other obstacles. They could not be programmed to stay out of areas of the home; an infrared-emitting
accessory was needed to create a “virtual wall.” Like smartphones, introduced a few years later, Roombas have acquired new features steadily with a new generation on average every year. (They have also inspired a range of products from rival manufacturers.) Over 35 million units have been sold. According to Fortune Business Insights Inc., the worldwide market was nearly $10 billion in 2020 and is estimated to increase from almost $12 billion in 2021 to $50.65 billion in 2028.…
Adam Smith might applaud the Roomba as a triumph of the liberal world order he had endorsed. Thanks to the global market- place for design ideas, chips, and mechanical parts, he might remark,
a division of labor—Roomba is designed mainly in the United States by an international team and manufactured in China and Malaysia—has benefited consumers worldwide. Smith would nonetheless
disapprove of the economic nationalism of both the United States and China that has made managing high-technology manufacturing chains so challenging.Yet Smith might also make a different kind of observation, high-lighting the technology’s limits rather than its capabilities…
Yet Smith might also make a different kind of observation, high-lighting the technology’s limits rather than its capabilities… Could household automation be not only irrelevant to fundamental human welfare, but harmful? As an omnivorous reader, Smith would no doubt discover in our medical literature the well-established dangers of sedentary living (he loved “long solitary walks by the Sea side”) and the virtues of getting up regularly to perform minor chores, such as turning lights on and off, adjusting the thermostat, and vacuuming the room, the same sorts of fidgeting that the Roomba and the entire Internet of Things are hailed as replacing. In fact the very speed of improvement of robotic vacuums may be a hazard in itself, as obsolescent models add to the accumulation of used batteries and environmentally hazardous electronic waste.
As the sustainability movement grows, there are signs of a revival of the humble carpet sweeper, invented in 1876, as sold by legacy brands like Fuller Brush and Bissell. They offer recycled plastic parts, independence of the electric grid, and freedom from worry about hackers downloading users’ home layouts from the robots’ increasingly sophisticated cloud storage…
Via the estimable Alan Jacobs and his wonderful Snakes and Ladders: “Adam Smith and the Roomba®” from @edward_tenner.
(Image above: source)
* Eleanor Roosevelt
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As we get next to godliness, we might spare a thought for Waldo Semon; he died on this date in 1999. An inventor with over 100 patents, he is best known as the creator of “plasticized PVC” (or vinyl). The the world’s third most used plastic, vinyl is employed in imitation leather, garden hose, shower curtains, and coatings– but most frequently of all, in flooring tiles.
For his accomplishments, Semon was inducted into the Invention Hall of Fame in 1995 at the age of 97.
“It’s very easy for trusted companies to mislead naive customers, and life insurance companies are trusted”*…
Systemic risk in the financial system– the kind that can create devastation like the Crash of 2008— has been the province of regulators for many decades, primarily the SEC and the Federal Reserve. But as our financial system has become more complex and intertwined, that risk may have moved from the stock market and banks to other sectors, sectors less well regulated. As John Ellis explains in his terrific newsletter, News Items, we might do well to turn our attention to the seemingly staid insurance industry…
The Fed exists to oversee banking, but lately it’s been keeping an eye on life insurance, too. Its recent Financial Stability Report flagged some life-insurance practices that might make the system vulnerable. Some insurers invest in assets that “can suffer sudden increases in default risk,” the report said. And some use “nontraditional” funding sources that could dry up “on short notice.”
That sounds ominous. But not long after that, Jon Gray, the president of private-equity giant Blackstone, turned up in a Financial Times article, saying life insurers had the wherewithal to bolster America’s weakened regional banks.
Gray said private equity firms like Blackstone could get “very low-cost capital” from life insurers and extend it to regional banks, to fund their lending operations. That would be a boon, because the banks’ usual source of funding, customer deposits, has grown more expensive and flighty in the wake of this year’s bank failures. So the life insurers could help ease a credit squeeze.
And once the banks make the loans, Gray said, the insurers might like to acquire some of them as investments. Blackstone manages billions of dollars of insurance investments, and Gray said the firm was already talking with large, unnamed regional banks about such deals.
So, what’s up with life insurance? Is the industry so flush it can send money to shore up America’s weakened banks? If so, then what’s the Fed worried about?
As it happens, a group of Fed economists has some answers. They got under the hood of the life insurance industry and combed through the voluminous regulatory filings of more than a thousand life insurers in the years since the crash of 2008. The U.S. financial system was going through major changes then, and they wanted to understand how the insurers had navigated the changing landscape.
One trend they observed: First, America’s bailed-out banks, seen as having gambled with their depositors’ money, were brought under the broad financial-reform legislation known as Dodd-Frank. It steered them away from making any more loans to big, low-rated borrowers. Then, once the banks had departed that space, life insurers moved in.
