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October 31, 2006

Why Should We Be Forced to Subsidize Those Who Choose to Live in the Boonies?


  Kerry Caruselle, the only passenger on her federally subsidized flight between Pueblo and Denver, leaves the plane.  Source of the photo:  online version of the NYT article cited below.  Grant Campbell has plenty of room to spread out on his federally subsidized flight between Pueblo and Denver.  Source of the photo:  online version of the NYT article cited below.

 

(p. A1)  PUEBLO, Colo. — Hoping for an empty seat beside you on your next flight?  No problem — just schedule a trip to someplace like Kingman, Ariz.; Brookings, S.D.; or Pueblo.

They are among more than 100 locales around the country that receive federally subsidized airline service, and the average number of passengers on each flight is about three.

Most of these flights on 19-seat prop planes have plenty of elbow room — a rare luxury in this age of jampacked commercial jets.  Some major airlines have cut their fleets about 20 percent since 2001 and have abandoned unprofitable routes, meaning planes are flying fuller than at any time since World War II.

The more tranquil cabins come courtesy of the Essential Air Service, put in place when the airline industry was deregulated in 1978.  The idea was to help travelers in smaller cities adjust to the new competitive era of air travel.  The intention was for the service to go away after 10 years, but it was renewed for a second decade — and then made permanent.

Over time, though, the program has come to seem mostly expensive and, to its critics, unessential.

After all, travelers adjusted very well after deregulation, and started driving the extra distance to busier regional airports nearby that offered increasingly cheap and plentiful jet service.  That left the program with (p. C7) mostly empty planes, making them more costly to fly.  Add in higher maintenance and fuel costs, and spending has more than quadrupled since 1996, to $110 million.

That, of course, is not a lot in the federal scheme of things.  But the program is a good case study of how poorly the government sometimes keeps pace with the free market and consumer tastes, and how entrenched interests, even in the face of some creative map-drawing, can keep such a program aloft in the face of efforts to ground it.

. . .

The emptier the subsidized flights, it seems, the more cherished the program became.  Members of Congress regularly pressured the Transportation Department to continue subsidies to towns they represented.  A lobbying group sprang up solely to fight to preserve and expand the program.

 

For the full story, see: 

JEFF BAILEY.  "Subsidies Keep Airlines Flying to Small Towns."  The New York Times   (Fri., October 6, 2006):  A1 & C7.

 

  Source of the graphic:  online version of the NYT article cited above.




October 30, 2006

Italy Suffers from a "Growing Spirit of Cynicism and Escapism"


  Source of book image:  http://ec3.images-amazon.com/images/P/0767914392.01._SS500_SCLZZZZZZZ_V57219494_.jpg

 

As anyone can attest who has lived in Italy even briefly, its domestic life can be gracious and sweet.  The question is whether this way of life can survive the many urgent challenges enumerated by Mr. Severgnini:  an abysmal fertility rate, crushing pension obligations, marginal economic growth, a sclerotic legal system, the flight abroad of the most creative young minds, and a growing spirit of cynicism and escapism.

 

For the full review, see:

FRANCIS X. ROCCA.  "BOOKS; An Italian Challenge; Keeping la dolce vita as modernity spreads."  The Wall Street Journal  (Sat., September 9, 2006):  P8.

 

The reference to the book:

Beppe Severgnini.  La Bella Figura. Broadway, 2006.  217 pages, $23.95.




October 29, 2006

In the Prague of Rudolf II, "Anything Seemed Possible"


  Source of book image:  http://ec3.images-amazon.com/images/P/0802715516.01._SS500_SCLZZZZZZZ_V61383943_.jpg

 

Ambassadors, nobles and church magnates routinely visited Prague Castle during Rudolf's reign (1576-1612); so did astronomers and astrologists, alchemists, philosophers, charlatans and anyone else with something marvelous to relate.  Bureaucratic busybodies might wait months for an audience with the emperor, but his doors flew open for those with esoteric knowledge.

. . .

Prague Castle was the perfect emblem of Rudolf's scattered interests.  It contained one of the greatest painting collections in Europe -- including works by Durer, Arcimboldo, Titian and Veronese.  Its inventory also included Egyptian mummies, stuffed exotic birds, unicorn horns, whale teeth, bezoars (gall stones taken from the stomach of animals, thought to be antidotes to poison), the nails of Noah's ark and one dried and preserved dragon.

If a visitor to the castle wandered into its library, he might well come across such dodgy works as "Arcana arcanissima," "De Alchemiae difficultatibus" and "Mysterium cosmographicum," many dedicated to the monarch by their grateful authors.  Yet if the visitor climbed to the top of the castle's so-called Bishop's Tower on a starry night, he might encounter the great astronomers Tycho Brahe and Johannes Kepler charting the sky.  Clearly, it was a magical moment in the history of Western civilization, when anything seemed possible.  Mr. Marshall brings it all wonderfully to life.

 

For the full review, see: 

STUART FERGUSON.  "BOOKS; Sense and Sorcery in Prague; Ready for the Renaissance; but not quite prepared to give up the unicorn."  The Wall Street Journal  (Sat., September 9, 2006):  P9.

(Note:  ellipsis added.) 

 

The book reference is: 

Peter Marshall.  The Magic Circle of Rudolf II.  Walker, 2006.  276 pages, $24.95.

 




October 28, 2006

Entrepreneur Makes Risky, Massive Infrastructure Bet


  A Louisiana site where Cheniere is building a terminal for liquified natural gas.  Source of image:  online version of the NYT article cited below.

Charif Souki is making a risky business decision.  If he is wrong, he and his investors will lose much. If he is right, consumers will be better off, having a larger supply of liquified natural gas (LNG).  And if he is right, he should be allowed to make a lot of money, both because that is just, and because it is useful for those who have bet right in the past, to have ample means to bet right in the future.   

(p. C1)  CAMERON PARISH, La. — The Sabine River channel, where alligators and speckled trout live alongside petrochemical plants and oil refineries, has suddenly become the center of a quiet revolution in the world of natural gas.

And it is mainly at the prodding of a little-known company called Cheniere Energy, with help from Exxon Mobil and Sempra Energy.  Together they have overcome formidable regulatory hurdles to build three new liquefied natural gas terminals on the channel that will double the nation’s capacity to import natural gas by 2011.

It has been 24 years since anyone on American shores has built a new liquefied natural gas terminal.  Two of the country’s four existing onshore terminals, which dock tankers the size of aircraft carriers ferrying supercooled gas from places like Qatar and Trinidad, were mothballed for years because production at home was plentiful and prices were low.

As recently as five years ago almost nobody in the energy world thought it possible to make money from a new American terminal project — with price tags that start at $600 million — let alone get a federal permit.

