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April 18, 2014

In the Gilded Age Moguls Cleaned Up Their Own Mess and the Economy Was Not Hurt



HarrimanVSHillBK2014-04-09.jpg












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






(p. A13) Takeover wars seem to have lost their sizzle. What happened to the battles of corporate goliaths? Where have they gone, those swaggering deal makers? "Harriman vs. Hill" is a corporate dust-up that takes us back to the beginning of the 20th century, when tycoons who traveled by private rail merrily raided each other's empires while the world around them cringed.


. . .


Mr. Haeg conveys a vivid picture of the Gilded Age in splendor and in turmoil. Champagne still flowed in Peacock Alley in the Waldorf-Astoria, but fistfights erupted on the floor of the exchange, and a young trader named Bernard Baruch skirted disaster with the help of an inside tip, then perfectly legal. There were scant rules governing stock trading, the author reminds us--no taxes, either. "If you won in the market, you kept it all."

In that era, moguls were left to clean up their own mess.   . . .


. . .


Though hardly a cheerleader, Mr. Haeg is admiring of his cast, nostalgic for the laissez-faire world they inhabited. Observing that the economy wasn't upset by the stock market's mayhem, he concludes that, "in a perverse way, the market had worked."



For the full review, see:

ROGER LOWENSTEIN. "BOOKSHELF; When Titans Tie the Knot; Businessmen of a century ago didn't place 'competition' on a revered pedestal. Merger and monopoly were considered preferable." The Wall Street Journal (Fri., Feb. 14, 2014): A13.

(Note: ellipses added.)

(Note: the online version of the review has the date Feb. 13, 2014, and has the title "BOOKSHELF; Book Review: 'Harriman vs. Hill,' by Larry Haeg; Businessmen of a century ago didn't place 'competition' on a revered pedestal. Merger and monopoly were considered preferable.")


The book under review is:

Haeg, Larry. Harriman Vs. Hill: Wall Street's Great Railroad War. Minneapolis, MN: University of Minnesota Press, 2013.






April 15, 2014

Arc Lights Leapfrogged Gas Lights Before Incandescents Leapfrogged Them Both



(p. 85) The gas interests had been dealt a number of recent setbacks even before Edison's announcement of a newly successful variant of electric light. An "enormous abandonment of gas" by retail stores in cities, who now could use less expensive kerosene, was noticed. The shift was attributed not to stores' preference for kerosene but as a means of escaping "the arrogance of the gas companies." Arc lights had now become a newly competitive threat, too. The previous month, Charles Brush had set up his lights in an exhibition hall in New York and then added a display in Boston. Sales to stores followed in several cities; then, as word spread, other establishments sought to obtain the cachet bestowed by the latest technology. William Sharon, a U.S. senator for and energetic booster of California, retrofitted the public spaces of his Palace Hotel in San Francisco with arc lights that replaced 1,085 gas jets.


Source:

Stross, Randall E. The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World. New York: Crown Publishers, 2007.






April 11, 2014

Edison, Not Antitrust, Reduced Power of Hated Gas Monopolies




Counterbalancing the angst of those hurt by the death of an old technology is sometimes the triumph creative destruction provides to those who were less well-served by the old technology. Some look to governments to restrain a dominant technology; but sometimes a more effective way is to replace the old technology through creative destruction's leapfrog competition.


(p. 84) Gaslight monopolies had few friends outside of the ranks of shareholders. At the beginning of the nineteenth century, gaslight had been viewed as pure and clean; seventy years later, its shortcomings had become all too familiar: it was dirty, soiled interior furnishings, and emit-(p. 85)ted unhygienic fumes. It was also expensive, affordable for indoor lighting only in the homes of the wealthy, department stores, or government buildings. The New York Times almost spat out the following description of how gas companies conducted business: "They practically made the bills what they pleased, for although they read off the quantity by the meter, that instrument was their own, and they could be made to tell a lie of any magnitude.... Everybody has always hated them with a righteous hatred."

Edison credited the gas monopoly for providing his original motivation to experiment with electric light years before in his Newark laboratory. Recalling in October 1878 his unpleasant dealings years earlier with the local gas utility, which had threatened to tear out their meter and cut off the gas, Edison said, "When I remember how the gas companies used to treat me, I must say that it gives me great pleasure to get square with them." The Brooklyn Daily Eagle printed an editorial titled "Revenge Is Sweet" in which it observed that the general public greatly enjoyed the discomfort of the gas companies, too: "To see them squirm and writhe is a public satisfaction that lifts Edison to a higher plane than that of the wonderful inventor and causes him to be regarded as a benefactor of the human race, the leading deity of popular idolatry."



Source:

Stross, Randall E. The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World. New York: Crown Publishers, 2007.

(Note: ellipsis in original.)






April 9, 2014

Patent Trial and Appeal Board May Be Invalidating Low Quality Patents




One of the common complaints about the U.S. patent system for the past couple of decades is that the Patent and Trademark Office (PTO) has been approving too many low quality patents, that are then used by patent holders to extort licensing fees or out-or-court settlements from alleged infringers. One way in which the America Invents Act, signed in September 2011, tried to respond to the complaint was to strengthen the post-approval re-examination process for patents. The article quoted below suggests that the strengthened process may be having the intended effect.



(p. B4) The Patent Trial and Appeal Board is a little known but powerful authority that often allows a company embroiled in a lawsuit to skip the question of whether it infringed a patent--and challenge whether the patent should have been issued in the first place.

The board was launched in September 2012 as part of the massive patent overhaul passed by Congress the previous year and is currently staffed by 181 judges, many of whom have deep experience in intellectual property or technical fields like chemical and electrical engineering. Through last Thursday it had received 1,056 requests to challenge patents, far more than were received by any federal court over the same time period.

The board is part of the Patent and Trademark Office. But so far, it hasn't shied away from upending the office's decisions to issue certain patents. As of last week, the board had issued 25 written decisions concerning patent challenges, and upheld parts of challenged patents in only a few of them.


. . .


In recent months, Randall Rader, the chief judge of the Federal Circuit, has been one of the board's most outspoken critics. At a conference of intellectual-property lawyers last fall, the judge called the board's panels "death squads...killing property rights."

In an interview with The Wall Street Journal, Mr. Rader said the board is too quick to toss out patents that demonstrate only modest innovation. "The board needs to incentivize human progress--and understand that it often happens one small step at a time," he said.

But many company lawyers think the board is doing exactly as it should--taking a skeptical look at patents that have added little to the world.



For the full story, see:

ASHBY JONES. "New Weapon in Intellectual Property Wars; Panel Can Upend Patent Decisions, but Some Say It Goes Too Far; 'Like Getting CAT-Scanned, MRI-ed, and X-Rayed'." The Wall Street Journal (Tues., March 11, 2014): B4.

(Note: ellipsis between paragraphs, added; ellipsis inside paragraph, in original.)

(Note: the online version of the story has the date March 10, 2014, and has the title "A New Weapon in Corporate Patent Wars; Patent Trial and Appeal Board Can Upend PTO Decisions, but Some Say It Goes Too Far.")






April 8, 2014

Government Regulations Slow U.S. Use of Drones



DronesThreeSophisticatedCommerical2014-04-03.jpgThree sophisticated drones. From top to bottom, the Insitu ScanEagle, the Yamaha RMAX, and the Trimble UX5. Source and photo: online version of the WSJ article quoted and cited below.



(p. B1) After Greek land surveyor George Papastamos bought his first drones a year ago, he let go most of his workers. Now, instead of a team of 12, he shows up to work sites with just a drone and an assistant.

"I could see this was the future," said Mr. Papastamos, a second-generation surveyor from Athens. The drones have improved his maps and lowered his costs, enabling him to win more business. "It is much, much more profitable," he said.

As U.S. regulators and courts grapple with when and how to allow the use of drones for commercial purposes, flying robots already are starting to change the way companies do business in countries from Australia to Japan to the U.K. They are showing the potential to provide cheaper and more effective alternatives to manned aircraft--and human workers--in industries like mining, construction and filmmaking.

The U.S. is "the world leader in producing drones," but "the reality is the rest of the world has moved further ahead of us in terms of commercial applications," said drone researcher Missy Cummings, director of the Humans and Autonomy Lab at Duke University.



For the full story, see:

JACK NICAS. "From Farms to Films, Drones Find Commercial Uses." The Wall Street Journal (Tues., March 11, 2014): B1 & B6.

(Note: the online version of the story has the date March 10, 2014, and has the title "Drones Find Fans Among Farmers, Filmmakers; FAA Still Debating Rules but Drones are Spraying 40% of Japan's Rice Fields.")






April 7, 2014

William Vanderbilt Helped Disrupt His Gas Holdings by Investing in Edison's Electricity



(p. 84) But even the minimal ongoing work on the phonograph would be pushed aside by the launch of frenzied efforts to find a way to fulfill Edison's premature public claim that his electric light was working. A couple of months later, when asked in an interview about the state of his phonograph, Edison replied tartly, "Comatose for the time being." He changed metaphors and continued, catching hold of an image that would be quoted many times by later biographers: "It is a child and will grow to be a man yet; but I have a bigger thing in hand and must finish it to the temporary neglect of all phones and graphs."

Financial considerations played a part in allocation of time and resources, too. Commissions from the phonograph that brought in hundreds of dollars were hardly worth accounting for, not when William Vanderbilt and his friends were about to advance Edison $50,000 for the electric light. Edison wrote a correspondent that he regarded the financier's interest especially satisfying as Vanderbilt was "the largest gas stock owner in America."



Source:

Stross, Randall E. The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World. New York: Crown Publishers, 2007.

(Note: ellipses, and capitals, in original.)






April 4, 2014

Gary Becker's Grandson Ponders Opportunity Cost of College



HarboeLouisYoungTechEntrepreneur2014-03-30.jpg



"Louis Harboe with his parents, Frederik Harboe and Catherine Becker. Louis, now 18, got his first freelance tech job at age 12. Last year, he attended the Apple Worldwide Developers Conference in San Francisco." Source of caption and photo: online version of the NYT article quoted and cited below.




(p. 1) Ryan was headed to South by Southwest Interactive, the technology conference in Austin. There, he planned to talk up an app that he and a friend had built. Called Finish, it aimed to help people stop procrastinating, and was just off its high in the No. 1 spot in the productivity category in the Apple App store.


. . .


Ryan is now 17, a senior at Boulder High. He is among the many entrepreneurially minded, technologically skilled teenagers who are striving to do serious business. Their work is enabled by low-cost or free tools to make apps or to design games, and they are encouraged by tech companies and grown-ups in the field who urge them, sometimes with financial support, to accelerate their transition into "the real world." This surge in youthful innovation and entrepreneurship looks "unprecedented," said Gary Becker, a University of Chicago economist and a Nobel laureate.

Dr. Becker is assessing this subject from a particularly intimate vantage point. His grandson, Louis Harboe, 18, is a friend of (p. 6) Ryan's, a technological teenager who makes Ryan look like a late bloomer. Louis, pronounced Louie, got his first freelance gig at the age of 12, designing the interface for an iPhone game. At 16, Louis, who lives with his parents in Chicago, took a summer design internship at Square, an online and mobile payment company in San Francisco, earning $1,000 a week plus a $1,000 housing stipend.

Ryan and Louis, who met online in the informal network of young developers, are hanging out this weekend in Austin at South by Southwest. They are also waiting to hear from the colleges to which they applied last fall -- part of the parallel universe they also live in, the traditional one with grades and SATs and teenage responsibilities. But unlike their peers for whom college is the singular focus, they have pondered whether to go at all. It's a good kind of problem, the kind faced by great high-school athletes or child actors who can try going pro, along with all the risk that entails.

Dr. Becker, who studies microeconomics and education, has been telling his grandson: "Go to college. Go to college." College, he says, is the clear step to economic success. "The evidence is overwhelming."

But the "do it now" idea, evangelized on a digital pulpit, can feel more immediate than academic empiricism. "College is not a prerequisite," said Jess Teutonico, who runs TEDxTeen, a version of the TED talks and conferences for youth, where Ryan spoke a few weeks ago. "These kids are motivated to take over the world," she said. "They need it fast. They need it now."



For the full story, see:

MATT RICHTEL. "The Youngest Technorati." The New York Times, SundayBusiness Section (Fri., MARCH 9, 2014): 1 & 6.

(Note: ellipsis added.)

(Note: the online version of the story has the date MARCH 8, 2014.)






April 3, 2014

As a Young Inventor, Edison Patented Fast



Edison filed patent applications as fast as the ideas arrived.


Source:

Stross, Randall E. The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World. New York: Crown Publishers, 2007.






April 1, 2014

Decline in Hours Worked Shows Weakness in Labor Market



(p. A15) Most commentators viewed the February [2014] jobs report released on March 7 as good news, indicating that the labor market is on a favorable growth path. A more careful reading shows that employment actually fell--as it has in four out of the past six months and in more than one-third of the months during the past two years.

Although it is often overlooked, a key statistic for understanding the labor market is the length of the average workweek. Small changes in the average workweek imply large changes in total hours worked. The average workweek in the U.S. has fallen to 34.2 hours in February from 34.5 hours in September 2013, according to the Bureau of Labor Statistics. That decline, coupled with mediocre job creation, implies that the total hours of employment have decreased over the period.


. . .


. . . , although the U.S. economy added about 900,000 jobs since September, the shortened workweek is equivalent to losing about one million jobs during this same period. The difference between the loss of the equivalent of one million jobs and the gain of 900,000 new jobs yields a net effect of the equivalent of 100,000 lost jobs.



For the full commentary, see:

EDWARD P. LAZEAR. "The Hidden Rot in the Jobs Numbers; Hours worked are declining, resulting in the equivalent of a net loss of 100,000 jobs since September." The Wall Street Journal (Fri., March 17, 2014): A15.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the commentary has the date March 16, 2014.)






March 31, 2014

Better Policies Explain Why Poland Prospers More than Ukraine



RushchyshynYaroslavUkraineEntrepreneur2014-03-30.jpg "Yaroslav Rushchyshyn, a garment manufacturer, wants to end penalties when his company reports a financial loss." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. B1) LVIV, Ukraine -- Every kind of business in this restless pro-European stronghold near the border with Poland has an idea about how to make Ukraine like its more prosperous neighbor.

For Yaroslav Rushchyshyn, founder of a garment manufacturer, it is abolishing bizarre regulations that have had inspectors threatening fines for his handling of fabric remnants and for reporting financial losses.

For Andrew Pavliv, who runs a technology company, it is modernizing a rigid education system to help nurture entrepreneurs.

For Natalia Smutok, an executive at a company that makes color charts for paint and cosmetics, it meant starting an antibribery campaign, even though she is 36 weeks pregnant.


. . .


(p. B10) Victor Halchynsky, a former journalist who is now a spokesman for the Ukrainian unit of a Polish bank, said the divergence of the two countries was a source of frustration.

"It's painful because we know it's only happened because of policy," he said, adding that while both countries had started the reform process, Poland "finished it."

Ukraine has been held back by a number of policies. Steep energy subsidies have kept consumption high and left the country dependent on Russian gas, draining state coffers. Mr. Pavliv said the state university system, which he called "pure, pure Soviet," was too inflexible to set up a training program for project managers, or to allow executives without specific certifications to teach courses. An agriculture industry once a Soviet breadbasket has been hurt by antiquated rules, including restrictions on land sales. Aggressive tax police have been used to shake down businesses.



For the full story, see:

DANNY HAKIM. "A Blueprint for Ukraine." The New York Times (Fri., MARCH 14, 2014): B1 & B10.

(Note: ellipsis added.)

(Note: the online version of the story has the date MARCH 13, 2014.)



PavlivAndrewTechEntrepreneur2014-03-30.jpg "Andrew Pavliv, who runs a technology company, wants to help turn Lviv into a little Ukrainian Silicon Valley." Source of caption and photo: online version of the NYT article quoted and cited above.






March 30, 2014

Edison Sold Half-Interest in Some Patents, to Fund His Inventing




Stross discusses Edison's inventing at age 21:


(p. 8) Edison soon sought investors who would provide funds in exchange for half-interest in resulting patents.


Source:

Stross, Randall E. The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World. New York: Crown Publishers, 2007.






March 29, 2014

If Lack of Focus and Poverty Go Together, Which Is the Cause and Which the Effect?



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Source of book image: http://www.scientificamerican.com/sciam/cache/file/BF860CC7-371A-46BB-8ACCECD4289565A8.jpg




Are the poor poor partly because they concentrate less, or do they concentrate less partly because they are poor? Samantha Power discusses one of her favorite books of 2013:



(p. C11) In "Scarcity," Sendhil Mullainathan and Eldar Shafir offer groundbreaking insights into, among other themes, the effects of poverty on (p. C12) cognition and our ability to make choices about our lives. The authors persuasively show that the mental space--or "bandwidth"--of the poor is so consumed with making ends meet that they may be more likely to lose concentration while on a job or less likely to take medication on time.


For the full article, see:

"12 Months of Reading; We asked 50 of our friends--from April Bloomfield to Mike Tyson--to name their favorite books of 2013." The Wall Street Journal (Sat., Dec. 14, 2013): C6 & C9-C12.

(Note: the online version of the article has the date Dec. 13, 2013.)


The book that Power praises is:

Mullainathan, Sendhil, and Eldar Shafir. Scarcity: Why Having Too Little Means So Much. New York: Times Books, 2013.






March 28, 2014

Paul Ryan Warns that the Safety Net Can Be a Hammock



(p. A21) . . . Mr. Ryan said two years ago: "We don't want to turn the safety net into a hammock that lulls able-bodied people to lives of dependency and complacency, that drains them of their will and their incentive to make the most of their lives."


For the full commentary, see:

Krugman, Paul. "The Hammock Fallacy." The New York Times (Fri., MARCH 7, 2014): A21.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date MARCH 6, 2014.)



The original source of the Paul Ryan quote appears to be:

"Paul Ryan Wants 'Welfare Reform Round 2'." The Huffington Post (posted 03/20/2012).


Ryan made similar comments in his January 25th official Republican response to the State of the Union speech:

We are at a moment, where if government's growth is left unchecked and unchallenged, America's best century will be considered our past century. This is a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency.

Depending on bureaucracy to foster innovation, competitiveness, and wise consumer choices has never worked -- and it won't work now.


Source:

NPR transcript of Paul Ryan response, January 25, 2011.






March 23, 2014

Disabled Workers Are More Likely to Be Free Agent Entrepreneurs



HartfordKevinEntrepreneurWhoStutters2014-03-10.jpg "Kevin Hartford, right, and a colleague at his factory. He started his business after employers failed to hire him." Source of caption and photo: online version of the NYT article quoted and cited below.



HR departments have incentives to avoid hiring risky employees. But a determined high-risk employee can hire themselves by becoming a free agent entrepreneur. If we want to truly help the disabled, we should remove obstacles to entrepreneurship, such as burdensome regulations and high taxation.


(p. B4) Mr. Hartford, the father of two sons, thrived as a business consultant in his 20s and 30s. He was used to flying first class, staying at swank hotels and advising CEOs. Then the consulting firm unraveled in the mid-1990s. When he began looking for a new job, a stuttering problem--something he had always considered manageable--put off potential employers.

"I applied for job after job after job," says Mr. Hartford, now 58. "I was one of two finalists; I was one of three finalists. But I never got the job."

In the end, Mr. Hartford concluded that his only shot at a satisfying job was to create a company. He is now president and co-owner of Alle-Kiski Industries, which makes parts, such as exhaust pipes for train locomotives and prototype truck wheels, for larger manufacturers, including Alcoa Inc. and General Electric Co.

Like many before him, Mr. Hartford discovered that one option for people who don't fit into large organizations is to start a small one. That is particularly true for people with disabilities. About 11% of disabled workers are self-employed, compared with 6.5% of those with no disabilities, according to Labor Department data.


. . .


The business has grown to 38 employees from a dozen when Messrs. Hartford and Newell started in 2005. They own more than $2 million of equipment used to drill, groove and otherwise shape metal, arrayed in a 27,000-square-foot factory with an American flag hanging from one of the beams. Last year's sales of $6 million were the highest yet, Mr. Hartford says, and the company is building a 4,000-square-foot addition to house more equipment.



For the full story, see:

JAMES R. HAGERTY. "Entrepreneur Let No Impediment Stop Him; Out-of-Work Consultant Started His Own Company After Discovering His Stutter Put Off Employers." The Wall Street Journal (Thurs., Jan. 16, 2014): B4.

(Note: ellipsis added.)

(Note: the online version of the story has the date Jan. 15, 2014.)






March 19, 2014

As Venezuelan Economy Collapses, Socialists Urge Citizens to Hit the Beach and Party



VenezuelaProtestersBeachScene2014-03-06.jpg "Antigovernment protesters blocking a street in San Cristóbal, in western Venezuela, decorated their barrier like a beach scene." Source of caption and photo: online version of WILLIAM NEUMAN. "Slum Dwellers in Caracas Ask, What Protests?" The New York Times (Sat., March 1, 2014): A1 & A8.



(p. A6) CARACAS, Venezuela--President Nicolás Maduro declared an extended Carnival holiday season, betting that sun, sand and rum will help calm the worst civil unrest to sweep the oil-rich nation in more than a decade.

As some opposition leaders called to cancel the celebrations to mourn those who died in recent weeks during protests, Mr. Maduro's ministers publicly encouraged Venezuelans to hit the beach for the pre-Lent festivities.


. . .


Among those officials most visible to the public these days has been Tourism Minister Andres Izarra, who has been hitting tourist hot spots with a campaign called "Carnival 2014--The Coolest Holiday."

He said that officials were opening 180 tourist information centers for the long holiday weekend and increasing maintenance and trash pickup at beaches that are often covered with empty alcohol containers. Meanwhile, the transportation minister, Haiman El Troudi, said new bus routes would be added to get Venezuelans to the beach.



For the full story, see:

KEJAL VYAS and JUAN FORERO. "Venezuela Leader Fights Unrest With Fiesta; President Maduro Extends Carnival Celebration After Opposition Call For Mourning, More Protests." The Wall Street Journal (Fri., FEB. 28, 2014): A6.

(Note: ellipsis added.)

(Note: the online version of the story has the date Feb. 27, 2014.)



VenezuelaSupermarketLine2014-03-06.jpg "PARTY LINE: Venezuela President Nicolás Maduro, reeling from weeks of protests, called for Carnival season to begin early, and his ministers urged Venezuelans to hit the beach. But the crumbling economy and food shortages created scenes such as the lines at a supermarket." Source of caption and photo: online version of the WSJ article quoted and cited above.


VenezuelaProtestersWearingCarnivalMasks2014-03-06.jpg "Opposition demonstrators wearing Carnival masks take part in a women's rally against Nicolás Maduro's government in Caracas on Wednesday." Source of caption and photo: online version of the WSJ article quoted and cited above.






March 18, 2014

Nasaw Claims Carnegie Believed in Importance of Basic Scientific Research




But notice that the two main examples of what Carnegie himself chose to fund (the Wilson Observatory and the yacht to collect geophysical data), were empirically oriented, not theoretically oriented.


(p. 480) Carnegie was, as Harvard President James Bryant Conant would comment in 1935 on the centenary of his birth, "more than a generation ahead of most business men of this country [in understanding] the importance of science to industry." He recognized far better than his peers how vital basic scientific research was to the applied research that industry fed off. George Ellery Hale, an astronomer and astrophysicist, later to be the chief architect of the National Research Council, was astounded when he learned of Carnegie's commitment to pure research. "The provision of a large endowment solely for scientific research seemed almost too good to be true.... Knowing as I did the difficulties of obtaining money for this purpose and (p. 481) devoted as I was to research rather than teaching, I could appreciate some of the possibilities of such an endowment." Hale applied for funds to build an observatory on Mount Wilson in California, and got what he asked for. It would take until 1909 to build and install a 60-inch reflecting telescope in the observatory; in 1917, a second 100-inch telescope, the largest in the world, was added.

The Mount Wilson Observatory-- and the work of its astronomers and astrophysicists-- was only one of the projects funded in the early years of the new institution. Another, of which Carnegie was equally proud, was the outfitting of the Carnegie, an oceangoing yacht with auxiliary engine, built of wood and bronze so that it could collect geophysical data without the errors inflicted on compass readings by iron and steel. The ship was launched in 1909; by 1911, Carnegie could claim that the scientists on board had already been able to correct several significant errors on navigational maps.



Source:

Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: ellipsis, and italics, in original.)

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






March 13, 2014

How the Brain May Be Able to Control Robots

KakuMichio2014-03-02.jpg











Michio Kaku. Source of photo: online version of the NYT article quoted and cited below.






(p. 2) Michio Kaku is a theoretical physicist and professor at City College of New York. When not trying to complete Einstein's theory of everything, he writes books that explain physics and how developments in the field will shape the future.


. . .


One of the most intriguing things I've read lately was by Miguel Nicolelis, called "Beyond Boundaries: The New Neuroscience of Connecting Brains With Machines," in which he describes hooking up the brain directly to a computer, which allows you to mentally control a robot or exoskeleton on the other side of the earth.



For the full interview, see:

KATE MURPHY, interviewer. "Download; Michio Kaku." The New York Times, SundayReview Section (Sun., FEB. 9, 2014): 2.

(Note: ellipsis added.)

(Note: the first paragraph is an introduction by Kate Murphy; the next paragraph is part of a response by Michio Kaku.)

(Note: the online version of the interview has the date FEB. 8, 2014.)


The book mentioned above is:

Nicolelis, Miguel. Beyond Boundaries: The New Neuroscience of Connecting Brains with Machines---and How It Will Change Our Lives. New York: Times Books, 2011.







March 12, 2014

Small Business Will Fire Workers When Minimum Wage Is Raised



(p. B4) . . . , Charlene Conway is watching her numbers. For 22 years, Ms. Conway and her husband have run Carousel Family Fun Centers in Fairhaven and Whitman, Mass. The business has annual revenue of less than $500,000 and depends exclusively on part-time minimum-wage earners, mostly teenagers, to handle tasks like running the snack bar and maintaining the games.

This year, Massachusetts is considering raising its minimum to $9 an hour, from $8. Should that happen, Ms. Conway said, she will probably need to reduce her staff of 20. Her employees currently make an average of $9 an hour, with managers earning from $10 to $15. Like Ms. Riley, Ms. Conway said that an increase in the minimum would force her to raise pay across the board.

And she, too, is reluctant to raise prices again. In 2011 and 2012, she increased her admission fees by a dollar -- they generally run from $5 to $10 now, based on age and time of day. Another increase, she said, would just make things worse: "We will price ourselves out of business."

In the past, when Massachusetts increased the state's minimum, Ms. Conway responded by increasing the minimum age of her workers to 16 from 14. "I'm not going to pay a 14-year-old $9 an hour with no experience, maturity or work ethic," she said. More recently, she has been hiring 18-year-olds with college experience. "What this does," she said, "is eliminate the opportunity for young people to get started in the work force."

Should minimum wage reach $10 an hour, Ms. Conway said she would reduce her staff to 10 employees and double up on work tasks. "This is a slippery slope that could absolutely cause me to shut down and force me into bankruptcy," she said.



For the full commentary, see:

STACY PERMAN. "SMALL BUSINESS; As Minimum Wages Rise, Businesses Grapple With Consequences." The New York Times (Thurs., Feb. 6, 2014): B4.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date FEB. 5, 2014.)






March 9, 2014

In Traditional Societies People Try to Kill Strangers



DiamondJared2014-03-02.jpg







Jared Diamond. Source of photo: online version of the NYT article quoted and cited below.












(p. 12) Your latest book, "The World Until Yesterday," is about traditional societies and your research in New Guinea. Why is the acronym Weird central to the book? In Weird -- Western, Educated, Industrialized, Rich and Democratic -- societies we take these things for granted that just didn't exist anywhere in the world until a few thousand years ago. We encounter strangers, and it's normal, and we don't freak out and try to kill them. We eat food that somebody else grew for us. We have a government with police and lawyers to settle disputes.


. . .


. . . , the book has been criticized for saying traditional societies are very violent. Some people take a view of traditional society as being peaceful and gentle. But the proportional rate of violent death is much higher in traditional societies than in state-level societies, where governments assert a monopoly on force. During World War II, until Aug. 14, 1945, American soldiers who killed Japanese got medals. On Aug. 16, American soldiers who killed Japanese were guilty of murder. A state can end war, but a traditional society cannot.

People have called the book racist, saying it suggests third-world poverty is caused by environmental factors instead of imperialism and conquests. It's clearly nonsense. It's not as if people in certain parts of the world were rich until Europeans came along and they suddenly became poor. Before that, there were big differences in technology, military power and the development of centralized government around the world. That's a fact.



For the full interview, see:

AMY CHOZICK, interviewer. "Talk; 'New Guinean Kids Are Not Brats'; Jared Diamond on What We Can Learn from Traditional Societies." The New York Times Magazine (Sun., JAN. 12, 2014): A12.

(Note: bold in original; ellipses added.)

(Note: the online version of the interview has the date JAN. 10, 2014, and has the title "Jared Diamond: 'New Guinean Kids Are Not Brats'.")


The book under discussion above is:

Diamond, Jared. The World until Yesterday: What Can We Learn from Traditional Societies? New York: Viking Penguin, 2012.






March 6, 2014

Carnegie Liked Partnership More than Incorporation



(p. 480) "Don't want anything to do with a corporation as long as I am in business--Partnership is the only thing--no one man can manage well--every one needs the companionships of equals in business to contradict and differ from him--one advises the other... I who write you thus have grown gray in the service and speak the words of soberness and wisdom."


Source:

Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: ellipsis in original.)

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






March 5, 2014

Angus Maddison Saw that Life Improved During the "Capitalist Epoch"



HockeyStickGraph2014-03-02.jpgSource of graph: online version of the WSJ article quoted and cited below.



(p. A13) Angus Maddison, the late and eminent economist for the OECD, produced a famous chart in 1995, depicted nearby. For the longest time--basically from after the Garden of Eden until the 19th century--economic benefit for the average person in the West or Japan was flat as toast. The Mona Lisa aside, there was a reason someone back then said life was nasty, brutish and short. Then suddenly, new wealth spread broadly.

Maddison describes 1820 till 1950 as the "capitalist epoch." He means that admiringly. The tools of capitalism unlocked the knowledge created until then. What came to be called "economic growth" gave more people jobs that lifted them and their families from the muck of joblessness and poverty. Maddison also noted that much of the world did not participate in the capitalist epoch. No wonder they revolt now.

This history is worth restating because the importance of strong economic growth, and the unavoidable necessity of a U.S. that leads that growth, may be disappearing down the memory hole of public policy, on the left and even among some on the right. Both share the grim view that the U.S. economy is flatlining, and the grim fight is over how to divide what's left.



For the full commentary, see:

Henninger, DANIEL. "WONDER LAND; The Growth Revolutions Erupt; Ukrainians want what we've got: The benefits of real economic growth." The Wall Street Journal (Thurs., Feb. 27, 2014): A13.

(Note: the online version of the commentary has the date Feb. 26, 2014.)


One of Maddison's last important books was:

Maddison, Angus. Contours of the World Economy, 1-2030 AD: Essays in Macro-Economic History. Oxford and New York: Oxford University Press, 2007.






March 3, 2014

United States Drops Out of Top 10 in Economic Freedom



IndexOfEconomicFreedom2014.jpgSource of table: online version of the WSJ article quoted and cited below.



(p. A13) World economic freedom has reached record levels, according to the 2014 Index of Economic Freedom, released Tuesday [Jan. 14, 2014] by the Heritage Foundation and The Wall Street Journal. But after seven straight years of decline, the U.S. has dropped out of the top 10 most economically free countries.

For 20 years, the index has measured a nation's commitment to free enterprise on a scale of 0 to 100 by evaluating 10 categories, including fiscal soundness, government size and property rights. These commitments have powerful effects: Countries achieving higher levels of economic freedom consistently and measurably outperform others in economic growth, long-term prosperity and social progress.



For the full commentary, see:

TERRY MILLER. "America's Dwindling Economic Freedom; Regulation, taxes and debt knock the U.S. out of the world's top 10." The Wall Street Journal (Tues., Jan. 14, 2014): A13.

(Note: bracketed date added.)

(Note: the online version of the commentary has the date Jan. 13, 2014.)


For more on the 2014 Index of Economic Freedom, visit:

http://www.heritage.org/index/






March 2, 2014

Incentives Limit Collusion



(p. 476) Carnegie's business strategy was the one he had followed twenty years earlier: keep production steady by accepting orders at any price. In early (p. 477) October, he notified Frick that the time had come to leave the rail pool. "I confess I can see nothing so good for us as a 'free hand'" in setting prices. He was willing to lower his prices and profit margin on rails if that was the only way to get the orders he needed to keep his works running. "By this policy we shall keep our men at work." Carnegie had never been entirely happy as a member of the rail pool, especially after Illinois Steel was allocated a greater share than Carnegie Steel. "For my part," he now declared, "I do not wish to play second fiddle in the rail business any longer. I get no sweet dividend out of second fiddle business, and I do know that the way to make more money dividends is to lead.... I am sure that The Carnegie Steel Co. can make more dollars, even next year, and certainly in future years, by managing its own business in its own way, free from all understandings with competitors, than by continuing in any combination that possibly can be formed. Now having made my speech, which I trust you will read to all my partners, I take my seat and imagine the loud applause with which my sentiments are greeted."


Source:

Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: underlines and ellipsis in original.)

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






February 28, 2014

Growth Slow Due to Policies Impeding Start-Ups



(p. A11) The most recent period of rapid productivity growth in the U.S.--and rapid economic growth--was in the 1980s and '90s and reflected the remarkable success of new businesses in information and communications technologies, including Microsoft, Apple, Amazon, Intel and Google. These new companies not only created millions of jobs but transformed modern society, changing how much of the world produces, distributes and markets goods and services.

Rising living standards in the future will depend on the continued success of these businesses but also on the next generation of success stories. Getting the U.S. economy back on track will require a much higher annual rate of new business startups. Sadly, the annual rate of new business creation is about 28% lower today than it was in the 1980s, according to our analysis of the U.S. Census Bureau's Business Dynamics Statistics annual data series.

Why is the startup rate so low? The answer lies in Washington and the policies implemented in the wake of the 2008 financial crisis that were, ironically, intended to grow and stabilize the economy.    . . .

This explosion in federal regulation, intervention and subsidies has retarded productivity growth by protecting incumbents at the expense of more efficient producers, including startups. The number of pages in the Federal Code of Regulations peaked at nearly 175,000 in 2012, an increase of more than 7% in President Obama's first three years.



For the full commentary, see:

EDWARD C. PRESCOTT and LEE E. OHANIAN. "U.S. Productivity Growth Has Taken a Dive; It has averaged about 1.1% since 2011, less than half the historical rate since 1948. Here's how to increase it." The Wall Street Journal (Tues., Feb. 4, 2014): A11.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date Feb. 3, 2014.)






February 26, 2014

Carnegie's Not-Fully-Grown-Infant-Industry Argument for Steel Tariffs



(p. 375) The steel industry was doubly dependent on state and national governments for the generous loans and subsidies that fueled railway expansion and rail purchases and the protective tariffs that enabled the manufacturers to keep their prices--and profits--higher than would have been possible had they been compelled to compete with European steelmakers. If, in the beginning, as Carnegie had argued, the tariff had been needed to nurture an infant steel industry, by the mid-1880s that infant had become a strapping, abrasive youth, who kept on growing. Why then, one might inconveniently ask, was there need for a protective tariff? Because, as Carnegie argued in the North American Review in July 1890, the steel industry was not yet fully grown and would have to be protected until it was.

On the issue of the tariff--as on few others--Pittsburgh's workingmen were in agreement with Carnegie. They voted Republican in large numbers because the Republicans were the guardians of the protective tariff, and the tariff, they believed, protected their wage rates.

The argument linking the tariff and wages in the manufacturing sector was a compelling one in the industrial states, but nowhere else. As the Democrats took great delight in pointing out, high tariffs led to high prices for all consumers.



Source:

Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: italics in original.)

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






February 22, 2014

Jay Gould Said Railroad Rates Should Be Set by "the Laws of Supply and Demand"



(p. 344) Jay Gould, asked in 1885 by a Senate investigating committee if he believed a "general national law" was needed to regulate railroad rates, responded that they were already regulated by "the laws of supply and demand, production, and consumption."


Source:

Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






February 21, 2014

Hero Rebels Against the Bureau of Technology Control



InfluxBK2014-02-19.jpg
















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



(p. D8) In "Influx," . . . , a sinister Bureau of Technology Control kidnaps scientists that have developed breakthrough technologies (the cure to cancer, immortality, true artificial intelligence), and is withholding their discoveries from humanity, out of concern over the massive social disruption they would cause. "We don't have a perfect record--Steve Jobs was a tricky one--but we've managed to catch most of the big disrupters before they've brought about uncontrolled social change," says the head of the bureau, the book's villain. The hero has developed a "gravity mirror" but refuses to cooperate, despite the best efforts of Alexa, who has been genetically engineered by the Bureau to be both impossibly sexy and brilliant.

In the publishing world, there is a growing sense that "Influx," Mr. Suarez's fourth novel, may be his breakout book and propel him into the void left by the deaths of Tom Clancy and Michael Crichton. "Influx' has Mr. Suarez's largest initial print run, 50,000 copies, and Twentieth Century Fox bought the movie rights last month.

An English major at the University of Delaware with a knack for computers, Mr. Suarez started a consulting firm in 1997, working with companies like Nestlé on complex production and logistics-planning issues. "You only want to move 100 million pounds of sugar once," says Mr. Suarez, 49 years old.

He began writing in his free-time. Rejected by 48 literary agents--(a database expert, he kept careful track)--he began self-publishing in 2006 under the name Leinad Zeraus, his named spelled backward. His sophisticated tech knowledge quickly attracted a cult following in Silicon Valley, Redmond, Wash., and Cambridge, Mass. The MIT bookstore was the first bookstore to stock his self-published books in 2007.



For the full review, see:

EBEN SHAPIRO. "Daniel Suarez Sees Into the Future." The Wall Street Journal (Fri., Feb. 7, 2014): D8.

(Note: ellipsis added.)

(Note: the online version of the review has the date Feb. 5, 2014, and the title "Daniel Suarez Sees Into the Future.")


The book under review, is:

Suarez, Daniel. Influx. New York: Dutton, 2014.



SuarezDanielAuthorInflux2014-02-19.jpg










Author of Influx, Daniel Suarez. Source of photo: online version of the WSJ article quoted and cited above.








February 20, 2014

The Young, with Managerial Experience, Are Most Likely to Become Entrepreneurs



(p. A13) In a current study analyzing the most recent Global Entrepreneurship Monitor (GEM) survey, my colleagues James Liang, Jackie Wang and I found that there is a strong correlation between youth and entrepreneurship. The GEM survey is an annual assessment of the "entrepreneurial activity, aspirations and attitudes" of thousands of individuals across 65 countries.

In our study of GEM data, which will be issued early next year, we found that young societies tend to generate more new businesses than older societies. Young people are more energetic and have many innovative ideas. But starting a successful business requires more than ideas. Business acumen is essential to the entrepreneur. Previous positions of responsibility in companies provide the skills needed to successfully start businesses, and young workers often do not hold those positions in aging societies, where managerial slots are clogged with older workers.

In earlier work (published in the Journal of Labor Economics, 2005), I found that Stanford MBAs who became entrepreneurs typically worked for others for five to 10 years before starting their own businesses. The GEM data reveal that in the U.S. the entrepreneurship rate peaks for individuals in their late 20s and stays high throughout the 30s. Those in their early 20s have new business ownership rates that are only two-thirds of peak rates. Those in their 50s start businesses at about half the rate of 30-year-olds.

Silicon Valley provides a case in point. Especially during the dot-com era, the Valley was filled with young people who had senior positions in startups. Some of the firms succeeded, but even those that failed provided their managers with valuable business lessons.

My co-author on the GEM study, James Liang, is an example. After spending his early years as a manager at the young and rapidly growing Oracle, he moved back to China to start Ctrip, one of the country's largest Internet travel sites.



For the full commentary, see:

EDWARD P. LAZEAR. "The Young, the Restless and Economic Growth; Countries with a younger population have far higher rates of entrepreneurship." The Wall Street Journal (Mon., Dec. 23, 2013): A13.

(Note: the online version of the commentary has the date Dec. 22, 2013.)


The Lazear paper mentioned above, is:

Lazear, Edward P. "Entrepreneurship." Journal of Labor Economics 23, no. 4 (October 2005): 649-80.






February 19, 2014

In South Korea, "Spam Is a Classy Gift"



SpamGiftBoxesInSeoul2014-02-07.jpg "Spam gift boxes at the Lotte Department Store in Seoul." Source of caption and photo: online version of the NYT article quoted and cited below.



Often when I explain the concept of an "inferior good" to my micro principles classes, I use the example of Spam, sometimes elaborating that I failed my first attempt to earn the Boy Scouts cooking merit badge, when I was unable to open my can of Spam. I go on to point out that goods that are "inferior" for some people, can be "normal" goods for other people, depending on preferences, and that I had read somewhere that Spam was a treasured gift in South Korea, and hence was probably NOT an inferior good for most South Koreans.

Finally, documentation of my impression:


(p. A1) SEOUL, South Korea -- As the Lunar New Year holiday approaches, Seoul's increasingly well-heeled residents are scouring store shelves for tastefully wrapped boxes of culinary specialties. Among their favorite choices: imported wines, choice cuts of beef, rare herbal teas. And Spam.

Yes, Spam. In the United States, the gelatinous meat product in the familiar blue and yellow cans has held a place as thrifty pantry staple, culinary joke and kitschy fare for hipsters without ever losing its low-rent reputation. But in economically vibrant South Korea, the pink bricks of pork shoulder and ham have taken on a bit of glamour as they have worked their way into people's affections.

"Here, Spam is a classy gift you can give to people you care about during the holiday," said Im So-ra, a saleswoman at the high-end Lotte Department Store in downtown Seoul who proudly displayed stylish boxes with cans of Spam nestled inside.


. . .


(p. A7) . . . George H. Lewis, a sociologist at the University of the Pacific, noted in a 2000 article in The Journal of Popular Culture that Spam won its "highest" status in South Korea. Here, he observed, Spam not only outranked Coca-Cola and Kentucky Fried Chicken in status, but was given as a gift "on occasions of importance when one wishes to pay special honor and proper respect."


. . .


"Spam maintains a mythical aura on the Korean market for reasons that escape many," mused Koo Se-woong, a lecturer of Korean studies at Yale University's MacMillan Center for International and Area Studies. "Given Spam's introduction to South Korea through the U.S. military, it enjoyed an association with prosperity and nutritiousness during an earlier era."


. . .


"To me, Spam was just a tasteful and convenient food that mother used to cook for us," she said. "The thing about Spam is that it goes marvelously well with kimchi and rice."



For the full story, see:

CHOE SANG-HUN. "In South Korea, Spam Is the Stuff Gifts Are Made Of." The New York Times (Mon., JAN. 27, 2014): A1 & A7.

(Note: the online version of the story has the date JAN. 26, 2014.)


Lewis' academic article on spam, is:

Lewis, George H. "From Minnesota Fat to Seoul Food: Spam in America and the Pacific Rim." The Journal of Popular Culture 34, no. 2 (Fall 2000): 83-105.






February 18, 2014

Carnegie Donated to Pro-Steel-Tariff Republicans



(p. 331) Through good times and bad, protected tariffs on imported steel rails had kept the domestic steel business strong--and the steelmakers, a major force in Pennsylvania politics, had responded by doing all they could to reelect pro-tariff Republicans. Three weeks before the 1884 elections, Carnegie had written his partners in Pittsburgh that "Bethlehem, Penna. Steel Co., Cambria, and Lackawanna I & C [Iron & Coal] have each given $ 5,000 to the Republican National Committee and we have been asked to give the same amount which I think is only fair."


Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: bracketed words in original.)

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






February 17, 2014

Would Science Progress Faster If It Were Less Academic and More Entrepreneurial?



BootstrapGeologistBK2014-01-18.jpg














Source of caption and photo: online version of the NYT article quoted and cited below.




(p. D5) There is Big Science, defined as science that gets the big bucks. There is tried and true science, which, from an adventurous dissident's point of view, is boldly going where others have gone before but extending the prevailing knowledge by a couple of decimal places (a safe approach for dissertation writers and grant seekers).

Then there is bootstrap science, personified by Gene Shinn, who retired in 2006 after 31 years with the United States Geological Survey and 15 years with a research arm of the Shell Oil Company.


. . .


Without a Ph.D. and often without much financing, Mr. Shinn published more than 120 peer-reviewed papers that helped change many experts' views on subjects like how coral reefs expand and the underwater formation of limestone. Some of his papers, at odds with established scientific views, were initially rejected, only to be seen later as visionary.

His bootstrap ingredients included boundless curiosity, big ideas -- "gee-whiz science," he calls it -- persistence, a sure hand at underwater demolition (dynamite was comparatively easy to come by in those remarkably innocent days) and versatility at improvising core-sampling equipment on tight budgets. The ability to enlist the talents of other scientists, many with doctorates, who shared his love of hands-on field work and his impatience with official rules and permits added to the mix.



For the full review, see:

MICHAEL POLLAK. "BOOKS; Science on His Own Terms." The New York Times (Tues., November 5, 2013): D5.

(Note: the online version of the review has the date November 4, 2013.)


Book under review:

Shinn, Eugene A. Bootstrap Geologist: My Life in Science. Gainesville, FL: University Press of Florida, 2013.






February 16, 2014

Incandesce



(p. A11) When I am asked if I want a Compact Fluorescent Light, the only thought I have is that I don't want my light to be compact, nor do I wish it to be florescent. I want a light that will incandesce across my room, filling it with a familiar yellow surf, and remind me that it was not with wax or kerosene, but with incandescent bulbs that man conquered the night.


. . .


I imagine what will happen when the filaments in my final incandescent bulbs grow weak, and I can hardly read my notes before me. Will I no longer be able to write at night? Or worse, will living with CFLs and LEDs make every day feel like I have just spent nine hours plastered before a computer screen? One day, soon, I will turn on my light and hear for the last time the signature, explosive death rattle of an incandescent bulb, and I'll hold a vigil for the light that shaped and witnessed more than a century of human history. Tender is the light, Keats might say.

In my lightless room, I'll sit for a moment and wonder how many more times in my life I'll watch a bulb go out again. As I look to my dead bulb, I'll think of the poet again and whisper: Darkling, you were not a piece of technology born for death.



For the full commentary, see:

ALEXANDER ACIMAN. "Tender Is the Light of My Incandescents; Bracing myself for life once the filaments in my beloved bulbs grow weak." The Wall Street Journal (Fri., Jan. 31, 2014): A11.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date Jan. 30, 2014.)






February 12, 2014

It Does Not Take a Government to Raise a Railroad



(p. A17) . . . , All Aboard Florida (the train will get a new name this year), is not designed to push political buttons. It won't go to Tampa. It will zip past several aggrieved towns on Florida's Treasure Coast without stopping.

Nor will the train qualify as "high speed," except on a stretch where it will hit 125 miles an hour. Instead of running on a dedicated line, the new service will mostly share existing track with slower freight trains operated by its sister company, the Florida East Coast Railway.

But the sponsoring companies, all owned by the private-equity outfit Fortress Investment Group, appear to have done their sums. By minimizing stops, the line will be competitive with road and air in connecting the beaches, casinos and resorts of Miami and Fort Lauderdale with the big airport and theme-park destination of Orlando. Capturing a small percentage of the 50 million people who travel between these fleshpots, especially European visitors accustomed to intercity rail at home, would let the train cover its costs and then some.

But Fortress has a bigger fish in the pan. Its local operation, Florida East Coast Industries, is a lineal progeny of Henry Flagler, the 1890s entrepreneur who created modern Florida when he built a rail line to support his resort developments. Flagler's heirs are adopting the same model. A Grand Central-like complex will rise on the site of Miami's old train station. A similar but smaller edifice is planned for Fort Lauderdale.

The project is a vivid illustration of the factors that have to fall in place to make passenger rail viable nowadays. If the Florida venture succeeds, it would be the only intercity rail service anywhere in the world not dependent on government operating subsidies. It would be the first privately run intercity service in America since the birth of Amtrak in 1971.



For the full commentary, see:

HOLMAN W. JENKINS, JR. "BUSINESS WORLD; A Private Railroad Is Born; All Aboard Florida isn't looking for government operating subsidies." The Wall Street Journal (Weds., Jan. 15, 2014 ): A17.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date Jan. 14, 2014 .)






February 10, 2014

Carnegie Said "Socialism Is the Grandest Theory Ever Presented"




More on why Andrew Carnegie is not my favorite innovative entrepreneur:


(p. 257) "But are you a Socialist?" the reporter asked.

Carnegie did not answer directly. "I believe socialism is the grandest theory ever presented, and I am sure some day it will rule the world. Then we will have obtained the millennium.... That is the state we are drifting into. Then men will be content to work for the general welfare and share their riches with their neighbors."

"'Are you prepared now to divide your wealth' [he] was asked, and Mr. Carnegie smiled. 'No, not at present, but I do not spend much on myself. I give away every year seven or eight times as much as I spend for personal comforts and pleasures."



Source:

Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: ellipsis, and bracketed pronoun, in original.)

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






February 1, 2014

Twitter Founders Were Outsiders and Unafraid of Risk



HatchingTwitterBK2014-01-18.jpg











Source of the book image: http://s.wsj.net/public/resources/images/BN-AF602_bkrvtw_GV_20131031131314.jpg







(p. 20) . . . "Hatching Twitter," a fast-paced and perceptive new book by Nick Bilton, a columnist and reporter for The New York Times, establishes that uncertainty and dissension about its true purpose has characterized Twitter from its inception.


. . .


The company was financed by Williams, who made a bundle selling Blogger to Google and was intent on proving he wasn't a one-hit wonder. It rose from the ashes of a failed podcasting enterprise, Odeo, which Williams had bankrolled as a favor to his friend Noah Glass. Bilton sketches the founders' backgrounds and personalities in quick, skillful strokes that will serve the eventual screenwriter, director and storyboard artist well; these are characters made for the big screen.

None came from money. Ev Williams was a shy Nebraska farm boy whose parents never really understood their socially awkward, computer-obsessed son.


. . .


Having known hardship, none of the four founders were afraid of risk. To join the ill-fated Odeo, Stone walked away from a job at Google, leaving more than $2 million in unvested stock options on the table.

Twitter began with a conversation. Dorsey and Glass sat talking in a car one night in 2006 when Odeo was on the verge of collapse. Dorsey mentioned his "status concept," which was inspired by AOL's Instant Messenger "away messages" and LiveJournal status updates that people were using to mention where they were and what they were doing. Glass warmed to the idea, seeing it as a "technology that would erase a feeling that an entire generation felt while staring into their computer screens": loneliness.



For the full review, see:

MAUD NEWTON. "Four Characters." The New York Times Book Review (Sun., November 3, 2013): 20.

(Note: ellipses added.)

(Note: the online version of the review has the date November 1, 2013.)


Book under review:

Bilton, Nick. Hatching Twitter: A True Story of Money, Power, Friendship, and Betrayal. New York: Portfolio, 2013.






January 31, 2014

70 Percent of Current Jobs May Soon Be Done by Robots



Kelly may be right, but it does not imply that we will all be unemployed. What will happen is that new and better jobs, and entrepreneurial opportunities, will be created for humans.

Robots will do the boring, the dangerous, and the physically exhausting. We will do the creative and the analytic, and the social or emotional


(p. A21) Kevin Kelly set off a big debate with a piece in Wired called "Better Than Human: Why Robots Will -- And Must -- Take Our Jobs." He asserted that robots will soon be performing 70 percent of existing human jobs. They will do the driving, evaluate CAT scans, even write newspaper articles. We will all have our personal bot to get coffee. There's already an existing robot named Baxter, who is deliciously easy to train: "To train the bot you simply grab its arms and guide them in the correct motions and sequence. It's a kind of 'watch me do this' routine. Baxter learns the procedure and then repeats it. Any worker is capable of this show-and-tell."


For the full commentary, see:

DAVID BROOKS. "The Sidney Awards, Part 2." The New York Times (Tues., December 31, 2013): A21. [National Edition]

(Note: the online version of the commentary has the date December 30, 2013.)


The article praised by Brooks is:

Kelly, Kevin. "Better Than Human: Why Robots Will -- and Must -- Take Our Jobs." Wired (Jan. 2013).






January 24, 2014

Artificial Intelligence Is a Complement to Human Intelligence, Not a Substitute for It



Smarter-Than-You-ThinkBK.jpg














Source of book image: http://img2-1.timeinc.net/ew/i/2013/11/05/Smarter-Than-You-Think.jpg




(p. 11) Clive Thompson, a Brooklyn-based technology journalist, uses this tale to open "Smarter Than You Think," his judicious and insightful book on human and machine intelligence. But he takes it to a more interesting level. The year after his defeat by Deep Blue, Kasparov set out to see what would happen if he paired a machine and a human chess player in a collaboration. Like a centaur, the hybrid would have the strength of each of its components: the processing power of a large logic circuit and the intuition of a human brain's wetware. The result: human-machine teams, even when they didn't include the best grandmasters or most powerful computers, consistently beat teams composed solely of human grandmasters or superfast machines.

Thompson's point is that "artificial intelligence" -- defined as machines that can think on their own just like or better than humans -- is not yet (and may never be) as powerful as "intelligence amplification," the symbiotic smarts that occur when human cognition is augmented by a close interaction with computers.



For the full review, see:

WALTER ISAACSON. "Brain Gain." The New York Times Book Review (Sun., November 3, 2013): 11.

(Note: the online version of the review has the date November 1, 2013.)


Book under review:

Thompson, Clive. Smarter Than You Think: How Technology Is Changing Our Minds for the Better. New York: Penguin Press, 2013.






January 23, 2014

Peck Shows that Job Interviews Do Not Identify Good Hires



(p. A18) Don Peck looked at how companies assess potential hires in an essay in The Atlantic called "They're Watching You at Work."

Peck demonstrates something that most of us already sense: that job interviews are a lousy way to evaluate potential hires. Interviewers at big banks, law firms and consultancies tend to prefer people with the same leisure interests -- golf, squash, whatever. In one study at Xerox, previous work experience had no bearing on future productivity.