As a result, “These insurers have become exponentially more vulnerable to an aggregate corporate sector shock,” wrote the three economists, Nathan Foley-Fisher, Nathan Heinrich, and Stéphane Verani, in a paper first published in February 2020 and updated in April of this year.
Their findings cast the life insurance industry in a very different light from the traditional image of dull, stable companies plodding along under the weight of big, safe, bond-laden investment portfolios.
“Within ten years, the U.S. life insurance industry has grown into one of the largest private debt investors in the world,” the three wrote.
At the end of 2020, life insurers managed one-fourth of all outstanding CLOs, or collateralized loan obligations – bond-like securities backed by pools of loans to large, low-rated borrowers. Because the underlying borrowers have low ratings, CLOs pay a higher yield than the high-grade corporate bonds a conventional life portfolio would hold.
The insurers were also using unusual sources of capital to fuel their growth (funding-agreement-backed repos, anyone?). Not all life insurers, but a certain cohort was doing the kind of business the big banks did before the financial crisis, “but without the corresponding regulation and supervision.”
The economists called it “a new shadow-banking business model that resembles investment banking in the run-up to the 2007-09 financial crisis.”
Their reports describe the trends in detail, but in measured tones. No flashing red lights or alarm bells. But they do tell how things could go south: “A widespread default of risky corporate loans could force life insurers to assume balance sheet losses” from their CLO holdings.
Institutional investors watch life insurers carefully and know where the shadow-banking activity is concentrated; they would presumably see the losses coming and withdraw from the affected insurers in time. That’s what we’ve been seeing in the regional banking sector this spring, where savvy investors have identified potential problem banks and sold or shorted their stocks. The trouble is, such trading can turn a potential problem into a real one.
Upshot: “U.S. life insurers may require government support to prevent shocks from being amplified and transmitted to the household sector,” the three warn…
[Ellis explains how this happened; TLDR: life insurers chased yield; private equity firms obliged.]
The Fed researchers said the private-equity firms appear to be giving their affiliated insurers “some of the riskiest portions” of the CLOs that they package. Since risk and reward go hand in hand, presumably the insurers are getting better returns than they would from safe bonds.
But still, should America’s insurance regulators be allowing this? Remember, America’s banks were told to stop.
The National Association of Insurance Commissioners has, in fact, proposed a change in the post-crisis rule that’s been letting insurers count risky CLOs as if they were safe bonds.
But the NAIC isn’t a regulator; it’s a non-governmental organization that represents America’s 56 insurance regulators (one for each state, five for the territories, and one for the District of Columbia). The regulators often have different priorities and viewpoints, and when the NAIC makes a proposal, it can take years to get the necessary buy-in.
So here we are. Countless policyholders and annuitants are diligently paying their premiums to keep their contracts in force, unaware of these trends. The Fed’s economists see undisclosed risk, but the Fed has no legal authority to regulate insurers. The insurance regulators don’t seem in any rush to rein in the risk-takers. Keep in mind: Life-and-annuity is a $9 trillion industry that doesn’t have anything like the FDIC…
Eminently worth reading in full (along with the report and the paper linked above): “Risky Business,” from @EllisItems.
(Image above: source)
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As we whack the mole, we might recall that it was on this date in 1931 that the New York Stock Exchange began regularly reporting short selling data for the first time. The Crash of 1929 had rocked the stock market; the Dow dropped 32.6% in 1930 as the American economy took a nosedive (unemployment doubled to 16.3% by 1931, as the Great Depression set in). But short sellers in the stock market made a killing. Consequently, those short sellers took a lot of heat for the stock market crash of 1929, which led to the enactment of the uptick rule (requiring that short selling orders be filled only during upticks in share prices and meant to mitigate the negative impact of short sales) shortly thereafter. The reporting of short orders/sales was another step toward reining in the phenomenon.
The uptick rule was abolished in 2007, just prior to the market crash of 2008.
“Mounting a campaign against plutocracy makes as much sense to the typical Washington liberal as would circulating a petition against gravity”*…
Brad DeLong elaborates on Jonathan Kirshner‘s bracing review of Martin Wolf‘s important new book…
Jonathan Kirshner: Rigged Capitalism and the Rise of Pluto-populism: On Martin Wolf’s The Crisis of Democratic Capitalism: ‘The middle third of this book, “What Went Wrong,” should be required reading…. When it comes to solutions, unfortunately, The Crisis of Democratic Capitalism comes up short. Wolf, ever measured, is convincing in making the case for reform over revolution…. Yet it is disheartening that the sensible, reformist agenda of reasonable, practical measures that Wolf outlines already seems beyond the capacity of our politics…. Massive concentrations of wealth for a sliver of largely-above-the-law plutocrats, combined with stagnation and declining opportunities for the majority—leads to a basic political problem: “How, after all, does a political party dedicated to the material interests of the top 0.1 percent of the income distribution win and hold power in a universal suffrage democracy? The answer is pluto-populism”… [which] unleash[es] forces… [that] render liberal democracy unsustainable…. corruption, arbitrariness of justice, and fear for future prospects are poisonous to the body politic…. Its final sentence, “If we fail, the light of political and personal freedom might once again disappear from the world,” reads less like a call to action and more like an epitaph…
Martin Wolf’s The Crisis of Democratic Capitalism and Barry Eichengreen’s The Populist Temptation are, I think, the best books on theDover-Circle-Plus societies current Time of Troubles. And there is no clear way through.
