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April 30, 2012

Physicist Says "Financial Models Are Only Mediocre Metaphors"


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

(p. A19) Trained as a physicist, Emanuel Derman once served as the head of quantitative analysis at Goldman Sachs and is currently a professor of industrial engineering and operations research at Columbia University. With "Models Behaving Badly" he offers a readable, even eloquent combination of personal history, philosophical musing and honest confession concerning the dangers of relying on numerical models not only on Wall Street but also in life.

Mr. Derman's particular thesis can be stated simply: Although financial models employ the mathematics and style of physics, they are fundamentally different from the models that science produces. Physical models can provide an accurate description of reality. Financial models, despite their mathematical sophistication, can at best provide a vast oversimplification of reality. In the universe of finance, the behavior of individuals determines value--and, as he says, "people change their minds."

In short, beware of physics envy. When we make models involving human beings, Mr. Derman notes, "we are trying to force the ugly stepsister's foot into Cinderella's pretty glass slipper. It doesn't fit without cutting off some of the essential parts." As the collapse of the subprime collateralized debt market in 2008 made clear, it is a terrible mistake to put too much faith in models purporting to value financial instruments. "In crises," Mr. Derman writes, "the behavior of people changes and normal models fail. While quantum electrodynamics is a genuine theory of all reality, financial models are only mediocre metaphors for a part of it."

For the full review, see:

BURTON G. MALKIEL. "BOOKSHELF; Physics Envy; Creating financial models involving human behavior is like forcing 'the ugly stepsister's foot into Cinderella's pretty glass slipper.'" The Wall Street Journal (Weds., December 14, 2011): A19.

The book under review is:

Derman, Emanuel. Models.Behaving.Badly: Why Confusing Illusion with Reality Can Lead to Disaster, on Wall Street and in Life. New York: Free Press, 2011.

April 29, 2012

"In a Garage Pursuing a Dream"

(p. 257) The increase in computer-animated films . . . marked the dawning of a democratic moment in artistic expression and entrepreneurship. Just as technological developments in digital production were (p. 258) opening the door more widely in live-action filmmaking, technology was making computer animation more accessible every year.

Computer animation was still an art form that required talent and intense Commitment; it wasn't within reach of Everyman. The accessibility of its tools, however, brought new possibilities. Where Pixar's early years had required a succession of wealthy patrons--Alexander Schure, George Lucas, and Steve Jobs--an enterprising artist of the early twenty-first century was not so dependent. The hardware and software of an animator's workstation, once the province of major studios and effects houses, could now be had for the cost of a good used car. As Pixar started its new life as a crown jewel of the Walt Disney Co., it was plausible that it would sooner or later have to jockey release dates with a new kind of rival. Or, rather, it would have to face a rival that looked much the way Pixar itself did thirty years earlier, as a group of men and women in a garage pursuing a dream.


Price, David A. The Pixar Touch: The Making of a Company. New York: Alfred A. Knopf, 2008.

(Note: ellipsis added.)

(Note: my strong impression is that the pagination is the same for the 2008 hardback and the 2009 paperback editions, except for part of the epilogue, which is revised and expanded in the paperback. I believe the passage above has the same page number in both editions.)

April 28, 2012

The Danger and Despair of Dark Streets

StreetlightsDarkHighlandPark2012-04-08.jpg""I don't go out to get gas at night. I don't run to any stores. I try to do everything in the daytime and to be back before night falls," said Juanita Kennedy, a resident of Highland Park, Mich." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A11) HIGHLAND PARK, Mich. -- When the sun sets in this small city, its neighborhoods seem to vanish.

In a deal to save money, two-thirds of the streetlights were yanked from the ground and hauled away this year, and the resulting darkness is a look that is familiar in the wide open cornfields of Iowa but not here, in a struggling community surrounded on nearly all sides by Detroit.

Parents say they now worry more about allowing their children to walk to school early in the morning. Motorists complain that they often cannot see pedestrians until headlights -- and cars -- are right upon them. Some residents say they are reshaping their lives to fit the hours of daylight, as the members of the Rev. D. Alexander Bullock's church did recently when they urged him to move up Saturday Bible study to 4 p.m. from the usual 7 p.m.

"It's just too dark," said Mr. Bullock, of Greater St. Matthew Baptist Church. "I come out of the church, and I can't see what's in front of me. What happened to our streetlights is what happens when politicians lose hope. All kinds of crazy decisions get made, and citizens lose faith in the process."

. . .

(p. A16) "The people were basically left in the dark," said DeAndre Windom, who was elected mayor in November. He said the disappearing streetlights were the top concern of residents as he campaigned door to door.

"When you come through at night, it's scary; you have to wonder if anyone is lurking around waiting to catch you off your guard," said Juanita Kennedy, 65, who said she had installed a home security system and undergone training to carry a handgun in the weeks since workmen carried away the streetlight in front of her house. "I don't go out to get gas at night. I don't run to any stores. I try to do everything in the daytime and to be back before night falls."

For the full story, see:

MONICA DAVEY. "Darker Nights as Some Cities Turn Off Lights for Savings." The New York Times (Fri., December 30, 2011): A11 & A16.

(Note: ellipsis added.)

(Note: the online version of the story is dated December 29, 2011, and has the title "Darker Nights as Some Cities Turn Off the Lights.")

April 27, 2012

Climate Scientists "Conspiring to Bully and Silence Opponents"

(p. A15) [In November 2011], 5,000 files of private email correspondence among several of the world's top climate scientists were anonymously leaked onto the Internet. Like the first "climategate" leak of 2009, the latest release shows top scientists in the field fudging data, conspiring to bully and silence opponents, and displaying far less certainty about the reliability of anthropogenic global warming theory in private than they ever admit in public.