One lonely believer was Charif Souki, a Lebanese immigrant entrepreneur who had previously raised (p. C4) money for real estate in Paris and hotels in Hawaii before becoming chairman of Cheniere, a floundering gas exploration company.  Not even the 9/11 attacks, which made many people on the Atlantic and Pacific Coasts view liquefied natural gas terminals as potential terrorist targets, diverted him from his vision.

Now, even as natural gas prices sag, along with his company’s stock price, and the word glut is on the tip of the tongue among the drilling crowd, Mr. Souki says he is fixed on the longer view.

He is convinced the nation will need to import more gas because North American production is declining.  That is the same view Mr. Souki held six years ago, when he decided to shake up the company’s business plan.  He defiantly changed its stock symbol to LNG in 2003, and devoted himself to scoping out the country’s coastlines for potential terminal sites.

The already energy-intensive shoreline along the Gulf of Mexico, he concluded, made the most sense, economically and politically, and he started buying real estate in uninhabited harbors close to existing pipelines and gas-thirsty refineries and petrochemical plants.

“People were actually amused that we would be thinking about importing natural gas,” dryly giggled Mr. Souki, 53, a man with a taste for double-breasted suits.  “Nobody took us very seriously.”

Cheniere was so unprofitable and utterly spurned by investors in 2002 that Mr. Souki had to borrow $30,000 from his company’s president just to meet a payroll.  But over the last four years, Mr. Souki has managed to arrange financing, sign up long-term buyers and master the regulatory process. 

 

For the full story, see:

CLIFFORD KRAUSS.  "A Big Bet on Natural Gas."  The New York Times  (Weds., October 4, 2006):  C1 and C4.

GasTerminalLousianaMap.gif    The map shows the area in which the terminal is being built.  The bottom photo shows a Louisiana site where Cheniere is building a terminal for liquified natural gas.  Source of image:  online version of the NYT article cited above.




October 27, 2006

300,000,000 Strong, and Free


LifeExpectancyGraph.gif  Source of graph:  online version of the WSJ article cited below.

 

The Census Bureau tells us that some time in the weeks ahead the U.S. population will reach 300 million.  . . .

This demographic milestone is not cause for alarm -- as some prophets of doom would have it.  Rather, it is cause for celebration.  We 300 million Americans are on balance healthier and wealthier and freer than any population ever:  We breathe cleaner air, drink cleaner water, earn higher incomes, have more leisure time, and live in less crowded housing.  Every natural resource we depend on -- water, food, copper and, yes, even oil -- is far more abundant today measured by affordability than when our population was 100 million or even 30 million.

Thanks to the rapid pace of technological progress, there's every reason to believe these resources will be still more abundant when our population reaches 400 million -- which should happen about 40 years from now.  As the late economist Julian Simon reminded us, thanks to our free market capitalist system, the history of America is one of leaving the storehouse for every successive generation more endowed with wealth, knowledge and natural resources.

 

For the full commentary, see:

STEPHEN MOORE.  "Supply Side; 300,000,000."  Wall Street Journal  (Tues., October 3, 2006):  A26.

(Note:  ellipsis added.)




October 26, 2006

Equatorial Guinea's Kleptocracy: More on Why Africa is Poor


KristofNick.jpg  Nicholas D. Kristof.  Source of image:  online verison of the NYT commentary cited below.

 

The founding president of this country was a witch doctor who murdered tens of thousands, put enemies’ heads on pikes, denounced education and spread land mines on the road out of his country to prevent people from fleeing.  This was then so vile a place that an American diplomat stabbed another to death here in 1971 and claimed in his trial that he had been driven insane partly by the screams of all the people being tortured.

When the president was finally ousted in 1979, he ran off into the bush with $60 million packed in suitcases.  But he was pursued, and in a shootout, the nation’s entire foreign exchange reserves burned up.

. . .

Equatorial Guinea traditionally has been Africa’s poster boy for bad governance.  Even after the old witch doctor was ousted, the kleptocracy continued under Teodoro Obiang, the current president.  A new book about the country, “The Wonga Coup,” notes that in 2004 President Obiang bought a Boeing 737, one of six personal planes, for $55 million, and outfitted it with a king-sized bed and gold-plated fittings in the extra-large bathroom.

Schools and clinics are needy, but Forbes lists President Obiang as the world’s eighth richest ruler, with a net worth of $600 million.  Just last year, “The Wonga Coup” says, the president’s son spent the equivalent of a third of his country’s entire education budget on a vacation home in South Africa and three cars — two Bentleys and a Lamborghini.

 

For the full commentary, see:

NICHOLAS D. KRISTOF.  "Optimism and Africa."  The New York Times  (Tues., October 3, 2006):  A27.

(Note:  ellipsis added.)

 

The book mentioned in the commentary is: 

Roberts, Adam.  The Wonga Coup: Guns, Thugs and a Ruthless Determination to Create Mayhem in an Oil-Rich Corner of Africa.  PublicAffairs, 2006.

 

    Source of book image:  http://images.amazon.com/images/P/1586483714.01._SS500_SCLZZZZZZZ_V65100719_.jpg



October 25, 2006

The Missing Pillow: A Lack of Incentives Leaves an Obvious 'Job' Undone



In late July, I had an appointment for a treadmill stress-test at Omaha's Methodist Hospital.  They told me the process would be over in an hour, but it took about two hours, due to another patient having some sort of crisis during their stress-test. 

They had me put on a gown, they stuck an I-V "dye" drip in back of my hand, and they pasted about six electrodes to my chest, after shaving and applying something like sand paper to the parts of the chest where the electrodes were attached.  Then they had me lie on my side on a hard table, to wait.  It was very uncomfortable.  The first nurse said that there was supposed to be a pillow on the table, but did nothing to obtain one.  Every several minutes some technician or nurse would stop in to ask if I was ready for them.  (I was always ready.)  But it turned out that someone needed to do something to me first, and that person was, I guess, taking care of the crisis next door.  At least one of these visitors also mentioned that I was supposed to have a pillow, but did nothing to acquire one.  If memory serves, the first nurse came back in, and again mentioned that I was supposed to have a pillow, but again did nothing to obtain one.

These people were all pleasant and friendly.  For example, they had a lot of friendly chats amongst themselves, that I could not help but over-hear.  (One of them was pregnant with twins, but did not know the genders of the babes-to-be, and so had not yet spent the time to come up with names.)

But two hours later, when the whole process was over, I still did not have a pillow.

A week or two after the test, I received a several page survey from Methodist Hospital asking a bunch of questions about how I thought they had done during the test.  You see they really "care" about my opinion.  (They also run frequent, slick TV ads about how much they "care.")

Marketers, and management gurus, say that organizations need to invest in surveys and the like to figure out what the customer wants and needs.  And Clayton Christensen advocates spending resources to figure out what "job" the customer needs to have done.  And maybe, sometimes, it does take surveys and research.

But sometimes it is obvious that the customer needs a pillow.

What is missing is not a survey, or statistical analysis.

What is missing is the incentive for someone to go get the pillow. 

