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November 30, 2006

Copenhagen Consensus: Money Spent on Global Warming Would Do More Good Elsewhere



(p. A12) The report on climate change by Nicholas Stern and the U.K. government has sparked publicity and scary headlines around the world.  Much attention has been devoted to Mr. Stern's core argument that the price of inaction would be extraordinary and the cost of action modest.

Unfortunately, this claim falls apart when one actually reads the 700-page tome.  Despite using many good references, the Stern Review on the Economics of Climate Change is selective and its conclusion flawed.  Its fear-mongering arguments have been sensationalized, which is ultimately only likely to make the world worse off. 

. . .  

Mr. Stern is also selective, often seeming to cherry-pick statistics to fit an argument.  This is demonstrated most clearly in the review's examination of the social damage costs of CO2 -- essentially the environmental cost of emitting each extra ton of CO2.  The most well-recognized climate economist in the world is probably Yale University's William Nordhaus, whose "approach is perhaps closest in spirit to ours," according to the Stern review.  Mr. Nordhaus finds that the social cost of CO2 is $2.50 per ton.  Mr. Stern, however, uses a figure of $85 per ton.  Picking a rate even higher than the official U.K. estimates -- that have themselves been criticized for being over the top -- speaks volumes.

. . .  

Last weekend in New York, I asked 24 U.N. ambassadors -- from nations including China, India and the U.S. -- to prioritize the best solutions for the world's greatest challenges, in a project known as Copenhagen Consensus.  They looked at what spending money to combat climate change and other major problems could achieve.  They found that the world should prioritize the need for better health, nutrition, water, sanitation and education, long before we turn our attention to the costly mitigation of global warning.

We all want a better world.  But we must not let ourselves be swept up in making a bad investment, simply because we have been scared by sensationalist headlines.

 

For the full story, see: 

BJORN LOMBORG.  "Stern Review."  Wall Street Journal (Thurs., November 2, 2006):  A12.

(Note:  the ellipses are added.)

 




November 29, 2006

Without Incentives, the Energetic become Lazy



Wise words from Frederick W. Taylor, who is known as the father of scientific management:


(p. B1) "When a naturally energetic man works for a few days beside a lazy one," Mr. Taylor wrote, "the logic of the situation is unanswerable.  'Why should I work hard when that lazy fellow gets the same pay I do and does only half the work?' "


As quoted in: 

CYNTHIA CROSSEN.  "DEJA VU; Early Industry Expert Soon Realized a Staff Has Its Own Efficiency."  Wall Street Journal  (Mon., November 6, 2006):  B1.





November 28, 2006

Is Variety Good?


Chris Anderson has a stimulating and useful chapter in The Long Tail on why having variety and choice is good.

Not all agree.  My old Wabash economics professor, Ben Rogge, with wry amusement, used to refer us to Alvin Toffler's Future Shock.  Toffler's view was that choice was stressful---visualize the Robin Williams' Russian émigré character in "Moscow on the Hudson," when he collapses in panic on not knowing how to choose amongst the variety of coffees in the Manhattan supermarket aisle.

What amused Rogge was the contrast between the old critics of capitalism, who criticized capitalism for providing too few goods for the proletariat, and the new critics, like Toffler, who criticized capitalism for providing too many goods for the proletariat. 

Although Toffler has recanted his earlier views, others, such as Barry Schwartz in The Paradox of Choice, have picked up the anti-choice banner.

Here's my current two cents worth.  Sometimes we value variety for its own sake, and sometimes not.  I may find the variety of ethnic restaurants exciting, but not the variety of music on I-tunes.

But even when I don't value variety for its own sake, I still may value it because it increases the odds that the product I can find matches the product I want.  Let me explain.

In the language of Clayton Christensen and co-author Raynor, in The Innovator's Solution, generally what I want is a good that does well, a "job" that I want or need to get done.

Some critics of mass production descried the loss of the variety of products produced by pre-industrial craftsmen.  But what good did it do the peasants that no two chairs were quite alike, if all of them were too hard and misshapen for the job of comfortably sitting in them?

Mass production reduced variety, but increased quality, in the sense of bringing (cheaply) to market, products that were far better at doing the jobs that most people wanted/needed to get done. 

If the modern varieties of chairs are a response to differences in the jobs that different consumers need to get done, then I might generally, and accurately, presume that variety is usually good, not because I want to constantly sample a lot of different chairs (like I want to sample a lot of different ethnic foods), but rather because variety increases the odds that I will find the one or two particular chairs that allow me to do the job that I want a chair to do for me.  

Specifically, recently, we were looking for a chair that was firm, spill-resistant, would swivel to allow talking to someone in the kitchen, would recline for watching television, would be dog-chew resistant, and would have a color/fabric complementary to the rest of the furniture.  We shopped at Nebraska Furniture Mart, which is the largest furniture store in the U.S., with the greatest selection, because we hoped to find the one chair that would do all of these jobs.

We came close, but I wish there was a store with even greater selection.

   




November 27, 2006

People Want to Live (So There, Leon Kass)


  Source of edited screen capture:  http://www.nytimes.com/gst/mostemailed.html

 

In an earlier post, Leon Kass was quoted as opining that life is better when it is short. 

The table above is from the New York Times list of most emailed articles within the last 24 hour period.  The listing above was for the period ending at 1:00 PM CST on Thursday, November 2, 2006. 

Notice that of the top four articles, three of them have to do with the study showing that reversatrol may lengthen life.  

 




November 26, 2006

More Evidence that Reagan Was Much More than a "Genial Idiot"


   Source of book image:  http://ec2.images-amazon.com/images/P/0688146139.01._SS500_SCLZZZZZZZ_V1056466100_.jpg

 

Reagan was smart and disciplined.  That was one of the main messages of Mike Deaver's book.  But in these pages, there is much additional evidence.  See, especially, the essay by Martin Anderson.

Also, Lee Edwards talks about one of his early encounters with the Reagans; he visited their home, and he was especially anxious to see Reagan's library.  He saw a large library with dog-eared, heavily annotated books.  He also mentions quizing the GE manager (CEO?) who used to travel by train with Reagan to visit GE plants.  Edwards asked what Reagan did during the train trips.  The GE manager reported that Reagan devoured books, periodicals, and reports, taking extensive notes on his index cards.

(Sounds like Reagan could have used a computer, and would have made a great blogger?)

 

The reference for the book is: 

Hannaford, Peter, ed. Recollections of Reagan: A Portrait of Ronald Reagan: William Morrow & Company, 1997.

 




November 25, 2006

Does Focus on Scarcity, Blind Us to Abundance?


Chris Anderson ends chapter 8 of his stimulating The Long Tale, with a provocative jab at economists:

(p. 146)  Finally, it's worth noting that economics, for all its charms, doesn't have the answer to everything.  Many phenomena are simply left to other disciplines, from psychology to physics, or left without an academic theory at all.  Abundance, like growth itself, is a force that is changing our world in ways that we experience every day, whether we have an equation to describe it or not.

 

The reference to Anderson's book, is:

Anderson, Chris. The Long Tail. New York: Hyperion, 2006.




November 24, 2006

Resveratrol May Slow Aging


SinclairDavid.jpg  Harvard Medical School antiaging researcher Dr. David Sinclair.  Source of image:  http://webweekly.hms.harvard.edu/archive/2003/8_25/index.html

 

If our institutions sufficiently allow and reward entrepreneurial innovation in health care, substantial gains in the length and quality of life are possible.  (In the WSJ article passages that follow, "CR" stands for "calorie restriction.")