Now researchers are using data to try again to make a science out of hiring. They watch how potential hires play computer games to see who is good at task-switching, who possesses the magical combination: a strict work ethic but a loose capacity for "mind wandering." Peck concludes that this greater reliance on cognitive patterns and game playing may have an egalitarian effect. It won't matter if you went to Harvard or Yale. The new analytics sometimes lead to employees who didn't even go to college. The question is do these analytics reliably predict behavior? Is the study of human behavior essentially like the study of nonhuman natural behavior -- or is there a ghost in the machine?



For the full commentary, see:

DAVID BROOKS. "The Sidney Awards." The New York Times (Fri., December 27, 2013): A18. [National Edition]

(Note: the online version of the commentary has the date December 26, 2013, and has the title "The Sidney Awards, Part 1.")


The article praised by Brooks is:

Peck, Don. "They're Watching You at Work." The Atlantic (Dec. 2013).






January 22, 2014

Regulators Forbid Doctor from Curing Dentist's Pelvic Pain



DavidsonDaneilPelvicPain2014-01-16.jpg "Dr. Daniel Davidson, an Idaho dentist, has pelvic pain so severe that he cannot sit, and can stand for only limited periods." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. A18) After visiting dozens of doctors and suffering for nearly five years from pelvic pain so severe that he could not work, Daniel Davidson, 57, a dentist in Dalton Gardens, Idaho, finally found a specialist in Phoenix who had an outstanding reputation for treating men like him.

Dr. Davidson, whose pain followed an injury, waited five months for an appointment and even rented an apartment in Phoenix, assuming he would need surgery and time to recover.

Six days before the appointment, it was canceled. The doctor, Michael Hibner, an obstetrician-gynecologist at St. Joseph's Hospital and Medical Center, had learned that members of his specialty were not allowed to treat men and that if he did so, he could lose his board certification -- something that doctors need in order to work.

The rule had come from the American Board of Obstetrics and Gynecology. On Sept. 12, it posted on its website a newly stringent and explicit statement of what its members could and could not do. Except for a few conditions, gynecologists were prohibited from treating men. Pelvic pain was not among the exceptions.

Dr. Davidson went home, close to despair. His condition has left him largely bedridden. The pain makes it unbearable for him to sit, and he can stand for only limited periods before he needs to lie down.

"These characters at the board jerked the rug out from underneath me," he said.



For the full story, see:

DENISE GRADY. "Men With Pelvic Pain Find a Path to Treatment Blocked by a Gynecology Board." The New York Times (Weds., December 11, 2013): A18.

(Note: the online version of the story has the date December 10, 2013.)






January 21, 2014

Carnegie Created "Plausible Fictions" on the Future Demand for Minor Railroads




Economists and historians continue to debate the importance or unimportance of railroads in the economic growth of the United States. This is a debate that I need to explore more.


(p. 129) It is doubtful that either [Scott or Carnegie] . . . truly believed that the new railroads, when built, would carry enough traffic to earn back their construction costs. A great number of them were along lightly traveled routes, which, like the Gilman, Springfield & Clinton Railroad in Illinois, connected small cities that did little business with one another. The roads were being built because money could be made building them. Carnegie profited from the commissions on the bond sales; Scott from diverting funds earmarked for construction into the hands of the select number of investors, himself included, who were directors of both the railroad and the improvement companies.

To raise money for roads not yet built and probably not really needed, Carnegie and Scott trafficked in what Richard White refers to as "the utilitarian fictions of capitalism." Together, they constructed "plausible fictions" about the railroads, the passengers and freight that would ride them, the tolls that would be collected, the villages that would grow into towns and the towns into cities, creating new populations, products, and commerce.

Carnegie, a consummate optimist, took naturally to the task.



Source:

Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: bracketed words and ellipsis added.)

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






January 18, 2014

Patent Allows Mechanic to Profit from Invention to Ease Births



OdonDeviceEasesBirth2014-01-16.jpg "With Jorge Odón's device, a plastic bag inflated around a baby's head is used to pull it out of the birth canal." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. A1) The idea came to Jorge Odón as he slept. Somehow, he said, his unconscious made the leap from a YouTube video he had just seen on extracting a lost cork from a wine bottle to the realization that the same parlor trick could save a baby stuck in the birth canal.

Mr. Odón, 59, an Argentine car mechanic, built his first prototype in his kitchen, using a glass jar for a womb, his daughter's doll for the trapped baby, and a fabric bag and sleeve sewn by his wife as his lifesaving device.


. . .


(p. A4) In a telephone interview from Argentina, Mr. Odón described the origins of his idea.

He tinkers at his garage, but his previous inventions were car parts. Seven years ago, he said, employees were imitating a video showing that a cork pushed into an empty bottle can be retrieved by inserting a plastic grocery bag, blowing until it surrounds the cork, and drawing it out.


. . .


With the help of a cousin, Mr. Odón met the chief of obstetrics at a major hospital in Buenos Aires. The chief had a friend at the W.H.O., who knew Dr. Merialdi, who, at a 2008 medical conference in Argentina, granted Mr. Odón 10 minutes during a coffee break.

The meeting instead lasted two hours. At the end, Dr. Merialdi declared the idea "fantastic" and arranged for testing at the Des Moines University simulation lab, which has mannequins more true-to-life than a doll and a jar.

Since then, Mr. Odón has continued to refine the device, patenting each change so he will eventually earn royalties on it.


. . .


Dr. Merialdi said he endorsed a modest profit motive because he had seen other lifesaving ideas languish for lack of it. He cited magnesium sulfate injections, which can prevent fatal eclampsia, and corticosteroids, which speed lung development in premature infants.

"But first, this problem needed someone like Jorge," he said. "An obstetrician would have tried to improve the forceps or the vacuum extractor, but obstructed labor needed a mechanic. And 10 years ago, this would not have been possible. Without YouTube, he never would have seen the video."



For the full story, see:

DONALD G. McNEIL Jr. "Promising Tool in Difficult Births: A Plastic Bag." The New York Times (Thurs., November 14, 2013): A1 & A4. [National Edition]

(Note: ellipses added.)

(Note: the online version of the story has the date November 13, 2013, and has the title "Car Mechanic Dreams Up a Tool to Ease Births.")






January 17, 2014

Carnegie Failed Twice Before Bessemer Success



(p. 101) [Carnegie] . . . organized his own company to secure the rights to the Dodd process for strengthening iron rails by coating them with steel facings. Thomson agreed to appropriate $20,000 of Pennsylvania Railroad funds to test the new technology.

On March 12, 1867, Thomson wrote to tell Carnegie that his Dodd-processed rails had failed their first test: "treatment under the hammer.... You may as well abandon the Patent--It will not do if this Rail is a sample." Three days later, Thomson wrote Carnegie again, this time marking his letter with a handwritten "Private" in the top left-hand corner and "a word to the wise" penned in just below. Carnegie had apparently asked Thomson for more time--and/or money--to continue his experiments. Thomson replied that the experiments his engineers had made had so "impaired my confidence in this process that I don't feel at liberty to increase our order for these Rails."

Instead of giving up, Carnegie pushed forward, hawking his new steel-faced iron rails to other railroad presidents, attempting to get a new contract with Thomson, and reorganizing the Freedom Iron Company in Lewistown, Pennsylvania, in which he was a major investor, into Freedom Iron and Steel. In the spring of 1867, he succeeded, despite Thomson's misgivings, in getting the approval to manufacture and deliver a second 500-ton batch of steel-faced rails. The new rails fared as poorly as the old ones. There would be no further contracts forthcoming from the Pennsylvania Railroad or any other railroad.

Carnegie tried to bluff his way through. When his contacts in England recommended that he purchase the American rights to a better process for facing iron rails with steel, this one invented by a Mr. Webb, Carnegie retooled his mill for the new process. He was fooled a second time. Not only was the Webb process as impractical as the Dodd, but there was, as there (p. 102) had been with the Dodd process, confusion as to who held the American patent rights. Within a year, the company Carnegie had organized to produce the new steel-faced rails was out of business.


. . .


These early failures did not deter him from investing in other start-up companies and technologies, but he would in future be a bit more careful before committing his capital. In March 1869, Tom Scott solicited his advice about investing in the rights to a new "Chrome Steel process." Carnegie replied that his "advice (which don't cost anything if of no value) would be to have nothing to do with this or any other great change in the manufacture of steel or iron.... I know at least six inventors who have the secret all are so anxiously awaiting.... That there is to be a great change in the manufacture of iron and steel some of these years is probable, but exactly what form it is to take no one knows. I would advise you to steer clear of the whole thing. One will win, but many lose and you and I not being practical men would very likely be among the more numerous class. At least we would wager at very long odds. There are many enterprises where we can go in even."



Source:

Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: bracketed name, ellipsis near start, and ellipsis between paragraphs added; ellipsis internal to other paragraphs, in original.)

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






January 13, 2014

"Despising to Bury in the Ground Any of the Talents . . . Which Might Reach His Coffers"



(p. 97) . . . , Carnegie was concerned that he was overextended. From Dresden, in mid-November, he half jokingly apologized to his brother for placing his--and the family's--finances in jeopardy. "Your finances are reputed far from healthy," he had written Tom. "But how can they ever be otherwise? It was never intended. One of the firm, at least, was made to be forever head and ears in debt and to crowd full sail, despising to bury in the ground any of the talents (silver talents, I mean) which might reach his coffers, or to lie long under the suspicion of having at the bank even a moderate balance upon the right side of the ledger." Carnegie had fantasized that "a whole year's absence from opening up new enterprises... while the funds remained in charge of a super man, might possibly afford him, upon his return, a new sensation," that of being solvent. But that was not going to happen.


Source:

Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: ellipsis in title and at start added; ellipsis in Carnegie quote near end, in original.)

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






January 12, 2014

In 20th Century, Inventions Had Cultural Impact Twice as Fast as in 19th Century



NgramGraphTechnologies2013-12-08.png I used Google's Ngram tool to generate the Ngram above, using the same technologies used in the Ngram that appeared in the print (but not the online) version of the article quoted and cited below. The blue line is "railroad"; the red line is "radio"; the green line is "television"; the orange line is "internet." The search was case-insensitive. The print (but not the online) version of the article quoted and cited below, includes a caption that describes the Ngram tool: "A Google tool, the Ngram Viewer, allows anyone to chart the use of words and phrases in millions of books back to the year 1500. By measuring historical shifts in language, the tool offers a quantitative approach to understanding human history."



(p. 3) Today, the Ngram Viewer contains words taken from about 7.5 million books, representing an estimated 6 percent of all books ever published. Academic researchers can tap into the data to conduct rigorous studies of linguistic shifts across decades or centuries. . . .

The system can also conduct quantitative checks on popular perceptions.

Consider our current notion that we live in a time when technology is evolving faster than ever. Mr. Aiden and Mr. Michel tested this belief by comparing the dates of invention of 147 technologies with the rates at which those innovations spread through English texts. They found that early 19th-century inventions, for instance, took 65 years to begin making a cultural impact, while turn-of-the-20th-century innovations took only 26 years. Their conclusion: the time it takes for society to learn about an invention has been shrinking by about 2.5 years every decade.

"You see it very quantitatively, going back centuries, the increasing speed with which technology is adopted," Mr. Aiden says.

Still, they caution armchair linguists that the Ngram Viewer is a scientific tool whose results can be misinterpreted.

Witness a simple two-gram query for "fax machine." Their book describes how the fax seems to pop up, "almost instantaneously, in the 1980s, soaring immediately to peak popularity." But the machine was actually invented in the 1840s, the book reports. Back then it was called the "telefax."

Certain concepts may persevere, even as the names for technologies change to suit the lexicon of their time.



For the full story, see:

NATASHA SINGER. "TECHNOPHORIA; In a Scoreboard of Words, a Cultural Guide." The New York Times, SundayBusiness Section (Sun., December 8, 2013): 3.

(Note: ellipsis added; bold in original.)

(Note: the online version of the article has the date December 7, 2013.)






January 9, 2014

Early Carnegie Profits "Were Quickly Reinvested in Other Projects"



(p. 78) The tens of thousands of dollars Carnegie earned in the four years he held the Columbia Oil stock were quickly reinvested in other projects.


Source:

Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






January 7, 2014

Buffett's Returns Not Due to Ability to Pick Good Managers



(p. B7) Investors for years have been searching in vain for a formula to replicate Warren Buffett's legendary returns over the past 50 years.

The wait could be over.

A new study that claims to have uncovered this formula was published [in November 2013] . . . by the National Bureau of Economic Research in Cambridge, Mass. Its authors, all of whom have strong academic credentials, work for AQR Capital Management, a firm that manages several hedge funds and other investment offerings and has $90 billion in assets.

The study's authors analyzed Mr. Buffett's record since he acquired Berkshire Hathaway in 1964.


. . .


One factor that is conspicuous in its absence from the formula is anything to account for Mr. Buffett's significant investments in privately owned companies. But that isn't necessary, according to the researchers, because the public companies in which he has invested have outperformed the private ones.

This is somewhat surprising, given that Mr. Buffett has often trumpeted his abilities to pick good managers. Yet the researchers nevertheless find that his "returns are more due to stock selection than to his effect on management."



For the full commentary, see:

MARK HULBERT. "Hulbert on Investing; Can the Buffett Investing Formula Really Be Bottled?" The Wall Street Journal (Sat., Dec. 14, 2013): B7.

(Note: ellipses, and bracketed words, added.)

(Note: the online version of the commentary has the date Dec. 13, 2013, and has the title "WEEKEND INVESTOR; How to Invest Like Warren Buffett; How can investors emulate Warren Buffett's approach?")


The National Bureau of Economic Research (NBER) paper that is discussed above:

Frazzini, Andrea, David Kabiller, and Lasse H. Pedersen. "Buffett's Alpha." NBER Working Paper # 19681, November 2013.






January 6, 2014

Ignorance of Economics Makes U.S. Agency Complicit in Elephant Deaths



IvoryCrushedByUS2013-11-27.jpg "Crushed ivory falls out of the crusher as the U.S. crushed its six-ton stock of confiscated ivory at the Rocky Mountain Arsenal National Wildlife Refuge . . . ." Source of caption and photo: online version of the WSJ article quoted and cited below.



The higher the price of ivory, the greater the incentive for ivory poachers to kill elephants. The U.S. Fish and Wildlife Service could have put their cache of ivory on the market, thereby increasing the supply, and reducing the price. If they had done so, they would have reduced the incentive of the poachers to poach. (This is basic price theory that I teach in each of my micro-economic principles classes.) Instead they crushed the ivory and thereby doomed some elephants to death, who otherwise could have been saved.



(p. A3) COMMERCE CITY, Colo.--The U.S. government spent the past 25 years amassing contraband ivory in a warehouse here, with pieces ranging from tiny statuettes to full elephant tusks tattooed by intricate carvings. Ultimately, the pile grew to six tons--equivalent to ivory from at least 2,000 elephants.

On Thursday, the stash collected by the U.S. Fish and Wildlife Service was pulverized by an industrial rock crusher as government officials, conservationists from around the world and celebrities gathered to watch the destruction.

The move, which follows similar events in the Philippines and Gabon in recent years, is part of a global effort to combat elephant poaching, on the rise because of growing demand for ivory trinkets in Asia. Proponents argue that crushing the ivory conveys to illegal traffickers and collectors that it has no value unless it is attached to an elephant.


. . .


But critics of the practice said they worry that destroying the coveted commodity, sometimes referred to as "white gold," could instead create the perception that the world's remaining ivory is more valuable--and drive poachers to kill more elephants for their tusks. "This could be self-defeating," said Michael 't Sas-Rolfes, an independent conservation economist.


. . .


While praising efforts to preserve elephants, some in conservation circles consider crushing contraband ivory to be an ineffective strategy.

Kirsten Conrad, a wildlife conservation consultant who has studied the Chinese ivory market, said elephants could be better served if sustainably harvested ivory--from elephants that died from natural causes, for example--were regularly offered for sale.

The proceeds would give communities in Africa an incentive to better protect wildlife, and the steady supply would dissuade speculators in China from stockpiling, as she says they are doing now. A kilo of raw ivory can sell for up to $3,000. "We're losing an elephant every 16 minutes," she said. "We should look really hard at legal trade."



For the full story, see:

ANA CAMPOY. "Crushing Illegal Ivory Trade; In Move to Combat Elephant Poaching, U.S. Destroys Six Tons of 'White Gold'." The Wall Street Journal (Fri., Nov. 15, 2013): A3.

(Note: ellipses added.)

(Note: the online version of the review has the date Nov. 14, 2013, and has the title "Crushing Illegal Ivory Trade; In Move to Combat Elephant Poaching, Government Agency Destroys Six Tons of 'White Gold'.")



IvoryToBeCrushedInUS2013-11-27.jpg "Ivory on display before the U.S. crushed it in Commerce City, Colo., Thursday. On Thursday the government destroyed nearly six tons of seized contraband ivory tusks and trinkets." Source of caption and photo: online version of the WSJ article quoted and cited above.






January 4, 2014

Ending U.S. Sugar Import Quotas Would Create 20,000 U.S. Jobs in Food Manufacturing



CalvoBacciOwnerCandyShop2013-12-j07.jpg "Erin Calvo-Bacci, the owner of a candy shop, the Chocolate Truffle, in Reading, Mass., lamented the cost of American sugar." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. A14) READING, Mass. -- Inside the Chocolate Truffle candy shop in this Boston suburb are chocolate pizzas, chocolate buffalo wings, even a chocolate wingtip shoe. The owner, Erin Calvo-Bacci, would like to expand her business close to home, but is instead thinking of moving her operations to Canada, where the sugar essential for her products costs far less.

"We are committed to offering locally made affordable products, but the cost of sugar is driving manufacturers out of the country," Ms. Calvo-Bacci said, echoing other American candy producers, like the maker of Dum Dum lollipops, that are moving jobs to Mexico to take advantage of the lower sugar prices there.

Candy makers say the culprit is the federal sugar program, a combination of import restrictions, production quotas and loan programs dating to the 1930s, all designed to keep the price of American sugar well above that of the world market. Now the program is at the center of an intensifying battle as the House and Senate open formal negotiations this week on a long-delayed farm bill.

The price for one type of sugar, wholesale refined beet sugar, averaged 43.4 cents per pound at Midwest markets last year, the Agriculture Department reported, compared with 26.5 cents per pound for the world refined sugar price.


. . .


. . . sugar producers, bolstered by lawmakers from sugar-beet-producing states like Minnesota and sugarcane states like Florida, have spent an estimated $20 million since 2011 to block efforts to change the program. . . . Small candy makers, bakers and others who have lobbied Congress for lower prices say that taking on the sugar lobby is like taking on Goliath.

"We were no match for the sugar people," said Judy Hilliard McCarthy, an owner of Hilliard's House of Candy, a candy maker just outside Boston. Ms. McCarthy said she had made several trips to Washington to lobby on behalf of the industry.

Government and academic studies support claims by candy makers that the sugar program has had an impact on the industry. A widely cited 2006 study by the Commerce Department and a 2011 Iowa State University study found that the price supports had led to job losses among candy makers.

In particular, the Commerce Department study found that three candy-making jobs were lost for each job growing or processing sugar that was saved by higher prices. The Iowa State study found that eliminating price supports and quotas for sugar would create about 20,000 jobs for American food processors, bakeries and candy makers.


For the full story, see:

RON NIXON. "Candy Makers, Pinched by Inflated Sugar Prices in the U.S., Look Abroad." The New York Times (Thurs., October 31, 2013): A14.

(Note: ellipses added.)

(Note: the online version of the article has the date October 30, 2013, and has the title "American Candy Makers, Pinched by Inflated Sugar Prices, Look Abroad.")



The latest version of the John Beghin Iowa State report, mentioned above, is:

Beghin, John C., and Amani Elobeid. "The Impact of the U.S. Sugar Program Redux." Working Paper No. 13010. Iowa State University, Department of Economics, Staff General Research Papers, May 2013.



SugarPouredForConfection2013-12-07.jpg "Sugar was poured to make a confection for Hilliard's House of Candy, just outside Boston, whose owner has lobbied officials." Source of caption and photo: online version of the NYT article quoted and cited above.






January 1, 2014

"Carnegie Watched, Listened, Learned" from Scott's Process Innovations



(p. 65) Later in life, Scott would be better known for his political skills, but he was, like his mentor Thomson, a master of cost accounting. Together, the two men steadily cut unit costs and increased revenues by investing in capital improvements--new and larger locomotives, better braking systems, improved tracks, new bridges. Instead of running several smaller trains along the same route, they ran fewer but longer trains with larger locomotives and freight cars. To minimize delays--a major factor in escalating costs--they erected their own telegraph lines, built a second track and extended sidings alongside the first one, and kept roadways, tunnels, bridges, and crossings in good repair.

Carnegie watched, listened, learned. Nothing was lost on the young man. With an exceptional memory and a head for figures, he made the most of his apprenticeship and within a brief time was acting more as Scott's deputy than his assistant. Tom Scott had proven to be so good at his job that when Pennsylvania Railroad vice president William Foster died unexpectedly of an infected carbuncle, Scott was named his successor.



Source:

Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






December 31, 2013

"Western Union Bullied the Makers of Public Policy into Serving Private Capital"



WesternUnionAndTheCreationOfTheAmericanCorporateOrderBK2013-12-28.jpg












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







(p. A13) Until now there has been no full-scale, modern company history. Joshua D. Wolff's "Western Union and the Creation of the American Corporate Order, 1845-1893" ably fills the bill, offering an exhaustive and yet fascinating account.


. . .


If people today remember anything about Western Union, it is that its coast-to-coast line put the Pony Express out of business and that its leaders didn't see the telephone coming. Mr. Wolff tells us that neither claim is exactly true. It was Hiram Sibley, Western Union's first president, who went out on his own, when his board balked, to form a separate company and build the transcontinental telegraph in 1861; he made his fortune by eventually selling it to Western Union. And the company was very aware of Alexander Graham Bell's invention, patented in 1876, but history had supposedly shown that it wasn't necessary to control a patent to win the technology war. The company's third president, William Orton, was sure that Bell and his "toy" would not get the better of Western Union: "We would come along and take it away from him." They didn't.


. . .


Mr. Wolff contends that the company's practices set the template for today's "corporate triumphalism," not least in the way Western Union bullied the makers of public policy into serving private capital. Perhaps, but telecom competition today is so ferocious and differently arranged from that of the late 19th century that a "triumphant" company today may be toast tomorrow--think of BlackBerry--and can't purchase help with anything like Western's Union's brazenness and scope. Western Union had friends in Congress, the regulatory bureaucracy and the press. Members of the company's board of directors chaired both the 1872 Republican and Democratic national conventions. It seemed that, whatever the battles in business, politics, technology or the courts, the company's shareholders won.



For the full review, see:

STUART FERGUSON. "Bookshelf; The Octopus of the Wires." The Wall Street Journal (Mon., Dec. 23, 2013): A13.

(Note: ellipses added.)

(Note: the online version of the review has the date Dec. 22, 2013, and has the title "BOOKSHELF; Book Review: 'Western Union and the Creation of the American Corporate Order, 1845-1893,' by Joshua D. Wolff.")


Book under review:

Wolff, Joshua D. Western Union and the Creation of the American Corporate Order, 1845-1893. New York: Cambridge University Press, 2013.






December 23, 2013

Over-Regulated Tech Entrepreneurs Seek Their Own Country



The embed above is provided by YouTube where the video clip is posted under the title "Balaji Srinivasan at Startup School 2013."




(p. B4) At a startup conference in the San Francisco Bay area last month, a brash and brilliant young entrepreneur named Balaji Srinivasan took the stage to lay out a case for Silicon Valley's independence.

According to Mr. Srinivasan, who co-founded a successful genetics startup and is now a popular lecturer at Stanford University, the tech industry is under siege from Wall Street, Washington and Hollywood, which he says he believes are harboring resentment toward Silicon Valley's efforts to usurp their cultural and economic power.

On its surface, Mr. Srinivasan's talk,—called "Silicon Valley's Ultimate Exit,"—sounded like a battle cry of the libertarian, anti-regulatory sensibility long espoused by some of the tech industry's leading thinkers. After arguing that the rest of the country wants to put a stop to the Valley's rise, Mr. Srinivasan floated a plan for techies to build an "opt-in society, outside the U.S., run by technology."

His idea seemed a more expansive version of Google Chief Executive Larry Page's call for setting aside "a piece of the world" to try out controversial new technologies, and investor Peter Thiel's "Seastead" movement, which aims to launch tech-utopian island nations.



For the full commentary, see:

FARHAD MANJOO. "HIGH DEFINITION; The Valley's Ugly Complex." The Wall Street Journal (Mon., Nov. 4, 2013): B4.

(Note: the online version of the commentary has the date Nov. 3, 2013, and has the title "HIGH DEFINITION; Silicon Valley Has an Arrogance Problem.")






December 21, 2013

Farm Land Reverts to Forest as Farmers Move to Cities



OrtegaDeWingLandRevertsToForest2013-10-27.jpg "NEW GROWTH; Marta Ortega de Wing once raised pigs in Chilibre, Panama, on land now reverting to nature, a trend dimming the view of primeval forests as sacred." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. A1) CHILIBRE, Panama -- The land where Marta Ortega de Wing raised hundreds of pigs until 10 years ago is being overtaken by galloping jungle -- palms, lizards and ants.

Instead of farming, she now shops at the supermarket and her grown children and grandchildren live in places like Panama City and New York.

Here, and in other tropical countries around the world, small holdings like Ms. Ortega de Wing's -- and much larger swaths of farmland -- are reverting to nature, as people abandon their land and move to the cities in search of better livings.

These new "secondary" forests are emerging in Latin America, Asia and other tropical regions at such a fast pace that the trend has set off a serious debate about whether saving primeval rain forest -- an iconic environmental cause -- may be less urgent than once thought. By one estimate, for every acre of rain forest cut down each year, more than 50 acres of new forest are growing in the tropics on land that was once farmed, logged or ravaged by natural disaster.

"There is far more forest here than there was 30 years ago," said Ms. Ortega de Wing, 64, who remembers fields of mango trees and banana plants.

The new forests, the scientists argue, could blunt the effects of rain forest destruction by absorbing carbon dioxide, the leading heat-trapping gas linked to global warming, one crucial role that rain forests play. They could also, to a lesser extent, provide habitat for endangered species.



For the full story, see:

ELISABETH ROSENTHAL. "New Jungles Prompt a Debate on Saving Primeval Rain Forests." The New York Times (Fri., January 30, 2009): A1 & A10.

(Note: ellipses added.)

(Note: the online version of the article has the date January 29, 2009 and has the title "New Jungles Prompt a Debate on Rain Forests.")






December 20, 2013

After First "Debilitating" Federal Funding, Morse Funded Telegraph Privately



(p. 37) The first telegraph line had been completed . . . , in 1844, when Samuel F. B. Morse, with $30,000 in federal funding, connected Washington to Baltimore. Morse and his partners had expected to get funding to build additional lines from the federal government, but their experience securing their first $30,000 had been so debilitating that they gave up entirely on the public sector and turned to private capital to fund their new telegraph lines. Henry O'Rielly secured the franchise and agreed to raise the capital to string telegraph poles from east to west. His plan was to extend one line from Buffalo to Chicago, the other across the Alleghenies from Philadelphia through Pittsburgh, to St. Louis, and then north to Chicago, and south to New Orleans.

Although customers were scarce and the first telegraph lines were continually breaking (or being broken by bands of boys who took great joy in throwing stones at the glass insulators that glistened in the sunlight), O'Rielly and the handful of entrepreneurs who believed in the future of telegraphy raised sufficient capital to extend their lines mile by mile. By late 1846, they had also connected Boston to Washington, via New York City and Philadelphia; New York City to Buffalo, through Albany; and in late December, Philadelphia to Pittsburgh, via Lancaster and Harrisburg.



Source:

Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: ellipsis added.)

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






December 19, 2013

Regulators Harass Saucy and Irreverent Buckyball Entrepreneur



ZuckerCraigBuckyballs2013-12-07.jpg










"Craig Zucker, former head of Maxfield & Oberton, which made Buckyballs, sells Liberty Balls to raise a legal-defense fund against an unusual action by federal regulators." Source of caption and photo: online version of the NYT article quoted and cited below.



(p. B1) Over the last three weeks, more than 2,200 people have placed orders for $10-to-$40 sets of magnetic stacking balls, rising to the call of a saucy and irreverent social media campaign against a government regulatory agency.


. . .


It involves an effort by the federal Consumer Product Safety Commission to recall Buckyballs, sets of tiny, powerfully magnetic stacking balls that the magazines Rolling Stone and People once ranked on their hot products lists.

Last year, the commission declared the balls a swallowing hazard to young children and filed an administrative action against the company that made the product, demanding it recall all Buckyballs, and a related product called Buckycubes, and refund consumers their money. The company, Maxfield & Oberton Holdings, challenged the action, saying labels on the packaging clearly warned that the product was unsafe for children.

But the fuss now has less to do with safety. After Maxfield & Oberton went out of business last December, citing the financial toll of the recall battle, lawyers for the product safety agency took the highly unusual step of adding the chief executive of the dissolved firm, Craig Zucker, as a respondent in the recall action, arguing that he con-
(p. B6)trolled the company's activities. Mr. Zucker and his lawyers say the move could ultimately make him personally responsible for the estimated recall costs of $57 million.

While the "responsible corporate officer" doctrine (also known as the Park doctrine) has been used frequently in criminal cases, allowing for prosecutions of individual company officers in cases asserting corporate wrongdoing, experts say its use is virtually unheard-of in an administrative action where no violations of law or regulations are claimed.


. . .


Three well-known business organizations -- the National Association of Manufacturers, the National Retail Federation and the Retail Industry Leaders Association -- banded together this summer to file a brief urging the administrative law judge reviewing the recall case to drop Mr. Zucker as a respondent.

The groups argue that holding an individual responsible for a widespread, expensive recall sets a disturbing example and runs counter to the business desire for limited liability. They contend that such risk would have a detrimental effect on entrepreneurism and openness in dealing with regulatory bodies.


. . .


Conservative legal groups like Cause of Action, a nonprofit that targets what it considers governmental overreach, have been watching the proceedings with interest and weighing taking some action.

"This really punishes entrepreneurship and establishes a bad precedent for businesses working to create products for consumers," said Daniel Z. Epstein, the group's executive director. "It undermines the business community's ability to rely upon the corporate form."


For the full story, see:

HILARY STOUT. "In Regulators' Sights; Magnetic-Toy Recall Gives Rise to Wider Legal Campaign." The New York Times (Fri., November 1, 2013): B1 & B6.

(Note: ellipses added.)

(Note: the online version of the article has the date October 31, 2013, and has the title "Buckyball Recall Stirs a Wider Legal Campaign.")






December 16, 2013

Carnegies Liked Pittsburgh Area's Growing Economy and Flexible Labor Market



(p. 32) For all its Old World charms, Dunfermline too had had its epidemics, its scavenging rodents, muddy streets, and clean water shortages. The reason why the Hogans and the Aitkins and the Carnegies and thousands like them had come to the United States in general, and the Pittsburgh area in particular, had less to do with health, hygiene, or the physical environment than with an abundance of well-paid jobs. In this respect, Pittsburgh and Allegheny City were everything that Dunfermline was not: their markets for manufactured goods were expanding rapidly, their economies were diversified, and there were no craft restrictions on the employment of skilled artisans.


Source:

Nasaw, David. Andrew Carnegie. New York: Penguin Press, 2006.

(Note: the pagination of the hardback and paperback editions of Nasaw's book are the same.)






December 15, 2013

Amazon's User Reviews Increase Rationality of Consumer Choices



AbsoluteValueBK2013-12-08.png
















Source of book image: http://2.bp.blogspot.com/-dNUZ_u-GWSk/UpqE0zmFQQI/AAAAAAAAAko/Z8uisfEjgRc/s1600/Absolute+Value+cover.png



(p. 3) You are no longer the sucker you used to be.

So suggests continuing research from the Stanford Graduate School of Business into the challenges marketers face in reaching consumers in the digital age. As you might suspect, the research shows that a wealth of online product information and user reviews is causing a fundamental shift in how consumers make decisions.

As consumers rely more on one another, the power of marketers is being undermined, said Itamar Simonson, a Stanford marketing professor and the lead researcher.


. . .


To get the full impact of the findings, you first have to know the conclusions of a similar experiment decades ago by Dr. Simonson, . . . .  . . .

The researchers found that when study subjects had only two choices, most chose the less expensive camera with fewer features. But when given three choices, most chose the middle one. Dr. Simonson called it "the compromise effect" -- the idea that consumers will gravitate to the middle of the options presented to them.


. . .


Flash forward to the new experiment. It was similar to the first, except that consumers could have a glimpse at Amazon. That made a huge difference. When given three camera options, consumers didn't gravitate en masse to the midprice version. Rather, the least expensive one kept its share and the middle one lost more to the most expensive one.

"The compromise effect was gone," said Dr. Simonson, or, rather, he nearly exclaimed the absence of the effect, underscoring his surprise at the findings. They are to be published next month in "Absolute Value," a book by Dr. Simonson and Emanuel Rosen.

Today, products are being evaluated more on their "absolute value, their quality," Dr. Simonson said. Brand names mean less.


For the full story, see:

MATT RICHTEL. "APPLIED SCIENCE; There's Power in All Those User Reviews." The New York Times, SundayBusiness Section (Sun., December 8, 2013): 3.

(Note: ellipses added.)

(Note: the online version of the article has the date December 7, 2013.)


The new research is reported in:

Simonson, Itamar, and Emanuel Rosen. Absolute Value: What Really Influences Customers in the Age of (Nearly) Perfect Information. New York: HarperBusiness, 2014.






December 8, 2013

Functional Stupidity Management



(p. 1194) In this paper we question the one-sided thesis that contemporary organizations rely on the mobilization of cognitive capacities. We suggest that severe restrictions on these capacities in the form of what we call functional stupidity are an equally important if under-recognized part of organizational life. Functional stupidity refers to an absence of reflexivity, a refusal to use intellectual capacities in other than myopic ways, and avoidance of justifications. We argue that functional stupidity is prevalent in contexts dominated by economy in persuasion which emphasizes image and symbolic manipulation. This gives rise to forms of stupidity management that repress or marginalize doubt and block communicative action. In turn, this structures individuals' internal conversations in ways that emphasize positive and coherent narratives and marginalize more negative or ambiguous ones. This can have productive outcomes such as providing a degree of certainty for individuals and organizations. But it can have corrosive consequences such as creating a sense of dissonance among individuals and the organization as a whole. The positive consequences can give rise to self-reinforcing stupidity. The negative consequences can spark dialogue, which may undermine functional stupidity.


Source of paper abstract:

Alvesson, Mats, and André Spicer. "A Stupidity-Based Theory of Organizations." Journal of Management Studies 49, no. 7 (Nov. 2012): 1194-220.







December 5, 2013

Wind Power Increases Government Corruption



LaclairKathyDislikesWindTurbines2013-10-27.jpg "Kathy Laclair of Churubusco, N.Y., dislikes the noise from the wind turbine blades and says their shadows give her vertigo." Source of caption and photo: online version of the NYT article quoted and cited below.



(p. A1) Lured by state subsidies and buoyed by high oil prices, the wind industry has arrived in force in upstate New York, promising to bring jobs, tax revenue and cutting-edge energy to the long-struggling region. But in town after town, some residents say, the companies have delivered something else: an epidemic of corruption and intimidation, as they rush to acquire enough land to make the wind farms a reality.

"It really is renewable energy gone wrong," said the Franklin County district attorney, Derek P. Champagne, who began a criminal inquiry into the Burke Town Board last spring and was quickly inundated with complaints from all over the state about the (p. A16) wind companies.


. . .


. . . corruption is a major concern. In at least 12 counties, Mr. Champagne said, evidence has surfaced about possible conflicts of interest or improper influence.

In Prattsburgh, N.Y., a Finger Lakes community, the town supervisor cast the deciding vote allowing private land to be condemned to make way for a wind farm there, even after acknowledging that he had accepted real estate commissions on at least one land deal involving the farm's developer.

A town official in Bellmont, near Burke, took a job with a wind company after helping shepherd through a zoning law to permit and regulate the towers, according to local residents. And in Brandon, N.Y., nearby, the town supervisor told Mr. Champagne that after a meeting during which he proposed a moratorium on wind towers, he had been invited to pick up a gift from the back seat of a wind company representative's car.

When the supervisor, Michael R. Lawrence, looked inside, according to his complaint to Mr. Champagne, he saw two company polo shirts and a leather pouch that he suspected contained cash.

When Mr. Lawrence asked whether the pouch was part of the gift, the representative replied, "That's up to you," according to the complaint.



For the full story, see:

NICHOLAS CONFESSORE. "In Rural New York, Windmills Can Bring Whiff of Corruption." The New York Times (Mon., August 18, 2008): A1 & A16.

(Note: ellipses added.)

(Note: the online version of the article has the date August 17, 2008.)



NoWindTurbinesSign2013-10-27.jpg









"To some upstate towns, wind power promises prosperity. Others fear noise, spoiled views and the corrupting of local officials." Source of caption and photo: online version of the NYT article quoted and cited above.






December 1, 2013

Kits Let Model T Owners Transform Them into Tractors, Snowmobiles, Roadsters and Trucks



ModelTtractorConversion2013-10-25.jpg "OFF ROAD; Kits to take the Model T places Henry Ford never intended included tractor conversions, . . . " Source of caption and photo: online version of the NYT article quoted and cited below.



(p. 1) WHEN Henry Ford started to manufacture his groundbreaking Model T on Sept. 27, 1908, he probably never imagined that the spindly little car would remain in production for 19 years. Nor could Ford have foreseen that his company would eventually build more than 15 million Tin Lizzies, making him a billionaire while putting the world on wheels.

But nearly as significant as the Model T's ubiquity was its knack for performing tasks far beyond basic transportation. As quickly as customers left the dealers' lot, they began transforming their Ts to suit their specialized needs, assisted by scores of new companies that sprang up to cater exclusively to the world's most popular car.

Following the Model T's skyrocketing success came mail-order catalogs and magazine advertisements filled with parts and kits to turn the humble Fords into farm tractors, mobile sawmills, snowmobiles, racy roadsters and even semi-trucks. Indeed, historians credit the Model T -- which Ford first advertised as The Universal Car -- with launching today's multibillion-dollar automotive aftermarket industry.



For the full story, see:

LINDSAY BROOKE. "Mr. Ford's T: Mobility With Versatility." The New York Times, Automobiles Section (Sun., July 20, 2008): 1 & 14.

(Note: the online version of the story has the title "Mr. Ford's T: Versatile Mobility." )






November 29, 2013

Kerosene Creatively Destroyed Whale Oil



WhaleOilLamps2013-10-25.jpg "The whale-oil lamps at the Sag Harbor Whaling and Historical Museum are obsolete, though at one time, whale oil lighted much of the Western world." Source of caption and photo: online version of the NYT article quoted and cited below.



(p. 20) Like oil, particularly in its early days, whaling spawned dazzling fortunes, depending on the brute labor of tens of thousands of men doing dirty, sweaty, dangerous work. Like oil, it began with the prizes closest to home and then found itself exploring every corner of the globe. And like oil, whaling at its peak seemed impregnable, its product so far superior to its trifling rivals, like smelly lard oil or volatile camphene, that whaling interests mocked their competitors.

"Great noise is made by many of the newspapers and thousands of the traders in the country about lard oil, chemical oil, camphene oil, and a half-dozen other luminous humbugs," The Nantucket Inquirer snorted derisively in 1843. It went on: "But let not our envious and -- in view of the lard oil mania -- we had well nigh said, hog-gish opponents, indulge themselves in any such dreams."

But, in fact, whaling was already just about done, said Eric Jay Dolin, who . . . is the author of "Leviathan: The History of Whaling in America." Whales near North America were becoming scarce, and the birth of the American petroleum industry in 1859 in Titusville, Pa., allowed kerosene to supplant whale oil before the electric light replaced both of them and oil found other uses.


. . .


Mr. Dolin said the message for today was that one era's irreplaceable energy source could be the next one's relic. Like whaling, he said, big oil is ripe to be replaced by something newer, cleaner, more appropriate for its moment.



For the full story, see:

PETER APPLEBOME. "OUR TOWNS; Once They Thought Whale Oil Was Indispensable, Too." The New York Times, First Section (Sun., August 3, 2008): 20.

(Note: ellipses added.)

(Note: the online version of the story has the title, "OUR TOWNS; They Used to Say Whale Oil Was Indispensable, Too.")


Dolin's book is:

Dolin, Eric Jay. Leviathan: The History of Whaling in America. New York: W. W. Norton & Company, Inc., 2007.






November 27, 2013

Former Botswana President Won Prize for Ceding Power



MogaeFestusBotswanaExPresident2013-10-25.jpg












"Festus G. Mogae, trained as an economist, was Botswana's president for two terms." Source of caption and photo: online version of the NYT article quoted and cited below.



(p. A10) JOHANNESBURG -- A foundation dedicated to celebrating and encouraging good government in Africa awarded its annual prize on Monday to Botswana's former president, Festus G. Mogae. He was honored for consolidating his nation's democracy, ensuring that its diamond wealth enriched its people and providing bold leadership during the AIDS pandemic.

Mr. Mogae, 69, a man with a modest style, will receive $5 million over the next 10 years and $200,000 per year thereafter for the rest of his life. Over the coming decade, the foundation may also grant another $200,000 a year to causes of Mr. Mogae's choice.

The award, the Mo Ibrahim Prize for Achievement in African Leadership, is bestowed by the Mo Ibrahim Foundation, named after its founder, a Sudanese billionaire.



For the full story, see:

CELIA W. DUGGER. "Botswana's Ex-President Wins Leadership Prize." The New York Times (Tues., October 21, 2008): A10.

(Note: the online version of the story has the date October 20, 2008.)







November 24, 2013

Fed Regulations Are "a Wild Card" Since "Regulators Have a Lot of Leeway"



(p. 1D) The president of First National of Nebraska, the nation's largest privately held banking firm, said new federal regulatory and com­pliance efforts stand to cost the company as much as $30 million this year.

"It is a big uncertainty in the banking world," said Dan O'Neill, speaking Wednesday at the com­pany's annual meeting in Omaha. "They are not operating off of concrete rules. A lot of it is their interpretation."

The federal Consumer Fi­nancial Protection Bureau was formed as a result of the federal Dodd-Frank laws passed in 2010 after widespread bank failures and bailouts using taxpayer money.


. . .


The bureau, he said, worries banks because there is not a "clear body of rules" from which the regulator is operating in eval­uating the fairness of a bank's business practices. He said the agency's regulators have a lot of leeway in deciding what to do af­-(p. 2D)ter examining a bank; penalties for running afoul include fines.

"So it is a bit of a wild card," he said.



For the full story, see:

RUSSELL HUBBARD. "ANNUAL MEETING; First National Chief Says Regulatory Costs Mounting." Omaha World-Herald (Thurs., June 20, 2013): 1D-2D.

(Note: ellipsis added.)






November 20, 2013

Companies Do Less R&D in Countries that Steal Intellectual Property




The conclusions of Gupta and Wang, quoted below, are consistent with research done many years ago by economist Edwin Mansfield.


(p. A15) China's indigenous innovation program, launched in 2006, has alarmed the world's technology giants more than any other policy measure since the start of economic reforms in 1978. A recent report from the U.S. Chamber of Commerce even went so far as to call this program "a blueprint for technology theft on a scale the world has not seen before."


. . .


A comparison with India is illustrative. India has no equivalent to indigenous innovation rules. The government also is content to allow companies to set up R&D facilities without any rules about sharing technology with local partners or the like.

These policy differences appear to have a significant influence on corporate behavior. Consider the top 10 U.S.-based technology giants that received the most patents from the U.S. Patent and Trademark Office (USPTO) between 2006 and 2010: IBM, Microsoft, Intel, Hewlett-Packard, Micron, GE, Cisco, Texas Instruments, Broadcom and Honeywell.

Half of these companies appear not to be doing any significant R&D work in China. Between 2006 and 2010, the U.S. PTO did not award a single patent to any China-based units of five out of the 10 companies. In contrast, only one of the 10 did not receive a patent for an innovation developed in India.



For the full commentary, see:

Anil K. Gupta and Haiyan Wang. "How Beijing Is Stifling Chinese Innovation." The Wall Street Journal (Thurs., September 1, 2011): A15.

(Note: ellipsis added.)

(Note: the online version of the commentary has the title "Beijing Is Stifling Chinese Innovation.")


Mansfield's relevant paper is:

Mansfield, Edwin. "Unauthorized Use of Intellectual Property: Effects on Investment, Technology Transfer, and Innovation." In Global Dimensions of Intellectual Property Rights in Science and Technology, edited by M. E. Mogee M. B. Wallerstein, and R. A. Schoen. Washington, D.C.: National Academy Press, 1993, pp. 107-45.


Mansfield's research on this issue is discussed on pp. 1611-1612 of:

Diamond, Arthur M., Jr. "Edwin Mansfield's Contributions to the Economics of Technology." Research Policy 32, no. 9 (Oct. 2003): 1607-17.






November 17, 2013

Foreign Aid Frees Despots from Having to Seek the Consent of the Governed



TheGreatEscapeBK2013-10-24.jpg











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






(p. 4) IN his new book, Angus Deaton, an expert's expert on global poverty and foreign aid, puts his considerable reputation on the line and declares that foreign aid does more harm than good. It corrupts governments and rarely reaches the poor, he argues, and it is high time for the paternalistic West to step away and allow the developing world to solve its own problems.

It is a provocative and cogently argued claim. The only odd part is how it is made. It is tacked on as the concluding section of "The Great Escape: Health, Wealth, and the Origins of Inequality" (Princeton University Press, 360 pages), an illuminating and inspiring history of how mankind's longevity and prosperity have soared to breathtaking heights in modern times.


. . .


THE author has found no credible evidence that foreign aid promotes economic growth; indeed, he says, signs show that the relationship is negative. Regretfully, he identifies a "central dilemma": When the conditions for development are present, aid is not required. When they do not exist, aid is not useful and probably damaging.

Professor Deaton makes the case that foreign aid is antidemocratic because it frees local leaders from having to obtain the consent of the governed. "Western-led population control, often with the assistance of nondemocratic or well-rewarded recipient governments, is the most egregious example of antidemocratic and oppressive aid," he writes. In its day, it seemed like a no-brainer. Yet the global population grew by four billion in half a century, and the vast majority of the seven billion people now on the planet live longer and more prosperous lives than their parents did.



For the full review, see:

FRED ANDREWS. "OFF THE SHELF; A Surprising Case Against Foreign Aid." The New York Times, SundayBusiness Section (Sun., October 13, 2013): 4.

(Note: ellipsis added.)

(Note: the online version of the review has the date October 12, 2013.)



The book reviewed is:

Deaton, Angus. The Great Escape: Health, Wealth, and the Origins of Inequality. Princeton, N.J.: Princeton University Press, 2013.






November 15, 2013

Income of Rich Is More Volatile than Income of Poor or Middle Class



VolatileIncomeAndSpendingGraph2013-10-25.jpgSource of graph: online version of the WSJ article quoted and cited below.



(p. C1) During the past three recessions, the top 1% of earners (those making $380,000 or more in 2008) experienced the largest income shocks in percentage terms of any income group in the U.S., according to research from economists Jonathan A. Parker and Annette Vissing-Jorgensen at Northwestern University. When the economy grows, their incomes grow up to three times faster than the rest of the country's. When the economy (p. C2) falls, their incomes fall two or three times as much.

The super-high earners have the biggest crashes. The number of Americans making $1 million or more fell 40% between 2007 and 2009, to 236,883, while their combined incomes fell by nearly 50%--far greater than the less than 2% drop in total incomes of those making $50,000 or less, according to Internal Revenue Service figures.


. . .


"High beta" is a term used in financial markets to describe a stock or asset that has exaggerated up and down swings with the market. Tech start-ups and casino stocks have high betas, for example. Yet studies show that today's rich have higher betas than many of the riskiest gambling stocks. Between 1947 and 1982, the beta of the top 1% was a modest 0.72, meaning that their incomes moved relatively in line with the rest of America. Between 1982 and 2007, their beta soared more than three-fold.

What created high-beta wealth? Economists aren't sure. The rise of the high-betas and the rise in inequality started at the same time, suggesting they have a common cause. Mr. Parker and Ms. Vissing-Jorgenssen cite new communication technologies that allow the best workers and products to be scaled over larger markets, thus making them more sensitive to economic changes. Others cite globalization and the rise of "winner-take-all" pay schemes.



For the full commentary, see:

ROBERT FRANK. "The Wild Ride of the 1%; The once-stable incomes of America's biggest earners now fluctuate dramatically from year to year. And as go the rich, so goes much of the economy." The Wall Street Journal (Sat., October 22, 2011): C1-C2.

(Note: ellipsis added.)


The Parker and Vissing-Jorgenssen paper is:

Parker, Jonathan A., and Annette Vissing-Jorgensen. "The Increase in Income Cyclicality of High-Income Households and Its Relation to the Rise in Top Income Shares." Brookings Papers on Economic Activity, no. 2 (Fall 2010): 1-70.






November 13, 2013

Greenspan's Epiphany: As Entitlements Rise, Savings Fall



TheMapAndTheTerritoryBK2013-10-24.jpg











Source of book image: http://s.wsj.net/public/resources/images/BN-AB661_bkrvgr_GV_20131021130523.jpg







(p. C11) In his new book "The Map and the Territory," to be released on Tuesday, Mr. Greenspan, 87, goes on a hunt for what has gone wrong in American politics and in the U.S. economy.


. . .


Mr. Greenspan's biggest revelation came one day about a year ago when he was playing with gross domestic savings numbers. What he found, to his surprise and initial skepticism, was that an increase in entitlements has closely corresponded to a decline in the country's savings. "We had this extraordinary increase in benefits, with each party trying to outbid the other," he says. "That practice has been eroding the country's flow of savings that's so critical in financing our capital investment." The decline in savings has been partly offset by borrowing from abroad, which brings us to our current foreign debt: "$5 trillion and counting," he says.


. . .


Studying the minutiae of the events leading to the financial crisis brought to mind some lessons from his famous friendship, from the 1950s on, with the late Objectivist philosopher Ayn Rand.


. . .


Mr. Greenspan then believed in analysis based mainly on hard science and empirical facts. Rand told him that unless he considered human nature and its irrational side, he would "miss a very large part of how human beings behaved." At the time they weren't discussing economics, but today he realizes the full impact of emotions and instincts on markets. He also has come to admire psychologist and Princeton University professor emeritus Daniel Kahneman's work applying psychological insights to economic theory, for which he won a Nobel Prize in 2002.


. . .


With his new book, Mr. Greenspan hopes to provide politicians and the public with a road map to avoid making the same mistakes again. His suggestions include reducing entitlements, embracing "creative destruction" by letting facilities with cutting-edge technology displace those with low productivity, and fixing the political system by encouraging bipartisanship.



For the full interview/review, see:

ALEXANDRA WOLFE, interviewer/reviewer. "WEEKEND CONFIDENTIAL; Alan Greenspan." The Wall Street Journal (Sat., Oct. 19, 2013): C11.

(Note: ellipses added.)

(Note: the online version of the interview/review has the date Oct. 18, 2013, and has the title "WEEKEND CONFIDENTIAL; Alan Greenspan: What Went Wrong; The former Fed chairman on where the economy went wrong, where he went wrong--and Ayn Rand.")



The book discussed is:

Greenspan, Alan. The Map and the Territory: Risk, Human Nature, and the Future of Forecasting. New York: Penguin Press, 2013.






November 11, 2013

Creating Parking Spaces by Variable Meter Pricing Saves Time and Reduces Air Pollution and Double-Parking



SanFranciscoStreetParking2013-10-25.jpg "San Francisco is a city chronically plagued with a shortage of street parking. On a recent night in the North Beach neighborhood, the slow chase for a parking space was well under way." Source of caption and photo: online version of the NYT article quoted and cited below.



(p. A1) SAN FRANCISCO -- The maddening quest for street parking is not just a tribulation for drivers, but a trial for cities. As much as a third of the traffic in some areas has been attributed to drivers circling as they hunt for spaces. The wearying tradition takes a toll in lost time, polluted air and, when drivers despair, double-parked cars that clog traffic even more.

But San Francisco is trying to shorten the hunt with an ambitious experiment that aims to make sure that there is always at least one empty parking spot available on every block that has meters. The program, which uses new technology and the law of supply and demand, raises the price of parking on the city's most crowded blocks and lowers it on its emptiest blocks. While the new prices are still being phased in -- the most expensive spots have risen to $4.50 an hour, but could reach $6 -- preliminary data suggests that the change may be having a positive effect in some areas.



For the full commentary, see:

MICHAEL COOPER and JO CRAVEN McGINTY. "A Meter So Expensive, It Creates Parking Spots." The New York Times (Fri., March 16, 2012): A1 & A3.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date March 15, 2012.)



MetersWithVariablePricing2013-10-25.jpg "San Francisco has installed sensors and new meters on some blocks to track where cars are parked and set prices accordingly." Source of caption and photo: online version of the NYT article quoted and cited above.






November 10, 2013

If Feds Stalled Skype Deal, Google Would Have Been "Stuck with a Piece of Shit"




Even just the plausible possibility of a government veto of an acquisition, can stop the acquisition from happening. The feds thereby kill efficiency and innovation enhancing reconfigurations of assets and business units.


(p. 234) . . . , an opportunity arose that Google's leaders felt compelled to consider: Skype was available. It was a onetime chance to grab hundreds of millions of Internet voice customers, merging them with Google Voice to create an instant powerhouse. Wesley Chan believed that this was a bad move. Skype relied on a technology called peer to peer, which moved information cheaply and quickly through a decentralized network that emerged through the connections of users. But Google didn't need that system because it had its own efficient infrastruc-(p. 235)ture. In addition, there was a question whether eBay, the owner of Skype, had claim to all the patents to the underlying technology, so it was unclear what rights Google would have as it tried to embellish and improve the peer-to-peer protocols. Finally, before Google could take possession, the U.S. government might stall the deal for months, maybe even two years, before approving it. "We would have paid all this money, but the value would go away and then we'd be stuck with a piece of shit," says Chan.


Source:

Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.

(Note: ellipsis added.)






