Armed conflict has been responsible for more than 231 million deaths in the last century. The nature of the arms trade has intensified this conflict (A.B., The Economist).

The line between the formal arms trade and the black market is entirely ambiguous. Lax enforcement has contributed to unfathomable human suffering and violence throughout the globe. Often there is a relationship between a country’s department of defense and major arms producers as well as a relationship between their intelligence community and illegal dealers.

The last figures on the arms trade, recorded in 2003, show that it is liable for 40% of all corruption in world trade. Corruption that is systematic and perpetuated by leading nations. In 2006, former UK Prime Minister Tony Blair halted an investigation into the largest-ever arms deal, the al-Yamamah deal, which began under Prime Minister Margret Thatcher’s government in the late-1980s. The deal between the UK and Saudi Arabia was estimated around $7.4 billion in commissions paid on the deal alone. Mark Thatcher, the Prime Minister’s son, allegedly made 14.8 million as a broker on the deal (Castle, Independent).

Similar controversies and questions over corruption have been raised in the United States. For instance, former Vice President Dick Cheney, was the CEO of Halliburton before taking office. Halliburton [and its subsidiary KBR, Inc.], is a name practically synonymous with war profiteering, acquiring billions of dollars in new business thanks to non-existent weapons of mass destruction and U.S. noncompetitive government contracting-practices. Due in part to a consolidation trend during the 1990s, the company is one of the 5 largest firms in the US, which account for 44% of the industry’s market share. Not to mention that campaign contributions on behalf of private defense contractors are large enough to keep many lawmakers in complacent support of costly militaristic projects (A.B., The Economist).

After 9/11, private military contracts in the US rose from $145 billion in 2001 to $390 billion by 2008 under the Bush administration (Lawson).

Political will and greater transparency are viable conduits in reducing the corruption that lie within the arms trade market. The UN has attempted to do something about it putting forth a global Arms Trade Treaty [ATT] approved by over 150 countries in April of 2013. The treaty went into action in December of 2014 and prohibits arms trade that would facilitate genocide, crimes against humanity and war crimes. It continues to grapple with the regulation of international trade of conventional weapons and countries like the US and UK, which both spend considerably large amounts on defense budgets, have failed to ratify the treaty.

The United States military spending, at $598.5 billion, accounted for 54% of the nation’s spending in 2015. That’s approximately $2000 for every US citizen, in one year alone. The US is also a top supplier of major conventional weapons trading 31% share of the global arms exports to ally nations. Arms exporters commonly only consider the impact of exporting on their own welfare and fail to consider the impact and possible negative externalities that may arise from trading with another nation. Other abstainers include China and Russia, major arms exporters and importers like Saudi Arabia and Egypt (A Killer Deal, The Economist).

“Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. The world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children… This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.” – Former U.S. President, Dwight D. Eisenhower

Wars have a dirty habit of making companies and private interest groups billions of dollars. Maintaining a highly militarized defense industry will continue to remain vogue as long as there are profits to be made.

Sources:

http://www.economist.com/news/international/21575751-vote-un-week-arms-trade-treaty-could-save-many-lives-killer-deal

http://www.economist.com/blogs/prospero/2011/11/quick-study-global-arms-trade

http://www.independent.co.uk/news/mark-thatcher-accused-sources-say-he-got-12m-pounds-from-arms-deal-signed-by-his-mother-1441851.html

The economics of arms trade and arms control – University of Kent

http://www.rollingstone.com/politics/news/the-stoner-arms-dealers-20110316

Ninety-seven percent of the world’s global water supply is salt water and of the 3% remaining, only 1% is available for human consumption. Economics is all about scarcity, and like any other scarce resoruce, water and water shortages can create investment opportunities.

The introduction of a water market in the United States – specifically in the western region of the nation, where demand is increasingly high and supply (conversely) is shrinking – could potentially aid water crises in states like California, which has a history of shortages and droughts.