 

P.S.  You may wonder, then, if it is simply a mistake for the hospital to send out the survey?  I suspect that those who send out the survey are not making a mistake, but are trying to get a different job done than the one that appears to be intended.  It appears that they are trying to find out what customers want and need.  But maybe they already know that.  Maybe they are mainly sending out the survey so that if anyone asks if they are "customer-oriented" they can whip out the survey to prove that yes-indeed, they sure are.  In other words, the point of the survey is not to learn about customers; it is to cover rear-ends.





October 24, 2006

How Speculators Stablilize Gas Prices


As long ago as 1953, Milton Friedman argued that speculation normally helps to stabilize prices rather than destabilize them.

Mr. Friedman's argument was applied to currency trading, but the same reasoning works here.  If speculative trading tends to push prices higher when they are already high and lower when they are already low, then traders must be buying high and selling low.

That would mean that traders have to lose money on average -- which does not seem very likely.  To the contrary, speculative traders try to buy low and sell high, activities that by their nature tend to push prices up when they are too low and down when they are too high.

Since Mr. Friedman's 1953 article several papers have been published, both supporting and attacking this argument.  But the general principle seems quite robust.

 

For the full commentary, see: 

Hal R. Varian.  "ECONOMIC SCENE; The Rapidly Changing Signs at the Gas Station Show Markets at Work."  The New York Times  (Thurs., August 24, 2006):  C3.

 

The Milton Friedman article that Varian refers to, is: 

Friedman, Milton. "The Case for Flexible Exchange Rates." In Friedman. Essays in Positive Economics. Chicago:  University of Chicago Press, 1953.




October 23, 2006

United States Cardiologists Fail to Prescribe Fish Oil, Despite Low Cost, Safety, and Evidence of Efficacy



  Source of graphic:  online verison of the NYT article quoted and cited below.


United States cardiologists are reluctant to prescribe fish oil, wanting more definitive data on efficacy.  But a lack of definitive data on efficacy doesn't stop them from performing costly and risky procedures such as the application of stents.  Possibly relevant:  installing stents is much more lucrative for cardiologists, than prescribing fish oil.  Doctors are not bad people, but like most of us, they respond to financial incentives.


(p. D5) ROME — Every patient in the cardiac care unit at the San Filippo Neri Hospital who survives a heart attack goes home with a prescription for purified fish oil, or omega-3 fatty acids.

“It is clearly recommended in international guidelines,” said Dr. Massimo Santini, the hospital’s chief of cardiology, who added that it would be considered tantamount to malpractice in Italy to omit the drug.

In a large number of studies, prescription fish oil has been shown to improve survival after heart attacks and to reduce fatal heart rhythms.  The American College of Cardiology recently strengthened its position on the medical benefit of fish oil, although some critics say that studies have not defined the magnitude of the effect.

But in the United States, heart attack victims are not generally given omega-3 fatty acids, even as they are routinely offered more expensive and invasive treatments, like pills to lower cholesterol or implantable defibrillators.  Prescription fish oil, sold under the brand name Omacor, is not even approved by the Food and Drug Administration for use in heart patients.

“Most cardiologists here are not giving omega-3’s even though the data supports it — there’s a real disconnect,” said Dr. Terry Jacobson, a preventive cardiologist at Emory University in Atlanta.  “They have been very slow to incorporate the therapy.”


For the full story, see:

ELISABETH ROSENTHAL  "In Europe It’ s Fish Oil After Heart Attacks, but Not in U.S."  The New York Times  (Tues., October 3, 2006):  D5.





October 22, 2006

Indian Infrastructure: "If the Public Sector Cannot Deliver, Let's Try the Private Sector"


BANGALORE, India, Oct. 2 — About 25 miles south of the Chennai airport, past rows of ramshackle shops and pavements crowded with roadside vendors and assorted cattle, a short turnoff leads to a gated modern oasis.

Inside, at complete variance with the chaos of its surroundings, are the lakes, promenades, lush landscaping and security systems of Mahindra World City.  Its modern office high rises already house 4,000 workers with space for several thousand more.

This is the first of India’s special economic zones, or S.E.Z.’s, which could offer a partial solution to the extreme weaknesses in India’s infrastructure:  narrow, pothole-filled roads; erratic supplies of electricity and other utility services; and inadequate communication links.

The zone strategy borrows from China’s playbook, and in many ways, is a means to compete with China.  In fact, if all goes according to government plan, hundreds of these privately run zones will sprout like miniature foreign islands, offering better infrastructure and jobs, increasing exports and attracting investment from foreigners.

 

For the full story, see: 

SARITHA RAI.  "Oases of Modernity Amid India’ s Desert of Public Services."  The New York Times  (Tues., October 3, 2006):  C5.




October 21, 2006

In Egypt: The Authorities Versus the Entrepreneur



  Cairo entrepreneur serves good food to willing customers.  Source of image:  online version of the NYT article quoted and cited below.


In The Other Path, Hernando de Soto wrote about how governments in much of the world make it nearly impossible for the poor to legally get a start as entrepreneurs.  Here is a perfect example of de Soto's point:


CAIRO, Oct. 2 — With his cart tucked beneath a highway overpass, just beside the railroad tracks and behind a parked taxi, Farouk Salem darted his eyes back and forth nervously as he awaited customers.

On most days, except during Ramadan, the sun has barely risen and worshipers are shuffling out of the nearby mosque after morning prayers as the first customers make their way to Mr. Salem.  A few quick flicks of a ladle, the shaking of a bottle or two, and breakfast is ready.

Mr. Salem sells ful, the fava bean stew that is a staple of Egyptian cuisine, as a cheap, hearty breakfast for just 20 cents.  But he is an unlicensed street vendor, one of the many hundreds of thousands of Egyptians who make their living in what economists here describe as Egypt’s informal work force:  selling, delivering, cooking, cleaning, serving, ferrying, shoeshining, anything that will provide income.

Dr. Rashad Abdou, a professor of economics at Cairo University, estimated that the informal sector might account for as much as 60 percent of Egypt’s economy.

“As long as I keep a low profile, they don’t bother me,” Mr. Salem said on a recent day, as his brother worked behind the parked metal cart, dishing out bowls of ful.  The police have forced him to move many times and have even confiscated his cart.  But it is hard to keep a really low profile when the food is good and the prices are cheap.

As the sun began to heat up the morning air, customers showed up in a steady stream, some still in their pajamas.

“It’s good,” said Muhammad Abbadi.  “It’s clean.  And the most important thing is it’s cheap.  We are poor.  You see how poor we are in Egypt.”

. . .

“If the authorities want to chase me away, they will do it,” he says, his face tight and nervous.  “If they want to put me in prison, they can.  If they want to take my cart away, they can.”

He walked over to get some more bread as Muhammad kept ladling.

 

For the full story, see:

MICHAEL SLACKMAN.  "CAIRO JOURNAL; A Hand on the Ladle, and an Eye Out for the Law."  The New York Times (Tues., October 3, 2006):  A4.