 

(p. A1)  Now a coterie of scientists and biotech ventures are rekindling interest in CR as they try to mimic its antiaging effects with medicines.  It is still a highly speculative quest, and many researchers fret that it hasn't completely shaken its association with centuries of dubious nostrums to slow aging, from inhaling virgins' breath to eating gold to implanting monkey glands.

Much of the new focus is on a substance in red wine called resveratrol.  The interest in it started three years ago when a group led by Harvard Medical School biologist David Sinclair reported that it boosted yeast cells' life span by 70% via a mechanism resembling CR.  He later co-authored a study showing that it also boosts life span in fruit flies and roundworms.  But his tendency to make bold leaps based on tentative data has also sparked intense controversy.  One big question:  Does he really understand the workings of CR well enough to mimic them in a drug?

Last spring, Italian scientists reported that resveratrol boosted life span more than 50% in a kind of short-lived fish.  Intriguingly, fish on resveratrol had much faster swimming speeds as they aged, and spent far more time moving around, than did undosed control fish.

At least two groups of researchers are now testing whether resveratrol can extend life span in mice -- the first such studies in mammals.  At a meeting of the American Aging Association in June, Dr. Sinclair and colleagues presented preliminary results from a study showing that resveratrol had "CR-like protective effects" against the buildup of fatty deposits in the livers of mice on high-calorie diets.  That suggests that resveratrol could lead to new drugs for diseases of aging associated with rich diets, such as adult-onset diabetes.

A company that Dr. Sinclair co-founded in 2004, Sirtris Pharmaceuticals Inc., of Cambridge, Mass., has begun testing a resveratrol-based drug in diabetic patients.  It has raised $82 million from venture capitalists, a hefty sum for an early-stage biotech.  . . .

. . .

(p. A11)  Dr. Guarente recalls that Dr. Sinclair, who came to MIT in 1995 to do post-doctoral studies, breezed into his lab as if out of a Crocodile Dundee movie, greeting everyone with a cheery, "Hello, mate."  The eldest son of parents who both worked in medical diagnostics, he was known in high school as a talented class clown and risk-taker, a kid who aced science classes but got in trouble for setting off minor explosions in chemistry lab.  The idea of taking part in unorthodox, high-risk studies on aging suited him.

. . .

. . . , Dr. Sinclair joined forces with a researcher at the National Institute on Aging, Rafael de Cabo, to plan one of the ongoing studies of resveratrol in mice.  But he had a problem:  He lacked the $20,000 needed to buy mice.  Then he got a call out of the blue from Tom LoGiudice, foreman at the U4EA ("euphoria") Ranch near Thousand Oaks, Calif. Mr. LoGiudice had phoned on behalf of the ranch's owner, Harman Rasnow, who was considering taking resveratrol pills and wanted to know more about them.  When Mr. LoGiudice heard about Dr. Sinclair's problem, he arranged for his boss to talk directly to the researcher.  "I have an 85-year-old passion for longevity," says Mr. Rasnow, pinpointing his age.  "David sounded like he was really onto something.  So I told him, 'I'll send you a check for $20,000.' "

Dr. Sinclair later got another call from Mr. LoGiudice, this time inviting him to make a pitch for funding to one of Mr. Rasnow's wealthy acquaintances, Paul Glenn, a venture capitalist and a longtime supporter of research on aging.  After Dr. Sinclair did so, the Glenn Foundation for Medical Research in Santa Barbara, Calif., awarded $5 million to Harvard Medical School to launch a center on the basic mechanisms of aging with Dr. Sinclair as its founding director.  Now plans are afoot to expand the center into a leading institute on aging, says Mr. Glenn, with start-up funding of $75 million to $100 million.

 

For the full story, see: 

DAVID STIPP.  "Youthful Pursuit; Researchers Seek Key to Antiaging In Calorie Cutback A Controversial Hypothesis Draws Scientists, Investors; Will It Work in Humans? Fighting Fat in Lab Mice."  Wall Street Journal  (Mon., October 30, 2006):  A1 & A11.

(Note:  ellipses added.)

 

The NBC nightly news on Weds, Nov. 1, 2006 ran a brief, but nice story, reported by Robert Bazell, on the basics of this:  http://www.msnbc.msn.com/id/15511128/

 




November 23, 2006

Government War on Drugs Kills 92 Year Old Shut-In Who Defended Her Home


 

As a live-and-let-live libertarian, I think the war on drugs is a waste of money and a violation of rights. 

Consider the news report of the police breaking down the door of a 92 year-old Atlanta woman, who defended her property, and was shot dead.

 

In the CNN report, the woman's 75 year old niece expresses understandable outrage.

 

View CNN's airing of a WSB report by Eric Phillips, broadcast on Weds., Nov. 22nd.

 




November 22, 2006

Examine Your Assets and See If, and Where, They Can Add Value


In Gerstner's book, there is an intriguing passage in which he defends turning IBM into an integrated services firm.  As an aside, he says that it might not now have made sense to build up IBM's diverse assets, but now, having them in existence, it made sense to use them.  And he points out that even in the age of modularity, many customers needed, and were willing to pay for, a company that was able and willing to put everything together for them.

At first glance, this comment might seem at odds with the economist's dictum that "sunk costs are sunk."  But Gerstner was not advocating the integration of IBM services because IBM had historically invested a lot in building up the parts of the organization.  He was pointing out that diverse parts, if properly integrated, would provide substantial added-value to an important sub-group of customers.

 

Here is the relevant passage from Gerstner:

(p. 61)  Unfortunately, in 1993 IBM was rocketing down a path that would have made it a virtual mirror image of the rest of the industry.  The company was being splintered---you could say it was being destroyed.

Now, I must tell you, I am not sure that in 1993 I or anyone else would have started out to create an IBM.  But, given IBM's scale and broad-based capabilities, and the trajectories of the information technology industry, it would have been insane to destroy its unique competitive advantage and turn IBM into a group of individual component suppliers---more minnows in an ocean. 

 

The reference to the book, is:

Gerstner, Louis V., Jr. Who Says Elephants Can't Dance? Leading a Great Enterprise through Dramatic Change. New York: HarperCollins, 2002.




November 21, 2006

"Come With Me, If You Want to Live"


Schumpeter famously stated that creative destruction is "the essential fact" about capitalism.  Was he right? 

To determine what is "the essential fact" you need to first answer the question "essential for what purpose?"  If the purpose is "life, liberty, and the pursuit of happiness" then I think you can show that creative detruction is indeed the essential fact about capitalism; in the key sense that with creative destruction you have a form of capitalism that is best able to enhance "live, liberty, and the pursuit of happiness."

The Terminator famously said "Come with me, if you want to live!" ("Terminator 2: Judgment Day," 1991).  Life is a choice.  You can choose death instead.  Most people, most of the time, choose life. But there are examples of choosing death.  E.g., Leon Kass, an oft-quoted "expert" on medical ethics issues, is against current efforts to lengthen the human life span:

(p. D4)  While an anti-aging pill may be the next big blockbuster, some ethicists believe that the all-out determination to extend life span is veined with arrogance.  As appointments with death are postponed, says Dr. Leon R. Kass, former chairman of the President’s Council on Bioethics, human lives may become less engaging, less meaningful, even less beautiful.