November 9, 2013

Entrepreneurial Spirit Values "Voyaging into the Unknown"



PhelpsEdmundWinner2006NobelPrize2013-10-24.jpg











"Edmund Phelps, winner of the 2006 Nobel Prize for economics." Source of caption and photo: online version of the WSJ review quoted and cited below.



(p. C7) Edmund Phelps's "Mass Flourishing" could easily be retitled "Contra-Corporatism," for at its heart this fine book is an attack on that increasingly common "third way" between capitalism and socialism. Mr. Phelps cogently argues that America's current economic woes reflect a reduction in the innovative dynamism that generates economic success and personal satisfaction. He places little hope in the Democratic Party, which "voices a new corporatism well beyond Franklin Roosevelt's New Deal or Lyndon Johnson's Great Society," or in Republicans in the thrall of "traditional values," who see "the good economy as mercantile capitalism plus social protection and social insurance." He instead yearns for legislative solons who "could usefully ask of every bill and regulatory directive: How would it impact the dynamism of our economy?"


. . .


The book eloquently discusses the culture of innovation, which can refer to both an entrepreneurial mind-set and the cultural achievements during an age of change. He sees modern capitalism as profoundly humanist, imbued with "a spirit that views the prospect of unanticipated consequences that may come with voyaging into the unknown as a valued part of experience and not a drawback."


. . .


In . . . [the] new corporatism, the state protects both organized labor and politically connected companies. and the state has acquired a "panoply of new roles," from regulations "aimed at shielding companies or workforces from competition" to lawsuits that "add to the diversion of income from earners to those receiving compensation or indemnification." It is as if "every person in a society is a signatory to an implicit contract" in which "no person may be harmed by others without receiving compensation." But protection against all conceivable harm also means protection against almost all change--and this is the death knell of dynamism and innovation.


. . .


But what is to be done? The author wants governments that are "aware of the importance of the role played by dynamism in a modern-capitalist economy," and he disparages both current political camps. He has a number of thoughtful ideas about financial-sector reform. He is no libertarian and even proposes a "national bank specializing in extending credit or equity capital to start-up firms"--not my favorite idea.



For the full review, see:

EDWARD GLAESER. "How to Unleash the Economy." The Wall Street Journal (Sat., Oct. 19, 2013): C7.

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

(Note: the online version of the review has the date Oct. 18, 2013, and has the title "BOOKSHELF; Book Review: 'Mass Flourishing' by Edmund Phelps; Innovative dynamism is the key to economic success and personal satisfaction, a Nobel-winner argues.")



The book under review is:

Phelps, Edmund S. Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change. Princeton, New Jersey: Princeton University Press, 2013.




Mass-FlourishingBK2013-10-24.jpg















Source of book image: http://blogs.reuters.com/great-debate/files/2013/08/Mass-Flourishing-cover.jpg









November 4, 2013

Better Batteries Would Be a General Purpose Technology (GPT)




Economists of technology have been thinking about General Purpose Technologies (GPT) for the last 10 years or so. As the name implies, a GPT is one where there are broad applications, and new applications are invented as the price of the GPT declines. My plausible guess is that a breakthrough in battery technology would be a very important GPT. The progress sketched below is probably not a breakthrough, but progress is good.


(p. C4) People take batteries for granted, but they shouldn't. All kinds of technological advances hinge on developing smaller and more powerful mobile energy sources.

Researchers at Harvard University and the University of Illinois are reporting just such a creation, one that happens to be no bigger than a grain of sand. These tiny but powerful lithium-ion batteries raise the prospect of a new generation of medical and other devices that can go where traditional hulking batteries can't.


. . .


Jennifer Lewis, a materials scientist at Harvard, says these batteries can store more energy because 3-D printing enables the stacking of electrodes in greater volume than the thin-film methods now used to make microbatteries.



For the full story, see:

DANIEL AKST. "R AND D: Batteries on the Head of a Pin." The Wall Street Journal (Sat., June 22, 2013): C4.

(Note: ellipsis added.)

(Note: the online version of the interview has the date June 21, 2013.)







November 3, 2013

Castro First Fired, and Then Jailed, Economist Chepe, Who Defended Capitalism



ChepeOscarEspinosaCubanEconomist2013-10-23.jpg "Oscar Espinosa Chepe in 2010." Source of caption and photo: online version of the NYT obituary quoted and cited below.



(p. B15) Oscar Espinosa Chepe, a high-ranking Cuban economist and diplomat who became a vocal critic of Fidel Castro in the 1990s but chose to remain in Cuba, despite enduring harassment and imprisonment, died on Monday [September 23, 2013] . . .


. . .


Mr. Espinosa Chepe (pronounced CHEH-pay) lost his job as an official of the National Bank of Cuba in 1996 after advocating the limited restoration of capitalist principles like the right to buy and sell one's home or start a business.

He then became a journalist, writing articles for American and Spanish-language Web sites in which he used statistical data to analyze Cuba's economic problems. In March 2003 he was one of 75 activists arrested as part of a government crackdown on dissent known as the Black Spring.


. . .


Mr. Espinosa Chepe, who joined Castro's revolutionary government in the early 1960s and was once head of the powerful Office of Agrarian Reform, had frequently clashed with fellow economic planners over policies he considered overly dogmatic.

His internal critique became increasingly adamant after 1991, when the loss of the Soviet Union's financial support began taking a devastating toll on the country's economy. But his proposals for change, many of which had already been adopted in former Soviet bloc states, were labeled counterrevolutionary, said Carmelo Mesa-Lago, a professor emeritus of economics and Latin American studies at the University of Pittsburgh and an expert on Cuban economic policies.



For the full obituary, see:

PAUL VITELLO. "Oscar Espinosa Chepe, Cuban Economist and Castro Critic, Dies at 72." The New York Times (Fri., September 27, 2013): B15.

(Note: ellipses, and bracketed date, added.)

(Note: the online version of the obituary has the date September 25, 2013.)






November 2, 2013

Google Used Auction Model to Allocate Internal Resources



(p. 202) Google's chief economist, Hal Varian, would later explain how it worked when new data centers open: "We'll build a nice new data center and say, 'Hey, Google Docs, would you move your machines over here?' And they say, 'Sure, next month.' Because nobody wants to go through the disruption of shifting. So I suggested we run an auction similar to what airlines do when they oversell a plane-- they keep offering bigger vouchers until enough customers are willing to give up their seats. In our case, we offer more machines in exchange for moving. One group might do it for fifty new ones, another for a hundred, and another won't move unless we give them three hundred. So we give them to the lowest bidder-- they get their extra capacity, and we get computation shifted to the new data center."

Google eventually devised an elaborate auction model for divvying up existing resources. In a paper entitled "Using a Market Economy to Provision Computer Resources Across Planet-wide Clusters," a group of Google engineers, along with a Stanford professor of management science and engineering, reported a project that essentially made Google's
computational resources into a silicon Wall Street. Supply and demand worked here not to fix stock prices but to place a value on resources. The system not only allowed projects at Google to get fair access to storage and computational cycles but identified shortages in computers, storage, and bandwidth. Instead of the Vickery auction used by AdWords, the system used an "ascending clock auction." At the beginning, the current price of each resource would be displayed, and Google engineers in competing projects could claim them at that price. The ideal outcome would ensure sufficient resources for everyone, in which case the auction stopped. Otherwise, the automated auctioneer would raise the prices for the next "time slot," and (p. 203) remaining competitors for those resources had to decide whether to bid higher. And so on, until the engineers not willing to stake their budgets on the most contested resources dropped out. "Hence," write the paper's authors, "the auction allows users to 'discover' prices in which all users pay/ receive payment in proportion to uniform resource prices."



Source:

Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.






November 1, 2013

Sound Economic Policies Benefit Africa More than Sachs' Profligate Interventions



TheIdealistBK2013-10-22.jpg
















Source of book image: http://images.huffingtonpost.com/2013-09-02-TheIdealist.jpg





(p. A19) Nina Munk's new book, "The Idealist," is about the well-known economist Jeffrey Sachs and his "quest to end poverty," as the subtitle puts it.


. . .


The quest began in 2005, when Sachs, who directs the Earth Institute at Columbia University, started an ambitious program called the Millennium Villages Project. He and his team chose a handful of sub-Saharan African villages, where they imposed a series of "interventions" in such areas as agriculture, health and education.


. . .


With almost every intervention, she documents the chasm that exists between the villagers and those running the project. At one point, the Millennium Villages Project persuades the farmers in Ruhiira to grow maize instead of their traditional crop, called matoke. "The results were fantastic," she reports, a bumper crop. Except there were no buyers for the maize, so some of it wound up being eaten by rats. In Dertu, Sachs's staff decided it should set up a livestock market. It flopped. Efforts to convince villagers to start small businesses largely failed. The critical problem of getting clean water to the villages was enormously expensive.

Ultimately, reports Munk, Dertu was scaled back by the Millennium Villages Project while Ruhiira is today lauded as one of the project's most successful villages. "There is no question the lives of people in Ruhiira have been improved," Munk told me. "I've seen it." But she is dubious about what that means -- other than the fact that if you pump millions of dollars into an isolated African village, the villagers' lives will be better.


. . .


That things in Africa are getting better is undeniable. Child mortality is down, as is the number of people living in extreme poverty. In his book, "Emerging Africa," Steve Radelet, the former chief economist for the United States Agency for International Development, gives credit to such factors as more democratic governments, a new class of civil servants and businesspeople, and sounder economic policies. Sachs wants us to believe that the Millennium Villages Project has also helped show the way.

"The Idealist" makes it tough to believe it's the latter.



For the full review, see:

JOE NOCERA. "Fighting Poverty, and Critics." The New York Times (Tues., September 3, 2013): A19.

(Note: ellipses added.)

(Note: the online version of the review has the date September 2, 2013.)


The book under review is:

Munk, Nina. The Idealist: Jeffrey Sachs and the Quest to End Poverty. New York: Doubleday, 2013.


The Radelet book mentioned is:

Radelet, Steven. Emerging Africa: How 17 Countries Are Leading the Way. pb ed. Washington, D.C.: Center for Global Development, 2010.







October 31, 2013

After 25 Years of Government Harassment, A&P Was Finally Allowed to Lower Prices for Consumers




The two main types of creative destruction are: 1.) new products and 2.) process innovations. Much has been written about the new product type; much less about the process innovation type. Marc Levinson has written two very useful books on process innovations that are important exceptions. The first is The Box and the second is The Great A&P.


(p. A13) A prosecutor in Franklin Roosevelt's administration called it a "giant blood sucker." A federal judge in Woodrow Wilson's day deemed it a "monopolist," and another, during Harry Truman's presidency, convicted it of violating antitrust law. The federal government investigated it almost continuously for a quarter-century, and more than half the states tried to tax it out of business. For its strategy of selling groceries cheaply, the Great Atlantic & Pacific Tea Company paid a very heavy price.


. . .


A&P was Wal-Mart long before there was Wal-Mart. Founded around the start of the Civil War, it upset the tradition-encrusted tea trade by selling teas at discount prices by mail and developing the first brand-name tea. A few years later, its tea shops began to stock spices, baking powder and canned goods, making A&P one of the first chain grocers.

Then, in 1912, John A. Hartford, one of the two brothers who had taken over the company from their father, had one of those inspirations that change the course of business. He proposed that the company test a bare-bones format at a tiny store in Jersey City, offering short hours, limited selection and no home delivery, and that it use the cost savings to lower prices. The A&P Economy Store was an instant success. The Great A&P was soon opening one and then two and then three stores per day. By 1920, it had become the largest retailer in the world.


. . .


While shoppers flocked to A&P's 16,000 stores, small grocers and grocery wholesalers didn't share their enthusiasm. The anti-chain-store movement dates back at least to 1913, when the American Fair-Trade League pushed for laws against retail price-cutting.


. . .


Thanks in good part to the Hartfords' tenacity, the restraints on discount retailing began to fade away in the 1950s. Chain-store taxes were gradually repealed, and state laws limiting price competition to protect mom and pop were taken off the books. By 1962, when Wal-Mart, Target, Kmart, and other modern discount formats were born, the pendulum had swung in consumers' favor.



For the full commentary, see:

MARC LEVINSON. "When Creative Destruction Visited the Mom-and-Pops; The A&P grocery company may be nearing its sell-by date, but a century ago it was a fresh, revolutionary business." The Wall Street Journal (Sat., Oct. 12, 2013): A13.

(Note: ellipses added.)

(Note: the online version of the commentary has the date Oct. 11, 2013, and had the title "Marc Levinson: When Creative Destruction Visited the Mom-and-Pops; The A&P grocery company may be nearing its sell-by date, but a century ago it was a fresh, revolutionary business.")


Levinson's book on A&P is:

Levinson, Marc. The Great A&P and the Struggle for Small Business in America. New York: Hill and Wang, 2011.






October 30, 2013

Fed-Mandated High Sugar Prices Drive Candy Jobs Abroad



CandyJobsLostGraph2013-10-23.jpg











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




(p. A1) On Friday, [Oct. 18, 2013] the U.S. sugar contract in the futures market settled at 22.28 cents a pound, or 14% higher than the benchmark global price.

U.S. prices can't fall much lower because of a federal government program that guarantees sugar processors a minimum price. The rest of the world also has a surfeit of sugar, but fewer price restrictions, and big growers like Brazil are expecting a record crop for the current season.

The squeeze explains why Atkinson Candy Co. has moved 80% of its peppermint-candy production to a factory in Guatemala that opened in 2010. That means it can sell bite-size Mint Twists to retailers for 10% to 20% less.

"It wasn't like we did it for (p. A14) profit reasons. We did it for survival reasons," said Eric Atkinson, president of the family-owned candy maker, based in Lufkin, Texas. "These are 60 jobs down there...that could be in the U.S.," he added. "It's a damn shame."

Jelly Belly Candy Co. is finishing its second expansion of a factory in Thailand that was opened by the Fairfield, Calif., company in 2007. The sixth-generation family-owned firm sells about 20% of its jelly beans, made in flavors from buttered popcorn to very cherry, outside the U.S.

Sugar makes up about half of the ingredients and cost of a typical jelly bean, said Bob Simpson, Jelly Belly's president and chief operating officer. Thailand is the world's fourth-largest sugar producer and gives Jelly Belly access to cheaper sugar, labor and other raw materials than the candy maker has in the U.S.

"You can't compete shipping finished U.S. goods" anymore, Mr. Simpson said. In the U.S., Jelly Belly has had to raise prices "several times" in the past 10 years due to high sugar prices.


. . .


Three candy-making jobs are lost for each sugar-growing and processing job saved by higher sugar prices, according to a Commerce Department report in 2006.

In a sign that candy makers are taking advantage of lower sugar prices elsewhere, the amount of sugar contained in imported products surged 33% from 2002 to 2012, according to the Agriculture Department.



For the full story, see:

Wexler, Alexandra. "Cheaper Sugar Sends Candy Makers Abroad." The Wall Street Journal (Mon., Oct. 21, 2013): A1 & A14.

(Note: ellipsis, and bracketed date, added.)

(Note: the online version of the story has the date Oct. 20, 2013.)



JellyBellyCaliforniaFactory2013-10-23.jpg









"Jelly Belly, whose facility in Fairfield, Calif., is shown above, is expanding its factory in Thailand." Source of caption and photo: online version of the WSJ article quoted and cited above.






October 29, 2013

Google Had the Most "Massive Parallelized Redundant Computer Network" in the World



(p. 198) . . . by perfecting its software, owning its own fiber, and innovating in conservation techniques, Google was able to run its computers spending only a third of what its competitors paid. "Our true advantage was actually the fact that we had this massive parallelized redundant computer network, probably more than anyone in the world, including governments," says Jim Reese. "And we realized that maybe it's not in our best interests to let our competitors know."


Source:

Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.

(Note: ellipsis added.)






October 28, 2013

Goldman I.P.O. Led to Pressure to Grow



WhatHappenedToGoldmanSachsBK2013-10-22.jpg











Source of book image: http://s.wsj.net/public/resources/images/OB-ZF094_bkrvgo_GV_20131008133334.jpg







(p. B8) Steven G. Mandis, a Ph.D. candidate in sociology at Columbia University, takes a measured, academic approach to the question in a new book, "What Happened to Goldman Sachs," an examination of the bank's evolution from an elite private partnership to a vast public corporation -- and the effects of that transformation on its culture.


. . .


Mr. Mandis said that the two popular explanations for what might have caused a shift in Goldman's culture -- its 1999 initial public offering and subsequent focus on proprietary trading -- were only part of the explanation. Instead, Mr. Mandis deploys a sociological theory called "organizational drift" to explain the company's evolution.

The essence of his argument is that Goldman came under a variety of pressures that resulted in slow, incremental changes to the firm's culture and business practices, resulting in the place being much different from what it was in 1979, when the bank's former co-head, John Whitehead, wrote its much-vaunted business principles.

These changes included the shift to a public company structure, a move that limited Goldman executives' personal exposure to risk and shifted it to shareholders. The I.P.O. also put pressure on the bank to grow, causing trading to become a more dominant focus. And Goldman's rapid growth led to more potential for conflicts of interest and not putting clients' interests first, Mr. Mandis says.



For the full review, see:

PETER LATTMAN. "An Ex-Trader, Now a Sociologist, Looks at the Changes in Goldman." The New York Times (Tues., October 1, 2013): B8.

(Note: ellipsis added.)

(Note: the online version of the review has the date SEPTEMBER 30, 2013.)


The book under review is:

Mandis, Steven G. What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences. Boston, MA: Harvard Business School Publishing, 2013.


MandisStevenAuthorGoldmanBook2013-10-22.jpg












"Steven G. Mandis is the author of "What Happened to Goldman Sachs."" Source of caption and photo: online version of the NYT article quoted and cited above.







October 27, 2013

Silicon Valley Is Open to Creative Destruction, But Tired of Taxes



(p. A15) Rancho Palos Verdes, Calif.

When the howls of creative destruction blew through the auto and steel industries, their executives lobbied Washington for bailouts and tariffs. For now, Silicon Valley remains optimistic enough that its executives don't mind having their own businesses creatively destroyed by newer technologies and smarter innovations. That's an encouraging lesson from this newspaper's recent All Things Digital conference, which each year attracts hundreds of technology leaders and investors.


. . .


In a 90-minute grilling by the Journal's Walt Mossberg and Kara Swisher, Apple Chief Executive Tim Cook assured the audience that his company has "some incredible plans that we've been working on for a while."

Mr. Cook's sunny outlook was clouded only by his dealings with Washington. He was recently the main witness at hearings called by Sen. Carl Levin, a Michigan Democrat, who accused Apple of violating tax laws. In fact, Apple's use of foreign subsidiaries is entirely legal--and Apple is the largest taxpayer in the U.S., contributing $6 billion a year to the government's coffers.

Mr. Cook put on a brave face about the hearings, saying, "I thought it was very important to go tell our side of the story and to view that as an opportunity instead of a pain in the [expletive]." Mr. Cook's foul language was understandable. "Just gut the [tax] code," he told the conference. "It's 7,500 pages long. . . . Apple's tax return is two feet high. It's crazy."

When the audience applauded, Ms. Swisher quipped, "All right, Rand Paul." A woman shouted: "No, I'm a Democrat!" One reason the technology industry remains the center of innovation may be that many technologists of all parties view trips to Washington as a pain.



For the full commentary, see:

L. GORDON CROVITZ. "INFORMATION AGE; Techies Cheer Creative Destruction." The Wall Street Journal (Mon., June 3, 2013): A15.

(Note: ellipsis between paragraphs added; italics in original; ellipsis, and bracketed words, within next-to-last paragraph, in original.)

(Note: the online version of the commentary has the date June 2, 2013.)






October 25, 2013

Larry Page: "At His Core He Cares about Latency"



(p. 184) Speed had always been an obsession at Google, especially for Larry Page. It was almost instinctual for him. "He's always measuring everything," says early Googler Megan Smith. "At his core he cares about latency." More accurately, he despises latency and is always trying to remove it, like Lady Macbeth washing guilt from her hands. Once Smith was walking down the street with him in Morocco and he suddenly dragged her into a random Internet café with maybe three machines. Immediately, he began timing how long it took web pages to load into a browser there.

Whether due to pathological impatience or a dead-on conviction that speed is chronically underestimated as a factor in successful products, Page had been insisting on faster delivery for everything Google from the beginning. The minimalism of Google's home page, allowing for lightning-quick (p. 185) loading, was the classic example. But early Google also innovated by storing cached versions of web pages on its own servers, for redundancy and speed.

"Speed is a feature," says Urs Hölzle. "Speed can drive usage as much as having bells and whistles on your product. People really underappreciate it. Larry is very much on that line."




Source:

Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.






October 23, 2013

Push the Flywheel, in Business and Life




Jim Collins makes wonderful use of the flywheel analogy in his Good to Great book. His point is that many achievements in business require long, gradual work to build to a major achievement that finally gets noticed by the business press and the general public. The business press often assumes that the success is overnight, when it is in fact long-building.


(p. C14) Flywheels - weighted wheels used for absorbing, storing and releasing energy - get used in everything from pottery wheels to car engines. Lately, they have showed up in corporate spin.

"Our more than 19,000 store global footprint, our fast-growing CPG presence and our best-in-class digital, card, loyalty and mobile capabilities are creating a 'flywheel' effect elevating the relevancy of all things Starbucks, and driving profitability," CEO Howard Schultz said in a statement accompanying quarterly earnings last month.

"So we have the flywheel spinning in the right direction because it is spinning one way and letting us generate these margins, contribution margins," said Overstock.com CEO Patrick Byrne last month. "And so now we can give some of that back and that makes it easier to get it spinning faster."

"We are at the one-mile market (sic) in a marathon," commented Symantec CEO Steve Bennett in an earnings call with analysts last week, "and the flywheel is just starting to spin."



For the full story, see:

JUSTIN LAHART. "Overheard." The Wall Street Journal (Weds., Aug 6, 2013): C14.

(Note: the online version of the story has the date Aug 6, 2013, and had the title "Ride a Painted Pony, Let the Spinning Wheel Fly." The print version did not identify an author. The versions were slightly different in two or three places--when different, the version quoted above follows the print version.)


The Collins book, mentioned above, is:

Collins, Jim. Good to Great: Why Some Companies Make the Leap... And Others Don't. New York: HarperCollins Publishers, Inc., 2001.






October 22, 2013

Dohrmann and Quevedo Survive Creative Destruction of Inacom



DohrmannHokampQuevedoCosentry2013-10-07.jpg "Cosentry, an Omaha-based provider of data center storage and managed technology services, has a new CEO, Brad Hokamp, center. With him at the Cosentry data center in Papillion are company founders Kevin Dohrmann, left, and Manny Quevedo." Source of caption and photo: online version of the Omaha World-Herald article quoted and cited below.


Innovation through creative destruction brings us the new products and processes that make our lives longer, richer and more satisfying. The major downside of creative destruction is the job loss of those working for firms that are creatively destroyed. Sometimes, in class, I use Omaha's Inacom as a concrete example. Inacom was a value-added retailer of computer equipment. They would buy PCs from IBM, Compaq and the like, then add software and hardware, and re-sell and install for firms, at a mark-up. They were creatively destroyed by Dell's process innovation of customizing and selling direct, at much lower prices than Inacom charged. When I arrived in Omaha, Inacom was one of a handful of Fortune 500 firms. Now Inacom is gone. But just because a firm is creatively destroyed does not imply that all those who worked for the firm are creatively destroyed. Dohrmann and Quevedo were executives at Inacom. They had the skills, knowledge, resilience and work ethic to create their own entrepreneurial startup that has thrived. Not everyone can do what Dohrmann and Quevedo did. But everyone should be able to improve their skills, knowledge, resilience, and work ethic, so that if creative destruction destroys the firm that employs them, they will still survive and possibly thrive.


(p. 1D) Cosentry's regional data center footprint has grown far from its "humble beginnings" 12 years ago of just 4,000 square feet in the old Southroads Mall in Bellevue.

"Everyone saw it as a mall that was in deterioration, and I walked in and saw the most beautiful building in Omaha," co-founder Manny Quevedo said, (p. 3D) remembering solid walls and below-grade space for computer systems.

Investments from Omaha firms Waitt Co. and McCarthy Capital along the way helped the firm grow; it was sold in 2011 to Boston private equity firm TA Associates but still has its headquarters at 127th Street and West Dodge Road.


. . .


The company's workforce has approximately doubled in the last five years to nearly 200, more than half of them in Nebraska, and will continue to grow gradually with the expansion as Cosentry hires more engineers and technicians, Quevedo said.

Today the company has six data centers, including two each in the Kansas City and Sioux Falls, S.D., metropolitan areas. If you use utilities or health care services or do any shopping or banking in the region, there's a chance some of your information has been stored or processed through Cosentry's servers.

Cosentry started with what Quevedo said was a handful of clients and grew to hundreds within its first five years.


. . .


(p. 3D) Cosentry Timeline

2001: With investment from Waitt Co., Cosentry is started by Manny Quevedo and Kevin Dohrmann, former employees of InaCom, the former Omaha Fortune 500 computer dealer that began as a division of Valmont Industries but merged with VanStar of Atlanta in 2000 and later declared bankruptcy. Cosentry creates a data center in Bellevue.

2005: Cosentry, also called IPR Inc., sold its IP Revolution division to a Kansas firm, Choice Solutions. IP Revolution sold voice and data communications services and systems. Cosentry doubles the size of its Bellevue data center and expands to the Kansas City and Sioux Falls, S.D., markets.

2008: Omaha investment firm McCarthy Capital invests in the firm. At the time, Cosentry had 95 employees.

2010: Cosentry cuts the ribbon on the $26 million Midlands Data Center in Papillion, a joint project with Alegent Health, which uses the center to store electronic medical records.

2011: Boston investment firm TA Associates buys Cosentry for an undisclosed amount from McCarthy and Waitt. The local management team continues to operate and have an ownership stake in Cosentry. The firm expands with second data centers in both the Sioux Falls and Kansas City markets.

2013: Cosentry refinances its credit facilities to provide up to $100 million to enable expansion, including the expansion of the Midlands Data Center. Today, Cosentry has nearly 200 employees and six data centers in three metropolitan areas.



For the full story, see:

Barbara Soderlin. "A Growing Tech Footprint: As Businesses' Data Storage Needs Expand, Cosentry Adds to Its Papillion Center." Omaha World-Herald (MONDAY, AUGUST 26, 2013): 1D & 3D.

(Note: ellipses added; bold in original print version of article.)

(Note: the online version of the article has the title "As Businesses' Data Storage Needs Expand, Cosentry Adds to Its Papillion Center.")




CosentryScottCappsAtPapillionDataCenterCoolingSystem2013-10-07.jpg






"Scott Capps of Cosentry's Papillion data center with the cooling system that helped Cosentry earn an Energy Star certification, which is given by the Environmental Protection Agency based on energy efficiency and lower emissions. It's the only data center in Nebraska with the certification." Source of caption and photo: the archive online version of the Omaha World-Herald article quoted and cited above.






October 21, 2013

Google's Redundant, Fault-Tolerant System Worked with Cheap, Low-Quality, Failure-Prone Equipment



(p. 183) Google was a tough client for Exodus; no company had ever jammed so many servers into so small an area. The typical practice was to put between five and ten servers on a rack; Google managed to get eighty servers on each of its racks. The racks were so closely arranged that it was difficult for a human being to squeeze into the aisle between them. To get an extra rack in, Google had to get Exodus to temporarily remove the side wall of the cage. "The data centers had never worried about how much power and AC went into each cage, because it was never close to being maxed out," says Reese. "Well, we completely maxed out. It was on an order of magnitude of a small suburban neighborhood," Reese says. Exodus had to scramble to install heavier circuitry. Its air-conditioning was also overwhelmed, and the colo bought a portable AC truck. They drove the eighteen-wheeler up to the colo, punched three holes in the wall, and pumped cold air into Google's cage through PVC pipes.


. . .


The key to Google's efficiency was buying low-quality equipment dirt cheap and applying brainpower to work around the inevitably high failure rate. It was an outgrowth of Google's earliest days, when Page and Brin had built a server housed by Lego blocks. "Larry and Sergey proposed that we design and build our own servers as cheaply as we can-- massive numbers of servers connected to a high-speed network," says Reese. The conventional wisdom was that an equipment failure should be regarded as, well, a failure. Generally the server failure rate was between 4 and 10 percent. To keep the failures at the lower end of the range, technology companies paid for high-end equipment from Sun Microsystems or EMC. "Our idea was completely opposite," says Reese. "We're going to build hundreds and thousands of cheap servers knowing from the get-go that a certain percentage, maybe 10 percent, are going to fail," says Reese. Google's first CIO, Douglas Merrill, once noted that the disk drives Google purchased were "poorer quality than you would put into your kid's computer at home."

(p. 184) But Google designed around the flaws. "We built capabilities into the software, the hardware, and the network--network-- the way we hook them up, the load balancing, and so on-- to build in redundancy, to make the system fault-tolerant," says Reese. The Google File System, written by Jeff Dean and Sanjay Ghemawat, was invaluable in this process: it was designed to manage failure by "sharding" data, distributing it to multiple servers. If Google search called for certain information at one server and didn't get a reply after a couple of milliseconds, there were two other Google servers that could fulfill the request.



Source:

Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.

(Note: ellipsis added.)






October 19, 2013

Samuelson Disputed Nephew Summers' Praise for Milton Friedman



(p. A4) [Uncle Paul Samuelson and nephew Larry Summers] clashed over the fate of struggling mortgage giants Fannie Mae and Freddie Mac, which were bolstered by a government backstop in July 2008 and later taken over completely by the U.S. Treasury.

Mr. Samuelson found "strange and harmful" his nephew's skepticism about the government backstop for the firms. Mr. Summers, a longtime critic of the two firms, wrote back that shareholders and management of Fannie and Freddie didn't deserve taxpayer support.

Friction had emerged earlier in 2006, when Mr. Summers praised the late Mr. Friedman in a New York Times column. Friedman was "the most influential economist" of the second half of the 20th century, Mr. Summers said.

"For your eyes only," Mr. Samuelson wrote to his nephew of Mr. Friedman, "I had to grade him low as a macro economist" and "stubbornly old fashioned."



For the full story, see:

JON HILSENRATH. "A Close Bond and a Shared Love for 'Dismal Science'; Correspondence Between Famously Brash Summers and His Uncle, a Nobel Economist, Reveals Flashes of Humility and Tenderness." The Wall Street Journal (Sat., September 14, 2013): A4.

(Note: bracketed words added.)

(Note: the online version of the story was updated on September 15, 2013 and has the title "Letters Show Little-Known Side of Summers; Correspondence With Uncle, a Nobel Economist, Reveals Flashes of Humility and Tenderness.")






October 17, 2013

Gates Did Not See that Gmail's 2-Gig Storage Would Beat Hotmail



(p. 179) About six months after Gmail came out, Bill Gates visited me at Newsweek's New York headquarters to talk about spam. (His message was that within a year it would no longer be a problem. Not exactly a Nostradamus moment.) We met in my editor's office. The question came up whether free email accounts should be supported by advertising. Gates felt that users were more negative than positive on the issue, but if people wanted it, Microsoft would offer it.

"Have you played with Gmail?" I asked him.

"Oh sure, I play with everything," he replied. "I play with A-Mail, B-Mail, C-Mail, I play with all of them."

My editor and I explained that the IT department at Newsweek gave us barely enough storage to hold a few days' mail, and we both forwarded everything to Gmail so we wouldn't have to spend our time deciding what to delete. Only a few months after starting this, both of us had consumed more than half of Gmail's 2-gigabyte free storage space. (Google had already doubled the storage from one gig to two.)

Gates looked stunned, as if this offended him. "How could you need more than a gig?" he asked. "What've you got in there? Movies? PowerPoint presentations?"

No, just lots of mail.

He began firing questions. "How many messages are there?" he demanded. "Seriously, I'm trying to understand whether it's the number of messages or the size of messages." After doing the math in his head, he came to the conclusion that Google was doing something wrong.

The episode is telling. Gates's implicit criticism of Gmail was that it was wasteful in its means of storing each email. Despite his currency with cutting-edge technologies, his mentality was anchored in the old paradigm of storage being a commodity that must be conserved. He had written his first programs under a brutal imperative for brevity. And Microsoft's web-based email service reflected that parsimony.

The young people at Google had no such mental barriers. From the moment their company started, they were thinking in terms of huge numbers. Remember, they named their company after a 100-digit number! Moore's Law was as much a fact as air for them, so they understood that the expense of the seemingly astounding 2 gigabytes they gave away in 2004 would be negligible only months later. It would take some months for Gates's minions to catch up and for Microsoft's Hotmail to dramatically increase storage. (Yahoo Mail also followed suit.)

"That was part of my justification for doing Gmail," says Paul Buchheit of its ability to make use of Google's capacious servers for its storage. "When people said that it should be canceled, I told them it's really the foundation for a lot of other products. It just seemed obvious that the way things were going, all information was going to be online."



Source:

Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.

(Note: italics in original.)






October 14, 2013

Brazilian Entrepreneur Inspired by "The Men Who Built America"



HangLucianoArrivesAtFlagshipHavanStoreInBrusque2013-09-29.jpgThe co-founder of the Havan chain, Luciano Hang, arrives at the chain's flagship store, which is in Brusque, Brazil. Source of photo: online version of the NYT article quoted and cited below.


(p. 6) "My philosophy is pro-capitalism, so of course the best symbols for this come from the United States," said Mr. Hang, who flies around Brazil on a Learjet to visit the nearly 60 stores in his chain, called Havan. "I tell people that we're about freedom: the freedom to stay open when we choose, the freedom to work for us and the freedom to shop," he added. "I know this can be controversial, but I think those who disagree with my approach are few and far between."


. . .


The son of textile factory workers, descended from German and Italian immigrants, Mr. Hang said he admired European culture but preferred the United States. He said he was inspired by a show on the History Channel, "The Men Who Built America," about industrial titans like John D. Rockefeller and Cornelius Vanderbilt.

"I couldn't sleep after I saw that program," he said.

His business model is partly based on Walmart, whose small-town origins he admires, as well as its method of turning economies of scale into low prices.



For the full story, see:

SIMON ROMERO. "Reshaping Brazil's Retail Scene, Inspired by Vegas and Vanderbilt." The New York Times, First Section (Sun., September 15, 2013): 6.

(Note: ellipsis added.)

(Note: the online version of the story has the date September 14, 2013.)






October 11, 2013

Innovative Entrepreneurs More Likely to Have Engaged in Illicit Activities as Teens



(p. C4) What does it take to be a successful entrepreneur? The signs are obvious in future moguls' teenage years: brains, confidence--and illicit activities.

Those are the surprising findings of a new working paper by economists at the University of California at Berkeley and the London School of Economics. The researchers argue that merely being self-employed isn't a particularly good indicator of entrepreneurship, in the sense of taking big risks and mobilizing capital to create new goods and services.


. . .


. . . the professors sorted the self-employed into those who were incorporated and those who were not, with the researchers regarding the former as the genuine entrepreneurs.


. . .


Despite . . . dubious youthful pursuits, the incorporated tended to come from stable, well-educated families with high incomes in 1979. These entrepreneurs were much more likely to be white, male and well-educated than were salaried workers or the unincorporated self-employed.



For the full story, see:

DANIEL AKST. "The Bad-Boy Entrepreneur." The Wall Street Journal (Sat., August 17, 2013): C4.

(Note: ellipses added.)

(Note: the online version of the review has the date August 16, 2013.)


The working paper discussed is:

Levine, Ross, and Yona Rubinstein. "Smart and Illicit: Who Becomes an Entrepreneur and Does It Pay?" NBER Working Paper # 19276, August 2013.






October 9, 2013

Rising Google Stock Prices Led Googlers to Be Wary of Innovation



(p. 156) . . . Googlers were affected by stock ownership. (They were, after all, human.) Bo Cowgill, a Google statistician, did a series of studies of his colleagues' behavior, based on their participation in a "prediction market," a setup that allowed them to make bets on the success of internal projects. He discovered that "daily stock price movements affect the mood, effort level and decision-making of employees." As you'd expect, increases in stock performance made people happier and more optimistic-- but they also led them to regard innovative ideas more warily, indicating that as Googlers became richer, they became more conservative. That was exactly the downside of the IPO that the founders had dreaded.


Source:

Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.

(Note: ellipsis added; italics in original.)






October 5, 2013

"SEC Rules Demanded Complexity"



(p. 152) Google had considerable experience with pleasing users, but in the case of the auction, it could not create a simple interface. SEC rules demanded complexity. So the Google auction was a lot more complicated than buying Pokémon cards on eBay. People had to qualify financially as bidders. Bids had to be placed by a brokerage. If you made an error in reg-(p. 153)istering, you could not correct it but had to reregister. All those problems led to a few postponements of the start of the bidding period.

But the deeper problem was the uncertainty of Google's prospects. As the press accounts accumulated--with reporters informed by Wall Streeters eager to sabotage the process-- the perception grew that Google was a company with an unfamiliar business model run by weird people. A typical Wall Street insider analysis was reflected by Forbes.com columnist Scott Reeves, who concluded that Google's target price, at the time pegged to the range between $ 108 and $ 135 a share, was excessive. "Only those who were dropped on their head at birth [will] plunk down that kind of cash for an IPO," Reeves wrote.



Source:

Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.






October 4, 2013

Taxpayers Work, Save and Invest More When Taxes Are Low



TheGrowthExperimentBK2013-09-28.jpg












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






(p. 15) The 1980s boom was launched on the simple insight that, by lowering tax rates and regulatory hurdles and juicing the incentives to produce, innovate and take risks, the animal spirits of the American free-enterprise system would revive. Two seminal books hatched the supply-side revolution. The first was Jude Wanniski's "The Way the World Works" (1978); the second, George Gilder's "Wealth and Poverty" (1981).

Almost as influential, coming a few years later, was Lawrence Lindsey's "The Growth Experiment" (1990). Slightly academic in nature, it was the first book to quantify the economic and revenue windfall of the 1981 Reagan across-the-board tax cuts. Mr. Lindsey's conclusion was that Reagan's 1981 tax act quickened the pace of production, which reduced the predicted revenue loss. His research found that although the Reagan tax cuts didn't "pay for themselves," the ones at the highest end of the income spectrum "did produce a revenue gain" because of "changes in taxpayer behavior." He concluded that "the core supply-side tenet--that tax rates powerfully affect the willingness of taxpayers to work, save and invest, and thereby also affect the health of the economy--won as stunning a vindication as has been seen in at least a half-century of economics."

He has now updated his book, taking us through the booms and busts of the past 20 years. It is a valuable project in part because Mr. Lindsey was a front-seat economic adviser to George W. Bush, serving as director of the National Economic Council and as one of the architects of the often-maligned 2001 and 2003 Bush tax cuts.

Mr. Lindsey's central claim is that those tax changes saved the economy from the undertow of the financial meltdown at the end of the Clinton presidency.



For the full review, see:

Stephen Moore. "BOOKSHELF; Book Review: 'The Growth Experiment Revisited' by Lawrence Lindsey; The 25 years after Reagan's tax cuts saw unprecedented wealth creation and progress. America's net worth exploded by $40 trillion." The Wall Street Journal (Tues., September 10, 2013): A15.

(Note: ellipsis added.)

(Note: the online version of the review has the date September 9, 2013, and has the title "BOOKSHELF; Book Review: 'The Growth Experiment Revisited' by Lawrence Lindsey; The 25 years after Reagan's tax cuts saw unprecedented wealth creation and progress. America's net worth exploded by $40 trillion.")


The book under review is:

Lindsey, Lawrence B. The Growth Experiment Revisited: Why Lower, Simpler Taxes Really Are America's Best Hope for Recovery. New York: Basic Books, 2013.






October 1, 2013

SEC Told Google to Delete "Making the World a Better Place" from Document



(p. 150) . . . , the Securities and Exchange Commission was unimpressed by the charms of Page's "Owner's Manual." "Please revise or delete the statements about providing 'a great service to the world,' 'to do things that matter,' 'greater positive impact on the world, don't be evil' and 'making the world a better place,'" they wrote. (Google would not revise the letter.) The commission also had a problem with Page's description of the lawsuit that Overture (by then owned by Yahoo) had filed against Google as "without merit." Eventually, to resolve this issue before the IPO date, (p. 151) Google would settle the lawsuit by paying Yahoo 2.7 million shares, at an estimated value of between $ 260 and $ 290 million.

That set a contentious tone that ran through the entire process. The SEC cited Google's irregularities on a frequent basis, whether it was a failure to properly register employee stock options, inadequate reporting of financial results to stakeholders, or the use of only first names of employees in official documents. It acted toward Google like a junior high school vice principal who'd identified an unruly kid as a bad seed, requiring constant detentions.



Source:

Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.

(Note: ellipsis added.)






September 28, 2013

"I Didn't Open My Own Company to Have Someone Else Tell Me How to Run It"



TaylorEdwardEntrepreneur2013-09-25.jpg""They're picking on my employees," Edward Taylor, the president of Down East Seafood, said, referring to the commission." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. A16) The day after Jonathan Sanchez was released from prison in 2010 after serving three years for a burglary, he walked into Down East Seafood in Hunts Point in the South Bronx and asked for a job, and a second chance. He got both.

But now Mr. Sanchez must document the past he has tried to leave behind, in an 11-page application for a photo identification card issued by a city agency that is responsible for ferreting out organized crime. He is one of hundreds of food workers who have come under scrutiny in recent years by the agency, the New York City Business Integrity Commission, not because of any known ties to mob bosses but simply because they work for a company in Hunts Point.


. . .


"This was my brand new start," said Mr. Sanchez, 26, who makes $40,000 a year packing lobster orders.

Mr. Sanchez said he worried that his past crime will follow him from job to job and brand him as an ex-con. "I feel violated because I don't think those things have to be asked," he said. "I feel that it could stigmatize me."


. . .


Edward Taylor, the president of Down East Seafood, said more than half of his 60 employees had told him they did not want to complete the application. A couple of them have even said they would instead quit.

Mr. Taylor, who had to answer similar questions himself to register the company, said he would not have moved to Hunts Point from Manhattan in 2005 if he had known about the commission. The company, which he started in 1990 with $500 borrowed from a friend, supplies more than 700 establishments, including Dean & DeLuca, the Harvard and Yale Clubs and the dining rooms at the United Nations.

"They're picking on my employees," he said. "I didn't open my own company to have someone else tell me how to run it."



For the full story, see:

WINNIE HU. "Food Workers Criticize a Commission's Scrutiny." The New York Times (Sat., September 21, 2013): A16.

(Note: ellipses added.)

(Note: the online version of the story has the date September 20, 2013, and has the title "Food Workers in Hunts Point Criticize a Commission's Scrutiny.")






September 26, 2013

Some Entrepreneurs Are Motivated by Desire for Personal Wealth



WorthlessImpossibleAndStupidBK2013-09-21.jpg











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







I have read many biographies of innovative entrepreneurs. Like the author of the review of the book discussed in the passages quoted below, I believe that they have a variety of motives. But I am more optimistic than the book author that many of the entrepreneurs, those I call "project entrepreneurs," are motivated mainly by a desire to 'make a ding in the universe.' Among these I would count Walt Disney and Steve Jobs.


(p. A11) Successful entrepreneurs, in my experience, are tenacious, hardheaded and creative. They persist with their ideas long after others might have given up, and they are good at persuading clients, partners and investors to take a chance. Like successful people in any field, they are driven by a powerful inner need, sometimes positive, like the hunger to do something entirely original, but often less appealing: a large chip on the shoulder, a desire for revenge, a distaste for authority and in many cases flat-out greed.


. . .


In "Worthless, Impossible, and Stupid: How Contrarian Entrepreneurs Create and Capture Extraordinary Value," Daniel Isenberg, a professor of entrepreneurship at Babson College and before that at Harvard Business School, offers many useful stories of entrepreneurship, culled from his teaching experience. But it isn't until two-thirds of the way through that he torturously concedes that every entrepreneur needs a streak of Gordon Gekko.

"I have gradually come to the difficult conclusion that the burning desire for extraordinary value capture is almost a sine qua non for the supreme effort required to convert the value from imagined into tangible value," he writes. "Personal gain is the simplest and most powerful motivation. If a person does not feel deeply that 'This must pay off for me,' there will rarely be extraordinary value creation."



For the full review, see:

PHILIP DELVES BROUGHTON. "BOOKSHELF; Who Moved My Fortune? Some entrepreneurs want to do good. Many more are driven by a chip on the shoulder, a desire for revenge, a distaste for authority." The Wall Street Journal (Sat., July 31, 2013): A11.

(Note: ellipsis added.)

(Note: the online version of the review has the date July 30, 2013.)






September 25, 2013

Office Design that Forces Interaction, Causes Exhaustion, Stress, High Errors and Low Productivity



(p. D1) The big push in office design is forcing co-workers to interact more. Cubicle walls are lower, office doors are no more and communal cafes and snack bars abound.

Like most grand social experiments, though, open-plan offices bring an unintended downside: pesky, productivity-sapping interruptions.

The most common disruptions come from co-workers, as tempting as it is to blame email or instant messaging. Face-to-face interruptions account for one-third more intrusions than email or phone calls, which employees feel freer to defer or ignore, according to a 2011 study in the journal Organization Studies.

Other research published earlier this year links frequent interruptions to higher rates of exhaustion, stress-induced ailments and a doubling of error rates.



For the full story, see:

SUE SHELLENBARGER. "WORK & FAMILY; The Biggest Distraction in the Office Is Sitting Next to You." The Wall Street Journal (Weds., September 11, 2013): D1 & D3.

(Note: the online version of the story has the date September 10, 2013, and has the title "WORK & FAMILY; The Biggest Office Interruptions Are... ...not what most people think. And even a 2-second disruption can lead to a doubling of errors.")


Among the academic papers referred to in the article are:

Wajcman, Judy, and Emily Rose. "Constant Connectivity: Rethinking Interruptions at Work." Organization Studies 32, no. 7 (July 2011): 941-61.

Altmann, Erik M., J. Gregory Trafton, and David Z. Hambrick. "Momentary Interruptions Can Derail the Train of Thought." Journal of Experimental Psychology: General (Jan. 7, 2013): 1-12.






September 24, 2013

Nanny Feds Take Revenge on Zucker for Trying to "Save Our Balls"



ZuckerCraigBuckyballsEntrepreneur2013-08-31.jpg











Craig Zucker. Source of caricature: online version of the WSJ article quoted and cited below.



(p. A11) Mr. Zucker is the former CEO of Maxfield & Oberton, the small company behind Buckyballs, an office toy that became an Internet sensation in 2009 and went on to sell millions of units before it was banned by the feds last year.

A self-described "serial entrepreneur," Mr. Zucker looks the part with tussled black hair, a scraggly beard and hipster jeans. Yet his casual-Friday outfit does little to subdue his air of ambition and hustle.

Nowadays Mr. Zucker spends most of his waking hours fighting off a vindictive U.S. Consumer Product Safety Commission that has set out to punish him for having challenged its regulatory overreach. The outcome of the battle has ramifications far beyond a magnetic toy designed for bored office workers. It implicates bedrock American notions of consumer choice, personal responsibility and limited liability.


. . .


In August 2009, Maxfield & Oberton demonstrated Buckyballs at the New York Gift Show; 600 stores signed up to sell the product. By 2010, the company had built a distribution network of 1,500 stores, including major retailers like Urban Outfitters and Brookstone. People magazine in 2011 named Buckyballs one of the five hottest trends of the year, and in 2012 it made the cover of Brookstone's catalog.

Maxfield & Oberton now had 10 employees, 150 sales representatives and a distribution network of 5,000 stores. Sales had reached $10 million a year. "Then," says Mr. Zucker, "we crashed."

On July 10, 2012, the Consumer Product Safety Commission instructed Maxfield & Oberton to file a "corrective-action plan" within two weeks or face an administrative suit related to Buckyballs' alleged safety defects. Around the same time--and before Maxfield & Oberton had a chance to tell its side of the story--the commission sent letters to some of Maxfield & Oberton's retail partners, including Brookstone, warning of the "severity of the risk of injury and death possibly posed by" Buckyballs and requesting them to "voluntarily stop selling" the product.

It was an underhanded move, as Maxfield & Oberton and its lawyers saw it. "Very, very quickly those 5,000 retailers became zero," says Mr. Zucker. The preliminary letters, and others sent after the complaint, made it clear that selling Buckyballs was still considered lawful pending adjudication. "But if you're a store like Brookstone or Urban Outfitters . . . you're bullied into it. You don't want problems."


. . .


Maxfield & Oberton resolved to take to the public square.On July 27, just two days after the commission filed suit, the company launched a publicity campaign to rally customers and spotlight the commission's nanny-state excesses. The campaign's tagline? "Save Our Balls."

Online ads pointed out how, under the commission's reasoning, everything from coconuts ("tasty fruit or deadly sky ballistic?") to stairways ("are they really worth the risk?") to hot dogs ("delicious but deadly") could be banned.


. . .


. . . in February [2013] the Buckyballs saga took a chilling turn: The commission filed a motion requesting that Mr. Zucker be held personally liable for the costs of the recall, which it estimated at $57 million, if the product was ultimately determined to be defective.

This was an astounding departure from the principle of limited liability at the heart of U.S. corporate law.


. . .


Given the fact that Buckyballs have now long been off the market, the attempt to go after Mr. Zucker personally raises the question of retaliation for his public campaign against the commission. Mr. Zucker won't speculate about the commission's motives. "It's very selective and very aggressive," he says.



For the full interview, see:

SOHRAB AHMARI, interviewer. "THE WEEKEND INTERVIEW with Craig Zucker; What Happens When a Man Takes on the Feds; Buckyballs was the hottest office game on the market. Then regulators banned it. Now the government wants to ruin the CEO who fought back." The Wall Street Journal (Sat., August 31, 2013): A11.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the interview has the date August 30, 2013, and has the title "THE WEEKEND INTERVIEW; Craig Zucker: What Happens When a Man Takes on the Feds. Buckyballs was the hottest office game on the market. Then regulators banned it. Now the government wants to ruin the CEO who fought back.")





September 22, 2013

Growth of Labor Safety Net Made Great Recession Deeper and Longer



TheRedistributionRecessionBK2013-09-05.jpg











Source of book image: http://si.wsj.net/public/resources/images/OB-VE881_bkrvre_GV_20121101145828.jpg






(p. 309) [Mulligan's empirical results suggest] that employment was dropping not only because of declining demand for the employees' products, but also because employers were substituting capital and other factors for labor. This surprising finding suggests that although a decline in aggregate demand for goods and services was one of the reasons for the decline in labor, other causes were also at play in most sectors of the economy. This fact is consistent with an inward shift in the supply of labor to the marketplace during this period.

In chapter 3, Mulligan introduces the main culprit responsible for this supplycurve shift--the unintended consequences of increases in the social safety net that substantially increased the marginal tax rate on work. In his model, Mulligan operationalizes this force into changes in the replacement rate (the fraction of productivity that the average nonemployed person receives in the form of means-tested benefits) and the self-reliance rate (1 minus the replacement rate), which is the fraction of lost productivity not replaced by means-tested benefits.

His conjecture is that, in a reverse of government policies in the 1990s that made work pay for single mothers by transforming welfare as we knew it into a program that nudged single mothers off the Aid to Families with Dependent Children rolls and into the workforce, "temporary" government program expansions to mitigate the (p. 310) short-run consequences of unemployment and the bursting of the housing bubble made a prolonged paid period of nonwork an offer that many Americans found too tempting to refuse.

Mulligan identifies and incorporates the major expansions in eligibility and benefit amounts for Unemployment Insurance and food stamps into an eligibility index that shows that most of the 199 percent growth in these programs between 2007 and 2009 was due to these changes. He uses this growth rate in a weighted index of overall statutory safety-net generosity to determine the degree to which it has influenced overall employment. He does a similar analysis of the means-tested Home Affordable Modification Program (HAMP), which facilitated substantial lender-provided discounts on home mortgage expenses for unemployment insurance-eligible workers. He finds that these market distortions that increased the marginal tax on work grew substantially in 2008, peaked in 2009--at almost triple their 2007 level--and then modestly fell in 2010 to a level appreciably above the 2007 level.


. . .


But his empirical evidence shows that the implementation of these "recession cures" was primarily responsible for the Great Recession's depth and duration.



For the full review, see:

Burkhauser, Richard V. "Review of: "The Redistributive Recession: How Labor Market Distortions Contracted the Economy" by Casey B. Mulligan." The Independent Review 18, no. 2 (Fall 2013): 308-11.

(Note: ellipsis, and words in brackets, added.)


Book that is under review:

Mulligan, Casey B. The Redistribution Recession: How Labor Market Distortions Contracted the Economy. New York: Oxford University Press, USA, 2012.






September 20, 2013

Brazil's Cardozo Envies England's Rule of Law



PalinMichael2013-08-31.jpg















"Michael Palin." Source of caption and photo: online version of the WSJ article quoted and cited below.



(p. C11) For his most recent project in Brazil, which will go on to become a PBS series, Mr. Palin interviewed former Brazilian President Fernando Cardoso, who is often credited with the country's economic turnaround. Whereas he says most political leaders are hesitant to say anything controversial, Mr. Cardoso was refreshingly straightforward. "I asked him, 'Brazil has so many good things going for it--the people are friendly and relaxed, the economy is booming. Is there anything you envy about us in England?' " He was surprised by Mr. Cardoso's answer. "He said straight out, 'The rule of law.' He said, 'Our problem here is we have endemic corruption,' " says Mr. Palin. "I just thought it was incredibly honest for a world leader."


For the full story, see:

ALEXANDRA WOLFE. "WEEKEND CONFIDENTIAL; Michael Palin Takes on the World; The former Monty Python performer is turning his global adventures into comic tales." The Wall Street Journal (Sat., August 31, 2013): C11.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date August 30, 2013.)






September 18, 2013

To Save Lego, CEO Fired Almost a Third of Workers



BrickByBrickBK2013-09-02.jpg











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







(p. A15) Only 10 years ago, Lego was posting record losses; retailers were backlogged with unsold Lego toys; and it was unclear whether Lego would survive as an independent company. An internal review discovered that 94% of the sets in its product line were unprofitable. The turnaround story that followed is well told by Wharton professor David Robertson in "Brick by Brick."


. . .


