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August 31, 2009

Creative Destruction Is Scary, but "Inevitable and Probably Even Desirable"




(p. 5) Development is a complicated phenomenon. Decades before he popularized the phrase "creative destruction," Joseph Schumpeter, the Austrian School economist, was honing his ideas about innovation and disruptive change in "The Theory of Economic Development."

Disruptive change, creative destruction, is what I'm living every day. In the big cities, India's economic development can seem so simple. Business thrives, the middle and upper classes are celebrating, and the country is moving inexorably ahead.

But around here, where a way of life is disappearing and no one knows what will take its place, where someone seems to lose for everyone who wins, it's a lot harder to know what to make of India's economic boom. From my vantage point, development seems both wonderful and frightening; it is both inspiring and, at times, dispiriting.

People sometimes ask me how I feel about India's economic development. I tell them the truth. I say I don't know. I say I feel ambivalent about the passing of a world I knew as a child, a transition that I know is inevitable and probably even desirable. But I haven't reconciled myself to it yet.



For the full commentary, see:

AKASH KAPUR. "An Indian Says Farewell to Poverty, With Jitters." The New York Times, Week in Review Section (Sun., August 8, 2009): 5.






August 30, 2009

Native Americans Suffer from Government Health Care




(p. A11) Native Americans have received federally funded health care for decades. A series of treaties, court cases and acts passed by Congress requires that the government provide low-cost and, in many cases, free care to American Indians. The Indian Health Service (IHS) is charged with delivering that care.

The IHS attempts to provide health care to American Indians and Alaska Natives in one of two ways. It runs 48 hospitals and 230 clinics for which it hires doctors, nurses, and staff and decides what services will be provided. Or it contracts with tribes under the Indian Self-Determination and Education Assistance Act passed in 1975. In this case, the IHS provides funding for the tribe, which delivers health care to tribal members and makes its own decisions about what services to provide.


. . .


Unfortunately, Indians are not getting healthier under the federal system. In 2007, rates of infant mortality among Native Americans across the country were 1.4 times higher than non-Hispanic whites and rates of heart disease were 1.2 times higher. HIV/AIDS rates were 30% higher, and rates of liver cancer and inflammatory bowel disease were two times higher. Diabetes-related death rates were four times higher. On average, life expectancy is four years shorter for Native Americans than the population as a whole.


. . .


Personal stories from people within the system reveal the human side of these statistics. In 2005, Ta'Shon Rain Little Light, a 5-year-old member of the Crow tribe who loved to dress in traditional clothes, stopped eating and complained that her stomach hurt. When her mother took her to the IHS clinic in south central Montana, doctors dismissed her pain as depression. They didn't perform the tests that might have revealed the terminal cancer that was discovered several months later when Ta'Shon was flown to a children's hospital in Denver. "Maybe it would have been treatable" had the cancer been discovered sooner, her great-aunt Ada White told the Associated Press.


. . .


The Chippewa Cree Band runs its own hospital and has hired a registered dietician who has gotten the local grocery store to implement a shelf-labeling system to improve consumer nutritional information. They've also built a Wellness Center with a gym, track, basketball court, and pool. These are small steps that won't immediately eliminate heart disease or diabetes. But they move in the direction of local control and better health.

At a time when Americans are debating whether to give the government in Washington more control over their health care, some of the nation's first inhabitants are moving in the opposite direction.



For the full commentary, see:

TERRY ANDERSON. "OPINION: CROSS COUNTRY; Native Americans and the Public Option; After decades of government-run care, some Indians are finally saying enough." Wall Street Journal (Sat., August 29, 2009): A11.

(Note: ellipses added.)

(Note: the online version is dated Fri., Aug.28, 2009)





August 29, 2009

Andy Grove's Case Against the Car Bailout




(p. A13) Imagine if in the middle of the computer transformation the Reagan administration worried about the upheaval and tried to rescue this vital industry by making huge investments in leading mainframe companies. The purpose of such investments would have been to protect the viability of these companies. The effect, however, would have been to put the brakes on transformation and all but ensure that the U.S. would lose its leadership role.

The government's investment in General Motors might be directly helpful if the auto industry only had the recession to contend with. But that is not the case. The industry faces the confluence of a world-wide recession, rising fuel prices, environmental demands, globalization of manufacturing, and, most importantly, technological change involving the very nature of the automobile.



For the full commentary, see:

ANDREW S. GROVE. "What Detroit Can Learn From Silicon Valley; Vertically integrated production is a thing of the past. Will the auto industry's new overseers catch on?" Wall Street Journal (Mon., JULY 13, 2009): A13.





August 28, 2009

Small Business Sceptical of Big Government Health Plan




BriguglioPatty2009-08-14.jpg"No, I mean it," said Ms. Brigugulio, "I expect you to keep your word on this." Source of the photo and caption: http://boss.blogs.nytimes.com/2009/07/30/mr-prez-meets-ms-biz-the-story-behind-the-photo/



(p. A11) Patty Briguglio thinks President Obama may have a public relations problem selling his health care plan to small-business owners.

And Ms. Briguglio, who was photographed exchanging a wagging finger with the president at his health care forum Wednesday in Raleigh, N.C., should know: she runs her own small business, MMI Associates, a public relations firm in Raleigh.

Ms. Briguglio pays much of the cost of health insurance for her firm's 19 employees, though she does not offer a group plan. Because the members of her staff are so young, it is cheaper simply to provide an allowance for them to buy individual policies.

When Mr. Obama called on Ms. Briguglio at Wednesday's forum, she asked, ''What current long-term social program created and run by the government should we look to as a model of success and one that we as taxpayers should be confident that a new government-run health care system would be better than the current system in place?''

The president suggested Veterans Affairs hospitals and Medicare, both of which, he said, ''have very high satisfaction rates.''

And, he added, ''Medicare costs have gone up more slowly than private-sector health care costs.''

Ms. Briguglio was not completely satisfied. ''I've never associated any government program with 'cost effective' or 'efficient,' '' she said in a telephone interview on Thursday. ''I don't believe that the government will be a better steward of the money that I set aside for health care for my employees than I will be.''