“Mortality makes life matter,” Dr. Kass recently wrote.  “Immortality is a kind of oblivion — like death itself.”

That man’s time on this planet is limited, and rightfully so, is a cultural belief deeply held by many.  But whether an increasing life span affords greater opportunity to find meaning or distracts from the pursuit, the prospect has become too great a temptation to ignore — least of all, for scientists.

“It’s a just big waste of talent and wisdom to have people die in their 60s and 70s,” said Dr. Sinclair of Harvard.

(And there's the occasional hermit, like the unibomber, who chooses to live a brutish life without electricity and indoor plumbing.)  So long as I, Arnold, and our compatriots, are allowed an island somewhere to peacefully pursue life, I do not much care what Leon and his friends do.  My argument, and the book I am writing on creative destruction, are not written for Leon.  They are written for all those who choose life, liberty, and the pursuit of happiness.

 

The NYT quote related to Leon Kass's praise of mortality, is from p. D4 of:

MICHAEL MASON.  "One for the Ages:  A Prescription That May Extend Life."  The New York Times  (Tues., October 31, 2006):  D1 & D4. 

 




November 20, 2006

Good Management Takes Guts and Time


Gerstner recognizes that decentralization is sometimes a good thing, but thinks in some ways the trend has gone to far in business---some business functions may be efficient to centralize: 

 

(p. 246)  I'm thinking here of common customer databases, common fulfillment systems, common parts numbering systems, and common customer relationship management systems that permit your customer-service people to provide integrated information about everything a customer does with our company.

On the surface it would seem that these are logical and powerful things to do in an enterprise.  Nevertheless, they usually require profit-center managers to do something very hard---relinquish some of the control they have over how they run their business.  Staff executives, consultants, or reengineering teams cannot do this without active line management involvement.  The CEO and top management have got to be deeply involved, reach tough-minded conclusions, then ensure that those decisions are enforced and executed across the enterprise.  It takes guts, it takes time, and it takes superb execution.

 

Reference to the book:

Gerstner, Louis V., Jr.  Who Says Elephants Can't Dance? Leading a Great Enterprise through Dramatic Change.  New York:  HarperCollins, 2002.







November 19, 2006

To FDA, Death is Not a Disease, So FDA Won't Approve Drugs to Lengthen Life


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

 

(p. A1)  Can you have your cake and eat it?  Is there a free lunch after all, red wine included?  Researchers at the Harvard Medical School and the National Institute on Aging report that a natural substance found in red wine, known as resveratrol, offsets the bad effects of a high-calorie diet in mice and significantly extends their lifespan.

Their report, published electronically yesterday in Nature, implies that very large daily doses of resveratrol could offset the unhealthy, high-calorie diet thought to underlie the rising toll of obesity in the United States and elsewhere, if people respond to the drug as mice do.

Resveratrol is found in the skin of grapes and in red wine and is conjectured to be a partial explanation for the French paradox, the puzzling fact that people in France enjoy a high-fat diet yet suffer less heart disease than Americans.

The researchers fed one group of mice a diet in which 60 percent of calories came from fat.  The diet started when the mice, all males, were a year old, which is middle-aged in mouse terms.  As expected, the mice soon developed signs of impending diabetes, with grossly enlarged livers, and started to die much sooner than mice fed a standard diet.

Another group of mice was fed the identical high-fat diet but with a (p. A18) large daily dose of resveratrol (far larger than a human could get from drinking wine).  The resveratrol did not stop them from putting on weight and growing as tubby as the other fat-eating mice.  But it averted the high levels of glucose and insulin in the bloodstream, which are warning signs of diabetes, and it kept the mice’s livers at normal size.

Even more striking, the substance sharply extended the mice’s lifetimes.  Those fed resveratrol along with the high-fat diet died many months later than the mice on high fat alone, and at the same rate as mice on a standard healthy diet.  They had all the pleasures of gluttony but paid none of the price.

. . .

For the Food and Drug Administration, if for no one else, aging is not a disease and death is not an end-point.  The F.D.A. will approve only drugs that treat diseases in measurable ways, so Dr. Westphal hopes to show that his sirtuin activators will improve the indicators of specific diseases, starting with diabetes.

“We think that if we can harness the benefits of caloric restriction, we wouldn’t simply have ways of making people live longer, but an entirely new therapeutic strategy to address the diseases of aging,” Dr. Guarente said.

 

For the full story, see: 

NICHOLAS WADE.   'Yes, Red Wine Holds Answer.  Check Dosage."  The New York Times  (Thurs., November 2, 2006):  A1 & A18.

(Note:  ellipsis added.)

 

Here is a link to an abstract of the research report in Nature (which, by the way, is usually considered one of the top journals in science):

http://www.nature.com/nature/journal/vaop/ncurrent/abs/nature05354.html

 




November 18, 2006

For Major Changes, CEOs Need to Change Who "Calls the Shots"



Some of the best advice in Gerstner's book concern 'execution' issues of rewards, incentives, and who has the power to make which decisions.  Consider:

(p. 249)  If a CEO thinks he or she is redirecting or reintegrating an enterprise but doesn't distribute the basic levels of power (in effect, redefining who "calls the shots"), the CEO is trying to push string up a hill.  (p. 250)  The media companies are a good example.  If a CEO wants to build a truly integrated platform for digital services in the home, he or she cannot let the music division or movie division cling to its existing technology or industry structure---despite the fact that these traditional approaches maximize short-term profits.

. . .

I knew we could not get the integration we needed at IBM without introducing massive changes to the measurement and compensation system.  I've already explained that the group executives who ran IBM's operating businesses were not paid bonuses based on the unit's performance.  All their pay was derived from IBM's total results.

When a CEO tells me that he or she is considering a major reintegration of his or her company, I try to say, politely, "If you are not pre-(p. 251)pared to manage your compensation this way, you probably should not proceed."

 

The reference for the book is:

Gerstner, Louis V., Jr.  Who Says Elephants Can't Dance? Leading a Great Enterprise through Dramatic Change.  New York:  HarperCollins, 2002.

(Note:  ellipsis added.)

 




November 17, 2006

Managers Get, Not What They Expect, But What They Inspect


Louis Gerstner is well-known for down-playing the 'vision' thing. he emphasizes that seemingly more mundane issues are often more important than the lofty ones. For example, one of Gerstner's key insights is often ignored in business: most workers perform well, when management takes the time and effort to observe performance, and to reward it when it is good:

(p. 250)  I have already pointed out that people do what you inspect, not what you expect.  Leaders who are thinking about creating true integration in their institutions must change the measurement and reward systems to reinforce this new direction.

(Note: italics in original. Also, see related passages on pages 212, and 230-231.)

 

Reference for the book:

Gerstner, Louis V., Jr.  Who Says Elephants Can't Dance? Leading a Great Enterprise through Dramatic Change.  New York:  HarperCollins, 2002.




November 16, 2006

Milton Friedman, Freedom's Friend, RIP


 

A week or so ago my mother and I were sharing our disappointment at the firing of Donald Rumsfeld, who we both thought was a good man.  She told me that she had thought he would have made a good President.  I told her that she was in good company, because in his memoirs, Milton Friedman had expressed the same thought (p. 391).

We were in very good company while Milton Friedman was with us, and I feel a sense of loss, both personally, and for the broader world. 

