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May 31, 2008

Airline Deregulation Allowed Entry, Lower Prices, and More Routes


Source of graphic: online version of the NYT column quoted and cited below.

The top graph above usefully summarizes one of the main results of airline deregulation--lower fares. Other results are sketched below in a couple of passages from a Leonhardt column.

(p. C8) Flying is less expensive, as fares have fallen steadily, adjusted for inflation, and there are more flights to more cities. The barrier to entry is lower. Over the last 30 years, more than 150 airlines have sought bankruptcy protection or disappeared, but more keep springing up as investors continue to put hope over experience, said Denis O'Connor, managing director with AlixPartners, a restructuring firm.

"People don't understand how easy it is to start an airline," Mr. O'Connor said, because of a ready supply of pilots and other employees, as well as used airplanes. "Why would you put capital in something if you can't make a go of it? Southwest is an example of why you would."

. . .

. . . Southwest's transformation from a Texas puddle jumper to the biggest airline in terms of domestic traffic (at least until the Delta-Northwest merger is completed) would not have happened without deregulation.

That airline's evolution is what some experts point to as the best proof of why deregulation, for all its troubles, ultimately is better than a regulated environment.

"This is the free market at work, and we're not used to it," said Mo Garfinkle, a lawyer and a longtime airline industry consultant. "The idea of deregulation was to allow entry, whether it was successful or not."

For the full commentary, see:

MICHELINE MAYNARD. "Did Ending Regulation Help Fliers?" The New York Times (Thurs., April 17, 2008): C1 & C8.

(Note: ellipses added.)

May 30, 2008

"Economics of Science" Published Today in The New Palgrave Dictionary of Economics (2nd ed.)


Source of image of the books: http://www.buy.com/prod/the-new-palgrave-dictionary-of-economics-second-edition/q/loc/106/204470936.html

Today (May 30, 2008) is the publication date of the second edition of The New Palgrave Dictionary of Economics, which includes my "Economics of Science" article. The article surveys the history and current status of research on the economics of science, and the relationship of the economics of science to the economics of technology.

For a much earlier, and much longer, take on some of the same issues, see "The Economics of Science."

References to both articles:

Diamond, Arthur M., Jr. "Economics of Science." In The New Palgrave Dictionary of Economics, 2nd Edition, edited by Steven N. Durlauf and Lawrence E.Blume. Basingstoke and New York: Palgrave Macmillan, 2008.

Diamond, Arthur M., Jr. "The Economics of Science." Knowledge and Policy 9, no. 2 & 3 (1996): 6-49.

May 29, 2008

Private Space Companies Compete on Price and Quality


"A rendering of XCOR's Lynx rocket-powered vehicle." Source of the caption and image: online version of the WSJ article quoted and cited below.

(p. B1) A price war already is brewing among companies seeking to sign up would-be space tourists, years before the first privately financed rocketplanes are scheduled to begin flying.

XCOR Aerospace of Mojave, Calif., the latest entrant to the derby to blast thrill-seekers into the upper reaches of the atmosphere, is expected to unveil plans Wednesday for a rocket-powered vehicle that is substantially smaller, slower and less expensive to build than any of those proposed by rivals. With tickets projected at $100,000 a pop, the low-fare carrier to the heavens would hardly be cheap.

Anticipated to cost less than $10 million to build and to be more compact than many propeller planes used by recreational pilots, XCOR's Lynx vehicle is intended to carry a pilot and a single passenger at twice the speed of sound to about 37 miles above the earth. The entire outing, which would begin and end at a conventional airport and include about two minutes of suborbital zero gravity, would take less than half an hour.

That is a significantly shorter trip -- and only about half the ticket price -- envisioned by British billionaire Sir Richard Branson on his Virgin Galactic spaceship. A sleek and more powerful six-passenger craft, it is designed to travel at about four times the speed of sound and zoom completely out of the atmosphere -- reaching true space more than 60 miles above the earth.

For the full story, see:

ANDY PASZTOR. "Economy Fare ( $100,000) Lifts Space-Tourism Race." The Wall Street Journal (Weds., March 26, 2008): B1-B2.

"Virgin Galactic will launch its rocket from a plane." Source of the caption and image: online version of the WSJ article quoted and cited above.

May 28, 2008

The Persistent 'Project Entrepreneur'

Rosenberg and Bridzell (1986, p. 150) briefly mention that it took John Harrison four long tries before he got the chronometer right.

This is the case wonderfully documented in:

Sobel, Dava. Longitude: The True Story of a Lone Genius Who Solved the Greatest Scientific Problem of His Time. 1st ed. New York: Walker & Company, 1995.

Another example of dogged persistence is Cyrus Field, as described in the A Thread across the Ocean.

Yet another is Marconi, as described in Thunderstruck.

These are good examples of the type of entrepreneur I tentatively call the 'project entrepreneur'. (As contrasted with entrepreneurs who have other primary motives, like making money, or winning for the sake of winning.)

I'm going to keep looking for the best name for this type of entrepreneur; maybe the 'idealist entrepreneur'?

May 27, 2008

Democratic Representatives Drive Gas-Guzzlers at Taxpayers' Expense

CarsCongressGraphic.jpg Source of graphic: online version of the NYT article quoted and cited below.

Seven of the eleven representatives in the table above are Democrats. Look at the gas mileage of the cars, and recall that it is the Democrats who are given to lecture us on how we need to do more about the environment.

(The four Republicans on the list are Reynolds, Fossella, Walsh and Saxton.)

