Bootleggers & Baptists: XXV- The Energy Drink Crusader

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One of the greatest insights from Bruce Yandle’s seminal paper Bootleggers and Baptists-The Education of a Regulatory Economist (1983) was that there was a demand for regulation. This observation is quite counter-intuitive, but corporations due benefit from regulation. As Dr. Yandle once mentioned in a lecture that they often have an anti-competitive impact on the market. Often the costs are of compliance tend to be much lower for larger companies but can be disastrous for small start-ups. Frequently eliminating competition without violating antitrust laws. Quickly dispelling the myth that large companies are vehemently opposed to regulation. Although the state action of taxation is a whole other story.

Whenever there is a public outcry for regulation, it is a corporation’s dream come true. Why? Because it requires little to no effort on their part.  If the measure curries favor with the public, there is no need to even enlist the help of lobbyists, you can let the average-Joe voter do all the dirty work for you. Demonstrating a common misconception about safety regulations. Often they are not truly essential to the public good. From a prima facie standpoint, they seem advantageous to the average citizen. May even seem essential for promoting public welfare. The downstream consequences are typically divorced from the implementation of the policy. The disconnect due to the temporal separation between cause and effect generates repercussions mirroring the effects of fiscal illusion. Instead of severing the connection between spending and taxation, time distances the connection between policy and results. Leading to the misconception that safety regulations are beneficial to the public.

The emergence of exigent circumstances amid a public health crisis is an opportune time for the general public to unwittingly act as covert lobbyists. In most cases, these “public health crises ” tend to be more so perceived than real. Sometimes, perception carries more weight than truth. One prime example of an emerging health disaster is the public health emergency of the risk of energy drinks. Particularly the consumption of energy drinks by children. For the record, kids really should not be consuming energy drinks. However, this is not the job of the government departments to enforce this safety measure. But rather is the duty of parents to be diligent regarding the actives of their children. Easier said than done. However, one only needs to look at age restrictions on tobacco, alcohol, recreation Marijuana, pornography, and vaping products to know such measures usually fail to meet the goal of limiting youth consumption.

One recent advocate for placing age restrictions on energy drinks made international news.  U.K. bar owner Lee Kamen spent years consuming a staggering twelve cans of energy drinks a day. After suffering a near-fatal heart attack he swore off these hyper-charged caffeinated beverages for life. Recently the former avid energy drinker imbiber caught his daughter in possession of one of these high octane beverages.  Subsequently poured it down the drain.  He then called the school to alert them that children were purchasing these deleterious drinks from a local shop. In several published articles Lee was quoted as expressing a need to place age restrictions on energy drinks. His intentions are pure and coming from the ethical need to protect children from the consequences of choices they are not mature enough to make.  Making him our energy drink Baptist.

Several parties benefit handsomely from Mr. Kamen’s advocacy for age restrictions on energy drinks. For one, the school does. Unfortunately, public schools have taken on too invasive of a role in child-rearing. Ranging from the inculcation of normative values to even being overly invested in the wellbeing of the students. One salient example of this is the advent of mandated reporter laws in the United States. The schools not having to do the leg work to discover this issue makes it easier for them. Instead of devoting resources to investigating this issue now all they have to do is alert other parents and enforce a prohibition of energy drinks on campus.  The next benefiting party would be local coffee shops (whether mom-and-pop or corporately owned). Despite Mr. Kamen’s good intentions, he cast too narrow of a net. Sugary iced mocha lattes may not pack the same punch as a can of Red bull, but can still have detrimental effects on a child’s health. Not including all caffeinated beverages under the umbrella of “dangerous beverages” leaves coffee shops free and clear to see their products to minors. Even if the sale of all caffeinated beverages to minors was prohibited, there would still be the issue of the sugar content in beverages. Leading us to infer that producers of sugary juices and soda (regardless of caffeine content) would still be legally permissible to children. Apparent the prospect of a sugar buzz eluded all the anti-energy drink advocates. High-sugar beverages are a welcomed substitute to offset the absence of caffeinated beverages. Kids already hooked on Monsters and Red bulls could just consume more sugar to replace the missing caffeine.

