Thursday, November 28, 2013

Thanksgiving stuff(ing)...

 I suppose this is a kind of Junkbox, but specifically targeted to today.

First, if you're struggling for things to list when your turn at the table to be thankful comes around remember these 5 economic trends. Dibs in this one:

5) Debt burdens keep on falling. The ratio of Americans' income going to meet debt obligations has plummeted in recent years, as consumers have both reduced debt burdens (by paying them down and in some cases defaulting) and benefited from lower interest rates. The debt service ratio was only 9.89 percent in the second quarter, hovering near an all-time low of 9.84 percent from late 2012 (the data go back to 1980). That ratio was 13.5 percent in the third quarter of 2007, before the crisis. Congratulations, America! You're making progress in getting your household debts to a more manageable level.
Even though I have been following economic numbers, this reminder was a pick-me-up. Maybe it's because they can't pack enough doom-mongering in farm publications right now.

To be fair, I am convinced one thing about this ag downturn that will be unique for my lifetime at least is remarkably low odds for a massive government bailout, like the infamous extra AMTA payment.

This conviction is certainly coloring my plans for the next few years, which have proven to be a little trickier to map out with dual goals of enough retirement income and a manageable debt for Aaron. Looking at the spreadsheets, I really needed just one more year of $5+ corn to arrange the numbers in a smooth, trouble-free path. 

But since when has my ability to plan been that accurate? Like many of my generation, working past 66 probably won't kill me. 

I do think that high costs will force down rents faster than experts think. In short, DuPont and Monsanto will eat landowners lunch as well as operators. Rents are, in the end, residual, and with lenders poised to say "no" much earlier, 2014 rents could show a significant drop.


I filled up for $3.09 recently (see above).  I could get used to this. But I wasn't aware of one of the factors in the price drop.
Many Gulf Coast refiners are taking advantage of the boom in shale-oil drilling in the Midwest and producing ever more diesel for export to Europe and Asia. That's a lucrative business. And that refining process also produces more gasoline for domestic consumption. So, as The Wall Street Journal reports, refiners can still make a profit from exporting diesel abroad even if they're creating a glut of gasoline here at home. [More]
I also think it might be part of refiner and oil producer plans to do what they can to keep prices low if the EPA goes through with the mandate revision. Nothing would cement the idea of ethanol making gas prices higher than gas selling with a "2" in front of it right after the mandate was eased, IMHO.

Nonetheless, thanks Europe!


I could do this if I wanted to...


Meanwhile, back in Africa, the lack of industrialization to provide jobs is threatened by an emerging pattern of premature deindustrialization
The economic, social, and political consequences of premature deindustrialization have yet to be analyzed in full. On the economic front, it is clear that early deindustrialization impedes growth and delays convergence with the advanced economies. Manufacturing industries are what I have called “escalator industries”: labor productivity in manufacturing has a tendency to converge to the frontier, even in economies where policies, institutions, and geography conspire to retard progress in other sectors of the economy.That is why rapid growth historically has always been associated with industrialization (except for a handful of small countries with large natural-resource endowments). Less room for industrialization will almost certainly mean fewer growth miracles in the future. [More]
There simply will not be as many "factory jobs" anywhere in the world, let alone Africa. This reinforces my belief that forcing industrial agriculture into sub-Saharan Africa would be devastating to local economies even as they make money for investors, since  our type of ag is very labor-light (and getting more so).


Go watch the game. Or The Wrath of Khan.

Wednesday, November 27, 2013

Junkbox, Episode MMXIII ☃...

I'm just hoping this is the worst cold/flu case I ever have. Happy Thanksgiving all!

In case you are worrying, the Medicare and Social Security websites are superb.

Hey, I turn 65 on Friday, and that's when we all become socialists. 

Yes, you, too.
You drunken sailors... 

 I've already ranted about this, but if anything the Ag Meme of the Year is getting stronger.

