Monthly Archives: June 2010

Jun 12 2010
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Food

On gravy

Crushing can also diversify the flavors that alliums contribute to cooked dishes. They’re valuable ingredients in part because their sulfur chemistry suggests and reinforces savory meat flavors. Last year a German study of meat stews found that by far the strongest contributor to the overall “gravy” aroma was an unusual sulfur compound that came not from the meat, but from the onions and leeks. And that compound appears only after these vegetables have been cut up.

From the NYT, here. The entire article is worth reading if you are interested in cooking at all, and especially if you are partial to onions and ginger.

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Jun 10 2010
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wine

The economics of Caymus

Caymus, the well-known producer of California cabernet sauvignon, has for years enforced its retail pricing through strict allocations of its wine (which over the lat 15 years has been in extremely high demand). Retailers and distributors are generally free to sell the wine at any price they choose, but could not advertise pricing lower than $70 for the regular Napa bottling or $150 for the Special Selection bottling. Both are certainly excellent wines, but Caymus’s insistence on holding a certain retail pricepoint has in some ways degraded the brand name that they built over the last two decades.

Here’s the story. In 2007 and early 2008, high end wines began to see a softening in demand, and in the latter half of 2008 that softening of demand turned into a free-fall. Most Californian producers who made wines priced over $50 saw their sales plummet as consumers stopped buying wine as status symbols and turned to more pertinent questions of “is this wine good?” and “is this wine a good value for me?”

High prices for cult-status Californian wines also often reflect extremely high prices of land (I remember hearing that Opus One bought an acre of land in the To Kalon vineyard for $250,000), high prices for state-of-the-art-winemaking facilities, and high prices for top winemaking talent (check out what Helen Turley charges, for instance…). In short, a lot of high-end production, while good, was represented by pricing that often had little or nothing to do with the actual quality of the wine, and many Californian producers ended up producing wines that were rather homogenous in style and geared to the tastes of wealthy people who treated wine more like a lifestyle than an agricultural product (as they do in France).

Caymus very quickly realized that their pricing strategy wouldn’t work, and began cutting deals with distributors and retailers, while trying to maintain the hard line about not advertising retail prices that were under certain pricepoints. But this was difficult, and for a while Caymus had some success getting internet retailers to remove price listings of the Special Selection (I’ve seen internet retailers list the Special Selection for as low as $85 online, a huge drop from 2005-2007, when it frequently retailed for $180). In enforcing their pricing, Caymus was often very aggressive with small retailers, who were often hit hardest by the slumping market. Retailers who had stocked up on Caymus often had large inventories of wine that represented a significant financial investment, but couldn’t discount that product to the market to maintain cash flow.

But it was impossible to maintain the hard line with everyone; in the recession, distributors and retailers started looking for better deals. Anecdotally, I have heard the large retailers on the East and West coast were cut in first on deals from Caymus and other cult-producers, and were able to retain some level of solvency on their Caymus inventory due to higher profit margins and their ability to access long-standing ‘handshake’ relationships with wealthy buyers who they could verbally communicate huge discounts to.

My own experience in this process has soured me on Caymus, who has conducted their pricing strategy and branding in a way that damaged their relationships with many small retailers and especially those who don’t have access to large markets. Their pricing scheme isn’t flexible to their relationships with many of the retailers who have worked with them for years, and has resulted in a veritable glut of expensive cabernet sauvignon in the market. The Wine Merchant in St. Louis, for example, recently started advertising the regular Napa bottling for $59, and other internet retailers are going as low as $55, which represents a $10 margin over cost (at least as of 2009).

The opinions here are my own and is not intended to represent the opinions of anyone else in the wine industry, though you’ll probably find many industry people who are willing to agree with me off the record.

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Jun 10 2010
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Uncategorized

Assorted links

Haven’t done one of these in a long time, but I’m feeling inspired…

1. On the nonlinear relationship between school quality and housing price

2. How C.O.P.S. grants (and other federal funding to local law enforcement) encourage fiscal irresponsibility

3. Dan Drezner asks some good questions about India and China

4. “…the most prized and dependable US soccer export.”