By chance, I sat behind Milton Friedman, and his wife and son, at the Rockefeller Chapel memorial service to honor Milton Friedman's good friend George Stigler.  I can't remember if Friedman spoke it at the service, or wrote it later, but I remember him saying (or writing) that the world was a darker place without Stigler in it. 

And it is darker yet, without Friedman in it.  (It is reported that he died of heart failure sometime early this morning at the age of 94.)

My first memory of meeting Milton Friedman was in the early 1970s at Wabash College.  My Wabash professor, Ben Rogge, was a friend of Friedman's.  They attended Mount Pelerin Society meetings together, and Rogge, along with his senior colleague John van Sickle, had invited Friedman to deliver a series of lectures at Wabash College, that became the basis of what remains Friedman's meatiest defense of freedom:  Capitalism and Freedom.  (Free to Choose is better known, broader, and important, but Capitalism and Freedom is more densely packed with stimulating argument, and provocative new ideas.)

The members of the small, libertarian Van Sickle Club were gathered around Friedman in a lounge at Wabash, and I remember Rogge asking Friedman:  'If there was a button sitting in front of you, that would instantly abolish the Food and Drug Administration, would you push it?'  I remember Friedman smiling his incredibly delighted smile, and saying simply, with gusto:  "yes!"

I remember attending some meetings at the University of Chicago, I think the first History of Economics Society meetings, with Rogge in attendance.  (This was in my first couple of years as a Chicago graduate student, when I was mainly doing philosophy.)  Stigler invited Rogge up for a drink, and Rogge said said 'sure' as long as Diamond could come along.  (E.G. West, the Adam Smith biographer, was also there, I think at Rogge's behest.)  The apartment had been Milton Friedman's for many years.  In fact I think he had built the several story apartment building, because he wanted convenient, comfortable living quarters close to his Chicago office.  Friedman's apartment occupied the top floor, and I vaguely recall, afforded a nice view of the campus. 

I lived for a year at International House, next to the Friedman apartment building.  I remember on Sunday morning's seeing Friedman dash into International House to buy his copy of the Sunday New York Times.  ("Dash" is too strong, but he certainly moved with more vigor than I ever have on Sunday mornings.)

When Friedman left Chicago for the Hoover Institute in California, he sold, or sublet his apartment to Stigler, who apparently used it on evenings when he did not want to drive out to his modest home in the Chicago suburb of Flossmoor.

I was stunned to be in the presence of Stigler in Milton Friedman's former abode.  (I seem to remember E.G. West seeming almost equally overwhelmed.)  I remember much of the time being spent with Stigler trying to convince Rogge to join him for golf the following day.  Rogge demurred because he was wanting to see, for the first time, I think, a newly born grandchild in the Chicago area.  (Family was extremely important to Rogge, both in theory, and in practice.)

I also remember Stigler asking Rogge about Rogge's having convinced Friedman to give a speech at a fund-raiser at Wabash.  Stigler said something to the effect that this was the level of favor that he could not ask often of Friedman, and did the cause really justify it.  (I think one of Stigler's sons had been a Wabash student while Rogge was Dean of Students at Wabash.)  Rogge seemed to appreciate Stigler's point, but seemed to believe that solidifying Wabash's endowment was a worthy enough cause.

(This, by the way, is ironic, since Rogge agreed with Adam Smith that endowments were apt to be used for purposes different from the donor's intent.  In the founding of Liberty Fund, Rogge had tried to persuade Pierre Goodrich to have the Fund spend all of its funds in some modestly finite number of years.)

After I gradually made the switch from philosophy to economics, at Chicago, I got to know Stigler fairly well, but unfortunately did not know Friedman, personally, as well.

I remember attending a reception at Chicago in honor of Friedman's winning the Nobel Prize in 1976.  (It was at that reception, that I first struck up a conversation with my good friend Luis Locay.)

I registered for Milton Friedman's price theory class the final time he taught it, I think.  It was in a large, dark tiered classroom.  At the beginning of every class, Friedman would almost bounce into the classroom, bursting with pent-up energy.  I do not smile easily, or often, but I always smiled when I saw Friedman.  There was so much good-will, joy in life, enthusiasm for ideas. 

During one of these entrances, I noticed that Friedman, well into his 60s, was wearing the counter-culture-popular 'earth shoes'; apparently he was out-front in footwear, as well as ideas.

One characteristic that came through in class, as well as in his public debates and interviews, was that he was focused on the ideas and not the personalities expressing them.  I remember seeing Friedman debating some union official on television.  He talked at one point about how he and the official had had to work hard in their youth.  Friedman seemed to like the union official; he just disagreed with some of his ideas, and wanted the union official and everyone else, to understand why.  By the end of the "debate", the union official had a warm, amused, expression on his face.

I remember once Friedman saying that more of us should speak out more often on more topics; that the bad consequences to us weren't as bad as we supposed.  Probably he was right; though he had a lot working in his favor---his quick-wittedness, his good will, his sense of humor, and probably his being so short in physical stature---it was probably hard for anyone to feel threatened by him, so they were more apt to let down their guard and listen to what he had to say.

One of the unfair hardships of some of Friedman's years at Chicago, was the constant harassment from a group of Marxist students called, I think, the Spartacus Youth League.  Whenever Friedman was scheduled to speak, they would disrupt the event, and try to prevent his speaking.

So when it was time to tape the discussion half-hours of each hour episode of the original "Free to Choose" series, the discussions were scheduled as invitation-only.  I was in the audience for two or three of the discussions.  (They were fine, but personally, I would have preferred another half hour of pure Friedman.)

 

As a poor graduate student, I counted myself extremely lucky to find an auto-repairman who was a wizard at finding creative ways to keep old cars running, at low repair cost.  He was a man of few words, put he kept the words he gave.

I ran into him and his wife in a little Lebanese restaurant that was run out of the secondary student union just down from I-House.  He invited me to sit with them, which I did.  I remember him telling me that they were gypsies, and him mentioning that people sometimes had the wrong idea about gypsies.  He told me that he had been raised never to go into debt.  He told me how cheap White Castle hamburgers used to be.  When I told him that I was studying economics, he surprised me by saying that Milton Friedman had been a customer of his, and that he really liked Milton Friedman.

This gypsy was a simple, decent, hard-working fellow.  I don't know, but I strongly guess that Friedman saw the good in this fellow, and treasured what he saw.  And the gypsy liked Milton Friedman back.

 

Whenever I saw Friedman interviewed on television, or read one of his letters, or op-ed pieces, in the Wall Street Journal, I would feel a bit more optimistic about freedom, and life.  A lot of people give up, at some point, but Friedman never did---he just kept on observing, and thinking, and speaking.  The last time I had any interaction with him was at the meetings of the Association of Private Enterprise Education (APEE) on April 4, 2005.  He was hooked up with the conference via video camera from an office in California.  He gave a brief presentation, and then spent quite some time answering questions.  (I recorded some of these in grainy, small video clips that can be viewed on my web site, or viewed on the web site of the APEE.)

I asked him a question about whether he agreed with Stigler in Stigler's memoirs that Schumpeter had something important to say about competition.  I wasn't as impressed by his answer to this question, as I was to some of his other answers.

I think that Schumpeter may be remembered as a crucial economist for our understanding of the process of capitalism:  innovative new products through creative destruction.  But if capitalist innovation prospers, part of the credit will belong to Milton Friedman.  