(Note: ellipses added.)

 

CairoFulFavaBeanStew.jpg  Ful is a fava bean stew that is popular in Cairo.  Source of image:  online version of the NYT article cited above.

 

The reference to the de Soto book is: 

Soto, Hernando de. The Other Path: The Invisible Revolution in the Third World. 1st ed: HarperCollins, 1989.

 




October 20, 2006

Laptops Update Read and Friedman's "I, Pencil" Story


  Source of graphic:  scanned from p. B1 of NYT article cited below.

 

Leonard Read in his classic "I, Pencil" told the story of how the various compenents of a mere pencil came from different suppliers the world over.  People who did not know each other, and might not like each other if they met, but who were brought together in productive co-operation through the power of the market.  Milton Friedman frequently presented his own verison of this story.  The cover of my 1980 edition of Free to Choose has a picture of Friedman holding a pencil as if in the middle of this story.  And there is a short video-clip of Friedman telling the story.

A similar story could be told with many other products, and several sources have presented the raw materials in print to tell the story for laptop computers.  (By "raw materials" I mean that they list the diversity of sources of the inputs; but usually without drawing all the lessons that Reed and Friedman drew.)  One source is a chapter in Thomas Friedman's The World is Flat

Two other sources are articles that appeared within a few days of each other in The New York Times and The Wall Street Journal

The reference to The New York Times article is:

DAVID BARBOZA.  "An Unknown Giant Flexes Its Muscles; Amid Talk of Deal With I.B.M., Lenovo of China Sheds Some Obscurity."  The New York Times (Sat., December 4, 2004):  B1 & B3.

The reference to The Wall Street Journal article is:

Jason Dean and Pui-Wing Tam.  "The Laptop Trail; The Modern PC Is a Model Of Hyperefficient Production And Geopolitical Sensitivities."   The Wall Street Journal  (Thurs., June 9, 2005):  B1 & B8. 

 

  Source of graphic:  scanned from p. B1 of WSJ article cited above.

 




October 19, 2006

Profit-Maximizing Infrastructure Installation



  Verizon employees in New York installing fiber optic cable.  Source of photo:  online version of the NYT article cited below. 

 

(p. C1)  Building a whole new state-of-the-art network is a laborious and expensive process that Verizon says it must undertake to fend off rivals like Comcast and Vonage, which are moving fast into the phone business.  As Verizon replaces more of its old copper network with more durable fiber lines, the company also expects to save billions of dollars in maintenance costs.

Verizon will spend about $20 billion by the end of the decade to reach 16 million homes from Florida to California. But it is in New York City where Verizon has the most at stake, because New Yorkers are some of the nation’s biggest buyers of video,  Internet and phone services.  The company plans to spend about $3 billion to reach the city’s 3.1 million homes and apartments.

With such a high concentration of potential customers, competition is fierce — and Verizon has been losing ground.  Time Warner Cable, Cablevision and others are stealing about 1,000 Verizon phone customers a day, and their discounted services are making it hard for Verizon to win them back — another reason to get the fiber network up quickly.

“The guys understand the importance of this fiber project,” said Robert Fighera, a lineman and chief union steward in the Bronx, nodding to the workmen nearby.  “We’re also stockholders, and we know we have to install this or we’ll fall by the wayside of all these other companies.”

 

For the full story, see: 

KEN BELSON.  "Verizon Is Rewiring New York, Block by Block, in a Race for Survival."  The New York Times  (Mon., August 14, 2006):  C1 & C6.






October 18, 2006

"Man in White Suit" Science Fiction, Now Nearly Science Fact


PART of what sold James Tirey on a change in attire was the coffee spilled on his legs during a rough flight.  ''It stayed sticky until it dried,'' he said, ''about mid-Atlantic.''

To avoid such incidents, he bought a new pair of pants with an invisible, high-tech surface suited to the exigencies of business travel.  These pants look and feel like most others, but the ingenious finish on the fabric is different:  it is made of tiny, nanosized particles that repel water, ketchup, honey, blood, vinaigrette and a thousand other potential indignities.  With such a surface, he said, ''if coffee is spilled on you, it just beads up'' or runs off.  The pants can be wiped with a paper napkin -- even the skimpy cocktail kind handed out on airplanes -- leaving the material dry and unscathed.

Mr. Tirey, who lives in northern Virginia, bought his pants, called the Steel Pant, at Beyond, a Eugene, Ore., company that makes and sells outerwear for men and women at BeyondFleece.com.  The material is manufactured by the Swiss company Schoeller Textil, which makes both the weave and the nanofinish, called NanoSphere.  On the Beyond Web site, the pants cost $119, the nanocoating an additional $15.  ''It was definitely worth the money,'' Mr. Tirey said of the purchase.

 

For the full story, see: 

ANNE EISENBERG.  "NOVELTIES; The Chemist's Find: A Way to Shrug Off Spills." The New York Times , Section 3(Sun., August 27, 2006):  5. 




October 17, 2006

The Opportunity Cost of a Bad Bottle of Wine


  Len Evans.  Source of photo:  http://www.smh.com.au/news/national/heart-attack-kills-len-evans-king-of-australian-wine/2006/08/17/1155407960581.html

 

BACK in the early 1990's Len Evans, the Australian wine man and legend in his own lifetime, gave me some advice.

''I'd say you're about 60,'' he said, ''and from the looks of you, you'll be lucky to make 75.  You've got about 15 years ahead of you, and it's time for you to learn my Theory of Capacity.

''You've got to make the most of the time you've got left, man.  You've got to calculate your future capacity.  A bottle of wine a day is 365 bottles a year.  Which means you've probably only got 5,000 bottles ahead of you.

''People who say you can't drink good stuff all the time are fools.  You must drink good stuff all the time.  Every bottle of inferior wine you drink is like smashing a superior bottle against a wall:  the pleasure is lost forever.  You can't get that bottle back.''

 

For the full story, see: 

FRANK J. PRIAL.  "A Wine Man Who Vowed to Drain the Cup."  The New York Times  (Weds., August 30, 2006):  D7. 




October 16, 2006

Technology Liberates the Paralyzed


  Paralyzed from a stabbing, Matthew Nagle can move computer cursor by means of a sensor implanted in his brain.  Source of image:  online version of NYT article cited below.

 

(p. A1)  A paralyzed man with a small sensor implanted in his brain was able to control a computer, a television set and a robot using only his thoughts, scientists reported yesterday.

Those results offer hope that in the future, people with spinal cord injuries, Lou Gehrig’s disease or other conditions that impair movement may be able to communicate or better control their world.

“If your brain can do it, we can tap into it,” said John P. Donoghue, a professor of neuroscience at Brown University who has led development of the system and was the senior author of a report on it being published in today’s issue of the journal Nature.