(p. A1) Charles B. Rangel, the chairman of the House Ways and Means Committee, is not so caught up in the question of gas mileage. He leases a 2004 Cadillac DeVille for $777.54 a month. The car is 17 feet long with a 300-horsepower engine and seats five comfortably.

"It's one of the bigger Cadillacs," Mr. Rangel, of Harlem, said cheerfully this week. "I've got a desk in it. It's like an airplane."

Modest or more luxurious, the cars are all paid for by taxpayers. The use of a car -- gas included -- is one of the benefits of being a member of the House of Representatives.

. . .

(p. A19) Mr. Rangel said he frequently offers rides to constituents so they can discuss their concerns in the luxurious confines of his DeVille.

"I want them to feel that they are somebody and their congressman is somebody," Mr. Rangel explained. "And when they say, 'This is nice,' it feels good."

For the full story, see:

RAYMOND HERNANDEZ. "What Would You Drive, if the Taxpayers Paid?" The New York Times (Thurs., May 1, 2008): A1 & A19.

(Note: ellipsis added.)

RangelCadillac.jpg "Representative Charles B. Rangel says his leased Cadillac DeVille projects an image of success." Source of caption and photo: online version of the NYT article quoted and cited above.

May 26, 2008

"A Single Frame of a Movie"

(p. 144.) In all Western countries, the inventory of physical facilities for economic production changes. The inventory at any given moment is unquestionably important, but it is like a single frame of a movie; taken alone, it misses all the action, and it is the action that we need to understand and that holds the promise of economic advance to non-Western countries.


Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.

May 25, 2008

How Corning Invests in Major Innovations


Source of graphic: online version of the WSJ article quoted and cited below.

(p. B1) Corning Inc. has survived for 157 years by betting big on new technologies, from ruby-colored railroad signals to fiber-optic cable to flat-panel TVs. And now the glass and ceramics manufacturer is making its biggest research bet ever.

Under pressure to find its next hit, the company has spent half a billion dollars -- its biggest wager yet -- that tougher regulations in the U.S., Europe and Japan will boost demand for its emissions filters for diesel cars and trucks.

. . .

An investment 25 years ago has turned Corning into the world's largest maker of liquid-crystal-display glass used in flat-panel TVs and computers. But another wager, which made it the biggest producer of optical fiber during the 1990s, almost sank the company when the tech boom turned into a bust.

In Erwin, a few miles from the company's headquarters in Corning, the glassmaker is spending $300 million to ex-(p. B2)pand research labs. There, some 1,700 scientists work on hundreds of speculative projects, from next-generation lasers to optical sensors that could speed the discovery of drugs.

"Culturally, they're not afraid to invest and lose money for many years," says UBS analyst Nikos Theodosopoulos. "That style is not American any more."

Corning also goes against the grain in manufacturing. While it has joined the pack in moving most of its production overseas, it eschews outsourcing and continues to own and operate the 50 factories that churn out thousands of its different products.

Corning argues that retaining control of research and manufacturing is both a competitive advantage and a form of risk management. Its strategy is to keep an array of products in the pipeline and, once a market develops, to build factories to quickly produce in volumes that keep rivals from gaining traction.

For the full story, see:

SARA SILVER. "Corning's Biggest Bet Yet? Diesel-Filter Technologies." The Wall Street Journal (Fri., March 7, 2008): B1-B2.

(Note: ellipsis added.)


"Corning DuraTrap diesel-engine filter." Source of caption and photo: online version of the WSJ article quoted and cited above.

May 24, 2008

The Importance of the City for Human Progress

I remember Stigler in his history of economic thought class, waxing eloquent about the wondrous idyllic life of the countryside, and then ending with a Stiglerian zinger; something like: 'and where there is no idea to be found for miles and miles.' (I believe, in his memoirs, that Stigler mentions that it is good for a great university to be located in a great city.)

Rosenberg and Birdzell attribute even greater importance to urban life:

(p. 78) The merchants were consigned to the towns, and the towns themselves were nonfeudal islands in a feudal world.


Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.

May 23, 2008

Prices of Education and Medical Care Increase Dramatically Over Decade


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

The most interesting part of a recent David Leonhardt column, was not what he wrote, but the graphs that were included with the article, especially the one at the top of this entry. Notice that the price of education and medical care have increased much more dramatically than other categories of consumer spending. (And remember how heavily government is involved in those two sectors, both directly through government run institutions, and indirectly through regulations and subsidies.)

For the full commentary, see:

DAVID LEONHARDT. "ECONOMIC SCENE; Seeing Inflation Only in the Prices That Go Up." The New York Times (Weds., May 7, 2008): C1 and C11.

ConsumerSpendingGraphic.jpgSource of the graphic: online version of the NYT article cited above.

May 22, 2008

Voting with Your Feet in the Middle Ages

An application of the 'voting with your feet' technique for comparing consumption bundles is made by Rosenberg and Birdzell to compare life on the medieval manor with life in the medieval town:

(p. 51) The path of escape was from manor to town, not from town to manor. Stadluft macht frei, as the German proverb went.


Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.

(Note: italics in original.)

May 21, 2008

Candy Competition

CandyIndustryGraphic.gif Source of graphic: online version of the WSJ article quoted and cited below.

In class, we discuss how consumers pay higher prices for candy and soft drinks because the U.S. government limits on how much foregin sugar we can import. Sometimes a student will claim that candy companies would not lower prices if the price of sugar declined. And sometimes that issue leads to a discussion of whether the candy industry is competitive.

The graphic above, and the quotation below, provide some relevant evidence.