"The year 2014 will be the sobering up period," said Michael Swanson, an economist and senior vice president with Wells Fargo, the largest private lender to U.S. agriculture. [More that will tick you off]
I wrote about the characterization of the last few years as a party in TP recently. In fact, I think I'll just save some time and repeat myself:
Party? What party?
It’s hard to turn a page in ag media without encountering a description of recent years as a party, which is now sternly declared “over”. The metaphor is inaccurate at best, and faintly insulting to farmers at worst.  There is scant evidence of either mindless revelry or foolish extravagance. 
This image of farmers squandering prosperity originates, I believe, with critics who remember 1973. Returning in ‘75 after a decade away I discovered fellow Boomers exhilarated by that still unrivaled income spike. We put our name on lists to buy a new tractor; men who seldom drove 150 miles to Chicago flew often to Las Vegas; we couldn’t buy big enough pickups. Goaded by government policies (10% investment tax credit), equally giddy lenders, and elders we delighted in defying, many did go overboard. 
But agriculture had just emerged from a grim economic period, and was still an occupation of exhaustive effort and financial naiveté. Children didn’t just leave the farm – they fled. The socioeconomic gulf between farm and city was wide. Young men urged off to college (like fathers drawn off to war) saw other lives and decided they knew what “better” looked like. Mostly it centered on living large. Returning home, they already had an idea of how to celebrate, and only needed the resources. In hindsight, the results were unsurprising.
During the Eighties, the survivors grew up. So when this current run of good fortune occurred, the response was markedly different, which is reflected in USDA financial reports.
We have used prosperity to reinvest in our long-term future. When critics point to “outlandish” land prices, remember, regardless of price, land is an investment, not a consumable. We have installed tile, terraces, and pivots at an unprecedented pace. We have built homes and bins and buildings that will serve our grandchildren and beyond. We have paid down debt to historic ratios. The balance has been herded into long-term notes with rock-bottom fixed rates. These aren’t the actions of people at a particularly fun party. 
Unnecessary New Paint? Even this supposed failing is not without rationale: “Yeah, but we can go X years without buying another machine”. Farm machinery is correctly classified as a “durable”, and dealers fear demand has just been pulled forward. Our sheds are better seen as a well-stocked tool chest. We have also learned that even if we admit to being “over-machined”, the narrower fieldwork windows of our era of climate change often prove we have barely enough. 
Above all, after decades of laments, we took the earliest profits and finally, in the words of my father, “outbid the world” for our sons and daughters. We “bought” our best and brightest home. 
To be sure, our living standards (expenses) have increased. However, a 20% increase while net farm income was more than tripling does not strike me as disproportionate. Even the notable upswing in farmer leisure from golf to getaways is better seen as an overdue revision of an all-work-all-the-time ethic that only served to drive our children from the land, stress our marriages, and narrow our vision. Rural lifestyle rebalance and firsthand global experiences were valuable investments.

Perhaps the transition from lower-middle class to upper-middle class was simply easier than the abrupt change from lower to middle class in the ‘70’s. Or maybe 21st century producers had already learned what money could not buy.

Nag, nag, nag. Meanwhile, we have been regularly harangued about our historic tendency for financial excesses. (We heard you, already.) Perversely, the only example of embarrassing indulgence that comes to mind involves one perennial haranguer: the Farm Credit System. (More soon)
I have been a relentless – OK, tiresome - critic of our profession for our subsidy addiction and brazen boasting, but on this issue I am convinced it’s a bum rap. While we gratefully rejoiced to advance long–desired goals, producers managed this bonanza with remarkable self-discipline and forward thinking. 
So, regardless what happens to farm income, this party isn’t over. It never happened in the first place.
There are many possible strong rebuttals to this condescending characterization that are conveniently left out of media quotes:
  • There was not party in the protein sector: from hogs to milk to chicken. In fact, the last few years have been multiple trips to heck and back.
  • I think the financial community is pissed because we invested in farmland, where they couldn't get their hands on the wealth to churn and derive commissions. Once we bought land, that money was put of reach and they were holding a 30-year 4% mortgage which was the best they could charge. 
  • Bankers have been prophesying interest doom for over a decade now. Swanson has to my sure knowledge, as I have followed him at conferences over that time period. Even by their self-serving standards they are starting to look a little foolish, even making Chicken Little a calm comparison. These aspersions to the character of agriculture are simply a way of diverting attention from their clueless doomsaying.
  • The lending community truly does hold agriculture in contempt. While they tell us what we want to hear face-to-face, they tell Wall Street what irresponsible adolescents we really are.
If I banked with Wells Fargo, I would be sure to point out this derogatory description and customer disrespect and suggest it may be one reason why WF needed bailout money during the recession.