For the full story, see:

ROBB MANDELBAUM. "To Challenges For Obama, Add Another." The New York Times (Fri., July 31, 2009): A11.

(Note: the online version of the article does not have the photo of Briguglio wagging her finger, that was published in my print version of the paper. The photo above is from later in the exchange, and appeared on the NYT blog.)





August 27, 2009

In Early Days Entrepreneur Honda "Pawned His Wife's Jewelry for Funds"




(p. 217) At the root and origin of all great empires of industry can usually be found a perspiring entrepreneur, often frustrated and fatigued, struggling over a machine that won't quite work.

Honda, for example, was to become the world's single most brilliant and successful entrepreneur of mechanical engineering since Henry Ford. But only the perspiration of genius was in sight during that period before the war when he embarked on a siege of day-and-night study and experiment in the techniques of casting, in his attempt to make a piston ring. He lived at the factory, turning from a gay blade into a hirsute and harried hermit, stinking of grease and sweat, while his savings ran out, his friends fretted, his parents reminded him of promising opportunities in auto repair, and he pawned his wife's jewelry for funds.



Source:

Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.






August 26, 2009

"How Do We Get on the Special Interests, Special Treatment Bandwagon?"




SodiumSilicatePouredIntoClunker2009-08-12.jpgUncreative destruction. "Jose Luis Garcia pours sodium silicate into a junkyard car engine to render it inoperable at a lot in Sun Valley, Calif., on Tuesday. The process destroys the car's engine in a matter of minutes." Source of photo and part of caption: online version of the WSJ article quoted and cited below.


(p. A4) WASHINGTON -- Who doesn't like the government's "cash for clunkers" program? Your mechanic, for one.

Owners of automotive repair shops say the program to help invigorate sales of new cars is succeeding at their expense.

Bill Wiygul, whose family owns four repair shops in Virginia, said he has already had five or six customers decide against repairs. A man who sits on the board of Mr. Wiygul's bank traded in his car rather than repair it. "He'd been a customer at our Reston store since it opened," Mr. Wiygul said.

The clunkers program, formally known as the Car Allowance Rebate System, offers subsidies of as much as $4,500 to consumers who trade in older vehicles and buy new, more fuel-efficient models. The program was initially given $1 billion. That money was spent in one week.

The Senate reached a deal to extend the clunkers program Wednesday night, agreeing to vote on a measure Thursday that would add $2 billion to the program, the Associated Press reported.

The House approve a $2 billion extension last week.

For Mr. Wiygul and other mechanics, until now the recession has brought them more customers as people fixed cars rather than go into debt for new ones. He has hired five people and is expanding one of the shops.

Auto dealers who offer the rebates on new cars in exchange for clunkers must agree to "kill" the old models by disabling the engines and shipping the dead vehicle to a junkyard.

The loss of such potential work -- as many as 250,000 vehicles will be destroyed in the program's first round -- prompted Mr. Wiygul to question the federal program's focus on dealers and big business at the expense of the little guy.

"How do we get on the special interests, special treatment bandwagon? How much is it going to cost me and to whom shall I send the check?" he said. "Who picks the winners in this game 'cause obviously the game is fixed."



For the full commentary, see:

GARY FIELDS. "Clunkers Plan Deflates Mechanics." The Wall Street Journal (Thurs., AUGUST 6, 2009): A4.





August 25, 2009

Wikipedia Continues to Gain Respect




(p. B5) Recognizing that the online encyclopedia Wikipedia is increasingly used by the public as a news source, Google News began this month to include Wikipedia among the stable of publications it trawls to create the site.

A visit to the Google News home page on Wednesday evening, for example, found that four of the 30 or so articles summarized there had prominent links to Wikipedia articles, including ones covering the global swine flu outbreak and the Iranian election protests.


. . .


The move by Google News was news to Wikipedia itself. Jay Walsh, a spokesman for the Wikimedia Foundation, said he learned about it by reading an online item on the subject by the Nieman Journalism Lab.

"Google is recognizing that Wikipedia is becoming a source for very up-to-date information," he said, although "it is an encyclopedia at the end of the day."



For the full story, see:

NOAM COHEN. "Google Starts Including Wikipedia on Its News Site." The New York Times Company (Weds., June 22, 2009): B5.

(Note: ellipsis added.)





August 24, 2009

Huge Increase in Money Supply Increases Odds of Inflation




MoneySupplyGraph2009-08-12.gifSource of graph: online version of the WSJ article quoted and cited below.



(p. A15) . . . , starting in early September 2008, the Bernanke Fed did an abrupt about-face and radically increased the monetary base -- which is comprised of currency in circulation, member bank reserves held at the Fed, and vault cash -- by a little less than $1 trillion. The Fed controls the monetary base 100% and does so by purchasing and selling assets in the open market. By such a radical move, the Fed signaled a 180-degree shift in its focus from an anti-inflation position to an anti-deflation position.

The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10 (see chart nearby). It is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless. The currency-in-circulation component of the monetary base -- which prior to the expansion had comprised 95% of the monetary base -- has risen by a little less than 10%, while bank reserves have increased almost 20-fold. Now the currency-in-circulation component of the monetary base is a smidgen less than 50% of the monetary base. Yikes!


. . .


With an increased trust in the overall banking system, the panic demand for money has begun to and should continue to recede. The dramatic drop in output and employment in the U.S. economy will also reduce the demand for money. Reduced demand for money combined with rapid growth in money is a surefire recipe for inflation and higher interest rates. The higher interest rates themselves will also further reduce the demand for money, thereby exacerbating inflationary pressures. It's a catch-22.

It's difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed's actions because, frankly, we haven't ever seen anything like this in the U.S. To date what's happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits. Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn't a pretty picture.



For the full commentary, see:

ARTHUR B. LAFFER. "Get Ready for Inflation and Higher Interest Rates; The unprecedented expansion of the money supply could make the '70s look benign." The Wall Street Journal (Weds., June 10, 2009): A15.

(Note: ellipses added.)