(p. B1) The global confectionary industry has long lacked a dominant player. The top 10 manufacturers controlled just 47% of the $141 billion market as of 2006, the most recent available data. . . .

. . .

If the Wrigley acquisition is successful, Mars will become the world's largest confectionary company with about 14.4% of the market, overtaking Cadbury's 10.1%, based on 2006 figures, the latest available, from Euromonitor International.

For the full story, see:

JULIE JARGON and AARON O. PATRICK. "More Sweet Deals in the Candy Aisle?; Cadbury and Hershey in the Spotlight in the Wake of Mars-Wrigley Linkup." The Wall Street Journal (Tues., April 29, 2008): B1-B2.

(Note: ellipses added.)

May 20, 2008

Great Example of Stigler-Kolko Capture Theory of Regulatory Agencies

George Stigler and Gabriel Kolko are associated with the theory that eventually, govenment regulatory agencies come to be captured by the industry that the agency is charged with regulating.

At the time of the exchange documented below, Wendell Willkie was the head of an electric utility, and Lilienthal was one of the heads of the TVA, which was in the process of taking customers away from Willkie's utility. Willkie's argument to Lilienthal is consistent with the capture theory. (But that Lilienthal pushed ahead with his plans, might be seen as inconsistent with the theory.)

(p. 182) Lilienthal set up a meeting in early October 1933 at the Cosmos Club in Washington, the club being, in Lilienthal's words, "about as neutral a ground as we could think of."

. . .

(p. 183) Willkie tried yet another tack. No one, he argued to Lilienthal, went into government without the intention of going into the private sector later. The private sector, after all, was where the business lived. If Lilienthal was too nasty, then he was not likely to find work at private utilities companies. Lilienthal was, by his own admission, "pretty badly scared" by the time he left the Cosmos.


Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.

May 19, 2008

"How the West Grew Rich" is an Elegant and Wonderful Book


Source of book image:

For many years I have wanted to carefully read Rosenberg and Birdzell's How the West Grew Rich. I am glad I have finally done it, and wish I had done it sooner. It is a tour de force of careful scholarly synthesis of a wide range of issues related to a fundamental question with many implications for policy.

The authors operate within a broadly Schumpeterian perspective, in that they see innovation as the key driver of human progress. One underlying theme is that societies that give more play to experimentation in institutions, are more likely to allow, encourage, and widely adopt, innovations.

Although written over two decades ago, the book only rarely seems dated. (The only instance I can think of is the occasional attention that the authors give to Marxist claims, that are seldom taken as seriously now as they sometimes still were in 1986.)

The writing style is not easy to read, but is rewarding. They write with elegance, and subtlety, and dry wit.

The reference to the book:

Rosenberg, Nathan, and L.E. Birdzell, Jr. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books, 1986.

May 18, 2008

Stigler on Berle and Means

I remember George Stigler in class making some reference to a book by Berle and Means, and asking if any of us had ever heard of them. None of us had. My memory is that he looked sort of sadly amused.

At least one of Stigler's important papers had taken on, and refuted, some of the important claims of the Berle and Means book.

Now, decades later, I recently read a wonderful book on the Great Depression called The Forgotten Man. It turns out that Berle was very important in the growth of government in FDR's New Deal.

I now realize what I did not realize when I took Stigler's class---that Stigler had done something significant in refuting errors that supported misguided policies that hurt the economy.

It is a sad fact of life that future generations will not remember, or appreciate, the triumphs of the 'good guys' because they do not appreciate the impact of the good guys' adversaries.

Stigler had beaten Berle so fully that the younger generation did not even recognize Berle's name. And in not recognizing Berle's name, or his significance, they could not appreciate the value of what Stigler had accomplished.

Book reference:

Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.

May 17, 2008

New York Rent Control Limits Incentives to Build Apartments

NewYorkLoftBuilding.jpg "Tryn Collins, left, and Mary Hill share small quarters at a loft building in Brooklyn that was transformed from a factory." Source of caption and photo: online version of the NYT article quoted and cited below.

New York City has had rent control in effect for decades. Economists predict that one effect of rent control is that incentives are reduced to build and maintain apartments. As a result, those seeking living space, have fewer options. (For example, the WSJ a few years ago ran a front page article explaining how some enterprising New Yorkers were living in abandoned elevator shafts.)

The article quoted below, provides additional evidence.

(p. A1) One "room" is a cramped cubby that measures, in all, perhaps 25 square feet, just enough for a full-size mattress and whatever can be stashed beneath. The first-floor rooms, in the basement, are musty and windowless, like caves. The second-floor rooms have plywood walls but no doors, only cut-out windows that overlook a kitchen cluttered with day-old dishes, a chore wheel and the odd paintbrush.

One of the residents likens her home to a "giant treehouse." Another says it is like "living in a public bathroom."

"Where the stalls are just superficial sight lines that block the other person, but you can hear everything they do," said Robyn Frank, a 23-year-old artist. She had just moved in to the McKibbin lofts in East Williamsburg, Brooklyn, and sometimes they literally become bathrooms. They are known for their giant, raucous parties; revelers occasionally urinate in the halls.

This is life in what some refer to as the McKibbin "dorms," a landing pad for hundreds of postcollegiate creative types yearning to make it as artists, and live like them too, in today's New York.

Newcomers marvel that such a place exists: two sprawling, almost identical five-story former factories filled with mostly white hip young things, smack in the middle of a neighborhood that has little in common with Williamsburg proper, its cocktail-mixing neighbor to the west.