In countries like Australia and Chile, where water-trading markets have already been implemented, water usage has decreased dramatically, while simultaneously curbing waste. There — of course – have been issues raised among critics, who view the trading of water rights as a privatization of water and an attack on the commons, whereby only those who can afford and are willing to pay for the commodity are given access to a life– supporting resource. These concerns can be addressed with proper policy making that will guarantee a minimum supply to households.

Australia has the largest system of water trade in the world. The development of the nation’s water-trade market came about as a response to severe drought and water shortages.  The country introduced its market in 1983 as a way of reallocating the resource to sectors that demonstrated the most need and productive use of the resource. Citizens are given rights to a share of the water that is available in the Murray-Darling basin, located in South Australia, annually. Instead of basing allocations off of a specific quantity, the shares system reflects appropriate amounts of water actually available in the Murray-Darling during a given year. Australia’s Market is highly regulated and operates on a cap-and-trade system that sets a limit on the amount of permits given to water extractors and irrigators and creates a market for the resource.  The first “pilot interstate water trading project” launched in 1998 and made the trade of permanent water entitlements possible.  Today, a growing number of temporary, usually annual, trade allocations take place through the use of electronic exchanges and third parties, such as lawayers and brokers.  Cap-and-trade is commonly used in environmentally minded economic policies as a mechanism for controlling the amount of impact on the environment. The European Union attempted an approach to controlling greenhouse gas emission via a cap-and-trade policy, but the program is generally regarded as a failure due to an over issuing of permits that created an ineffective system where there was no need to buy or sell the emission permits (Sky News).

The cap in Australia’s case is the amount of water available for use.  Water is distributed via water rights administered by the country’s governing body. For Australia, the system resulted in a reduction of waste in overall water usage because it accounts of yearly rainfall and shortages.  In years where the country faced particularly dry weather conditions or drought, the price of water rose but the number of trades off-set the rise in price: “People used the market to move water where it was needed – and valued – the most. Water-intensive crops such as cotton and rice were temporarily phased out as the water needed to grow them became more valuable than the crops themselves,” (Lustgarten, The Atlantic).  The average price of temporary water rights has for the most part flucuated between $10 and $85 a megaliter (Curran, Forbes).

The water market has essentially allowed the users themselves to make decisions – rather than political bodies — about water usage. In doing so, Australia’s use of water supply has created financial incentive for smarter use: “Farmers in an irrigation district that had porous dirt ditches, for instance, began to line them with concrete, saving millions of dollars’ worth of water that would have otherwise seeped into the earth,” (Lustgarten, The Atlantic).

Similar ways of reducing water usage and cutting waste could be utilized in agricultural regions of states like California. In fact, modern technology has been developed to cut water use by up to 50 percent, though farmers are not motivated to adopt these technologies because of the current water laws set in place. California’s state water law was established in the 19^th century during the height of the gold rush, “based on the old miners’ code: first in time, first in right,” (Coy, Bloomberg Businessweek). This prior-‘appropriate water rights doctrine’ – now over 160-years-old – gives first dibs to the first person who takes a quantity of water from a source for “beneficial use.” In doing so, it gives that person the right to continued use of that quantity from the source, for his expressed purpose.  There is essentially a use-it or lose-it mentality that has de-incentivized users to conserve.

(Johnson, Grist)

The current market California operates on has had some success, but because of ambigouty in the out-of-date laws, it is hard for sellers to prove the water they are selling is legally there’s, which have left many potential buyers and sellers ambivalent about entering into trades. If water policies were modernized to reflect the current economic priorities via measures like the implementation of a water market farmers may feel more encouraged to sell off their surplus, rather than let it go to waste.

An additional problem raised by California’s agricultural sector is the economic out-put ratio of water consumption. Farms in the state consume 80% of water while only generating 2% of gross domestic product for the economy. While the agricultural sector is intertwined with other economic categories, such as transportation and warehousing and finance and insurance, which — to a degree –rely on the thousands of farms that utilize their services, there can simply be no arguing the disparity in amount of water usage in the agricultural sector (Ross, Los Angeles Times).