Farmers are quick to rail against anti-GMO or CAFO opponents. It's time we realized much of image problem could actually be generated by people like Swanson describing us as incompetent drunks, while claiming to be on our side.

Tuesday, November 26, 2013

Free trade lives!...

I think this development in Japan is a pretty good indicator that agriculture has lost its untouchable status in global trade policy. 
Japan and 11 other nations including the U.S., Australia and Vietnam are in talks for the TPP. The U.S. and Australia are ranked first and seventh for coarse-grain exports while Vietnam is the second-largest rice shipper, U.S. Department of Agriculture data show.The Agriculture Ministry will halve gentan subsidies starting in the fiscal year from April 1, 2014, and end all payments by March 31, 2019, said Takashi Amou, a director of the policy planning division. Farmers who grow rice for livestock feed will receive subsidies that increase by as much as 31 percent under the changes announced today, according to Amou.“Ending the gentan policy is a first step in making Japanese rice farming efficient,” said Takaki Shigemoto, a commodity analyst at research company JSC Corp. in Tokyo. “The government has more to do if it wants Japanese farmers to be competitive against agricultural exporting countries.”Wholesale prices of the locally grown cereal averaged 276 yen a kilogram in the nine months through May, compared with 181 yen paid for milled short-grain rice from the U.S. and 152 yen for the same variety from Australia in import tenders last month. These prices included shipping and inspection costs. [More]

The Japanese defense of rice farmers was formerly considered rock-solid, but perhaps the combination of elderly farmers and pressure from manufacturers desperate for a stronger economy prompted the government to re-rank priorities. 

While as the numbers above indicate, it may not help US producers directly - we're still too expensive - it does make the international rice market a little more open, and could trigger more countries to rethink protectionist barriers.

All in all, while the economic outlook seems to be overcast by gloom, trade talks around the world are grinding out grudging reform toward freer trade. Maybe it is the dire forecasts that are propelling it, but for whatever reason, agreements are inching forward.

Monday, November 25, 2013

Understanding inequality...

I am disturbed by growing wealth and income inequality, but don't have any really firm conviction what the implications are or what might be dome to mitigate it. Nor do experts seem to have firm answers to choose from either. For example, the common logic that growing inequality leads to revolutions from the have-nots isn't well supported by historical evidence.