Friedman and Stigler were led into economics in part because of the challenge to capitalism posed by the Great Depression.  If depressions of that magnitude were an essential part of what capitalism was about, then a lot of people would prefer to have nothing to do with capitalism.  Schumpeter's response basically was to say that every once in awhile, really bad depressions will happen as part of the process of capitalism, and we just have to suck it up, and live through them. 

One of Milton Friedman's major contributions to economics, was to show that ill-advised government policies, such as a contraction of the money supply, were responsible for making the depression much deeper, and much longer than it needed to have been.  (See, e.g,  A Monetary History of the United States.)

In other words, he showed that Great Depressions are not an inescapable price we must pay if we choose to embrace the economic freedom, and the creative destruction, of capitalism.

 

When Friedman cleaned out his Chicago office to head for California, he left in the hallway for scavenging, extra copies of some of his books, and offprints of articles various academics had sent him.  So I have a Spanish copy of Capitalism and Freedom (even though I don't read Spanish), and several offprints of articles from distinguished economists who sent "best wishes" to "Milton." 

After the office was cleared out, I remember sticking my head in, and looking around the empty office, one final time, for sentiment's sake.  I was stunned to see a bright red, white and blue silk banner left hanging on the wall.  It was festooned with American flags, and said, in large letters:  "Buy American!" 

I felt anxious and confused:  was one of my heroes inconsistent on such a basic issue?  So I entered the office, and went over to the banner, and examined it more carefully.  It was then that I noticed, in small letters at the bottom of the banner:  "Made in Japan".

 

Some book references relevant to the discussion above:

Friedman, Milton. Capitalism and Freedom. Chicago: The University of Chicago Press, 1962.

Friedman, Milton, and Anna Jacobson Schwartz. A Monetary History of the United States, 1867-1960, Nber Studies in Business Cycles. Princeton: Princeton University Press, 1963.

Friedman, Milton, and Rose D. Friedman. Free to Choose: A Personal Statement. New York: Harcourt Brace Jovanovich, Inc., 1980.

Stigler, George J. Memoirs of an Unregulated Economist. New York: Basic Books, Inc., 1988.

West, E. G. Adam Smith: The Man and His Works: Arlington House, 1969.

 

 In vino veritas.  Photo from Tio Pepe Bodega, Jerez, Spain.  Photographer:  Dagny Diamond.

 

 



November 15, 2006

Rosen's Superstars Versus the Long Tail


One of Sherwin Rosen's most important articles is "The Economics of Superstars" in which he argues that if a superstar's performance is even slightly better than the next best performer's, if the performance can be cheaply reproduced (as with radio, CDs, etc.) then a small premium multiplied thousands of times, might result in huge differences in earnings.

This argument works, so long as most of us are interested in the same sort of performance, and are willing to pay some small premium for the best performer of it.  But what if we care as much about the content of the performance as the quality of the performance?  (In other words, we care as much about what is done, as we care about how well it is done.) 

The new book The Long Tail can be taken to imply that there are many niches, and that the days of the "superstar" are over (or at least that in the future, the compensation of the superstars will not be quite so super).  If this argument works, and I think it does, then it implies that the new technologies will serve consumers by better matching consumer preferences with the services provided, and also implies that a more diverse group of suppliers (performers) will be able to sustain themselves.

More speculatively, it seems as though it might imply greater equality in the labor market.  If this last is true, it goes against most accounts of the effects of recent high technology on the labor market.

 

The reference to the Rosen article is:

Rosen, Sherwin.  "The Economics of Superstars."  American Economic Review 71, no. 5 (Dec. 1981): 845-58.

 

The reference to The Long Tail is:

Anderson, Chris.  The Long Tail.  New York:  Hyperion, 2006.




November 14, 2006

Antitrust Cases Can Hurt (Even Those that Get Dropped)


The antitrust lawsuit against IBM was dropped, and that against Microsoft result in the imposition of only minor legal remedies.  So some may conclude that IBM and Microsoft bore little ill effects from the suits.  But such suits can reduce morale, result in loss of talent, and restrain the efficiency, innovativeness and competitiveness of the prosecuted companies. 

In the case of IBM, Lou Gerstner has made some strong, and plausible, comments on the deleterious effects of U.S. antitrust action:

 

(p. 118)  The other critical factor---one that is sometimes overlooked---is the impact of the antitrust suit filed against IBM by the United States Department of Justice on January 31, 1969, the final day of the Lyndon B. Johnson administration.  The suit was ultimately dropped and classified "without merit" during Ronald Reagan's presidency, but for thirteen years IBM lived under the specter of a federally mandated breakup.  One has to imagine that years of that form of scrutiny changes business behavior in very real ways.

Just consider the effect on vocabulary---an important element of any culture, including corporate culture.  While IBM was subject to the suit, terms like "market," "marketplace," "market share," "competitor," "competition," "dominate," "lead," "win," and "beat" were systematically excised from written materials and banned at internal meetings."  Imagine the dampening effect on a workforce that can't even talk about selecting a market or taking share from a competitor.  After a while, it goes beyond what is said to what is thought.

 

The reference to the book, is: 

Gerstner, Louis V., Jr.  Who Says Elephants Can't Dance? Leading a Great Enterprise through Dramatic Change. New York:  HarperCollins, 2002.

 




November 13, 2006

The Unsung Heroes in "The Path to 9/11"


  Still from the "Path to 9/11" mini-series, showing damage to the underground garage from the WTC bombing on February 26, 1993. Source of photo: http://www.imdb.com/gallery/ss/0473404/Ss/0473404/103291.jpg?path=gallery&path_key=0473404

 

The "sung" heroes of "The Path to 9/11" would include the Afghan militia leader Massoud (below) who warned, and tried to help, the U.S. in the early efforts against Osama bin Laden. 

But the unsung heroes matter too.  There are two scenes in the series that keep coming back into my mind. 

The first is of the investigation of the crumbling garage after the bombing of the World Trade Center in 1993.  An alarm goes off warning that all should leave because of the possible collapse of the garage.  There is a directive to leave all evidence in place.  But one worker, warned he may lose his job, grabs a key piece of evidence, to keep it from getting buried.

The second is an airport screener who, with strong circumstantial reasons, but no strong direct evidence, stops a terrorist from entering the U.S., even though a co-worker warns him of the personal consequences for his career.

When the stakes were high, these were two men who did the right thing, even though the personal costs to them were potentially high.  I do not know their names, though their names deserve to be remembered.

Their actions contrast with those of many of the higher placed officials in the story.

 

(Note:  "The Path to 9/11" was broadcast on ABC for two nights in September 2006; I think 9/10 and 9/11.)

 

  Still of Ahmed Shah Massoud, from the "Path to 9/11" mini-series.   Source of photo:  http://www.imdb.com/gallery/ss/0473404/Ss/0473404/5795_pre.jpg.html?hint=group




November 12, 2006

"Bet the Company"


When entrepreneurs, or innovative companies, take large risks, and succeed, we sometimes begrudge them their success.  But we should remember that sometimes they took great risks, and that they could have lost everything if they had lost the 'bets' they made.

One of the most famous examples of 'betting the company' is when Tom Watson, Jr. of IBM 'bet the company' on the development of the expensive, but pathbreaking, system 360.  

This episode is mentioned many places.  One that I ran across recently is in Gerstner's memoir of his own time at IBM.  The following lines appear in Gerstner's brief summary of some important periods in IBM's earlier history:

Much has been written about this period and how Tom "bet the company" on a revolutionary new product line called the System/360---the original name of IBM's wildly successful mainframe family.

