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A fishy tale of monopoly power

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There’s a fascinating article in The Washington Monthly about a kind of fish, the menhaden. The stocks are in precipitous decline, and as the fish is at the bottom of the food chain, other fish and birds are dying as a result, and the coastal waters near the shore are becoming increasingly covered in algae. Author Alison Fairbrother writes:

“Pound for pound, more menhaden are pulled from the sea than any other fish species in the continental United States, and 80 percent of the menhaden netted from the Atlantic are the property of a single company.”

The fish are used for feed pellets, cosmetics, fertilizer and many other products, including now Omega-3 fish oil for foods, so they are factory-fished. The business is more or less a monopoly – the company fishing menhaden out of the Atlantic is Omega Protein, coincidentally a significant donor to political campaigns.

The menhaden story isn’t new to me. In 2007 I read a marvellous and terrifying book about their decline, [amazon_link id=”1597265071″ target=”_blank” ]The Most Important Fish in the Sea[/amazon_link] by H Bruce Franklin.

 [amazon_image id=”1597265071″ link=”true” target=”_blank” size=”medium” ]The Most Important Fish in the Sea: Menhaden and America[/amazon_image]

Omega Protein is a renamed and merged corporate descendant of Zapata Oil, founded in 1952 by the future President George H.W. Bush – conspiracy theory material about it abounds. Omega Protein’s website mentions just a little about conservation of the fish stocks in its sustainability section. It claims:

“STATEMENT: Both the Atlantic and Gulf menhaden populations are overfished.
FICTON: Though this statement is often heard, it is not true. Both the Atlantic and Gulf menhaden are subject to regular stock assessments (a method to estimate the status of the population) conducted by the National Marine Fisheries Service. The most recent assessments (2010 for the Atlantic and 2006 for the Gulf) show that menhaden are not overfished and overfishing is not occurring.”

The Washington Monthly article is about exactly these official stock assessments – it’s well worth a read, as is the book.

Just like the banking industry, the story is one of how monopoly always subverts effective regulation (market power always turns into political political power); competition is important for multiple reasons. It’s also always illuminating to see how complex the modern economy is. One of the zillions of components of everyday products turns out to be an unimpressive fish you’ve never heard of.

Most importantly, with menhaden, as with other resources, having accurate data on the stocks is essential to make sure we are using enough – but not too much – to improve our own prosperity and leave at least as much for the next generation.

You probably haven't heard of the menhaden

In the tentacles of vampire cephalopods

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The next book I read is going to be Grigory Yavlinsky’s [amazon_link id=”0300159102″ target=”_blank” ]realeconomik: The Hidden Cause of the Great Recession[/amazon_link]. On paging through, it’s apparent that the book is about the moral and social norms then permit the market economy to function well – and their breakdown as a major contributory factor to the crisis. I’m sure I’ll agree – it was a big theme of [amazon_link id=”0691145180″ target=”_blank” ]The Economics of Enough[/amazon_link] (out soon in Italian by the way as Economia dell’abbastanza). Yavlinksy – an architect of Russia’s transition to a market economy –  ends with a call for a restoration of moral principles in politics and the implementation of public policy.

If only it were as easy as the kind of people who go into politics deciding they have to act in the public interest. That’s a good start, obviously. However, the book has just one sentence that touches on oligarchy and doesn’t mention the illegal economy at all. New estimates suggest the shadow economy ranges in size from 18% of GDP on average in the EU to 40% in Sub-Saharan Africa, 35% in the post-socialist economies. That’s £1 in every £5 or £3 respectively generated outside the law and the tax system. Activity on this huge scale must be facilitated by both the banking system and by law enforcement turning a blind eye.

And then there are the legal ‘vampire squids’, to apply [amazon_link id=”B003F3FJS2″ target=”_blank” ]Matt Taibbi’s[/amazon_link] brilliant image to the still-in-denial banking industry. The world economy is ententacled by vampire cephalopods, whether operating inside or outside the law. Of course social norms must change, but I fear that won’t be enough.

[amazon_image id=”0300159102″ link=”true” target=”_blank” size=”medium” ]Realeconomik: The Hidden Cause of the Great Recession (and How to Avert the Next One)[/amazon_image]

A cure for economic catastrophe and sore feet

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I’m feeling glum because I’ve hurt my foot – this is a bad thing, as I dance, a lot. So I reached for some comfort reading this morning, and picked up an old favourite, [amazon_link id=”069112292X” target=”_blank” ]A Century in Books[/amazon_link], a 2005 celebration of the centenary of Princeton University Press. It picks a book a year to describe in a page or so, illustrating both the intellectual contribution and the range of titles published over the years (I should add, this is my publisher so I may be biased). Just leafing through it makes one feel better educated, even as a dabbler in the great world of scholarship.

[amazon_image id=”069112292X” link=”true” target=”_blank” size=”medium” ]A Century in Books: Princeton University Press 1905-2005[/amazon_image]

Today I turned to the description of 1945’s [amazon_link id=”0140124993″ target=”_blank” ]How To Solve It: A New Aspect of Mathematical Method[/amazon_link] by George Polya. Apparently it shows how to use the mathematical method to tackle non-mathematical problems, and has never been out of print. I like his advice: “In order to solve this differential equation, you look at it until a solution occurs to you.” Sounds like it would indeed be applicable in many contexts.