In 1904, on the eve of military defeat and the 1905 Revolution, Russian income inequality was middling by the standards of that era, and less severe than inequality has become today in such countries as China, the United States, and Russia itself.  We also note how the interplay of some distinctive fiscal and relative-price features of Imperial Russia might have shaped the now-revealed level of inequality. [More]
And I really have a hard time imagining Americans in mobs with pitchforks, etc. singing some revolutionary anthem, even as we soar to new heights of inequality. Indeed, debate rages about the nature and urgency of the problem.
I see two big and very real problems: slow income growth for many income classes and a problem with excessively high returns to finance at the very top.  (As an aside, both of these problems contain elements of both “left-wing concerns” and “right-wing concerns,” and both problems are deeper than any particular ideology can solve and they should make virtually everyone rethink their views).Those are the problems and we should try to fix them.If we could fix these problems, that would mean a smaller financial sector, less moral hazard, better allocation of capital, and for most/all income classes rates of income growth comparable to the 1948-1972 period, chop it up as you wish.  Imagine that everyone’s income went up three percent a year, every year, and every generation was about twice as rich as the parents.  Whether there then would be more or less marginal “churn” in the relative income rankings is not a matter of irrelevance but having somewhat more churn should not be viewed as a major social goal per se.  It would depend on the reason for the immobility, and the real focus of our concern would be the reason (e.g., bad schools? some kind of unfairness?), and not the marginal change in the numerical churn per se.Given that background, and those two very real problems, you can in fact create other “problems” by creating and manipulating more complicated statistics, based on the initial problems, and that can lead you to various measures of inequality and immobility.  But not all inequalities are bad, or avoidable, and the same is true for immobilities.  The valid problems, as embedded in the new complicated measures, still will boil down to the two simpler problems mentioned above.  In the meantime, toying around with misleading and less transparent aggregate measures of inequality and immobility will bring confusion as to what is really at stake.Focus on the two very real and fairly simple (as distinct from simple to fix) problems. [More]
Well, here's a new theory about how inequality arises and plays out. It even has a somewhat cryptic, almost hieroglyphic, illustration.

How does growing economic inequality lead to political instability? Partly this correlation reflects a direct, causal connection. High inequality is corrosive of social cooperation and willingness to compromise, and waning cooperation means more discord and political infighting. Perhaps more important, economic inequality is also a symptom of deeper social changes, which have gone largely unnoticed.Increasing inequality leads not only to the growth of top fortunes; it also results in greater numbers of wealth-holders. The “1 percent” becomes “2 percent.” Or even more. There are many more millionaires, multimillionaires and billionaires today compared with 30 years ago, as a proportion of the population.Let’s take households worth $10 million or more (in 1995 dollars). According to the research by economist Edward Wolff, from 1983 to 2010 the number of American households worth at least $10 million grew to 350,000 from 66,000.Rich Americans tend to be more politically active than the rest of the population. They supportcandidates who share their views and values; they sometimes run for office themselves. Yet the supply of political offices has stayed flat (there are still 100 senators and 435 representatives -- the same numbers as in 1970). In technical terms, such a situation is known as “elite overproduction.”...Elite overproduction generally leads to more intra-elite competition that gradually undermines the spirit of cooperation, which is followed by ideological polarization and fragmentation of the political class. This happens because the more contenders there are, the more of them end up on the losing side. A large class of disgruntled elite-wannabes, often well-educated and highly capable, has been denied access to elite positions. [More]
While I'm not sure how much I buy completely into this explanation, it is a novel possibility, and one that seems to have some anecdotal evidence behind it (read the whole article).

But if true, it does have some pretty serious implications for agriculture, as the Battle of the Elites isn't too far from what we see around us right now. It also has considerable knock-on effects as it unfolds.

Tyler Cowen's book, Average Is Over, looks at several aspects of inequality and has provoked considerable debate. In addressing some questions about what the future could look like, I found this nugget.
6. In talks (but not in the book) I have suggested that food production is the best candidate for “what will be most difficult to augment” in an age of smart software.  Food production seems harder to “wall off” and it seems more embedded in local culture (for better or worse, usually for worse) than factory production.  See our MRU video on conditional convergence, which considers the work of Dani Rodrik in this regard.  It would mean that the price run-up for Midwestern farm land in the United States may not be a bubble. [More]
I realize I am biased toward strong land prices, so this could simply be me picking out voices that agree with me. But what if land prices are not simply a function of interest rates and corn prices, but increasingly affected by mechanisms mentioned above, as well as the liquid asset glut, confidence in alternative assets, etc. that are hard to measure and barely covered in ag econ classes?

What if we saw an income squeeze in agriculture and merely slower appreciation in farmland prices? We could simply shift the mix of buyers to favor outside investors, I think.

Sunday, November 24, 2013

The problems of Africa...