To grasp what System/360 did for IBM and its effect on the computing landscape, one needs to look no further than Microsoft, its Windows operating system, and the PC revolution.  System/360 was the Windows of its era---an era that IBM led for nearly three decades.  (p. 114)

 

The reference to the Gerstner book, is: 

Gerstner, Louis V., Jr.  Who Says Elephants Can't Dance? Leading a Great Enterprise through Dramatic Change. New York:  HarperCollins, 2002.




November 11, 2006

Pill Mimicking Calorie Restriction Would Be Highly Cost-Effective


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

 

(p. D1)  Recent tests show that the animals on restricted diets, including Canto and Eeyore, two other rhesus monkeys at the primate research center, are in indis-(p. D4)putably better health as they near old age than Matthias and other normally fed lab mates like Owen and Johann.  The average lifespan for laboratory monkeys is 27.

The findings cast doubt on long-held scientific and cultural beliefs regarding the inevitability of the body’s decline.  They also suggest that other interventions, which include new drugs, may retard aging even if the diet itself should prove ineffective in humans.  One leading candidate, a newly synthesized form of resveratrol — an antioxidant present in large amounts in red wine — is already being tested in patients.  It may eventually be the first of a new class of anti-aging drugs.  Extrapolating from recent animal findings, Dr. Richard A. Miller, a pathologist at the University of Michigan, estimated that a pill mimicking the effects of calorie restriction might increase human life span to about 112 healthy years, with the occasional senior living until 140, though some experts view that projection as overly optimistic.

According to a report by the Rand Corporation, such a drug would be among the most cost-effective breakthroughs possible in medicine, providing Americans more healthy years at less expense (an estimated $8,800 a year) than new cancer vaccines or stroke treatments.

“The effects are global, so calorie restriction has the potential to help us identify anti-aging mechanisms throughout the body,” said Richard Weindruch, a gerontologist at the University of Wisconsin who directs research on the monkeys.

. . .

While an anti-aging pill may be the next big blockbuster, some ethicists believe that the all-out determination to extend life span is veined with arrogance.  As appointments with death are postponed, says Dr. Leon R. Kass, former chairman of the President’s Council on Bioethics, human lives may become less engaging, less meaningful, even less beautiful.

“Mortality makes life matter,” Dr. Kass recently wrote.  “Immortality is a kind of oblivion — like death itself.”

That man’s time on this planet is limited, and rightfully so,  is a cultural belief deeply held by many.  But whether an increasing life span affords greater opportunity to find meaning or distracts from the pursuit, the prospect has become too great a temptation to ignore — least of all, for scientists. 

“It’s a just big waste of talent and wisdom to have people die in their 60s and 70s,” said Dr. Sinclair of Harvard.

 

For the full story, see:

MICHAEL MASON.  "One for the Ages:  A Prescription That May Extend Life."  The New York Times  (Tues., October 31, 2006):  D1 & D4. 

(Note:  ellipsis added.)

  Mike Linksvayer is eating a calorie restricted diet.  Source of photo:  online version of the NYT article cited above.

 




November 10, 2006

Gerstner Mentions "Leapfrog Competition"


After hearing a "leapfrog competition" mention in Gerstner's book, I did a phrase search in Amazon.  Apparently he uses the phrase once, as follows:

 

(p. 159)  This doesn't mean it wasn't a good transaction for AT&T.  It allowed AT&T to leapfrog its competitors.  But for IBM it was a strategic coup.

 

The book is:

Gerstner, Louis V., Jr. Who Says Elephants Can't Dance? Leading a Great Enterprise through Dramatic Change. New York: HarperCollins, 2002.




November 9, 2006

African Entrepreneur Funds Prize for African Leaders Who Resist Kleptocracy


IbrahimMo.jpg  Billionaire entrepreneur Mo Ibrahim.  Source of photo:  online version of the NYT article cited below. 

 

At a news conference in London on Thursday, Mo Ibrahim, a 60-year-old Sudanese-born billionaire who made his money in the cellphone business, announced that he was offering a $5 million prize for the sub-Saharan African president who on leaving office has demonstrated the greatest commitment to democracy and good governance.  The money will be spread out over 10 years.

“We must face the reality,” Mr. Ibrahim said, referring to Africa’s leadership record.  “Everything starts by admitting the truth:  we failed.  I’m not proud at all.  I’m ashamed.  We really need to resolve the problem and the problem, in our view, is bad leadership and bad governance.”

. . .

Unlike many projects that aim to help famine-stricken villages or far-flung AIDS clinics, this one is supposed to focus on political leadership — and the post-independence culture of autocrats and kleptocrats that spawned such figures as Mobutu Sese Seko of Zaire or Idi Amin of Uganda.

. . .

Africa’s culture of the Big Man clinging to office was built in part, Mr. Ibrahim said, on a sense among many of its leaders that, if they relinquished power voluntarily, they would face penury and powerlessness and would no longer be the font of patronage or the tenant of what he called “the hilltop palace.”

“We want them to have a life after office,” Mr. Ibrahim said.

“Your leaders here become rich after they leave office,” he said, referring to the directorships, book deals and lecture circuit tours that accrue to Western leaders.  “What life is there for our people after office?  Some of our leaders cannot even afford to rent an apartment” in their own capitals, he said.

 

For the full story, see: 

ALAN COWELL  "Prize to Honor Heroes in African Democracy."  The New York Times  (Fri., October 27, 2006):  A11.

(Note:  ellipses added.)

 




November 8, 2006

Gerstner's Insights on Business


 Source of book image:  http://ec1.images-amazon.com/images/P/0060523794.01._SS500_SCLZZZZZZZ_V1122531345_.jpg

 

Gerstner is known for turning around IBM, when many business experts thought it was headed down the tubes.  His book is useful as a report on what happened at IBM during his time as CEO, and also has some more broadly applicable observations.  I'll mention a few of these in this and a few other postings in the next couple of weeks. 

It is interesting how many successful and important business leaders and experts have spent some time associated with the McKinsey consulting group, where Gerstner started his career.  One major McKinsey figure, Richard Foster, is a strong advocate and elaborator of Schumpeter's process of creative destruction. 

I wonder if perhaps some of the success of McKinsey is due to the firm's embracing and applying Schumpeter's ideas?

Those who oppose creative destruction emphasize the destructive effect that the process has on some workers.  In fact the effects on labor are seen by many (e.g., Thomas Friedman) who are otherwise sympathetic, to be the major drawback of the process.  As a result some of them (e.g., Thomas Friedman) propose paternalistic 'safety net' labor policies.

We usually think of government as the main implementer of such policies, but among firms, IBM's labor policies were among the most paternalistic.  This is usually viewed as one of the positives about IBM.  But one of Gerstner's insights is to suggest that some of those in the IBM work force were hurt by IBM's paternalistic policies:

(p. 186)  . . . I came to feel that the real problem was not that employees felt they were entitled.  They had just become accustomed to immunity from things like recessions, price wars, and technology changes.  And for the most part, they didn't even realize that this self-contained, insulated system also worked against them.  I was shocked, for instance, to discover the pay disparities---particularly in very important technical and sales professions---of IBM comployess when comapred to the competition and the industry in general.  Our best people weren't getting what they deserved.

Maybe I should mention that I don't endorse everything in the book.  For example, Gerstner seems to think that a desire to "win" is crucial to success in business.  But I think the analogy between business and competitive sports is usually taken too far.  Can't one also succeed in business from a desire to innovate and to improve the world?