It was James Madison who wrote, in 1787:
Democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths…
And the death of real democracy does not have to be accompanied by the end of the form. The classic example here is the Jim Crow U.S. South from 1876-1965. It was less than half as rich as the rest of the United States for almost a complete century. It was ruled by an oligarchy uninterested in economic development and very interested in corruption. The oligarchy its power by focusing the electorate on the necessity of keeping the Black Man Down, and tarring anyone who wanted a government that was less corrupt or more pro-development with being a negro-lover. That it held rocksolid from 1876 to 1965 shows that the future of anything we could call prosperous democratic capitalism is not assured…
Bracing: “Pluto-Populism,” from @delong.
See also: Kishore Mahbubani‘s “Democracy or Plutocracy? – America’s Existential Question” (source of the image above).
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As we get back to basics, we might recall that it was on this date in 1934 that Depression Era bandits Bonnie and Clyde were ambushed by police and shot to death in Bienville Parish, Louisiana. Bonnie Elizabeth Parker and Clyde Chestnut (Champion) Barrow were a criminal couple who traveled the Central United States with their gang during the Great Depression. The couple were known for their bank robberies, although they preferred to rob small stores or rural funeral homes. Their exploits captured the attention of the American press and its readership during what is occasionally referred to as the “public enemy era” between 1931 and 1934.
The 1967 hit film Bonnie and Clyde, directed by Arthur Penn and starring Warren Beatty and Faye Dunaway in the title roles, revived interest in the couple, who were treated somewhat sympathetically. The 2019 Netflix film The Highwaymen depicted their manhunt from the point of view of the pursuing lawmen but received mixed reviews.
“Man is a part of nature, and his war against nature is inevitably a war against himself”*…
A sobering new study finds that the world’s biggest industries burn through $7.3 trillion worth of free natural capital a year. And it’s the only reason they turn a profit…
The notion of “externalities” has become familiar in environmental circles. It refers to costs imposed by businesses that are not paid for by those businesses. For instance, industrial processes can put pollutants in the air that increase public health costs, but the public, not the polluting businesses, picks up the tab. In this way, businesses privatize profits and publicize costs.
While the notion is incredibly useful, especially in folding ecological concerns into economics, I’ve always had my reservations about it. Environmentalists these days love speaking in the language of economics — it makes them sound Serious — but I worry that wrapping this notion in a bloodless technical term tends to have a narcotizing effect. It brings to mind incrementalism: boost a few taxes here, tighten a regulation there, and the industrial juggernaut can keep right on chugging. However, if we take the idea seriously, not just as an accounting phenomenon but as a deep description of current human practices, its implications are positively revolutionary.
To see what I mean, check out a recent report [PDF] done by environmental consultancy Trucost on behalf of The Economics of Ecosystems and Biodiversity (TEEB) program sponsored by United Nations Environmental Program. TEEB [Editor’s note: TEEB is now known as the Natural Capital Coalition] asked Trucost to tally up the total “unpriced natural capital” consumed by the world’s top industrial sectors. (“Natural capital” refers to ecological materials and services like, say, clean water or a stable atmosphere; “unpriced” means that businesses don’t pay to consume them.)…
The majority of unpriced natural capital costs are from greenhouse gas emissions (38%), followed by water use (25%), land use (24%), air pollution (7%), land and water pollution (5%), and waste (1%).
So how much is that costing us?… the total unpriced natural capital consumed by the more than 1,000 “global primary production and primary processing region-sectors” amounts to $7.3 trillion a year — 13 percent of 2009 global GDP… Of the top 20 region-sectors ranked by environmental impacts, none would be profitable if environmental costs were fully integrated. Ponder that for a moment: None of the world’s top industrial sectors would be profitable if they were paying their full freight. Zero…
The distance between today’s industrial systems and truly sustainable industrial systems — systems that do not spend down stored natural capital but instead integrate into current energy and material flows — is not one of degree, but one of kind. What’s needed is not just better accounting but a new global industrial system, a new way of providing for human wellbeing, and fast…
“None of the world’s top industries would be profitable if they paid for the natural capital they use,” from @grist.
See also: “The Biophilia Paradox,” from Clive Thompson (@pomeranian99).
* Rachel Carson
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As we buy it because we broke it, we might recall that it was on this date in 1980 that Coyote finally caught Road Runner– in Chuck Jones’ “Soup or Sonic,” which aired as part of the television special Bugs Bunny’s Bustin’ Out All Over.
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