August 23, 2009

Wealth Consists Mainly in Ideas




(p. 67) Through all the centuries of man, there has recurred this same morbid misunderstanding of the nature of wealth and the wealth of nations. Always wealth is seen as something solid and calculable: to be seized and held, clutched and hoarded, measured and inventoried, amassed and monopolized. In the age of imperialism, it was imagined to consist in land and the armies that could acquire it; in the mercantilist era, it was recognized as bullion, gained through a favorable balance of trade; in every period, men have fawned over gems and glitter; in the modern age, fossil fuels and strategic minerals have seemed to be the open sesame, but seekers of wealth still fumble for gold and baubles, and real estate as well.

All bespeak the materialistic fallacy, a fixation of leftists, but a shibboleth also for much of the intelligentsia of capitalism: the idea that wealth is material and collectible, finite and definable, subject to measurement and inventory, to entropy and exhaustion. The way to get rich is to find some precious substance and (p. 68) hold It. Its price will inevitably rise in time as its quantity declines with use. This is the fantasy through which Pierre Trudeau was bankrupting Canada in the early 1980s and the Arab leaders were impoverishing the world and destroying their own future.

Wealth consists not chiefly in things but in thought: in the ideas and applications that confer value to what seems useless to the uninformed. The Arab leaders should learn that they can best enhance the value of oil--and the wealth of oil-producing nations--by lowering its price and enlarging its uses. This is the central rule of riches, understood by every major titan of wealth, from John D. Rockefeller and Henry Ford to the entrepreneurs of modern computers and the industrialists of contemporary Japan. Each gained his fortune not by increasing the price of his product but by drastically dropping it, bringing it within the reach of the creative uses and ideas of millions, and thus vastly enlarging its total value and market.



Source:

Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.





August 22, 2009

"The Evidence of His Eyes Overturned 2,000 Years of Accepted Wisdom"





GalileoShowsVenetianSenators.jpg". . ., the Italian astronomer shows the satellites of Jupiter to Venetian senators in this 1882 illustration." Source of illustration and caption: online version of the WSJ article quoted and cited below.


(p. A9) A mathematician and experimental physicist, Galileo, however, immediately recognized that what he could see of Venus, Jupiter and the moon through his telescope offered crucial evidence that the sun, not Earth, was the center of our solar system. The evidence of his eyes overturned 2,000 years of accepted wisdom about cosmology in which philosophers had conceived the night sky as a system of crystalline spheres.

Moreover, Galileo quickly shared his observations with scientists throughout Europe by openly publishing his data.

"He wrought a change so fundamental for science and for humanity," says Munich astronomer Pedro Russo, who is global coordinator of the International Year of Astronomy. "For the first time, we realized we were not the center of the universe."

But his insistence on contradicting traditional cosmology led to his arrest and trial by the Roman Catholic Church. He was forced to recant his views and imprisoned for life. The Vatican did not formally admit that Galileo was correct until 1992. Now Vatican authorities are planning a statue in his honor.

During his life, Galileo is known to have built at least 100 telescopes, mostly as ornate presentation gifts for his patrons -- the powerful Medici family of Florence. Only one is known to survive with its optics intact -- the humble device now on show at the Franklin Institute.

"We assume it was personally used by Galileo," says Paolo Galluzzi, director of the science museum in Florence, which loaned the telescope for the exhibit. "Only this one was found among his property at his death. We believe that this is one of the major tools of his work."


. . .


"Science is fundamentally about establishing truth for yourself," says Dr. Pompea in Arizona. "People can make observations, take data and establish for themselves the nature of the universe. They don't have to take it from someone else or read it in a book."

Like Galileo, "they can see it."



For the full story, see:

ROBERT LEE HOTZ. "Galileo's Discoveries, 400 Years Later, Still Open Eyes
Astronomer's Telescope, on View Outside Italy for the First Time, Helped Expand Perceptions of the Universe." The Wall Street Journal (Fri., APRIL 10, 2009): A9.

(Note: ellipsis added.)


GalileoGalilei2009-08-12.gif










"Galileo Galilei." Source of image and caption: online version of the WSJ article quoted and cited above.






August 21, 2009

"The Voluntary Slaves of a 'Compassionate' Government"




Thomas Szaz has been defending liberty for many decades. It is good to see him still eloquently at it:


(p. A13) If we persevere in our quixotic quest for a fetishized medical equality we will sacrifice personal freedom as its price. We will become the voluntary slaves of a "compassionate" government that will provide the same low quality health care to everyone.


For the full commentary, see:

THOMAS SZASZ. "Universal Health Care Isn't Worth Our Freedom." Wall Street Journal (Weds., JULY 15, 2009): A13.





August 20, 2009

Penn Government Protects Us from "Little Old Ladies Baking Pies"




StCeciliaFishFry2009-08-12.jpgStCeciliaFishFryTables2009-08-12.jpg





"After a state crackdown forbidding the sale of homemade pies, members of St. Cecilia Catholic Church in Rochester, Pa., proceeded with their annual Lenten fish fries anyway. The pie flap helped draw healthy crowds." Source of photos and caption: online version of the WSJ article quoted and cited below.








(p. A1) ROCHESTER, Pa. -- On the first Friday of Lent, an elderly female parishioner of St. Cecilia Catholic Church began unwrapping pies at the church. That's when the trouble started.

A state inspector, there for an annual checkup on the church's kitchen, spied the desserts. After it was determined that the pies were home-baked, the inspector decreed they couldn't be sold.

"Everyone was devastated," says Josie Reed, a 69-year-old former teacher known for her pumpkin and berry pies.

. . .

The disappearance of Mary Pratte's coconut-cream pie, Louise Humbert's raisin pie and (p. A10) Marge Murtha's "farm apple" pie from the fish-fry fund-raisers sparked an uproar that spread far beyond the small parish.

. . .

(p. A10) The ruckus at St. Cecilia's could lead to changes in Pennsylvania state law. State Sen. Elder Vogel Jr. has drafted legislation aimed at allowing nonprofits, including churches, to serve food prepared at home. That would cover fish fries held during Lent. "Once again, you've got the heavy hand of government coming in," he says. "These ladies bake pies, out of the goodness of their hearts."