Perhaps 300 people live in each building, which face each other and sit, respectively, at 248 and 255 McKibbin Street. Between one and eight people live in each loft. Few were born before the mid-1980s. Rents can range from $375 for one person to roughly $800 for a space.

For the full story, see:

CARA BUCKLEY. "Young Artists Find a Private Space, Only Without the Privacy." The New York Times (Weds., May 7, 2008): A1 & A17.

May 16, 2008

"The Black Hole of Agriculture": "People Love Free Money"

(p. A17) WASHINGTON -- Americans are in sticker-shock over grocery prices, while people in developing countries are rioting over food shortages. And across the heartland, American farmers are enjoying record incomes, but losing sleep over rising expenses and turbulence in the commodity futures markets.

Here on Capitol Hill, though, it is pretty much farm politics as usual.

As Congress works toward final passage of the farm bill, it is poised to continue most of the existing farmer subsidy programs, including about $5.2 billion a year in so-called "direct payments" that will be disbursed even as net farm income is projected to hit a historic high in 2008.

The farm bill, which comes along once every five years and will cost upward of $300 billion, in fact will do little to address many of the most pressing concerns. It will not change biofuel mandates that are directing more corn to ethanol and contributing to a global rise in food prices.

. . .

But even strong proponents of the bill, like Senator Tom Harkin, Democrat of Iowa and chairman of the Agriculture Committee, concede that farm interests are deeply entrenched and that there is little appetite for change among many farm state lawmakers, especially when it comes to the direct payment program.

The direct payments are based on the amount of land that certain farmers own, and Mr. Harkin, who has sought to eliminate the payments, said that many recipients of the money then use it to acquire more land and qualify for more payments.

"It's like the black hole in space that astronomers talk about: everything gets sucked in and nothing ever comes out," he said. "This is the black hole of agriculture. It doesn't make sense, but farmers continue to get it."

Mr. Harkin said there was not much he could do because "I don't have the votes," adding, "People love free money."

For the full commentary, see:

DAVID M. HERSZENHORN. "NEWS ANALYSIS; Farmers' Income Rises, as Do Food Prices, but It's Mostly Politics as Usual." The New York Times (Thurs., April 24, 2008): A17.

(Note: ellipsis added.)

May 15, 2008

Schumpeterians Lead Ranking of Business Gurus

GuruGraphic.gif Source of graphic: online version of the WSJ article quoted and cited below.

The top two business gurus in the WSJ's latest ranking, have each written major books that make substantial use of Schumpeter's concept of creative destruction. (The Hamel book is Leading the Revolution, and the Thomas Friedman book is The Lexus and the Olive Tree.)

Others among the top 20 gurus who have written favorably of the process of creative destruction, include Clayton Christensen, Jack Welch, and Tom Peters.

(p. B1) The guru game is changing.

Psychologists, journalists and celebrity chief executives crowd the top of a ranking of influential business thinkers compiled for The Wall Street Journal. The results, based on Google hits, media mentions and academic citations, ranked author and consultant Gary Hamel No. 1.

But Dr. Hamel is the only traditional business guru in the top five, which includes two journalists, Thomas Friedman and Malcolm Gladwell, and a former CEO, Bill Gates. Mr. Gladwell is among three thinkers in the top eight who focus on psychology. His 2005 book "Blink: The Power of Thinking Without Thinking" examined the role of snap judgments in decision-making. Howard Gardner, a professor of education at Harvard best known for the theory of "multiple intelligences," is No. 5, while Daniel Goleman, a psychologist who has written about "emotional intelligence," ranks eighth.

Thomas H. Davenport, a management professor at Babson College, compiled the ranking, employing the same methodology he used in a 2003 book, "What's the Big Idea?" Several well-known business gurus fell lower in the updated list, including Michael Porter and Tom Peters, who topped the 2003 ranking and dropped to Nos. 14 and 18, respectively. Harvard's Prof. Porter noted that his last book was on health care rather than general management, and that "I feel like my recent work continues to have an impact in my various fields."

Dr. Davenport says the changes show that time-strapped managers are hungry for easily digestible advice wherever they can find it. Today, the most pressing themes include globalization, motivation and innovation. Traditional business gurus writing "weighty tomes" are in decline, he says.

For the full story, see:

ERIN WHITE. "New Breed of Business Gurus Rises; Psychologists, CEOs Climb in Influence, Draw Hits, Big Fees." Wall Street Journal (Mon., May 5, 2008): B1.


Source of table:

ERIN WHITE. "What Influential Business Thinkers Focus On; Top Gurus Ponder Manager's Worries, New Approaches." Wall Street Journal (Mon., May 5, 2008): B6.

(Note: the online version of the article has the title: "Quest for Innovation, Motivation Inspires the Gurus; Leading Thinkers Apply Varied Skills For Global Solutions.")

May 14, 2008

Why Most Economists Oppose the Gas Tax Holiday

(p. A31) Most economists oppose the Clinton-McCain gas tax holiday because they can't see how consumers will benefit. In fact, "most" is an understatement; when challenged to name one economist willing to back her plan, Mrs. Clinton's response was to disparage the whole profession.

Why are economists so opposed? In the short run, the supply of gasoline is basically fixed; it takes a while to build a new refinery. The demand for gasoline, in contrast, is more responsive to price; we're already seeing greater use of public transportation and brisk sales of fuel-efficient cars. When you combine fixed supply with flexible demand, it's suppliers, not demanders, who pocket the tax cut. That's Econ 101.

. . .