 One of the development hurdles for the giant continent is to find ways to exploit natural resources and actually help their own citizens. Stuff like this shows that is hard to do:
In Kinshasa, Presidents Zuma and Kabila signed a treaty to jointly develop the $80 billion Grand Inga hydropower project. When complete, the dam will generate 40,000 Megawatts which is more than twice the amount of power produced by China’s Three Gorges Dam.DR Congo currently has an installed capacity of 2,400MW but only produces about half of that due to ageing and poorly maintained infrastructure; only about one in 10 of the 70 million people of Congo has access to electricity.Most of the power produced out of Inga will, however, be exported — to South Africa, other countries in the region, and possibly as far north as Europe. [More]

So this new electricity source will benefit SA and Europe - color me surprised. Undoubtedly as well, in the process of contracting and construction more than a little of the enormous sum will find its way into Swiss bank accounts or simply be squandered by anyone involved - it is the single most persistent attribute of African projects. 

But my objection is there seems to be no effort to find ways to promote economic development of a black middle class, only redistribution by governments to a permanent underclass of some portion of the profits of public investment. Not that I have any brilliant ideas myself, but efforts like this will not bring many positive results in ordinary citizen lives. 

And yes, that goes for every big ag development project I have seen too.

The Resource Curse is substantiated once again.
Hard to take seriously, but...

The gluten-free trend seemed to me to be a fad with natural limits and a definite lifespan, but like my belief GMOS's would eventually win the day, I seem to be badly mistaken. Proof: marketing vodka as gluten-free.
It's not just alcohol, of course. The new FDA label guidelines allow bottled water, vegetables and fruits to be labeled gluten-free even though these products do not naturally contain gluten. The FDA says gluten-free labeled products cannot contain any type of wheat, rye, barley or crossbreeds of these grains. The regulation also requires that the food does not contain an ingredient derived from these grains.The new labeling has created a marketing frenzy that may become a $6.2-billion gluten-free product industry by 2018, according to a 2013 report from research firm MarketsandMarkets. Some say the risk of cross-contamination warrants such broad labeling; others claim the FDA just made gluten-free living much more complicated.Although she is pleased with an FDA formal definition of gluten-free in labeling, Schluckebier notes the less than 20-ppm gluten allowance is likely to create an artificial sense of labeling securityA 2011 FDA report, “Health Hazard Assessment for Gluten Exposure in Individuals with Celiac Disease,” recommended the “most sensitive individuals with CD” eat foods with less than one-ppm gluten levels to protect them from “from experiencing any detrimental health effects from extended to long-term exposure to gluten.”But Taylor, for one, defends the FDA’s 20-ppm measure and assures celiac disease sufferers that there’s no risk in drinking distilled spirits. As he says: “the FDA and other public health agencies around the world have reviewed the evidence and concluded that products with less than 20-ppm gluten are safe for the vast majority of celiac sufferers.” [More]
The other lesson I learned is my skepticism that the complaints have any medical basis wither in the face of first-person confrontation with friends and family who have found their lives measurably improved by eliminating  gluten. Hard to argue with that kind of data. Not socially smart either (see, I am learning).

While $6.2B is a big number, the total food and beverage market is a $1.4T market, so some context helps. But the range of gluten-free-products continues to grow.
Why has gluten-free eating gotten easier? The Food and Drug Administration recently defined what it takes for a food to qualify as gluten-free. Before their ruling, there were no federal standards or definitions for the food industry to use in labeling products "gluten-free." As one of the criteria for using the claim "gluten-free," FDA set a gluten limit of less than 20 ppm (parts per million) in foods that carry this label. This is the lowest level that can be consistently detected in foods using valid scientific analytical tools. Also, most people with celiac disease can tolerate foods with very small amounts of gluten. In addition to limiting the unavoidable presence of gluten to less than 20 ppm, FDA allows manufacturers to label a food "gluten-free" if the food inherently doesn’t have any gluten such as bottled water, fruit, vegetables and eggs.This level is consistent with those set by other countries and international bodies that set food safety standards. While most products are accurately labeled, there is an estimated 5 percent of foods currently labeled "gluten-free" that contain 20 ppm or more of gluten. These manufacturers that want to use the phrase on their products must adhere to the strict guidelines. They will have until August 2014 to comply with the new regulations. [More]
The bigger issue here could be the impetus this gives to good labeling of all kinds. It's not hard to see a kind of "if it's good for gluten, then why not X" becoming the norm as retailers and manufacturers find there is market share gold in the fine print.