Water markets could check the use of water, shifting agricultural production toward higher-value crops and away from low-value crops that often demand higher amounts of water. Like in the case of Australia, rather than displace farmers by limiting access to available water, the water market could lead to a behavior change in the agricultural sector, especially in areas plagued with drought, by encouraging a switch to crops with higher-value and/or lower demand for water. For example, decreasing the amount of alfalfa crops, which require a large sum of water and can be produced in states with richer supply, while increasing the amount of vineyards and tomato crops, could improve the gross domestic product of the agricultural sector.

Clarifying water rights is a necessary step towards solving California’s drought crisis. Laws that are concrete and clearly defined will make trading water a whole lot easier because, in order to trade, stakeholders must first understand what it is they are selling. A state law passed in 2014 aimed at regulating and monitoring the pumping of groundwater in the state is indicative of steps being taken by the government to enact a regulatory body for the resource. However, these laws will not take full effect until 2040 (Coy, Bloomberg Businessweek).

In the meantime, improving the information about water availability and calculating how much can be utilized without harming the environment would paint a clearer picture of how the resource should be managed. Additionally, building a central regulatory system and repository of information could aid in the establishment of appropriate water valuation (Hanak, Public Policy Institute of California).

The state has already experiment with a cap-and-trade program to cut greenhouse emissions.  The program, which began in 2014, has efficitively reduced overall pollution and is on track to achieve 1990 levels by 2020, a more than 15% reduction from 2015 (Hiltzik, The Los Angeles Times).

California has one of the most extensive water-supply systems in the world and the largest out of any states. The infrastructure the state currently has is entirely sufficient for storage and supply of water to farms, industries and growing cities, but conservation – as previously stated — has yet to be incentivized. The development of ground water aquifers for conservation would allow irrigators to store water in times of surplus, just like a savings account, thus softening the strain placed on the supply of the resource during dry spells (Manning, Reason).

SOURCES:

http://www.latimes.com/opinion/op-ed/la-oe-0602-ross-sumner-water-agriculture-20150601-story.html

http://www.waterfind.com.au/water-trading-explained/

http://fortune.com/2014/06/25/water-futures-markets/

http://www.theatlantic.com/magazine/archive/2016/03/a-plan-to-save-the-american-west-from-drought/426846/

http://www.ppic.org/main/publication_show.asp?i=1177

http://www.bloomberg.com/news/articles/2015-08-06/to-ease-california-s-drought-make-water-easier-to-trade

https://ww2.kqed.org/science/2014/09/17/what-to-know-about-californias-new-groundwater-law/

https://www.arb.ca.gov/fuels/lcfs/workgroups/lcfssustain/hanson.pdf

http://news.sky.com/story/water-trading-from-rainfall-to-cashflow-10348114

http://voxeu.org/article/price-precious-commodity-water-trading-australia

http://www.latimes.com/business/hiltzik/la-fi-hiltzik-captrade-20160728-snap-story.html

http://grist.org/food/california-has-a-real-water-market-but-its-not-exactly-liquid/

The art market is not unlike the stock market. The auction floors of Sotheby’s and Christie’s akin to the trading floor of the New York Stock Exchange, men and women gesticulating or waving paddles as prices for the commodity – the work of art being sold – rise. People speculate and they buy to sell. Buying up art has become a show of strength and capital – both monetary and cultural – for the world’s wealthiest people seeking status and future profits. The problem though is that art is not a commodity of quantifiable worth. The price of a Francis Bacon triptych – regardless of how beautiful or one of a kind it may be – is subjective and driven by what a buyer is willing to pay. Art does not have an intrinsic value like gold, oil or other traditional investments constantly being bought and sold on the market.