 

For the full story, see: 

ANDREW POLLACK. "Paralyzed Man Uses Thoughts to Move a Cursor." The New York Times  (Thurs., July 13, 2006):  A1 & A21.




October 15, 2006

German Opera House "Falling On Its Knees Before the Terrorists"


   "A scene added to “Idomeneo,” shown in a 2003 rehearsal, includes Muhammad and other religious figures."  Source of photo and caption:  online version of the NYT article cited below. 

 

(p. A1)  BERLIN, Sept. 26 — A leading German opera house has canceled performances of a Mozart opera because of security fears stirred by a scene that depicts the severed head of the Prophet Muhammad, prompting a storm of protest here about what many see as the surrender of artistic freedom.

The Deutsche Oper Berlin said Tuesday that it had pulled “Idomeneo” from its fall schedule after the police warned of an “incalculable risk” to the performers and the audience.

. . .

Political and cultural figures throughout Germany condemned the cancellation.  Some said it recalled the decision of European newspapers not to reprint satirical cartoons about Muhammad, after their publication in Denmark generated a furor among Muslims.

Wolfgang Börnsen, a culture spokesman for Chancellor Angela Merkel’s conservative bloc in Parliament, accused the opera house of “falling on its knees before the terrorists.”

 

For the full story, see:

JUDY DEMPSEY and MARK LANDLER.  "Opera Canceled Over a Depiction of Muhammad." The New York Times  (Weds., September 27, 2006):  A1 & A12.

(Note:  ellipsis added.)




October 14, 2006

R&D Stats Better; But Still Omit a Lot of Innovation


GDPgrowthWithR&Dgraph.gif  Source of graphic:  online version of WSJ article cited below.

Note well Romer's caveat below that, although we may be measuring better, we are still not measuring Schumpeterian innovations (such as the Wal-Mart innovations that are vastly increasing the efficiency of retailing).

 

That research and development makes an important contribution to U.S. economic growth has long been obvious.  But in an important advance, the nation's economic scorekeepers declared they can now measure that contribution and found that it is increasing.

. . .

Since the 1950s, economists have explained economic output as the result of measurable inputs.  Any increase in output that can't be explained by capital and labor is called "multifactor productivity" or "the Solow residual," after Robert Solow, the Nobel Prize-winning economist considered the father of modern growth theory.

From 1959 to 2002, this factor accounted for about 20% of U.S. growth.  From 1995 to 2002, when productivity growth accelerated sharply, that grew to about 33%.  Accounting for R&D would explain about one-fifth, by some measures, of the productivity mystery.  It suggests companies have been investing more than the official data had previously shown -- a good omen for future economic growth.  "The slump in investment is not as drastic as people thought before they saw these figures," says Dale Jorgenson, professor of economics at Harvard University.

Mr. Jorgenson noted a lot of the multifactor productivity growth remains unexplained.  "The great mystery of growth . . . is not eliminated."

Paul Romer, an economics professor at Stanford Business School, said the better the measurements of R&D become, the more economists and policy makers will realize other factors may be more important.  "If you look at why we had rapid productivity growth in big-box retailing, there were lots of intangibles and ideas that . . . don't get recorded as R&D."

 

For the full story, see:

GREG IP and MARK WHITEHOUSE.  "Why Economists Track Firms' R&D; Data on Knowledge Creation Point to an Increasing Role In Domestic Product Growth."  Wall Street Journal  (Fri., September 29, 2006):  A2.

(Note:  The slightly different online version of the title is:  "Why Economists Track Firms' R&D; Data on Knowledge Creation Point to an Increasing Role In Domestic Product Growth.")

(Note:  ellipses in Jorgenson and Romer quotes, in original; ellipsis between paragraphs, added.)

 




October 13, 2006

Hernando de Soto Creates Buzz in Clinton Hallways


DeSotoClinton.jpg  Hernando de Soto and Bill Clinton at the second annual Clinton Global Initiative.  Source of photo:  online version of the WSJ article cited below.

 

. . . the buzz in the hallways centered on a topic that until recently most philanthropists all but ignored:  registering poor people's property so they could borrow against it to build businesses, pay taxes or for other purposes.  Many citizens of developing countries don't formally have title to their land, and many economists -- including Peruvian economist Hernando de Soto, another conference attendee -- see this as a key source of urban poverty.  According to Mr. de Soto's research, the value of unregistered land in developing countries totals over $9 trillion.  Mr. Clinton told the audience that these assets "cannot be converted into collateral for loans -- wealth locked-up and locked-down -- keeping people in grinding poverty instead of being an asset that can lift them up."  Up to 85% of urban land parcels in the developing world are unregistered, Mr. Clinton said, citing Mr. de Soto's research.

But standing in the way of widespread land-ownership records are insufficient legal frameworks, confusing procedures and corrupt property registries.  And establishing land ownership is all but impossible in communist and socialist countries, where property usually is owned by the state, said John Bryant, chief executive of Operation Hope, a nonprofit in Los Angeles that provides financial services to the poor.

 

For the full article, see: 

SALLY BEATTY. "GIVING BACK; Helping the Poor Register Land." Wall Street Journal (Fri., September 29, 2006): W2.

(Note:  ellipsis added.)




October 12, 2006

Sulfa: First Antibiotic Was Pursued for Profit



  Source of the book image:  http://ec1.images-amazon.com/images/P/1400082137.01._SS500_SCLZZZZZZZ_V52133117_.jpg

 


Economists have debated whether patents mainly provide incentives, or obstacles, to innovation.  In the story of the development of sulfa, the first powerful antibiotic, the desire for profit, through patents, was one motive that drove an important part of the development process; this, even though, in the end, sulfa turned out not to be patentable:


(p. P9) Mr. Hager follows a group of doctors into postwar German industry -- specifically into the dye conglomerate IG Farben.  These men, having witnessed horrible deaths by infection on the battlefield, picked up on Ehrlich's hypothesis by trying to synthesize a dye that specifically stained and killed bacteria.  Led by the physician-scientist Gerhard Domagk, they brought German know-how, regimentation and industry to the enterprise.

Year after year the team infected mice with streptococci, the bacteria responsible for so many deadly infections in humans.  The researchers then treated the mice with various dyes but had to watch as thousands upon thousands of them died despite such treatment.  Nothing seemed to work.  The 1920s turned into the '30s, and still Domagk and his team held to Ehrlich's idea.  There was simply no better idea around.

Then one of the old hands at IG Farben mentioned that he could get dyes to stick to wool and to fade less by attaching molecular side-chains containing sulfur to them.  Maybe what worked for wool would work for bacteria by making the dye adhere to the bacteria long enough to kill it.

. . .