Sen. Vogel, who sits on the state legislature's agriculture committee, says state officials seem willing to change the law. "They have more work on their hands than going after little old ladies baking pies."

The inspector's warning to St. Cecilia's carried no fine. But the inspector has raised some hackles by telling the women that the state would allow them to bake pies for sale in their own kitchens, if they paid $35 to have them inspected as well.

"Well, that's just ridiculous," says Ms. Humbert, 73, one of the parish bakers. She has been bringing raisin pies to the church for more than a decade and says she thought the women's kitchens "are probably a lot cleaner than some restaurants," but might not meet "nitpicky" requirements.

Ms. Pratte, 88, has been attending St. Cecilia's since she was a girl. She missed a step and spent two and a half weeks in the hospital earlier this year. She said it would be "kind of hard" to get to the church to do any baking. "I'd rather just make them at home," she says of her coconut-cream pies. Others say it's difficult to bake good pies in a strange oven.

Thanks to the publicity caused by the crackdown, the St. Cecilia's fish fries attracted more visitors than ever before.



For the full story, see:

KRIS MAHER. "Pennsylvania Pie Fight: State Cracks Down on Baked Goods; Inspector Nabs Homemade Desserts At St. Cecilia Church's Lenten Fish Fry." The Wall Street Journal (Fri., APRIL 10, 2009): A1 & A10.

(Note: ellipses added.)





August 19, 2009

"Established Experts Flee in Horror to All Available Caves and Cages"




(p. 96) While science and enterprise open vast new panoramas of opportunity, our established experts flee in horror to all available caves and cages, like so many primitives, terrified by freedom and change.


Source:

Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.





August 18, 2009

Wattenberg's Corporate Graveyard Illustrates Creative Destruction








The clip is the famous corporate graveyard scene from Ben Wattenberg's 1977 "In Search of the Real America: A Challenge to the Chorus of Failure and Guilt." The scene appears in the first of 13 episodes, the episode called "There's No Business Like Big Business" which received the Tuck Award for the Advancement of Economic Understanding. The episode was produced and written by Austin Hoyt.

The corporate graveyard scene illustrates that under entrepreneurial capitalism, companies prosper that innovate in better serving the consumer.



URL address for graveyard scene video clip:

http://www.youtube.com/watch?v=DDMNYLiBexo


Wattenberg discussed the "In Search of the Real America" program, and the graveyard scene, in his recent book Fighting Words:

(p. 307) The central point of the program was that if big American corporations didn't compete effectively, they suffer, and many would go out of business.

The producers had the wonderful idea of a visual of a graveyard on a foggy night, with headstones made from papier-mâché and a smoke machine providing the fog. I walked through the mock cemetery in a raincoat and read off the names of corporate tombstones, which included Central Leather (the seventeenth largest company in 1917), International Mercantile Marine (the eleventh largest in 1917), as well as failures like Baldwin Locomotive Works, American Woolen, Packard Motor Car, International Match, Pierce Petroleum, Curtiss-Wright, United Verde Mining, and Consolidation Coal.2 When we showed the Central Leather tombstone, a sound effect mooed; behind International Mercantile Marine's, a steamship horn bellowed (I love shtick).


. . .


2 The program was based on an article by James Michaels, editor of Forbes. For many years, people would come up to me in airports, recalling that one scene and complementing me on the program.



Source:

Wattenberg, Ben J. Fighting Words: A Tale of How Liberals Created Neo-Conservatism
. New York: Thomas Dunne Books, 2008.

(Note: ellipsis added.)

(Note: I have corrected a few obvious errors involving the omission and placement of commas in the list of companies in the text of Wattenberg's Fighting book.)



. . . , Mr. Michaels graduated from Harvard in 1943 with a bachelor's degree in economics.

Source:

RICHARD PÉREZ-PEÑA. "James Michaels, Longtime Forbes Editor, Dies at 86." The New York Times (October 4, 2007).

(Note: of course, Joseph Schumpeter was a member of the Harvard faculty in 1943, and published the first edition of Capitalism, Socialism and Democracy in 1942.)



FightingWordsBK.jpg















Source of book image: http://media.us.macmillan.com/jackets/500H/9780312382995.jpg






August 17, 2009

Environmental Hypocrites




(p. C14) KUALA LUMPUR, Malaysia -- European consumer groups and nongovernmental organizations have said they want environmentally friendly palm oil. Malaysian producers of palm oil that have made the switch are discovering that it is still a hard sell.

The price premium for palm oil certified as produced through sustainable plantation practices has been shrinking since the first eco-friendly palm oil was shipped to European markets last November, and producers say it may need to disappear if they are to regain business in the key European Union market.

Producers say the difficulty in selling higher-priced sustainable palm oils highlights the double standards of those who criticize the industry but buy the cheaper, uncertified oil that they say is harming the environment.



For the full story, see:

SHIE-LYNN LIM. "Backers Don't Buy 'Friendly' Palm Oil." Wall Street Journal (Weds., JULY 15, 2009): C14.





August 16, 2009

Richard Langlois on Why Capitalism Needs the Entrepreneur




DynamicsOfIndustrialCapitalismBK.jpg
















Source of book image: http://www.amazon.com/Dynamics-Industrial-Cpitalism-Schumpeter-Lectures/dp/0415771676/ref=sr_11_1?ie=UTF8&qid=1204828232&sr=11-1



Schumpeter is sometimes viewed as having predicted the obsolescence of the entrepreneur, although Langlois documents that Schumpeter was always of two minds on this issue.

Langlois discusses Schumpeter's ambivalence and the broader issue of the roles of the entrepreneur and the corporation in his erudite and useful book on The Dynamics of Industrial Capitalism. He concludes that changing economic conditions will always require new industrial structures, and the entrepreneur will always be needed to get these new structures built.

(I have written a brief positive review of the book that has recently appeared online.)



Reference to Langlois' book:

Langlois, Richard N. The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy. London: Routledge, 2006.