5. Kerala’s library movement

6. Garagiste raves about biodynamic Pouilly-Fume

7. The economics of regulating Missouri’s erotic services industry…and the political economy of regulating Missouri’s erotic services industry

Jun 09 2010
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history, politics

On not representing the status quo

…Voters may yet see Obama, in the years ahead, as disappointing or transformative or neither. But the one thing he will never really embody is the status quo.

From an excellent article in today’s NYT, here.

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Jun 09 2010
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Economics, law, politics

Economic development, markets, and a Missouri governor I’ll identify as “Jay Nixon”

Thomas Duda at the Show-Me Daily writes:

While reading the Springfield Business Journal, I ran across a mention of the governor’s recently formed Executive Advisory Board, which will produce “a five-year plan for economic growth.” The governor’s press release states:

The final outcome of the planning process will be six to 10 strategic objectives to transform Missouri’s economy for the 21st century. The objectives will pinpoint existing and future industries that will drive growth. Along with each strategic objective, the plan will include specific tactical steps necessary to accomplish the goal. The strategic objectives and tactics will focus on the next five years.

Although I find the Executive Advisory Board’s mandate ludicrous — that state government should chart and shape the course of something as complex as our collective future economic development, I do find it encouraging that a committee member quoted in the Springfield Business Journal stated:

“We spend lots of money on economic development every year. The question is, ‘Are we strategically aligned to do it in the most effective way?’”

Obviously, the panel will not consider the possibility that the state of Missouri leave the business of economic development entirely, but I am somewhat hopeful that Executive Advisory Board just might conclude that the termination of some market-distorting policies would set Missouri on a course toward a freer and more prosperous future.

Say there are several companies in cutting edge industry X that are trying to make location decisions. The key criteria for a potential location is whether or not the legal architecture for that business to operate exists or not. Do you think it is appropriate for a governmental commission to try to predict what kind of legal architecture is necessary to sustain economic growth? Consider the much debated but unarguably important scholarship of Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert Vishny (LLSV 1998) whose data-driven approach to analyzing the relationship between legal development and economic growth has been influential in persuading governments to support markets, not replace them (LLS 2008).

Consider, too, that this is not just a commission that can be characterized in a strict government/free market dichotomy. The press release notes that the commission will be directed by top business leaders; this is more appropriately characterized as a place where the public and private spheres interact to increase the efficiency of both. I point you to Vincent Ostrom, who notes in an interview with Vernon Smith:

Instead, we should expect to find some combination of market and non-market structures in every society, and we should recognize the complex configuration of institutions behind labels such as “capitalism”. We might usefully think about combinations of private and public economies existing side by side. However, it’s important to stress that not all forms of public enterprise are, or need to be, state-owned and operated. Markets are diverse and complex entities. Markets for different types of goods and services may take on quite different characteristics. Some may work well under the most impersonal conditions. Others may depend upon personal considerations involving high levels of trust among trading partners. In other words, the options are much greater than we imagine, and we can see this is true if we don’t allow our minds to be trapped within narrowly constrained intellectual horizons.

I hazard a guess that Duda does not account for these parameters. Consider Maryland, for instance. The economic development commission there (if there is one) there could make the determination that laws barring video recording of law enforcement provides a poor legal architecture for the existence of citizen journalism or documentary filmmakers, among others. Relaxing these laws would stimulate economic activities by people and firms who previously were priced out of the market by liability costs.

Or alternatively, an economic development commission could find that biotech companies would be happy to relocate to Missouri if they could rely on a legal architecture that protects them from unfair claims of tort. Without that architecture, biotech companies wouldn’t be willing to relocate to Missouri, and we’d lose what might otherwise be an very productive industry to another place.

I don’t want to extend this argument to subsidizing businesses to relocate through tax incentives and other kinds of public financing. But I do think that the notion that Governor Nixon is interested in promoting sensible economic development through the work and advice of private-sector leaders commendable, and I think that there are good arguments as to why.