The IG Farben conglomerate expected huge profits from Prontosil.  But then French scientists at the Pasteur Institute in Paris dashed these dreams.  The German scientists -- all of them Ehrlich disciples -- thought that the power to cure infection rested in the dye, with the sulfa side-chain merely holding the killer dye to the bacteria.  The scientists at the Pasteur Institute, though, showed that the sulfa side-chain alone worked against infection just as well as the Prontosil compound.  In fact, the dye fraction of the compound was useless.  You could have Ehrlich's magic bullet without Ehrlich's big idea!  This bombshell rendered the German patents worthless.  The life-saver "drug" turned out to be a simple, unpatentable chemical available in bulk everywhere.

 

For the full review, see: 

PAUL MCHUGH.  "BOOKS; Medicine's First Miracle Drug."  The Wall Street Journal  (Sat., September 30, 2006):  P9.

(Note: ellipsis added.)

 

The reference for the book is: 

Thomas Hager.  The Demon Under The Microscope.  Harmony, 340 pages, $24.95






October 11, 2006

Maybe Fewer Women Engineers Because Fewer Women Want to Be Engineers?


I’ve slogged through enough reports from the National Academy of Sciences to know they’re often not shining examples of the scientific method.  But — call me naïve — I never thought the academy was cynical enough to publish a political tract like “Beyond Bias and Barriers,” the new report on discrimination against female scientists and engineers.

. . .

I consulted half a dozen of these experts about the report, and they all dismissed it as a triumph of politics over science.  It’s classic rent-seeking by a special-interest group that stands to get more money and jobs if the recommendations are adopted.

“I am embarrassed,” said Linda Gottfredson of the University of Delaware, “that this female-dominated panel of scientists would ignore decades of scientific evidence to justify an already disproved conclusion, namely, that the sexes do not differ in career-relevant interests and abilities.”

. . .

After decades of schools pushing girls into science and universities desperately looking for gender diversity on their faculties, it’s insulting to pretend that most female students are too intimidated to know their best interests.  As Science magazine reported in 2000, the social scientist Patti Hausman offered a simple explanation for why women don’t go into engineering:  they don’t want to.

“Wherever you go, you will find females far less likely than males to see what is so fascinating about ohms, carburetors or quarks,” Hausman said.  “Reinventing the curriculum will not make me more interested in learning how my dishwasher works.”

 

For the full commentary, see:

JOHN TIERNEY.  "Academy of P.C. Science."  The New York Times   (Tues., September 26, 2006):  A23.

 

(Note:  the title of the online version was "Academy of P.C. Sciences.")

(Note:  ellipses added.) 




October 10, 2006

"Work Alone"


  Source of book image:  http://www.mactime.ru/Environ/WebObjects/mactime.woa/2/wa/Main?textid=6114&level1=mactimes&wosid=b2qk07iEkIh6GoutH7IbVg

 

Many scholars interpret Schumpeter as believing that large firms would increasingly become the main source of innovation.  Scherer, Christensen, and many others, have provided plenty of reason to doubt this belief.  Here is another reason, from one of the innovators who helpted bring us the personal computer:

What emerges in "iWoz" is a chatty memoir full of surprises.  Yes, Mr. Wozniak cherishes workbench minutiae, such as his tips for connecting circuitry wires.  But he also sees this book as a chance to cut through cliché and explain himself to a larger audience.  He reveals a technology pioneer who is more charming and annoying -- and whose life is more poignant -- than we expected.

. . .

As Apple roared ahead, going public in 1980 and then becoming one of the 500 largest U.S. companies, Mr. Wozniak's golden moment came to an end.  New products weren't developed anymore by a brilliant prankster working with barely any sleep.  There were now teams, committees and market studies.

Mr. Wozniak by his own account didn't like these changes, and he didn't want to rise into senior management.  He hung on at Apple as a lone engineer -- and he says he still collects a tiny paycheck from the company -- but from the mid-1980s onward turned his attention to other things.

. . .

Fortunately, Mr. Wozniak finishes strong.  In his final chapter, he offers a bit of advice to gifted engineers:  "Work alone."  Big companies tend to stifle innovation, he explains.  It's lonely and risky to work solo.  No matter.  "Man, it will be worth it in the end," he writes.  His life bears out the truth of that simple claim.

 

For the full review, see: 

GEORGE ANDERS.  "BOOKS; Technostalgia; Steve Wozniak looks back on the computer revolution and his role as Apple's co-founder."  Wall Street Journal  (Sat., September 30, 2006):  P8.

(Note:  ellipses added.)

 

The reference to the book by Wozniak: 

Steve Wozniak, with Gina Smith.  iWoz  Norton, 2006.  313 pages, $25.95.

 

JobsWozniak1977.jpg  Steve Jobs at left, and Steve Wozniak at right, in San Francisco in 1977.  Source of photo:  online version of the WSJ article cited above.



October 9, 2006

Entrepreneurship Survives, Even in Mogadishu


  In Mogadishu the nose of one of the two Black Hawk helicopters that were were shot down in 1993.  Source of the photo:  online version of the NYT article cited below. 

 

MOGADISHU, Somalia, Sept. 23 — They call her the “Black Hawk Down” lady.

And in the corner of her dirt yard, beneath rags drying in the sun and next to a bowl of filthy wash water, she keeps a chunk of history that most Americans would probably like to forget.

It is the battered nose of a Black Hawk helicopter, from one of the two that got shot down in Mogadishu on Oct. 3, 1993, in an infamous battle that killed 18 Americans, led to a major foreign policy shift and spawned a big movie.

The Black Hawk Down lady stands fiercely at her gate and charges admission to see it.

“You, you, you,” she said on a recent day, jabbing her finger at three visitors.  “Pay, pay, pay.”

. . .

Ecstatic Somalis ransacked the wreckage, stripping the helicopters and melting down the metal. Some people even ripped insignia patches off the bodies of the soldiers to keep as grim souvenirs.

. . .

But Ms. Elmi had a different plan.  Her husband had died a long time ago, and she had six children to feed.  Two of her older sons were killed, she said, when the helicopter crashed.  She dragged the cracked nose piece, about five feet across but actually pretty light because it was made of fiberglass, back to her house.

. . .  

Ms. Elmi began humbly, charging neighborhood boys the equivalent of a few cents to get a peek at her one exhibit, the last known chunk of wreckage from what Somalis refer to as Ma-alinti Rangers, the Day of the Rangers.

But after the movie “Black Hawk Down” came out in 2001 — and pirated copies found their way to Mogadishu — business boomed.

“So many people came, I cannot count,” she said.  “White people, brown people, black people.”

When asked why they come, she snapped:  “How should I know?  Do you think I am mind reader?”

The entrance fee is now around $3 for foreigners; locals get a discount and pay 75 cents.

. . .

Some people say they fear the Islamists will impose a draconian version of Islam in Somalia, which up until recently had been relatively secular.

But Ms. Elmi said she loved the Islamists.  And she has her own reasons.

“They bring peace,” she said.  “And peace brings tourists.”

 

For the full story, see: 

JEFFREY GETTLEMAN.  "MOGADISHU JOURNAL; From the Ashes, a Chunk of America Beckons in Somalia."  The New York Times  (Thurs., September 28, 2006):  A4.