The scientists include men like Michael Mann of Penn State University and Phil Jones of the University of East Anglia, both of whose reports inform what President Obama has called "the gold standard" of international climate science, the Intergovernmental Panel on Climate Change (IPCC).

. . .

Consider an email written by Mr. Mann in August 2007. "I have been talking w/ folks in the states about finding an investigative journalist to investigate and expose McIntyre, and his thus far unexplored connections with fossil fuel interests. Perhaps the same needs to be done w/ this Keenan guy." Doug Keenan is a skeptic and gadfly of the climate-change establishment. Steve McIntyre is the tenacious Canadian ex-mining engineer whose dogged research helped expose flaws in Mr. Mann's "hockey stick" graph of global temperatures.

For the full commentary, see:

JAMES DELINGPOLE. "OPINION; Climategate 2.0; A new batch of leaked emails again shows some leading scientists trying to smear opponents." The Wall Street Journal (Mon., November 28, 2011): A15.

(Note: ellipsis added.)

April 26, 2012

NGO Workers Are More Concerned with Following Plan than Achieving Mission


Source of book image: http://www.bibliovault.org/thumbs/978-0-8047-7672-1-frontcover.jpg

In the quote below, "NGO" means "Non-Government Organization," for instance, a philanthropy.

(p. 17) As for the state's representatives, their authority was what Coburn calls a "useful fiction." The district governor wielded his connections to Kabul as best he could, but did not possess great influence, in part because -- in keeping with the most sophisticated state-building methods -- government aid was mainly distributed by locally elected committees. Istalif's police were seen as hapless at best, predatory at worst; Coburn found that villagers were eager to protect him from a local officer. The French soldiers who periodically showed up in the bazaar had little impact, though their presence did become an excuse for keeping women out of the area. But Coburn observed that "no group was less effective at accumulating influence" than the NGO community. The best development experts accomplished little: their turnover was high, and they frequently bestowed their largess on deserving locals -- women, refugees who'd returned from abroad with some education, victims of wartime injuries -- who didn't have the connections or ability to capitalize on their good fortune. NGO workers seemed less concerned with achieving a valuable outcome than with demonstrating to their backers that they had followed a mission plan to the letter.

For the full review, see:

ALEXANDER STAR. "Applied Anthropology." The New York Times Book Review (Sun., November 20, 2011): 16-17.

(Note: the online version of the commentary is dated November 18, 2011, and has the title "Afghanistan: What the Anthropologists Say.")

The book being discussed is:

Coburn, Noah. Bazaar Politics: Power and Pottery in an Afghan Market Town. Stanford Studies in Middle Eastern and Islamic Societies and Cultures. Stanford, CA: Stanford University Press, 2011.

April 25, 2012

Intellectual Property Rights as Refined in Case Law

The questions and answers in court illustrate how case law would approach the issue of refining and reforming intellectual property issues based on concepts of justice, but also on practical issues. (This is from Disney and Pixar lawyer Steve Marenberg questioning Dick Cook in testimony before Judge Clarence Brimmer, Jr. on November 1, 2001, the day before Monsters, Inc. was scheduled to be released.)

(p. 193) Q : So obviously the delay of the film by injunction or otherwise would affect the first weekend and the ability to gain all of the benefits you've gotten by virtue of the tact that November second is the first weekend?

A : It would be a disaster.

Q : And that would affect, then, not only the theatrical performance of the film, but what other markets in the United Sates?

A : Well, it would completely be a snowball effect in a reverse way in that it would certainly put a damper on all of the home video activities, all the DVD activities; in fact, would influence international because international is greatly influenced on how well it does in the United States, and by taking that away, it would definitely, definitely, have a big, big impact on the success of the film.

And furthermore, going further, is that it would take away any of the other ancillary things that happen, you (p. 194) know, whether it would become a television series, whether or not it becomes a piece of an attraction at the parks, whether it becomes a land at the parks, or any of those kinds of things.


Price, David A. The Pixar Touch: The Making of a Company. New York: Alfred A. Knopf, 2008.

(Note: my strong impression is that the pagination is the same for the 2008 hardback and the 2009 paperback editions, except for part of the epilogue, which is revised and expanded in the paperback. I believe the passage above has the same page number in both editions.)

(Note: on p. 190 of the book, Price misspells Marenberg's name as "Marenburg.")

April 24, 2012

Campion Plant Sprouts from 32,000 Year-Old Seed


"OLD DNA; A plant has been generated from the fruit of the narrow-leafed campion. It is the oldest plant by far to be grown from ancient tissue." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. D1) Living plants have been generated from the fruit of a little arctic flower, the narrow-leafed campion, that died 32,000 years ago, a team of Russian scientists reports. The fruit was stored by an arctic ground squirrel in its burrow on the tundra of northeastern Siberia and lay permanently frozen until excavated by scientists a few years ago.

This would be the oldest plant by far that has ever been grown from ancient tissue. The present record is held by a date palm grown from a seed some 2,000 years old that was recovered from the ancient fortress of Masada in Israel.

Seeds and certain cells can last a long term under the right conditions, but many claims of extreme longevity have failed on closer examination, and biologists are likely to greet this claim, too, with reserve until it can be independently confirmed. Tales of wheat grown from seeds in the tombs of the pharaohs have long been discredited. Lupines were germinated from seeds in a 10,000-year-old lemming burrow found by a gold miner in the Yukon. But the seeds, later dated by the radiocarbon method, turned out to be modern contaminants.

. . .

The new report is by a team led by Svetlana Yashina and David Gilichinsky of the Russian Academy of Sciences research center at Pushchino, near Moscow, and appears in Tuesday's issue of The Proceedings of the National Academy of Sciences of the United States of America.