All this reinforces my feeling that GMO labeling will happen in some way or other eventually. That's a pretty vague prediction, of course, but it would take a popular tide reversal to change the inevitability of disclosure. I don't think Monsanto, et al, can spend enough to prevent it occurring.

Saturday, November 23, 2013

Even Wall Street isn't forever...

All is not well among the Masters of the Universe, it seems. 

The article features lots and lots of boo-hooing about how hard they work and threats to move to Silicon Valley and be the next Zuckerberg. But this article makes the case that Wall Street itself is in a very serious retrenchment the likes of which have never been seen before. The insane compensation structure is over and the industry is facing the unpleasant task of figuring out how to make money legitimately again. Part of it stems from Dodd-Frank, which everyone knows was inadequate, but is potent enough to have made the banks change their structure in anticipation of the presumed effects. But the bigger factor is that it finally dawned on these guys that their model was unsustainable --- they were basically selling air. To each other. [More]
It has been hard for me as a free market enthusiast to understand the arithmetic of finance as well. I found it difficult to believe they made all that money by making the markets more efficient in allocating capital. Further I could not see the finance sector delivering so much value as to constitute the biggest sector in our economy.

While the regulation mentioned above is certainly a factor, I think the rise of black-box trading and the absence of the public to regularly fleece have been equally corrosive to extravagant profits. Moreover, the fees are being side-stepped by large investors in the wonderfully mysterious "dark pools".
So-called dark pools – off-exchange facilities that allow trading of large blocks of shares, with prices posted publicly only after trades are done – are perceived by many as offering an advantage over exchanges.Tensions between exchanges and brokers have escalated in recent years as trading outside public markets has crept up to record levels and put further strains on the once-dominant share trading institutions such as the New York Stock Exchange and Nasdaq.Rosenblatt Securities estimates that more than 37 per cent of all US stock trades are now executed at off-exchange venues run by brokers. Exchanges and some large investors argue that the increased trading away from the public markets has diminished the value of publicly quoted prices. [More]
In other words, eventually people leave inefficient markets. Just like farmers buying and selling farmland privately, who needs to pay 6% if you can reach an agreement on your own?

However, one ongoing premise in my view of what is happening in global finance is an excess of assets in relation to investment opportunities. Stocks are historically overvalued already in light of returns, but with bonds and other alternatives offering slim to negative income streams, where should excess capital go?

In fact, I am less bearish on farmland than most, simply because I think we could see the return of outside investors as farmers back away (or are pulled back by bankers). There is simply too much liquidity, too little growth, and growing desperation by investors to try to find work for their money.

One thing it seems they have learned is, after the fees, it won't earn much on Wall Street.

Another answer...

To the GMO controversy: mutagenesis. Instead of inserting other genes, just bombard plants with radiation. Kind of like how most superheroes are made. Think of evolution on steroids.

No, not making this up.
As opposition to genetically modified crops has spread across Europe and the world, leading chemical companies including BASF (BASFY) and DuPont (DD)have turned to mutagenesis—a technique that mimics the sun’s irradiation of plants—to create herbicide-resistant crops. The process, which faces almost no regulation, creates opportunities for companies to grab a bigger share of the $34 billion global commercial seed market. But some scientists say mutant crops are more likely to pose health risks than genetically modified ones.Mutagenesis isn’t new: Breeders have relied on it for decades to produce thousands of varieties of lettuce, oats, rice, and other crops. BASF today licenses its technologies to 40 of the world’s biggest seed companies, including DuPont and Switzerland’s Syngenta (SYENF), which in turn sell high volumes of mutant breeds, ranging from wheat to sunflowers, in markets that reject genetically engineered seeds. [More]