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Jun 08 2010
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Economics, law

More forfeiture advocacy–Columbia City Council, June 7th, 2010

I spoke to the Columbia City Council last night, delving into specifics on how forfeiture money is retained by local and federal law enforcement in circumvention of of the Missouri constitution (Article IX, Section 7) and Missouri statutory law (RsMO 166-131, RsMO 166-300). Here is a link to the video; I speak at 2:27:30.

Here is the white paper I sent to the Columbia City Council last month in Microsoft Word format (*.doc). The topic is forfeiture money and how allowing law enforcement to retain the proceeds of forfeiture skews their incentive structures and disconnects law enforcement policy from voter and legislative preferences.

Addendum: here is the link to the 1990 Missouri Supreme Court opinion I cite (Reorganized School Dist. No 7 v. Douthit).

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Jun 04 2010
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Economics, politics

Talking to Mary Still on payday loan reform

I spoke to Missouri state representative Mary Still (D-MO 25) on her attempts to regulate payday lending. Also present was Abhi Sivasailam, a scholar at the Show-Me Institute, who is writing a policy study on the issue of payday loan reforms. Previously I wrote about Still’s efforts to regulate the industry here; my basic conclusion is first that a lot of the relevant data that might help us quantify the harms of payday lending does not exist or is unclear and second that I think that the real regulatory challenge is to tranche the market in a way that minimizes the harms that payday loans are implicated in.

There are easy ways to break this down into a free-market vs. anti-market debate. I don’t like them because I think that the hard ideological line is, well, wrong. It would be easy to accuse Still of being anti-market, but after speaking with her, I think she makes a much more nuanced claim. Part of it is simply that regardless of who is right about the normative question of “should we regulate payday loan providers out of business or not?”, there are reasonable arguments to be made that companies in this industry in Missouri have behaved extremely poorly.

The best piece of evidence that exists for this claim is that the payday loan industries were able to move enough money around to Missouri House Republicans that the speaker, Ron Richards, kept the Still’s payday lending bill out of committee for several months, and when the bill was assigned to committee, the hearing was chaired by Don Wells from Cabool, a Republican who himself owns payday lending stores. The hearing on the bill was deceptively presented as an information presentation on lending practices, which Still herself, the author of the bill in question, was not invited to or allowed to speak at. Testimony was exclusively presented by people in the payday loan industry, without any rejoinder.

There also seem to be substantial harms in the status quo that payday loans are implicated in. There is a lack of data to quantify these harms, and researchers are often forced to use proxies, like the number of bounced checks or bankruptcy filings in a region. While these are useful, there are some meaningful questions about possible omitted variables and trends that may color the data partially. No one has done simple, ground level research to improve the quality of the data available; while the Better Business Bureau collects data on received complaints, the people who are most harmed by a payday lender are often the least likely to file a complaint. The internal arguments there are that the people who are most likely to get locked into repeat loans and extremely high fees/interest rates are also the people who tend to be poorly educated, financially ignorant, and politically weak.  Poor people face extremely high barriers in simply accessing the information needed to know that legal mechanisms to arbitrate claims of tort exist and face high barriers accessing them (poor people have limited access to transportation and face much greater tradeoffs in terms of taking the time away from work or family to engage in that process).

Abhi notes studies in the literature (sorry, I’m lacking in the citation of the specific arguments but I will correct that later) lead him to the conclusion that payday lenders are good for the average borrower but bad for the marginal borrower. The studies he points to note that there is a clear discontinuity in the bankruptcy data for people taking out payday loans that can be isolated when you look at the credit scores of applicants. That is, there is a clearly definable threshold where people who are below a specific credit score tend to have a much higher rate of bankruptcy after they start taking out payday loans. The other study notes that there is an increase in bankruptcies and bounced checks in two states (Georgia and North Carolina) after payday lending is banned or regulated out of the market. The conclusion that can be drawn from these studies is that perhaps we should look at regulations that restrict access to payday loans by credit score or through some other similar mechanism. This has the benefit of allowing the market to function for those people who are able to benefit from the liquidity options that payday loans present without harm while restricting the market to exclude the people who are most likely to go bankrupt after using payday loans. Still agreed with the thrust of that analysis, which I don’t know has been a part of the legislative or popular debate to date.