"This is an amazing breakthrough," said Grant Zazula of the Yukon Paleontology Program at Whitehorse in Yukon Territory, Canada. "I have no (p. D4) doubt in my mind that this is a legitimate claim." It was Dr. Zazula who showed that the apparently ancient lupine seeds found by the Yukon gold miner were in fact modern.

For the full story, see:

NICHOLAS WADE. "Dead for 32,000 Years, an Arctic Plant Is Revived." The New York Times (Tues., February 21, 2012): D1 & D4.

(Note: ellipsis added.)

(Note: the online version of the review is dated February 20, 2012.)

April 23, 2012

Wilson's Advice to Conservative Academics: "Be Twice as Productive and Four Times as NIce"

(p. A13) Pat Moynihan once reportedly told Richard Nixon (who was known for his disdain for intellectuals), "Mr. President, James Q. Wilson is the smartest man in the United States. The president of the United States should pay attention to what he has to say."

. . .

At one point in my academic career, I called Jim for advice about how best to navigate the waters of liberal academia when one is openly conservative. "Simple," he told me lightheartedly, "Be twice as productive and four times as nice as your colleagues." It was a formula he himself had followed.

For the full commentary, see:

ARTHUR C. BROOKS. "OPINION; Social Science With a Soul; Life for James Q. Wilson was like a roadside curio shop, full of hidden and unrecognized intellectual treasures.." The Wall Street Journal (Sat., March 3, 2012): C4.

(Note: ellipsis added.)

April 22, 2012

Today Is Tweflth Anniversary of Democrats' Infamous Betrayal of Elián González

GonzalezElianSeizedOn2000-04-22.jpg"In this April 22, 2000 file photo, Elian Gonzalez is held in a closet by Donato Dalrymple, one of the two men who rescued the boy from the ocean, right, as government officials search the home of Lazaro Gonzalez, early Saturday morning, April 22, 2000, in Miami. Armed federal agents seized Elian Gonzalez from the home of his Miami relatives before dawn Saturday, firing tear gas into an angry crowd as they left the scene with the weeping 6-year-old boy." Source of caption and photo: online version of JENNIFER KAY and MATT SEDENSKY. "10 years later, few stirred by Elian Gonzalez saga." Omaha World-Herald (Thurs., April 22, 2010): 7A. (Note: the online version of the article is dated April 21, 2010 and has the title "10 years after Elian, US players mum or moving on.")

Today (April 22, 2012) is the twelfth anniversary of one of the darkest days in American history---when the Democratic Clinton Administration seized a six year old child in order to force him back into the slavery that his mother had died trying to escape.

April 21, 2012

Workers Want to See Compensation Related to Contribution

This is a great example contra (or at least qualifying) Daniel Pink's claim that all you need do for knowledge workers is provide them enough money so that they can provide for the basic needs of themselves and their family.

(p. 145) The public offering process brought details of the intended allocation of Pixar stock options into view. A registration statement and other documents with financial data had to be prepared for the Securities and Exchange Commission and a prospectus needed to be made ready for potential investors. These documents had to be reviewed and edited, and it was here that the word apparently leaked: A small number of people were to receive low-cost options on enormous blocks of stock. Catmull, Levy, and Lasseter were to get options on 1.6 million shares apiece; Guggenheim and Reeves were to get 1 million and 840,000, respectively. If the company's shares sold at the then-planned price of fourteen dollars, the men would be instant multimillionaires.

The revelation was galling. Apart from the money, there was the symbolism: The options seemed to denigrate the years of work everyone else had put into the company. They gave a hollow feel to Pixar's labor-of-love camaraderie, its spirit that everyone was there to do cool work together. Also, it was hard not to notice that Levy, one of the top recipients, had just walked in the door.

"There was a big scene about all that because some people got (p. 146) huge amounts more than other people who had come at the same time period and who had made pretty significant contributions to the development of Pixar and the ability to make Toy Story," Kerwin said. "People like Tom Porter and Eben Ostby and Loren Carpenter--guys that had been there since the beginning and were part of the brain trust."

Garden-variety employees would also get some options, but besides being far fewer, those options would vest over a four-year period. Even employees who had been with the organization since its Lucasfilm days a decade earlier--employees who had lost all their Pixar stock in the 1991 reorganization--would be starting their vesting clock at zero. In contrast, most of the options of Catmull, Lasseter, Guggenheim, and Reeves vested immediately--they could be turned into stock right away.

"I decided, 'Well, gee, I've been at this company eight years, and I'll have been here twelve years before I'm fully vested,' " one former employee remembered. " 'It doesn't sound like these guys are interested in my well-being.' A lot of this piled up and made me say, 'What am I doing? I'm sitting around here trying to make Steve Jobs richer in ways he doesn't even appreciate.' "


Price, David A. The Pixar Touch: The Making of a Company. New York: Alfred A. Knopf, 2008.

(Note: italics in original.)

(Note: my strong impression is that the pagination is the same for the 2008 hardback and the 2009 paperback editions, except for part of the epilogue, which is revised and expanded in the paperback. I believe the passage above has the same page number in both editions.)

For Daniel Pink's views, see:

Pink, Daniel H. Drive: The Surprising Truth About What Motivates Us. New York: Riverhead Books, 2009.