Upon coming to power, Mr. Knudstorp cut 30% of Lego's product portfolio, including many of its newer offerings. To stave off financial doom, he also sold the company's headquarters building and moved into simpler accommodations--and, more painfully, let go almost a third of the workforce.

But how to move beyond the rescue stage and toward growth? Based on input from top retailers and a large customer-research study, Lego executives concluded that even though young fans of buildable toys were a minority, there were enough of them to make a worthwhile market--and their parents were willing to pay premium prices. The company would now organize its innovation efforts around its potentially very profitable core audience.

Mr. Robertson, with the benefit of access to staff at Lego and partner companies, provides unusually detailed reporting of the processes that led to Lego's current hits (and, inevitably, some misses). Among the hits is the Mindstorms NXT, the second generation of Lego's robotics set, which hadn't been updated or advertised since 2001. Mr. Robertson describes how Lego navigated between relying on sophisticated users to determine the product's design and relying on its own expertise in the creation of building experiences.



For the full review, see:

DAVID A. PRICE. "BOOKSHELF; The House That Lego Built; Lego balked at licensing warlike 'Star Wars' toys. But then anthropological research convinced company executives that kids like to compete." The Wall Street Journal (Tues., July 23, 2013): A15.

(Note: ellipsis added.)

(Note: the online version of the review has the date July 22, 2013.)


The book under review, is:

Robertson, David. Brick by Brick: How Lego Rewrote the Rules of Innovation and Conquered the Global Toy Industry. New York: Crown Business, 2013.






September 15, 2013

When Google Earned a Profit, Sergey Brin "Felt Like We Had Built a Real Business"



(p. 94) . . . , Google was reaping rewards, and 2002 was its first profitable year. "That's really satisfying," Brin said at the time. "Honestly, when we were still in the dot-com boom days, I felt like a schmuck. I had an Internet start-up-- so did everybody else. It was unprofitable, like everybody else's, and how hard is that? But when we became profitable, I felt like we had built a real business."


Source:

Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.

(Note: ellipsis added.)






September 7, 2013

Yahoo Valued "Marketing Gimmicks" More than Search Speed



(p. 44) Google had struck a deal to handle all the search traffic of Yahoo, one of the biggest portals on the web.

The deal--announced on June 26, 2000--was a frustrating development to the head of Yahoo's search team, Udi Manber. He had been arguing that Yahoo should develop its own search product (at the time, it was licensing technology from Inktomi), but his bosses weren't interested. Yahoo's executives, led by a VC-approved CEO named Timothy Koogle (described in a BusinessWeek cover story as "The Grown-up Voice of Reason at Yahoo"), instead were devoting their attention to branding--marketing gimmicks such as putting the purple corporate logo on the Zamboni machine that swept the ice between periods of San Jose Sharks hockey games. "I had six people working on my search team," Manber said. "I couldn't get the seventh. This was a company that had thousands of people. I could not get the seventh." Since Yahoo wasn't going to develop its own search, Manber had the task of finding the best one to license.



Source:

Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.

(Note: italics in original.)






September 6, 2013

In Conflict Between Ecologist and Economist, the Economist Won



EhrlichSimonCaricature2013-08-31.jpg Paul Ehrlich (left) and Julian Simon (right). Source of caricature: online version of the WSJ review quoted and cited below.



(p. C6) . . . in 1980 Simon made Mr. Ehrlich a bet. If Mr. Ehrlich's predictions about overpopulation and the depletion of resources were correct, Simon said, then over the next decade the prices of commodities would rise as they became more scarce. Simon contended that, because markets spur innovation and create efficiencies, commodity prices would fall. He proposed that each party put up $1,000 to purchase a basket of five commodities. If the prices of these went down, Mr. Ehrlich would pay Simon the difference between the 1980 and 1990 prices. If the prices went up, Simon would pay. This meant that Mr. Ehrlich's exposure was limited while Simon's was theoretically infinite.


. . .


In October 1990, Mr. Ehrlich mailed a check for $576.07 to Simon.


. . .


Mr. Ehrlich was more than a sore loser. In 1995, he told this paper: "If Simon disappeared from the face of the Earth, that would be great for humanity." (Simon would die in 1998.)


. . .


Mr. Sabin's portrait of Mr. Ehrlich suggests that he is among the more pernicious figures in the last century of American public life. As Mr. Sabin shows, he pushed an authoritarian vision of America, proposing "luxury taxes" on items such as diapers and bottles and refusing to rule out the use of coercive force in order to prevent Americans from having children. In many ways, Mr. Ehrlich was an early instigator of the worst aspects of America's culture wars. This picture is all the more damning because Mr. Sabin paints it not with malice but with sympathy. A history professor at Yale, Mr. Sabin shares Mr. Ehrlich's devotion to environmentalism. Yet this affinity doesn't prevent Mr. Sabin from being clear-eyed.

At heart, "The Bet" is about not just a conflict of men; it is about a conflict of disciplines, pitting ecologists against economists. Mr. Sabin cautiously posits that neither side has been completely vindicated by the events of the past 40 years. But this may be charity on his part: While not everything Simon predicted has come to pass, in the main he has been vindicated.


. . .


Mr. Ehrlich may have been defeated in the wager, but he has continued to flourish in the public realm. The great mystery left unsolved by "The Bet" is why Paul Ehrlich and his confederates have paid so small a price for their mistakes. And perhaps even been rewarded for them. In 1990, just as Mr. Ehrlich was mailing his check to Simon, the MacArthur Foundation awarded him one of its "genius" grants. And 20 years later his partner in the wager, John Holdren, was appointed by President Obama to be director of the White House Office of Science and Technology Policy.



For the full review, see:

JONATHAN V. LAST. "A Prediction that Bombed; Paul Ehrlich predicted an imminent population catastrophe; Julian Simon wagered he was wrong." The Wall Street Journal (Sat., August 31, 2013): C6.

(Note: ellipses added.)

(Note: the online version of the review has the date August 30, 2013, and has the title "Book Review: 'The Bet' by Paul Sabin; Paul Ehrlich predicted an imminent population catastrophe--Julian Simon wagered he was wrong.")


The book discussed above is:

Sabin, Paul. The Bet: Paul Ehrlich, Julian Simon, and Our Gamble over Earth's Future. New Haven, Conn.: Yale University Press, 2013.



TheBetBK2013-08-31.jpg














Source of book image: http://paulsabin.com/wp-content/uploads/2013/06/sabin_the_bet_wr.jpg







September 5, 2013

Venezuelan Socialists Seize Private Toilet Paper



(p. A6) CARACAS, Venezuela (AP) -- Police in Venezuela say they have seized nearly 2,500 rolls of toilet paper in an overnight raid of a clandestine warehouse storing scarce goods.


. . .


The socialist government says the shortages are part of a plot by opponents to destabilize the country. Economists blame the government's price and currency controls.



For the full story, see:

AP. "World; Police Seize 2,500 Rolls of Toilet Paper." Omaha World-Herald (Fri., May 31, 2013): 6A.

(Note: ellipsis added.)





September 3, 2013

Redundancy Allowed Google to Function with Cheap and Failure-Prone Hard Drives



(p. 42) . . . as the web kept growing, Google added more machines--by the end of 1999, there were eighty machines involved in the crawl (out of a total of almost three thousand Google computers at that time)--and the likelihood that something would break increased dramatically. Especially since Google made a point of buying what its engineers referred to as "el cheapo" equipment. Instead of commercial units that carefully processed and checked information, Google would buy discounted consumer models without built-in processes to protect the integrity of data.

As a stopgap measure, the engineers had implemented a scheme where the indexing data was stored on different hard drives. If a machine went bad, everyone's pager would start buzzing, even if it was the middle of the night, and they'd barrel into the office immediately to stop the crawl, copy the data, and change the configuration files. "This happened every few days, and it basically stopped everything and was very painful," says Sanjay Ghemawat, one of the DEC research wizards who had joined Google.


. . .


(p. 43) The experience led to an ambitious revamp of the way the entire Google infrastructure dealt with files. "I always had wanted to build a file system, and it was pretty clear that this was something we were going to have to do," says Ghemawat, who led the team. Though there had previously been systems that handled information distributed over multiple files, Google's could handle bigger data loads and was more nimble at running full speed in the face of disk crashes-- which it had to be because, with Google's philosophy of buying supercheap components, failure was the norm. "The main idea was that we wanted the file system to automate dealing with failures, and to do that, the file system would keep multiple copies and it would make new copies when some copy failed," says Ghemawat.



Source:

Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.

(Note: ellipses added.)






September 1, 2013

"Inflexible Labor Laws" Lead Indian Firms "to Substitute Machines for Unskilled Labor"



(p. A19) . . . , India is failing to make full use of the estimated one million low-skilled workers who enter the job market every month.

Manufacturing requires transparent rules and reliable infrastructure. India is deficient in both. High-profile scandals over the allocation of mobile broadband spectrum, coal and land have undermined confidence in the government. If land cannot be easily acquired and coal supplies easily guaranteed, the private sector will shy away from investing in the power grid. Irregular electricity holds back investments in factories.

India's panoply of regulations, including inflexible labor laws, discourages companies from expanding. As they grow, large Indian businesses prefer to substitute machines for unskilled labor.



For the full commentary, see:

ARVIND SUBRAMANIAN. "Why India's Economy Is Stumbling." The New York Times (Sat., August 31, 2013): A19.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date August 30, 2013.)






August 22, 2013

"We Just Begged and Borrowed" for Equipment



(p. 32) Google was handling as many as 10,000 queries a day. At times it was consuming half of Stanford's Internet capacity. Its appetite for equipment and bandwidth was voracious. "We just begged and borrowed," says Page. "There were tons of computers around, and we managed to get some." Page's dorm room was essentially Google's operations center, with a motley assortment of computers from various manufacturers stuffed into a homemade version of a server rack-- a storage cabinet made of Legos. Larry and Sergey would hang around the loading dock to see who on campus was getting computers-- companies like Intel and Sun gave lots of free machines to Stanford to curry favor with employees of the future-- (p. 33) and then the pair would ask the recipients if they could share some of the bounty.

That still wasn't enough. To store the millions of pages they had crawled, the pair had to buy their own high-capacity disk drives. Page, who had a talent for squeezing the most out of a buck, found a place that sold refurbished disks at prices so low-- a tenth of the original cost-- that something was clearly wrong with them. "I did the research and figured out that they were okay as long as you replaced the [disk] operating system," he says. "We got 120 drives, about nine gigs each. So it was about a terabyte of space." It was an approach that Google would later adopt in building infrastructure at low cost.

Larry and Sergey would be sitting by the monitor, watching the queries-- at peak times, there would be a new one every second-- and it would be clear that they'd need even more equipment. What next? they'd ask themselves. Maybe this is real.



Source:

Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.

(Note: italics in original.)






August 20, 2013

In Greece, Votes Are Traded for Government Jobs



(p. A4) Some members of Parliament have lobbied for fishing licenses for the owners of pleasure boats in the Aegean islands. Others have asked for government jobs for award-winning athletes or members of dismantled state agencies. One sought to exempt theaters and cinemas from a controversial property tax. Another to reduce fines for the owners of illegally built homes in parts of northern Greece. The list goes on.

In all, more than 90 such budget-busting proposals have been floated as lawmakers scramble to push through last-minute amendments to bills otherwise intended to meet the demands of creditors who want Greece to liberalize its job market, cut red tape and shrink state payrolls.


. . .


But the proliferation of items threatens to delay that step, as lawmakers go to the trough one last time. Greece's practice of trading favors -- often government jobs -- for political support is as old as its 400 years of Ottoman rule, when the system evolved. The word for it, "rousfeti," which means favor, has its roots in the Turkish word for bribe.


. . .


"In Greece, the cross is sold in exchange for a government job," said one of them, Theodoros Pangalos, the outspoken deputy prime minister and seasoned Socialist, referring to the X that voters make on the ballot.

"No one has dared touch this system to date," Mr. Pangalos, who will not seek re-election, said this month in an interview with the French-German television channel Arte. "But it is time for it to change."



For the full story, see:

NIKI KITSANTONIS. "Despite Warning, Old Handouts Die Hard for Greek Politicians Facing Voters Soon." The New York Times (Tues., April 10, 2012): A4.

(Note: ellipses added.)

(Note: the online version of the article has the date April 9, 2012.)






August 13, 2013

For Hubbard and Kane "Institutions Explain Innovation"



HowTheMightyFallBK2013-08-08.jpg












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






(p. A11) Messrs. Hubbard and Kane argue, as do others, that certain policies and core principles are the key: property rights, flexible work rules, open markets. For the authors, such matters explain economic growth entirely.

To those who would cite the primacy of technological breakthroughs, Messrs. Hubbard and Kane assert that inventions only spark growth if there are systems in place (such as intellectual-property rights) that enable inventions to flourish and their value to spread. "The wheel and the windmill were invented many times," they write, "then forgotten, until finally one society had the institutional framework to implement them widely and pass them on permanently." In short, "institutions explain innovation."



For the full review, see:

Matthew Rees. "BOOKSHELF; How the Mighty Fall; The Roman empire eventually lost its economic vitality thanks to price controls, heavy taxes and state-sponsored debt relief.." The Wall Street Journal (Fri., June 21, 2013): A11.

(Note: the online version of the review has the date June 20, 2013.)


The book under review is:

Hubbard, Glenn, and Tim Kane. Balance: The Economics of Great Powers from Ancient Rome to Modern America. New York: Simon & Schuster, 2013.







August 12, 2013

If Terry Were from Texas, He Might Oppose Federal Ethanol Mandates



(p. 1A) WASHINGTON -- The ethanol industry is again under fire from critics who want to eliminate the federal mandate that oil companies blend biofuels into the gasoline supply.

The House Energy and Commerce Committee is holding hearings on the Renewable Fuel Standard [RFS], which called for 15 billion gallons of biofuels to be used in 2012. The requirements reach 36 billion gallons by 2022.


. . .


(p. 2A) Rep. Lee Terry, R-Neb., a member of the Energy and Commerce Committee, said it's clear that members from Texas and Louisiana will be targeting the usage requirements.


. . .


Terry has been a champion of the Keystone XL pipeline, making him an ally of Gulf Coast lawmakers and the oil industry on that issue.

Their split over the ethanol issue causes some awkward moments, he said.

"I say, 'You do realize I'm from the Cornhusker State,'" Terry said. "If I was from Dallas, you know, who knows? I'd have a different view on the RFS."



For the full story, see:

Joseph Morton. "Big Oil Revs Up Efforts to Repeal Rules Forcing Ethonal in the Mix." Omaha World-Herald (MONDAY, JULY 8, 2013): 1A-2A.

(Note: ellipses and bracketed abbreviation added.)

(Note: the online version of the article has the title "RENEWABLE FUEL STANDARD; Ethanol Critics Rev Up Efforts to Repeal Biofuel Rules on Gas.")






August 9, 2013

Less Credentialed Hazlitt Got More Right than Keynes and White



TheBattleOfBrettonWoodsBK2013-07-21.jpg




















Source of book image:
http://s.s-bol.com/imgbase0/imagebase/large/FC/7/0/6/9/9200000009899607.jpg



(p. C5) One of the many merits of "The Battle of Bretton Woods," a superb history of mid-20th-century monetary affairs, is the timing of its publication. Today, as never before, central banks are printing money, suppressing interest rates and manipulating markets. You wonder where it will all end.


. . .


(p. C6) According to Mr. Steil, the recondite Bretton Woods debates failed to engage the American public as a political issue. If so, it was no fault of Henry Hazlitt's. An editorial writer for the New York Times, Hazlitt directed persistent, withering fire against White's and Keynes's brainchild. (His collected editorials, titled "From Bretton Woods to World Inflation," were published in 1984.) The conference had it all wrong, Hazlitt thundered in the Times. The IMF would subsidize unsound policies. What was wanted were sound ones.

"The broad principles should not be difficult to formulate," the readers of the Times were reminded on the eve of the gathering in New Hampshire. Governments should balance their budgets, forswear 1930s-style impediments to free trade (quotas, exchange restrictions) and refrain from "currency and credit inflation." And the currency itself? It should be "redeemable in something that is itself fixed and definite: for all practical purposes this means a return to the historic gold standard."


. . .


White was a Harvard Ph.D. Keynes was, at least according to Mr. Steil, "the most innovative and iconoclastic economist of his age, if not of all time." Hazlitt was no trained economist at all. But it was he, not the two acclaimed experts, who turned out to be right.



For the full review, see:

James Grant. "A Fateful Meeting That Shaped the World." The Wall Street Journal (Sat., March 16, 2013): C5-C6.

(Note: ellipses added.)

(Note: the online version of the review has the date March 15, 2013.)


The book under review is:

Steil, Benn. The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order Princeton, NJ: Princeton University Press, 2013.






August 8, 2013

Biofuels Like Ethanol Raise Food Costs About 30%



(p. 5) Until January [2008], Keith Collins was the longtime and widely respected chief economist for the Department of Agriculture. In that position, he was a frequent booster of government policies that encouraged biofuel production.

In the months after his departure, he was hired by Kraft Foods Global to analyze the impact of biofuels on food prices. He delivered a stunning, and unexpected, roundhouse to his former employers.

The Bush administration had said biofuels were a minor factor in rising food costs. In a May 1 [2008] press conference, Edward P. Lazear, chairman of the White House Council of Economic Advisers, said, "The bottom line is that we think that ethanol accounts for somewhere between 2 and 3 percent of the overall increase in global food prices."

A month later, in Rome at a United Nations conference on the food crisis, the agriculture secretary, Ed Schafer, echoed Mr. Lazear's analysis in defending American biofuels policy.

But Mr. Collins pointed out that the administration's analysis was more like a back-of-the-envelope calculation, and that it hadn't accounted for the impact of biofuels on crops other than corn. The push for ethanol has led farmers to grow more corn and less of other food crops, one factor in rising prices for commodities like wheat.

Based on his own analysis, Mr. Collins maintains that biofuels have caused 23 to 35 percent of the increases in food costs.



For the full commentary, see:

ANDREW MARTIN. "THE FEED; The Man Who Dared to Question Ethanol." The New York Times, SundayBusiness Section (Sun., July 13, 2008): 5.

(Note: bracketed years added.)






August 6, 2013

Steel Bankruptcies Led to Better Steel Industry Processes



(p. 3) A few years ago, an industry whose history and mythology were indelible parts of the American identity was dying. The great steel mills of Pennsylvania and the Midwest had literally built this country, but the twin burdens of competition and self-inflicted wounds had brought them to the edge of extinction.


. . .


Yet steel's savior was not the government bailouts it ardently sought but exactly what it so long tried to avoid: bankruptcy. Only when the companies failed were they successfully slimmed down and retooled into smaller but profitable ventures.


. . .


Bethlehem Steel, whose steel was used in the Hoover Dam, the Chrysler building and the George Washington Bridge, filed for bankruptcy in October 2001. It was followed by National Steel, Weirton Steel, Georgetown Steel and many others. The pain was great.

And necessary, some say. "If the steel companies had gotten all they wanted in terms of loan guarantees and import quotas, they would never have gotten better," said Richard Fruehan, director of the Sloan Study on Competitiveness in the Steel Industry. "The bankruptcies forced their hand."



For the full commentary, see:

DAVID STREITFELD. "THE NATION; Is Steel's Revival a Model for Detroit?" The New York Times, Week in Review Section (Sun., November 23, 2008): 3.

(Note: ellipses added.)

(Note: the online version of the commentary is dated November 22, 2008.)






August 3, 2013

Wittgenstein Heirs Lost Family Wealth and "Found Little Happiness"



TheHouseOfWittgensteinBK2013-07-21.jpg














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








(p. W10) As he lay dying during Christmas 1912 -- from a gruesome throat cancer -- the Viennese industrialist Karl Wittgenstein no doubt took some comfort in the fact that he was leaving to his heirs one of the largest fortunes in Europe. He had acquired his wealth in just 30 years, the period during which Wittgenstein, an engineer, transformed a small steel mill into Europe's largest steel cartel through a combination of hard work, luck and ruthlessness. As der österreichische Eisenkönig (the "Austrian iron king"), he was the chief executive, principal shareholder or director of dozens of industrial companies and banks that provided the ore, manufacturing and financing for most of the steel products of the Habsburg Empire.

In his spare time, Wittgenstein acquired a spectacular house in Vienna, grandly styled as the family's Palais Wittgenstein.


. . .


Today, though, the Wittgenstein millions are gone and the Palais replaced by a hideous concrete apartment block. "Riches," Adam Smith wrote, ". . . very seldom remain long in the same family." Alexander Waugh's grimly amusing "The House of Wittgenstein" shows how the family fortune was lost and how the family members themselves, despite instances of prodigious talent and accomplishment, found little happiness in their own lives or pleasure in their sibling relations.



For the full review, see:

JAMES F. PENROSE. "BOOKS; A Viennese Blend: Riches and Rancor; Blessed by Musical and Intellectual Gifts, and Lots of Money, a Family Still Struggled to Find Harmony." The Wall Street Journal (Sat., March 1, 2009): W10.

(Note: ellipsis added; italics in original.)

(Note: the online version of the review has the date February 28, 2009.)


The book under review is:

Waugh, Alexander. The House of Wittgenstein: A Family at War. New York: Doubleday, 2009.






August 2, 2013

For Right to Rise, French Youth Must Leave France's "Decrepit, Overcentralized Gerontocracy"



(p. 4) The French aren't used to the idea that their country, like so many others in Europe, might be one of emigration -- that people might actually want to leave. To many French people, it's a completely foreign notion that, around the world and throughout history, voting with one's feet has been the most widely available means to vote at all.


. . .


When the journalist Mouloud Achour, the rapper Mokless and I published a column in the French daily Libération last September, arguing that France was a decrepit, overcentralized gerontocracy and that French youths should pack their bags and go find better opportunities elsewhere in the world, it caused an uproar.


. . .


It was a divide between those who have found their place in the system and believe fervently in defending the status quo, and those who are aware that a country that has tolerated a youth unemployment rate of 25 percent for nearly 30 years isn't a place where the rising generations can expect to rise to much of anything.



For the full commentary, see:

FELIX MARQUARDT. "OPINION; The Best Hope for France's Young? Get Out." The New York Times, SundayReview Section (Sun., June 30, 2013): 4.

(Note: ellipses added.)

(Note: the online version of the commentary is dated June 29, 2013.)






July 31, 2013

Falling Computer Prices Cured the "Digital Divide"



(p. 304) The more evident the power of the internet as an uplifting force became, the more evident the divide between the digital haves and have-nots. One sociological study concluded that there were "two Americas" emerging. The citizens of one America were poor people who could not afford a computer, and of the other, wealthy individuals equipped with PCs who reaped all the benefits. During the 1990s, when technology boosters like me were promoting the advent of the internet, we were often asked: What are we going to do about the digital divide? My an-(p. 305)swer was simple: nothing. We didn't have to do anything, because the natural history of a technology such as the internet was self-fulfilling. The have-nots were a temporary imbalance that would be cured (and more) by technological forces. There was so much profit to be made connecting up the rest of the world, and the unconnected were so eager to join, that they were already paying higher telecom rates (when they could get such service) than the haves. Furthermore, the costs of both computers and connectivity were dropping by the month. At that time most poor in America owned televisions and had monthly cable bills. Owning a computer and having internet access was no more expensive and would soon be cheaper than TV. In a decade, the necessary outlay would become just a $100 laptop. Within the lifetimes of all born in the last decade, computers of some sort (connectors, really) will cost $5.


Source:

Kelly, Kevin. What Technology Wants. New York: Viking Adult, 2010.






July 28, 2013

Children of Chinese Entrepreneurs Want to Work for Government



XieChaoboJoblessEngineeringStudent2013-07-23.jpg













"Engineering student Xie Chaobo has yet to land a job." Source of caption and photo: online version of the WSJ article quoted and cited below.




(p. A1) BEIJING--Xie Chaobo figures he has the credentials to land a job at one of China's big state-owned firms. He is a graduate student at Tsinghua University, one of China's best. His field of study is environmental engineering, one of China's priorities. And he is experimenting with new techniques for identifying water pollutants, which should make him a valuable catch.

But he has applied to 30 companies so far and scored just four interviews, none of which has led to a job.

Although Mr. Xie's parents are entrepreneurs who have built companies that make glasses, shoes and now water pumps, he has no interest in working at a private startup. Chinese students "have been told since we were children to focus on stability instead of risk," the 24-year-old engineering student says.

Over the past decade, the number of new graduates from Chinese universities has increased sixfold to more than six million a year, creating an epic glut that is depressing wages, (p. A10) leaving many recent college graduates without jobs and making students fearful about their future. Two-thirds of Chinese graduates say they want to work either in the government or big state-owned firms, which are seen as recession-proof, rather than at the private companies that have powered China's remarkable economic climb, surveys indicate. Few college students today, according to the surveys, are ready to leave the safe shores of government work and "jump into the sea," as the Chinese expression goes, to join startups or go into business for themselves, although many of their parents did just that in the 1990s.



For the full story, see:

MIKE RAMSEY and VALERIE BAUERLEIN. "Tesla Clashes With Car Dealers; Electric-Vehicle Maker Wants to Sell Directly to Consumers; Critics Say Plan Violates Franchise Laws." The Wall Street Journal (Tues., June 18, 2013): B1-B2.



ChineseStudentAfterGraduationPlans2013-07-23.jpgSource of table: online version of the WSJ article quoted and cited above.






July 24, 2013

Laws to Protect Car Dealers, Keep Car Prices High



TeslaGalleryVirginia2013-07-23.jpg "Tesla 'galleries' such as this one in McLean, Va., can show but not sell cars." Source of caption and photo: online version of the WSJ article quoted and cited below.


(p. B1) RALEIGH, N.C.--Elon Musk made a fortune disrupting the status quo in online shopping and renewable energy. Now he's up against his toughest challenge yet: local car dealers.

Mr. Musk, the billionaire behind PayPal and now Tesla Motors Inc., wants to sell his $70,000 Tesla electric luxury vehicles directly to consumers, bypassing franchised automobile dealers. Dealers are flexing their considerable muscle in states including Texas and Virginia to stop him.

The latest battleground is North Carolina, where the Republican-controlled state Senate last month unanimously approved a measure that would block Tesla from selling online, its only sales outlet here. Tesla has staged whiz-bang test drives for legislators in front of the State House and hired one of the state's most influential lobbyists to stave off a similar vote in the House before the legislative session ends in early July.

The focus of the power struggle between Mr. Musk and auto dealers is a thicket of state franchise laws, many of which go back to the auto industry's earliest days when industry pioneer Henry Ford began turning to eager entrepreneurs to help sell his Model T.

Dealers say laws passed over the decades to prevent car makers from selling directly to consumers are justified because without them auto makers could use their economic clout to sell vehicles for less than their independent franchisees.



For the full story, see:

MIKE RAMSEY and VALERIE BAUERLEIN. "Tesla Clashes With Car Dealers; Electric-Vehicle Maker Wants to Sell Directly to Consumers; Critics Say Plan Violates Franchise Laws." The Wall Street Journal (Tues., June 18, 2013): B1-B2.






July 22, 2013

Great-Grandson of Cornelius Vanderbilt Privately Built First Highway Dedicated to Cars



TheLongIslandMotorParkwayBK2013-07-21.jpg

















Source of book image: https://lihj.cc.stonybrook.edu/wp-content/uploads/2011/07/Motor-Parkway_review.jpg




(p. 13) It survives only as segments of other highways, as a right of way for power lines and as a bike trail, but the Long Island Motor Parkway still holds a sense of magic as what some historians say is the country's first road built specifically for the automobile. It opened 100 years ago last Friday as a rich man's dream.

As detailed in a new book, "The Long Island Motor Parkway" by Howard Kroplick and Al Velocci (Arcadia Publishing), the parkway ran about 45 miles across Long Island, from Queens to Ronkonkoma, and was created by William Kissam Vanderbilt II, the great-grandson of Cornelius Vanderbilt.

. . .


The younger Vanderbilt was a car enthusiast who loved to race. He had set a speed record of 92 miles an hour in 1904, the same year he created his own race, the Vanderbilt Cup.

But his race came under fire after a spectator was killed in 1906, and Vanderbilt wanted a safe road on which to hold the race and on which other car lovers could hurl their new machines free of the dust common on roads made for horses. The parkway would also be free of "interference from the authorities," he said in a speech.

So he created a toll road for high-speed automobile travel. It was built of reinforced concrete, had banked turns, guard rails and, by building bridges, he eliminated intersections that would slow a driver down. The Long Island Motor Parkway officially opened on Oct. 10, 1908, and closed in 1938.


. . .


But by the end of Vanderbilt's life (he died in 1944), the public had come to feel entitled to car ownership. And there was growing pressure for public highways, like the parkways that the urban planner Robert Moses was building.

. . .


In 1938, Moses refused Vanderbilt's appeal to incorporate the motor parkway into his new parkway system. The motor parkway just could not compete with the public roads, even after the toll was reduced to 40 cents, and Moses eventually gained control of Vanderbilt's pioneering road for back taxes of about $80,000. The day of public roads had come, supplanting private highways.


. . .


The parkway marked the beginning of a process: the road was designed for the car. But in offering higher speeds, the parkway and other modern roads would push cars to their technical limits and beyond, inspiring innovation. In that sense, the first modern automobile highway helped to create the modern automobile.



For the full story, see:

PHIL PATTON. "A 100-Year-Old Dream: A Road Just for Cars." The New York Times, SportsSunday Section (Sun., October 12, 2008): 13.

(Note: the centered bold ellipses were in the original; the other ellipses were added.)

(Note: the online version of the article has the date October 9, 2008.)


The book mentioned in the article, is:

Kroplick, Howard, and Al Velocci. The Long Island Motor Parkway. Mount Pleasant, SC: Arcadia Publishing, 2008.



LongIslandMotorParkwayRouteMap2013-07-21.jpg "Approximate Route of Long Island Motor Parkway." Source of caption and map: online version of the NYT article quoted and cited above.







July 17, 2013

"The Million-Dollar Question" for "Our Long Economic Slump": Why "the Severe Downturn in Jobs"?



(p. 5) [There are] . . . two underappreciated aspects of our long economic slump. First, it has exacted the harshest toll on the young -- even harsher than on people in their 50s and 60s, who have also suffered. And while the American economy has come back more robustly than some of its global rivals in terms of overall production, the recovery has been strangely light on new jobs, even after Friday's better-than-expected unemployment report. American companies are doing more with less.

"This still is a very big puzzle," said Lawrence F. Katz, a Harvard professor who was chief economist at the Labor Department during the Clinton administration. He called the severe downturn in jobs "the million-dollar question" for the economy.



For the full commentary, see:

DAVID LEONHARDT. "CAPITAL IDEAS; The Idled Young Americans." The New York Times, SundayReview Section (Sun., May 5, 2013): 5.

(Note: ellipsis, and words in brackets, added.)

(Note: the online version of the commentary has the date May 3, 2013.)






July 14, 2013

Record Companies Refused to See Efficiency of Napster Distribution System



AppetiteForSelfDestructionBK2013-07-13.jpg











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






(p. A15) . . . the central character in "Appetite for Self-Destruction" is technological change.


. . .


Record labels scrambled to negotiate with Napster and develop a legal version of the service with multiple revenue streams. The attempts all failed. In Mr. Knopper's telling, there were unreasonable demands on all sides. But he faults music executives for "cling[ing] to the old, suddenly inefficient model of making CDs and distributing them to record stores. . . . In this world, the labels controlled -- and profited from -- everything." In the new world being ushered in by Napster, he writes, control was shifting "to a snot-nosed punk and his crazy uncle."

The labels' inability to reach an agreement with Napster destroyed "the last chance for the record industry as we know it to stave off certain ruin," Mr. Knopper writes in a typically overheated passage. Had a deal been consummated, he suggests, a legal version of Napster might have generated revenues of $16 billion in 2002 and saved the industry. Whether or not the author's estimate is accurate, his larger point remains: The music industry's big mistake was trying to protect a business model that no longer worked. Litigation would not keep music consumers offline.



For the full review, see:

JEREMY PHILIPS. "BUSINESS BOOKSHELF; Spinning Out of Control; How the record industry missed out on a chance to compete in a new digital world." The Wall Street Journal (Weds., February 11, 2009): A15.

(Note: first two ellipses added; third ellipsis in original.)


The book under review is:

Knopper, Steve. Appetite for Self-Destruction: The Spectacular Crash of the Record Industry in the Digital Age. New York: Free Press, 2009.






July 12, 2013

The Decay of River Rouge's Diseconomies of Scale



RiverRougeFordRollingHall2013-06-28.jpg "The rolling hall at Ford's River Rouge plant, one of Andrew Moore's photographs of Detroit." Source of caption and of the Andrew Moore photo: online version of the NYT article quoted and cited below.


Ford's River Rouge plant near Detroit is a standard textbook example of diseconomies of scale (aka diminishing returns to scale). The image above is an apt illustration of the consequences of diseconomies of scale.


(p. 19) A Connecticut native, Mr. Moore moved to New York in 1980, living near South and John Streets in Lower Manhattan. At night he would wander the neighborhood taking pictures of the construction of the South Street Seaport, which kindled an interest in documenting "life in flux," he said. "I like places in transformation, the process of becoming and changing."


. . .


Photos like those of the enormous rolling hall at Ford's River Rouge plant and a sunset over the Bob-Lo Island boat dock were inspired, Mr. Moore said, by 19th-century American landscape painters like Frederic Church and Martin Johnson Heade.



For the full story, see:

MIKE RUBIN. "Capturing the Idling of the Motor City." The New York Times, Arts&Leisure Section (Sun., August 21, 2011): 19.

(Note: ellipsis added.)

(Note: the online version of the story has the date August 18, 2011.")


Andrew Moore has a book of his photos of Detroit:

Moore, Andrew, and Philip Levine. Andrew Moore: Detroit Disassembled. Bologna, Italy: Damiani/Akron Art Museum, 2010.






July 10, 2013

Samuel Adams Is Underrated Founder Because He Burned His Paper Trail



SamelAdamsALifeBK2013-07-09.jpg















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




(p. A17) "Samuel Adams: A Life" makes it abundantly clear why the British so detested Adams. He started talking independence more than a decade before the Declaration and did more than anyone to organize opposition to colonial taxes and to make "no taxation without representation" a rallying cry. . . .


. . .


If Mr. Stoll's biography lacks the narrative power of books on other Founders, such as David McCullough's "John Adams," the reason may be that the paper trail left by Samuel Adams is frustratingly short. He destroyed much of his correspondence during the revolutionary years, fearful that it could fall into the wrong hands. Some of the letters that remain end with the words "burn this." This Adams wasn't playing for the history books. He was trying to plot a revolution. Mr. Stoll makes a convincing case that Samuel Adams is not just the most underrated of the Founders but also one of the most admirable, down-to-earth and principled (he worked to abolish slavery).



For the full review, see:

JONATHAN KARL. "Revolution Is No Tea Party; Rabble-rouser, wordsmith, strategist and defender of liberty." The Wall Street Journal (Tues., November 3, 2008): A17.

(Note: ellipses added.)


The book under review is:

Stoll, Ira. Samuel Adams: A Life. New York: Free Press, 2008.






July 9, 2013

Why Wind Power Has Not, and Will Not, Replace a Single Conventional Power Plant



(p. A17) After decades of federal subsidies--almost $24 billion according to a recent estimate by former U.S. Sen. Phil Gramm--nowhere in the United States, or anywhere else, has an array of wind turbines replaced a single conventional power plant. Nowhere.

But wind farms do take up space. The available data from wind-power companies, with which the Environmental Protection Agency agrees, show that the most effective of them can generate about five kilowatts per acre. This means 300 square miles of land--192,000 acres--are necessary to generate the 1,000 megawatts (a billion watts) of electricity that a conventional power plant using coal, nuclear energy or natural gas can generate on a few hundred acres. A billion watts fulfills the average annual power demand of a city of 700,000.


. . .


The promise that wind and solar power could replace conventional electricity production never really made sense. It's known to everybody in the industry that a wind turbine will generate electricity 30% of the time--but it's impossible to predict when that time will be. A true believer might be willing to do without electricity when the wind is not blowing, but most people will not. And so, during the 30% of the time the blades are spinning, conventional power plants are also spinning on low, waiting to operate during the other 70% of the time.



For the full commentary, see:

JAY LEHR. "OPINION; The Rationale for Wind Power Won't Fly; Physical limitations will keep this energy source a niche provider of U.S. electricity needs." The Wall Street Journal (Tues., June 18, 2013): A17.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date June 17, 2013.)






July 8, 2013

Project Entrepreneur Would Rather Change the World than Buy a Luxury Car



HoffmanReidGreylockPartners2013-06-28.jpg"Reid Hoffman at Greylock Partners foresees a tectonic shift coming in the Web, with data and its many uses as the new linchpin, replacing identity and relationships." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. 5) As an executive vice president, it was up to Mr. Hoffman to manage external relations. "He was the firefighter in chief at PayPal," Mr. Thiel says. "Though that diminishes his role because there were many, many fires."

Mr. Hoffman emerged as a connector and high-level strategist. He packed his schedule with meetings, charmed credit card companies and soothed the regulators.

PayPal survived, and when the company went public, in 2002, Mr. Hoffman and many of his colleagues became multimillionaires.

Mr. Thiel splurged on a Ferrari. Mr. Hoffman wanted to buy an Audi but instead invested his newfound riches in one of the first solar panel companies to come out of Silicon Valley, Nanosolar, and bought an Acura instead.

"I started to think about the value of money," he says. "I thought if I only had $75,000, would I rather invest in a luxury car or make a play in changing the world?"

Nanosolar became a multibillion-dollar enterprise.



For the full story, see:

EVELYN M. RUSLI. "A King of Connections; How Reid Hoffman of LinkedIn Became Tech's Go-To Guy." The New York Times, SundayBusiness Section (Sun., November 6, 2011): 1 & 5.

(Note: ellipsis added.)

(Note: the online version of the article has the date November 5, 2011, and has the title "A King of Connections Is Tech's Go-To Guy.")






July 6, 2013

In the England of the Late 1600s, Coffeehouses Were "Crucibles of Creativity"



AHistoryOfTheWorldInSixGlassesBK2013-07-04.jpg





















Source of book image: http://www.drinkoftheweek.com/wp-content/plugins/simple-post-thumbnails/timthumb.php?src=/wp-content/thumbnails/23682.jpg&w=250&h=400&zc=1&ft=jpg



(p. 8) Like coffee itself, coffeehouses were an import from the Arab world.


. . .


Patrons were not merely permitted but encouraged to strike up conversations with strangers from entirely different walks of life. As the poet Samuel Butler put it, "gentleman, mechanic, lord, and scoundrel mix, and are all of a piece."


. . .


. . . , coffeehouses were in fact crucibles of creativity, because of the way in which they facilitated the mixing of both people and ideas. Members of the Royal Society, England's pioneering scientific society, frequently retired to coffeehouses to extend their discussions. Scientists often conducted experiments and gave lectures in coffeehouses, and because admission cost just a penny (the price of a single cup), coffeehouses were sometimes referred to as "penny universities." It was a coffeehouse argument among several fellow scientists that spurred Isaac Newton to write his "Principia Mathematica," one of the foundational works of modern science.

Coffeehouses were platforms for innovation in the world of business, too. Merchants used coffeehouses as meeting rooms, which gave rise to new companies and new business models. A London coffeehouse called Jonathan's, where merchants kept particular tables at which they would transact their business, turned into the London Stock Exchange. Edward Lloyd's coffeehouse, a popular meeting place for ship captains, shipowners and traders, became the famous insurance market Lloyd's.

And the economist Adam Smith wrote much of his masterpiece "The Wealth of Nations" in the British Coffee House, a popular meeting place for Scottish intellectuals, among whom he circulated early drafts of his book for discussion.



For the full commentary, see:

TOM STANDAGE. "OPINION; Social Networking in the 1600s." The New York Times, SundayReview Section (Sun., June 23, 2013): 8.

(Note: ellipses added.)

(Note: the online version of the commentary has the date June 22, 2013.)



The author of the commentary is also the author of a related book:

Standage, Tom. A History of the World in Six Glasses. New York: Walker & Company, 2005.






July 5, 2013

Office Workers Switch Tasks Every 11 Minutes and Take 25 Minutes to Return to Original Task



(p. 12) As economics students know, switching involves costs. But how much? When a consumer switches banks, or a company switches suppliers, it's relatively easy to count the added expense of the hassle of change. When your brain is switching tasks, the cost is harder to quantify.

There have been a few efforts to do so: Gloria Mark of the University of California, Irvine, found that a typical office worker gets only 11 minutes between each interruption, while it takes an average of 25 minutes to return to the original task after an interruption. But there has been scant research on the quality of work done during these periods of rapid toggling.



For the full commentary, see:

BOB SULLIVAN and HUGH THOMPSON. "GRAY MATTER; Brain, Interrupted." The New York Times, SundayReview Section (Sun., May 5, 2013): 12.

(Note: the online version of the commentary has the date May 3, 2013.)



The Gloria Mark paper referred to in the commentary is:

Mark, Gloria, Victor M. Gonzalez, and Justin Harris. "No Task Left Behind? Examining the Nature of Fragmented Work." Proceedings of ACM CHI'05, Portland, OR, (April 2-7, 2005): 321-30.


Another relevant Gloria Mark paper is:

Mark, Gloria, Daniela Gudith, and Ulrich Kloecke. "The Cost of Interrupted Work: More Speed and Stress." Proceeding of the Twenty-sixth Annual SIGCHI Conference on Human Factors in Computing Systems (CHI'08), Florence, Italy, ACM Press (2008): 107-10.






July 4, 2013

Walker Says Those Who Call Him "Patent Troll" Want His Property Without Paying



WalkerJayPatentDefender2013-06-28.jpg














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




(p. B1) Jay Walker turned his idea for "name your own price" Internet auctions into a fortune by starting Priceline.com Inc. Now the entrepreneur is trying to cash in on his ideas by suing other companies.

Since it was founded in 1994 as a research lab, Walker Digital LLC has made much of its money by spinning out its inventions, like online travel agent Priceline and vending-machine firm Vendmore Systems LLC, as independent businesses.


. . .


Mr. Walker defends his newly aggressive tactics, which some critics compare to those of "patent trolls," a derogatory term for firms that opportunistically enforce patents. Without the lawsuits, he said, his patents could expire while other companies exploit them. Patents have a 20-year lifespan.

"Not only are we not a troll, but the people who want to label me are often the same ones that want to use our property and not pay," Mr. Walker said in an interview.



For the full story, see:

JOHN LETZING. "Founder of Priceline Spoiling for a Fight Over Tech Patents." The Wall Street Journal (Mon., August 22, 2011): B1 & B10.

(Note: ellipsis added.)






July 2, 2013

Property Rights, Flexible Work Rules, Open Markets Are Keys to Economic Growth



BalanceBK2013-06-28.jpg











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







(p. A11) Messrs. Hubbard and Kane argue, as do others, that certain policies and core principles are the key: property rights, flexible work rules, open markets. For the authors, such matters explain economic growth entirely.

To those who would cite the primacy of technological breakthroughs, Messrs. Hubbard and Kane assert that inventions only spark growth if there are systems in place (such as intellectual-property rights) that enable inventions to flourish and their value to spread. "The wheel and the windmill were invented many times," they write, "then forgotten, until finally one society had the institutional framework to implement them widely and pass them on permanently." In short, "institutions explain innovation."



For the full review, see:

Matthew Rees. "BOOKSHELF; How the Mighty Fall; The Roman empire eventually lost its economic vitality thanks to price controls, heavy taxes and state-sponsored debt relief." The Wall Street Journal (Fri., June 21, 2013): A11.

(Note: ellipses added.)

(Note: the online version of the review has the date June 20, 2013.)


The book under review, is:

Hubbard, Glenn, and Tim Kane. Balance: The Economics of Great Powers from Ancient Rome to Modern America. New York: Simon & Schuster, 2013.






June 30, 2013

iPhone: "A Gleaming World of Innovation and Opportunity, of Capitalism Behaving Well"



SubwayIphoneUse2013-06-21.jpg "The theft of electronic devices like iPhones has fueled a rise in subway crime this year, the police say. In the past, New Yorkers were mugged, sometimes killed, for bomber jackets, Cazal glasses and Air Jordan sneakers." Source of caption: print version of the NYT article quoted and cited below. Source of photo: online version of the NYT article quoted and cited below.



(p.24) The current spate of iPhone thefts feels, if anything, more poignant than disruptive. Apple products have always read as cooler than their rivals' because their design suggests a gleaming world of innovation and opportunity, of capitalism behaving well -- a world that seems ever diminishing, ever less accessible to the struggling and young.

Unlike the sneakers and glasses that caused such a fury in the '80s and '90s, iPhones didn't originate in the celebrity system. They come with a democratic ethos (if not the analogous price tag); BlackBerrys are for suits, but even a child can work an iPhone. Wasn't everyone supposed to have a shot?



For the full story, see:

GINIA BELLAFANTE. "BIG CITY; Easy to Use and Easy to Steal, a Status Object Inches Out of Reach." The New York Times, First Section (Sun., October 30, 2011): 24.

(Note: the first paragraph quoted above is from the print version, rather than from the somewhat different online version. The second quoted paragraph is the same in both versions.)

(Note: the online version of the story has the date October 28, 2011, and has the slightly different title "BIG CITY; Easy to Use, or Steal, but Inching Out of Reach.")






June 28, 2013

Discrete Caution Is Not Always Prudent in Corrupt China



TheLittleRedGuardBK2013-06-22.jpg











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








(p. A13) When economic reform and the seductive breeze of political liberalization come to China in the 1980s, the author's cautious father tells his children that if they want to succeed they should be discreet. He urges his son, who is at Shanghai's Fudan University, not to waste his time on useless foreign books. When the son first reads Shakespeare, he thinks that the expression "to be or not to be" is taken from Confucius. His father tells him that asking for too much freedom can land you in jail. "If you are not careful the government could crush you like a bug." Not long after this warning, the student democracy movement was smashed apart at Tiananmen Square, though Mr. Huang's father did not live to see it.

In the end, it is the father who suffers as his world collapses. Toward the end of his life he was told by the Party that he was to be rewarded for devising a money-saving program at his state factory with promotion and a better wage. Instead the promotion went to the girlfriend of the local Party secretary, and the firm's bosses split his wage rise among themselves. Embittered and exhausted, he died of a heart attack in 1988, ahead of his mother.



For the full review, see:

MICHAEL FATHERS. "BOOKSHELF; Coming of Age In Mao's China; Death cannot be controlled by the party, but disposing of a body can. So the author's father built a coffin in secret at his mother's request.." The Wall Street Journal (Mon., April 30, 2012): C4.

(Note: ellipsis added.)

(Note: the online version of the article has the date April 29, 2012.)



The book under review, is:

Huang, Wenguang. The Little Red Guard: A Family Memoir. New York: Riverhead Books, 2012..






June 27, 2013

$30 Million First National Bank Regulatory Costs Due to Dodd-Frank Replacing Clear Rules with Regulator "Wild Card" Leeway



(p. 1D) The president of First National of Nebraska, the nation's largest privately held banking firm, said new federal regulatory and compliance efforts stand to cost the company as much as $30 million this year.

"It is a big uncertainty in the banking world," said Dan O'Neill, speaking Wednesday at the company's annual meeting in Omaha. "They are not operating off of concrete rules. A lot of it is their interpretation."

The federal Consumer Financial Protection Bureau was formed as a result of the federal Dodd-Frank laws passed in 2010 after widespread bank failures and bailouts using taxpayer money. . . .


. . .


The bureau, he said, worries banks because there is not a "clear body of rules" from which the regulator is operating in evaluating the fairness of a bank's business practices. He said the agency's regulators have a lot of leeway in deciding what to do af-(p. 2D)ter examining a bank; penalties for running afoul include fines.

"So it is a bit of a wild card," he said.



For the full story, see:

Russell Hubbard. "First National Chief Says Regulatory Costs Mounting." Omaha World-Herald (THURSDAY, JUNE 20, 2013): 1D-2D.

(Note: ellipses added.)






June 26, 2013

Larry Page Makes an O.K. Decision Now, Rather than a Perfect Decision Later



PageLarryGoogleCEO2013-06-21.jpg "Larry Page has pushed for quicker decision-making and jettisoned more than 25 projects that were not up to snuff." Source of caption and photo: online version of the NYT article quoted and cited below.



(p. A1) MOUNTAIN VIEW, Calif. -- Larry Page, Google's chief executive, so hates wasting time at meetings that he once dumped his secretary to avoid being scheduled for them. He does not much like e-mail either -- even his own Gmail -- saying the tedious back-and-forth takes too long to solve problems.


. . .


(p. A3) Borrowing from the playbooks of executives like Steven P. Jobs and Mayor Michael R. Bloomberg, he has put his personal imprint on the corporate culture, from discouraging excessive use of e-mail to embracing quick, unilateral decision-making -- by him, if need be.

"Ever since taking over as C.E.O., I have focused much of my energy on increasing Google's velocity and execution, and we're beginning to see results," Mr. Page, 38, told analysts recently.


. . .


Despite the many external pressures on Google, it is dominant in its business and highly profitable. But, when asked at a recent conference about the biggest threat to his company, Mr. Page answered in one word, "Google."

The problem was that the company had ballooned so quickly -- it now has more than 31,000 employees and $27.3 billion in revenue so far this year -- that it had become sclerotic. A triumvirate of Mr. Page, his co-founder, Sergey Brin, and Eric E. Schmidt, Google's former chief and current chairman, had to agree before anything could be done. The unwieldy management and glacial pace of decision-making were particularly noticeable in the Valley, where start-ups overtake behemoths in months.

It is different now.

"It's much more of a style like Steve Jobs than the three-headed monster that Google was," said a former Google executive who has spoken with current executives about the changes and spoke anonymously to preserve business relationships. "When Eric was there, you'd walk into a product meeting or a senior staff meeting, and everyone got to weigh in on every decision. Larry is much more willing to make an O.K. decision and make it now, rather than a perfect decision later."



For the full story, see:

CLAIRE CAIN MILLER. "Google's Chief Works to Trim a Bloated Ship." The New York Times (Thurs., November 10, 2011): A1 & A3.

(Note: ellipses added.)

(Note: the online version of the story has the date November 9, 2011.)






June 23, 2013

Remedial Ed Does Not Remediate



(p. C4) Two economists looked at the achievements of 453,000 students who took a basic-skills test upon entering both two- and four-year public colleges in Texas in the 1990s. . . .

. . . the authors focused on the 93,000 students who either barely passed or barely failed the test. Those students, with nearly identical skills, got treated very differently: Most who barely failed took remedial courses; most who barely passed took college-level courses.

But there was no difference in subsequent achievement between those two groups. In fact, students who got remedial help were slightly less likely to finish one year of college. The study found no effects of remediation on income seven years after starting college.



For the full story, see:

CHRISTOPHER SHEA. "Week in Ideas; Education; Remedial Ed Needs Help." The Wall Street Journal (Sat., February 5, 2011): C4.

(Note: ellipses added.)


The article summarized in the passages quoted above, is:

Martorell, Paco, and Isaac McFarlin, Jr. "Help or Hindrance? The Effects of College Remediation on Academic and Labor Market Outcomes." Review of Economics and Statistics 93, no. 2 (May 2011): 436-54.






June 15, 2013

Cuban Government Employees "Are Known for Surly Service, Inefficiency, Absenteeism and Pilfering"



(p. A10) However small, . . . , the private sector is changing the work culture on an island where state employees earn meager salaries and are known for surly service, inefficiency, absenteeism and pilfering.

Sergio Alba Marín, who for years managed the restaurants of a state-owned hotel and now owns a popular fast-food restaurant, said he was very strict with his employees and would not employ workers trained by the state.

"They have too many vices -- stealing, for one," said Mr. Alba, who was marching with his 25 employees and two large banners emblazoned with the name of his restaurant, La Pachanga. "You can't change that mentality."

"Even if you could, I don't have time," he added. "I have a business to run."



For the full story, see:

VICTORIA BURNETT. "HAVANA JOURNAL; Amid Fealty to Socialism, a Nod to Capitalism." The New York Times (Thurs., May 2, 2013): A6 & A10.

(Note: ellipsis added.)

(Note: the online version of the story has the date May 1, 2013.)






June 12, 2013

Patents Turned Steam from Toy to Engine



TheMostPowerfulIdeaInTheWorldBK2013-05-13.JPG

















Source of book image: http://img2.imagesbn.com/p/9781400067053_p0_v1_s260x420.JPG



(p. 20) The obvious audience for Rosen's book consists of those who hunger to know what it took to go from Heron of Alexandria's toy engine, created in the first century A.D., to practical and brawny beasts like George and Robert Stephenson's Rocket, which kicked off the age of steam locomotion in 1829. But Rosen is aiming for more than a fan club of steam geeks. The "most powerful idea" of his title is not an early locomotive: "The Industrial Revolution was, first and foremost, a revolution in invention," he writes, "a radical transformation in the process of invention itself." The road to Rocket was built with hundreds of innovations large and small that helped drain the mines, run the mills, and move coal and then people over rails.


. . .


Underlying it all, Rosen argues, was the recognition that ideas themselves have economic value, which is to say, this book isn't just gearhead wonkery, it's legal wonkery too. Abraham Lincoln, wondering why Heron's steam engine languished, claimed that the patent system "added the fuel of interest to the fire of genius." Rosen agrees, offering a forceful argument in the debate, which has gone on for centuries, over whether patents promote innovation or retard it.

Those who believe passionately, as Thomas Jefferson did, that inventions "cannot, in nature, be a subject of property," are unlikely to be convinced. Those who agree with the inventors James Watt and Richard Arkwright, who wrote in a manuscript that "an engineer's life without patent is not worthwhile," will cheer. Either way, Rosen's presentation of this highly intellectual debate will reward even those readers who never wondered how the up-and-down chugging of a piston is converted into consistent rotary motion.



For the full review, see:

JOHN SCHWARTZ. "Steam-Driven Dreams." The New York Times (Sun., August 29, 2010): 20.

(Note: ellipsis added; italicized words in original.)

(Note: the online version of the review has the date August 26, 2010.)


The book under review, is:

Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.






June 9, 2013

Moore's Law: Inevitable or Intel?




I believe that Moore's Law remained true for a long time, not because it was inevitable, but because an exemplary company worked very hard and effectively to make it true.