The other issues that I think are at play here is the access to basic banking and financial mechanisms that aren’t often offered to low-income or minority communities by the market. Payday lending and the associated harms are more symptoms of this problem than they are problems themselves; I think it is true that in a world where it easy for poor people to access mainstream financial products they have fewer liquidity needs that lead them to payday lenders. Still agrees with that fundamental argument and is working with Missouri state treasurer Clint Zweifel towards that end. Still also indicates that she is receptive to tax-increment financing (TIF) to induce mainstream banking institutions to penetrate low-income communities, though she also hinted that in the long term the market is trending in that direction.

Addendum: Abhi’s previous work on payday lending is here and here, published through the Show-Me Daily.

Addendum the second: Abhi discusses our conversation with Still, here.

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Jun 03 2010
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Economics, history

Charles Dickens on globalization and pineapples

From Charles Dickens in his tome “On Travel“, p51-2:

When Don Diego de–I forget his name–the inventor of the last new flying machines, price so many francs for ladies, so many more for gentlemen–when Don Diego, by permission of Deputy Chaff Wax and his noble band, shal have taken out a patent for the Queen’s dominions, and shall have opened a commodious warehouse in  an airy situation; and when all persons of any gentility will keep at least a pair of wings, and be seen skimming about in every direction; I shall take a flight to Paris (as I soar round the world) in a cheap and independent manner. At present, my reliance is on the South Eastern Railway Company, in whose xpress train here I sit, at eight of the clock on a very hot morning, under the very hot roof of the terminus at London Bridge, in danger of being ‘forced’ like a cucumber or a melon, or a pineapple–and talking of pineapples, I suppose there were never so many pineapples in a train as there appear to be in this train.

Whew! The hothouse air is faint with pineapples. Every French citizen or citizeness is carrying pineapples home. The compact little enchantress in the corner of my carriage (French actress, to whom I yielded up my heart under the auspices of that brave child ‘Meat-chell’, at the St. James’s Theatre of the night befor last) has a pineapple in her lap. Compact Enchantress’s friend, confidante, mother, mystery, Heaven knows what, has two pineapples in her lap, and a bundle of them under the seat. Tobacco-smoky Frenchmen in Algerine wrapper, with peaked hood forward, who might be Abd-el-Kader dyed rifle-green, and who seems to be dressed entirely in dirt and braid, carries pineapples in a covered basket. Tall, grave, melancholy Frenchman, with black Vandyke beard, and hair close-cropped with expansive chest to waistcoat, and compressive waist to coat, saturnine as to his pantaloons, calm as to his feminine boots, precious as to his jewellery, smooth and white as to his linen, dark-eyed, high-foreheaded, hawk-nosed–got up, one thinks, like Lucifer or Mephistopheles, of Zamiel, transformed into a highly genteel Parisian, has the green end of a pineapple sticking out of his neat valise.

Pineapples, by the way, are originally from south Brazil/Paraguay, and were first brought back to Europe by Christopher Columbus.

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Jun 03 2010
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history, Language, Music

“White Negros” and hipsters

From Ulrich Adelt’s Blues Music in the Sixties: A Story in Black and White:

The complex identification of white people with black sounds has a longstanding tradition, as many scholars have traced. A key text to understanding white appropriations of blackness is Norman Mailer’s glowing description of the “White Negro”: a term that Paul Verlaine had introduced to characterize fellow poet Arthur Rimbaud. In his 1958 essay, Mailer equated the appropriation of black culture (in particular jazz spontaneity) with being a hipster, a view also apparent in many writings of the 1950s Beat Generation, like those of Jack Kerouac and Allen Ginsberg. A few years earlier, Franz Fanon had vividly described what he saw as the alienation of black men in the face of white oppression. In an astonishing role reversal, Mailer envisioned black men as something real to aspire to in the face of white alienation. The White Negro drew mixed reactions after its publication. While James Baldwin criticized what he saw as Mailers sexual insecurity and romanticism, Eldridge Cleaver aligned Mailer’s hedonistic fantasies of primitivized masculinity with his own and connected the White Negro to student protests at the University of California at Berkeley.