April 20, 2012

Stevenson and Wolfers Find People in Rich Countries Are Happier

StevensonWolfersMaltilda2012-04-04.jpg "Betsey Stevenson and Justin Wolfers are the go-to pair on what some might call "lovenomics," having produced much research on marriage, divorce and child-rearing. They are shown at home with their daughter, Matilda, and family dog, Max." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) . . . when Ms. Stevenson, 40, and Mr. Wolfers, 39, start talking about say, diapers or nursing, the conversation takes an odd turn. Suddenly, words like "inputs" and "outputs" -- the economic kind -- creep in. Mention loading the dishwasher and he tosses out "fungibility." The low cost of two big teddy bears they bought for Matilda gets Ms. Stevenson ruminating on productivity gains.

If they don't quite sound like the rest of us, that's because these two Harvard Ph.D.'s form a sort of power couple in the world of the dismal science, or at least a certain corner of it. Faculty members at the Wharton School of the University of Pennsylvania, and currently visiting fellows at Princeton, Ms. Stevenson and Mr. Wolfers have become the go-to pair on the economics of marriage, divorce and child-rearing. That they are themselves a couple -- unmarried, for tax reasons they regularly cite -- adds to the allure.

. . .

Their research shows that men have grown happier as women have become unhappier. (Why? They don't really know.) Are people in rich countries happier than people in poor countries? (Yes.) And contrary to popular belief, they show that the divorce rate in America has been falling, not rising, for decades. They cite a number of possible reasons, including more balanced expectations between men and women about how a marriage will actually work, as well as the fact that fewer people are marrying in the first place.

. . .

(p. 4) LAST month, Ms. Stevenson and Mr. Wolfers presented new research into what is known as the Easterlin Paradox. First documented by the economist Richard Easterlin in the 1970s, this concept involves the link between economic growth and happiness. The idea is that, within a given country, people with higher incomes are more likely to be happy, and yet, for the most part, the average level of happiness doesn't vary much from rich countries and poor countries. What's more, as countries become richer, their populations don't become happier.

Using a red laser pointer to highlight PowerPoint graphs, Ms. Stevenson told a group of economists, psychologists and other experts gathered at the Russell Sage Foundation on the Upper East Side of Manhattan that earlier research had failed to take into account that as people and countries grow richer, it takes a much bigger amount of absolute dollars to raise incomes, and thus happiness.

So while it could appear that increases in happiness flattened out after incomes reached a certain point, "the richer you are, the more dollars it takes to give you the same increase in well-being," Ms. Stevenson said. "To get a 10 percent increase in income, you need more dollars than when you are poor."

For the full story, see:

MOTOKO RICH. "It's the Economy, Honey." The New York Times, SundayBusiness Section (Sun., February 11, 2012): 1 & 4.

(Note: ellipses added.)

(Note: the online version of the review is dated February 11, 2012.)

April 19, 2012

"Dematerialization" Means More Goods from Fewer Resources

(p. C4) Economic growth is a form of deflation. If the cost of, say, computing power goes down, then the users of computing power acquire more of it for less--and thus attain a higher standard of living. One thing that makes such deflation possible is dematerialization, the reduction in the quantity of stuff needed to produce a product. An iPhone, for example, weighs 1/100th and costs 1/10th as much as an Osborne Executive computer did in 1982, but it has 150 times the processing speed and 100,000 times the memory.

Dematerialization is occurring with all sorts of products. Banking has shrunk to a handful of electrons moving on a cellphone, as have maps, encyclopedias, cameras, books, card games, music, records and letters--none of which now need to occupy physical space of their own. And it's happening to food, too. In recent decades, wheat straw has shrunk as grain production has grown, because breeders have persuaded the plant to devote more of its energy to making the thing that we value most. Future dematerialization includes the possibility of synthetic meat--produced in a lab without brains, legs or guts.

Dematerialization is one of the reasons that Peter Diamandis and Steven Kotler give for the future's being "better than you think" in their new book, "Abundance."

For the full commentary, see:

MATT RIDLEY. "MIND & MATTER; The Future Is So Bright, it's Dematerializing." The Wall Street Journal (Sat., February 25, 2012): C4.

The book mentioned by Ridley is:

Diamandis, Peter H., and Steven Kotler. Abundance: The Future Is Better Than You Think. New York: Free Press, 2012.

April 18, 2012

"Scratch a White Liberal and You'll Find a Bigot"


Source of book image: http://www.mediabistro.com/fishbowldc/files/2011/10/my-long-trip-home.jpg

(p. C1) As a social studies major in his junior year at Harvard, Mark Whitaker attended a debate on the subject of ethnicity. One participant was the chairman of the department. Mr. Whitaker stood up to raise some questions.

"What would you tell someone who didn't have a clear ethnic identity?" he asked. "For example, what would you tell someone who had one parent who was black and another who was white? Who had one parent who was American and another who was European? Who had moved dozens of times as a child and didn't have a specific place to call home?" Everyone in the room knew that Mr. Whitaker was talking about himself.

"I guess I would say that that's too bad," the professor answered. "In the future I hope we don't have too many more people like you."

Mr. Whitaker recounts this story in "My Long Trip Home," a book filled with as much family tumult as Jeannette Walls described in "The Glass Castle" and a racial factor to boot. It's a story that registers not only for its shock value but also for the perspective and wisdom with which it can now be told.

The episode did not anger him, he said. He saw it as his professor's Freudian slip, "exposing a wish to hold on to a sense of certainty about his roots in the face of a gathering demographic storm that threatened to wash them away." But Mr. Whitaker's troubled and combative black father, who is the book's central figure through sheer force of personality, had a more heated reaction. "As I always say, scratch a white liberal and you'll find a bigot," Cleophaus Sylvester Whitaker Jr. told his son.

For the full review, see:

JANET MASLIN. "BOOKS OF THE TIMES; Born Along the Racial Fault Line." The New York Times (Mon., November 7, 2011): C1 & C4.

(Note: the online version of the review is dated November 6, 2011.)