Reference to my review of Langlois' book:

Diamond, Arthur M., Jr. "Review of Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy." EH.Net Economic History Services, Aug 6 2009. URL: http://eh.net/bookreviews/library/1442


Apparently Langlois likes my review:

http://organizationsandmarkets.com/2009/08/07/another-nanosecond-of-fame/




LangloisRichard2009-08-12.jpg




"Richard N. Langlois." Source of photo and caption: http://www.clas.uconn.edu/facultysnapshots/images/langlois.jpg






August 15, 2009

Economists, Planners and Politicians Inflicted Iatrogenic Illness on Economy




In the passage below, Gilder was writing of the 1970s, 1980s and 1990s. But sadly, iatrogenic illness is of more than mere historical interest.

(p. 49) In recent decades, the U.S. economy has suffered from a combination of hypochondria and iatrogenic illness. The hypochondria stems from spurious statistics and deceptive anecdotes and erroneous theories of American decline. It results in a period of fear and anxiety, propagated by the media, measured in public opinion polls, and enhanced by alarmist demagoguery. Iatrogenic illnesses are diseases caused by the doctor--in this instance by hundreds of economic Ph.D.s, government planners, and politicians who have responded to the pangs of hypochondria by inflicting thousands of real cuts on the entrepreneurs who make (p. 50) the economy go, as if, like the physicians of the Middle Ages, the experts believe in bleeding the patient as a way of restoring him to productive health.


Source:

Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.





August 14, 2009

Trinity College Tries to Renege on Deal with Donor




Gunderson_Gerald.jpg









Gerald Gunderson. Source of photo: http://www.yorktownuniversity.com/faculty/gunderson.html



Gerald Gunderson, highlighted in the story quoted below, gave me some useful comments on my book project Openness to Creative Destruction at the April 2009 meetings of the Association of Private Enterprise Education.

Battles such as the one described below are easier to forgo than to fight. Gunderson has guts.


(p. A1) In one previously undisclosed fight, Trinity College in Connecticut is facing government scrutiny for its plan to spend part of a $9 million endowment from Wall Street investing legend Shelby Cullom Davis.

Trinity's Davis professor of business, Gerald Gunderson, says he believed the plan, which would have funded scholarships for international students, violated the wishes of the late Mr. Davis. He alerted the Connecticut attorney general's office. Then, Mr. Gunderson said in notes submitted to the agency, Trinity's president summoned him to the school's cavernous Gothic conference room, where he called the professor a "scoundrel" and threatened not to reappoint him.

Trinity said some of Mr. Davis's family approved of the plan but it is now coming up with a new one, and declined to discuss the meeting.


. . .


(p. A14) The clash over the Davis gift has simmered on Trinity's quiet campus of 2,200 students. Founded in 1823, the liberal-arts college has Episcopalian roots and Gothic architecture patterned after British universities.

In 1976, the school accepted a $750,000 gift from Mr. Davis, founder of a New York money-management firm who made a $900 million fortune investing in insurance stocks. Mr. Davis was a major benefactor to Wellesley College, Columbia University, Tufts University and his own alma mater, Princeton. But he had a personal connection to Trinity: His son-in-law was a graduate of the school and its campus overlooks downtown Hartford, an insurance hub.

In 1981, Trinity President Theodore D. Lockwood wrote to Mr. Davis that the fund, by then $1.6 million, was big enough to be tapped to create a Shelby Cullom Davis Professorship of American Business and Economic Enterprise. The letter listed several related activities, such as campus visits from business leaders. Mr. Lockwood also sought flexibility to use the money as the school saw fit "as conditions evolved and opportunities arose."

In a return letter, Mr. Davis approved the professorship and activities Mr. Lockwood specified. But he rejected any other leeway. "It is my wish that the funds and income from the Endowment be used for the various purposes you have described...and for no other purposes."

Trinity tapped Mr. Gunderson, an economic historian who shared Mr. Davis's conservative political philosophy, to be the Davis professor.

The Davis fund grew beyond the needs of meeting Mr. Gunderson's $155,000-a-year salary. By 2007, it reached $13.5 million, or 3% of Trinity's total endowment, and generated more than $500,000 a year in income. After recent market declines, the fund is now estimated at $9 million.

Mr. Gunderson, 68 years old, says he complained for years that the school was starving the program and had rejected his frequent requests to add another full-time professor and a business-executive-in-residence program. The letter from Mr. Lockwood provides for the creation of a single professorship, but it doesn't explicitly rule out adding another.

Mr. Gunderson says he suspects that liberal academics at Trinity have blocked these plans and have little interest in Mr. Davis's vision. Mr. Gunderson, who is treasurer of the free-market nonprofit Yankee Institute, says some professors opposed his position in the 1970s in an economics department whose courses often stressed the downside of capitalism.


. . .


Last April, Trinity's current president, James F. Jones Jr., sent Mr. Gunderson an email saying he had been looking for ways to use the "enormous" Davis fund to "benefit the College in ways different from merely watching the endowment continue to balloon because of the original strictures." Mr. Jones said he had approached some Davis family members about using the money for financial aid for foreign students through another program the family had helped fund.

Mr. Gunderson replied that the college had entered into a binding contract with Shelby Cullom Davis, not his family. "Simply wishing things were different or saying that someone thinks it is a good idea is not sufficient and will not stand a legal challenge," he wrote.

Following that exchange, Kathryn W. Davis, the donor's 102-year-old widow, signed a document endorsing the use of her husband's gift for the scholarships. But in an interview, she said the school hadn't explained the restrictions her husband had outlined in his 1981 letter to the school, and said the endowment "should be used as my husband wished."

The couple's son, Shelby M.C. Davis, and grandson, Christopher C. Davis, both successful money managers, signed off on the fund's use for scholarships.

Diana Davis Spencer, the donor's daughter, says she only recently heard about the plan from Mr. Gunderson and is angry that Trinity didn't contact her. Ms. Spencer, whose own philanthropy focuses on entrepreneurship, says her father would have opposed any change to the endowment's mission. The university is "morally incorrect" and its plan "undermines donors' confidence," she says.