Here is the wiki on The White Negro.

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Jun 02 2010
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Economics, politics, pop culture

Gay McDonalds ad in France

Note the final words (“come as you are”). It is strange to think that many Americans, particularly those who define themselves through their attachment to a Christian ideology, are not so open and accepting of difference as McDonald’s is willing to be.

H/T: Justin Scott.

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Jun 02 2010
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Economics, law, Music

The history of blind auditions

From Nat Hentoff’s (really) excellent At the Jazz Band Ball: Sixty Years on the Jazz Scene. This selection is from chapter 47, “The Thoreau of Jazz”:

Art Davis, who died of aheart attack at seventy-three on July 29, 3007, was, for me, the Henry David Thoreau of jazz. I’ve known many people in the jazz family with admirable integrity, but Art Davis’s was fiercely unbreakable, whatever the cost.

…

Art Davis was a complete musician, as authoritative in a symphonic orchestra, a Broadway pit band, network studio assignment or accompanying, as he did, Judy Garland or country music comedienne Minne Pearl.

He also became a pariah in parts of the music business for years because he insisted on breaking the color line in symphony orchestras. As I had reported in the The Reporter magazine in the late 1950s, it was not only that Jim Crow managed much of that hiring. Also, as positions opened in an orchestra, the first-chair players (all of them white) would get management to hire their best students (also white) for those chairs.

For years, Art, having been turned down by leading symphony orchestras, challenged the conductors to pit him against any classical bassist they chose in an open competition. There were no takers. In the 1970s, he sued the New York State Philharmonic for racial discrimination, and as the years went on, until the case was dismissed, Art lost a lot of the previously highly diversified work for which he had been sought. Obviously, the man was a “troublemaker”.

But because of the lawsuit, the attendant publicity and Art’s continuing challenge to put any symphonic bass part–however deeply traditional or unprecedently avant-garde–before him in competition for a gig in any world-famous orchestra, he became the major force that created “blind auditions”. It became the practice, when there was an opening for any instrument, to audition the player behind a screen so that those judging his or her abilities–Art also protested gender discrimination–could hear the music but not see the musician. He lost the lawsuit, but won the battle.

Here is William Osborne with more on blind auditions and gender.

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Jun 01 2010
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law, politics

Racism, juries, and justice denied

From the Equal Justice Initiative:

The staff of the Equal Justice Initiative (EJI) has looked closely at jury selection procedures in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, South Carolina, and Tennessee. We uncovered shocking evidence of racial discrimination in jury selection in every state. We identified counties where prosecutors have excluded nearly 80% of African Americans qualified for jury service. We discovered majority-black counties where capital defendants nonetheless were tried by all-white juries. We found evidence that some prosecutors employed by state and local governments actually have been trained to exclude people on the basis of race and instructed on how to conceal their racial bias. In many cases, people of color not only have been illegally excluded but also denigrated and insulted with pretextual reasons intended to conceal racial bias. African Americans have been excluded because they appeared to have “low intelligence”; wore eyeglasses; were single, married, or separated; or were too old for jury service at age 43 or too young at 28. They have been barred for having relatives who attended historically black colleges; for the way they walk; for chewing gum; and, frequently, for living in predominantly black neighborhoods. These “race-neutral” explanations and the tolerance of racial bias by court officials has made jury selection for people of color a hazardous venture, where the sting of exclusion often is accompanied by painful insults and injurious commentary.

This is worthwhile scholarship. Why hasn’t this happened before?

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