 

The reference on the book is: 

Gerstner, Louis V., Jr.  Who Says Elephants Can't Dance? Leading a Great Enterprise through Dramatic Change.  New York:  HarperCollins, 2002.

(Note:  in the quote, the ellipsis was added, but the italics was in the original.)

 




November 7, 2006

Medical Cures Going First to the Dogs


Bazell_melanoma_dog.jpg  One of the dogs cured of melanoma by a new vaccine.  Source of photo:  screen capture from NBC news report.

 

Melanoma has taken many human lives, including my father's on April 15, 2000.  Government licensing and regulations reduce competition in medicine and slow the pace of medical innovation.  Animal health care is less regulated.  Is it an accident that dogs are being cured for melanoma before humans?  

 

Vet Philip Bergman remembers the first time he tried the vaccine in a dog.

"That was a dog that thankfully underwent complete disappearance of his tumor," says Bergman.  "It was remarkable, obviously, to us."

Since then, more than 100 dogs have been treated, including Lawana Hart's Lucky, who last June appeared to have only a few months to live.

 

For the full report, see:

Robert Bazell.  "Treatment for canines with cancer raises hopes; Researchers encouraged by melanoma vaccine's success on dogs."  NBC Evening News Report; online print version updated: 6:36 p.m. CT Oct 26, 2006.

 

For the video version, go to:

http://video.msn.com/v/us/msnbc.htm?g=d7f603e0-86bb-44db-bad0-524ec79b02c8&f=00&fg=copy




November 6, 2006

More Good Done With Standard Oil Money: Henry Flagler


FlaglerMemorial.jpg  The Flagler Memorial obelisk was erected in on a man-made island in 1920, when Miamians still remembered the accomplishments of Henry Flagler.  Source of image:  http://www.miamibeachfl.gov/newcity/depts/arce/art_public/rw_flagler_monument.asp

 

The Standard Oil "monopoly" is often lambasted as a sorry episode in our economic history.  And yet a strong case can be made that the Standard Oil wealth was created mainly by efficiently providing consumers with a commodity they valued.  In addition, mention is often made of the Rockefeller philanthropic activities.  Less known, is that others who became rich from Standard Oil, also engaged in productive entrepreneurship, and philanthropy, with their wealth.  One of these was Henry Flagler. 

 

In a region that prizes showy monuments to wealth, the lone monument to the man who made it all possible has languished in isolation for decades.

A soaring concrete obelisk dedicated to Henry Flagler, the oil tycoon who hastened South Florida's development by building a railroad all the way to Key West, it sits on a tiny man-made island in Biscayne Bay, reachable only by boat or, more typically, Jet Ski.  Almost everyone here has glimpsed the Flagler Memorial, but few know what it is called, why it exists or how battered it looks up close.

''I'm telling you, it's a beautiful work of art,'' said Paul Orofino, a board member of the Environmental Coalition of Miami Beach, a nonprofit group that occasionally tidies up Monument Island, the memorial's scruffy, overgrown home.  ''It's a tragedy that nobody pays attention to this thing.''

It is not the kind of South Florida tribute one might expect for Flagler, who extended his railroad from St. Augustine to West Palm Beach in 1894, Miami in 1896 and Key West -- a segment that lasted only 23 years until a hurricane demolished it -- in 1912.

Flagler was the state's original megadeveloper, after all, creating its tourism industry by turning swampy pioneer settlements into the world's grandest resorts.  He was also, perhaps, its first huckster, advertising the nascent Miami as ''the most pleasant place south of Bar Harbor to spend the summer.''

His over-the-top winter home in Palm Beach, awash in gold, is now a museum, but most of its visitors come from out of state, said John Blades, the museum's executive director.  Mr. Blades has tried to get a statue of Flagler erected in Palm Beach, which owes its sumptuous existence to the man, but has so far failed.

''Flagler,'' Mr. Blades said, ''is probably the most unappreciated titan of the Gilded Age.''

 

For the rest of the story of the impressive, but deteriorating, Flagler Memorial in Miami, see:

ABBY GOODNOUGH.  "South Florida Journal; Unappreciated, With Memorials to Match."  The New York Times (Fri., October 7, 2005):  A12.

(Note:  the hurricane destroyed the Key West link of the railroad in 1935.)

 

   Henry Flagler.  Source of image:  http://flaglermuseum.us/html/flagler_biography.html




November 5, 2006

Closing the Alleged 'Digital Divide'


 One version of the laptops produced by One Laptop Per Child for roughly $100 a piece.  Source of image:  http://www.laptop.org/OLPC_files/nigeria.jpg

 

Simply giving each child a laptop, won't much improve their standard of living.  (See Easterly's The Elusive Quest for Growth.)  But maybe a few of the children will obtain access to information about what is possible in the outside world, and maybe that will lead them to fight for more freedom?

But at least, if they remain poor, it will not be possible to lay the blame on some sort of 'digital divide.'  Lay the blame, instead on government economic planning. 

Note the aside buried in the article:  'competitive advantage' economist Michael Porter is telling the Libyans how to develop a "national economic plan"??  (Say it ain't so, Michael!)

 

SAN FRANCISCO, Oct. 10 — The government of Libya reached an agreement on Tuesday with One Laptop Per Child, a nonprofit United States group developing an inexpensive, educational laptop computer, with the goal of supplying machines to all 1.2 million Libyan schoolchildren by June 2008.

The project, which is intended to supply computers broadly to children in developing nations, was conceived in 2005 by a computer researcher at the Massachusetts Institute of Technology, Nicholas Negroponte.  His goal is to design a wireless-connected laptop that will cost about $100 after the machines go into mass production next year.

. . .

At the World Economic Forum in Davos, Switzerland, in January, Bill Gates, Microsoft’s chairman, suggested that the next generation of cellphones might be a better way to reach across the so-called digital divide.

Mr. Negroponte said Microsoft refused to sell its Windows software to the project at a price that would make it possible to include in his system.  As a result, his laptops will come with the freely available Linux operating system, which is becoming increasingly popular in the developing world.

The idea of a laptop for every schoolchild grew out of Mr. Negroponte’s experience in giving children Internet-connected laptops in rural Cambodia.  He said the first English word out of the mouths of the Cambodian students was “Google.”

Discussions between the One Laptop project and the Libyan government began as part of work being done by the Monitor Group, an international consulting firm co-founded by the economist Michael E. Porter.  It is now helping the Libyans develop a national economic plan.

. . .  

The first test models will be distributed to the five participating countries companies at the end of this November, according to Mr. Negroponte, and mass production is planned for June or July of 2007.

The computers come with a wireless connection, a built-in video camera, an eight-hour battery and a hand crank for recharging batteries.  They will initially be priced below $150, and the price is expected to decline when they are manufactured in large numbers.

 

For the full story, see:

JOHN MARKOFF.  "U.S. Group Reaches Deal to Provide Laptops to All Libyan Schoolchildren."  The New York Times  (Weds., October 11, 2006):  A14.

(Note:  ellipses added.)

 

  MIT's Nicholas Negroponte.  Source of image:  online version of the NYT article cited above.