Trinity's Mr. Joyce says the school believed key members of the family had been briefed.

After the April email exchange, Mr. Gunderson's lawyer contacted the Connecticut attorney general's office, which began its review. In the fall, Mr. Gunderson looked through financial data that the school had filed with the attorney general and noticed that about $200,000 of endowment money had been used to fund an internship program for college students over the past five years.

Mr. Gunderson says he was concerned in part because the school, facing a budget crunch, had tapped other restricted endowment money in 2004 but returned it after a faculty revolt. Trinity confirms this episode.

Mr. Joyce said Trinity this month reimbursed the Davis endowment for $191,337 spent on the internship program, though he said the original agreement still permits the school to spend a small amount annually on the initiative.

On Oct. 20, Mr. Jones, Trinity's president, called Mr. Gunderson to the conference-room meeting. According to the professor's notes, submitted to the attorney general, Mr. Jones called him "a liar and a bully," threatened not to reappoint him and told him not speak to any other administrators. The notes said the president insisted on approving future spending from the Davis fund "down to a box of paperclips."

Mr. Joyce, who said Mr. Jones wouldn't be available for comment, declined to discuss the meeting. Mr. Joyce says he would be "very surprised" if Mr. Gunderson's contract weren't renewed when it comes up in July 2010.

In a February letter, the attorney general's office told Trinity it could find no evidence that Mr. Davis intended the college or his family to have discretion to direct income from the endowment to purposes "other than the study and promotion of the economic theories of the free enterprise system."

Mr. Joyce says Trinity scuttled its scholarship plan. The school intends to submit a new proposal to the attorney general and the Davis family on how it would spend excess Davis funds.

The attorney general, Richard Blumenthal, says he will consider the proposal. But he cautioned that colleges, despite financial pressures, can't stray from donors' intent: "There's a vastly increasing temptation for schools to fill gaps or even launch new initiatives using money that was meant for another purpose."



For the full story, see:

JOHN HECHINGER. "New Unrest on Campus as Donors Rebel." Wall Street Journal (Thurs., April 23, 2009): A1 & A14.

(Note: ellipses added.)


Among Professor Gunderson's publications is:

Gunderson, Gerald A. Wealth Creators: An Entrepreneurial History of the United States. 1st ed. New York: E.P. Dutton, 1989.





August 13, 2009

Amazon Rebels Against Hawaii Tax




After Amazon's rebellion, summarized in the quote below, the Governor of Hawaii vetoed the tax, and Amazon has now invited its former affiliates to rejoin the program.

Lesson: sometimes entrepreneurial enterprise can fight the government, and win.


(p. B7) Amazon.com Inc. has informed its marketing affiliates in Hawaii that it is ending its business with them to avoid collecting sales tax in the state.

Lawmakers in Hawaii, following in the footsteps of North Carolina and Rhode Island, have passed legislation that would require companies to collect sales tax if they have marketing affiliates in the state. Affiliate marketers run blogs or Web sites and get a sales commission by featuring links to outside e-commerce sites.



For the full story, see:

GEOFFREY A. FOWLER. "Amazon Cuts Ties to Affiliates in Hawaii." Wall Street Journal (Weds., JULY 1, 2009): B7.





August 12, 2009

McDonald's Entrepreneur Ray Kroc Wrote Useful Autobiography




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Source of book image: http://media.us.macmillan.com/jackets /500H/9780312929879.jpg (Note: the image is of a more recent edition of the book than the one whose source information is given below. I believe the main body of the editions is the same, but they differ in preface and afterword.)



Ray Kroc was one of the most famous entrepreneurs of the second half of the 20th century, credited with building McDonald's. Kroc is not my favorite entrepreneur, but his story as portrayed in his autobiography does contain some observations that are useful for suggesting, or testing, generalizations about entrepreneurship.

One of them is suggested by the title: the importance of hard work.

Another is that if you have the right attitude, work hard (and have a bit of luck) success can come later in life (he was 52 when he met the McDonald brothers).

In some future entries to the blog, I'll quote a few passages from the book that I found especially interesting.


Reference to book discussed:

Kroc, Ray. Grinding It Out: The Making of McDonald's. Chicago: Henry Regnary Company, 1977.





August 11, 2009

Economists Better at Measuring Destruction than Creativity




(p. 49) As entrepreneurs accelerate the processes of creative destruction that impel all economic advance, the economists measure the destruction, but not the creativity. They see the sinking value of existing capital but neglect the new ideas, hopes, enthusiasms, and plans of entrepreneurs.


Source:

Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.





August 10, 2009

Success Came Late to Author of Wizard of Oz




FindingOzBK.jpg















Source of book image: online version of the WSJ review quoted and cited below.



I remember a conversation with the late labor economist Sherwin Rosen on the substantial decline in research productivity of economists as they age. My memory is that he said the decline usually wasn't because of inability, but because, at some point, the older economists stop trying.

I think there's some truth to that. The belief that it is too late to succeed, can lead people to stop trying, and thereby make the prediction self-fulfilling.

Fortunately, L. Frank Baum kept trying:


(p. A15) If L. Frank Baum had been listed on the stock exchange in 1900, his shares would have been trading near historic lows. The soon-to-be famous author of "The Wonderful Wizard of Oz" had at that point failed at a long series of energetic attempts to find a career. At 44, Baum had already been a chicken farmer, an actor, a seller of machinery lubricants, a purveyor of novelty goods and a newspaper publisher. All his life he'd written lively prose -- plays, ads, columns -- but most of it seemed to go nowhere.

Then, suddenly, it did. The story of a girl named Dorothy who with her little dog, Toto, travels to the wondrous land of Oz burst from Baum's pencil, almost taking him by surprise. "The story really seemed to write itself," he told his publisher. "Then, I couldn't find any regular paper, so I took anything at all, including a bunch of old envelopes." Turned into a proper book with defining illustrations by W.W. Denslow, the story most of us know as "The Wizard of Oz" was an immediate sensation in 1900. In a review, the New York Times commended it, saying that it was "ingeniously woven out of commonplace material." Baum would produce 13 sequels, though none had quite the sparkle of the first.