(p. 159) In brief, Moore's Law predicts that computing chips will shrink by half in size and cost every 18 to 24 months. For the past 50 years it has been astoundingly correct.

It has been steady and true, but does Moore's Law reveal an imperative in the technium? In other words is Moore's Law in some way inevitable? The answer is pivotal for civilization for several reasons. First, Moore's Law represents the acceleration in computer technology, which is accelerating everything else. Faster jet engines don't lead to higher corn yields, nor do better lasers lead to faster drug discoveries, but faster computer chips lead to all of these. These days all technology follows computer technology. Second, finding inevitability in one key area of technology suggests invariance and directionality may be found in the
rest of the technium.



Source:

Kelly, Kevin. What Technology Wants. New York: Viking Adult, 2010.






June 6, 2013

Faculty Unions Oppose MOOCs that Might Cost Them Their Jobs in Five to Seven Years



ThrunSabastianUdacityCEO2013-05-14.jpg "Sebastian Thrun, a research professor at Stanford, is Udacity's chief executive officer." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. A1) SAN JOSE, Calif. -- Dazzled by the potential of free online college classes, educators are now turning to the gritty task of harnessing online materials to meet the toughest challenges in American higher education: giving more students access to college, and helping them graduate on time.


. . .


Here at San Jose State, . . . , two pilot programs weave material from the online classes into the instructional mix and allow students to earn credit for them.

"We're in Silicon Valley, we (p. A3) breathe that entrepreneurial air, so it makes sense that we are the first university to try this," said Mohammad Qayoumi, the university's president. "In academia, people are scared to fail, but we know that innovation always comes with the possibility of failure. And if it doesn't work the first time, we'll figure out what went wrong and do better."


. . .


Dr. Qayoumi favors the blended model for upper-level courses, but fully online courses like Udacity's for lower-level classes, which could be expanded to serve many more students at low cost. Traditional teaching will be disappearing in five to seven years, he predicts, as more professors come to realize that lectures are not the best route to student engagement, and cash-strapped universities continue to seek cheaper instruction.

"There may still be face-to-face classes, but they would not be in lecture halls," he said. "And they will have not only course material developed by the instructor, but MOOC materials and labs, and content from public broadcasting or corporate sources. But just as faculty currently decide what textbook to use, they will still have the autonomy to choose what materials to include."


. . .


Any wholesale online expansion raises the specter of professors being laid off, turned into glorified teaching assistants or relegated to second-tier status, with only academic stars giving the lectures. Indeed, the faculty unions at all three California higher education systems oppose the legislation requiring credit for MOOCs for students shut out of on-campus classes.


. . .


"Our ego always runs ahead of us, making us think we can do it better than anyone else in the world," Dr. Ghadiri said. "But why should we invent the wheel 10,000 times? This is M.I.T., No. 1 school in the nation -- why would we not want to use their material?"

There are, he said, two ways of thinking about what the MOOC revolution portends: "One is me, me, me -- me comes first. The other is, we are not in this business for ourselves, we are here to educate students."



For the full story, see:

TAMAR LEWIN. "Colleges Adapt Online Courses to Ease Burden." The New York Times (Tues., April 30, 2013): A1 & A3.

(Note: ellipses added.)

(Note: the online version of the story has the date April 29, 2013.)



KormanikKatieUdacityStudent2013-05-14.jpg "Katie Kormanik preparing to record a statistics course at Udacity, an online classroom instruction provider in Mountain View, Calif." Source of caption and photo: online version of the NYT article quoted and cited above.






June 3, 2013

World Population Growth Rate "Expected to Hit Zero Around 2070"



(p. C4) In the 1960s, some experts feared an exponentially accelerating population explosion, and in 1969, the State Department envisaged 7.5 billion people by the year 2000. In 1994, the United Nations' medium estimate expected the seven-billion milestone to arrive around 2009. Compared with most population forecasts made in the past half century, the world keeps undershooting.

The growth rate of world population has halved since the '60s and is now expected to hit zero around 2070, with population around 10 billion, though some news outlets prefer to focus on the U.N.'s "high" estimate that it "could" reach 15 billion. The truth is, nobody can know, but if it's below 10 billion in 2100, we will have only increased in numbers by 1.5 times in the 21st century, compared with a fourfold increase in the 20th.



For the full commentary, see:

MATT RIDLEY. "MIND & MATTER; Who's Afraid of Seven Billion People?" The Wall Street Journal (Sat., October 29, 2011): C4.






June 1, 2013

Cities Provide Children "Options for Their Future"



(p. 85) As Suketu Mehta, author of Maximum City (about Mumbai), says, "Why would anyone leave a brick house in the village with its two mango trees and its view of small hills in the East to come here?" Then he answers: "So that someday the eldest son can buy two rooms in Mira Road, at the northern edges of the city. And the younger one can move beyond that, to New Jersey. Discomfort is an investment."

Then Mehta continues: "For the young person in an Indian village, the call of Mumbai isn't just about money. It's also about freedom." Stewart Brand recounts this summation of the magnetic pull of cities by activist Kavita Ramdas: "In the village, all there is for a woman is to obey her husband and relatives, pound millet, and sing. If she moves to town, she can get a job, start a business, and get education for her children." The Bedouin of Arabia were once seemingly the freest people on Earth, roaming the great Empty Quarter at will, under a tent of stars and no one's thumb. But they are rapidly quitting their nomadic life and (p. 86) hustling into drab, concrete-block apartments in exploding Gulf-state ghettos. As reported by Donovan Webster in National Geographic, they stable their camels and goats in their ancestral village, because the bounty and attraction of the herder's life still remain for them. The Bedouin are lured, not pushed, to the city because, in their own words: "We can always go into the desert to taste the old life. But this [new] life is better than the old way. Before there was no medical care, no schools for our children." An eighty-year-old Bedouin chief sums it up better than I could: "The children will have more options for their future."



Source:

Kelly, Kevin. What Technology Wants. New York: Viking Adult, 2010.

(Note: italics, an bracketed "new," in original.)






May 30, 2013

MOOCs "Will Really Scale" Once Credible Credentialing Process Is Mastered




A "MOOC" is a "massive open online course."


(p. 1) Last May I wrote about Coursera -- co-founded by the Stanford computer scientists Daphne Koller and Andrew Ng -- just after it opened. Two weeks ago, I went back out to Palo Alto to check in on them. When I visited last May, about 300,000 people were taking 38 courses taught by Stanford professors and a few other elite universities. Today, they have 2.4 million students, taking 214 courses from 33 universities, including eight international ones.

Anant Agarwal, the former director of M.I.T.'s artificial intelligence lab, is now president of edX, a nonprofit MOOC that M.I.T. and Harvard are jointly building. Agarwal told me that since May, some 155,000 students from around the world have taken edX's first course: an M.I.T. intro class on circuits. "That is greater than the total number of M.I.T. alumni in its 150-year history," he said.


. . .


(p. 11) As we look to the future of higher education, said the M.I.T. president, L. Rafael Reif, something that we now call a "degree" will be a concept "connected with bricks and mortar" -- and traditional on-campus experiences that will increasingly leverage technology and the Internet to enhance classroom and laboratory work. Alongside that, though, said Reif, many universities will offer online courses to students anywhere in the world, in which they will earn "credentials" -- certificates that testify that they have done the work and passed all the exams. The process of developing credible credentials that verify that the student has adequately mastered the subject -- and did not cheat -- and can be counted on by employers is still being perfected by all the MOOCs. But once it is, this phenomenon will really scale.

I can see a day soon where you'll create your own college degree by taking the best online courses from the best professors from around the world -- some computing from Stanford, some entrepreneurship from Wharton, some ethics from Brandeis, some literature from Edinburgh -- paying only the nominal fee for the certificates of completion. It will change teaching, learning and the pathway to employment. "There is a new world unfolding," said Reif, "and everyone will have to adapt."



For the full commentary, see:

THOMAS L. FRIEDMAN. "Revolution Hits the Universities." The New York Times, SundayReview Section (Sun., January 27, 2013): 1 & 11.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date January 26, 2013.)






May 28, 2013

Modern Cities Are "Successful Former Slums" that Allowed "Vibrant Economic Activity"



(p. 82) Babylon, London, and New York all had teeming ghettos of unwanted settlers erecting shoddy shelters with inadequate hygiene and engaging in dodgy dealings. Historian Bronislaw Geremek states that "slums constituted a large part of the urban landscape" of Paris in the Middle Ages. Even by the 1780s, when Paris was at its peak, nearly 20 percent of its residents did not have a "fixed abode"--that is, they lived in shacks. In a familiar complaint about medieval French cities, a gentleman from that time noted: "Several families inhabit one house. A (p. 83) weaver's family may be crowded into a single room, where they huddle around a fireplace." That refrain is repeated throughout history. A century ago Manhattan was home to 20,000 squatters in self-made housing. Slab City alone, in Brooklyn (named after the use of planks stolen from lumber mills), contained 10,000 residents in its slum at its peak in the 1880s. In the New York slums, reported the New York Times in 1858, "nine out of ten of the shanties have only one room, which does not average over twelve feet square, and this serves all the purposes of the family."

San Francisco was built by squatters. As Rob Neuwirth recounts in his eye-opening book Shadow Cities, one survey in 1855 estimated that "95 percent of the property holders in [San Francisco] would not be able to produce a bona fide legal title to their land." Squatters were everywhere, in the marshes, sand dunes, military bases. One eyewitness said, "Where there was a vacant piece of ground one day, the next saw it covered with half a dozen tents or shanties." Philadelphia was largely settled by what local papers called "squatlers." As late as 1940, one in five citizens in Shanghai was a squatter. Those one million squatters stayed and kept upgrading their slum so that within one generation their shantytown became one of the first twenty-first-century cities.

That's how it works. This is how all technology works. A gadget begins as a junky prototype and then progresses to something that barely works. The ad hoc shelters in slums are upgraded over time, infrastructure is extended, and eventually makeshift services become official. What was once the home of poor hustlers becomes, over the span of generations, the home of rich hustlers. Propagating slums is what cities do, and living in slums is how cities grow. The majority of neighborhoods in almost every modern city are merely successful former slums. The squatter cities of today will become the blue-blood neighborhoods of tomorrow. This is already happening in Rio and Mumbai today.

Slums of the past and slums of today follow the same description. The first impression is and was one of filth and overcrowding. In a ghetto a thousand years ago and in a slum today shelters are haphazard and dilapidated. The smells are overwhelming. But there is vibrant economic activity.



Source:

Kelly, Kevin. What Technology Wants. New York: Viking Adult, 2010.

(Note: italics, and bracketed "San Francisco" in original.)






May 26, 2013

Harry Reid Hires GE Employee to Be His Chief Tax Policy Advisor




The "Capture Theory" associated with scholars George Stigler and Gabriel Kolko says that government regulatory bodies tend to be captured by the companies that they are intended to regulate. Stigler and Kolko would not be surprised by the passage quoted below.


(p. B5) . . . on Jan. 25, Mr. Reid's office announced that he had appointed Cathy Koch as chief adviser to the majority leader for tax and economic policy. The news release lists Ms. Koch's admirable and formidable experience in the public sector. "Prior to joining Senator Reid's office," the release says, "Koch served as tax chief at the Senate Finance Committee."

It's funny, though. The notice left something out. Because immediately before joining Mr. Reid's office, Ms. Koch wasn't in government. She was working for a large corporation.

Not just any corporation, but quite possibly the most influential company in America, and one that arguably stands to lose the most if there were any serious tax reform that closed corporate loopholes. Ms. Koch arrives at the senator's office by way of General Electric.

Yes, General Electric, the company that paid almost no taxes in 2010. Just as the tax reform debate is heating up, Mr. Reid has put in place a person who is extraordinarily positioned to torpedo any tax reform that might draw a dollar out of G.E. -- and, by extension, any big corporation.

Omitting her last job from the announcement must have merely been an oversight. By the way, no rules prevent Ms. Koch from meeting with G.E. or working on issues that would affect the company.



For the full story, see:

JESSE EISINGER, ProPublica. "A Revolving Door in Washington With Spin, but Less Visibility." The New York Times (Thurs., February 21, 2013): B5.

(Note: ellipsis added.)

(Note: the online version of the story has the date February 20, 2013.)






May 24, 2013

Technology Brings Choices and Control, Which Brings Happiness



(p. 78) For the past 30 years the conventional wisdom has been that once a person achieves a minimal standard of living, more money does not bring more happiness. If you live below a certain income threshold, increased money makes a difference, but after that, it doesn't buy happiness. That was the conclusion of a now-classic study by Richard Easterlin in 1974. However, recent research from the Wharton School at the University of Pennsylvania shows that worldwide, affluence brings increased satisfaction. Higher income earners are happier. Citizens in higher-earning countries tend to be more satisfied on average.

My interpretation of this newest research--which also matches our intuitive impressions--is that what money brings is increased choices, rather than merely increased stuff (although more stuff comes with the territory). We don't find happiness in more gadgets and experiences. We do find happiness in having some control of our time and work, a chance for real leisure, in the escape from the uncertainties of war, poverty, and corruption, and in a chance to pursue individual freedoms--all of which come with increased affluence.

I've been to many places in the world, the poorest and the richest spots, the oldest and the newest cities, the fastest and the slowest cultures, and it is my observation that when given a chance, people who walk will buy a bicycle, people who ride a bike will get a scooter, people riding a scooter will upgrade to a car, and those with a car dream of a plane. Farmers everywhere trade their ox plows for tractors, their gourd bowls for tin ones, their sandals for shoes. Always. Insignificantly few ever go back. The exceptions such as the well-known Amish are not so exceptional when examined closely, for even their communities adopt selected technology without retreat.



Source:

Kelly, Kevin. What Technology Wants. New York: Viking Adult, 2010.

(Note: italics in original.)






May 23, 2013

Wealth from Innovation Is Nobler than Wealth from Litigation



TheRichestWomanInAmericaBK2013-05-05.jpg

















Source of book image: http://ww4.hdnux.com/photos/15/60/06/3604871/3/628x471.jpg




(p. C7) In business, Green routinely sued her competitors. . . .


. . .


It was precisely Green's vision of life as a zero-sum game, a match between enemies, that proved her flaw. She appreciated the idea that dollars compound, but she never seemed to grasp that the compounding of ideas, innovation, is just as important, that in certain, non-litigious, environments ideas "fructify," to use a period verb. Litigation like Green's prevented the kind of innovation in which she might have wanted to invest. Wealth is created when Apple beats Samsung, but more wealth is created when Apple comes up with a new phone.



For the full review, see:

AMITY SHLAES. "Quarrelsome Queen of the Gilded Age." The Wall Street Journal (Sat., September 29, 2012): C7.

(Note: ellipses added.)

(Note: the online version of the review has the date September 28, 2012.)



The book under review, is:

Wallach, Janet. The Richest Woman in America: Hetty Green in the Gilded Age. New York: Nan A. Talese, 2012.






May 20, 2013

"Lowest-Paid Burger Flipper" Is "Better Off than King Henry"



(p. 76) After going from room to room, skipping none except the garage (that would be a project in itself), we arrived at a total of 6,000 varieties of things in our house. Since we have multiple examples of some varieties, such as books, CDs, paper plates, spoons, socks, on so on, I estimate the total number of objects in our home, including the garage, to be close to 10,000.

Without trying very hard, our typical modern house holds a king's ransom. But in fact, we are wealthier than King Henry. In fact, the lowest-paid burger flipper working at McDonald's is in many respects (p. 77) better off than King Henry or any of the richest people living not too long ago. Although the burger flipper barely makes enough to pay the rent, he or she can afford many things that King Henry could not. King Henry's wealth--the entire treasure of England--could not have purchased an indoor flush toilet or air-conditioning or secured a comfortable ride for 500 kilometers. Any taxicab driver can afford these today. Only 100 years ago, John Rockefeller's vast fortune as the world's richest man could not have gotten him the cell phone that any untouchable street sweeper in Bombay now uses. In the first half of the 19th century Nathan Rothschild was the richest man in the world. His millions were not enough to buy an antibiotic. Rothschild died of an infected abscess that could have been cured with a three-dollar tube of neomycin today. Although King Henry had some fine clothes and a lot of servants, you could not pay people today to live as he did, without plumbing, in dark, drafty rooms, isolated from the world by impassable roads and few communication connections. A poor university student living in a dingy dorm room in Jakarta lives better in most ways than King Henry.



Source:

Kelly, Kevin. What Technology Wants. New York: Viking Adult, 2010.






May 17, 2013

21st Century Person Would Be Sick in Dickens' 1850 London



NancyFromOliverTwist2013-05-04.jpg "Anderson found Dickens World to be "surprisingly grisly" for a park that markets itself to children; he noted several severed heads and a gruesome performance of "Oliver Twist" in the courtyard. Here, a mannequin of Nancy from "Oliver Twist."" Source of caption and photo: online version of the NYT article quoted and cited below.


(p. 48) . . . even if it were possible to create a lavish simulacrum of 1850s London -- with its typhus and cholera and clouds of toxic corpse gas, its sewage pouring into the Thames, its (p. 49) average life span of 27 years -- why would anyone want to visit? ("If a late-20th-century person were suddenly to find himself in a tavern or house of the period," Peter Ackroyd, a Dickens biographer, has written, "he would be literally sick -- sick with the smells, sick with the food, sick with the atmosphere around him.")


For the full story, see:

SAM ANDERSON. "VOYAGES; The Pippiest Place on Earth." The New York Times Magazine (Sun., February 7, 2012): 48-53.

(Note: ellipsis added.)

(Note: the online version of the story has the date February 7, 2012 (sic), and has the title "VOYAGES; The World of Charles Dickens, Complete With Pizza Hut.")






May 13, 2013

Chinese Couples Divorce to Avoid Government Regulations and Taxes



ShanghaiRealEstateMob2013-05-04.jpg "A police officer attempted to stop residents from rushing into a real estate trading center in Shanghai after new restrictions were announced." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. A4) SHANGHAI -- When the Chinese government announced new curbs on property prices this month, homeowners bombarded social networking sites with complaints. They formed long lines at property bureaus to register to sell their homes before the restrictions went into effect.

And some couples went even further: they filed for divorce.

Divorce filings shot up here and in other big cities across China this past week after rumors spread that one way to avoid the new 20 percent tax on profits from housing sales was to separate from a spouse, at least on paper.

The surge in divorce filings is the latest indication of how volatile an issue real estate has become in China in the past decade and how resistant people are to additional taxes.


. . .


On Friday, at a marriage registration center in the Pudong district, a 33-year-old woman named Frances Tao arrived with her husband. She acknowledged that they were filing for divorce, not to avoid the 20 percent capital gains tax on second homes, but to get around another restriction, which requires home buyers to put down a much higher deposit on a second home than on a primary residence.

Ms. Tao said that by divorcing, one of them would be able to purchase a first home and put down less money and get a better interest rate.

"We don't have other choices," Ms. Tao said. "But the government and developers continue to make a lot of money."



For the full story, see:

DAVID BARBOZA. "In China, Checklist for a Home Seller: First, Get a Divorce." The New York Times (Sat., March 9, 2012): A4.

(Note: ellipsis added.)

(Note: the online version of the story has the date March 8, 2012.)






May 12, 2013

Knowledge Economy Migrating to Intangible Goods and Services



(p. 67) Our present economic migration from a material-based industry to a knowledge economy of intangible goods (such as software, design, and media products) is just the latest in a steady move toward the immaterial. (Not that material processing has let up, just that intangible processing is now more economically valuable.) Richard Fisher, president of the Federal Reserve Bank of Dallas, says, "Data from nearly all parts of the world show us that consumers tend to spend relatively less on goods and more on services as their incomes rise. . . . Once people have met their basic needs, they tend to want medical care, transportation and communication, information, recreation, entertainment, financial and legal advice, and the like." The disembodiment of value (more value, less mass) is a steady trend in the technium. In six years the average weight per dollar of U.S. exports (the most valuable things the U.S. produces) (p. 68) dropped by half. Today, 40 percent of U.S. exports are services (intangibles) rather than manufactured goods (atoms). We are steadily substituting intangible design, flexibility, innovation, and smartness for rigid, heavy atoms. In a very real sense our entry into a service- and idea-based economy is a continuation of a trend that began at the big bang.


Source:

Kelly, Kevin. What Technology Wants. New York: Viking Adult, 2010.

(Note: ellipsis in original; a graph is omitted that appears in the middle of the paragraph quoted above.)






May 5, 2013

In Latvia Deep Budget Cuts Lead to High Economic Growth



LatviaNewDairyFactoryOutsideRiga2013-05-04.jpg "A worker cleaned equipment at a new dairy factory outside Riga. The I.M.F. has hailed Latvia for its deep budget cuts." Source of caption and photo: online version of the NYT article quoted and cited below.


It is interesting that the New York Times photographer (see above) chose to display the Latvian economic success story in bleak shades of grey and darkness.


(p. A1) RIGA, Latvia -- When a credit-fueled economic boom turned to bust in this tiny Baltic nation in 2008, Didzis Krumins, who ran a small architectural company, fired his staff one by one and then shut down the business. He watched in dismay as Latvia's misery deepened under a harsh austerity drive that scythed wages, jobs and state financing for schools and hospitals.

But instead of taking to the streets to protest the cuts, Mr. Krumins, whose newborn child, in the meantime, needed major surgery, bought a tractor and began hauling wood to heating plants that needed fuel. Then, as Latvia's economy began to pull out of its nose-dive, he returned to architecture and today employs 15 people -- five more than he had before. "We have a different mentality here," he said.


. . .


Hardship has long been common here -- and still is. But in just four years, the country has gone from the European Union's worst economic disaster zone to a model of what the International Monetary Fund hails as the healing properties of deep budget cuts. Latvia's economy, after shriveling by more than 20 percent from its peak, grew by about 5 percent last year, making it the best performer in the 27-nation European Union. Its budget deficit is down sharply and exports are soaring.



For the full story, see:

ANDREW HIGGINS. "Used to Hardship, Latvia Accepts Austerity, and Its Pain Eases." The New York Times (Weds., January 2, 2013): A1 & A6.

(Note: ellipsis added.)

(Note: the online version of the story has the date January 1, 2013.)






April 29, 2013

David Kay Johnston Defends Entrepreneurial Capitalism Against Crony Capitalism



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Source of book image: http://media.npr.org/assets/bakertaylor/covers/manually-added/fineprint_custom-c26eb6a3f6c4d9bc09220769911f3cbeaa900b7f-s6-c10.jpg



I saw an informative C-SPAN interview with David Cay Johnston a while back. I had known from Johnston's previous books and reporting, that he was devoted to exposing the outrages of crony capitalism. What the interview revealed to me was that Johnston was not opposed to capitalism in general, and in fact viewed himself as friendly to entrepreneurial capitalism.

I believe that big companies are not bad when they got and stay big by honestly earning big profits from willing and delighted consumers. But big companies are bad when, as often happens, they use their size to get the government to suppress start-up competitors or to take money from taxpayers to subsidize their activities.

I have not yet read Johnston's latest book on the big and bad, but I expect it to present sad, but useful, examples.




Book discussed:

Johnston, David Cay. The Fine Print: How Big Companies Use "Plain English" to Rob You Blind. New York: Portfolio, 2012.






April 28, 2013

Reinhart Rogoff Result Robust: High Debt Lowers Growth Rate from 3.5 to 2.3 Percent



(p. A29) CAMBRIDGE, Mass. In May 2010, we published an academic paper, "Growth in a Time of Debt." Its main finding, drawing on data from 44 countries over 200 years, was that in both rich and developing countries, high levels of government debt -- specifically, gross public debt equaling 90 percent or more of the nation's annual economic output -- was associated with notably lower rates of growth.


. . .


Last week, three economists at the University of Massachusetts, Amherst, released a paper criticizing our findings. They correctly identified a spreadsheet coding error that led us to miscalculate the growth rates of highly indebted countries since World War II. But they also accused us of "serious errors" stemming from "selective exclusion" of relevant data and "unconventional weighting" of statistics -- charges that we vehemently dispute.


. . .


Our 2010 paper found that, over the long term, growth is about 1 percentage point lower when debt is 90 percent or more of gross domestic product. The University of Massachusetts researchers do not overturn this fundamental finding, which several researchers have elaborated upon.


. . .


There were just 26 cases where the ratio of debt to G.D.P. exceeded 90 percent for five years or more; the average high-debt spell was 23 years. In 23 of the 26 cases, average growth was slower during the high-debt period than in periods of lower debt levels. Indeed, economies grew at an average annual rate of roughly 3.5 percent, when the ratio was under 90 percent, but at only a 2.3 percent rate, on average, at higher relative debt levels.


. . .


The fact that high-debt episodes last so long suggests that they are not, as some liberal economists contend, simply a matter of downturns in the business cycle.

In "This Time Is Different," our 2009 history of financial crises over eight centuries, we found that when sovereign debt reached unsustainable levels, so did the cost of borrowing, if it was even possible at all. The current situation confronting Italy and Greece, whose debts date from the early 1990s, long before the 2007-8 global financial crisis, support this view.



For the full commentary, see:

CARMEN M. REINHART and KENNETH S. ROGOFF. "Debt, Growth and the Austerity Debate." The New York Times (Fri., April 26, 2013): A29.

(Note: ellipses added.)

(Note: the online version of the commentary has the date April 25, 2013.)


The full reference to the authors' book is:

Reinhart, Carmen M., and Kenneth Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press, 2009.






April 25, 2013

The Costs of Green Jobs Policies



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Source of book image: http://javelindc.com/home/wp-content/uploads/2012/11/regulating_to_disaster.jpg



I caught part of a C-SPAN presentation on the Regulating to Disaster book. It sounded plausible and intriguing---consistent with other evidence I have seen that "green" jobs have been over-hyped and under-delivered.

Perhaps more important, there are the high opportunity costs of the tax dollars devoted to the "green" jobs, in terms of the non-green jobs that would have been created by entrepreneurs if less of their income had been taxed away.

I hope to look at the book in the near future.


Book discussed:

Furchtgott-Roth, Diana. Regulating to Disaster: How Green Jobs Policies Are Damaging America's Economy. New York: Encounter Books, 2012.






April 21, 2013

Analytical Solutions Require Unrealistic Assumptions that Make Models Useless for Policy



TheCraftOfEconomicsBK2013-04-05.jpg
















Source of book image: http://www.anderson.ucla.edu/faculty/edward.leamer/images/COVER%209120_jkt_Rev1.jpg



(p. 190) When I was a younger man, I and all of my cohort were apprehensive if we saw Ed Leamer in the audience when we were presenting a paper. His comments were blunt, incisive, and often negative. But what truly terrified us was that he was almost always right. . . .

Leamer has produced a highly original little book, with big insights and lessons for us all. He explores the tension between economics that is mathematically sophisticated and complex but often vacuous, versus economics that may be vague but which is useful and carries a message. It is frankly a remarkable work, full of insights and persuasive arguments that need to be read, debated, and taken seriously.


. . .


(p. 191) But this is no rant of an old guy. Leamer gets very specific about his notions of usefulness versus rigor. A good drum to bang on is Samuelson, an important "mathematizer." I would strongly encourage all young trade economists and perhaps all graduate students who have been subjected to a traditional international trade course at any level, to read the section on factor-price equalization. This is beautifully done and even exciting and funny at times. As told by Leamer, the young Samuelson excoriates Ohlin for largely dismissing the possibility of factor-price equalization and then presents his (Samuelson's) "proof" of factor-price equalization. The latter, of course, is a theorem that is mathematically correct given the assumptions, but Ohlin is talking about its usefulness in understanding the world and constructing policy. The factor-price-equalization theorem is indeed a prime example of something that is valid but not useful.


. . .


Yet at the same time, I have thought long and hard about exactly what message should be given to graduate students and assistant professors without much success. The journal publishing business puts a huge premium on rigor over usefulness and few referees or editors are inclined to take the chance inherent in accepting papers that are a bit loose in their analytical or econometric structures, no matter how exciting they might be. If you accept that, then the profession as a whole has to rethink our view of what is an important scientific contribution: I cannot simply tell graduate students to think more broadly and worry less about elegance. Some will of course deny that there is any tension, but I side with Leamer. Over and over again, I hear, read, and/or referee papers (p. 192) where, in order to get an analytical solution to a model, the author has to assume away almost every interesting feature of the problem to the point that the remaining model is uninteresting and uninformative. But that at least qualifies the paper for possible publication in Econometrica, RESTud, or JET.



For the full review, see:

Markusen, James R. "Book Review of Ed Leamer's the Craft of Economics." Journal of Economic Literature 51, no. 1 (2013): 190-92.

(Note: ellipses added; italics in original.)


The book under review is:

Leamer, Edward E. The Craft of Economics, Ohlin Lectures. Cambridge, MA: The MIT Press, 2012.






April 20, 2013

"The French Work Force Gets Paid High Wages But Works Only Three Hours"



(p. B1) PARIS -- "How stupid do you think we are?"

With those choice words, and several more similar in tone, the chief executive of an American tire company touched off a furor in France on Wednesday as he responded to a government plea to take over a Goodyear factory slated for closing in northern France.

"I have visited the factory a couple of times," Maurice Taylor Jr., the head of Titan International, wrote to the country's industry minister, Arnaud Montebourg, in a letter published in French newspapers on Wednesday.

"The French work force gets paid high wages but works only three hours. They have one hour for their breaks and lunch, talk for three and work for three."

"I told this to the French unions to their faces and they told me, 'That's the French way!' "



For the full story, see:

LIZ ALDERMAN. "Quel Brouhaha! A Diatribe on Unions Irks the French." The New York Times (Thurs., February 21, 2013): B1 & B6.

(Note: the online version of the story has the date February 20, 2013.)



For a similar account, see:

GABRIELE PARUSSINI. "U.S. CEO to France: "How Stupid Do You Think We Are?" The Wall Street Journal (Thurs., February 21, 2013): B1.

(Note: the online version of the story has the date February 20, 2013, and has the title "U.S. CEO Blasts French Work Habits.")






April 19, 2013

New Technology Allows Maple Syrup Farms to Adapt and Thrive with Global Warming



MapleSyrupTubingVermont2013-04-06.jpg "Tom Morse, left, and his father, Burr, at work on their maple farm in Vermont." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. 11) Scientists say the tapping season -- the narrow window of freezing nights and daytime temperatures over 40 degrees needed to convert starch to sugar and get sap flowing -- is on average five days shorter than it was 50 years ago. But technology developed over the past decade and improved in recent years offers maple farmers like Mr. Morse a way to offset the effects of climate change with high-tech tactics that are far from natural.

Today, five miles of pressurized blue tubing spider webs down the hillside at Morse Farm, pulling sap from thousands of trees and spitting it into tubs like an immense, inverse IV machine. Modern vacuum pumps are powerful enough to suck the air out of a stainless steel dairy tank and implode it, and they help producers pull in twice as much sap as before.

"You can make it run when nature wouldn't have it run," Mr. Morse said.

His greatest secret weapon is a reverse-osmosis machine that concentrates the sap by pulling it through sensitive membranes, greatly increasing the sugar content before it even hits the boiler. The $8,000 instrument with buttons and dials looks like it belongs in a Jetsons-era laboratory more than in a Vermont sugarhouse. But it saves more fuel and money than every other innovation combined. With it Mr. Morse can process sap into syrup in 30 minutes, something that used to take two hours.


. . .


The biggest United States maple farmers have expanded their production acreage and are tapping more trees than ever before: the total was 5.5 million taps last year, compared with slightly over 4 million taps 10 years earlier.

As a result, United States maple syrup production hit a new high in 2011. In Vermont, the top-producing state, sap yield per tap has risen over the past decade.



For the full story, see:

JULIA SCOTT. "Maple Syrup: Old-Fashioned Product, Newfangled Means of Production." The New York Times, First Section (Sun., March 31, 2013): 11.

(Note: ellipsis added.)

(Note: the online version of the story has the date March 30, 2013, and has the title "High-Tech Means of Production Belies Nostalgic Image of Maple Syrup.")






April 16, 2013

Tax Rates Have Big Effect on Labor Supply and Rate of Entrepreneurial Start-Ups



(p. A23) Higher taxes will produce long-term changes in social norms, behavior and growth. Edward Prescott, a winner of the Nobel Memorial Prize in economics, found that, in the 1950s when their taxes were low, Europeans worked more hours per capita than Americans. Then their taxes went up, reducing the incentives to work and increasing the incentives to relax. Over the next decades, Europe saw a nearly 30 percent decline in work hours.

The rich tend to be more sensitive to tax-rate changes because they've got advisers who are paid to be. Martin Feldstein, an economics professor at Harvard, looked into tax changes in the 1980s and concluded that raising rates causes people to shift compensations to untaxed fringe benefits and otherwise suppresses their economic activity. A study last year by the economists Michael Keane and Richard Rogerson found that tax rates can have a surprisingly large influence on how much people invest in education, how likely they are to create businesses and which professions they go into.



For the full commentary, see:

DAVID BROOKS. "The Progressive Shift." The New York Times (Tues., March 19, 2013): A23.

(Note: the online version of the commentary has the date March 18, 2013.)


The Keane and Rogerson paper summarized by Brooks is:

Keane, Michael, and Richard Rogerson. "Micro and Macro Labor Supply Elasticities: A Reassessment of Conventional Wisdom." Journal of Economic Literature 50, no. 2 (June 2012): 464-76.






April 7, 2013

Confident Winner Studied Economics at Cambridge and Directed Bronson in "Death Wish"



WinnerMichaelWithCharlesBronsonDeathWishSet2013-03-10.jpg

"Michael Winner, left, and Charles Bronson on the set of the 1974 film "Death Wish." The two collaborated on several films." Source of caption and photo: online version of the NYT obituary quoted and cited below.


(p. B8) Michael Winner, the brash British director known for violent action movies starring Charles Bronson including "The Mechanic" and the first three "Death Wish" films, died on Monday [January 21, 2013] at his home in London. He was 77.


. . .


Mr. Winner's films viscerally pleased crowds, largely ignored artistic pretensions and often underwhelmed critics. He directed many major stars in more than 30 films over more than four decades.


. . .


Mr. Bronson played Paul Kersey, a New York City architect who becomes a vigilante after his wife is murdered and his daughter is sexually assaulted by muggers.


. . .


Michael Robert Winner was born in London on Oct. 30, 1935. The son of a well-to-do business owner, Mr. Winner graduated from Cambridge, having studied law and economics.


. . .


He was confident on set, sometimes bordering on the dictatorial. "You have to be an egomaniac about it. You have to impose your own taste," he said. "The team effort is a lot of people doing what I say."



For the full obituary, see:

DANIEL E. SLOTNIK. "Michael Winner, 77, 'Death Wish' Director." The New York Times (Tues., January 22, 2013): B8.

(Note: the online version of the obituary has the slightly different title "Michael Winner, 'Death Wish' Director, Dies at 77.")

(Note: ellipses and bracketed date were added.)






April 1, 2013

Kevin Kelly Explains and Criticizes Amish Attitude toward Technology



WhatTechnologyWants2013-03-09.jpg
















Source of book image: http://thesocietypages.org/cyborgology/files/2012/02/kevin-kelly-book_rdax_620x349-300x285.jpg



Kevin Kelly's book has received a lot of attention, sometimes in conjunction with Steven Johnson's Where Good Ideas Come From, with which it shares some themes. I found the Kelly book valuable, but frustrating.

The valuable part includes the discussion of the benefits of technology, and the chapter detailing Amish attitudes and practices related to technology. On the latter, for instance, I learned that the Amish do not categorically reject new technology, but believe that it should be adopted more slowly, after long community deliberation.

What frustrated me most about the book is that it argues that technology has a life of its own and that technological progress is predetermined and inevitable. (I believe that technological progress depends on enlightened government policies and active entrepreneurial initiative, neither of which is inevitable.)

In the next several weeks, I will be quoting some of the more important or thought-provoking passages in the book.


The reference for Kelly's book, is:

Kelly, Kevin. What Technology Wants. New York: Viking Adult, 2010.



The Johnson book mentioned above, is:

Johnson, Steven. Where Good Ideas Come From: The Natural History of Innovation. New York: Riverhead Books, 2010.






March 28, 2013

Driving to MobileIron Job Interview in $100,000 Car, Tells CEO Tinker You Are Not Hungry Enough



TinkerRobertMobileIronCEO2013-03-09.jpg "Above, Robert Tinker, the chief executive of MobileIron, at its offices in Mountain View, Calif." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. B2) "There are disruptions everywhere," said Robert Tinker, the chief executive of MobileIron, which makes software for companies to manage smartphones and tablets. "Mobile disrupts personal computers, a market worth billions. Cloud disrupts computer servers and data storage, billions of dollars more. Social may be one of those rare things that is totally new."

Relative to the size of the markets that mobile devices, cloud computing and social media are toppling, he says, the valuations are reasonable.

But most of these chief executives are also veterans of the Internet bubble of the late '90s, and confess to worries that maybe things are not so different this time. Mr. Tinker, 43, drives a 1995 Ford Explorer that has logged 265,000 miles.

"If somebody comes to a job interview here in a $100,000 car, I know he's not hungry," he said. "The reality is, I've taken $94 million in investors' money, and we haven't gone public yet. I feel that responsibility every day."



For the full story, see:

QUENTIN HARDY. "A Billion-Dollar Club, and Not So Exclusive." The New York Times (Weds., February 5, 2013): B1 & B2.

(Note: the online version of the story has the date February 4, 2013.)






March 24, 2013

Many Corporations Refused to Finance Semiconductors



FairlchildSemiconductorEightFounders2013-03-08.jpg "Shown in 1960, the eight engineers who founded Fairchild Semiconductor and revolutionized world technology in "Silicon Valley," an "American Experience" documentary, . . . ." Source of caption and photo: online version of the NYT review quoted and cited below.


(p. C4) "Silicon Valley" is a deceptively grand title for the new "American Experience" documentary Tuesday night on PBS. "Fairchild Semiconductor" would be more accurate.


. . .


One startling image shows a handwritten list of the many corporations that declined to bankroll the eight pioneers before Fairchild Camera and Instrument said yes. If any of them had possessed more foresight, the silicon chip might have belonged to National Cash Register, Motorola, Philco, BorgWarner, Chrysler, General Mills or United Shoe.



For the full review, see:

MIKE HALE. "Men Who Took Silicon to Silicon Valley." The New York Times (Tues., February 5, 2013): C4.

(Note: ellipses in caption, and in quoted passage, added.)

(Note: the online version of the review has the date February 4, 2013.)



The "Silicon Valley" program first aired on PBS on 2/5/13 and can be viewed at:

http://video.pbs.org/video/2332168287






March 23, 2013

"The Ante for Being in the Room" at Apple Was Brutal Honesty




The following passage is Steve Jobs speaking, as quoted by Walter Isaacson.


(p. 569) I don't think I run roughshod over people, but if something sucks, I tell people to their face. It's my job to be honest. I know what I'm talking about, and I usually turn out to be right. That's the culture I tried to create. We are brutally honest with each other, and anyone can tell me they think I am full of shit and I can tell them the same. And we've had some rip-roaring arguments, where we are yelling at each other, and it's some of the best times I've ever had. I feel totally comfortable saying "Ron, that store looks like shit" in front of everyone else. Or I might say "God, we really fucked up the engineering on this" in front of the person that's responsible. That's the ante for being in the room: You've got to be able to be super honest. Maybe there's a better way, a gentlemen's club where we all wear ties and speak in this Brahmin language and velvet codewords, but I don't know that way, because I am middle class from California.

I was hard on people sometimes, probably harder than I needed to be. I remember the time when Reed was six years old, coming home, and I had just fired somebody that day, and I imagined what it was like (p. 570) for that person to tell his family and his young son that he had lost his job. It was hard. But somebody's got to do it. I figured that it was always my job to make sure that the team was excellent, and if I didn't do it, nobody was going to do it.



Source:

Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.






March 21, 2013

Unemployment Increases Risk of Heart Attack



As a defender of the process of innovation through creative destruction, I try to be alert to evidence on creative destruction's benefits and costs. The highest cost is usually viewed as technological unemployment. The evidence below will have to be examined and, if sound, added to the costs.


(p. D6) Unemployment increases the risk of heart attack, a new study reports, and repeated job loss raises the odds still more.


. . .


After adjusting for well-established heart attack risks -- age, sex, smoking, income, hypertension, cholesterol screening, exercise, depression, diabetes and others -- the researchers found that being unemployed also increased the risk of a heart attack, by an average of 35 percent.



For the full story, see:

NICHOLAS BAKALAR. "Job Loss Raises Threat of Heart Attack." The New York Times (Tues., November 27, 2012): D6.

(Note: ellipsis added.)

(Note: the online version of the story has the date November 26, 2012.)



The Dupre article mentioned above, is:

Dupre, Matthew E., Linda K. George, Guangya Liu, and Eric D. Peterson. "The Cumulative Effect of Unemployment on Risks for Acute Myocardial Infarction." Archives of Internal Medicine 172, no. 22 (Dec. 10, 2012): 1731-37.

(Note: the Archives of Internal Medicine has been re-named JAMA Internal Medicine.)






March 20, 2013

Many New Tech Entrepreneurs Shun "Fast Cars and Fancy Parties"



LibinPhilEvernoteCEO2013-03-09.jpg

















"Phil Libin, chief of Evernote, at its headquarters in Redwood City, Calif." Source of caption and photo: online version of the NYT article quoted and cited below.





(p. B1) SAN FRANCISCO -- The number of privately held Silicon Valley start-ups that are worth more than $1 billion shocks even the executives running those companies.

"I thought we were special," said Phil Libin, chief executive of Evernote, an online consumer service for storing clippings, photos and bits of information as he counted his $1 billion-plus peers.

He started Evernote in 2008 on the eve of the recession and built it methodically. "A lot of us didn't set out to have a big valuation, we're just trying to build something that lasts," Mr. Libin said. "There is no safe industry anymore, even here."


. . .


(p. B2) Silicon Valley entrepreneurs contend that the price spiral is not a sign of another tech bubble. The high prices are reasonable, they say, because innovations like smartphones and cloud computing will remake a technology industry that is already worth hundreds of billions of dollars.


. . .


The founders of the highly valued companies are old enough to remember past busts, and many shun the bubble lifestyle of fast cars and fancy parties.

Mr. Libin, who said he grew up on food stamps as the son of Russian immigrants in the Bronx, became a millionaire when he sold his first company, Engine5, to Vignette in 2000.

"The company I sold to, there were purple Lamborghinis in the garage. I got into watches," he said. "Maybe a half-dozen, nothing over $10,000, but I needed this glass and leather watch winder."

Evernote started as the financial crisis hit. "One night I was almost busted again," he said, "and there was that watch winder on the shelf, mocking me."

"Every job out there is insecure now," he said. "People sell 10 percent of their stock, and they have an incentive to make the other 90 percent worth more. They are still working, but not worrying about what will happen to their home or their kids."



For the full story, see:

QUENTIN HARDY. "A Billion-Dollar Club, and Not So Exclusive." The New York Times (Weds., February 5, 2013): B1 & B2.

(Note: the online version of the story has the date February 4, 2013.)






March 13, 2013

To Avoid Economic Crises We Need to Look at Evidence from Economic History



(p. 1093) Methodologically, the most fundamental and forceful message from the book is that, by ignoring history and the fact that crises remain frequent, recurrent, episodic events--in both rich and poor countries--almost everyone, including researchers and policymakers, made themselves vulnerable to the wishful thinking encapsulated in the book's title. There is a deeper statistical point here. Crises, and for that matter large recessions and other phenomena that are of first-order interest given their implications for economic activity, occur at quite a low frequency. They are rare events, meaning that they do not occur so frequently, at least for most countries in a short-span time series. Thus recent experience can be an unfaithful guide for scholars and statesmen alike, a good example being the complacent thinking that accompanied the erstwhile Great Moderation of recent decades even as financial pressures built up nationally and internationally. Possibly the most important lesson that readers will take away from this book is that if we are to do better in future, from our policy thinking in the chambers of power to our macroeconometric analyses in academe, (p. 1094) we need to admit the existence of, and come to grips with, a much broader universe of evidence.


For the full review, see:

Taylor, Alan M. "Global Financial Stability and the Lessons of History: A Review of Carmen M. Reinhart and Kenneth S. Rogoff's This Time Is Different: Eight Centuries of Financial Folly." Journal of Economic Literature 50, no. 4 (Dec. 2012): 1092-105.

(Note: italics in original.)


The book that Taylor reviews, is:

Reinhart, Carmen M., and Kenneth Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press, 2009.







March 11, 2013

Open Systems Limit the Integrated Vision that Creates Great Products




The following passage is Steve Jobs speaking, as quoted by Walter Isaacson.


(p. 568) People pay us to integrate things for them, because they don't have the time to think about this stuff 24/7. If you have an extreme passion for producing great products, it pushes you to be integrated, to connect your hardware and your software and content management. You want to break new ground, so you have to do it yourself. If you want to allow your products to be open to other hardware or software, you have to give up some of your vision.


Source:

Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.






March 7, 2013

Steve Jobs: "Never Rely on Market Research"




The following passage is Steve Jobs speaking, as quoted by Walter Isaacson.


(p. 567) Some people say, "Give the customers what they want." But that's not my approach. Our job is to figure out what they're going to want before they do. I think Henry Ford once said, "If I'd asked customers what they wanted, they would have told me, 'A faster horse!'" People don't know what they want until you show it to them. That's why I never rely on market research. Our task is to read things that are not yet on the page.


Source:

Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.






March 5, 2013

Carbon Dioxide (CO2) Emissions Have Little Effect on Global Warming



My colleague Mark Wohar, and his co-author David McMillan, have used sophisticated econometrics to analyze a very long time-series dataset on carbon dioxide (CO2) and temperature. They find that CO2 has little, if any, effect on temperature. Here is the abstract of their paper:


(p. 3683) The debate regarding rising temperatures and CO2 emissions has attracted the attention of economists employing recent econometric techniques. This article extends the previous literature using a dataset that covers 800,000 years, as well as a shorter dataset, and examines the interaction between temperature and CO2 emissions. Unit root tests reveal a difference between the two datasets. For the long dataset, all tests support the view that both temperature and CO2 are stationary around a constant. For the short dataset, temperature exhibits trend-stationary behaviour, while CO2 contains a unit root. This result is robust to nonlinear trends or trend breaks. Modelling the long dataset reveals that while contemporaneous CO2 appears positive and significant in the temperature equation, including lags results in a joint effect that is near zero. This result is confirmed using a different lag structure and Vector Autoregressive (VAR) model. A Generalized Method of Moments (GMM) approach to account for endogeneity suggests an insignificant relationship. In sum, the key result from our analysis is that CO2 has, at best, a weak relationship with temperature, while there is no evidence of trending when using a sufficiently long dataset. Thus, as a secondary result we highlight the danger of using a small sample in this context.


Source:

McMillan, David G., and Mark E. Wohar. "The Relationship between Temperature and CO2 Emissions: Evidence from a Short and Very Long Dataset." Applied Economics 45, no. 26 (2013): 3683-90.

(Note: bold added.)






March 1, 2013

Google's Eric Schmidt Saw that "Regulation Prohibits Real Innovation"



(p. A13) Eric Schmidt, executive chairman of Google, gave a remarkable interview this month to The Washington Post. So remarkable that Post editors preceded the transcript with this disclosure: "He had just come from the dentist. And he had a toothache."

Perhaps it was the Novocain talking, but Mr. Schmidt has done us a service. He said in public what most technologists will say only in private. Whatever caused him to speak forthrightly about the disconnects between Silicon Valley and Washington, his comments deserve wider attention.

Mr. Schmidt had just given his first congressional testimony. He was called before the Senate Judiciary Antitrust Subcommittee to answer allegations that Google is a monopolist, a charge the Federal Trade Commission is also investigating.

"So we get hauled in front of the Congress for developing a product that's free, that serves a billion people. OK? I mean, I don't know how to say it any clearer," Mr. Schmidt told the Post. "It's not like we raised prices. We could lower prices from free to . . . lower than free? You see what I'm saying?"


. . .


"Regulation prohibits real innovation, because the regulation essentially defines a path to follow," Mr. Schmidt said. This "by definition has a bias to the current outcome, because it's a path for the current outcome."


. . .


Washington is always slow to recognize technological change, which is why in their time IBM and Microsoft were also investigated after competing technologies had emerged.

Mr. Schmidt recounted a dinner in 1995 featuring a talk by Andy Grove, a founder of Intel: "He says, 'This is easy to understand. High tech runs three times faster than normal businesses. And the government runs three times slower than normal businesses. So we have a nine-times gap.' All of my experiences are consistent with Andy Grove's observation."

Mr. Schmidt explained there was only one way to deal with this nine-times gap, which this column hereby christens "Grove's Law of Government." That is "to make sure that the government does not get in the way and slow things down."

Mr. Schmidt recounted that when Silicon Valley first started playing a large role in the economy in the 1990s, "all of a sudden the politicians showed up. We thought the politicians showed up because they loved us. It's fair to say they loved us for our money."

He contrasted innovation in Silicon Valley with innovation in Washington. "Now there are startups in Washington," he said, "founded by people who were policy makers. . . . They're very clever people, and they've figured out a way in regulation to discriminate, to find a new satellite spectrum or a new frequency or whatever. They immediately hired a whole bunch of lobbyists. They raised some money to do that. And they're trying to innovate through regulation. So that's what passes for innovation in Washington."



For the full commentary, see:

L. GORDON CROVITZ. "INFORMATION AGE; Google Speaks Truth to Power; About the growing regulatory state, even Google's Eric Schmidt--a big supporter of the Obama administration--now feels the need to tell it like it is." The Wall Street Journal (Mon., October 24, 2011): A13.

(Note: ellipses between paragraphs added; ellipsis internal to Schmidt quote, in original WSJ commentary.)


The original Eric Schmidt interview with the Washington Post, can be read at:

http://articles.washingtonpost.com/2011-10-01/national/35278181_1_google-chairman-eric-schmidt-regulation-disconnects







February 27, 2013

Steve Jobs' "Nasty Edge" Helped Him Create an Apple "Crammed with A Players"



(p. 565) . . . I think . . . [Jobs] actually could have controlled himself, if he had wanted. When he hurt people, it was not because he was lacking in emotional awareness. Quite the contrary: He could size people up, understand their inner thoughts, and know how to relate to them, cajole them, or hurt them at will.

The nasty edge to his personality was not necessary. It hindered him more than it helped him. But it did, at times, serve a purpose. Polite and velvety leaders, who take care to avoid bruising others, are generally not as effective at forcing change. Dozens of the colleagues whom Jobs most abused ended their litany of horror stories by saying that he got them to do things they never dreamed possible. And he created a corporation crammed with A players.



Source:

Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.

(Note: ellipses and bracketed "Jobs" added.)






February 24, 2013

Entrepreneur Mackey Says Whole Foods Drops Prices as Larger Size Creates Economies of Scale



MackeyJohnWholeFoodsCEO2013-02-23.jpg











"John Mackey." Source of caption and photo: online version of the NYT article quoted and cited below.





(p. 16) In your new book, "Conscious Capitalism," you write that Whole Foods sees its customers as its "most important stakeholders" and that the company is obsessed with their happiness. The biggest complaint I hear about Whole Foods is how expensive it is. Why not drop prices to make your customers happier? People always complain about prices being too high. Whole Foods prices have dropped every year as we get to be larger and we have economies of scale. Also, people are not historically well informed about food prices. We're only spending about 7 percent of our disposable personal income on food. Fifty years ago, it was nearly 16 percent.


. . .


In 2009, some Whole Foods customers organized boycotts after you wrote an op-ed in The Wall Street Journal expressing opposition to Obama's health care proposals. Do you wish you hadn't written it?
No, I don't. I regret that a lot of people didn't actually read it and it got taken out of context. President Obama asked for ideas about health care reform, and I put my ideas out there. Whole Foods has a good health care plan. It's not a solution to America's health care problems, but it's part of the solution.

So did you vote for Romney?
I did.

I imagine a certain percentage of Whole Foods customers will also boycott because of this.
I don't know what to say except that I'm a capitalist, first. There are many things I don't like about Romney, but more things I don't like about Obama. This is America, and people disagree on things.



For the full interview, see:

Andrew Goldman, Interviewer. "TALK; The Kale King." The New York Times Magazine (Sun., January 20, 2013): 16.

(Note: ellipsis added; bold in original, indicating interviewer questions.)

(Note: the online version of the interview has the date January 18, 2013, and has the title "TALK; John Mackey, the Kale King.")


Mackey's book is:

Mackey, John, and Rajendra Sisodia. Conscious Capitalism: Liberating the Heroic Spirit of Business. Boston, MA: Harvard Business Review Press, 2013.






February 17, 2013

Higher Taxes Would Slow Creation of Entrepreneur Bronfein's Time-Saving Medical Robotic Systems



(p. A11) . . . in Baltimore, . . . a local entrepreneur, following the logic of need, invested seven years and $30 million developing a robotic system for packaging prescription drugs for long-term patients in nursing homes and hospitals.

In a conversation last year, inventor Michael Bronfein told me if he'd known what it would cost him in time and money, he might never have started. How many entrepreneurs say the same? Probably all of them. But Mr. Bronfein saw a need and the power of technology to meet it, and the result was the Paxit automated medication dispensing system.

He saw workers spending hours under the old system sticking pills in monthly blister packs known as "bingo cards," a process expensive and error-prone. He saw nurses on the receiving end then spending time to pluck the pills out of blister packs and into paper cups, to create the proper daily drug regimen for each patient.


. . .


He followed the economic logic that indicated that all the people involved in the old system were becoming too valuable to have their time wasted by the old system. Backed by his company, Remedi SeniorCare, Paxit--in which a robot packages, labels and dispatches a daily round of medicines for each patient--is spreading across the mid-Atlantic and Midwest and winning plaudits from medical-care providers.

. . .


We need to preserve the incentive for investors to bring us the robots that will make the future bearable, rather than burying entrepreneurs in taxes in a vain attempt to seize the returns of investments before those investments are made.



For the full commentary, see:

Jenkins, HOLMAN W., JR. "BUSINESS WORLD; Robots to the Rescue? The flip side of an entitlements crisis is a labor shortage." The Wall Street Journal (Weds., January 9, 2013): A11.

(Note: ellipses added.)