November 4, 2006

Hong Kong's Growth Was Due to Cowperthwaite's "Positive Noninterventionism"



In Free to Choose, Milton Friedman compared Hong Kong's free market, with India's state control of the economy.  The dynamism and growth of Hong Kong was a stark contrast to the inertia and stagnation of India.  In the decades since Free to Choose, India has become more free and, alas, Hong Kong less free:   


(p. A14) . . . it was sadly unsurprising to see Hong Kong's current leader, Donald Tsang, last month declare the death of the policy on which the territory's prosperity was built.

The really amazing phenomenon is that, for half a century, his predecessors resisted the temptation to tax and meddle.  Though a colony of socialist Britain, Hong Kong followed a laissez-faire capitalist policy, thanks largely to a British civil servant, John Cowperthwaite.  Assigned to handle Hong Kong's financial affairs in 1945, he rose through the ranks to become the territory's financial secretary from 1961-71.  Cowperthwaite, who died on Jan. 21 this year, was so famously laissez-faire that he refused to collect economic statistics for fear this would only give government officials an excuse for more meddling.  His successor, Sir Philip Haddon-Cave, coined the term "positive noninterventionism" to describe Cowperthwaite's approach.

The results of his policy were remarkable.  At the end of World War II, Hong Kong was a dirt-poor island with a per-capita income about one-quarter that of Britain's.  By 1997, when sovereignty was transferred to China, its per-capita income was roughly equal to that of the departing colonial power, even though Britain had experienced sizable growth over the same period.  That was a striking demonstration of the productivity of freedom, of what people can do when they are left free to pursue their own interests.

 

For the full commentary, see: 

MILTON FRIEDMAN.  "Hong Kong Wrong."  Wall Street Journal  (Fri., October 6, 2006):  A14.

(Note:  ellipsis added.)

 






November 3, 2006

Be Careful What You Ask the Government to Do for You


  The welcome arch in Stuart, Floriday.  Source of the photo:  online version of the NYT article cited below.

 

STUART, Fla., Oct. 2 — As land-boom boasts went, the 1925 headline was only mildly preposterous:  “Stuart Bigger Than Miami in 10 Years,” it sang.

A cross-state shipping canal was in the works, and Stuart, about 100 miles north of the city it hoped to surpass, sat at the eastern terminus.  It envisioned becoming a thriving commercial hub and built the Stuart Welcome Arch, a proud gateway on the old road into town, to embody that dream.  "Atlantic Gateway to the Gulf of Mexico," its bronze lettering proclaimed.

. . .

The cross-state canal became more bane than boon when the state started using it to flush polluted overflow from Lake Okeechobee out to sea.

“Everyone wanted that canal,” said Sandra Thurlow, a local historian, “and yet it has caused so many problems.”

 

For the full story, see:

ABBY GOODNOUGH.  "STUART JOURNAL; A Symbol Stands, but the Dreams Have Shifted."  The New York Times, Section 1  (Sun.,  October 8, 2006): 16.

(Note:  ellipsis added.)




November 2, 2006

Contra the Pundits: "Buy the Damned Coffee, if it Makes You Happy"


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

 

APPARENTLY, I’m an idiot.  Every financial advice columnist seems to be telling me so.

My crime:  buying morning coffee from Starbucks for my wife and me.

Avoiding the regular cup of overpriced coffee has become an easy cliché for financial advisers, a symbol of money frittered away.  The advice has appeared just about everywhere.  Drop the caramel mocha frappu-whatever, they say, or you’ll spend your retirement testing recipes that combine Hamburger Helper and dog food.  David Bach, the author of “The Automatic Millionaire,” pushes what he calls the Latte Factor, which he has defined as “the daily extravagances that drain your resources.”  Another guru, Paul Farrell, has estimated that skipping Starbucks and compounding the savings could save you an eye-popping $500,000 by retirement.  At my own newspaper, Damon Darlin, a financial columnist, has repeatedly brought up this issue.

Before bringing up a point of disagreement — what logicians call the “Big But” — it is common to bestow a few compliments to ease the sting.  So, as a preface to the Big But, let me say that Mr. Darlin is a fine journalist and, for all I know, a swell dancer besides.

Still, I disagree.  Buy the damned coffee, if it makes you happy.  When I show up back at the house after dropping off my high schooler in the morning and I have that latte in hand for my wife, she will sometimes refer to me as “my hero!”  After more than 30 years together, this is about the only time I am called that.

 

For the full commentary, see: 

JOHN SCHWARTZ.  "ESSAY; Skip the Coffee? What’ s Money for, Anyway?"  The New York Times, Section 3, Part 2  (Sun., October 8, 2006):  25.

 




November 1, 2006

Mellon Allowed Great Innovation By Restraining Intrusive Government



(p. W4) Though scarcely known today, Andrew W. Mellon was a colossus in late 19th-century and early 20th-century America.  He would come to play a major role in the management of the American economy, but first he built one of the country's great fortunes, one that would rank him today with Bill Gates and Warren Buffett.  He is now the subject of a comprehensive, if slightly grudging, biography by David Cannadine, the distinguished British historian.

Mellon is not associated with any single industry, in the way that Andrew Carnegie and John D. Rockefeller are.  He was a venture and equity-fund capitalist, one of the first to function on a major scale.  He and his younger brother, Dick, took over their father's Pittsburgh-based investment and coal-mining business and expanded it into many fields, including copper, oil,  petrochemicals and aluminum (Alcoa).

No banker was as gimlet-eyed; Mr. Cannadine shows Mellon shrewdly and coldly calculating every investment prospect.  Yet few venture capitalists were as daring.  In the 1890s, when Rockefeller was ruthlessly monopolizing the petroleum industry, Mellon didn't flinch from setting up a competing refinery.  When Mellon finally sold out to Rockefeller, he did so at a considerable profit.  Several years later he came back to oil and eventually built Gulf into an industry giant.

Original Supply-Sider

But Mellon was more than an entrepreneurial industrialist.  In his mid-60s he became a famous -- and infamous -- public servant, performing as Treasury secretary under three presidents, from 1921 to 1932.  He was the original supply-sider, pushing tax cuts under Presidents Harding and Coolidge.  He argued that the high tax rates left over from World War I were depressing economic activity; that lower rates would turn the economy around; that high-income earners would end up paying more and that low-income earners would be removed from the tax roles entirely.

His program was a fantastic success.  The top rate was cut to 25% from 77%.  The rich did indeed pay more, while low- and middle-income earners saw their tax bills shrink to nothing or next to nothing.  The economy boomed.  The U.S. outstripped more heavily taxed nations, such as Britain and France.  Mellon also pushed painstakingly for the creation of an international monetary system to replace the one shattered by World War I.  The big challenge was huge Allied war debts to the U.S. and onerous German reparations.  Mellon negotiated the easiest terms that were politically possible so that trade and economies could revive.

We sometimes forget just how dynamic the 1920s were in America.  The automobile became a commonplace item for working Americans; labor-saving devices, such as the washing machine, grew ever more common as well; movies and radio provided mass entertainment as never before (an experimental television broadcast was carried out in 1927); and stock ownership widened to include more members of the middle class.

It was a time of great innovation and inventiveness, and in a sense Mellon presided over it all by allowing it to happen without intrusive government policies.

 

For the full review, see:

STEVE FORBES.  "BOOKS; The Man Who Made the Twenties Roar."  The Wall Street Journal    (Fri., October 6, 2006):  W4.

 

Reference for the book:

David Cannadine.  MELLON.  Knopf, 2006.  779 pages, $35

 

 MellonBK.jpg  Source of book image:  online version of the WSJ article cited above.

 




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