The book under review is:

Whitaker, Mark. My Long Trip Home: A Family Memoir. New York: Simon & Schuster, 2011.


"Mark Whitaker" Source of caption and photo: online version of the NYT article quoted and cited above.

April 17, 2012

Add to Your List of Marketing Mistakes

(p. 142) The consumer products arm of Disney--the group responsible for licensing toys and other tie-ins--was also slow to see the potential of Toy Story. It was a case of out of sight, out of mind: Toy Story was in production hundreds of miles away. Preoccupied with two other forthcoming releases, Pocahontas and The Hunchback of Notre Dame, Disney Consumer Products left the Pixar film on the back burner. When Guggenheim met with one of the division's senior licensing executives in December 1994, he was alarmed to discover that she saw no licensing potential in the film.

"We put together a presentation reel of scenes from the film that we'd already completed, and material on how the film was being made" Guggenheim said. "We were taking that around the company so people could get a feeling of what this film was all about."

The executive told him, I don't know how we're going to do toys for this.

"What do you mean?" Guggenheim queried. "It's Toy Story. You know, Toy . . . Story."

Yes, she said, but you have all these toys that already exist--Mr. Potato Head, Speak & Spell, all that stuff. How are we ever going to make money off that?

"But you have all these original characters. You've got Buzz, you've got Woody."


Price, David A. The Pixar Touch: The Making of a Company. New York: Alfred A. Knopf, 2008.

(Note: ellipsis and italics in original.)

(Note: my strong impression is that the pagination is the same for the 2008 hardback and the 2009 paperback editions, except for part of the epilogue, which is revised and expanded in the paperback. I believe the passage above has the same page number in both editions.)

April 16, 2012

"Mind-Your-Own-Business Cowboy Libertarianism"

MeadMattWyoming2012-03-31.jpg "Gov. Matt Mead at a meeting in the Capitol in Cheyenne. A portrait of his grandfather Clifford P. Hansen, a former governor, hangs behind him." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A15) If Washington is broken and unable to lead -- as millions of Americans believe, according to polls -- then who is left to fill the void? Mr. Mead's answer: States functional enough to soldier on through a time of dystopian crisis should be given the room to run. Whether they are led by conservatives or liberals does not matter so much, he said, as the ability to get things done.

"There certainly have to be national policies, and national rules and regulations -- I understand that," Mr. Mead, 49, a Republican and former prosecutor, said in an interview in his office here. "But I am in part a states' rights guy because I think we can do so many things better."

Better or not, Wyoming's way -- always idiosyncratic in the windblown, rural grain that mixes mind-your-own-business cowboy libertarianism and fiscal penny-pinching -- is getting its moment in the spotlight.

For the full story, see:

KIRK JOHNSON. "STATEHOUSE JOURNAL; Idiosyncrasy Runs Deep in the Soil of Wyoming." The New York Times (Fri., November 25, 2011): A15.

(Note: the online version of the story is dated November 24, 2011.)

April 15, 2012

Regulation Sunset Would Aid Entrepreneurs

John Mackey is the entrepreneur behind the Whole Foods Market.

(p. A17) The success of economic freedom in increasing human prosperity, extending our life spans and improving the quality of our lives in countless ways is the most extraordinary global story of the past 200 years.

. . .

Economic freedom is declining in the U.S. In 2000, the U.S. was ranked third in the world behind only Hong Kong and Singapore in the Index of Economic Freedom, published annually by this newspaper and the Heritage Foundation. In 2011, we fell to ninth behind such countries as Australia, New Zealand, Canada and Ireland.

The reforms we need to make are extensive.

. . .

According to the Small Business Administration, total regulatory costs amount to about $1.75 trillion annually, nearly twice as much as all individual income taxes collected last year. While some regulations create important safeguards for public health and the environment, far too many simply protect existing business interests and discourage entrepreneurship. Specifically, many government regulations in education, health care and energy prevent entrepreneurship and innovation from revolutionizing and re-energizing these very important parts of our economy.

A simple reform that would make a monumental difference would be to require all federal regulations to have a sunset provision. All regulations should automatically expire after 10 years unless a mandatory cost-benefit analysis has been completed that proves the regulations have created significantly more societal benefit than harm. Currently thousands of new regulations are added each year and virtually none ever disappear.

For the full commentary, see:

JOHN MACKEY. "OPINION; To Increase Jobs, Increase Economic Freedom; Business is not a zero-sum game struggling over a fixed pie. Instead it grows and makes the total pie larger, creating value for all of its major stakeholders, including employees and communities.." The New York Times (Fri., November 16, 2011): A15.

(Note: ellipses added.)

April 14, 2012

Libertarian Law Professor Defends Free Choice in Health Care


"Randy E. Barnett has argued against the health care law." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A1) WASHINGTON -- When Congress passed legislation requiring nearly all Americans to obtain health insurance, Randy E. Barnett, a passionate libertarian who teaches law at Georgetown, argued that the bill was unconstitutional.

. . .

. . . over the past two years, through his prolific writings, speaking engagements and television appearances, Professor Barnett has helped drive the question of the health care law's constitutionality from the fringes of academia into the mainstream of American legal debate and right onto the agenda of the United States Supreme Court.

. . .

. . . the challenge championed by Professor Barnett: that Congress's power to set rules for commerce does not extend to regulating "inactivity," like choosing not to be insured.

. . .

(p. A14) He is a fierce advocate of economic freedom who is accustomed to being a legal underdog. In 2004, in his first (and, he says, probably his last) appearance before the Supreme Court, he argued that Congress could not criminalize the production of home-grown marijuana for personal medical use. There again, critics said he would lose 8 to 1. He did lose, but took satisfaction in the actual vote, 6 to 3.