Bootleggers & Baptists Part: XI: CVS and Tobacco

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Back when I was a broke college kid and was still a tobacco consumer, few tobacco products provided a better value than Parodi cigars. Yes, they were machine-made. However, they were mechanically bunched and wrapped with robust and Smokey fire-cured Kentucky/Tennessee broadleaf tobacco. These rugged little stogies wouldn’t get too far in a beauty contest, but they were solidly constructed. Mimicked the rustic Toscano cigars smoked in Spaghetti Westerns. There was only one brick-and-mortar locational locally that sold these drug-store treasures happen to be CVS. This all changed in 2014 when CVS elected to stop selling tobacco products altogether in the name of promoting health. Sure there was still the internet, with the complexities of shipping cigars across state lines (tax-wise and legally) it was far from an ideal option. I was far from the only one frustrated with this decision made by corporate. In 2015, CVS speculated a slight drop in sales was connected to the corporate ban on tobacco sales.

It is understandable for a firm to strive to convey a consistent message. There is a fair amount of hypocrisy in a healthcare store selling tobacco. Eliminating tobacco makes sense, only if you stop selling all the other unhealthy products sold at CVS locations. Examples ranging from soda, energy drinks, candy, and liquor. Also, one cannot forget powerful opioid narcotics. Granted, there is purportedly “safe” way to ingest such medications. Why not take a stand against the addiction crisis currently plaguing America if the company is so concerned about public health? Needless to say, there is certainly an asymmetry in CVS as a corporation’s advocacy for public health. Bringing the whole rhetoric of voluntarily choosing to stop selling tobacco into question. Even leading the incredulous skeptics among us to question the organization’s true intentions.

The murky intentions of CVS once again bring us back to the economist Bruce Yandle’s famous Bootleggers and Baptists hypothesis. In instances of this coalition-building dynamic, there are always the virtue signalers that provide us with the moral argument for a policy. The silent beneficiaries are known as the bootleggers. Individuals that purely advocate for the policy out of self-interest. Our Baptists in this scenario become apparent when you review the various organizations that provided praise to CVS for this move. Establishments such as the Massachusetts Medical Society and The Harvard School of Public Health. The Bootleggers benefiting from this shift in CVS’s business practices is clear as day, companies producing smoking cessation products. One of the most prevalent examples being Nicorette.

Where does CVS fall in the equation? Surely they either benefit from this change in-store policy or are expressing concern for public health?  I would argue CVS is an example of a dual-role actor. A dual-role actor in Bootleggers and Baptists coalitions are an economic agent or collective of economic agents that fill the role of Bootlegger and Baptist. They may have a genuine concern for the more implications of policy. However, they also simultaneously stand to gain from the purposed or implemented policy. For the sake of being charitable, let’s assume the initiative to improve “wellness” is sincere. Inconsistent, yet sincere. By exalting the virtues of not selling harmful products such as chewing tobacco, cigars, pipe tobacco, cigarettes, etc CVS claims the moral high ground, making them a Baptist. However, they also at the same time gain through accumulating social currency. From the standpoint of publicity, this is gold. The detrimental effects of tobacco use have been well documented and overall public perception of tobacco consumption is quite negative. These factors make tobacco low-hanging fruit in terms of formulating policy. Whether it is the internal policies of a private company or the stroke of a legislator’s pen, tobacco is an easy target. There is no quicker way to look like a hero than to stick it to Phillip Morris. However, why continue to sell soda and candy if you are concerned about fostering public health? Would the customer backlash be too strong? That said, it is difficult to quell my continued skepticism of CVS’s motives for this move. There is a high probability that CVS is operating as an advocate and a beneficiary.

Coronavirus- Its Impact on Nutanix and the Global Economy

 

photo of gas masks
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Hyperconverged pioneer Nutanix is once again starting to falter. At the start of 2020, the outlook was much rosier after a slump in August 2019. Stocks rebounding by approximately 83%. Speculated improvement stemming from greater confidence in their transition from software to subscription services [1]. Nutanix exhibiting a 97% retention rate on their subscription services is promising [2]. Back in January, the threat of the COVID-19 (Coronavirus) was dormant. Its impact on commerce is now a matter of concern for the tech industry.