(Note:  in the print version, but not the online version, there is a subheader placed in the center of the article that reads:  "An entrepreneur feeds a family, thanks to the remnants of a battle.") 

(Note:  ellipses added.)




October 8, 2006

Intel Chairman Says Health Care Inefficient


 

WASHINGTON (AP) - Intel Corp. Chairman Craig Barrett said Tuesday that U.S. jobs will continue to move offshore at a rapid pace unless corporate America forces the health care industry to adopt systems that will cut costs and improve efficiency.

"Every job that can be moved out of the United States will be moved out . . . because of health care costs," which averaged more than $6,000 per person in 2004, Barrett said at a conference sponsored by eHealth Initiative, a nonprofit coalition of health information technology interest groups.

. . .

Barrett was joined on-stage by Wal-Mart Stores Inc. Executive VP Linda Dillman.  Barrett said the health care industry could learn from the efficiency of the retail giant, which tracks every item in inventory.

 

For the full story, see: 

"Health care waste costs jobs, says Intel chief."  Omaha World-Herald  (Wednesday,  September 27, 2006):  3D. 

(Note:  ellipsis in the Barrett quote, in original; ellipsis between paragraphs, added.)

 




October 7, 2006

Health Care Costs Continue to Increase


HealthCoverageCostsGraph.gif  Source of graphic:  online version of the NYT article cited below.

 

(p. C1)  The cost of living keeps going up, but the cost of healthy living is going up even faster.

A widely followed national survey reported yesterday that the cost of employee health care coverage rose 7.7 percent this year, more than double the overall inflation rate and well ahead of the increase in the incomes of workers.

The 7.7 percent increase was the lowest since 1999.  But the average cost to employees continued an upward trend, reaching $2,973 annually for family coverage out of a total cost of $11,481.

Since 2000, the cost of family coverage has risen 87 percent while consumer prices are up 18 percent and the pay of workers has increased 20 percent, the survey noted.  That is without counting the cost of deductibles and other out-of-pocket payments, which have also been rising.

 

For the full story, see: 

MILT FREUDENHEIM.  "Health Care Costs Rise Twice as Much as Inflation."  The New York Times (Weds., September 27, 2006):  C1 & C7.

 

  Source of graphic:  online version of the NYT article cited above.




October 6, 2006

Unintended Consequences of "Protecting" Rare Woodpecker


  Red-cockaded woodpecker.  Source of image:  http://www.fws.gov/athens/images/Red-cockaded%20woodpecker%20120%20KB%205x7.jpg

 

BOILING SPRING LAKES, N.C., Sept. 23 (AP) — Over the past six months, landowners here have been clear-cutting thousands of trees to keep them from becoming homes for the endangered red-cockaded woodpecker.

The chain saws started in February, when the federal Fish and Wildlife Service put Boiling Spring Lakes on notice that rapid development threatened to squeeze out the woodpecker.

The agency issued a map marking 15 active woodpecker “clusters,” and announced it was working on a new one that could potentially designate whole neighborhoods of this town in southeastern North Carolina as protected habitat, subject to more-stringent building restrictions.

Hoping to beat the mapmakers, landowners swarmed City Hall to apply for lot-clearing permits.  Treeless land, after all, would not need to be set aside for woodpeckers.  Since February, the city has issued 368 logging permits, a vast majority without accompanying building permits.

The results can be seen all over town.  Along the roadsides, scattered brown bark is all that is left of pine stands.  Mayor Joan Kinney has watched with dismay as waterfront lots across from her home on Big Lake have been stripped down to sandy wasteland.

. . .

Like the woodpeckers, humans are also looking to defend their nest eggs.

Bonner Stiller has been holding on to two wooded half-acre lakefront lots for 23 years.  He stripped both lots of longleaf pines before the government could issue its new map.

“They have finally developed a value,” said Mr. Stiller, a Republican member of the state General Assembly.  “And then to have that taken away from you?”

 

For the full story, see:

"Rare Woodpecker Sends a Town Running for Its Chain Saws."  The New York Times, Section 1 (Sun., September 24, 2006):  20.

 




October 5, 2006

Reforms Make it Easier to Start and Run a Business in Africa



(p. A12) Authors of the report, ''Doing Business,'' by the World Bank and the International Finance Corporation, the bank's private sector arm, say they hope simplifying and easing the rules of the capitalist game will entice more businesses above ground.

A team of 30 researchers found that African countries had made many incremental changes.

''The most surprising thing for me was to see the pickup of reform in Africa,'' said Simeon Djankov, a World Bank economist who four years ago developed the rankings on the ease of doing business.  ''Something has happened this year.  At least two-thirds of Africa's countries have at least one positive reform.''

Tanzania computerized its business and tax registries and reduced delays in customs inspections and the courts.

Ghana has cut the corporate tax rate to 25 percent, from 32.5 percent, and made it easier to export goods.

Rwanda scrapped a law adopted during Belgian colonial rule that had given one official a monopoly on notarizing documents for the entire country.

Ivory Coast slashed the time to register property to a month from more than a year by eliminating a requirement that the urban minister give his consent.

Wealthy donors like the World Bank, the United States and Britain, which focus on spurring economic growth and job creation, are putting heavier emphasis on such changes in deciding where to provide aid.

The Millennium Challenge Account, President Bush's aid program, explicitly uses the bank report's measure of days to start a business as one criterion for deciding who qualifies for large grants.

 

For the full story, see:

CELIA W. DUGGER.  "Africa Moves Up the Ladder of Business-Friendly Regions."   The New York Times (Weds., September 6, 2006):  A12.

(Note:  the online version of the article had this, slightly different, title:  "In Africa, a More Business-Friendly Approach.")   






October 4, 2006

Sprint to Risk Billions on New Infrastructure


WiMaxSprintGraphic.gif  Source of graphic:  online version of the WSJ article cited below.

 

If Sprint bets on WiFi, they're betting with their money; if the government bets on WiFi, they're betting with your money.  If Sprint succeeds, thereby benefiting the consumer, at no risk to the consumer, the consumer should not object to their earning huge profits.

Note also, that this is a plausble candidate for a firm trying to follow Clayton Christensen's advice to try to disrupt itself.  (And see the comment at the end, for someone who hasn't read Christensen, or doesn't believe what he has read.)

 

Analysts say building a nationwide WiMax network could cost Sprint between $1 billion and $4 billion, a hefty sum for a company that is already struggling to meet Wall Street's expectations.  Sprint said it expects to invest $1 billion on the project in 2007 and between $1.5 billion and $2 billion in 2008.

Sprint's decision carries considerable risks:  Investors have hammered telecom companies that have made large capital investments in new technologies, banking on future markets to emerge.  For example, among other things, Verizon Communications Inc.'s stock has been under fire as the company is rolling out a costly new fiber optic network that it says will position the company to deliver a bundled TV, Internet, and phone service.  Also, WiMax technology is still untested on a large scale.