[amazon_image id=”0691023565″ link=”true” target=”_blank” size=”medium” ]How to Solve It: A New Aspect of Mathematical Method (Princeton Paperbacks, No. 246)[/amazon_image]

Another one that found me was on [amazon_link id=”B0049N1H3S” target=”_blank” ]The Edge of Objectivity: An Essay in the History of Scientific Ideas[/amazon_link] by Charles Coulston Gillespie, a 1960 volume on the history of science. It seems the author argues that science is the ‘progressive development of more objective, detached, mathematical ways of viewing the world.’

I wonder what he would have made of this interesting article on the tyranny of narratives? In discussion on Twitter yesterday, I think we concluded that one could try to stand outside a specific narrative but it would require empathy rather than reason.

Anyway, peering at the economic and political catastrophe out there in the world, I’ll stay inside the tower of books, at least until my foot gets better.

Rays of sunshine in a devastated economic landscape?

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There’s a certain masochistic pleasure to be had in reading critiques of economics, and the latest I picked up is a book published in 2009, Richard Posner’s [amazon_link id=”0674060393″ target=”_blank” ]A Failure of Capitalism[/amazon_link]. He deserves credit for being so clear then that there is an economic depression – I think a majority of people then were still expecting a reasonably prompt recovery rather than a lost decade. At least Posner, unlike many econo-critics, understands that macroeconomics is not the whole of economics. He points out of macroeconomics that: “The very existence of warring schools within a field is a clue that the field is weak, however brilliant its practitioners.” (p265) The macroeconomists I’ve been trying this line on disagree, but it seems incontrovertible to me.

Posner makes two arguments about the depression. First, that’s capitalism for you: “The depression is the result of normal business activity in a laissez faire economic regime.” Secondly, the government couldn’t have fixed it: “Laissez faire capitalism failed us, but government allowed the preconditions of depression to develop and wreak havoc with the economy.” But although he argues that the government over-regulated hedge funds, he doesn’t believe they could have averted the crisis and depression.

[amazon_image id=”0674060393″ link=”true” target=”_blank” size=”medium” ]A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression[/amazon_image]

This is all a bit despairing. Posner’s final line is that problems and uncertainty will hang over the economy for many years to come. I agree that working through the gargantuan debt overhang will be a long and difficult process but – maybe it’s just my natural sunny optimism – find hope in the bits of the economy that don’t fall in to the ‘governments versus markets’ frame. As I often say, the idea of a ‘free’ market is a meaningless abstraction. A market is a process not a thing, and it occurs in a specific institutional setting. There are lots of economic institutions, all kinds of businesses with a range of legal frameworks, social enterprises, mutuals and co-ops, and these will, albeit by necessity, grow over the devastated landscape of the economy. If you want to be cheered, read about this encouraging example of social and institutional innovation in Hebden Bridge and Todmorden. There is a ton of innovation taking place, both the conventional kind and – like this example – the unconventional.

 

Financial crisis management – what would the Queen have said?

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It’s always worth reading the memoirs of a former Chancellor of the Exchequer if you are interested in how policy works outside the textbooks, particularly for the way the political pressures and economic analysis interact. It is usually the economics that loses any contest, of course. Nigel Lawson’s tome, [amazon_link id=”0593022181″ target=”_blank” ]The View From Number 11[/amazon_link], is a terrific read, partly because of the sheer interest of the radical approach the Thatcher government took to economic policy, and partly because the account of his clashes with Mrs T and her adviser Alan Walters is gripping. One of the best lines is:

“I recall telling the Queen, the one person to whom I could unburden myself in complete confidence, during my usual pre-Budget audience with her… that I thought the 1988 Budget would be my last, because the Prime Minister was making the conduct of policy impossible.” (p799)

[amazon_image id=”0593022181″ link=”true” target=”_blank” size=”medium” ]The View from No.11: Memoirs of a Tory Radical[/amazon_image]

When he was Chancellor, Alastair Darling, from afar (I’ve not met him in person), seemed nice, obviously competent, but dull. He had obviously been dealt a rough hand in having to deal with the combination of Gordon Brown as his PM and the onset of the financial crisis. A few chapters in to his memoir, [amazon_link id=”B005JZD3YQ” target=”_blank” ]Back from the Brink[/amazon_link], my respect for him has increased enormously. Despite its rather measured tone, the book has some jaw-dropping material. I quite liked the scene with Fred Goodwin turning up at Mr Darling’s constituency home just before Christmas 2007, bearing a gift-wrapped panettone and a warning about RBS’s need for liquidity.

But most extraordinary (so far) is what happened when Mervyn King told the Treasury Select Committee in 2009 that further fiscal stimulus could not be afforded. Mr Darling, watching it live on TV from his office, was – not surprisingly – furious. Gordon Brown was so apoplectic, however, that he phoned: “He asked me what I was going to do about it and suggested that I should go in and stop him there and then.” One can’t begin to imagine the scene, and the results, mid-financial crisis, had the Chancellor of the Exchequer stormed into a select committee hearing with the Governor of the Bank of England, as it was being televised, to stop proceedings. What would the Queen have said?

[amazon_image id=”B005JZD3YQ” link=”true” target=”_blank” size=”medium” ]Back from the Brink: 1000 Days at Number 11[/amazon_image]