Speculation is ultimately the largest driver of the art market and has resulted in the distortion of art valuation, and like any market speculation leads to inflated prices and potential bubbles. The art market’s decline in 2009 is indicative of its vulnerability during times of economic turmoil; however, following the world financial crisis prices of art began to rise and inflate again with people believing art to be a safe asset to invest in when other markets are doing poorly (Segal).

Art is enticing because the gains that can be made in the short-term are much higher when compared to other forms of investible assets; and continued low-interest rates have made it easier for lenders to borrow more money, driving up prices as well. Since the 2008-09 global recession, the value of art has more than doubled since financial recovery (Helmore). The problem again is that art, is illiquid, it has no fundamental value and is driven by oligarchs that call themselves collectors. These so-called collectors are really just interested in turning a profit and thus the boom for art, failing to take into account issues of exposure to oversupply; because art, specifically contemporary art is essentially in endless supply, with a new Warhol or Koons or Hirst coming onto the scene. While this is all good and fine as long as people continue to be willing to pay these prices, there is no question that market has been overheated by the “irrational exuberance” of speculators.
Current trends of buying up art as an asset with the expectation that it will be worth more in the future mirror that of the dot-com bubble of the 1990s and the collapse of the housing market in 2009, the prices simply cannot continue to sustain themselves.

Referenced:

http://www.nytimes.com/2012/07/22/business/swiss-freeports-are-home-for-a-growing-treasury-of-art.html

https://news.artnet.com/market/art-market-bubble-report-409136

http://www.artbusiness.com/osoquspec.html

https://www.theguardian.com/artanddesign/2016/jan/17/art-market-mania-phase-bubble-report

Patterns in consumer spending, which account for more than two-thirds of the economy, are most often the principal influence on both the stock and bonds markets. In times of economic downturn, both consumer confidence and consumer spending become diminished as people tighten their belts.

The 2008 US and world financial crisis that spurred economic recession resulted in a dip in consumer spending between a period of two years [2008-2010], according to the Bureau of Economic Analysis.

In 2009 US consumers spent 2.8 percent less, on average, than they did in the previous year. Expenditures essentially decreased across the board and entertainment decreased by 5.0 percent from the Bureau of Labor Statistics report from 2008. In spite of the overall decreases in spending U.S. box office sales hit an all-time high in 2009 at the height of the recession.

Short-term enjoyment as a means of forgetting economic despair is not uncommon consumer behavior. In fact, after the crash of 1929 that led to the Great Depression consumers flocked to their local theaters. This sort of escapist mentality was mirrored again during the Great Recession, with films like James Cameron’s record-breaking Avatar producing 2.788 billion USD in ticket sales.

ODEON Cinemas, the largest cinema chain in the United Kingdom by market share took this traditional consumer response a step further by observing trends in the company’s concession sales. Though not a perfect science the chart [below] indicates that while economic downturn may lead to more box office sales, dips in the FTSE – an indicator of consumer confidence – correlate to a decline in the consumption of concessions, more specifically popcorn for U.K. cinemagoers. The cause of these trends is obviously debatable but likely do to the fact that while people may be running to the cinema during periods of economic downturn, they are not necessarily buying up concessions.

The Odeon popcorn index of economic confidence compares average popcorn sales per ODEON cinemagoer with the Financial Times Stock Exchange 100 Index (FTSE 100 Index) of companies on the London Stock Exchange with the highest market value.

Rupert Gavin, chief executive of Odeon, tracked week-by-week popcorn sales and observed that sales of popcorn and the FTSE were not only correlated. At one point sales of popcorn were leading the FTSE.

Between June and July of 2009, popcorn sales continued to rise while the FTSE took a short drop, spiking up again by mid-July. This was significant because it meant that popcorn sales had the potential to predict future economic climates, while also reflecting current climates.

There is no way of knowing for sure whether or not movie theater popcorn sales will remain an economic indicator; however, at least for now they appear to hold a certain level of credibility for gauging the market and consumer confidence and spending.

http://www.thisismoney.co.uk/money/news/article-1679109/Popcorn-index-shows-economy-on-mend.html