For the full review, see:

JOHN STEELE GORDON. "Books; Inventing a New World; The men who engineered the astonishing emergence of the modern age." Wall Street Journal (Sat., April 11, 2009): W8.


The book being reviewed, is:

Schwartz, Evan I. Finding Oz: How L. Frank Baum Discovered the Great American Story. Boston, MA: Houghton Mifflin Harcourt, 2009.





August 9, 2009

Democrats Continue Earmarks for Those Who Donated to Their Campaigns




(p. A5) WASHINGTON -- A House panel approved a big Pentagon spending bill this week that included nearly 150 items tucked in by lawmakers on behalf of companies and other entities whose employees donated to their campaigns.

The Democratic Congress and President Barack Obama swept into power on a promise to reform the process of lawmakers trying to dictate in detail how funds are spent, known as "earmarks." When Mr. Obama signed a spending bill for the current fiscal year in March, he said the earmark-laden legislation should be an "end to the old way of doing business, and the beginning of a new era of responsibility and accountability."

But as lawmakers work their way through spending bills for the next fiscal year, which begins Oct. 1, earmarks appear alive and well -- including those written for companies, foundations, and universities whose employees and political-action committees gave money to the campaigns of congressmen doing the earmarking.

The $636.3 billion 2010 defense-spending bill passed Wednesday by the House Appropriations Committee includes more than 1,100 earmarks, totaling more than $2.7 billion.

Members of the Defense Appropriations Subcommittee -- the 18 members of Congress who wrote the bill -- secured a total of 148 earmarks worth $461 million for entities whose employees have given $822,765 in campaign donations to those lawmakers since 2007. The data were compiled by the nonpartisan Taxpayers for Common Sense, which analyzed nearly 400 earmarks.



For the full story, see:

JAKE SHERMAN. "Bill Shows Earmarks Are Alive and Well." Wall Street Journal (Sat., JULY 25, 2009): A5.





August 8, 2009

Experiments Suggest We Can Live Longer




RhesusMonkeysLongevity2009_07_11.jpg"Rhesus monkeys, 27-year-old Canto, left, and Owen, 29, are among the oldest surviving subjects in a study of the links between diet and aging." Source of photo and caption: online version of the WSJ article quoted and cited below.


(p. A3) A study published Wednesday found that rapamycin, a drug used in organ transplants, increased the life span of mice by 9% to 14%, the first definitive case in which a chemical has been shown to extend the life span of normal mammals.

Anti-aging researchers also expect a second study, to be released this week, will show that sharply cutting the calorie intake of monkeys extends their lives substantially. The experiment is said to be the first technique shown to retard aging in primates.

The prospect of a reliable human longevity pill is still distant. A commentary released with the rapamycin study strongly cautioned against taking the drug to prolong life because of potentially deadly side effects. Rapamycin suppresses the immune system and carries strong warnings about the resulting risk of infections and death.

But the mouse and monkey findings appear to mark the most substantial scientific progress yet in the search for ways to extend human life spans -- once viewed as a fringe area of study.

"It's time to break out of our denial about aging," said Aubrey de Grey, a British gerontologist who has drawn controversy for his suggestions on how to forestall death. "Aging is, unequivocally, the major cause of death in the industrialized world and a perfectly legitimate target of medical intervention."



For the full story, see:

KEITH J. WINSTEIN. ""Two Mammals' Longevity Boosted; Transplant Drug Lengthens Lives of Mice, and Fewer Calories Benefit Monkeys." The Wall Street Journal (Thurs., JULY 10, 2009): A3.



LongerLivesBarChart2009_07_11.gif

















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





August 7, 2009

"The Single Most Important Question for the Future of America Is How We Treat Our Entrepreneurs"




(p. 13) The single most important question for the future of America is how we treat our entrepreneurs. If we smear, harass, overtax, and overregulate them, our liberal politicians will be shocked and horrified to discover how swiftly the physical tokens of the means of production collapse into so much corroded wire, eroding concrete, scrap metal, and jungle rot.


Source:

Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.





August 6, 2009

"The Most Remarkable Period of Practical Inventiveness in World History"




InventingNewWorldBK.jpg













Source of book image: online version of the WSJ review quoted and cited below.




(p. W8) There are technologies and then there are technologies. Some are trivial, such as Ziploc plastic bags. They're handy, to be sure, but they don't change the world. Some are extraordinarily simple but profound, such as the stirrup, which came along only after men had been riding horses for well over a thousand years. Nothing more than a ring of metal hung from a leather strap, the stirrup made cavalry the dominant force on the European battlefield and therefore made the mounted knight the dominant force in European society for several hundred years.

As Gavin Weightman's "The Industrial Revolutionaries" reminds us, inventions on the level of the stirrup's importance seemed to come every other month during the late 18th and 19th centuries -- what Mr. Weightman calls "the most remarkable period of practical inventiveness in world history."

When Thomas Hobbes famously wrote in the 17th century that the great majority of the population led lives that were "nasty, brutish and short," he was describing an agrarian society that was, in its essence, unchanged since the advent of agriculture about 10,000 years earlier. Ownership of land was the basis of wealth. Hobbes had no reason to think that the situation would change any time soon. But it did: A rapidly accelerating development of world-transforming technologies, subsumed under the rubric of "the Industrial Revolution," began in Britain and within 100 years had molded the modern world.


. . .

The Industrial Revolution revolutionized more than just the global economy: It transformed politics and society. A world divided between a handful of aristocrats and millions of peasants was transformed into a world dominated by the middle class, where wealth is widely distributed and the franchise universal.



For the full review, see:

JOHN STEELE GORDON. "Books; Inventing a New World; The men who engineered the astonishing emergence of the modern age." Wall Street Journal (Sat., April 11, 2009): W8.

(Note: ellipsis added.)


The book being reviewed, is:

Weightman, Gavin. The Industrial Revolutionaries: The Making of the Modern World 1776-1914. New York: Grove Press, 2009.