When the public rejects the mundane explanations for high gas prices -- big boring facts like rapid Asian growth -- politicians aren't going to correct them. The best we can expect is for Washington to try to channel the public's misconceptions in relatively harmless directions. We could do a lot worse than the gas tax holiday; in fact, we usually do.

For the full commentary, see:

BRYAN CAPLAN. "The 18-Cent Solution." The New York Times (Thurs., May 8, 2008): A31.

(Note: ellipsis added.)

May 13, 2008

For Happiness, "Income Does Matter"

SatisfactionPerCapitaGDPgraph.jpg Source of graph: online version of the NYT article quoted and cited below.

(p. C7) . . . , Betsey Stevenson and Justin Wolfers argue that money indeed tends to bring happiness, even if it doesn't guarantee it. They point out that in the 34 years since Mr. Easterlin published his paper, an explosion of public opinion surveys has allowed for a better look at the question. "The central message," Ms. Stevenson said, "is that income does matter."

To see what they mean, take a look at the map that accompanies this column. It's based on Gallup polls done around the world, and it clearly shows that life satisfaction is highest in the richest countries. The residents of these countries seem to understand that they have it pretty good, whether or not they own an iPod Touch.

If anything, Ms. Stevenson and Mr. Wolfers say, absolute income seems to matter more than relative income. In the United States, about 90 percent of people in households making at least $250,000 a year called themselves "very happy" in a recent Gallup Poll. In households with income below $30,000, only 42 percent of people gave that answer. But the international polling data suggests that the under-$30,000 crowd might not be happier if they lived in a poorer country.

. . .

Economic growth, by itself, certainly isn't enough to guarantee people's well-being -- which is Mr. Easterlin's great contribution to economics. In this country, for instance, some big health care problems, like poor basic treatment of heart disease, don't stem from a lack of sufficient resources. Recent research has also found that some of the things that make people happiest -- short commutes, time spent with friends -- have little to do with higher incomes.

But it would be a mistake to take this argument too far. The fact remains that economic growth doesn't just make countries richer in superficially materialistic ways.

Economic growth can also pay for investments in scientific research that lead to longer, healthier lives. It can allow trips to see relatives not seen in years or places never visited. When you're richer, you can decide to work less -- and spend more time with your friends.

Affluence is a pretty good deal. Judging from that map, the people of the world seem to agree. At a time when the American economy seems to have fallen into recession and most families' incomes have been stagnant for almost a decade, it's good to be reminded of why we should care.

For the full commentary, see:

DAVID LEONHARDT. "Economic Scene; Money Doesn't Buy Happiness. Well, on Second Thought . . . ." The New York Times (Weds., April 16, 2008): C1 & C7.

(Note: ellipses in text added; ellipsis in title in original; the title in the online version was "Economic Scene; Maybe Money Does Buy Happiness After All." )


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

May 12, 2008

United States Making More Output with Less Physical Input: An Almost Lighter Economy

(p. 492) The long-standing trend away from value produced by manual labor and natural resources and toward the intangible value-added we associate with the digital econnomy can be expected to continue. Today it takes a lot less physical material to produce a unit of output than it did in generations past. Indeed, the physical amount of materials and fuels either consumed in the production of output or embodied in the output has increased very modestly over the past half century. The output of our economy is not quite literally lighter, but it is close.

Thin fiber-optic cable, for instance, has replaced huge tonnages of copper wire. New architectural, engineering, and materials technologies have enabled the construction of buildings enclosing the same space with far less physical material than was required fifty or one hundred years ago. Mobile phones have not only downsized but also morphed into multipurpose communication devices. The movement over the decades toward production of services that require little physical input has also been a major contributor to the marked rise in the ratio of constant dollars of GDP to tons of input.


Greenspan, Alan. The Age of Turbulence: Adventures in a New World Economic Flexibility. New York: Penguin Press, 2007.

(Note: italics in original.)

May 11, 2008

Franklin Roosevelt Exposed in The Forgotten Man


Source of book image: http://blog.syracuse.com/shelflife/forgotten.jpg

Amity Shlaes's new history of the Great Depression is at once depressing and encouraging. It is depressing in showing how vulnerable human progress is to the threat from a dishonest, slick orator, who has not a clue about how the economy works. It is encouraging in that it shows so clearly that the length and depth of the Great Depression was due to easily avoidable mistakes in policy, rather than due to some fundamental flaw in capitalism, as has occasionally been claimed.

Although the book does not shy away from pointing out the flaws of Coolidge, Hoover and Willke, it mainly shows how F.D.R.'s routine whimsical policy reversals and double-dealings, alienated not only his original opponents, but many of his early friends and allies.

The New Deal policies to seize business profits, reduced business incentives to take risks: if the risks turned out badly, the business would lose the investment, while if the risks turned out well, the profits would be taxed away by the federal government.

In addition, the sheer unpredictability of New Deal policies further led the prudent to delay investments, thereby further impeding recovery.

The book is well-written, and should be equally well-read.

The reference for the book is:

Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.

May 10, 2008

"Nature" Article Forecasts Cooler Europe and North America Over Next Decade

The journal Nature (along with the journal Science) is often viewed as one of the two most prestigious journals in science. The NYT article below reports that a recent Nature article forecasts that temperatures in Europe and North America will be cooler over the next decade.

After the portion quoted below, the NYT article goes on to reassure global warming true-believers that a decade of cooling would in no way be evidence against the global warming maintained hypothesis.

(p. A10) After decades of research that sought, and found, evidence of a human influence on the earth's climate, climatologists are beginning to shift to a new and similarly daunting enterprise: creating decade-long forecasts for climate, just as meteorologists routinely generate weeklong forecasts for weather.