(Note: the online version of the review has the date January 8, 2013.)






February 16, 2013

IKEA Says Government Bureaucracy Slows Job Creation



OhlssonMikaelCEOofIKEA2013-02-03.jpg "The economy 'will remain challenging for a long time,' says IKEA Chief Executive Mikael Ohlsson." Source of caption and photo: online version of the WSJ article quoted and cited below.


(p. B3) MALMO, Sweden--IKEA is poised to embark on a global spending spree, but its departing chief executive says red tape is slowing how fast the home-furnishings retailer can open its pocket book.

With the company set to report record sales on Wednesday, CEO Mikael Ohlsson said the amount of time it takes to open a store has roughly doubled in recent years.

"What some years ago took two to three years, now takes four to six years. And we also see that there's a lot of hidden obstacles in different markets and also within the [European Union] that's holding us back," he said in an interview recently at an IKEA store on Sweden's western coast.


. . .


IKEA plans to invest €2 billion in stores, factories and renewable energy this year. But the company fell €1 billion short of its goal of investing €3 billion in new projects last year, largely because of bureaucratic obstacles, he said. For 10 years IKEA has tried unsuccessfully to relocate a store in France, for example. The company also is challenging German policy dictating what can be sold and where, saying the rules are out of sync with EU legislation.

"It's a pity, because it can help create jobs and investments at a time when unemployment is high in many countries," Mr. Ohlsson said. A new IKEA store creates construction and store jobs for about 1,000 workers, he said.


. . .


The company's highest-profile headaches have come in India, an untapped market where IKEA wants to open a first store in at least five years and roll out an additional three soon thereafter.



For the full story, see:

ANNA MOLIN. "IKEA Chief Takes Aim at Red Tape." The Wall Street Journal (Weds., January 23, 2013): B3.

(Note: ellipses added.)

(Note: the online version of the story has the date January 22, 2013.)






February 13, 2013

Behavioral Economists and Psychologists Pledged to Keep Silent on Their Advice to Re-Elect Obama



(p. D1) Late last year Matthew Barzun, an official with the Obama campaign, called Craig Fox, a psychologist in Los Angeles, and invited him to a political planning meeting in Chicago, according to two people who attended the session.

"He said, 'Bring the whole group; let's hear what you have to say,' " recalled Dr. Fox, a behavioral economist at the University of California, Los Angeles.

So began an effort by a team of social scientists to help their favored candidate in the 2012 presidential election. Some members of the team had consulted with the Obama campaign in the 2008 cycle, but the meeting in January signaled a different direction.

"The culture of the campaign had changed," Dr. Fox said. "Before then I felt like we had to sell ourselves; this time there was a real hunger for our ideas."


. . .


(p. D6) When asked about the outside psychologists, the Obama campaign would neither confirm nor deny a relationship with them.


. . .


For their part, consortium members said they did nothing more than pass on research-based ideas, in e-mails and conference calls. They said they could talk only in general terms about the research, because they had signed nondisclosure agreements with the campaign.

In addition to Dr. Fox, the consortium included Susan T. Fiske of Princeton University; Samuel L. Popkin of the University of California, San Diego; Robert Cialdini, a professor emeritus at Arizona State University; Richard H. Thaler, a professor of behavioral science and economics at the University of Chicago's business school; and Michael Morris, a psychologist at Columbia.

"A kind of dream team, in my opinion," Dr. Fox said.



For the full story, see:

BENEDICT CAREY. "Academic 'Dream Team' Helped Obama's Effort." The New York Times (Tues., November 13, 2012): D1 & D6.

(Note: ellipses added.)

(Note: the online version of the story has the date November 12, 2012.)






February 12, 2013

The War on Drugs Likely "Increased the Rate of Addiction"



DrugPrisonerGraph2013-02-03.jpg






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







(p. C1) President Richard Nixon declared a "war on drugs" in 1971. The expectation then was that drug trafficking in the United States could be greatly reduced in a short time through federal policing--and yet the war on drugs continues to this day. The cost has been large in terms of lives, money and the well-being of many Americans, especially the poor and less educated. By most accounts, the gains from the war have been modest at best.

The direct monetary cost to American taxpayers of the war on drugs includes spending on police, the court personnel used to try drug users and traffickers, and the guards and other resources spent on imprisoning and punishing those convicted of drug offenses. Total current spending is estimated at over $40 billion a year.

These costs don't include many other harmful effects of the war on drugs that are difficult to quantify. For example, over the past 40 years the fraction of students who have dropped out of American high schools has remained large, at about 25%. Dropout rates are not high for middle-class white children, but they are very high for black and Hispanic children living in poor neighborhoods. Many factors explain the high dropout rates, especially bad schools and weak family support. But another important factor in inner-city neighborhoods is the temptation to drop out of school in order to profit from the drug trade.

The total number of persons incarcerated in state and federal prisons in the U.S. has grown from 330,000 in 1980 to about 1.6 million today. Much of the increase in this population is directly due to the war on drugs and the severe punishment for persons convicted of drug trafficking. About 50% of the inmates in federal prisons and 20% of those in state prisons have been convicted of either selling or using drugs. The many minor drug traffickers and drug users who spend time in jail find fewer opportunities for legal employment after they get out of prison, and they develop better skills at criminal activities.


. . .


(p. C2) It is generally harder to break an addiction to illegal goods, like drugs. Drug addicts may be leery of going to clinics or to nonprofit "drugs anonymous" groups for help. They fear they will be reported for consuming illegal substances. Since the consumption of illegal drugs must be hidden to avoid arrest and conviction, many drug consumers must alter their lives in order to avoid detection.

Usually overlooked in discussions of the effects of the war on drugs is that the illegality of drugs stunts the development of ways to help drug addicts, such as the drug equivalent of nicotine patches. Thus, though the war on drugs may well have induced lower drug use through higher prices, it has likely also increased the rate of addiction. The illegality of drugs makes it harder for addicts to get help in breaking their addictions. It leads them to associate more with other addicts and less with people who might help them quit.


. . .


The decriminalization of both drug use and the drug market won't be attained easily, as there is powerful opposition to each of them. The disastrous effects of the American war on drugs are becoming more apparent, however, not only in the U.S. but beyond its borders. Former Mexican President Felipe Calderon has suggested "market solutions" as one alternative to the problem. Perhaps the combined efforts of leaders in different countries can succeed in making a big enough push toward finally ending this long, enormously destructive policy experiment.



For the full commentary, see:

GARY S. BECKER and KEVIN M. MURPHY. "Have We Lost the War on Drugs? After more than four decades of a failed experiment, the human cost has become too high. It is time to consider the decriminalization of drug use and the drug market." The Wall Street Journal (Sat., January 5, 2013): C1 & C2.

(Note: the online version of the commentary has the date January 4, 2013.)






February 11, 2013

Apple's Corporate Culture Under Jobs: "Accountability Is Strictly Enforced"



(p. 531) In theory, you could go to your iPhone or any computer and access all aspects of your digital life. There was, however, a big problem: The service, to use Jobs's terminology, sucked. It was complex, devices didn't sync well, and email and other data got lost randomly in the ether. "Apple's MobileMe Is Far Too Flawed to Be Reliable," was the headline on Walt Mossberg's review in the Wall Street Journal.

Jobs was furious. He gathered the MobileMe team in the auditorium on the Apple campus, stood onstage, and asked, "Can anyone tell me what MobileMe is supposed to do?" After the team members offered their answers, Jobs shot back: "So why the fuck doesn't it do that?" Over the next half hour he continued to berate them. "You've tarnished Apple's reputation," he said. You should hate each other for having let each other down. Mossberg, our friend, is no longer writing good things about us." In front of the whole audience, he got rid of the leader of the MobileMe team and replaced him with Eddy Cue, who oversaw all Internet content at Apple. As Fortune's Adam Lashinsky reported in a dissection of the Apple corporate culture, "Accountability is strictly enforced."




Source:

Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.






February 10, 2013

Is America Moving Toward a Less Upwardly Mobile Future?



Coming-ApartBK2013-01-11.jpg











Source of book image: http://catholicexchange.com/wp-content/uploads/2012/07/Coming-Apart.jpg







(p. C6) The future as described by Charles Murray in "Coming Apart'' is bleak enough to have been imagined by George Orwell. Unfortunately, "Coming Apart" is nonfiction, meticulously documented and depressingly real. Mr. Murray examines America as it moves away from an upwardly mobile, socially mobile country with shared purpose and shared identities to a country dividing into two isolated and disparate camps.


For the full review essay, see:

Jeb Bush (author of passage quoted above, one of 50 contributors to whole article). "Twelve Months of Reading; We asked 50 of our friends to tell us what books they enjoyed in 2012--from Judd Apatow's big plans to Bruce Wagner's addictions. See pages C10 and C11 for the Journal's own Top Ten lists." The Wall Street Journal (Sat., December 15, 2012): passim (Bush's contribution is on p. C6).

(Note: the online version of the review essay has the date December 14, 2012.)



The book under review, is:

Murray, Charles. Coming Apart: The State of White America, 1960-2010. New York: Crown Forum, 2012.






February 9, 2013

Ending College Affirmative Action Would Only Cause Minor Lowering in Black Admissions



(p. 113) This research examines the determinants of the match between high school seniors and postsecondary institutions in the United States. I model college application decisions as a nonsequential search problem and specify a unified structural model of college application, admission, and matriculation decisions that are all functions of unobservable individual heterogeneity. The results indicate that black and Hispanic representation at all 4-year colleges is predicted to decline modestly--by 2%--if race-neutral college admissions policies are mandated nationwide. However, race-neutral admissions are predicted to decrease minority representation at the most selective 4-year institutions by 10%.


Source of abstract:

Howell, Jessica S. "Assessing the Impact of Eliminating Affirmative Action in Higher Education." Journal of Labor Economics 28, no. 1 (January 2010): 113-66.





February 5, 2013

"Rome's Rise Is a Story of Economic Growth, Not Divine Intervention or Native Virtue"



(p. C7) In chronicling the decline and fall of the Roman Empire, Edward Gibbon declared that "if a man were called to fix the period in the history of the world during which the human race was most happy and prosperous, he would, without hesitation, name that which elapsed from the death of Domitian to the accession of Commodus." Gibbon himself elegantly narrated how happiness and prosperity withered after this flowering between 96 and 180 A.D. But what about the near-millennium of Roman history that came before? "What was it," as Anthony Everitt asks in "The Rise of Rome," "that enabled a small Italian market town by a ford on the river Tiber to conquer the known world" and thereby made Gibbon's golden years possible?


. . .


Most of that economic activity, whether it developed autonomously as a result of lower costs or was driven by the coercive rule of the state, was catalyzed by the Mediterranean, with which even the sophisticated Roman road network could not compete. Yet in the period from the middle of the third century B.C. to the middle of the first, Mr. Everitt, following his literary sources, directs our attention to Hamilcar, the Carthaginian general; and to Hannibal, his hot-tempered son, leading elephants first across the Pyrenees and then the Alps. Both are important, and, had they not been defeated, Rome would have had a very short "rise" indeed. But the real action was on the Mediterranean. As the number of shipwrecks datable to these years attests, it was being crossed by trading vessels with a frequency never yet seen and never again matched--including the halcyon years hymned by Gibbon.

Sometimes the data can preserve an astonishingly precise record of a trade route. For example, storage containers--probably for wine--salvaged from the spectacular wrecks at Grand Congloué, off Marseilles, bear the stamp "SES." Archaeologists have confidently linked this mark with a certain Sestius, who must have manufactured the wares at the villa we know he owned in southwestern Tuscany, no mean distance away.

When the shipwreck data, which suggest increased economic activity, are considered alongside the population contraction that Rome suffered in its bloody military campaigns, a tentative but rich answer to Mr. Everitt's question begins to emerge: Rome's rise is a story of economic growth, not divine intervention or native virtue. And although even this account, like all our conclusions about the distant past, must be provisional, it is at least anchored in an empirical model of how income gains from trade and lowered transaction costs were not swallowed up by an ever-expanding population.



For the full review, see:

BRENDAN BOYLE. "BOOKSHELF; The Economy of Empire; The rise of the world's greatest empire is as much a story of shipping and markets as of divine providence and individual virtue." The Wall Street Journal (Sat., September 22, 2012): C7.

(Note: ellipsis added.)

(Note: the online version of the article was dated September 21, 2012.)






February 4, 2013

Social Scientists Prefer Articles that Contain Bogus Math



MathBiasGraphic2013-01-12.jpgSource of graphic: online version of the WSJ article quoted and cited below.




(p. A2) . . . research has shown that even those who should be especially clear-sighted about numbers--scientific researchers, for example, and those who review their work for publication--are often uncomfortable with, and credulous about, mathematical material. As a result, some research that finds its way into respected journals--and ends up being reported in the popular press--is flawed.

In the latest study, Kimmo Eriksson, a mathematician and researcher of social psychology at Sweden's Mälardalen University, chose two abstracts from papers published in research journals, one in evolutionary anthropology and one in sociology. He gave them to 200 people to rate for quality--with one twist. At random, one of the two abstracts received an additional sentence, the one above with the math equation, which he pulled from an unrelated paper in psychology. The study's 200 participants all had master's or doctoral degrees. Those with degrees in math, science or technology rated the abstract with the tacked-on sentence as slightly lower-quality than the other. But participants with degrees in humanities, social science or other fields preferred the one with the bogus math, with some rating it much more highly on a scale of 0 to 100.

"Math makes a research paper look solid, but the real science lies not in math but in trying one's utmost to understand the real workings of the world," Prof. Eriksson said.



For the full story, see:

CARL BIALIK. "THE NUMBERS GUY; Don't Let Math Pull the Wool Over Your Eyes." The Wall Street Journal (Sat., January 5, 2013): A2.

(Note: ellipsis added.)

(Note: the online version of the story has the date January 4, 2013,)



A pdf of Eriksson's published article can be downloaded from:

Eriksson, Kimmo. "The Nonsense Math Effect." Judgment and Decision Making 7, no. 6 (November 2012): 746-49.






February 1, 2013

Fiscal Stimulus Packages Did Not Stimulate



(p. 686) An empirical review of the three fiscal stimulus packages of the 2000s shows that they had little if any direct impact on consumption or government purchases. Households largely saved the transfers and tax rebates. The federal government only increased purchases by a small amount. State and local governments saved their stimulus grants and shifted spending away from purchases to transfers. Counterfactual simulations show that the stimulus-induced decrease in state and local government purchases was larger than the increase in federal purchases. Simulations also show that a larger stimulus package with the same design as the 2009 stimulus would not have increased government purchases or consumption by a larger amount. These results raise doubts about the efficacy of such packages adding weight to similar assessments reached more than thirty years ago.


Source:

Taylor, John B. "An Empirical Analysis of the Revival of Fiscal Activism in the 2000s." Journal of Economic Literature 49, no. 3 (September 2011): 686-702.







January 29, 2013

Fragile Governments Cling to Failed Foreign Aid



AntifragileBK2013-01-11.jpg











Source of book image: http://si.wsj.net/public/resources/images/OB-VL312_bkrvta_DV_20121122124330.jpg







(p. C12) Nassim Nicholas Taleb's "Antifragile" argues that some people, organizations and systems are resilient in the face of stress because they are able to alter themselves by adapting and learning. The converse is fragility, embodied in entities that are immovable even when faced with shocks or adversity. To my mind, an obvious example is how numerous governments and international agencies have clung to foreign aid as a tool to combat poverty even though aid has failed to deliver sustainable growth and meaningfully reduce indigence. And nation-states, which rest on one unifying vision of the nation, tend to be fragile, while city-states that adjust, adapt and constantly evolve tend to be antifragile. Mr. Taleb's lesson: Embrace, rather than try to avoid, the shocks.


For the full review essay, see:

Dambisa Moyo (author of passage quoted above, one of 50 contributors to whole article). "Twelve Months of Reading; We asked 50 of our friends to tell us what books they enjoyed in 2012--from Judd Apatow's big plans to Bruce Wagner's addictions. See pages C10 and C11 for the Journal's own Top Ten lists." The Wall Street Journal (Sat., December 15, 2012): passim (Moyo's contribution is on p. C12).

(Note: the online version of the review essay has the date December 14, 2012.)



The book under review, is:

Taleb, Nassim Nicholas. Antifragile: Things That Gain from Disorder. New York: Random House, 2012.






January 28, 2013

Governments Use "Financial Repression" to Lower Their Interest Payments on Debt



(p. 229) Carmen M. Reinhart, Jacob F. Kirkegaard, and M. Belen Sbrancia make a case for "Financial Repression Redux: Governments Are Once Again Finding Ways to Manipulate Markets to Hold Down the Cost of Financing Debt." "Financial repression occurs when governments implement policies to channel to themselves funds that in a deregulated market environment would go elsewhere. . . . One of the main goals of financial repression is to keep nominal interest rates lower than they would be in more competitive markets. Other things equal, this reduces the government's interest expenses for a given stock of debt and contributes to deficit reduction. (p. 230) However, when financial repression produces negative real interest rates (nominal rates below the inflation rate), it reduces or liquidates existing debts and becomes the equivalent of a tax--a transfer from creditors (savers) to borrowers, including the government . . ." "Financial repression contributed to rapid debt reduction following World War II. . . . It seems probable that policymakers for some time to come will be preoccupied with debt reduction, debt management, and efforts to keep debt servicing costs at a reasonable level. In this setting, financial repression, with its dual aims of keeping interest rates low and creating or maintaining captive domestic audiences, will continue to find renewed favor, and the measures and developments we have described and discussed are likely to be only the tip of a very large iceberg."


Reinhart et al as quoted in:

Taylor, Timothy. "Recommendations for Further Reading." Journal of Economic Perspectives 25, no. 4 (Fall 2011): 223-30.

(Note: ellipses added by Taylor.)


For the full Reinhart et al paper, see:

Reinhart, Carmen M., Jacob F. Kirkegaard, and M. Belen Sbrancia. "Financial Repression Redux." Finance and Development 48, no. 2 (June 2011): 22-26.






January 27, 2013

Is Economics Major Nuts to Have Left Investment Banking?



BravermanJeffreyAndFatherUncleCousinNutBusiness2013-01-12.jpg "Jeffrey Braverman, right, stepped away from Wall Street to join his father, uncle and cousin in the family's New Jersey nut business." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. B8) Ten years ago, Jeffrey Braverman was living the dream of many business school graduates. With a freshly minted bachelor's degree in economics, he landed a job in 2002 at the Blackstone Group, a Wall Street firm specializing in private equity and investment banking.

Less than a year later, however, Mr. Braverman stepped away from Wall Street and returned to his family's New Jersey nut business, the Newark Nut Company. It struck some as an odd choice: the family-owned company, which had been started by Mr. Braverman's grandfather, Sol Braverman (known as Poppy), and had once employed 30 people, was down to two employees and two family members, Mr. Braverman's father and his uncle.

Located in an indoor mall in a desolate part of Newark, the nut shop's retail sales were fading and its wholesale business was, at best, stagnant. But Mr. Braverman harbored entrepreneurial ambitions.

At the beginning, he agreed to work with his father and uncle for a salary tied directly to how much new business he attracted. He focused on Internet sales and before long, they began to dwarf the existing business.

Now based in Cranford, N.J., the company has grown to more than 80 employees with more than $20 million in revenue, 95 percent of it online. The following is a condensed version of a recent conversation.

Q. Who leaves investment banking to work at a struggling family nut company?

A. Only someone nuts, right? My dad and my uncle both thought I was crazy. I was making more than they were at the time.

Q. Then why?

A. Have you ever read the book "Monkey Business"? It's a fairly accurate profile of what it's like to be in investment banking, at least at a junior level. You know, there's this economic concept called deadweight loss, and I think a lot of investment banking is like that: it doesn't really add anything to the world, to the economy. I just wanted to do more.

Q. I assume your father and uncle made you take a pay cut.

A. The one thing I did was, I didn't want to take anything away from them. I structured it so that my compensation was 100 percent based on incremental profit improvement. So from their perspective, there wasn't very much risk. I also got a small piece of the business. But at the time the business was worth nothing, book value. No one would have bought it.

Q. Did you have any experience in Internet sales?

A. In 1999, I was a freshman in college and I started our Web site, Nutsonline.com. I spent my second semester of freshman year working on that thing four or five hours a day. It kind of just trickled along. In 1999, very few people were buying from Amazon, so they certainly weren't going to buy from Nutsonline. In 2000, I remember I set a goal: I wanted to do 10 orders a day.



For the full version of the condensed conversation, see:

IAN MOUNT. "Forsaking Investment Banking to Turn Around a Family Business." The New York Times (Thurs., April 19, 2012): B8.

(Note: bold in original.)

(Note: the online version of the conversation has the date April 18, 2012.)



BravermanSolNutBusinessEarly1930s2013-01-12.jpg "Sol Braverman, Jeffrey's grandfather, in the early 1930s." Source of caption and photo: online version of the NYT article quoted and cited above.






January 25, 2013

ExxonMobil's "Honorable If Rigid Corporate Culture"



PrivateEmpireBK2013-01-11.jpg












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






(p. C12) From Indiana to Indonesia, ExxonMobil is the multinational corporation that people love to hate. John D. Rockefeller's creation is famed and feared for its discipline, its disregard for public opinion and its ability, year after year, to pump out the largest profits of any corporation on the planet. In "Private Empire," Steve Coll provides a rare exploration of what makes a modern corporate giant tick and shows why the world looks different to the executives in the "God Pod" at ExxonMobil's Texas headquarters than it might to you or me.


For the full review essay, see:

Marc Levinson. "Boardroom Reading of 2012." The Wall Street Journal (Sat., December 15, 2012): C12.

(Note: the online version of the review essay has the date December 14, 2012.)



From another review of the same book:


"Private Empire" is meticulous, multi-angled and valuable. It is also, perhaps surprisingly, despite all the dark facts I have dumped above, impartial. Mr. Coll and his phlegmatic research assistants have interviewed more than 400 people, including Exxon Mobil's longtime chief executive Lee R. Raymond, a legendarily hard character.

It's among this book's achievements that it attempts to view a dysfunctional energy world, as often as not, through Exxon Mobil's eyes. The company is portrayed here, some egregious missteps aside, as possessing an honorable if rigid corporate culture that seeks to supply a product (unlike tobacco companies, to which it is often compared) that a functioning society actually must have.



For this full review, see:

DWIGHT GARNER. "Oil's Dark Heart Pumps Strong." The New York Times (Sat., April 27, 2012): C25 & C32(?).

(Note: the online version of the review essay has the date April 26, 2012 and has the title "BOOKS OF THE TIMES; Oil's Dark Heart Pumps Strong; 'Private Empire,' Steve Coll's Book on Exxon Mobil.")



The book under review, is:

Coll, Steve. Private Empire: ExxonMobil and American Power. New York: The Penguin Press, 2012.






January 24, 2013

Economics Should Be in "Broad-Exploration Mode"



(p. 85) What does concern me about my discipline, . . . , is that its current core--by which I mainly mean the so-called dynamic stochastic general equilibrium approach--has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the precision that it has about the real one. This is dangerous for both methodological and policy reasons. On the methodology front, macroeconomic research has been in "fine-tuning" mode within the local-maximum of the dynamic stochastic general equilibrium world, when we should be in "broad-exploration" mode. We are too far (p. 86) from absolute truth to be so specialized and to make the kind of confident quantitative claims that often emerge from the core. On the policy front, this confused precision creates the illusion that a minor adjustment in the standard policy framework will prevent future crises, and by doing so it leaves us overly exposed to the new and unexpected.


. . .


(p. 100) Going back to our macroeconomic models, we need to spend much more effort in understanding the topology of interactions in real economies. The financial sector and its recent struggles have made this need vividly clear, but this issue is certainly not exclusive to this sector.

The challenges are big, but macroeconomists can no longer continue playing internal games. The alternative of leaving all the important stuff to the "policy"-types (p. 101) and informal commentators cannot be the right approach. I do not have the answer. But I suspect that whatever the solution ultimately is, we will accelerate our convergence to it, and reduce the damage we do along the transition, if we focus on reducing the extent of our pretense-of-knowledge syndrome.



Source:

Caballero, Ricardo J. "Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome." Journal of Economic Perspectives 24, no. 4 (Fall 2010): 85-102.

(Note: ellipses added.)






January 23, 2013

David Koch Institute for Integrative Cancer Research



LangerRobertResearchLab2013-01-12.jpg "Dr. Robert Langer's research lab is at the forefront of moving academic discoveries into the marketplace." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. 1) HOW do you take particles in a test tube, or components in a tiny chip, and turn them into a $100 million company?

Dr. Robert Langer, 64, knows how. Since the 1980s, his Langer Lab at the Massachusetts Institute of Technology has spun out companies whose products treat cancer, diabetes, heart disease and schizophrenia, among other diseases, and even thicken hair.

The Langer Lab is on the front lines of turning discoveries made in the lab into a range of drugs and drug delivery systems. Without this kind of technology transfer, the thinking goes, scientific discoveries might well sit on the shelf, stifling innovation.

A chemical engineer by training, Dr. Langer has helped start 25 companies and has 811 patents, issued or pending, to his name. More than 250 companies have licensed or sublicensed Langer Lab patents.

Polaris Venture Partners, a Boston venture capital firm, has invested $220 million in 18 Langer Lab-inspired businesses. Combined, these businesses have improved the health of many millions of people, says Terry McGuire, co-founder of Polaris.


. . .


(p. 7) Operating from the sixth floor of the David H. Koch Institute for Integrative Cancer Research on the M.I.T. campus in Cambridge, Mass., Dr. Langer's lab has a research budget of more than $10 million for 2012, coming mostly from federal sources.


. . .


David H. Koch, executive vice president of Koch Industries, the conglomerate based in Wichita, Kan., wrote in an e-mail that "innovation and education have long fueled the world's most powerful economies, so I can't think of a better or more natural synergy than the one between academia and industry." Mr. Koch endowed Dr. Langer's professorship at M.I.T. and is a graduate of the university.



For the full story, see:

HANNAH SELIGSON. "Hatching Ideas, and Companies, by the Dozens at M.I.T." The New York Times, SundayBusiness Section (Sun., November 25, 2012): 1 & 7.

(Note: ellipses added.)

(Note: the online version of the story has the date November 24, 2012.)






January 20, 2013

Socialism Failed in Jamestown



(p. 226) Stephen Slivinski discusses "Economic History: The Lessons of Jamestown." In the years after the Jamestown settlement of 1607, the settlers often lacked food. "The company sent Sir Thomas Dale, a British naval commander, to take over the office of colony governor in 1611. Yet, upon arrival in May--a time when the farmers should have been tending to their fields--Dale found virtually no planting activity. Instead, the workers were devoted mainly to leisure and 'playing bowls.' . . . All land was owned by the company and farmed collectively. . . . The workers would not hope to reap more compensation from a productive farming of the land any more than the farmers would be motivated by an interest in making their farming operations more efficient and, hence, more profitable. Seeing this, Dale decided to change the labor arrangements: When the seven-year contracts of most of the original surviving settlers were about to expire in 1614, he assigned private allotments of land to them. Each got three acres, 12 acres if he had a family. The only obligation was that they needed to provide two and a half barrels of corn annually to the company so it could be distributed to the newcomers to tide them over during their first year. Dale left Jamestown for good in 1616. By then, however, the new land grants had unleashed a vast increase in agricultural productivity. In fact, upon returning to England with Dale, John Rolfe--one of the colony's former leaders--reported to the Virginia Company that the Powhatans were now asking the colonists to give them corn instead of vice versa."


As quoted in:

Taylor, Timothy. "Recommendations for Further Reading." Journal of Economic Perspectives 24, no. 4 (Fall 2010): 219-26.

(Note: ellipses added by Taylor.)


The Slivinski article is:

Slivinski, Stephen. "The Lessons of Jamestown." Region Focus 14, no. 1 (First Quarter 2010): 27-29.






January 19, 2013

Capitalism Would Bring Economic Growth to Bitouga, and Thereby Save the Elephants



BurningIvoryInGabon2013-01-12.jpg "SEIZED AND DESTROYED; Gabon burned 10,000 pounds of ivory in June to show its commitment against poaching, but elephants are still being slaughtered." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. A5) But as the price of ivory keeps going up, hitting levels too high for many people to resist, Gabon's elephants are getting slaughtered by poachers from across the borders and within the rain forests, proof that just about nowhere in Africa are elephants safe.

In the past several years, 10,000 elephants in Gabon have been wiped out, some picked off by impoverished hunters creeping around the jungle with rusty shotguns and willing to be paid in sacks of salt, others mowed down en masse by criminal gangs that slice off the dead elephants' faces with chain saws. Gabon's jails are filling up with small-time poachers and ivory traffickers, destitute men and women like Therese Medza, a village hairdresser arrested a few months ago for selling 45 pounds of tusks.

"I had no idea it was illegal," Ms. Medza said, almost convincingly, from the central jail here in Oyem, in the north. "I was told the tusks were found in the forest."

She netted about $700, far more than she usually makes in a month, and the reason she did it was simple, she said. "I got seven kids."

It seems that Gabon's elephants are getting squeezed in a deadly vise between a seemingly insatiable lust for ivory in Asia, where some people pay as much as $1,000 a pound, and desperate hunters and traffickers in central Africa.


. . .


In June, Gabon's president, Ali Bongo, defiantly lighted a pyramid of 10,000 pounds of ivory on fire to make the point that the ivory trade was reprehensible, a public display of resolve that Kenya has put on in years past. It took three days for all the ivory to burn, and even after the last tusks were reduced to glowing embers, policemen vigilantly guarded the ashes. Ivory powder is valued in Asia for its purported medicinal powers, and the officers were worried someone might try to sweep up the ashes and sell them.

Some African countries, like Zimbabwe and Tanzania, are sitting on million-dollar stockpiles of ivory (usually from law enforcement seizures or elephants that died naturally) that someday may be legal to sell.


. . .


(p. A10) The growing resentment of the government is undermining conservation efforts, too, with villagers grumbling about not seeing a trace of the oil money and saying Mr. Bongo should not lecture them about poaching for a living.


. . .

The children here eat thumb-size caterpillars, cooked in enormous vats, because there is little else to eat. Many men have bloodshot eyes and spend their mornings sitting on the ground, staring into space, reeking of sour, fermented home-brew.


. . .


International law enforcement officials say the illicit ivory trade is dominated by Mafia-like gangs that buy off local officials and organize huge, secretive shipments to move tusks from the farthest reaches of Africa to workshops in Beijing, Bangkok and Manila, where they are carved into bookmarks, earrings and figurines.

But often the first link in that chain is a threadbare hunter, someone like Mannick Emane, a young man in Bitouga. Adept in the forest, he was trained nearly from birth to follow tracks and stalk game, and was puffing idly on a cigarette he had just lighted with a burning log.

He conceded he would kill elephants, "for the right price."

"Life is tough," he said. "So if someone is going to give us an opportunity for big money, we're going to take it."

Big money, he said, was about $50.

His friend Vincent Biyogo, also a hunter, nodded in agreement.

"When I was born," he said, "I dreamed of a better life, I dreamed of driving a car, going to school, living like a normal human being."

"Not this," he added quietly, staring at a pot of boiling caterpillars. "Not this."



For the full story, see:

JEFFREY GETTLEMAN. "In Gabon, Lure of Ivory Is Hard for Many to Resist." The New York Times (Thurs., December 27, 2012): A5 & A10.

(Note: ellipses added.)

(Note: the online version of the story has the date December 26, 2012.)



BitougaManResentsGovernment2013-01-12b.jpg "A man in Bitouga, where people live in extreme poverty and say they resent the government's telling them not to poach." Source of caption and photo: online version of the NYT story quoted and cited above.






January 18, 2013

Steve Jobs Was Deeply Influenced by Clayton Christensen's "The Innovator's Dilemma"



(p. 408) Microsoft was willing to license its Windows Media software and digital rights format to other companies, just as it had licensed out its operating system in the 1980s. Jobs, on the other hand, would not license out Apple's FairPlay to other device makers; it worked only on an iPod. Nor would he allow other online stores to sell songs for use on iPods. A variety of experts said this would eventually cause Apple to lose market share, as it did in the computer wars of the 1980s. "If Apple continues to rely on a proprietary architecture," the Harvard Business School professor Clayton Christensen told Wired, "the iPod will likely become a niche product." (Other than in this case, Christensen was one of the world's most insightful business analysts, and Jobs was deeply (p. 409) influenced by his book The Innovator's Dilemma.) Bill Gates made the same argument. "There's nothing unique about music," he said. "This story has played out on the PC."


Source:

Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.






January 16, 2013

Descartes Saw that a Great City Is "an Inventory of the Possible"



(p. 226) Joel Kotkin writes about "The Broken Ladder: The Threat to Upward Mobility in the Global City." "A great city, wrote Rene Descartes in the 17th Century, represented 'an inventory of the possible,' a place where people could create their own futures and lift up their families. In the 21st Century--the first in which the majority of people will live in cities--this unique link between urbanism and upward mobility will become ever more critical."


Source:

Taylor, Timothy. "Recommendations for Further Reading." Journal of Economic Perspectives 24, no. 4 (Fall 2010): 219-26.






January 14, 2013

With iTunes, Apple Leapfrogged CD Burners (a Boat Apple Had Missed)




Is the example sketched below, and in a previous entry, a case of a first mover disadvantage? Or is it simply a case of a lucky or wise bounce-back from a genuine mistake?


(p. 382) . . . [Job's] angry insistence that the iMac get rid of its tray disk drive and use instead a more elegant slot drive meant that it could not include the first CD burners, which were initially made for the tray format. "We kind of missed the boat on that," he recalled. "So we needed to catch up real fast." The mark of an innovative company is not only that it comes up with new ideas first, but also that it knows how to leapfrog when it finds itself behind.


Source:

Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.

(Note: ellipsis and bracketed "Job's" added.)






January 12, 2013

Solow Testifies on Irrelevance of DSGE Macro Models




In Nobel-prize-winner Robert Solow's congressional testimony, quoted below, "DSGE" is an abbreviation for "dynamic stochastic general equilibrium."


(p. 221) Solow argues: "It may be unusual for the Committee to focus on so abstract a question, but it is certainly natural and urgent. Here we are, still near the bottom of a deep and prolonged recession, with the immediate future uncertain, desperately short of jobs, and the approach to macroeconomics that dominates serious thinking, certainly in our elite universities and in many central banks and other influential policy circles, seems to have absolutely nothing to say about the problem. Not only does it (p. 222) offer no guidance or insight, it really seems to have nothing useful to say. . . . Especially when it comes to matters as important as macroeconomics, a mainstream economist like me insists that every proposition must pass the smell test: does this really make sense? I do not think that the currently popular DSGE models pass the smell test."


Source:

Taylor, Timothy. "Recommendations for Further Reading." Journal of Economic Perspectives 24, no. 4 (Fall 2010): 219-26.

(Note: ellipsis in original.)






January 10, 2013

Apple "Finding a Way to Leapfrog Over Its Competitors"




Isaacson says Jobs wanted two refinements in the iMac. One was new colors. The other is discussed below.

I am not sure what to make of this episode. Is Isaacson suggesting that it was good for Apple that Jobs made a mistake on the type of CD hardware to put in the iMac? That this added constraint "would then force Apple to be imaginative and bold"?

Or is the moral that good people who make a lot of quick decisions, make mistakes, sometimes big mistakes, and that Jobs found a way to bounce back from this one?


(p. 356) There was one other important refinement that Jobs wanted for the iMac: getting rid of that detested CD tray. "I'd seen a slot-load drive on a very high-end Sony stereo," he said, "so I went to the drive manufacturers and got them to do a slot-load drive for us for the version of the iMac we did nine months later." Rubinstein tried to argue him out of the change. He predicted that new drives would come along that could burn music onto CDs rather than merely play them, and they would be available in tray form before they were made to work in slots. "If you go to slots, you will always be behind on the technology," Rubinstein argued.

"I don't care, that's what I want," Jobs snapped back. They were having lunch at a sushi bar in San Francisco, and Jobs insisted that they continue the conversation over a walk. "I want you to do the slot-load drive for me as a personal favor," Jobs asked. Rubinstein agreed, of course, but he turned out to be right. Panasonic came out with a CD drive that could rip and burn music, and it was available first for computers that had old-fashioned tray loaders. The effects of this (p. 357) would ripple over the next few years: It would cause Apple to be slow in catering to users who wanted to rip and burn their own music, but that would then force
Apple to be imaginative and bold in finding a way to leapfrog over its competitors when Jobs finally realized that he had to get into the music market.



Source:

Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.






January 8, 2013

When Professors "Are Fearful, Hesitant, and Foolish" and When They "Screech, Snarl, and Spit"



(p. 243) "It is hardly possible to take very seriously any of the professoriate all of the time or most of them most of the time. They commonly are fearful, hesitant, and foolish when confronted by complex real issues and aggressive enemies, but they tend to screech, snarl, and spit when they perceive their territory, reputation, and perquisites to be threatened. They can pose as being valiant and principled, but they are inclined to disperse and camouflage themselves upon hearing the first volleys of significant battle."


Source:

Distinguished UCLA economist William R. Allen from an interview with Daniel B. Klein as quoted in:

Taylor, Timothy. "Recommendations for Further Reading." Journal of Economic Perspectives 25, no. 1 (Winter 2011): 239-46.


For the full article/interview, see:

Allen, William R. "A Life among the Econ, Particularly at UCLA." Econ Journal Watch 7, no. 3 (September 2010): 205-34.






January 6, 2013

"Think Profit"



(p. 339) At the January 1998 San Francisco Macworld, Jobs took the stage where Amelio had bombed a year earlier. He sported a full beard and a leather jacket as he touted the new product strategy. And for the first time he ended the presentation with a phrase that he would make his signature coda: "Oh, and one more thing . . ." This time the "one more thing" was "Think Profit." When he said those words, the crowd erupted in applause. After two years of staggering losses, Apple had enjoyed a profitable quarter, making $45 million. For the full fiscal year of 1998, it would turn in a $309 million profit. Jobs was back, and so was Apple.


Source:

Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.

(Note: ellipsis in original.)






January 5, 2013

Government Job Protection Regulations Reduce Youth Jobs



EuropeYouthUnemploymentGraph2013-01-01.jpg










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




(p. A7) Socialist President François Hollande has come up with a plan to ease the problem: give €4,000 ($5,276) a year for three years to small companies that hire a young person on a permanent contract while committing to keep an employee age 57 or over.


. . .


The French government hopes as many as half a million youths will find permanent jobs over the next five years due to the measure, which could cost the government about €1 billion a year when it is in place.

Economists say the number of real new jobs is likely to be much lower because the government will be subsidizing jobs that would have been created anyway. Only around 100,000 new jobs will be created, according to OFCE, an economic-research think tank in Paris.

French companies say they are reluctant to hire young people on permanent contracts because it gives employees a level of protection the companies say they can't afford to grant--even if they get the subsidy proposed by Mr. Hollande.

"It's great to have €4,000, but if the new recruit isn't good, we don't know how long we'll be stuck with them," said Philippe Lehmann, who runs Lehmann Sarl, a mechanical-parts factory in Molsheim, eastern France that employs seven people.




For the full story, see:

WILLIAM HOROBIN. "France Pins Hopes on Youth Jobs Plan." The Wall Street Journal (Mon., December 24, 2012): A7.

(Note: ellipsis added.)

(Note: the online version of the story has the date December 23, 2012.)

(Note: the online version of the last two paragraphs quoted above contains a few extra words of elaboration at the end of each paragraph, as compared to the print version. I have underlined these words in the passages quoted above.)






January 4, 2013

How Chavez Punished Those Who Opposed Him



(p. 196) In 2004, the Hugo Chávez regime in Venezuela distributed the list of several million voters who had attempted to remove him from office throughout the government bureaucracy, allegedly to identify and punish these voters. We match the list of petition signers distributed by the government to household survey respondents to measure the economic effects of being identified as a Chávez political opponent. We find that voters who were identified as Chávez opponents experienced a 5 percent drop in earnings and a 1.3 percentage point drop in employment rates after the voter list was released.


Source:

Hsieh, Chang-Tai, Edward Miguel, Daniel Ortega, and Francisco Rodriguez. "The Price of Political Opposition: Evidence from Venezuela's Maisanta." American Economic Journal: Applied Economics 3, no. 2 (2011): 196-214.







January 3, 2013

"People Said He Was a Fraud, But He Turned Out to Be Right"



WhitfieldWillisCleanRoom2013-01-01.jpg













"Willis Whitfield with a mobile clean room in the 1960s." Source of caption and photo: online version of the NYT article quoted and cited below.





(p. B16) Half a century ago, as a rapidly changing world sought increasingly smaller mechanical and electrical components and more sanitary hospital conditions, one of the biggest obstacles to progress was air, and the dust and germs it contains.


. . .


Then, in 1962, Willis Whitfield invented the clean room.

"People said he was a fraud," recalled Gilbert V. Herrera, the director of microsystems science and technology at Sandia National Laboratories in Albuquerque. "But he turned out to be right."


. . .


His clean rooms blew air in from the ceiling and sucked it out from the floor. Filters scrubbed the air before it entered the room. Gravity helped particles exit. It might not seem like a complicated concept, but no one had tried it before. The process could completely replace the air in the room 10 times a minute.

Particle detectors in Mr. Whitfield's clean rooms started showing numbers so low -- a thousand times lower than other methods -- that some people did not believe the readings, or Mr. Whitfield. He was questioned so much that he began understating the efficiency of his method to keep from shocking people.

"I think Whitfield's wrong," a scientist from Bell Labs finally said at a conference where Mr. Whitfield spoke. "It's actually 10 times better than he's saying."



For the full obituary, see:

WILLIAM YARDLEY. "W. Whitfield, 92, Dies; Built Clean Room." The New York Times (Weds., December 5, 2012): B16.

(Note: ellipses added.)

(Note: the online version of the obituary has the date December 4, 2012, and has the title "Willis Whitfield, Inventor of Clean Room That Purges Tiny Particles, Dies at 92.")






January 2, 2013

Jobs Laid Off 3,000 from Apple to Save It from Bankruptcy



(p. 339) In his first year back, Jobs laid off more than three thousand people, which salvaged the company's balance sheet. For the fiscal year that ended when Jobs became interim CEO in September 1997, Apple lost $1.04 billion. "We were less than ninety days from being insolvent," he recalled.


Source:

Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.






January 1, 2013

Internet Allows Pricing Experiments



PricesVaryByLocationGraphic2012-12-29.jpgSource of graphic: online version of the WSJ article quoted and cited below.



(p. A10) This year, researchers in Spain studied more than 200 online retailers and found a handful of examples of price differences--including at Staples within Massachusetts--that appeared to be based on location and other factors. Those findings suggest that Staples' price adjustments have been present at least since this summer.

It is difficult for online shoppers to know why, or even if, they are being offered different deals from other people. Many sites switch prices at lightning speed in response to competitors' offerings and other factors, a practice known as "dynamic pricing." Other sites test different prices but do so without regard to the buyer's characteristics.

To find differences that weren't purely the result of dynamic pricing or randomized tests, the Journal conducted preliminary scans by simulating visits from different computers to a variety of e-commerce sites. If a website showed different prices or offers, the Journal then analyzed the site's computer code and conducted follow-up testing.

The Journal's tests, which were conducted in phases between August and December, indicated that some big-name retailers are experimenting with offering different prices and products to different users.

Some sites, for example, gave discounts based on whether or not a person was using a mobile device. A person searching for hotels from the Web browser of an iPhone or Android phone on travel sites Orbitz and CheapTickets would see discounts of as much as 50% off the list price, Orbitz said.


. . .


At home-improvement site Lowe's Cos., . . . prices depend on location. For example, a refrigerator in the Journal's tests cost $449 in Chicago, Los Angeles and Ashburn, Va., but $499 in seven other test cities. Lowe's said online shoppers receive the lower of the online store price or the price at their local Lowe's store as indicated by their ZIP Code.

Home Depot's website offered price variations that appeared to be based on the nearest brick-and-mortar store as well. A 250-foot spool of electrical wiring fell into six pricing groups, including $70.80 in Ashtabula, Ohio; $72.45 in Erie, Pa.; $75.98 in Olean, N.Y and $77.87 in Monticello, N.Y.


. . .


The differences found on the Staples website presented a complex pricing scheme. The Journal simulated visits to Staples.com from all of the more than 42,000 U.S. ZIP Codes, testing the price of a Swingline stapler 20 times in each. In addition, the Journal tested more than 1,000 different products in 10 selected ZIP Codes, 10 times in each location.

The Journal saw as many as three different prices for individual items. How frequently a simulated visitor saw low and high prices appeared to be tied to the person's ZIP Code. Testing suggested that Staples tries to deduce people's ZIP Codes by looking at their computer's IP address. This can be accurate, but isn't foolproof.

In the Journal's tests, ZIP Codes whose center was farther than 20 miles from a Staples competitor saw higher prices 67% of the time. By contrast, ZIP Codes within 20 miles of a rival saw the high price least often, only 12% of the time.



For the full story, see:

JENNIFER VALENTINO-DEVRIES, JEREMY SINGER-VINE and ASHKAN SOLTANI. "Websites Vary Prices, Deals Based on Users' Information." The Wall Street Journal (Mon., December 24, 2012): A1 & A10.

(Note: ellipses added.)






December 30, 2012

"The Arpanet Was Not an Internet"



XeroxParcSign2012-12-18.jpg "Xerox PARC headquarters." Source of caption and photo: online version of the WSJ article quoted and cited below.


(p. A11) A telling moment in the presidential race came recently when Barack Obama said: "If you've got a business, you didn't build that. Somebody else made that happen." He justified elevating bureaucrats over entrepreneurs by referring to bridges and roads, adding: "The Internet didn't get invented on its own. Government research created the Internet so that all companies could make money off the Internet."


. . .


Robert Taylor, who ran the ARPA program in the 1960s, sent an email to fellow technologists in 2004 setting the record straight: "The creation of the Arpanet was not motivated by considerations of war. The Arpanet was not an Internet. An Internet is a connection between two or more computer networks."

If the government didn't invent the Internet, who did? Vinton Cerf developed the TCP/IP protocol, the Internet's backbone, and Tim Berners-Lee gets credit for hyperlinks.

But full credit goes to the company where Mr. Taylor worked after leaving ARPA: Xerox. It was at the Xerox PARC labs in Silicon Valley in the 1970s that the Ethernet was developed to link different computer networks. Researchers there also developed the first personal computer (the Xerox Alto) and the graphical user interface that still drives computer usage today.

According to a book about Xerox PARC, "Dealers of Lightning" (by Michael Hiltzik), its top researchers realized they couldn't wait for the government to connect different networks, so would have to do it themselves. "We have a more immediate problem than they do," Robert Metcalfe told his colleague John Shoch in 1973. "We have more networks than they do." Mr. Shoch later recalled that ARPA staffers "were working under government funding and university contracts. They had contract administrators . . . and all that slow, lugubrious behavior to contend with."



For the full commentary, see:

Gordon Crovitz. "INFORMATION AGE; Who Really Invented the Internet?" The Wall Street Journal (Mon., July 23, 2012): A11.

(Note: ellipsis between paragraphs was added; ellipsis internal to last paragraph was in original.)

(Note: the online version of the commentary has the date July 22, 2012.)



I read the Hiltzik book several years ago, and my memory of it is not sharp, but I remember thinking that it was a useful book:

Hiltzik, Michael A. Dealers of Lightning: Xerox PARC and the Dawn of the Computer Age. New York: HarperBusiness, 1999.






December 28, 2012

Chávez Supporters Feared Losing Government Jobs



ChavezSupporter2012-12-18.jpg "A Chávez supporter. The president runs a well-oiled patronage system, a Tammany Hall-like operation but on a national scale. Government workers are frequently required to attend pro-Chávez rallies, and they come under pressure to vote for him." Source of caption and photo: online version of the NYT article quoted and cited below.


After the story quoted below was published, Chávez (alas) was re-elected.


(p. A1) Many Venezuelans who are eager to send Mr. Chávez packing, fed up with the country's lackluster economy and rampant crime, are nonetheless anxious that voting against the president could mean being fired from a government job, losing a government-built home or being cut off from social welfare benefits.

"I work for the government, and it scares me," said Luisa Arismendi, 33, a schoolteacher who cheered on a recent morning as Mr. Chávez's challenger, Henrique Capriles Radonski, drove by in this northeastern city, waving from the back of a pickup truck. Until this year, she always voted for Mr. Chávez, and she hesitated before giving her name, worried about what would happen if her supervisors found out she was switching sides. "If Chávez wins," she said, "I could be fired."


. . .


(p. A6) The fear has deep roots. Venezuelans bitterly recall how the names of millions of voters were made public after they signed a petition for an unsuccessful 2004 recall referendum to force Mr. Chávez out of office. Many government workers whose names were on the list lost their jobs.

Mr. Chávez runs a well-oiled patronage system, a Tammany Hall-like operation but on a national scale. Government workers are frequently required to attend pro-Chávez rallies, and they come under other pressures.

"They tell me that I have to vote for Chávez," said Diodimar Salazar, 37, who works at a government-run day care center in a rural area southeast of Cumaná. "They always threaten you that you will get fired."

Ms. Salazar said that her pro-Chávez co-workers insisted that the government would know how she voted. But experience has taught her otherwise. She simply casts her vote for the opposition and then tells her co-workers that she voted for Mr. Chávez.

"I'm not going to take the risk," said Fabiana Osteicoechea, 22, a law student in Caracas who said she would vote for Mr. Chávez even though she was an enthusiastic supporter of Mr. Capriles. She said she was certain that Mr. Chávez would win and was afraid that the government career she hoped to have as a prosecutor could be blocked if she voted the wrong way.

"After the election, he's going to have more power than now, lots more, and I think he will have a way of knowing who voted for whom," she said. "I want to get a job with the government so, obviously I have to vote for Chávez."



For the full story, see:

WILLIAM NEUMAN. "Fear of Losing Benefits Affects Venezuela Vote." The New York Times (Sat., October 6, 2012): A1 & A6.

(Note: ellipsis added.)

(Note: the online version of the article has the date October 5, 2012, and has the title "Fears Persist Among Venezuelan Voters Ahead of Election.")






December 27, 2012

'Buy Local' Implies 'Sell Local'




In the spirit of the great Bastiat:


(p. 1117) Buy local (BL) campaigns are gaining ground in many towns, cities, counties, and states throughout the United States. These commendable efforts are based on intuitive principles that: local production reduces energy usage and therefore mitigates against climate change; the rapid approach of peak oil will lead to potentially disastrous dislocations that will erode society's ability to provide adequate food supplies and medical care; and face-to-face economic relationships between producer and consumer, such as in a farmers' market setting, provide a superior form of economic organization relative to the impersonal nature of our current industrial modes of production.

It is in this spirit that we, the members of Sustainability in Transportation, Utilities, Production, the Environment, and Development (STUPED), urge our local governments to take the next logical step: requirements for selling local.


. . .


This is also clearly a fairer way to approach the problem of non-local production. There exists the temptation for a given locality to urge its community members to BL, but to also simultaneously promote selling to other localities in the name of "increased local employment." Of course, this kind of thinking totally ignores the fact that by selling goods to another region, those of us in a local production area cause harm to workers in that distant region who, as a result of our incursion into their local economies, reduce that distant region's abilities to provide for itself.

Given the foregoing, it is evident that selllocal requirements are virtually required for the sustainability of our local economies. Buy Local publicity campaigns may make us feel better, but a well-enforced set of sell-local regulations eliminates the thorniest problem of a free-market approach--the tendency of consumers to buy whatever they darn well please. STUPED urges our local governments to adopt such a set of regulations.



Source:

Thompson, Philip, and Hart Hodges. "Sell Local! The Next Logical Step." Economic Inquiry 49, no. 4 (October 2011): 1117-17.

(Note: italics in original; ellipsis added.)





December 21, 2012

Ellison and Jobs on Money



(p. 299) . . . Jobs and his family went to Hawaii for Christmas vacation. Larry Ellison was also there, as he had been the year (p. 300) before. "You know, Larry, I think I've found a way for me to get back into Apple and get control of it without you having to buy it," Jobs said as they walked along the shore. Ellison recalled, "He explained his strategy, which was getting Apple to buy NeXT, then he would go on the board and be one step away from being CEO." Ellison thought that Jobs was missing a key point. "But Steve, there's one thing I don't understand," he said. "If we don't buy the company, how can we make any money?" It was a reminder of how different their desires were. Jobs put his hand on Ellison's left shoulder, pulled him so close that their noses almost touched, and said, "Larry, this is why it's really important that I'm your friend. You don't need any more money."

Ellison recalled that his own answer was almost a whine: "Well, I may not need the money, but why should some fund manager at Fidelity get the money? Why should someone else get it? Why shouldn't it be us?"

"I think if I went back to Apple, and I didn't own any of Apple, and you didn't own any of Apple, I'd have the moral high ground," Jobs replied.

"Steve, that's really expensive real estate, this moral high ground," said Ellison. "Look, Steve, you're my best friend, and Apple is your company. I'll do whatever you want."



Source:

Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.

(Note: ellipsis added.)






December 19, 2012

"The Only Benefit of War Rationing"



(p. 538) The only benefit of war rationing, of which I am aware, is that an alert entrepreneur invented the bikini so as to conserve on the textiles that were then hard to come by for civilian use.


Source:

Shughart II, William F. "The New Deal and Modern Memory." Southern Economic Journal 77, no. 3 (Jan. 2011): 515-42.






December 18, 2012

Poor People Want Washing Machines







The wonderful clip above is from Hans Rosling's TED talk entitled "The Magic Washing Machine."

He clearly and strongly presents his central message that the washing machine has made life better.



What was the greatest invention of the industrial revolution? Hans Rosling makes the case for the washing machine. With newly designed graphics from Gapminder, Rosling shows us the magic that pops up when economic growth and electricity turn a boring wash day into an intellectual day of reading.


Source of video clip summary:

http://www.ted.com/talks/hans_rosling_and_the_magic_washing_machine.html



The version of the clip above is embedded from YouTube, where it was posted by TED: http://youtu.be/BZoKfap4g4w

It can also be viewed at the TED web site at:

http://www.ted.com/talks/hans_rosling_and_the_magic_washing_machine.html



(Note: I am grateful to Robin Kratina for telling me about Rosling's TED talk,)

(Note: I do not agree with Rosling's acceptance of the politically correct consensus view that the response to global warning should mainly be mitigation and green energy---to the extent that a response turns out to be necessary, I mainly support adaptation, as suggested in many previous entries on this blog.)