Sprint is making a huge bet that consumer demand for wireless Internet access and services such as cellphone downloads of music and video will continue to grow in the coming years.  Consumers already can get access to wireless Internet service at Wi-Fi "hotspots" in airports and coffee shops, and some cities, like Anaheim, Calif., are blanketing their terrain with Wi-Fi connections.

. . .

. . . , some analysts and industry experts question why the company is gearing up for such a major capital investment when it is already even or ahead the other top U.S. carriers, Verizon and Cingular Wireless, when it comes to data services. "Why compete against yourself? It doesn't make a lot of sense at this point," said Mike Thelander, principal analyst at Signals Research Group who predicted several weeks ago that Sprint would choose WiMax.

 

For the full story, see:

AMOL SHARMA and DON CLARK.  "Sprint Bets on New Wireless 'WiMax'."  Wall Street Journal  (Tues.,  August 8, 2006):  B1-B2.

(Note:  the above passages are from the online version, which was later, and less tentative about Sprint's intentions, than the print version.) 

(Note:  ellipses added.)




October 3, 2006

Tech Bubble Caused Much of 1990s Inequality Increase


  Source of graphic:  online version of the NYT article cited below.

 

It is widely recognized that income inequality increased in the 1990’s, but nobody knows quite why. Despite the lack of hard evidence, there are plenty of theories.

. . .

Two University of Texas researchers, James K. Galbraith and Travis Hale, added an interesting twist to this debate in a paper, “Income Distribution and the Information Technology Bubble” (utip.gov.utexas.edu/abstract.html#UTIP27).

According to Mr. Galbraith and Mr. Hale, much of the increase in income inequality in the late 1990’s resulted from large income changes in just a handful of locations around the country — precisely those areas that were heavily involved in the information technology boom.

. . .

A big advantage of looking at county data is that it is possible to identify counties that contributed the most to the increase in income inequality from 1994 to 2000.  It turns out that the five biggest winners in this period were New York; King County, Wash. (with both Seattle and Redmond); and Santa Clara, San Mateo and San Francisco, Calif., the counties that make up Silicon Valley.  The five biggest losers were Los Angeles; Queens; Honolulu; Broward, Fla.; and Cuyahoga, Ohio.

What do the counties in the first list have in common?  Their economies were all heavily driven by information technology in the late 90’s.  This is true for the rest of the list of winners as well.  Harris, Tex. (home to Houston and Enron); Middlesex, Mass. (home to Harvard and M.I.T.); Fairfield, Conn.; Alameda, Calif.; and Westchester, N.Y., were also among the top 10 income gainers in this period.

The authors point out that half the 80 American companies in the CNET Tech Index are in those top 10 counties.  Furthermore, when income inequality decreased after 2000, the income drop in the high-tech counties contributed most to the decline. 

 

For the full commentary, see:

HAL R. VARIAN.  "ECONOMIC SCENE; Many Theories on Income Inequality, but One Answer Lies in Just a Few Places."  The New York Times  (Thurs., September 21, 2006):   C3.




October 2, 2006

Markets, Not Courts, Should Decide Intel Market Share


Intel executives, coming up on a pre-trial conference in a case that could decide their company's fate, should be looking with envy and admiration at Tiger Woods, and wondering how to make their business more like his.

If golf followed the same path as other businesses, Tiger could expect to face a lawsuit contending that his dominance of professional golf is based on unfair competition.  And in fact,  a few years back Sergio Garcia whined that Tiger got better practice times, favorable treatment around the course, more protection against distracting fans -- little things that could, Mr. Garcia intimated, explain Tiger's edge.  Sportswriters responded swiftly, deriding Mr. Garcia for looking to blame others for his being outcompeted.  They understood that sports contests belong on the field, not in the media or the courts.

The same should be true of business.  Market-based economies thrive on competition.  The competitive economy doesn't yield an infinite number of equally successful firms producing indistinguishable products, but lets winners and losers emerge from marketplace competition.  The (inevitably) temporary dominance of one product or one firm spurs others to compete harder.  Today, however, many businesses -- especially American ones -- find it easier to restrain a dominant competitor through the courts than to beat it in the market.

Take the case of Advanced Micro Devices and Intel, the dominant chipmaker for PCs and servers.  AMD for years played the role of Phil Mickelson to Intel Corporation's Tiger Woods -- the talented rival who keeps coming up short in head-to-head competition.  Last year, it decided to model Mr. Garcia rather than Mr. Mickelson, filing an antitrust action against Intel, charging it with a variety of unlawful actions.

. . .

AMD finds fault in Intel's continued market dominance:  Because Intel has had 80% or more of the x86 chip processor market for many years it must be doing something illegal to keep rivals out.  Yet, George Stigler, among others, long ago debunked the significance of market share as a measure of competition.  Duopoly markets, like the market for large commercial aircraft, can be fiercely competitive.  Ask anyone working at Boeing or Airbus.

Moreover, markets can change rapidly, especially high-tech markets, often in ways unanticipated by antitrust suits.  Witness the changes in computing that caused the government's antitrust case against IBM to implode.

 

For the full commentary, see: 

RON CASS.  "RULE OF LAW; Tigers by the Tail."  Wall Street Journal  (Sat., September 23, 2006):  A7.

 




October 1, 2006

On Turning 60, Michael Milken Asks "Why Retire?"


More baby boomers are asking themselves, Why retire?  It's a cliché to say that 60 is the new 40, but it has some biological and psychological validity.  Advanced biomedical research is leading to continued progress against cancer, heart disease, arthritis, dementia and other conditions that forced people out of the workforce before they wanted to quit.  In the future, aging workers will be healthier and will use broadband technology to live and work from anywhere at the increasing proportion of jobs that involve knowledge rather than physical labor.  They'll spend more years earning income, often in multiple careers, instead of selling assets.

Fewer people will retire in their 60s simply because they know that average life expectancy at birth is increasing at an astounding rate.  Americans, who could expect to live an average of 47 years in 1900, now enjoy life spans approaching 80 years.  (It already exceeds 80 for women.)  An American who makes it to age 65 can look forward to living almost two decades more.  Worldwide, the increase has been even more dramatic.  In a single century -- despite wars, AIDS and other scourges -- the global average more than doubled to 66 years.  Nobel laureate Robert Fogel believes it will exceed 100 years within this century.

More than just the length of life, the number of healthy years will also increase.  When people are vibrant into their 80s and 90s, 65 will evolve from the traditional retirement age to a mid-career milestone for those who choose to keep working.  Who wants to retire when you have fulfilling work, when you earn a good income, and when you feel great?  According to a Yahoo! poll, 70% of people over 55 say it's never too late to start a new business.

 

For the full commentary, see:

MICHAEL MILKEN.  "The Boom Generation Seventh Decade."  Wall Street Journal  (Tues., September 19, 2006):  A20.




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