. . .

Professor Barnett's work on the health care law fits into a much broader intellectual project, his defense of economic freedom. He has long argued that the Supreme Court went too far in upholding New Deal economic laws -- a position that concerns his liberal critics.

Even a close friend and fellow Georgetown law professor, Lawrence B. Solum, says that Professor Barnett is aware of the "big divide between his views and the views of lots of other people," and that his political philosophy is "much more radical" than his legal argument in the health care case. Professor Barnett, for his part, insists that if the health law is struck down, it will not "threaten the foundation of the New Deal." But, he allowed, it would be "a huge symbolic victory for limited government."

For the full story, see:

SHERYL GAY STOLBERG and CHARLIE SAVAGE. "Libertarian's Pet Cause Reaches Supreme Court." The New York Times (Tues., March 27, 2012): A1 & A14.

(Note: ellipses added.)

(Note: the online version of the story is dated March 26, 2012 and has the title "Vindication for Challenger of Health Care Law.")

April 13, 2012

Myhrvold Left Work with Hawking for the Excitement of Entrepreneurship

(p. 139) Microsoft was represented ¡n the discussion by its senior vice president for advanced technology, a thirty-five-year-old Nathan Myhrvold. After finishing his Ph.D. at Princeton at age twenty-three, Myhrvold had worked for a year as a postdoctoral fellow with the physicist Stephen Hawking at Cambridge, tackling theories of (p. 140) gravitation and curved space-time, before taking a three-month leave of absence to help some friends in the Bay Area with a software project. He became caught up in the excitement of personal computer software and entrepreneurship and never went back. In Berkeley, he co-founded a company called Dynamical Systems to develop operating system for personal computers, which struggled for two years until Microsoft bought it in 1986. At Microsoft, he persuaded Bill Gates to let him establish a corporate research center, Microsoft Research, with Myhrvold himself in charge.


Price, David A. The Pixar Touch: The Making of a Company. New York: Alfred A. Knopf, 2008.

(Note: italics in original.)

(Note: my strong impression is that the pagination is the same for the 2008 hardback and the 2009 paperback editions, except for part of the epilogue, which is revised and expanded in the paperback. I believe the passage above has the same page number in both editions.)

April 12, 2012

Benefits of Driverless Cars Justify Changing Liability Laws

DriverlessCar2012-03-26.jpg "The car is driven by a computer that steers, starts and stops itself. A 360 degrees laser scanner on top of the car, a GPS system and other sensors monitor the surrounding traffic." Source of caption and photo: online version of the WSJ article quoted and cited below.

(p A13) Expect innovations that change the nature of driving more than anything since the end of the hand-crank engine--so long as the legal and regulatory systems don't strangle new digital technologies before they can roll off the assembly line.

. . .

Mr. Ford outlined a future of what the auto industry calls "semiautonomous driving technology," meaning increasingly self-driving cars. Over the next few years, cars will automatically be able to maintain safe distances, using networks of sensors, V-to-V (vehicle-to-vehicle) communications and real-time tracking of driving conditions fed into each car's navigation system.

This will limit the human error that accounts for 90% of accidents. Radar-based cruise control will stop cars from hitting each other, with cars by 2025 driving themselves in tight formations Mr. Ford describes as "platoons," cutting congestion as the space between cars is reduced safely.

. . .

Over the next decade, cars could finally become true automobiles. Our laws will have to be updated for a new relationship between people and cars, but the benefits will be significant: fewer traffic accidents and fewer gridlocked roads--and, perhaps best of all, young people will be in self-driving cars, not teenager-driven cars.

For the full commentary, see:

L. GORDON CROVITZ. "INFORMATION AGE; The Car of the Future Will Drive You; A truly auto-mobile is coming if liability laws don't stop it." The Wall Street Journal (Mon., March 5, 2012): A13.

(Note: ellipses added.)

April 11, 2012

"A Greek, an Italian and a Spaniard Walk into a Bar"

(p. A15) A joke making the rounds: A Greek, an Italian and a Spaniard walk into a bar. Each orders a drink. Who pays? The German.

For the full commentary, see:

DAVID WESSEL. "CAPITAL; For Europe, a Lehman Moment." The Wall Street Journal (Thurs., December 1, 2011): A15.

April 10, 2012

James Morrison Was a "Retailing Genius"


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

(p. A13) Morrison was not an inventor-capitalist but a retailing genius, more Sam Walton than Steve Jobs. He catered to England's growing consumer class by diversifying his wares and, in his ever-growing network of shops, introducing luxurious showrooms. He was a disciple of volume, seeking "high turnover, small profits, and quick returns." He sent his traveling men not to find buyers, as was typical, but to find the best suppliers. Advantageously purchased in bulk, goods would sell themselves. Morrison's buyers were specialists, anticipating the practices of later department stores. He kept his finger on the pulse of fashion and on "market making" events. Legendarily, he was never caught short of black crepe when a member of the royal family was ill. "The Duke of York has died most conveniently," he once quipped while tallying profits.

The "Napoleon of shopkeepers" went on to found his own merchant bank and accumulate a prodigious investment portfolio, much of it in American bonds. Strategic lending to broke aristocrats greased Morrison's way into Parliament, where he served as a "radical Whig," championing political reform and free trade.

. . .

. . . Morrison conducted both his retailing and his banking business with impeccable transparency. The investments he sold were honestly structured, and the risks he ran were his own, backed by sufficient collateral. Morrison's was an era before bailouts, an era of some moral luck but little moral hazard. Markets rose and fell with reasonably predictable effects. For him and many of his contemporaries, credit remained a personal matter of the highest consequence. In this, alas, a character such as Morrison now seems more alien than familiar.