December 15, 2012

Why Health Care Costs So Much in McAllen



(p. 235) Atul Gawande lays out "The Cost Conundrum: What a Texas town can teach us about health care." "It is spring in McAllen, Texas. The morning sun is warm. The streets are lined with palm trees and pickup trucks. McAllen is in Hidalgo County, which has the lowest household income in the country, but it's a border town, and a thriving foreign-trade zone has kept the unemployment rate below ten per cent. McAllen calls itself the Square Dance Capital of the World. 'Lonesome Dove' was set around here. McAllen has another distinction, too: it is one of the most expensive health-care markets in the country. Only Miami--which has much higher labor and living costs--spends more per person on health care. In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns."


Gawande as quoted in:

Taylor, Timothy. "Recommendations for Further Reading." Journal of Economic Perspectives 24, no. 2 (Fall 2009): 231-38.


The full Gawande article can be viewed online at:

Gawande, Atul. "Annals of Medicine; the Cost Conundrum; What a Texas Town Can Teach Us About Health Care." The New Yorker 85, no. 16 (June 2009): 36-44.


A later Gawande article, that asks why the health care system cannot be run as well as The Cheesecake Factory, can be viewed online at the link below. (Spoiler alert: I haven't read this article yet, but I'm guessing it has something to do with the feedback and incentives provided by the free market.)

Gawande, Atul. "Annals of Health Care; Big Med; Restaurant Chains Have Managed to Combine Quality Control, Cost Control, and Innovation. Can Health Care?" The New Yorker 88, no. 24 (August 2012): 52-63.






December 13, 2012

"Did Alexander Graham Bell Do Any Market Research Before He Invented the Telephone?"



(p. 170) After the Macintosh team returned to Bandley 3 that afternoon, a truck pulled into the parking lot and Jobs had them all gather next to it. Inside were a hundred new Macintosh computers, each personalized with a plaque. "Steve presented them one at a time to each team member, with a handshake and a smile, as the rest of us stood around cheering," Hertzfeld recalled. It had been a grueling ride, and many egos had been bruised by Jobs's obnoxious and rough management style. But neither Raskin nor Wozniak nor Sculley nor anyone else at the company could have pulled off the creation of the Macintosh. Nor would it likely have emerged from focus groups and committees. On the day he unveiled the Macintosh, a reporter from Popular Science asked Jobs what type of market research he had done. Jobs responded by scoffing, "Did Alexander Graham Bell do any market research before he invented the telephone?"


Source:

Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.

(Note: italics in original.)






December 11, 2012

Health Care Costs Can Be Lowered by Less Waste and More Cost-Reducing Innovation



(p. 234) Melinda Beeuwkes Buntin and David Cutler discuss "The Two Trillion Dollar Solution: Saving Money by Modernizing the Health Care System." "Two sorts of savings are possible in health care. The first is eliminating waste and inefficiency. The most commonly cited estimate is that 30 percent of the money spent on medical care does not buy care worth its cost. Medicare costs per capita in Minneapolis, for example, are about half those in Miami, yet Miami does not have better health outcomes. International comparisons yield the same conclusion. . . . Second, reform might stimulate cost-reducing innovation instead of the continuous cost increases that accompany current innovation. For nearly 20 years, scholars have argued that generous reimbursement policies for medical care have led to innovations that almost always increase health care costs. Changing that dynamic by investing in research about what works and rewarding health care providers who choose efficient treatments could have a dramatic effect on cost growth. . . . Reducing costs by 30 percent will take time and effort, but it is not inconceivable over the long term. Experience in the health care sector and other industries suggests that cost reductions on the order of 1.5-to-2.0 percentage points per year are within reach."


Buntin and Cutler as quoted in:

Taylor, Timothy. "Recommendations for Further Reading." Journal of Economic Perspectives 24, no. 2 (Fall 2009): 231-38.

(Note: ellipses in original.)


The Buntin and Cutler report is:

Buntin, Melinda Beeuwkes, and David Cutler. "The Two Trillion Dollar Solution: Saving Money by Modernizing the Health Care System." Washington, D.C.: Center for American Progress, 2009.






December 10, 2012

With Scorned Ideas, and Without College, Inventor and Entrepreneur "Ovshinsky Prevailed"



OvshinskyStanfordAndiris2012-12-01.jpg









"Stanford R. Ovshinsky and Iris M. Ovshinsky founded Energy Conversion Laboratories in 1960." Source of caption and photo: online version of the NYT obituary quoted and cited below.




(p. A23) Stanford R. Ovshinsky, an iconoclastic, largely self-taught and commercially successful scientist who invented the nickel-metal hydride battery and contributed to the development of a host of devices, including solar energy panels, flat-panel displays and rewritable compact discs, died on Wednesday [October 17, 2012] at his home in Bloomfield Hills, Mich. He was 89.


. . .


His ideas drew only scorn and skepticism at first. He was an unknown inventor with unconventional ideas, a man without a college education who made his living designing automation equipment for the automobile industry in Detroit, far from the hotbeds of electronics research like Silicon Valley and Boston.

But Mr. Ovshinsky prevailed. Industry eventually credited him for the principle that small quantities or thin films of amorphous materials exposed to a charge can instantly reorganize their structures into semicrystalline forms capable of carrying significant current.


. . .


In 1960, he and his second wife, the former Iris L. Miroy, founded Energy Conversion Laboratories in Rochester Hills, Mich., to develop practical products from the discovery. It was renamed Energy Conversion Devices four years later.

Energy Conversion Devices and its subsidiaries, spinoff companies and licensees began translating Mr. Ovshinsky's insights into mechanical, electronic and energy devices, among them solar-powered calculators. His nickel-metal battery is used to power hybrid cars and portable electronics, among other things.

He holds patents relating to rewritable optical discs, flat-panel displays and electronic-memory technology. His thin-film solar cells are produced in sheets "by the mile," as he once put it.


. . .


"His incredible curiosity and unbelievable ability to learn sets him apart," Hellmut T. Fritzsche, a longtime friend and consultant, said in an interview in 2005.



For the full obituary, see:

BARNABY J. FEDER. "Stanford R. Ovshinsky Dies at 89, a Self-Taught Maverick in Electronics." The New York Times (Fri., October 19, 2012): A23.

(Note: ellipses and bracketed date added.)

(Note: the online version of the article was dated October 18, 2012.)

(Note: in the first sentence of the print version, "hybrid" was used instead of the correct "hydride.")






December 7, 2012

Early Retirement Reduces Cognitive Ability



(p. 136) Early retirement appears to have a significant negative impact on the cognitive ability of people in their early 60s that is both quantitatively important and causal. We obtain this finding using cross-nationally comparable survey data from the United States, England, and Europe that allow us to relate cognition and labor force status. We argue that the effect is causal by making use of a substantial body of research showing that variation in pension, tax, and disability policies explain most variation across countries in average retirement rates.

Further exploration of existing data and new data being collected would allow a considerably deeper exploration of the roles of work and leisure in determining the pace of cognitive aging. For example, the HRS contains considerable information on how respondents use their leisure time that would allow both cross-sectional and longitudinal analysis of changes in cognitive exercise that are associated with (p. 137) retirement. In addition, detailed occupation and industry data could be used to understand differences in the pace of technical change to which workers must adjust during the latter part of their careers. Also, in the 2010 wave, the HRS will be adding measures of other components of fluid intelligence. Future work in this area should be able to separate the effects of the "unengaged lifestyle hypothesis" (that early retirees suffer cognitive declines because the work environment they have left is more cognitively stimulating than the full-time leisure environment they have entered) from the "on-the-job retirement hypothesis" (which holds that incentives to invest among older workers are significantly reduced when they expect to retire at an early age).

During the past decade, older Americans seem to have reversed a century-long trend toward early retirement and have been increasing their labor force participation rates, especially beyond age 65. This is good news for the standard of living of elderly Americans, as well as for the fiscal balance of the Social Security and Medicare systems. Our paper suggests that it may also be good news for the cognitive capacities of our aging nation.



Source:

Rohwedder, Susann, and Robert J. Willis. "Mental Retirement." Journal of Economic Perspectives 24, no. 1 (Winter 2010): 119-38.






December 5, 2012

Progress of Economic Science on Central Banking



The passage below is a comment by former head of the Fed, Paul Volcker.


(p. 25) . . . I recently commented to some of my economist friends that I'm not aware of any large contribution that economic science has made to central banking in the last 50 years or so.

Our ability to forecast is still very limited. The old issues of the relative role of fiscal and monetary policies are still debated. Markets are certainly more complex, and some of the old approaches toward monetary control seem less relevant. Recent events have certainly illustrated limitations in our understanding of the economy.

The advent of floating exchange rates, which partly reflects a shift in academic thinking, has certainly been important, but the underlying problems of policy seem familiar.



Stern, Gary H., interviewer. "Paul A.Volcker in Conversation with Gary H. Stern." The Region (September 2009): 18-29.

(Note: ellipsis added.)






December 4, 2012

Isaacson's "Steve Jobs" Tells Us Much About the Innovative Project Entrepreneur



walter-isaacson-steve-jobsBD2012-12-01.png








Source of book image: http://www.internetmonk.com/wp-content/uploads/walter-isaacson-steve-jobs1.png






Steve Jobs is one of my favorite examples of what I call the "project entrepreneur." Walter Isaacson has written a fascinating biography of Jobs, full of memorable examples for any student of the innovative entrepreneur.

During the next few weeks, I will occasionally add entries that quote some of the more important or thought-provoking passages.



The book under review is:

Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.






December 3, 2012

Business Cycles May Arise from "the Summation of Random Causes," Rather than from Creative Destruction



The Slutsky result summarized below would seem to imply that you can explain business cycles without fingering creative destruction as the culprit, as Schumpeter had seemed to do. The costs of creative destruction are thus reduced, and the case for creative destruction strengthened.


(p. 232) Phil Davies and Joe Mahon investigate "The Meaning of Slutsky." "A middleaged professor working at a Moscow think tank, [Eugen] Slutsky was virtually unknown to economists in Europe and the United States when he published his landmark paper on cyclical phenomena in 1927. In a bold statistical experiment, Slutsky demonstrated that random numbers subjected to statistical calculations similar to those used to reveal trends in economic time-series formed wavelike patterns indistinguishable from business cycles. The implication was that a similar stochastic process--'the summation of random causes,' as Slutsky described it--might be at work in the actual economy, causing prosperity to ebb and flow without the agency of sunspots, meteorological patterns or other cyclical forces. 'That was a hell of an idea,' said Robert Lucas, a University of Chicago economist who pioneered modern business cycle theory, in an interview. 'It was just a huge jump from what anyone had done.'


Source:

Taylor, Timothy. "Recommendations for Further Reading." Journal of Economic Perspectives 24, no. 2 (Spring 2010): 227-34.

(Note: bracketed name in original.)


The published version of the article summarized by Taylor is:

Davies, Phil, and Joe Mahon. "The Meaning of Slutsky." The Region (Dec. 2009): 13-17, 42-46.






December 2, 2012

Garcia "Wanted to Get an Education and Get Out of" the "Sustainable" Life



GarciaJesusAntisustainable2012-12-01.jpg "In a straightforward sense, Mr. García, 44, is a Mexican ecologist. More broadly, though, he is a self-appointed emissary from the land once known as Pimería Alta, an interpreter of its culture, plants and people." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. D6) Over the weekend, Mr. García would be driving back to his family seat in the mission town of Magdalena de Kino, Mexico. In a way, his personal mission is to recreate the orchards he knew there. He has started with dozens of seedlings in the backyard of the small ranch house that he shares with his girlfriend, Dena Cowan, a Spanish-language interpreter and videographer. (The couple recently produced a documentary, in Spanish and English, about the Kino Heritage Fruit Trees Project called "Tasting History.")

Yet he remembered the orchards with something other than simple nostalgia.

As a child, he packed boxes of fruit to load onto his uncle's truck. "My father had this farm that he was renting, probably two acres," Mr. García recalled. By necessity, "the only things we bought from the store were salt, sugar, coffee and kerosene," he said. "Everything else we produced."

"Our mother, she made our underwear out of the wheat sacks," he continued. "My father used to make these homemade shoes for my brothers: leather, with used tires on the sole. They would hide them in the river on the way to school and then go to school barefooted." Better that, he recalled, than let classmates see their privation.

By the time Mr. García reached junior high, his older sister has become a teacher and the family's lot had improved. They installed indoor plumbing, for a start. There was nothing trendy about what he ironically calls their "sustainable" years. "I got the tail end," Mr. García said. "But I got enough to realize how hard work it is. I learned enough to realize I wanted to get an education and get out of that life."



For the full story, see:

MICHAEL TORTORELLO. "Seeds of an Era Long Gone." The New York Times (Thurs., November 22, 2012): D1 & D6.

(Note: the online version of the article was dated November 21, 2012.)






December 1, 2012

Online Employers Treat Workers More Honestly and Fairly than In-person Employers



(p. 233) John J. Horton surveys "The Condition of the Turking Class: Are Online Employers Fair and Honest?" Amazon Mechanical Turk is a "marketplace for work," as explained at <https://www.mturk.com/mturk/welcome>. Employers post "Human Intelligence Tasks," which can be tasks like writing keywords that accompany photos or writing bogus product reviews, and workers anywhere in the world can sign up to do them. Horton used Mechanical Turk to survey 200 respondents, who were paid 12 cents apiece for responding to a survey. Of the respondents, 111 were Americans, 58 from India, and the others from other countries. When asked what percentage of employers in their home country treat workers honestly and fairly, the average answer was 64 percent; in comparison, when asked what percentage of Mechanical Turk Requestors treated them (p. 234) fairly, the median answer was 69 percent.


Source:

Taylor, Timothy. "Recommendations for Further Reading." Journal of Economic Perspectives 24, no. 2 (Spring 2010): 227-34.

(Note: ellipses in original.)


The published version of the article summarized by Taylor is:

Horton, John J. "The Condition of the Turking Class: Are Online Employers Fair and Honest?" Economics Letters 111, no. 1 (April 2011): 10-12.






November 28, 2012

Rajan Hired to Open India to Entrepreneurship



RajanRaghuramIndiaSchoolOfBusiness2012-11-20.jpg "Raghuram G. Rajan criticized Indian policy makers during a speech in April at the Indian School of Business. In August, the Indian government offered him a job." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. B3) NEW DELHI -- In April, the economist Raghuram G. Rajan gave a speech to a group of graduating Indian students in which he criticized the country's policy makers for "repeating failed experiment after failed experiment," rather than learning from the experiences of other countries. A week later, he assailed the government again, this time in a speech attended by Prime Minister Manmohan Singh.

But instead of drawing a rebuke from India's often thin-skinned leaders, he got a job offer. In August, Mr. Singh, who has frequently sought Mr. Rajan's advice, called and asked him to take a leave from his job as a professor at the University of Chicago to return to India, where he was born, to help revive the country's flagging economy. Within weeks, he was at work as the chief economic adviser in the Finance Ministry.

Analysts say the appointment of an outspoken academic like Mr. Rajan, along with the recent push by New Delhi to reduce energy subsidies and open up retailing, insurance and aviation to foreign investment, signal that India's policy makers appear to be serious about tackling the nation's economic problems.


. . .


Mr. Rajan said he would like to focus his efforts on three big themes: liberalizing India's financial system; making it easier to do business, particularly for entrepreneurs and manufacturers; and fixing India's dysfunctional food distribution system, which wastes a lot of food even as many of the country's poor are malnourished.



For the full story, see:

VIKAS BAJA. "As Its Economy Sags, India Asks a Critic to Come Home and Help Out." The New York Times (Sat., October 6, 2012): B3.

(Note: ellipsis added.)

(Note: the online version of the article was dated October 5, 2012.)






November 27, 2012

Entrepreneurial Capitalism Offers the Best Chance "for a Life of Engagement and Personal Growth"



(p. 228) Edmund S. Phelps explores "Refounding Capitalism." "One has to conclude that 'generation of wealth' is not special to capitalism. Corporatist economies are quite good at that. . . . A merit of a well-functioning capitalism (again: I do not mean free-market policy: low tax rates, etc.) is the economic freedoms it offers entrepreneurs, managers, employees and consumers--freedoms that socialist, corporatist and statist systems do not provide. . . . Ordinary people, if they are to find intellectual growth and an engaging life, have to look outside the home: these (p. 229) things can be found only at work, if anywhere. And for these rewards to be available for large numbers of people, the economy must be modern. And as a practical matter, that requires that it be based predominantly on a well-functioning capitalist system. Thanks to the grassroots, bottom-up processes of innovation, capitalism at its best can deliver--far more broadly than Soviet communism, eastern European socialism, and western European corporatism can--chances for the mental stimulation, problem-solving, exploration and discovery required for a life of engagement and personal growth."


Nobel-Prize winner Edmund Phelps as quoted in:

Taylor, Timothy. "Recommendations for Further Reading." Journal of Economic Perspectives 24, no. 2 (Spring 2010): 227-34.

(Note: ellipses in original.)


The original source of the Phelps quotes is:

Phelps, Edmund S. "Refounding Capitalism." Capitalism and Society 4, no. 3 (2009).






November 26, 2012

American Innovators Created Synergies and Interchangeable Parts



TheDawnOfInnovationBK2012-11-20.jpg











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








(p. A13) . . . the post-Civil War industrialization had an important and largely overlooked predecessor in the first decades of the 19th century, when, as Charles Morris writes in "The Dawn of Innovation," "the American penchant for mechanized, large-scale production spread throughout industry, presaging the world's first mass-consumption economy." It is a story well worth telling, and Mr. Morris tells it well.


. . .


Whole industries sprang up as the country's population boomed and spilled over into the Middle West. The rich agricultural lands there produced huge surpluses of grain and meat, especially pork. The city of Cincinnati--whose population grew to 160,000 in 1860, from 2,500 in 1810--became known as "Porkopolis" because of the number of hogs its slaughterhouses processed annually.

Mr. Morris does a particularly good job of explaining the crucial importance of synergy in economic development, how one development leads to another and to increased growth. The lard (or pig fat) from the slaughterhouses, he notes, served as the basis for the country's first chemical industry. Lard had always been used for more than pie crust and frying. It was a principal ingredient in soap, which farm wives made themselves, a disagreeable and even dangerous task thanks to the lye used in the process.

But when lard processing was industrialized to make soap, it led to an array of byproducts such as glycerin, used in tanning and in pharmaceuticals. Stearine, another byproduct, made superior candles. Just in the decade from the mid-1840s to the mid-1850s, Cincinnati soap exports increased 20-fold, as did the export of other lard-based products. Procter & Gamble, founded in Cincinnati in 1837 by an Irish soap maker and an English candle maker who had married sisters, grew into a giant company as the fast-rising middle class sought gentility.

Mr. Morris goes into great detail on the development of interchangeable parts--the system of making the components of a manufactured product so nearly identical that they can be easily substituted and replaced.



For the full review, see:

John Steele Gordon. "BOOKSHELF; The Days Of Porkopolis." The Wall Street Journal (Tues., November 20, 2012): A13.

(Note: ellipses added.)

(Note: the online version of the article was updated November 19, 2012.)



The book under review, is:

Morris, Charles R. The Dawn of Innovation: The First American Industrial Revolution. Philadelphia, PA: PublicAffairs, 2012.






November 24, 2012

Sweden Prospers from Low Taxes, No Stimulus and Fiscal Discipline



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



(p. A9) STOCKHOLM--Sweden's economy, bolstered by solid exports and healthy consumer spending, is picking up considerable steam even as many of its European neighbors gasp for breath amid the struggle to contain the euro-zone debt crisis.

Sweden's second-quarter economic output data, released Monday, significantly outpaced expectations, further solidifying the Northern European country's reputation as a haven in a volatile period. The Swedish krona, which recently reached a 12-year peak against the euro, strengthened further after the report.


. . .


. . . , Sweden has built a reputation for fiscal discipline since it suffered a financial crisis in the early 1990s. Successive governments have since stuck to a target to post a surplus of 1% of GDP over any business cycle.

Lawmakers resisted the temptation to borrow to fuel growth during the boom of the early 2000s, which meant Sweden hit the global financial crisis of 2008 and 2009 with strong public finances. The government hasn't needed to increase taxes in the way Spain has, or to cut spending as in the U.K.



For the full story, see:

CHARLES DUXBURY. "In Crisis, a Rare Swede Spot." The Wall Street Journal (Tues., July 31, 2012): A9.

(Note: ellipses added.)

(Note: the online version of the article was dated July 30, 2012.)






November 23, 2012

Econometrician Leamer Argues for Methodological Pluralism



(p. 44) Ignorance is a formidable foe, and to have hope of even modest victories, we economists need to use every resource and every weapon we can muster, including thought experiments (theory), and the analysis of data from nonexperiments, accidental experiments, and designed experiments. We should be celebrating the small genuine victories of the economists who use their tools most effectively, and we should dial back our adoration of those who can carry the biggest and brightest and least-understood weapons. We would benefit from some serious humility, and from burning our "Mission Accomplished" banners. It's never gonna happen.


Source:

Leamer, Edward E. "Tantalus on the Road to Asymptopia." Journal of Economic Perspectives 24, no. 2 (Spring 2010): 31-46.






November 22, 2012

"Highly Leveraged Economies, . . . , Seldom Survive"



ThisTimeIsDifferentBK2012-11-14.jpg











Source of book image: http://si.wsj.net/public/resources/images/ED-AK313_book10_DV_20091008170122.jpg





(p. 762) Every once in a while, a work comes along whose key points ought to be part of the information set of every literate economist. Carmen M. Reinhart and Kenneth S. Rogoff's This Time is Different: Eight Centuries of Financial Folly is such a work. It describes and analyzes a long international history of several types of financial crises.


. . .


The authors resist giving too much structural interpretation to their analysis. Most would agree with their conclusion that " . . . highly leveraged economies, particularly those in which continual rollover of short-term debt is sustained only by confidence in relatively illiquid underlying assets, seldom survive" (p. 292).



For the full review, see:

Boskin, Michael J. "Review of: This Time Is Different: Eight Centuries of Financial Folly." Journal of Economic Literature 48, no. 3 (September 2010): 762-66.

(Note: ellipsis internal to the final quotation, and the italics, are in the original; ellipsis between paragraphs is added.)

(Note: the "p. 292" refers to a page in the book, and not a page of the review.)(


The book being reviewed, is:

Reinhart, Carmen M., and Kenneth Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press, 2009.






November 21, 2012

Sclerotic Doctors Resist Change



(p. 177) Atherosclerosis, referring to a progressive and degenerative process of artery walls, is typically translated for a lay audience as "hardening of the arteries." We've never needed a similar word to describe the medical community. It came with sclerosis built in. Of all the professions represented on the planet, perhaps none is more resistant to change than physicians. If there were ever a group defined by lacking plasticity, it would first apply to doctors.

(p. 178) The inherent "hardness" of physicians and the medical community suggests they will have a difficult time adapting to the digital world. Before the emergence of the Internet, physicians were high priests, holding all the knowledge and expertise, not to be challenged or questioned by the lowly consumer patient. "Doctor knows best" was the pervasive sentiment, shared by patients and especially physicians.



Source:

Topol, Eric. The Creative Destruction of Medicine: How the Digital Revolution Will Create Better Health Care. New York: Basic Books, 2012.






November 19, 2012

Econometric "Priests" Sell Their New "Gimmicks" as the "Latest Euphoria Drug"



The American Economic Association's Journal of Economic Perspectives published a symposium focused on the thought-provoking views of the distinguished econometrician Edward Leamer.

I quote below some of Leamer's comments in his own contribution to the symposium.


(p. 31) We economists trudge relentlessly toward Asymptopia, where data are unlimited and estimates are consistent, where the laws of large numbers apply perfectly and where the full intricacies of the economy are completely revealed. But it's a frustrating journey, since, no matter how far we travel, Asymptopia remains infinitely far away. Worst of all, when we feel pumped up with our progress, a tectonic shift can occur, like the Panic of 2008, making it seem as though our long journey has left us disappointingly close to the State of Complete Ignorance whence we began.

The pointlessness of much of our daily activity makes us receptive when the Priests of our tribe ring the bells and announce a shortened path to Asymptopia. (Remember the Cowles Foundation offering asymptotic properties of simultaneous equations estimates and structural parameters?) We may listen, but we don't hear, when the Priests warn that the new direction is only for those with Faith, those with complete belief in the Assumptions of the Path. It often takes years down the Path, but sooner or later, someone articulates the concerns that gnaw away in each of (p. 32) us and asks if the Assumptions are valid. (T. C. Liu (1960) and Christopher Sims (1980) were the ones who proclaimed that the Cowles Emperor had no clothes.) Small seeds of doubt in each of us inevitably turn to despair and we abandon that direction and seek another.

Two of the latest products-to-end-all-suffering are nonparametric estimation and consistent standard errors, which promise results without assumptions, as if we were already in Asymptopia where data are so plentiful that no assumptions are needed. But like procedures that rely explicitly on assumptions, these new methods work well in the circumstances in which explicit or hidden assumptions hold tolerably well and poorly otherwise. By disguising the assumptions on which nonparametric methods and consistent standard errors rely, the purveyors of these methods have made it impossible to have an intelligible conversation about the circumstances in which their gimmicks do not work well and ought not to be used. As for me, I prefer to carry parameters on my journey so I know where I am and where I am going, not travel stoned on the latest euphoria drug.

This is a story of Tantalus, grasping for knowledge that remains always beyond reach. In Greek mythology Tantalus was favored among all mortals by being asked to dine with the gods. But he misbehaved--some say by trying to take divine food back to the mortals, some say by inviting the gods to a dinner for which Tantalus boiled his son and served him as the main dish. Whatever the etiquette faux pas, Tantalus was punished by being immersed up to his neck in water. When he bowed his head to drink, the water drained away, and when he stretched up to eat the fruit hanging above him, wind would blow it out of reach. It would be much healthier for all of us if we could accept our fate, recognize that perfect knowledge will be forever beyond our reach and find happiness with what we have. If we stopped grasping for the apple of Asymptopia, we would discover that our pool of Tantalus is full of small but enjoyable insights and wisdom.



For the full article, see:

Leamer, Edward E. "Tantalus on the Road to Asymptopia." Journal of Economic Perspectives 24, no. 2 (Spring 2010): 31-46.






November 18, 2012

"The Bulk of New Yorkers Do Not Have an Unlimited Appetite for Growing Their Own Kale"



McPhersonEnaUrbanGardener2012-11-11.jpg












". . . , Ena K. McPherson holds the key to three different community gardens." Source of caption and photo: online version of the NYT article quoted and cited below.




(p. D1) There is some evidence, . . . , that the bulk of New Yorkers do not have an unlimited appetite for growing their own kale. Official counts of New York gardens are fragmentary. But John Ameroso, the Johnny Appleseed of the New York community garden movement, suspects that the number of present-day gardens -- around 800 -- may be half what it was in the mid-1980s.

In his long career as an urban extension agent for Cornell University, Mr. Ameroso, 67, kept a log with ratings of all the plots he visited. "I remember that there were a lot of gardens that were not in use or minimally used," he said. "Into the later '80s, a lot of these disappeared or were abandoned. Or maybe there was one person working them. If nothing was developed on them, they just got overgrown."

The truth, Ms. Stone said, is that at any giv-(p. D6)en time, perhaps 10 percent of the city's current stock of almost 600 registered GreenThumb gardens is growing mostly weeds. "In East New York, I can tell you that there are basically many gardens that are barely functioning now."


. . .


An honest census would reveal that many gardens (perhaps most) depend on just one or two tireless souls, said Ena K. McPherson, a Brooklyn garden organizer. She would know because she's one of them.

Ms. McPherson holds the keys to three community gardens in Bedford-Stuyvesant. (Ms. Stone appreciatively refers to these blocks as "the Greater Ena McPherson Zone.") And she serves on the operations committee for the nonprofit Brooklyn Queens Land Trust, which holds the deeds to 32 garden plots.

"In an ideal situation, we would have gardens with everyone in the community participating," Ms. McPherson said. "But in fact, a few die-hard people end up carrying the flag."


. . .


The original gardens followed the city's vacant lots, which by 1978 numbered 32,000. Mr. Ameroso, though trained in agronomy, pitched them as an instrument for community renewal. "How did you take back your block?" he said. "Put in a community garden and stop that dumping."

Ms. Stone, who laughingly (and earnestly) describes herself as a socialist, continues to embrace something of this mission. "All the people who are marginal in society -- and I'm not using that as a judgmental term, it's children, senior citizens, people on disability, the 47 percent -- these people are the main power people in the garden," she said.

These days, Mr. Ameroso espouses more of what he calls an "urban agriculture" model: a food garden with a dedicated farmers' market or a C.S.A. These amenities make stakeholders out of neighbors who may not like dirt under their nails and rural farmers who drive in every weekend.

"The urban-agriculture ones are flourishing," he said. "There's a lot of excitement. They're active eight days a week." But "community gardens, as such, where people come in to take care of their own boxes -- those are not flourishing."

It's almost a cliché to point out that this new green model seems to have attracted tillers with a different skin tone. "Back then," Mr. Ameroso said of his earlier career, "when we worked in Bronx or Bed-Stuy, it was mostly communities of color. Now when we talk about the urban agriculture stuff, it's white people in their 30s."

What explains this demographic shift?

"I have no idea," he said. "I'm still baffled by it, and I'm involved in it!"



For the full story, see:

MICHAEL TORTORELLO. "IN THE GARDEN; Growing Everything but Gardeners." The New York Times (Sat., November 1, 2012): D1 & D6.

(Note: ellipses added.)

(Note: the online version of the article was dated October 31, 2012.)






November 15, 2012

Organic Farming Too Unproductive to End African Starvation



(p. 6) There is no shortage of writing -- often from a locavore point of view -- in support of more organic methods of farming, for both developed and developing countries. These opinions recognize that current farming methods bring serious environmental problems involving water supplies, fertilizer runoff and energy use. Yet organic farming typically involves smaller yields -- 5 to 34 percent lower, as estimated in a recent study in the journal Nature, depending on the crop and the context. For all the virtues of organic approaches, it's hard to see how global food problems can be solved by starting with a cut in yields. Claims in this area are often based on wishful thinking rather than a hard-nosed sense of what's practical.


For the full story, see:

TYLER COWEN. "ECONOMIC VIEW; World Hunger: The Problem Left Behind." The New York Times, SundayBusiness (Sun., September 16, 2012): 6.

(Note: the online version of the article is dated September 15, 2012.)






November 12, 2012

Edison Foresaw Phonograph Music Potential



EdisonWangemannGroupPhoto2012-11-11.jpg "EUROPEAN JOURNEY; Thomas Edison, seated center, sent Adelbert Theodor Edward Wangemann, standing behind him, to France in 1889. From there Wangemann traveled to Germany to record recitations and performances." Source of caption and photo: online version of the NYT article quoted and cited below.



Edison is often ridiculed for failing to foresee that playing music would be a major use for his phonograph invention. (Nye 1991, p. 142 approvingly references Hughes 1986, p. 201 on this point.) But if Edison failed to foresee, then why did he assign Wangemann to make the phonograph "a marketable device for listening to music"?



(p. D3) Tucked away for decades in a cabinet in Thomas Edison's laboratory, just behind the cot in which the great inventor napped, a trove of wax cylinder phonograph records has been brought back to life after more than a century of silence.

The cylinders, from 1889 and 1890, include the only known recording of the voice of the powerful chancellor Otto von Bismarck. . . . Other records found in the collection hold musical treasures -- lieder and rhapsodies performed by German and Hungarian singers and pianists at the apex of the Romantic era, including what is thought to be the first recording of a work by Chopin.


. . .


The lid of the box held an important clue. It had been scratched with the words "Wangemann. Edison."

The first name refers to Adelbert Theodor Edward Wangemann, who joined the laboratory in 1888, assigned to transform Edison's newly perfected wax cylinder phonograph into a marketable device for listening to music. Wangemann became expert in such strategies as positioning musicians around the recording horn in a way to maximize sound quality.

In June 1889, Edison sent Wangemann to Europe, initially to ensure that the phonograph at the Paris World's Fair remained in working order. After Paris, Wangemann toured his native Germany, recording musical artists and often visiting the homes of prominent members of society who were fascinated with the talking machine.

Until now, the only available recording from Wangemann's European trip has been a well-known and well-worn cylinder of Brahms playing an excerpt from his first Hungarian Dance. That recording is so damaged "that many listeners can scarcely discern the sound of a piano, which has in turn tarnished the reputations of both Wangemann and the Edison phonograph of the late 1880s," Dr. Feaster said. "These newly unearthed examples vindicate both."



For the full story, see:

RON COWEN. "Restored Edison Records Revive Giants of 19th-Century Germany." The New York Times (Tues., January 31, 2012): D3.

(Note: ellipses added.)

(Note: the online version of the article is dated January 30, 2012.)



EdisonPhonograph2012-11-11.jpg "Adelbert Theodor Edward Wangemann used a phonograph to record the voice of Otto von Bismarck." Source of caption and photo: online version of the NYT article quoted and cited above.






November 11, 2012

The Economics of Intercollegiate Athletics



Here is more evidence that the role of athletics in higher education should be reconsidered. Another useful discussion occurs in the book by Christensen and Eyring. An earlier entry on this blog is also relevant.


(p. 230) The Knight Commission on Intercollegiate Athletics offers "College Sports 101: A Primer on Money, Athletics, and Higher Education in the 21st Century." "In fact, the vast majority of athletics programs reap far less money from external sources than they need to function. Virtually all universities subsidize athletics departments through general fund allocations, student fees, and state appropriations, and the NCAA estimates in a given year that only 20 to 30 athletics programs actually generate enough external revenue to cover operating expenses. Institutional subsidies to athletics can exceed $11 million, according to data provided by the NCAA. With costs in athletics rising faster than in other areas of university operations, it is not clear how many institutions can continue to underwrite athletics at their current level . . . Rigorous studies of the subject, however, suggest that there is no significant institutional benefit to athletic success. . . . Indeed, donations to athletics departments may cannibalize contributions to academic programs. . . . There are two other myths to be dispelled. First, there is no correlation between spending more on athletics and winning more . . . Second, increased spending on coaches' salaries has no significant relationship to success or increased revenue . . . October 2009, at 〈http://collegesports101.knightcommission.org〉.


Source:

Taylor, Timothy. "Recommendations for Further Reading." Journal of Economic Perspectives 24, no. 2 (Spring 2010): 227-34.

(Note: ellipses in original.)


The Knight Commission report can be downloaded at:

Weiner, Jay. "College Sports 101: A Primer on Money, Athletics, and Higher Education in the 21st Century." Knight Commission on Intercollegiate Athletics, 2009.


The Christensen and Eyring book is:

Christensen, Clayton M., and Henry J. Eyring. The Innovative University: Changing the DNA of Higher Education from the Inside Out. San Francisco, CA: Jossey-Bass, 2011.






November 8, 2012

Coase: "Firms Never Calculate Marginal Costs"







Source of YouTube video:

http://www.youtube.com/watch?feature=player_embedded&v=ZAq06n79QIs#!




(p. 257) You can watch a 99 year-old Ronald Coase speaking in December 2009 for 25 minutes on the subjects of "Markets, Firms and Property Rights." "One of the things that people don't understand is that markets are creations. . . . In fact, it's very difficult to imagine that firms act in the way that is described in the textbooks, where you maximize profits by equating marginal costs and marginal revenues. One of the reasons one can feel doubtful about this particular way of looking at things is that firms never calculate marginal costs . . . I think we ought to study directly how firms operate and develop our theory accordingly." From the conference "Markets, Firms and Property Rights: A Celebration of the Research of Ronald Coase," held at the University of Chicago Law School by the Information Economy Project at George Mason University School of Law. The webpage also includes video of seven panels of prominent speakers, along with PDF files of a dozen or so papers given at the conference. Available at 〈http://iep.gmu.edu/CoaseConference.php〉.


Source:

Taylor, Timothy. "Recommendations for Further Reading." Journal of Economic Perspectives 24, no. 3 (Summer 2010): 251-58.

(Note: ellipses in original.)






November 7, 2012

Health Inefficiencies Free-Ride on "Home Run Innovations"



The article quoted below is a useful antidote to those economists who sometimes seem to argue that health gains fully justify the rise in health costs.


(p. 645) In the United States, health care technology has contributed to rising survival rates, yet health care spending relative to GDP has also grown more rapidly than in any other country. We develop a model of patient demand and supplier behavior to explain these parallel trends in technology growth and cost growth. We show that health care productivity depends on the heterogeneity of treatment effects across patients, the shape of the health production function, and the cost structure of procedures such as MRIs with high fixed costs and low marginal costs. The model implies a typology of medical technology productivity: (I) highly cost-effective "home run" innovations with little chance of overuse, such as anti-retroviral therapy for HIV, (II) treatments highly effective for some but not for all (e.g., stents), and (III) "gray area" treatments with uncertain clinical value such as ICU days among chronically ill patients. Not surprisingly, countries adopting Category I and effective Category II treatments gain the greatest health improvements, while countries adopting ineffective Category II and Category III treatments experience the most rapid cost growth. Ultimately, economic and political resistance in the United States to ever-rising tax rates will likely slow cost growth, with uncertain effects on technology growth.


Source of abstract:

Chandra, Amitabh, and Jonathan Skinner. "Technology Growth and Expenditure Growth in Health Care." Journal of Economic Literature 50, no. 3 (Sept. 2012): 645-80.







November 6, 2012

When Trade Is a Matter of Life and Death (and the Progress of Knowledge)



BataviasGraveyardBK2012-11-01.jpg
















Source of book image: http://www.mikedash.com/assets/images/Batavia-l.jpg



(p. 236) In Mike Dash's book, Batavia's Graveyard, the mutineers on the ship Batavia get stranded on a parched sand bar with the liquor and foodstuffs, but no fresh water. A few hundred watery yards away are the remnants of the loyal crew, stuck on another islet without liquor or provisions, but with plentiful fresh water. Trade proves impossible. The analog of this breakdown is the current relationship between history and the social sciences.


Source:

Clark, Gregory. "The Ends of Life: Roads to Fulfillment in Early Modern England." Journal of Economic History 71, no. 1 (March 2011): 236-37.

(Note: italics in original.)


Dash's book that Clark mentions:

Dash, Mike. Batavia's Graveyard: The True Story of the Mad Heretic Who Led History's Bloodiest Mutiny. New York: Crown, 2002.






November 3, 2012

"Richly Researched" Study of "Ironies of Antitrust Policy" in Retailing



(p. 819) Levinson's book opens up a crucial discussion on the role of integrated retailer-distributors in shaping the twentieth-century U.S. economy. As he rightly notes in the book's conclusion, A&P was in many ways the Walmart of its day: it used its buying power to squeeze inefficiencies out of supply chains, it was widely reviled for upending small-town business patterns and bitterly fighting union organizers, and yet it drew waves of customers who appreciated its low prices. While we have many business histories of mass-production industries, we have only a handful of richly researched studies of the mass retailers that have, in the words of historian Nelson Lichtenstein (2009), "become the key players in the worldwide marketplace of our time." Levinson has produced a valuable book for business and economic historians interested in retailing, supply chains, and the ironies of antitrust policy. As a former editor for The Economist, furthermore, Levinson is particularly effective at translating challenging economic concepts into language that lay audiences and undergraduate students can grasp.


For the full review, see:

Hamilton, Shane. "The Great A&P and the Struggle for Small Business in America." Journal of Economic Literature 50, no. 3 (Sept. 2012): 818-19.

(Note: italics in original.)


The book under review is:

Levinson, Marc. The Great A&P and the Struggle for Small Business in America. New York: Hill and Wang, 2011.


The Lichtenstein book mentioned is:

Lichtenstein, Nelson. The Retail Revolution: How Wal-Mart Created a Brave New World of Business. hb ed. New York: Metropolitan Books, 2009.






October 31, 2012

Thiel Fellows Avoid Formal Education to Pursue Entrepreneurial Projects



FullEdenTh ielFellowSolarPanel2012-10-12.jpg












"Eden Full, 20, tested her rotating solar panel in Kenya in 2010." Source of caption and photo: online version of the NYT article quoted and cited below.




(p.1) EDEN FULL should be back at Princeton by now. She should be hustling to class, hitting the books, acing tests. In short, she should be climbing that old-school ladder toward a coveted spot among America's future elite.

She isn't doing any of that. Instead, Ms. Full, as bright and poised and ambitious as the next Ivy Leaguer, has done something extraordinary for a Princetonian: she has dropped out.

It wasn't the exorbitant cost of college. (Princeton, all told, runs nearly $55,000 a year.) She says she simply received a better offer -- and, perhaps, a shot at a better education.

Ms. Full, 20, is part of one of the most unusual experiments in higher education today. It rewards smart young people for not going to college and, instead, diving into the real world of science, technology and business.

The idea isn't nuts. After all, Bill Gates and Steve Jobs dropped out, and they did O.K.

Of course, their kind of success is rare, degree or no degree. Mr. Gates and Mr. Jobs changed the world. Ms. Full wants to, as well, and she's in a hurry. She has built a low-cost solar panel and is starting to test it in Africa.

"I was antsy to get out into the world and execute on my ideas," she says.

At a time when the value of a college degree is being called into question, and when job prospects for many new graduates are grimmer than they've been in years, perhaps it's no surprise to see a not-back-to-school movement spring up. What is surprising is where it's springing up, and who's behind it.

The push, which is luring a handful of select students away from the likes of Princeton, Harvard and M.I.T., is the brainchild of Peter A. Thiel, 44, a billionaire and freethinker with a remarkable record in Sil-(p. 7)icon Valley. Back in 1998, during the dot-com boom, Mr. Thiel gambled on a company that eventually became PayPal, the giant of online payments. More recently, he got in early on a little start-up called Facebook.

Since 2010, he has been bankrolling people under the age of 20 who want to find the next big thing -- provided that they don't look for it in a college classroom. His offer is this: $50,000 a year for two years, few questions asked. Just no college, unless a class is helpful for their Thiel projects.


. . .


Ms. Full is friends with another Thiel fellow, Laura Deming, 18. Ms. Deming is clearly brilliant. When she was 12, her family moved to San Francisco from New Zealand so she could work with Cynthia Kenyon, a molecular biologist who studies aging. When Ms. Deming was 14, the family moved again, this time to the Boston area, so she could study at M.I.T.

"Families of Olympic-caliber athletes make these kinds of sacrifices all the time," says Tabitha Deming, Laura's mother. "When we lived nearby in Boston, we were lucky to see her once a month. She never came home for weekends."

John Deming, Laura's father, graduated from Brandeis University at the age of 35 but says he disdains formal education at every level. His daughter was home-schooled.

"I can't think of a worse environment than school if you want your kids to learn how to make decisions, manage risk and take responsibility for their choices," Mr. Deming, an investor, wrote in an e-mail. "Rather than sending them to school, turn your kids loose on the world. Introduce them to the rigors of reality, the most important of which is earning your own way." He added, "I detest American so-called 'education.' "

His daughter's quest to slow aging was spurred by her maternal grandmother, Bertie Deming, 85, who began having neuromuscular problems a decade ago. Laura, a first-year fellow, now spends her days combing medical journals, seeking a handful of researchers worth venture capital funding, which is a continuation of her earlier work.

"I'm looking for therapies that target aging damage and slow or reverse it," she says. "I've already spent six years on this stuff. So far I've found only a few companies, two or three I'm really bullish on."



For the full story, see:

CAITLIN KELLY. "Drop Out, Dive In, Start Up.." The New York Times, SundayBusiness (Sun., September 16, 2012): 1 & 7.

(Note: ellipsis added.)

(Note: the online version of the article is dated September 15, 2012, and had he title "Forgoing College to Pursue Dreams.")



DemingLauraThielFellow2012-10-12.jpg "Laura Deming, left, at age 6 with her grandmother, whose neuromuscular problems have now inspired Laura to work on anti-aging technology." Source of caption and photo: online version of the NYT article quoted and cited above.






October 30, 2012

Preindustrial Icelanders Adapted to Adverse Global Cooling



(p. 254) We investigate the effect of climate on population levels in preindustrial Iceland. We find that short-term temperature changes affect the population growth rate. In particular, a 1ºC decrease in temperature causes about 0.57 percent decrease in the population growth rate for the two subsequent years, for a total effect of 1.14 percent. This effect appears to attenuate as the growth rate returns to trend in subsequent years. We also quantify the extent to which eighteenth- and nineteenth-century Icelanders adapt to long-run climate change. In particular, the data suggest that long-run adaptation to climate takes about 20 years and reduces the effect of cold shocks by about 60 percent. Our results also allow us to approximate the effect of permanent climate change on steady-state population levels. This approximation suggests that steady state population levels decrease by 10 percent to 26 percent for each 1ºC of sustained adverse temperature change.

(p. 255) . . .

If contemporary poor agricultural populations behave like their eighteenth- and nineteenth century Icelandic counterparts, then our results suggest that adverse climate change (which now refers to warming, not cooling) will have three effects. First, in the short run it will lead to a significant decrease in population growth rates. Second, over the course of a generation, adaptation will offset about 60 percent of the short run effects. Finally, in the long run, we expect a decrease in steady-state populations.



For the full article, from which the above conclusion is quoted, see:

Turner, Matthew A., Jeffrey S. Rosenthal, Jian Chen, and Chunyan Hao. "Adaptation to Climate Change in Preindustrial Iceland." American Economic Review 102, no. 3 (May 2012): 250-55.

(Note: underlining added; the underlined words appeared on p. 254 of the print issue, and on p. 255 of the online issue, of the article.)






October 29, 2012

China's State-Owned Enterprises Lose Money and Slow Growth



NoAncientWisdomNoFollowersBK2012-10-12.jpg














Source of book image: http://s.wsj.net/public/resources/images/OB-UU147_mcgreg_DV_20121001022644.jpg





In the passages quoted below "SOE" means "state-owned enterprise."



(p. B1) If the U.S. needs another wake-up call, it will get one this week with the publication of a bracing account of the danger that China's state capitalism poses to global business--and to China itself. James McGregor's new book, "No Ancient Wisdom, No Followers: The Challenges of Chinese Authoritarian Capitalism," dissects the complex policies and state structures that produced China's novel system. And it describes the limited recourse the U.S. and other nations have. (Full disclosure: Mr. McGregor is a friend and former colleague at the Journal.)

"The Communist Party of China has two unwavering objectives: Make China rich and powerful and guarantee the Party's political monopoly," Mr. McGregor writes. "At the center of this are behemoth state-owned enterprises that dominate all key sectors and have been instrumental to the country's current success.

"As China's global reach expands, this one-of-a-kind system is challenging the rules and organizations that govern global trade as well as the business plans and strategies of multinationals around the globe. At the same time, the limits of authoritarian capital-(p.B2)ism are increasingly evident at home, where corruption is endemic, the SOEs are consuming the fruits of reform, and the economic engine is running out of gas."

Born in the 1950s when 10,000 Soviet advisers helped China organize central planning, the state-owned enterprises quickly became bloated extensions of the Party's patronage and power.


. . .


The enterprises themselves, meanwhile, crowded out private competition. SOEs account for about 96% of China's telecom industry, 92% of power and 74% of autos. The combined profit of China Petroleum & Chemical and China Mobile in 2009 alone was greater than all the profit of China's 500 largest private firms, Mr. McGregor writes.

An independent Chinese study, he adds, says that if you subtract government subsidies from the biggest SOEs they actually lose money.

Mr. McGregor believes pressures are building within China for change--the result of SOEs that don't innovate enough, slowing growth, an angry private sector, and a pending leadership change, among other factors. Even some top leaders say reform is needed.



For the full commentary, see:

JOHN BUSSEY. "THE BUSINESS; Tackling the Many Dangers of China's State Capitalism." The New York Times (Fri., September 28, 2012): B1 & B2.

(Note: ellipsis added.)

(Note: the online version of the article has the date September 27, 2012.)


Book under discussion:

McGregor, James. No Ancient Wisdom, No Followers: The Challenges of Chinese Authoritarian Capitalism. Westport, CT: Prospecta Press, 2012.






October 26, 2012

Government Disaster Relief Crowds Out Private Self-Protection



(p. 242) This paper has investigated the role of natural disaster shocks in determining gross migration flows, controlling for other place-based features. Using two micro datasets, we documented that in the 1920s and 1930s population was repelled from tornado-prone areas, with a larger effect on potential in-migrants than on existing residents, while flood events were associated with net inmigration. The differential migration responses by disaster type raises the question of whether public efforts at disaster mitigation counteract individual migration decisions. The nascent investment in rebuilding and protecting flood-prone areas could provide one example of public investment crowding out private self-protection (i.e., migration).

(p. 243) In future work, we plan to explore the role of New Deal disaster management more directly by exploiting variation across SEAs in federal expenditures and representation on key congressional committees. We predict that residents of areas that received federal largesse after a disaster in the 1930s will be less likely to move out and that new arrivals may be more likely to move in, while residents of areas that benefited less from New Deal spending will continue to use migration as a means of self-protection.



For the full article, from which the above conclusion is quoted, see:

Boustan, Leah Platt, Matthew E. Kahn, and Paul W. Rhode. "Moving to Higher Ground: Migration Response to Natural Disasters in the Early Twentieth Century." American Economic Review 102, no. 3 (May 2012): 238-44.






October 23, 2012

Abigail Fisher "Devastated" by "Holistic Review"



FisherAbigailAffirmativeAction2012-10-12.jpg "Abigail Fisher, 22, at the Supreme Court last month. "I probably would have gotten a better job offer had I gone to U.T.," Ms. Fisher said." Source of caption and photo: online version of the NYT article quoted and cited below.


(p. A1) WASHINGTON -- Abigail Fisher is a slight young woman with strawberry blond hair, a smile that needs little prompting, a determined manner and a good academic record. She played soccer in high school, and she is an accomplished cellist.

But the university she had her heart set on, the one her father and sister had attended, rejected her. "I was devastated," she said, in her first news interview since she was turned down by the University of Texas at Austin four years ago.

Ms. Fisher, 22, who is white and recently graduated from Louisiana State University, says that her race was held against her, and the Supreme Court is to hear her case on Wednesday, bringing new attention to the combustible issue of the constitutionality of racial preferences in admissions decisions by public universities.

"I'm hoping," she said, "that they'll completely take race out of the issue in terms of admissions and that everyone will be able to get into any school that they want no matter what race they are but solely based on their merit and if they work hard for it."


. . .


(p. A17) The majority opinion in the Grutter case, written by Justice Sandra Day O'Connor, rejected the use of racial quotas in admissions decisions but said that race could be used as one factor among many, as part of a "holistic review." Justice O'Connor retired in 2006, and her replacement by Justice Samuel A. Alito Jr. may open the way for a ruling cutting back on such race-conscious admissions policies, or eliminating them.


. . .


She said she was trying to come to terms with her role in a case that could reshape American higher education. Asked if she found it interesting or exciting or scary, she said, "All of the above."

But she did not hesitate to say how she would run an admission system. "I don't think," she said, "that we even need to have a race box on the application."



For the full story, see:

ADAM LIPTAK. "Race and College Admissions, Facing a New Test by Justices." The New York Times (Tues., October 9, 2012): A1 & A17.

(Note: ellipses added.)

(Note: the online version of the review has the date October 8, 2012.)






October 22, 2012

Paul Samuelson, in 2009 Interview, Says Economists Should Study Economic History



Clarke Conor interviewed Paul Samuelson in the summer of 2009. Since Samuelson died in October 2009, the interview was one of his last.

Samuelson was a student of Joseph Schumpeter at Harvard, and Schumpeter worked to get Samuelson financial support and a job. Near the end of his life, Schumpeter was ridiculed when he warned National Bureau of Economic Research (NBER) economists that they should not neglect economic history.

It took Paul Samuelson a long time to appreciate Schumpeter's truth.


Very last thing. What would you say to someone starting graduate study in economics? Where do you think the big developments in modern macro are going to be, or in the micro foundations of modern macro? Where does it go from here and how does the current crisis change it?

Well, I'd say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that's the raw material out of which any of your conjectures or testings will come. And I think the recent period has illustrated that. The governor of the Bank of England seems to have forgotten or not known that there was no bank insurance in England, so when Northern Rock got a run, he was surprised. Well, he shouldn't have been.

But history doesn't tell its own story. You've got to bring to it all the statistical testings that are possible. And we have a lot more information now than we used to.



For the full interview, see:

Clarke, Conor. "An Interview with Paul Samuelson, Part Two." The Atlantic (2009), http://www.theatlantic.com/politics/archive/2009/06/an-interview-with-paul-samuelson-part-two/19627/.

(Note: bold indicates Conor question, and is bolded in original.)

(Note: the interview was posted on The Atlantic online website, but I do not believe that it ever appeared in the print version of the magazine.)






October 21, 2012

Chamber Blitz Clip for Tort Reform



BlitzGasolineCans2012-10-11.jpg "Blitz gasoline cans, at Ace Hardware in Miami, Okla., will soon disappear from stores. The company closed because of the costs of lawsuits contending that the cans were unsafe." Source of caption and photo: online version of the NYT article quoted and cited below.


The "Mr. Flick" quoted below is Rocky Flick, the former CEO of Blitz.


(p. B1) Crusading against what it considers frivolous lawsuits, the United States Chamber of Commerce has had no shortage of cases to highlight, like the man suing a cruise line after burning his feet on a sunny deck or the mother claiming hearing loss from the screaming at a Justin Bieber concert.

Now, the lobbying group's Institute for Legal Reform is showing a 30-second commercial that uses Blitz USA, a bankrupt Oklahoma gasoline can manufacturer, to illustrate the consequences of abusive lawsuits. The ad shows tearful workers losing their jobs and the lights going out at the 46-year-old company as a result of steep legal costs from lawsuits targeting the red plastic containers, according to the company and the institute.

The closing of the 117-employee operation this summer became a rallying point for proponents of tort reform. . . .


. . .


(p. B2) Blitz executives note that the company, which was the nation's leading gas can producer, sold more than 14 million cans a year over the last decade, with fewer than two reported incidents per million cans sold. The company said the most serious incidents usually involved obvious misuse of the cans, like pouring gasoline on an open fire.


. . .