 

Nutanix shares sank as much as 24% in extended trading on Wednesday after the developer of cloud storage and networking software cited coronavirus concerns as one reason for lowering its 2020 revenue outlook”

CNBC

 

This resulting in the company’s lower revenue projections from $1.3- $1.4 billion to $1.29 -$1.36 billion [3]. 22 % of  Nutanix’s 2019 revenue came from Asia [4]. This is problematic due to Asian countries being profoundly impacted by this emergent illness. Nutanix is far from the only tech company that grappling with the economic complications of the COVID-19 outbreak. Both Apple and Microsoft have indicated that they will not meet their quarterly business goals [5]. Fears of the virus certainly have sullied sales prospects industry-wide. The reverberations are also being felt on the opposite side of the supply-chain.  Considering 73 percent of all of Microsoft’s components are manufactured in China [6]. One of the world’s prominent production hubs being the epicenter for an obscure virus is disastrous.

 

Naturally, the economic stress engendered by COVID-19 is not relegated to the tech sector. Substantial downturns have been estimated for other industries as well. For instance, the hospitality sector is anticipating stalls in sales internationally [7] [8]. The constraints on the economy may stretch beyond restricting the supply in some sectors and reducing demand in others. Countries are stifling commerce through various restrictions to prevent the spread of COVID-19. In the United States, it has even been stated that measures such as quarantining entire cities [9]. At first, glance does appear to be slightly excessive. Especially considering how much more pervasive the Flu is when compared to COVID-19 [10]. The perceived threat seems to stem more from the obscurity and ambiguity of COVID-19. Mirroring the reactionary stances taken in the event of an outbreak of communicable diseases. Regardless of whether this outbreak is truly a world health crisis or not, its impact on the economy will be all too real.

 

Placing restrictions on the flow of foreign goods will prove to be detrimental. Whether those restrictions are through tariffs or pragmatic embargoes to prevent the spread of disease. All modern economies are heavily reliant on imports. Not due to callous self-interest, but out of the virtue of efficiency. Comparative Advantage has allowed for intense specialization which enables countries to focus on the production of specific types of goods and services. Thank you, David Ricardo. Concentrated specialization has lead to increases in product quantity and quality. Whatever you cannot produce can be acquired through trade. Hence, why 60% of our global productivity is dependent on international trade [11]. Making it imperative that all restrictions placed on international trade be necessary. Per the AIER article Economic Policy Must Prepare for Pandemic Disease :

 

“What we do not see are the infinitely complex ways that productive structures depend on smoothly functioning markets that could all face deep disruption.

Efforts to examine the possible economic impact are few but a 2006 Congressional Budget Office study suggested that a 1918-style pandemic today could drop GDP by 4.25%, which would put the economy in painful recession territory”  [12].

 

Granted these findings are theoretical and most likely retrieved from economic models, still eye-opening. COVID-19 can present a serious risk to the United States. However, the benefit of being cautious needs to be weighted in relation to economic losses. Is it worth the losses in productivity to attempt to secure the U.S. against this virus? There are already confirmed cases here in the United States. There is little to stop COVID-19 from spreading. Quarantines and trade embargoes with nations that have confirmed cases cannot guarantee the number of cases domestically will not rise. Such measures only create a false sense of security. What isn’t speculative is production shortages, an increase in prices, and even the loss of jobs. Imports are the lifeblood of our advanced economy. Putting up barriers to our trading partners is merely cutting off circulation to the arteries.

As the quote above indicates, what initially seems reasonable doesn’t always work. Superficially, trade restrictions seem like a great way to curb the spread of this disease. Taking this course of action ignores the consequences downstream. It could even be said it lacks foresight. It is ineffective and impractical to produce all the goods that we utilize domestically in production. There is a reason why Target purchases its plastic lawn furniture from vendors in China. If produced domestically the same products would be triple the price and not maintain a level of quality commanding such a price tag. It becomes quite evident how a chain of such events could be harmful to the entire economy.