For the full review, see:

JEFFREY COLLINS. "BOOKSHELF; King of the Shopkeepers; The lessons of a merchant prince and a brilliant retailer whose wool, linen, silk, thread and lace flew off the shelves." The Wall Street Journal (Mon., March 5, 2012): A13.

(Note: ellipses added.)

The book under review is:

Dakers, Caroline. A Genius for Money: Business, Art and the Morrisons. New Haven, CT: Yale University Press, 2012.

April 9, 2012

Oswald the Lucky Rabbit Returned to Disney After 78 Years

OswaldDisneyRabbit2012-03-25.jpgDo you recognize this rabbit? Source of image: online version of the Omaha World-Herald article quoted and cited below.

The story of Oswald the Lucky Rabbit is one of entrepreneurial resilience. Walt Disney was duped out of his legal rights to Oswald. Instead of fighting it out in court, or giving in to discouragement, he shortened Oswald's ears and transformed him into a mouse with a new name.

(p. 2E) LOS ANGELES (AP) - One of Walt Disney's oldest drawings is seeing the light of day after being locked away for nearly 40 years.

A rough 1928 image of Oswald the Lucky Rabbit, the wacky predecessor to Mickey Mouse, was brought out of the Walt Disney Co. archive this week and showcased at an event unveiling "Disney Epic Mickey 2: The Power of Two," an upcoming action-adventure game for the Wii, PlayStation 3 and Xbox 360 that allows players to control both Mickey and Oswald.

The mischievous Oswald was co-created by Disney before Mickey, but he was lost in a 1928 contract dispute with Universal Studios. Oswald hopped back to Disney in 2006 when CEO Bob Iger brokered a deal that sent sportscaster Al Michaels to Universal-NBC. Oswald's first appearance since his return came in 2010's "Epic Mickey" as the ruler of a forgotten realm.

For the full story, see:

DERRIK J. LANG. "Disney image displayed for first time in 40 years." Omaha World-Herald (Sun., March 18, 2012): 2E.

April 8, 2012

The Project Entrepreneur Does Not Sell Out Soon


"Dropbox founders, Arash Ferdowsi, left, and Drew Houston, won Best Overall Startup at the Crunchies in San Francisco earlier this year." Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. B6) Arash Ferdowsi was a Massachusetts Institute of Technology student when he met fellow MIT student Drew Houston through a mutual friend.

The pair collaborated, working from a Cambridge, Mass., apartment, to solve a modern-day problem.

They created a virtual file cabinet that would make it possible for users to access piles of documents, spreadsheets, photos, music and videos from their laptops, tablets or personal devices.

After launching Dropbox Inc. in June 2007, they relocated to San Francisco. Mr. Ferdowsi dropped out of MIT.

. . .

WSJ: Before Steve Jobs of Apple Inc. died, he approached you with a buyout offer. Why did you turn it away?

Mr. Ferdowsi: The problem that we're trying to solve is a problem that only an independent company can solve. We want to let you use a Mac, or Windows PC, or iPad, or Android, without having to think about any of the technical details. It isn't a problem any of those larger companies is going to be as inclined to solve in the same way we are.

For the full interview, see:

ANGUS LOTEN, interviewer. "HOW I BUILT IT; Dropbox Seeks Big Solutions." The Wall Street Journal (Thurs., March 15, 2012): B6.

(Note: ellipsis added; bold in original.)

(Note: the online version of the interview is dated March 14, 2012.)

April 7, 2012

Most Articles in Top Two Economics Journals Receive Zero Citations in First Five Years

Journal quality is often used, or suggested, as a proxy for the quality of articles. It is a very poor proxy.

Economist Robert H. Frank writes that:

(p. 3) The economist Philip Cook and I found, . . . , that in the first five years after publication, many fewer than half of all papers in the two most selective economics journals had ever been cited by other scholars.

For the full commentary, see:

ROBERT H. FRANK. "ECONOMIC VIEW; The Prestige Chase Is Raising College Costs." The New York Times, SundayBusiness Section (Sun., March 11, 2012): 3.

(Note: ellipsis added.)

(Note: the online version of the commentary is dated March 10, 2012.)

I assume, but have not verified, that the above finding is reported in:

Frank, Robert, and Philip J. Cook. The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us. New York: The Free Press, 1995.

April 6, 2012

Diamond to Teach Economics of Entrepreneurship in Fall 2012


Some Questions to Be Discussed:

• How can policies encouraging innovative entrepreneurship help us recover from the current economic stagnation?

• Are innovative entrepreneurs smarter, or less risk-averse, or more intuitive, or more determined, or more frugal, or nobler, or greedier, than the rest of us?

• Can economic historian John Nye defend his claim that successful entrepreneurs are "lucky fools?"

• What is the role of entrepreneurship in the process of creative destruction, and what is the role of creative destruction in making our lives longer and better?

• Would labor be better off in an economy in which innovative entrepreneurship is encouraged?

• Why does economist Will Baumol believe that too much higher education can discourage successful innovative entrepreneurship?

• What are the most promising sources of financing for successful innovative entrepreneurship?

April 5, 2012

Lasseter's Success Came from Seeing How the Details Affected the Storytelling

(p. 138) "I had no reason to think it would be any good," recalled Barzel, who was then a recently minted California Institute of Technology Ph.D. on the lighting team. "I knew John was absolutely brilliant as a animator of shorts. But I've read authors who write good short stories and crummy novels; I figured it's a different skill. I had no reason to think John would have the skill to pull off a full-length movie."

He expected something that animators and animation buffs might find interesting, but that probably would not have a particularly wide audience.