One of the first attempts to look ahead a decade, using computer simulations and measurements of ocean temperatures, predicts a slight cooling of Europe and North America, probably related to shifting currents and patterns in the oceans.

The team that generated the forecast, whose members come from two German ocean and climate research centers, acknowledged that it was a preliminary effort. But in a short paper published in the May 1 issue of the journal Nature, they said their modeling method was able to reasonably replicate climate patterns in those regions in recent decades, providing some confidence in their prediction for the next one.

For the full story, see:

ANDREW C. REVKIN. "Scientists Work on Decade-Based Forecast for the Climate." The New York Times (Thurs., May 1, 2008): A10.

May 9, 2008

Will Smith's 'I Am Legend' Performance Earns the Academy Award that Matters


Will Smith in I Am Legend. Source of photo: http://blogs.bet.com/news/newsyoushouldknow/?p=1398

Will Smith's remake of Charleton Heston's The Omega Man, is a pretty good movie. It shows a lone scientist struggling to cure a terrible disease in a world where he has lost almost everything that he valued. The Will Smith character exemplifies the motto of the marines: semper fi.

But I think I still like the Heston version a bit better, even though its special effects are dated, and Heston may have been a bit old for the role.

Why, then? After some thought, I think there is one main reason I like the Heston version better: the villains in The Omega Man, have ideas, while the villains in I Am Legend are subhuman, idealess vampires. The battle of good against evil in The Omega Man is both physical and intellectual, and that makes it easier to care more deeply about the outcome.

Still, I Am Legend is a good movie, showing a heroic man's lonely struggle to remain true to his mission.

(And his canine companion should have received some sort of award too.)

(p. 2E) West Point, N.Y. (AP) -- Will Smith wasn't nominated for an Oscar this year, but his role in "I Am Legend" has earned a different "academy" award -- from the cadets at the U.S. Military Academy.

Smith was named the first winner of the Cadet Choice Movie Award, de­signed to honor the character that best per­sonifies West Point leadership qualities on the silver screen.

For the full story, see:

"People; Cadets vote Will Smith a winner." Omaha World-Herald (Mon., Feb. 25, 2008): 2E.

May 8, 2008

Creative Destruction Brings Triumph of Brain Over Brawn in the Labor Market

(p. 435) . . . , the inexorable growth in the proportion of our GDP that is conceptual, especially technological, has increased the value of intellectual power relative to the value of human brawn many times over many generations. I am old enough to remember when physical prowess on the job was the source of legend and reverence. A large statue of Paul Bunyan, the mythical logger, still oversees the northern Minnesota lake country. Stevedores of a century ago were extolled for their brute strength. Today, the activities once carried out by stevedores are often run by young women at a computer console.


Greenspan, Alan. The Age of Turbulence: Adventures in a New World Economic Flexibility. New York: Penguin Press, 2007.

May 7, 2008

Freeing Medical Entrepreneurship Could Speed Cures


Medical entrepreneur Tom Harold.    Source of photo:   http://www.scyfix.org/management.php

(p. 1D) ScyFix, a Chanhassen, Minn., startup, has developed a device it claims treats diseases such as glaucoma and macular degeneration by shooting electric currents into the eye. The company, which is conducting clinical trials in India and the United States, hopes to sell the first device approved by the Food and Drug Administration designed to restore eyesight.

"To me, this is the pacemaker for the eye," said Dr. Darrell DeMello, ScyFix president and a former executive at Boston Scientific Corp.

ScyFix hopes to eventually raise $60 million to $70 million to finish its clinical trials.

. . .

(p. 2D) Thomas Harold first came up with the idea for ScyFix in 2002. An Internet entrepreneur and a former executive at General Mills, Harold became interested in studies that showed electricity could restore sight. Drugs, however, could only slow the effects of some diseases.

. . .

Specifically, the studies showed electricity could stimulate the production of neurotrophins, a family of proteins that can instruct optic nerve, retinal neurons and photoreceptor cells not to die. In addition, neuromodulation can also repair cell membranes, allowing cells to absorb nutrients, release wastes, improve blood flow to the eye and rewire faulty nerve connections.

Working with doctors and engineers, Harold, who has no medical background, developed a device that releases low-intensity electric currents into the eyelids through electrodes. A complex mathematical equation programmed into the device controls the amount and frequency of the electricity. Patients can administer the treatment at home twice a day for 20 minutes.

Harold says he is encouraged by the results so far: Since 2002, the device has halted progression of diseases in 95 percent of the 1,000 patients tested in 29 countries, according to ScyFix.

"Everything stopped getting worse," Harold said. "That was a win in itself."

In addition, 80 percent of the patients reported vision improvement. There were no side effects, the company said.

For the full story, see:

Lee, Thomas (The Star Tribune). "'Pacemaker' for eyes shows initial promise." Omaha World-Herald (Sunday, March 9, 2008): 1D & 2D.

(Note: ellipses added.)

Below I have pasted a couple of paragraphs from the ScyFIX web site. Note that Europeans are free to try the therapy, if they so desire. But citizens of the United States are not free to try the therapy, due to the regulations of the Food and Drug Admininstration (FDA) of the U.S. government.

Buy ScyFIX 600 and Accessories on-line!