There is still some low level debate about safety, but because this is essentially the same path used by natural selection, and since mutant crops cannot be detected like GMO's it could be that companies like BASF are break the monopolistic market control of Monsanto, as well as enter markets (like wheat) that are still barred to GMO's.
Still, mutagenesis is gaining in popularity because it’s a far cheaper way to give crops new traits than the $150 million to $200 million that companies such as Monsanto pay to get a new GMO on the market. Mutant crops also face no labeling requirements or regulatory hurdles in most of the world.“These difficulties in getting a GMO to the market, we don’t have it in mutation breeding,” Lagoda said in an Oct. 16 phone interview.Breeders have registered more than 3,000 mutant varieties with Lagoda’s program, a partnership between the UN’s Food and Agriculture Organization and the International Atomic Energy Agency. Those varieties are just “the tip of the iceberg” because many breeders actively avoid revealing how they create new plants, Lagoda said. [More]
On behalf of farmers everywhere looking at $400 seed prices, I say the more competition the better. I would drop Pioneer like a hot rock - despite my strong friendship with my dealer - if I could find a seed supplier who isn't engaged in cartel-like market manipulation.

Tuesday, November 12, 2013

Something different: Exhibit A...

Stuff I think merits considering as preludes to whatever future we are hurtling toward.

Exhibit A: Amazon and the USPS
By launching Sunday deliveries, the Postal Service has moved to where its longtime competitors aren't. Hardly anybody in any industry delivers on Sunday, with the exception of newspapers. As a business idea, this makes total sense — and while USPS doesn't exactly threaten FedEx or UPS, it might cause those companies to strike agreements with other e-commerce businesses. The deal will effectively shake up the shipping industry.The other reason it's disruptive? This is one of the few cases we've seen of what we'll call reverse contracting — when the private sector hires a government agency to fill its need rather than the other way around. We haven't seen much of this, in part because there are so few publicly run, consumer-facing services like USPS at the federal level. There's Amtrak, the Corporation for Public Broadcasting, and a handful of others. But the pact between Amazon and USPS might open the door to further reverse contracting. If this venture takes off, Amazon may unintentionally wind up pioneering a new model for public-private partnerships.
The deal with Amazon won't single-handedly save USPS. And at this point, officials from both parties are keeping quiet about the terms of the agreement. But it puts the Postal Service in an aggressive posture that's as refreshing as it is surprising. [More]
Suppose this idea migrates to the other quasi-government entities listed above. Suppose a health insurance company contracted out to Medicare for some of its policies?

But maybe there could be even more.
Now, let's turn to Amazon. The company has been investing heavily in ways to deliver more products faster, cheaper, and farther than the competition, including dozens of warehouses in the U.S., a fleet of trucks, and even "lockers" for people to pick up their goods at local convenience stores. It's expensive: Fulfillment costs amounted to $1.96 billion, or 11.5 percent of revenue, last quarter alone. Amazon considers it an investment in the future, as part of its strategy to provide anything customers might need as fast as they could possibly get it (as well as a tax strategy, since it knows it'll lose the benefits of lacking a physical presence in states soon anyway). The embodiment of this gambit is AmazonFresh, which doesn't yet make a profit, but is supposed to ease the transition towards delivering more and more goods.Owning the Postal Service would get Amazon the rest of the way there. It's got 31,000 post offices and 461 mail processing centers, which represent significant excess capacity. The USPS is still the best last-mile mail delivery service provider, and Amazon is perhaps the most aggressive warehousing logistics innovator, which could enable a partnership — similar to one proposed by a group of former postal leaders and partly approved by the National Academy of Public Administration — that would leverage the strengths of both. [More]
As enormous amounts of money pile up in companies, expect business deals that stretch the imagination.