"I joined because I wanted the practical experience," he said, "I thought, Well, it's going to be the first full-length [computer-animated] movie, so it'll be a fun thing to have been associated with, however it turns out."

What finally made Barzel a believer was watching Lasseter at work. He found that Lasseter had an uncanny ability to shift between the macro level of the entire film and the micro level of whatever detail he was dealing with at the moment. "Looking at an individual frame -- it's meticulous work-- he would always be aware of its role in the larger context of storytelling," Barzel recalled. "He'd say something like, 'This is the first time this character responds to that situation; it's really important that he get the right glint in his eye.' " Barzel started to think, John knows what he's doing. This movie could be really good.


Price, David A. The Pixar Touch: The Making of a Company. New York: Alfred A. Knopf, 2008.

(Note: italics and brackets in original.)

(Note: my strong impression is that the pagination is the same for the 2008 hardback and the 2009 paperback editions, except for part of the epilogue, which is revised and expanded in the paperback. I believe the passage above has the same page number in both editions.)

April 4, 2012

Lean Start-Ups "Ruthlessly Cull Failures"

eric-ries-lean-startup.jpgEric Ries and his book. Source of photo: http://nemonics.files.wordpress.com/2011/11/eric-ries-lean-startup.jpg?w=584&h=262

(p. D3) "What's different in the Valley is that we've found a quasi-scientific method for reinventing businesses and industries, not just products," said Randy Komisar, a partner in a leading venture capital firm, Kleiner Perkins Caufield & Byers, and a lecturer on entrepreneurship at Stanford University. "The approach is much more systematic than it was several years ago."

The newer model for starting businesses relies on hypothesis, experiment and testing in the marketplace, from the day a company is founded. That is a sharp break with the traditional approach of drawing up a business plan, setting financial targets, building a finished product and then rolling out the business and hoping to succeed. It was time-consuming and costly.

The preferred formula today is often called the "lean start-up." Its foremost proponents include Eric Ries, an engineer, entrepreneur and author who coined the term and is now an entrepreneur in residence at the Harvard Business School, and Steven Blank, a serial entrepreneur, author and lecturer at Stanford.

The approach emphasizes quickly developing "minimum viable products," low-cost versions that are shown to customers for reaction, and then improved. Flexibility is the other hallmark. Test business models and ideas, and ruthlessly cull failures and move on to Plan B, Plan C, Plan D and so on -- "pivoting," as the process is known.

For the full story, see:

STEVE LOHR. "Looking Backward to Put New Technologies in Focus." The New York Times (Tues., December 6, 2011): D3 & D4.

(Note: the online version of the story is dated December 5, 2011.)

Ries' recent book is:

Ries, Eric. The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. New York: Crown Business, 2011.

Blank's books are:

Blank, Steve. Not All Those Who Wander Are Lost. CafePress.com, 2010.

Blank, Steven Gary. The Four Steps to the Epiphany: Successful Strategies for Products That Win. 2nd ed: CafePress.com, 2005.

Blank, Steve, and Bob Dorf. The Startup Owner's Manual: The Step-by-Step Guide for Building a Great Company. K & S Ranch, 2012.

Another relevant book is:

Maurya, Ash. Running Lean: Iterate from Plan A to a Plan That Works. 2nd ed. Sebastopol, CA: O'Reilly Media, 2012.

April 3, 2012

Millennials Wiser on Environment than Gen Xers and Baby Boomers

(p. 6A) "I was shocked," said Jean Twenge, a psychology professor at San Diego State University who is one of the study's authors.

. . .

Researchers found that, when surveyed decades ago, about a third of young baby boomers said it was important to become personally involved in programs to clean up the environment. In comparison, only about a quarter of young Gen Xers - and 21 percent of Millennials - said the same.

Meanwhile, 15 percent of Millennials said they had made no effort to help the environment, compared with 8 percent of young Gen Xers and 5 percent of young baby boomers.

. . .

The analysis was based on two long-term surveys of the nation's youth. The first, the University of Michigan's Monitoring the Future project, is an annual survey of thousands of high school seniors, from which data from 1976 through 2008 was used.

Other data came from the American Freshman project, another large annual national survey, administered by the Higher Education Research Institute. Those responses came from thousands of first-year college students, from the years 1966 through 2009. Because of the large sample sizes, the margin of error was less than plus-or-minus half a percentage point.

For the full story, see:

MARTHA IRVINE. "'Reduce, Reuse, Recycle' Not a Mantra for Young People." Omaha World-Herald (Sat., March 17, 2012): 6A.

(Note: ellipses added.)

(Note: the online version of the article was dated Thursday March 15, 2012 and had the title "Study: Young people not so 'green' after all.")

April 2, 2012

"The Word "Sustainable" Is Unsustainable"

SustainableCartoon2012-03-24.jpgSource of cartoon: http://xkcd.com/1007/

April 1, 2012

"Being Able to Work on a Great Project"

(p. 133) Recruiting was brisk; the magnet for talent was not the pay, generally mediocre, but rather the allure of taking part in the first fully computer-animated feature film. "Disney gave us a very modest budget [$17.5 million] for Toy Story," Guggenheim said. "Although that budget went up progressively over time, it didn't afford for very high salaries, unfortunately. We tried to make the other working conditions better. Just the enthusiasm of being able to work on a great project is as often as not what attracts artists and animators."


Price, David A. The Pixar Touch: The Making of a Company. New York: Alfred A. Knopf, 2008.

(Note: italics and brackets in original.)

(Note: my strong impression is that the pagination is the same for the 2008 hardback and the 2009 paperback editions, except for part of the epilogue, which is revised and expanded in the paperback. I believe the passage above has the same page number in both editions.)


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