Welcome to ScyFIX international web shop where you can order products, choose payment method, including a secure on-line credit card payment service (SSL), and check your delivery status on-line. Buying on-line is safe and easy and you will be guided all the way. All prices are in € (Euro). Place your order and your credit card company will convert the amount in € to your own currency. We accept Visa, Master Card, EuroCard and most bank cards connected to VISA or Master Card. Follow the instructions to take you through the pages, and then onto a secure site in which you will input your credit card and shipping details. When bank authorization has been attained, you will get a confirmation on-line, as well as a confirming e-mail. If at any stage you wish to change your order, just click the "Remove"-button.

Please note that ScyFIX can not ship devices to US addresses, until the ongoing FDA trials have resulted in an approval to market the product in the USA. US customers who mistakenly order and pay for a therapy kit over the web, will be contacted and refunded. However, ScyFIX will deduct 100€ (Euros) covering banking fees and handling costs. If you are a US resident and want to know more about our therapy, please send an inquiry by e-mail to our European office support@scyfix.org, or fill in your personal information in our Clinical Trial & Purchase Interest Form by clicking here www.scyfix.org/clinical_trial_form.htm.

The paragraphs were accessed on 3/9/08 from:


May 6, 2008

Have You Hugged Your Venture Capitalist Today?


"Apple's chief executive, Steven P. Jobs, left, and the venture capitalist John Doerr at Apple headquarters in Cupertino, Calif." Source of caption and photo: online version of the NYT article cited below.

(p. C3) CUPERTINO, Calif. -- Steven P. Jobs, Apple's chief executive, is hoping to expand the iPhone's appeal by luring software developers to create programs for it.

John Doerr, the venture capitalist, is adding an incentive: his firm is putting up $100 million to invest in the work of those programmers.

At an event Thursday at Apple headquarters, Mr. Jobs announced a low-cost software development kit that outside programmers can use to create programs for the iPhone, much as they now write the vast majority of the programs created for the Macintosh. Until now, iPhones have officially been able to run only the limited assortment of applications that Apple includes. (Some buyers have modified the phones to add unauthorized software.)

"We're very excited about this," said Mr. Jobs, who also announced that the company was adding features to make the iPhone more appealing to business users. "We think a lot of people, after understanding where we are going, are going to want to become an iPhone developer."

Sharing the stage with Mr. Jobs, Mr. Doerr announced that his firm, Kleiner Perkins Caufield & Byers, had established a $100 million venture capital fund for iPhone entrepreneurs. Called the iFund, it is the largest fund the company has created for a specific technology.

"The potential for iPhone is huge," Mr. Doerr said.

For the full story, see:

LAURIE J. FLYNN. "Apple to Encourage iPhone Programmers." The New York Times (Fri., March 07, 2008): C3.

May 5, 2008

Nanotechnology Extends the Life of Moore's Law

EdelsteinDaniel-IBM.jpg "Daniel Edelstein of I.B.M. Research is leading a team's work in the use of self-assembling nanotechnology." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 4) Until now, as chips became smaller, they also became faster in about the same proportion. It's still true for transistors, but it's no longer true for the wires used to connect transistors -- and that slows performance gains. Daniel Edelstein, a program manager and fellow at I.B.M. Research, says, "We're running out of steam."

Mr. Edelstein is leading a team of researchers from inside and outside I.B.M. in developing a new way to solve the problem: using "self assembling" nanotechnology to make better insulators, raising performance. In this case, self-assembly involves creating so-called airgaps, vacuums a few nanometers wide that keep the billions of tiny copper wires in a chip from touching one another, instead of putting down a layer of insulating material and trying to align it effectively at the nanoscale. It's more efficient, and it means that I.B.M. won't need to spend $50 million on photolithographic equipment.

. . . While the technique is not quite done being tested, John E. Kelly III, I.B.M.'s senior vice president for research, says that "there is no question in our minds this is going to work," and that I.B.M. will move to it by 2009, first for an existing high-end processor or a next-generation chip, then across its fabs.

Mr. Kelly says Mr. Edelstein has a "unique" ability to solve problems and work across the company to commercialize new technologies. In the last decade, he has led two other important breakthroughs, most notably the use of copper for the wires inside chips, replacing aluminum.

Each time, Mr. Edelstein has done it by working with a small group of two or three scientists to explore out-of-the-mainstream approaches to problems. He also goes beyond research, getting to know the manufacturing team to help him understand what it takes to get a novel technique into I.B.M.'s existing manufacturing process.

For the full story, see:

MICHAEL FITZGERALD. "PROTOTYPE; Trying to Put New Zip Into Moore's Law." The New York Times Company, SundayBusiness section (Sun., February 24, 2008): 4.

(Note: ellipsis added.)

May 4, 2008

Hoosiers Were Right to Be Behind the Times

I am a Hoosier by birth and upbringing, and I am not ashamed to admit it, in spite of the fact that "hoosier" is a pejorative in some circles.

Until recently, in Indiana we swam against the tide, in rejecting Daylight Savings Time. It never made sense to me that in order to take advantage of sunlight, the government needed to mandate that the clocks be changed twice a year.

Why couldn't those who want to use the hours of sunlight differently, simply adjust their own schedules, for example, by getting up earlier or later?

Well the article quoted below, suggests that us Hoosiers may have been wiser than we knew.

(p. D1) For decades, conventional wisdom has held that daylight-saving time, which begins March 9, reduces energy use. But a unique situation in Indiana provides evidence challenging that view: Springing forward may actually waste energy.

Up until two years ago, only 15 of Indiana's 92 counties set their clocks an hour ahead in the spring and an hour back in the fall. The rest stayed on standard time all year, in part because farmers resisted the prospect of having to work an extra hour in the morning dark. But many residents came to hate falling in and out of sync with businesses and residents in neighboring states and prevailed upon the Indiana Legislature to put the entire state on daylight-saving time beginning in the spring of 2006.