August 5, 2009

Property Rights Would Allow American Indians to Prosper




(p. A19) President Barack Obama courted the Indian vote. During the campaign, he visited Montana's Crow Reservation last May and was adopted into the tribe under the Crow name "One Who Helps People Throughout the Land." There he said, "Few have been ignored by Washington for as long as Native Americans," and vowed to improve their economic opportunities, health care and education.

Two vital steps in this direction are to strengthen property rights and the rule of law on reservations. Virtually every study of international development shows that both of these are crucial to prosperity. Indian country is no different. The effect of insecure property rights is evident on a drive through any western reservation. When you see 160 acres overgrazed and a house unfit for occupancy, you can be sure the title to the land is held by the federal government bureaucracy.


. . .

My own research, published in the Journal of Law and Economics, shows that for tribes with state jurisdiction, per capita income grew 20% faster between 1969 and 1999 than for their counterparts under tribal court jurisdiction. All Indians are less likely than whites to get home loans, but the likelihood of a loan rejection falls by 50% on reservations under state jurisdiction.


. . .

Mr. Obama's rallying cry was "change," and that is exactly what he needs to bring about in Indian policy. The first Americans deserve to be freed from the bureaucratic shackles that have made them victims, and allowed to establish property rights and legal systems that can make them victors.



For the full commentary, see:

TERRY L. ANDERSON. "OPINION; Native Americans Need the Rule of Law." The Wall Street Journal (Mon., MARCH 16, 2009): A19.

(Note: ellipses in original.)





August 4, 2009

"It Is No Time to Concede"




BeckerGaryCartoon2009_07_10.jpg






Gary Becker. Source of caricature: online version of the WSJ interview quoted and cited below.




(p. A9) "What can we do that would be beneficial? [One thing] is lower corporate taxes and businesses taxes and maybe taxes in general. Particularly, you want to lower the tax on capital so you raise the after-tax return to investing and get more investing going on."


. . .


What Mr. Becker has seen over a career spanning more than five decades is that free markets are good for human progress. And at a time when increasing government intervention in the economy is all the rage, he insists that economic liberals must not withdraw from the debate simply because their cause, for now, appears quixotic.

As a young academic in 1956, Mr. Becker wrote an important paper against conscription. He was discouraged from publishing it because, at the time, the popular view was that the military draft could never be abolished. Of course it was, and looking back, he says, "that taught me a lesson." Today as Washington appears unstoppable in its quest for more power and lovers of liberty are accused of tilting at windmills, he says it is no time to concede.



For the full interview, see:

MARY ANASTASIA O'GRADY. "OPINION: THE WEEKEND INTERVIEW; Now Is No Time to Give Up on Markets." The Wall Street Journal (Sat., MARCH 21, 2009): A9.

(Note: ellipsis added.)



Gary Becker_2009_07_10.jpg Gary Becker. Source of photo: http://larryevansphotography.com/Gary%20Becker_2.jpg






August 3, 2009

People Do Not Appreciate the Entrepreneur's Accomplishment




(p. A17) Bertrand de Jouvenel, writing in 1951 about popular attitudes toward income inequality in "The Ethics of Redistribution":

The film-star or the crooner is not grudged the income that is grudged to the oil magnate, because the people appreciate the entertainer's accomplishment and not the entrepreneur's, and because the former's personality is liked and the latter's is not. They feel that consumption of the entertainer's income is itself an entertainment, while the capitalist's is not, and somehow think that what the entertainer enjoys is deliberately given by them while the capitalist's income is somehow filched from them.


Source:

"Notable & Quotable." The Wall Street Journal (Thurs., MARCH 5, 2009): A17.

(Note: italics in original.)


Original source of de Jouvenel quote:

Jouvenel, Bertrand de. The Ethics of Redistribution. Indianapolis, IN: Liberty Fund Inc., 1990 (originally published by Cambridge University Press in 1951).






August 2, 2009

"Eminent Domain as an Instrument Against the Weak"




LittlePinkHouseBK.jpg















Source of book image: http://www.dichosbooks.com/images/33353510.jpg



(p. A13) Roughly 70% of Americans own their own homes, a statistic that goes a long way toward explaining why the Supreme Court's ruling in 2005 in Kelo v. City of New London was so widely reviled. Before Kelo, most Americans probably took it for granted that their home was their castle, protected by the Constitution from arbitrary seizure by government. The Fifth Amendment's takings clause says: " . . . nor shall private property be taken for public use, without just compensation."

In Kelo, a majority of five justices came up with an extremely broad interpretation of "public use." The high court's four liberal members, joined by the ever-changeable Anthony Kennedy, ruled that government has the right to seize a private home for virtually any purpose -- including handing it over to private developers.


. . .


"Little Pink House" is a modern morality tale. It shows how the politically powerful can use eminent domain as an instrument against the weak. Justice Sandra Day O'Connor said it best in her dissent in Kelo: "The fallout from this decision will not be random." She predicted that "the government now has license to transfer property from those with fewer resources to those with more." The beneficiaries, she wrote, are likely to be those citizens "with disproportionate influence and power in the political process."

Owning property is one of Americans' most basic constitutional rights. It's too bad Susette Kelo didn't get to exercise hers.



For the full review, see:

MELANIE KIRKPATRICK. "Bookshelf; Evicted, But Not Without a Fight; The government took her home. The Supreme Court approved." Wall Street Journal (Mon., Jan. 26, 2009): A13.

(Note: ellipsis in first paragraph quote was in original; ellipsis between paragraphs was added.)


The book being reviewed, is:

Benedict, Jeff. Little Pink House. New York: Grand Central Publishing, 2009.






August 1, 2009

Leading Entrepreneurs "Are Chosen for Performance Alone"




(p. 5) Far from being greedy, America's leading entrepreneurs-- with some unrepresentative exceptions--display discipline and self-control, hard work and austerity that excel that in any college of social work, Washington think tank, or congregation of bishops. They are a strange riffraff, to be sure, because they are chosen not according to blood, credentials, education, or services rendered to the establishment. They are chosen for performance alone, for service to the people as consumers.


Source:

Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.






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