Indiana's change of heart gave University of California-Santa Barbara economics professor Matthew Kotchen and Ph.D. student Laura Grant a unique way to see how the time shift affects energy use. Using more than seven million monthly meter readings from Duke Energy Corp., covering nearly all the households in southern Indiana for three years, they were able to compare energy consumption before and after counties began observing daylight-saving time. Readings from counties that had already adopted daylight-saving time provided a control group that helped them to adjust for changes in weather from one year to the next.

Their finding: Having the entire state switch to daylight-saving time each year, rather than stay on standard time, costs Indiana households an additional $8.6 million in electricity bills. They conclude that the reduced cost of lighting in afternoons during daylight-saving time is more than offset by the higher air-conditioning costs on hot afternoons and increased heating costs on cool mornings.

"I've never had a paper with such a clear and unambiguous finding as this," says Mr. Kotchen, who presented the paper at a National Bureau of Economic Research conference this month.

For the full story, see:

JUSTIN LAHART. "Daylight Saving Wastes Energy, Study Says." The Wall Street Journal (Weds., February 27, 2008): D1 & D4.

May 3, 2008

Greenspan on Leapfrogging in India

(p. 316) India is fast becoming two entities: a rising kernal of world-class modernity within a historic culture that has been for the most part stagnating for generations.

This kernal of modernity appears to have largely leapfrogged the twentieth-century labor-intensive manuafacturing-for-export model embraced by China and the rest of East Asia.


Greenspan, Alan. The Age of Turbulence: Adventures in a New World Economic Flexibility. New York: Penguin Press, 2007.

May 2, 2008

Government Supported Biofuels Increase Global Warming


Source of graph: online version of the WSJ article quoted and cited below.

(p. A4) While the U.S. and others race to expand the use and production of biofuels, two new studies suggest these gasoline alternatives actually will increase carbon-dioxide levels.

A study published in the latest issue of Science finds that corn-based ethanol, a type of biofuel pushed heavily in the U.S., will nearly double the output of greenhouse-gas emissions instead of reducing them by about one-fifth by some estimates. A separate paper in Science concludes that clearing native habitats to grow crops for biofuel generally will lead to more carbon emissions.

The findings are the latest to take aim at biofuels, which have already been blamed for pushing up prices of corn and other food crops, as well as straining water supplies. The Energy Department expects U.S. ethanol production to reach about 7.5 billion gallons this year from 3.9 billion in 2005, encouraged by high prices and government support. The European Union has proposed that 10% of all fuel used in transportation should come from biofuels by 2020.

Some scientists have praised biofuels because growing biofuel feedstock would remove gases that trap the sun's heat from the air, while gasoline and diesel fuel take carbon from the ground and put it in the air. However, some earlier studies didn't account for one hard-to-measure factor: the decision by farmers world-wide to convert forest and grasslands to grow feedstock for the new biofuels.

. . .

[One] study's funding came from the National Science Foundation and the University of Minnesota's Initiative on Renewable Energy and the Environment, . . . The other paper relied on funding from various indirect sources, including the Hewlett Foundation and the Agriculture Department.

For the full story, see:

GAUTAM NAIK. "Biofuels Hold Potential for Greater Levels of CO2; Land Use for Crops May Cancel Out Benefits of Use." The Wall Street Journal (Fri., February 8, 2008): A4.

(Note: ellipses added; and bracketed word added.)

(Note: the somewhat different title of the online version was "Biofuels May Hinder Antiglobal-Warming Efforts; Carbon Emissions Could Increase As Land-Use Shifts.")

May 1, 2008

Federal Subsidies for "Those Who Choose to Live Far from a City"

SubsidiesAirNebraskaGraphic.jpg Source of graphic: the online version of the Omaha World-Herald article quoted and cited below.

(p. 1A) WASHINGTON -- Opponents of federal air travel subsidies make two points: that subsidized airports are relatively close to regular commercial air service and subsidized flights are used by only a few people a day.

Both are true in Nebraska.

For example, U.S. taxpayers spend nearly $1.4 million a year so that fewer than two dozen travelers a day, on average, can fly out of Grand Island rather than drive the 100 miles to Lincoln.

Taxpayers also chip in $748,635 annually to maintain two daily flights from Alliance to Denver, even though only about a half dozen people a day board the planes.

. . .

(p. 2A) Groups such as Taxpayers for Common Sense and Citizens Against Government Waste say that although the subsidies might have made sense 30 years ago, to prevent communities from losing air service overnight, people know what they're getting into today if they choose to live far from a city with regular air service.

It's a matter of prioritizing public spending, said Steve Ellis, vice president of Taxpayers for Common Sense.

"People have the right to food and clean water," Ellis said. "We don't need to make sure it's a chicken in every pot and air service in every community."

For the full story, see:

JOSEPH MORTON. "Rural travel subsidies still up in the air." Omaha World-Herald (Sunday, February 24, 2008): 1A & 2A.

(Note: ellipses added.)

Federal spending on Essential Air Service
Year     # of communities    Total funding for subsidies *

1998   101   $50
1999   100   $50
2000   106   $50
2001   115   $50
2002   123   $113
2003   126   $101.3
2004   140   $101.7
2005   146   $101.6
2006   151   $109.4
2007   145   $109.4
2008   142   $125

*Figures in millions

Source of data: Government Accountability Office; U.S. Department of Transportation

Source of version of table above: very slightly modified from the online version of the Omaha World-Herald article quoted and cited above.


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