A decade ago, Mr. Flick said, the company would face one or two lawsuits a year. The number grew to six or seven a year, and finally to 25 or so last year when Blitz filed for bankruptcy.



For the full story, see:

CLIFFORD KRAUSS. "Two Sides of Product Liability: A Factory's Closing Focuses Attention on Tort Reform." The New York Times (Fri., October 4, 2012): B1.

(Note: ellipses added.)

(Note: the online version of the article is dated October 5, 2012 and has the shorter title "A Factory's Closing Focuses Attention on Tort Reform.")



View the Chamber video clip on the Blitz example:





FlickRockyFormerBlitzCEO2012-10-11.jpg













"Rocky Flick, Blitz's former chief executive." Source of caption and photo: online version of the NYT article quoted and cited above.







October 20, 2012

Much Innovation Has "Nothing to Do with Science--It's Just Creative Mankind Chipping Away at Things"



(p. 122) VANE and MULHEARN: The prize rewards specific discoveries, achievements, or breakthroughs in economic science. Your pioneering contributions have opened up a rich seam of research for others to mine. Does academic knowledge largely progress through the lead taken by a small number of creative innovators?
PHELPS: That's such a good question. It resonates with a subject in the area of innovation theory. The old guys like Arthur Spiethoff thought that progress was due to the great discoveries of the scientists and navigators. Schumpeter (1934) (p. 123) didn't depart altogether from that, he simply said, well, that's right but you've got to have some entrepreneur to actually implement it. But don't think there's much creativity there--everybody knows what's in the air. And it's very rare that anything new really gets created in the course of this development work. But now we don't think about innovation in that way so much. We recognize that once in a while there is a big leap which creates the ground for a surge of innovations to follow. Nowadays we realize that an awful lot of innovation just comes from business people operating at the grass roots having ideas on the basis of what they see around them. Nothing to do with science--it's just creative mankind chipping away at things. I know that the Sens and the Mundells and the Lucases are towering figures, but they couldn't have become so if they hadn't read a lot of papers by, well, pretty average people who are just doing a good job of exploring a question and giving inspiration. I guess the towering figures are people with just a little more drive, a little more imagination, just a little cleverer in putting some things together. In other words, I don't know the answer to the question [laughter].


For the full interview, from which the above is quoted, see:

Vane, Howard R., and Chris Mulhearn, interviewers. "Interview with Edmund S. Phelps." Journal of Economic Perspectives 23, no. 3 (Summer 2009): 109-24.






October 18, 2012

Capitalism Is Justified Because It Is an "Engine for Generating Creative Workplaces"



(p. 121) Phelps: . . . Since 2002, I've been trying to develop a new justification for capitalism, at least I think it's new, in which I say that if we're going to have any possibility of intellectual development we're going to have to have jobs offering stimulating and challenging opportunities for problem solving, discovery, exploration, and so on. And capitalism, like it or not, has so far been an extraordinary engine for generating creative workplaces in which that sort of personal growth and personal development is possible; perhaps not for everybody but for an appreciable number of people, so if you think that it's a human right to have that kind of a life, then you have on the face of it a justification for capitalism. There has to be something pretty powerful to overturn or override that.


For the full interview, from which the above is quoted, see:

Vane, Howard R., and Chris Mulhearn, interviewers. "Interview with Edmund S. Phelps." Journal of Economic Perspectives 23, no. 3 (Summer 2009): 109-24.

(Note: ellipsis added.)






October 16, 2012

No Amount of Econometric Sophistication Will Substitute for Good Data



(p. 234) Using a powerful method due to Singh, we have established a relationship between God's attitude toward man and the amount of prayer (p. 235) transmitted to God. The method presented here is applicable to a number of important problems. Provided conditional density (1) is assumed, we do not need to observe a variable to compute its conditional expectation with respect to another variable whose density can be estimated. For example, one can extend current empirical work in a variety of areas of economics to estimate the effect of income on happiness or the effect of income inequality on democracy. We conjecture that this powerful method can be extended to the more general case when X is not observed either.


For the full article, from which the above is quoted, see:

Heckman, James. "The Effect of Prayer on God's Attitude toward Mankind." Economic Inquiry 48, no. 1 (Jan. 2010): 234-35.






October 15, 2012

"The New Upper Class Must Start Preaching What It Practices"



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Source of book image: http://si.wsj.net/public/resources/images/OB-RO889_bkrvmu_DV_20120130124608.jpg







(p. C2) There remains a core of civic virtue and involvement in working-class America that could make headway against its problems if the people who are trying to do the right things get the reinforcement they need--not in the form of government assistance, but in validation of the values and standards they continue to uphold. The best thing that the new upper class can do to provide that reinforcement is to drop its condescending "nonjudgmentalism." Married, educated people who work hard and conscientiously raise their kids shouldn't hesitate to voice their disapproval of those who defy these norms. When it comes to marriage and the work ethic, the new upper class must start preaching what it practices.


For the full essay, see:

CHARLES MURRAY. "The New American Divide; The ideal of an 'American way of life' is fading as the working class falls further away from institutions like marriage and religion and the upper class becomes more isolated. Charles Murray on what's cleaving America, and why." The Wall Street Journal (Sat., January 21, 2012): C1-C2.


The essay quoted above is related to Murray's book:

Murray, Charles. Coming Apart: The State of White America, 1960-2010. New York: Crown Forum, 2012.






October 12, 2012

School Competition Benefits Students



(p. 150) We study competition between two publicly funded school systems in Ontario, Canada: one that is open to all students, and one that is restricted to children of Catholic backgrounds. A simple model of competition between the competing systems predicts greater effort by school managers in areas with more Catholic families who are willing to switch systems. Consistent with this insight, we find significant effects of competitive pressure on test score gains between third and sixth grade. Our estimates imply that extending competition to all students would raise average test scores in sixth grade by 6 percent to 8 percent of a standard deviation.


For the full article, from which the above abstract is quoted, see:

Card, David, Martin D. Dooley, and A. Abigail Payne. "School Competition and Efficiency with Publicly Funded Catholic Schools." American Economic Journal: Applied Economics 2, no. 4 (Oct. 2010): 150-76.






October 10, 2012

The Precautionary Principle Would Have Blocked Many Great Innovations



(p. 351) The intense aversion to trading increased risk for some other advantage plays out on a grand scale in the laws and regulations governing risk. This trend is especially strong in Europe where the precautionary principle, which prohibits any action that might cause harm, is a widely accepted doctrine. In the regulatory context, the precautionary principle imposes the entire burden of proving safety on anyone who undertakes actions that might harm people or the environment. Multiple international bodies have specified that the absence of scientific evidence of potential damage is not sufficient justification for taking risks. As the jurist Cass Sunstein points out, the precautionary principle is costly, and when interpreted strictly it can be paralyzing. He mentions an impressive list of innovations that would not have passed the test, including "airplanes, air conditioning, antibiotics, automobiles, chlorine, the measles vaccine, open-heart surgery, radio, refrigeration, smallpox vaccine, and X-rays." The strong version of the precautionary principle is obviously untenable. But enhanced loss aversion is embedded in a strong and widely shared moral intuition; it originates in System 1. The dilemma between intensely loss-averse moral attitudes and efficient risk management does not have a simple and compelling solution.


Source:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

(Note: italics in original.)





October 8, 2012

Ban of Affirmative Action Does Not Reduce Overall Black Enrollment



(p. 435) Using institutional data on race-specific college enrollment and completion, I examine whether minority students were less likely to enroll in a four-year public college or receive a degree following a statewide affirmative action ban. As in previous studies, I find that black and Hispanic enrollment dropped at the top institutions; however, there is little evidence that overall black enrollment at public universities fell. Finally, despite evidence that fewer blacks and Hispanics graduated from college following a ban, the effects on graduation rates are very noisy.


For the full article, from which the above abstract is quoted, see:

Backes, Ben. "Do Affirmative Action Bans Lower Minority College Enrollment and Attainment?" Journal of Human Resources 47, no. 2 (Spring 2012): 435-55.







October 7, 2012

"Education Bubble": "A Spurious Inflation of the Credentials Required for Many Jobs"



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Source of book image: http://2.bp.blogspot.com/-N1hV093ckVc/T8YmCXE2sQI/AAAAAAAAAYc/1B5hWDeXbzQ/s1600/basement.jpg



(p. 17) In June 2008, The Atlantic published an essay by an adjunct instructor of English, identified only as "Professor X," whose job filled him with despair. Although the courses he taught were introductory, success was beyond many of his students, who, he wrote, were "in some cases barely literate." X found giving F's to be excruciating -- "I am the man who has to lower the hammer," he lamented -- in part because he identified with his older students, who seemed to have lost their way in their careers much as X himself had.


. . .


. . . X's function, in the ecology of the colleges where he teaches, is gatekeeper -- most students who fail his classes will drop out -- and he articulates the ethical challenge before him this way: "What grade does one give a college student who progresses from a 6th- to a 10th-grade level of achievement?" X gives F's.


. . .


X and his wife got snookered in the housing bubble, and he wonders if the misery in his classroom might result from a similar education bubble. In 1940, there were 1.5 million college students in America; in 2006, there were 20.5 million. In X's opinion, a glut of degrees has led to a spurious inflation of the credentials required for many jobs. Tuitions are rising, and two-thirds of college graduates now leave school with debt, owing on average about $24,000. A four-year degree is said to increase wages about $450,000 over the course of a lifetime, but X doubts the real value of degrees further down on the hierarchy of prestige. To him, the human cost is more conspicuous.


. . .


Professor X can be caustic about the euphemism and somewhat willed optimism that sometimes befog discussion of how to teach unprepared students. To relieve his and his students' unhappiness, he proposes that employers stop demanding unnecessary degrees: a laudable suggestion, unlikely to be realized until the degree glut has dried up.



For the full review, see:

CALEB CRAIN. "Lost in the Meritocracy." The New York Times Book Review (Sun., May 1, 2011): 17.

(Note: ellipses added.)

(Note: the online version of the review has the date April 29, 2011.)


The full reference for the book under review, is:

X, Professor. In the Basement of the Ivory Tower: Confessions of an Accidental Academic. New York: Viking, 2011.






October 6, 2012

Sunk-Cost Fallacy "Can Be Overcome"



(p. 346) The sunk-cost fallacy keeps people for too long in poor jobs, unhappy marriages, and unpromising research projects. I have often observed young scientists struggling to salvage a doomed project when they would be better advised to drop it and start a new one. Fortunately, research suggests that at least in some contexts the fallacy can be overcome. The sunk-cost fallacy is identified and taught as a mistake in both economics and business courses, apparently to good effect: there is evidence that graduate students in these fields are more willing than others to walk away from a failing project.


Source:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.





October 4, 2012

Skilled Immigrants Increase U.S. Patents



(p. 31) We measure the extent to which skilled immigrants increase innovation in the United States. The 2003 National Survey of College Graduates shows that immigrants patent at double the native rate, due to their disproportionately holding science and engineering degrees. Using a 1940-2000 state panel, we show that a 1 percentage point increase in immigrant college graduates' population share increases patents per capita by 9-18 percent. Our instrument for the change in the skilled immigrant share is based on the 1940 distribution across states of immigrants from various source regions and the subsequent national increase in skilled immigration from these regions.


For the full article, from which the above abstract is quoted, see:

Hunt, Jennifer, and Marjolaine Gauthier-Loiselle. "How Much Does Immigration Boost Innovation?" American Economic Journal: Macroeconomics 2, no. 2 (April 2010): 31-56.






October 3, 2012

Big Science Done Privately at Great Risk



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Source of book image: http://t0.gstatic.com/images?q=tbn:ANd9GcQPLdrVlC1FT3ojxyxWJLq55AeAs87pw_Bw6ks1ugFnkcI_DBa_1w&t=1



(p. 23) Next time you find yourself grousing when the passenger in front reclines his seat a smidge too far, consider the astronomers of the Enlightenment. In 1761 and 1769, dozens and dozens of stargazers traveled thousands of miserable miles to observe a rare and awesome celestial phenomenon. They went by sailing ship and open dinghy, by carriage, by sledge and on foot. They endured discomfort that in our own flabby century would generate years of litigation. And they did it all for science: the men in powdered wigs and knee britches were determined to measure the transit of Venus.


. . .


The British astronomer Edmond Halley had realized that precise measurement of a transit might give astronomers armed with a clock and a telescope the data they needed to calculate how far Earth is from the Sun. With that distance in hand, they could work out the actual size of the solar system, the great astronomical problem of the era. The catch was that it would take multiple measurements from carefully chosen locations all over the Northern and Southern Hemispheres. But that was somebody else's problem. Halley knew he wouldn't live to see the transit of 1761.

That challenge fell to the French astronomer Joseph-Nicolas Delisle, who managed to energize and rally his colleagues in the years leading up to the transit, then coordinate the enormous effort that would ultimately involve scientists and adventurers from France, Britain, Russia, Germany, the Netherlands, Italy, Sweden and the American colonies. When you think about how hard it is to arrange a simple dinner with a few friends who live in the same city and use the same language when e-mailing, it's enough to take your breath away.


. . .


Sea travel was so risky in 1761 that observers took separate ships to the same destination to increase the chances some of them would make it alive. The Seven Years' War was on, and getting caught in the cross-fire was a constant concern. One French scientist carried a passport arranged by the Royal Society in London advising the British military "not to molest his person or Effects upon any account." Others were shelled by the French or caught in border troubles with the Russians. An observer en route to Tobolsk, in Siberia, found himself floating in ice up to his waist when his carriage fell through the frozen river they were traveling in lieu of a road. He made it to his destination. Another, heading toward eastern Finland via the iced-over Gulf of Bothnia, was repeatedly catapulted out of his sledge as the runners caught on the crests of frozen waves. He made it too.



For the full review, see:

JoANN C. GUTIN. "Masters of the Universe." The New York Times Book Review (Sun., May 20, 2012): 19.

(Note: ellipses added.)

(Note: the online version of the review has the date May 18, 2012.)


The full reference for the book under review, is:

Wulf, Andrea. Chasing Venus: The Race to Measure the Heavens. New York: Alfred A. Knopf, 2012.



ApparatusTransitVenus2012-09-01.jpg Source of image: online version of the NYT article quoted and cited above.






October 2, 2012

Kahneman Preaches that People Can and Should Act More Rationally



(p. 338) . . . I have a sermon ready for Sam if he rejects the offer of a single highly favorable gamble played once, and for you if you share his unreason-able aversion to losses:

I sympathize with your aversion to losing any gamble, but it is costing you a lot of money. Please consider this question: Are you on your deathbed? Is this the last offer of a small favorable gamble that you will ever consider? Of course, you are unlikely to be offered exactly this gamble again, but you will have many opportunities to consider attractive gambles with stakes that are very small relative to your wealth. You will do yourself a large financial favor if you are able to see each of these gambles as part of a bundle of small gambles and rehearse the mantra that will get you significantly closer to economic rationality: you win a few, you lose a few. The main purpose of the mantra is to control your emotional response when you do lose. If you can trust it to be effective, you should remind yourself of it when deciding whether or not to accept a small risk with positive expected value. Remember these qualifications when using the mantra:
  • It works when the gambles are genuinely independent of each other; it does not apply to multiple investments in the same industry, which would all go bad together.

(p. 339)


  • It works only when the possible loss does not cause you to worry about your total wealth. If you would take the loss as significant bad news about your economic future, watch it!

  • It should not be applied to long shots, where the probability of winning is very small for each bet.

If you have the emotional discipline that this rule requires, you will never consider a small gamble in isolation or be loss averse for a small gamble until you are actually on your deathbed and not even then.

This advice is not impossible to follow. Experienced traders in financial markets live by it every day, shielding themselves from the pain of losses by broad framing. As was mentioned earlier, we now know that experimental subjects could be almost cured of their loss aversion (in a particular context) by inducing them to "think like a trader," just as experienced baseball card traders are not as susceptible to the endowment effect as novices are. Students made risky decisions (to accept or reject gambles in which they could lose) under different instructions. In the narrow-framing condition, they were told to "make each decision as if it were the only one" and to accept their emotions. The instructions for broad framing of a decision included the phrases "imagine yourself as a trader," "you do this all the time," and "treat it as one of many monetary decisions, which will sum together to produce a 'portfolio'." The experimenters assessed the subjects' emotional response to gains and losses by physiological measures, including changes in the electrical conductance of the skin that are used in lie detection. As expected, broad framing blunted the emotional reaction to losses and increased the willingness to take risks.



Source:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

(Note: ellipsis added; italics in original.)





September 30, 2012

A True Tall Tale: Mankiw Lays a Reductio Ad Absurdum on the Egalitarians



(p. 155) Should the income tax system include a tax credit for short taxpayers and a tax surcharge for tall ones? This paper shows that the standard utilitarian framework for tax policy analysis answers this question in the affirmative. This result has two possible interpretations. One interpretation is that individual attributes correlated with wages, such as height, should be considered more widely for determining tax liabilities. Alternatively, if policies such as a tax on height are rejected, then the standard utilitarian framework must in some way fail to capture our intuitive notions of distributive justice.


For the full article, from which the above abstract is quoted, see:

Mankiw, N. Gregory, and Matthew Weinzierl. "The Optimal Taxation of Height: A Case Study of Utilitarian Income Redistribution." American Economic Journal: Economic Policy 2, no. 1 (Feb. 2010): 155-76.






September 28, 2012

Reference Point Ignored Due to "Theory-Induced Blindness"



(p. 290) The omission of the reference point from the indifference map is a surprising case of theory-induced blindness, because we so often encounter cases in which the reference point obviously matters. In labor negotiations, it is well understood by both sides that the reference point is the existing contract and that the negotiations will focus on mutual demands for concessions relative to that reference point. The role of loss aversion in bargaining is also well understood: making concessions hurts. You have much (p. 291) personal experience of the role of reference point. If you changed jobs or locations, or even considered such a change, you surely remember that the features of the new place were coded as pluses or minuses relative to where you were. You may also have noticed that disadvantages loomed larger than advantages in this evaluation--loss aversion was at work. It is difficult to accept changes for the worse. For example, the minimal wage that unemployed workers would accept for new employment averages 90% of their previous wage, and it drops by less than 10% over a period of one year.


Source:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.





September 26, 2012

Macro Policy Should Be Less Interventionist, More Rules-Based, and More Predictable



(p. 165) This article reviews the role of monetary and fiscal policy in the financial crisis and draws lessons for future macroeconomic policy. It shows that policy deviated from what had worked well in the previous two decades by becoming more interventionist, less rules-based, and less predictable. The policy implications are thus that policy should "get back on track."


For the full article, from which the above abstract is quoted, see:

Taylor, John B. "Getting Back on Track: Macroeconomic Policy Lessons from the Financial Crisis." Federal Reserve Bank of St. Louis Review 92, no. 3 (May-June 2010): 165-76.






September 24, 2012

Kahneman Grants that "the Basic Concepts of Economics Are Essential Intellectual Tools"



(p. 286) Most graduate students in economics have heard about prospect theory and loss aversion, but you are unlikely to find these terms in the index of an introductory text in economics. I am sometimes pained by this omission, but in fact it is quite reasonable, because of the central role of rationality in basic economic theory. The standard concepts and results that undergraduates are taught are most easily explained by assuming that Econs do not make foolish mistakes. This assumption is truly necessary, and it would be undermined by introducing the Humans of prospect theory, whose evaluations of outcomes are unreasonably short-sighted.

There are good reasons for keeping prospect theory out of introductory texts. The basic concepts of economics are essential intellectual tools, which are not easy to grasp even with simplified and unrealistic assumptions about the nature of the economic agents who interact in markets. Raising questions about these assumptions even as they are introduced would be confusing, and perhaps demoralizing. It is reasonable to put priority on helping students acquire the basic tools of the discipline. Furthermore, the failure of rationality that is built into prospect theory is often irrelevant to the predictions of economic theory, which work out with great precision in some situations and provide good approximations in many others. In some contexts, however, the difference becomes significant: the Humans described by prospect theory are (p. 287) guided by the immediate emotional impact of gains and losses, not by long-term prospects of wealth and global utility.

I emphasized theory-induced blindness in my discussion of flaws in Bernoulli's model that remained unquestioned for more than two centuries. But of course theory-induced blindness is not restricted to expected utility theory. Prospect theory has flaws of its own, and theory-induced blindness to these flaws has contributed to its acceptance as the main alternative to utility theory.



Source:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.





September 22, 2012

Incentives Matter, Even in Refereeing Articles for Journals



(p. 678) A natural experiment in an economics fleld journal afforded time-series observations on payments to referees for on-time reviews. The natural experiment yielded 15 months' worth of data with no payments and about two subsequent years of data with payments. Using referee and manuscript-specific measures as covariates, hazard models were used to gauge the effects of payments on individual referee's review times. All models indicate statistically significant reductions in review times owing to referee payments. Reductions in review times translate into significant reductions in first-response time (FRT). Median FRT was reduced from 90 to 70 days, a 22% reduction in the presence of payments. With payments, only 1% of the FRTs exceeded six months; without payments, 16% of the FRTs exceeded six months.


For the full article, from which the above abstract is quoted, see:

Thompson, Gary D., Satheesh V. Aradhyula, George Frisvold, and Russell Tronstad. "Does Paying Referees Expedite Reviews?: Results of a Natural Experiment." Southern Economic Journal 76, no. 3 (Jan. 2010): 678-92.






September 21, 2012

Models Often "Ignore the Messiness of Reality"



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Source of book image: http://www.namingandtreating.com/wp-content/uploads/2011/04/SuperCooperators_small.png



(p. 18) Nowak is one of the most exciting modelers working in the field of mathematical biology today. But a model, of course, is only as good as its assumptions, and biology is much messier than physics or chemistry. Nowak tells a joke about a man who approaches a shepherd and asks, ''If I tell you how many sheep you have, can I have one?'' The shepherd agrees and is astonished when the stranger answers, ''Eighty-three.'' As he turns to leave, the shepherd retorts: ''If I guess your profession, can I have the animal back?'' The stranger agrees. ''You must be a mathematical biologist.'' How did he know? ''Because you picked up my dog.''


. . .


Near the end of the book, Nowak describes Gustav Mahler's efforts, in his grandiloquent Third Symphony, to create an all-encompassing structure in which ''nature in its totality may ring and resound,'' adding, ''In my own way, I would like to think I have helped to give nature her voice too.'' But there remains a telling gap between the precision of the models and the generality of the advice Nowak offers for turning us all into supercooperators. We humans really are infinitely more complex than falling apples, metastasizing colons, even ant colonies. Idealized accounts of the world often need to ignore the messiness of reality. Mahler understood this. In 1896 he invited Bruno Walter to Lake Attersee to glimpse the score of the Third. As they walked beneath the mountains, Walter admonished Mahler to look at the vista, to which he replied, ''No use staring up there -- I've already composed it all away into my symphony!''



For the full review, see:

OREN HARMAN. "A Little Help from Your Friends." The New York Times Book Review (Sun., April 10, 2011): 18.

(Note: ellipsis added.)

(Note: the online version of the review has the date April 8, 2011, and has the title "How Evolution Explains Altruism.")


The full reference for the book under review, is:

Nowak, Martin A., and Roger Highfield. Supercooperators: Altruism, Evolution, and Why We Need Each Other to Succeed. New York: Free Press, 2011.






September 18, 2012

Raising Minimum Wage Hurts Working Poor



(p. 592) Using data drawn from the March Current Population Survey, we find that state and federal minimum wage increases between 2003 and 2007 had no effect on state poverty rates. When we then simulate the effects of a proposed federal minimum wage increase from $7.25 to $9.50 per hour, we find that such an increase will be even more poorly targeted to the working poor than was the last federal increase from $5.15 to $7.25 per hour. Assuming no negative employment effects, only 11.3% of workers who will gain live in poor households, compared to 15.8% from the last increase. When we allow for negative employment effects, we find that the working poor face a disproportionate share of the job losses. Our results suggest that raising the federal minimum wage continues to be an inadequate way to help the working poor.


For the full article, from which the above abstract is quoted, see:

Sabia, Joseph J., and Richard V. Burkhauser. "Minimum Wages and Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working Poor?" Southern Economic Journal 76, no. 3 (Jan. 2010): 592-623.






September 17, 2012

A Marshmallow Now or an Elegant French Pastry Four Years Later



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Source of book image: http://images.amazon.com/images/G/01/richmedia/images/cover.gif



(p. 19) Growing up in the erratic care of a feckless single mother, "Kewauna seemed able to ignore the day-to-day indignities of life in poverty on the South Side and instead stay focused on her vision of a more successful future." Kewauna tells Tough, "I always wanted to be one of those business ladies walking downtown with my briefcase, everybody saying, 'Hi, Miss Lerma!' "

Here, as throughout the book, Tough nimbly combines his own reporting with the findings of scientists. He describes, for example, the famous "marshmallow experiment" of the psychologist Walter Mischel, whose studies, starting in the late 1960s, found that children who mustered the self-control to resist eating a marshmallow right away in return for two marshmallows later on did better in school and were more successful as adults.

"What was most remarkable to me about Kewauna was that she was able to marshal her prodigious noncognitive capacity -- call it grit, conscientiousness, resilience or the ability to delay gratification -- all for a distant prize that was, for her, almost entirely theoretical," Tough observes of his young subject, who gets into college and works hard once she's there. "She didn't actually know any business ladies with briefcases downtown; she didn't even know any college graduates except her teachers. It was as if Kewauna were taking part in an extended, high-stakes version of Walter Mischel's marshmallow experiment, except in this case, the choice on offer was that she could have one marshmallow now or she could work really hard for four years, constantly scrimping and saving, staying up all night, struggling, sacrificing -- and then get, not two marshmallows, but some kind of elegant French pastry she'd only vaguely heard of, like a napoleon. And Kewauna, miraculously, opted for the napoleon, even though she'd never tasted one before and didn't know anyone who had. She just had faith that it was going to be delicious."



For the full review, see:

ANNIE MURPHY PAUL. "School of Hard Knocks." The New York Times Book Review (Sun., August 26, 2012): 19.

(Note: the online version of the article is dated August 23, 2012.)


The full reference for the book under review, is:

Tough, Paul. How Children Succeed: Grit, Curiosity, and the Hidden Power of Character. Boston, MA: Houghton Mifflin Harcourt, 2012.






September 10, 2012

Economists Have "the Tools to Slap Together a Model to 'Explain' Any and All Phenomena"



(p. 755) The economist of today has the tools to slap together a model to 'explain' any and all phenomena that come to mind. The flood of models is rising higher and higher, spouting from an ever increasing number of journal outlets. In the midst of all this evidence of highly trained cleverness, it is difficult to retain the realisation that we are confronting a complex system 'the working of which we do not understand'. . . . That the economics profession might be humbled by recent events is a realisation devoutly to be wished.


Source:

Leijonhufvud, Axel. "Out of the Corridor: Keynes and the Crisis." Cambridge Journal of Economics 33, no. 4 (July 2009): 741-57.

(Note: ellipsis added.)

(Note: the passage above was quoted on the back cover of The Cato Journal 30, no. 2 (Spring/Summer 2010).)






September 9, 2012

Economists Optimistic that Economy Can Adapt to Climate Change



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Source of book image: http://www.bibliovault.org/thumbs/978-0-226-47988-0-frontcover.jpg




(p. 222) Efficient policy decisions regarding climate change require credible estimates of the future costs of possible (in)action. The edited volume by Gary Libecap and Richard Steckel contributes to this important policy discussion by presenting work estimating the ability of economic actors to adapt to a changing climate. The eleven contributed research chapters primarily focus on the historical experience of the United States and largely on the agricultural sector. While the conclusions are not unanimous, on average, the authors tend to present an optimistic perspective on the ability of the economy to adapt to climate change.


For the full review, see:

Swoboda, Aaron. "Review of: The Economics of Climate Change: Adaptations Past and Present." Journal of Economic Literature 50, no. 1 (March 2012): 222-24.



Book under review:

Libecap, Gary D., and Richard H. Steckel, eds. The Economics of Climate Change: Adaptations Past and Present, National Bureau of Economic Research Conference Report. Chicago: University of Chicago Press, 2011.






September 6, 2012

Macaulay Argues that a Limited Government that Protects Property Will Promote Economic Growth



Our rulers will best promote the improvement of the nation by strictly confining themselves to their own legitimate duties, by leaving capital to find its most lucrative course, commodities their fair price, industry and intelligence their natural reward, idleness and folly their natural punishment, by maintaining peace, by defending property, by diminishing the price of law, and by observing strict economy in every department of the state. Let the Government do this: the People will assuredly do the rest.


Source:

Macaulay, Thomas Babington, Lord. "Review of: Robert Southey's "Sir Thomas More; or, Colloquies on the Progress and Prospects of Society"." In Critical and Historical Essays Contributed to the Edinburgh Review. London: Longman, Green, Longman, and Roberts, 1830.

(Note: the quote above appeared on the back cover of The Cato Journal 30, no. 1 (Winter 2010); Macaulay's full review, including the quote, can be viewed online at: http://www.econlib.org/library/Essays/macS1.html )

(Note: the online version does not give page numbers, but gives what I think are "screen" numbers. The passage quoted is all of "SC.96" which appears at the very end of the essay.)





September 2, 2012

Information Technology Enables Massive Process Creative Destruction



(p. 2) . . . I want to argue that something deep is going on with information technology, something that goes well beyond the use of computers, social media, and commerce on the Internet. Business processes that once took place among human beings are now being executed electronically. They are taking place in an unseen domain that is strictly digital. On the surface, this shift doesn't seem particularly consequential -- it's almost something we take for granted. But I believe it is causing a revolution no less important and dramatic than that of the railroads. It is quietly creating a second economy, a digital one.


. . .


(p. 5) Now this second, digital economy isn't producing anything tangible. It's not making my bed in a hotel, or bringing me orange juice in the morning. But it is running an awful lot of the economy. It's helping architects design buildings, it's tracking sales and inventory, getting goods from here to there, executing trades and banking operations, controlling manufacturing equipment, making design calculations, billing clients, navigating aircraft, helping diagnose patients, and guiding laparoscopic surgeries. Such operations grow slowly and take time to form.


. . .


(p. 6) Is this the biggest change since the Industrial Revolution? Well, without sticking my neck out too much, I believe so. In fact, I think it may well be the biggest change ever in the economy. It is a deep qualitative change that is bringing intelligent, automatic response to the economy. There's no upper limit to this, no place where it has to end.


. . .


I think that for the rest of this century, barring wars and pestilence, a lot of the story will be the building out of this second economy, an unseen underground economy that basically is giving us intelligent reactions to what we do above the ground.



Source:

Arthur, W. Brian. "The Second Economy." McKinsey Quarterly, no. 4 (Oct. 2011): 90-99.

(Note: ellipses added.)

(Note: I first saw the passages quoted above on pages 243-244 of Timothy Taylor's "Recommendations for Further Reading" feature in The Journal of Economic Perspectives 26, no. 1 (Winter 2012).)






September 1, 2012

Mitt Romney on Innovation and Creative Destruction



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Source of book image: http://mittromneycentral.com/uploads/No-Apology1.jpg






(p. 108) Innovation and Creative Destruction

The key to increasing national prosperity is to promote good ideas and create the conditions that can lead them to be fully exploited--in existing businesses as well as new ones. Government is generally not the source of new ideas, although innovations from NASA and the military have provided frequent exceptions. Nor is government where innovation is commercially developed. But government policies do, in fact, have a major impact on the implementation of innovative ideas. The degree to which a nation makes itself productive, and thus how prosperous its citizens become, is determined in large measure by whether government adopts policies that stimulate innovation or that stifle it.

The government policy that has the greatest effect on innovation is simply whether or not the government will allow it. It's sad but true: Government can and often does purposefully prevent innovation and the resulting improvement in productivity. Recall my hypothetical example of a society in which half the farming jobs were lost due to innovation in the use of a plow? Some nations accept and encourage such "creative destruction," recognizing that in the long run it leads to greater productivity and wealth for its citizens. But other nations succumb to the objections of those in danger of becoming unemployed and prevent innovation that may reduce short-term employment.

Two centuries ago, more than three-quarters of our workforce actually did labor on farms. Over the succeeding decades, innovations like irrigation, fertilizer, and tractors were welcomed, and eventually large farming corporations were allowed to prosper, despite protests from family farmers and the often heart-wrenching dislocations that accompanied consolidation of farmlands. The result was the disappearance of millions of agricultural jobs and the large-scale migration of Americans from rural regions to our cities. Once there, they provided the labor that powered America's new industrial age. And at the same time, because farming innovation and productivity were allowed to flourish, America became the leader in agriculture education, research, and industry. Innovations from these sources have enabled us to produce sufficient food to feed not only our growing population but other parts of the world as well.



Source:

Romney, Mitt. No Apology: The Case for American Greatness. New York: St. Martin's Press, 2010.

(Note: bold in original.)






August 31, 2012

Failed Entrepreneurial Firms that Signal New Markets Are "Optimistic Martyrs"



(p. 260) Colin Camerer and Dan Lovallo, who coined the concept of competition neglect, illustrated it with a quote from the then chairman of Disney Studios. Asked why so many expensive big-budget movies are released on the same days (such as Memorial Day and Independence Day), he replied: Hubris. Hubris. If you only think about your own business, you think, "I've got a good story department, I've got a good marketing department, we're (p. 261) going to go out and do this." And you don't think that everybody else is thinking the same way. In a given weekend in a year you'll have five movies open, and there's certainly not enough people to go around.

The candid answer refers to hubris, but it displays no arrogance, no conceit of superiority to competing studios. The competition is simply not part of the decision, in which a difficult question has again been replaced by an easier one. The question that needs an answer is this: Considering what others will do, how many people will see our film? The question the studio executives considered is simpler and refers to knowledge that is most easily available to them: Do we have a good film and a good organization to market it? The familiar System 1 processes of WYSIATI and substitution produce both competition neglect and the above-average effect. The consequence of competition neglect is excess entry: more competitors enter the market than the market can profitably sustain, so their average outcome is a loss. The outcome is disappointing for the typical entrant in the market, but the effect on the economy as a whole could well be positive. In fact, Giovanni Dosi and Dan Lovallo call entrepreneurial firms that fail but signal new markets to more qualified competitors "optimistic martyrs"-- good for the economy but bad for their investors.



Source:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.






August 27, 2012

Overly Optimistic Entrepreneurs Seek Government Support for Projects that Will Usually Fail




People have a right to be overly-optimistic when they invest their own money in entrepreneurial projects. But governments should be prudent caretakers of the money they have taken from taxpayers. The overly-optimistic bias of subsidy-seeking entrepreneurs weakens the case for government support of entrepreneurial projects.


(p. 259) The optimistic risk taking of entrepreneurs surely contributes to the economic dynamism of a capitalistic society, even if most risk takers end up disappointed. However, Marta Coelho of the London School of Economics has pointed out the difficult policy issues that arise when founders of small businesses ask the government to support them in decisions that are most likely to end badly. Should the government provide loans to would-be entrepreneurs who probably will bankrupt themselves in a few years? Many behavioral economists are comfortable with the "libertarian paternalistic" procedures that help people increase their savings rate beyond what they would do on their own. The question of whether and how government should support small business does not have an equally satisfying answer.


Source:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.





August 26, 2012

Decouple Learning from Credentialing



HennessyKhan2012-08-20.jpg



"JOHN HENNESSY: 'There's a tsunami coming.' [At left] . . . , John Hennessy & Salman Khan." Source of caption and photo: online version of the WSJ article quoted and cited below.



(p. R8) Is there anything to be done about the rising price of higher education? That was the question posed to John Hennessy, president of Stanford University, and Salman Khan, founder of Khan Academy, a nonprofit online-learning organization. They sat down with The Wall Street Journal's Walt Mossberg to discuss how technology might be part of the solution.

Here are edited excerpts of their conversation.


. . .


MR. MOSSBERG: You have a lot of money at Stanford. I've been, until recently, a trustee of Brandeis University. It's a very good university. It charges about what you do. But it doesn't have your money, and there are a lot of colleges like that.

MR. HENNESSY: Agreed, and if you look at the vast majority of colleges in the U.S., there are way too many that are [dependent on tuition to fund their budgets]. That is not sustainable. We have to do something to bend the cost curve, and this is where technology comes in.

MR. KHAN: On the sustainability question, I agree. I think the elites will probably do just fine, but for the bulk of universities, nothing can grow 5% faster than inflation forever. It will just take over the world, and that's what's happening now.

There is a fundamental disconnect happening between the providers of education and the consumers of education. If you ask universities what they are charging the $60,000 for, they'll say, "Look at our research facilities. Look at our faculty. Look at the labs and everything else." And then if you ask the parents and the students why they are taking on $60,000 of debt, they'll say, "Well, I need the credential. I need a job."

So one party thinks they're selling a very kind of an enriching experience, and the other one thinks that they're buying a credential. And if you ask the universities what percentages of your costs are "credentialing," they say oh, maybe 5% to 10%. And so I think there's an opportunity if we could decouple those things--if the credentialing part could happen for significantly less.

MR. MOSSBERG: What do you mean by the credentialing part?

MR. KHAN: If you think about what education is, it's a combination. There's a learning part. You learn accounting, you learn to write better, to think, whatever. Then there is a credentialing part, where I'm going to hand you something that you can go take into the market and signal to people that you know what you're doing.

Right now they're very muddled, but this whole online debate or what's happening now is actually starting to clarify things. At Khan Academy we're 100% focused on the learning side of things. And I think it would be interesting [if credentials could be earned based on what you know and not on where you acquired that knowledge].



For the full interview, see:

Walt Mossberg, interviewer. "Changing the Economics of Education; John Hennessy and Salman Khan on how technology can make the college numbers add up." The Wall Street Journal (Mon., June 4, 2012): R8.

(Note: bracketed words in caption, and ellipses, added; bold and italics in original.)






August 13, 2012

Revolutionary Entrepreneurs Need "Unbridled Confidence and Arrogance"



(p. B1) Will there be another?

It's a bit absurd to try to identify "the next Steve Jobs." Two decades ago, Mr. Jobs himself wouldn't even have qualified. Exiled from Apple Inc., . . . Mr. Jobs was then hoping to revive his struggling computer maker, NeXT Inc. . . .

But just as Mr. Jobs followed Henry Ford and Thomas Edison, there will some day be another innovator with the vision, drive and disdain of the status quo to spark, and then direct, big changes in how we live.


. . .


"You have to try the unreasonable," says Vinod Khosla, a co-founder of Sun Microsystems Inc., who, as a longtime venture capitalist, has seen thousands of would-be revolutionaries. Two key characteristics, Mr. Khosla says: "unbridled confidence and arrogance."



For the full story, see:

SCOTT THURM and STU WOO. "Who Will Be the 'Next Steve Jobs'?" The Wall Street Journal (Sat., October 8, 2011): B1 & B3.

(Note: ellipses added.)





August 2, 2012

Romney Right that Culture Matters for Economic Success



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Source of book image: http://photo.goodreads.com/books/1172699090l/209176.jpg




In the piece quoted below, and in much of the TV media coverage, the story is spun as being that Romney offended the Palestinians. But that is not the story. The story is that Romney courageously highlighted an important, but politically incorrect, truth---culture, generally, does matter for economic performance; and Israeli culture, specifically, has encouraged economic growth.

Romney referred to an important book by the distinguished economic historian David Landes. Last school year, one of the students in my Economics of Technology seminar gave a presentation on a related Landes book. That presentation can be viewed at: http://www.amazon.com/review/R2GLBAMFCS5PXH/ref=cm_cr_pr_perm?ie=UTF8&ASIN=0521094186&linkCode=&nodeID=&tag=

I recently read another relevant book, Start-Up Nation, that directly supports Romney's specific claim, by making the case that Israeli culture is especially congenial to entrepreneurial initiative and success.



(p. A1) JERUSALEM -- Mitt Romney offended Palestinian leaders on Monday by suggesting that cultural differences explain why the Israelis are so much more economically successful than Palestinians, thrusting himself again into a volatile issue while on his high-profile overseas trip.


. . .


In the speech, Mr. Romney mentioned books that had influenced his thinking about nations -- particularly "The Wealth and Poverty of Nations," by David S. Landes, which, he said, argues that culture is the defining factor in determining the success of a society.

"Culture makes all the (p. A14) difference," Mr. Romney said. "And as I come here and I look out over this city and consider the accomplishments of the people of this nation, I recognize the power of at least culture and a few other things."

He added, "As you come here and you see the G.D.P. per capita, for instance, in Israel, which is about $21,000, and compare that with the G.D.P. per capita just across the areas managed by the Palestinian Authority, which is more like $10,000 per capita, you notice such a dramatically stark difference in economic vitality. And that is also between other countries that are near or next to each other. Chile and Ecuador, Mexico and the United States."

The remarks, which vastly understated the disparities between the societies, drew a swift rejoinder from Palestinian leaders.



For the full story, see:

ASHLEY PARKER and RICHARD A. OPPEL Jr. "Romney Trip Raises Sparks at a 2nd Stop." The New York Times (Tues., July 31, 2012): A1 & A14.

(Note: ellipsis added.)

(Note: the online version of the story has the date July 30, 2012.)


The Landes book discussed by Romney is:

Landes, David S. The Wealth and Poverty of Nations. New York: W.W. Norton & Company, 1998.


The book on Israeli entrepreneurship, that I mention in my comments, is:

Senor, Dan, and Saul Singer. Start-Up Nation: The Story of Israel's Economic Miracle. hb ed. New York: Twelve, 2009.






July 31, 2012

Richard Posner Seeks to Limit and Reform the Patent System



PosnerRichard2012-07-20.jpg













"Judge Richard Posner." Source of caption and photo: online version of the WSJ article quoted and cited below.





I am deeply conflicted about patents. On the one hand, property rights are important, both ethically and in terms of economic incentives. On the other hand, patents seem to restrict innovation.

The views of Posner are worth serious consideration. My own current view is that the patent rules need to be reformed and their implementation made more efficient. But I do not think the patent system should be abolished.


(p. B1) While technology companies continue to fight over smartphone patents, one judge has fought his way into the ring.

He is 73-year-old Richard Posner, among the most potent forces on the federal bench and an outspoken critic of the patent system.

Presiding over a lawsuit between Apple Inc. . . . and Google Inc.'s . . . Motorola Mobility in June, he dropped a bombshell, scrapping the entire case and preventing the companies from refiling their claims. The ruling startled the litigants in the case and fueled a national discussion about whether the patent system (p. B5) is broken.


. . .


In the June ruling, explaining why he wouldn't ban Motorola products from the shelves, Judge Posner said: "An injunction that imposes greater costs on the defendant than it confers benefits on the plaintiff reduces net social welfare."

Judge Posner, who declined to be interviewed for this article, has continued to press the issue.

This month, he wrote an essay in the Atlantic headlined, "Why There Are Too Many Patents In America." He said "most industries could get along fine without patent protection" and that the U.S. Patent and Trademark Office has done a woeful job, calling it "understaffed," and "many patent examinations...perfunctory."

He saved ammunition for juries and fellow jurists. "Judges have difficulty understanding modern technology and jurors have even greater difficulty," he wrote. He suggested several reforms to the patent system, including shortening the patent term for inventors in some industries and expanding the authority of the Patent and Trademark Office to try patents cases.


. . .


Judge Posner's intellectual curiosity is well-known and "people assume he has no political ax to grind because he's not trying to advance the fortunes of any particular segment of the economy," said Arthur D. Hellman, a law professor at University of Pittsburgh who studies the judiciary.

Yet his ruling poses a difficult question for the Federal Circuit Court of Appeals, the specialized one that handles intellectual property cases, about whether infringement matters without damages.

Peter Menell, a law professor at UC Berkeley, likened it to the old thought experiment that begins "If a tree falls in the woods." He said: "If there are no damages, do you need to have a trial?"

Juge Posner also rejected Google's bid to block the sale of iPhones that allegedly infringed a so-called "standards-essential patent" owned by Google. Standards-essential patents protect innovations used in technologies that industries collectively agree to use, like Wi-Fi or 3G. A company that holds one of these patents stands to profit enormously, because its competitors have to pay it for licenses to use the technology.

But Judge Posner ruled that holders of such patents aren't entitled to injunctions. Michael Carrier, a law professor at Rutgers University, Camden, said the opinion on standards-essential patents came amid a groundswell of opposition to injunctions for such patents and could put an end to the practice among U.S. federal judges.



For the full story, see:

JOE PALAZZOLO and ASHBY JONES. "Also on Trial: A Judge's Worldview." The Wall Street Journal (Tues., July 24, 2012): B1 & B5.

(Note: all ellipses were added except for the one internal to the quote from Judge Posner's Atlantic blog posting.)

(Note: the online version of the article has the date July 23, 2012 and has the title "Apple and Samsung Patent Suit Puts Judge Posner's Worldview on Trial." The print version of the title could be interpreted as a sub-title of the main title to the accompanying adjacent article. The title of the main article was "Apple v. Samsung; In Silicon Valley, Patents Go on Trial." The last two paragraphs above appear only in the online, but not in the print, version of the article.)


The Atlantic blog posting by Posner can be found at:

Posner, Richard A. "Why There Are Too Many Patents in America." In The Atlantic blog, posted on July 12, 2012 at: http://www.theatlantic.com/business/archive/2012/07/why-there-are-too-many-patents-in-america/259725/.

(Note: the WSJ article above implies that the Posner essay was published in the print version of The Atlantic, but I can only find it in Posner's blog on The Atlantic web site.)






July 27, 2012

Edison Was Great Inventor; "Jobs Was the Far Shrewder Businessman"



EdisonThomasAlva2012-06-22.jpg "Thomas Alva Edison." Source of caption and photo: online version of the NYT article quoted and cited below.



I have not read Stross' books on Jobs and Edison. According to some of the Amazon reviews of the Jobs book, back in 1993 Stross was much more critical of Jobs than he is in the piece below:



(p. 4) I wrote a book about Mr. Jobs in 1993.


. . .


Years later, I wrote a biography of Edison, a person whom Mr. Jobs admired. When you compare the two personalities and their careers, a few similarities emerge immediately. Both had less formal schooling than most of their respective peers. Both possessed the ability to visualize projects on a grand scale. Both followed an inner voice when making decisions. And both had terrific tempers that could make their employees quake.


. . .


Mr. Jobs was the far shrewder businessman, even if he never talked about wealth as a matter of personal interest. When Edison died, he left behind an estate valued at about $12 million, or about $180 million in today's dollars. His friend Henry Ford had once joked that Edison was "the world's greatest inventor and the world's worst businessman." Mr. Jobs was worth a commanding $6.5 billion.

Mr. Jobs was perhaps the most beloved billionaire the world has ever known. Richard Branson's tribute captures the way people felt they could identify with Mr. Jobs's life narrative: "So many people drew courage from Steve and related to his life story: adoptees, college dropouts, struggling entrepreneurs, ousted business leaders figuring out how to make a difference in the world, and people fighting debilitating illness. We have all been there in some way and can see a bit of ourselves in his personal and professional successes and struggles."



For the full commentary, see:

RANDALL STROSS. "The Power of Taking the Big Chance." The New York Times, SundayBusiness Section (Sun., October 9, 2011): 4.

(Note: online version of the commentary is dated October 8, 2011, and has the title "The Wizard and the Mortal: Two Sides of Genius.")

(Note: in the print version, the same title, on the same page, was used as heading for two different articles on Steve Jobs--Lohr's on the left side, and Stross' on the right side.)


Stross' books on Jobs and Edison are:

Stross, Randall E. Steve Jobs & the Next Big Thing. New York: Scribner Publishers, 1993.

Stross, Randall E. The Wizard of Menlo Park: How Thomas Alva Edison Invented the Modern World. New York: Crown Publishers, 2007.






July 26, 2012

Experts "Produce Poorer Predictions than Dart-Throwing Monkeys"



(p. 219) Tetlock interviewed 284 people who made their living "commenting or offering advice on political and economic trends." He asked them to assess the probabilities that certain events would occur in the not too distant future, both in areas of the world in which they specialized and in regions about which they had less knowledge. Would Gorbachev be ousted in a coup? Would the United States go to war in the Persian Gulf? Which country would become the next big emerging market? In all, Tetlock gathered more than 80,000 predictions. He also asked the experts how they reached their conclusions, how they reacted when proved wrong, and how they evaluated evidence that did not support their positions. Respondents were asked to rate the probabilities of three alternative outcomes in every case: the persistence of the status quo, more of something such as political freedom or economic growth, or less of that thing.

The results were devastating. The experts performed worse than they would have if they had simply assigned equal probabilities to each of the three potential outcomes. In other words, people who spend their time, and earn their living, studying a particular topic produce poorer predictions than dart-throwing monkeys who would have distributed their choices evenly over the options. Even in the region they knew best, experts were not significantly better than nonspecialists.



Source:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.


Tetlock's book is:

Tetlock, Philip E. Expert Political Judgment: How Good Is It? How Can We Know? Princeton, NJ: Princeton University Press, 2005.





July 25, 2012

Joe Biden's Dad Told Him to "Get Up" in Face of Job Loss







Innovative entrepreneurs, through the process of creative destruction, provide us with wonderful new products and services. But sometimes the process also results in job loss. One response to the job loss is to shut down innovation. Another is to preach resilience. Joe Biden's Dad said "get up." (The clip is from a talk that Joe Biden gave to the National Press Club on August 1, 2007. The full talk is posted to the C-SPAN web site.)


A mainly similar presentation of the "get up" message is on p. xxii of Biden's autobiography:

Biden, Joe. Promises to Keep: On Life and Politics. New York: Random House, 2007.






July 23, 2012

Alexander Field Claims 1930s Were "Technologically Progressive"



GreatLeapForwardBK2012-06-22.jpg
















Source of book image: http://yalepress.yale.edu/images/full13/9780300151091.jpg



(p. 1) UNDERNEATH the misery of the Great Depression, the United States economy was quietly making enormous strides during the 1930s. Television and nylon stockings were invented. Refrigerators and washing machines turned into mass-market products. Railroads became faster and roads smoother and wider. As the economic historian Alexander J. Field has said, the 1930s constituted "the most technologically progressive decade of the century."


. . .


(p. 6) The closest thing to a unified explanation for these problems is a mirror image of what made the 1930s so important. Then, the United States was vastly increasing its productive capacity, as Mr. Field argued in his recent book, "A Great Leap Forward." Partly because the Depression was eliminating inefficiencies but mostly because of the emergence of new technologies, the economy was adding muscle and shedding fat. Those changes, combined with the vast industrialization for World War II, made possible the postwar boom.

In recent years, on the other hand, the economy has not done an especially good job of building its productive capacity. Yes, innovations like the iPad and Twitter have altered daily life. And, yes, companies have figured out how to produce just as many goods and services with fewer workers. But the country has not developed any major new industries that employ large and growing numbers of workers.



For the full commentary, see:

DAVID LEONHARDT. "The Depression: If Only Things Were That Good." The New York Times, SundayReview Section (Sun., October 9, 2011): 1 & 6.

(Note: ellipsis added.)

(Note: online version of the commentary is dated October 8, 2011.)


Book discussed:

Field, Alexander J. A Great Leap Forward: 1930s Depression and U.S. Economic Growth, Yale Series in Economic and Financial History. New Haven, CT: Yale University Press, 2011.






July 22, 2012

The Illusion that Investment Advisers Have Skill



(p. 215) Some years ago I had an unusual opportunity to examine the illusion of financial skill up close. I had been invited to speak to a group of investment advisers in a firm that provided financial advice and other services to very wealthy clients. I asked for some data to prepare my presentation and was granted a small treasure: a spreadsheet summarizing the investment outcomes of some twenty-five anonymous wealth advisers, for each of eight consecutive years. Each adviser's score for each year was his (most of them were men) main determinant of his year-end bonus. It was a simple matter to rank the advisers by their performance in each year and to determine whether there were persistent differences in skill among them and whether the same advisers consistently achieved better returns for their clients year after year.

To answer the question, I computed correlation coefficients between the rankings in each pair of years: year 1 with year 2, year 1 with year 3, and so on up through year 7 with year 8. That yielded 28 correlation coefficients, one for each pair of years. I knew the theory and was prepared to find weak evidence of persistence of skill. Still, I was surprised to find that the average of the 28 correlations was .01. In other words, zero. The consistent correlations that would indicate differences in skill were not to be found. The results resembled what you would expect from a dice-rolling contest, not a game of skill.



Source:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.





July 21, 2012

Technology Allows Start-Ups to Launch with Fewer Employees



HarelAndShilonOfBiteHunter2012-06-22.jpg "Start-up BiteHunter launched with three employees. Above, co-founders Gil Harel, left, and Ido Shilon." Source of caption and photo: online version of the WSJ article quoted and cited below.



Lower costs to entry means more start-ups and that means more innovation, ceteris paribus. All good. For the labor market, there will be fewer initial jobs per start-up. But there will be more start-ups, and more opportunity for erstwhile laborers to themselves become entrepreneurs. So maybe still all good.



(p. B5) New businesses are getting off the ground with nearly half as many workers as they did a decade ago, as the spread of online tools and other resources enables start-ups to do more with less.

The change, which began before the recession, may be permanent, according to some analysts.


. . .


Rather than purchasing the tools and manpower needed to run their companies, more small firms are renting, sharing or outsourcing resources, typically through online services, according to Steve King, a partner at Emergent Research, a research and consulting firm for small businesses.


. . .


Last year, Gil Harel launched BiteHunter, a search engine for restaurant discounts, with just three employees. Based in New York, the site used shared screens and other communications tools to work with developers in Russia, Uruguay and Israel.

"Just to build the infrastructure to get a business off the ground used to take a lot of money and people. But things that you couldn't do in the past, you can now do on your own," Mr. Harel says.



For the full story, see:

ANGUS LOTEN. "With New Technology, Start-Ups Go Lean; Web-Based Services Mean Fewer Workers Needed." The Wall Street Journal (Thurs., September 15, 2011): B5.

(Note: ellipses added.)






July 20, 2012

Innovation Depends Less on R&D Spending and More on "Talent, Process, Execution and Strategy"



(p. B1) In the world of R&D spending, more doesn't necessarily mean better. And R&D may not describe all the innovation that matters.

"I think the numbers are pretty useless," says Michael Schrage, a research fellow at MIT's Sloan School who has studied the subject. "What matters more is the kind of innovator you are. If it were really true that the people who spent the most on R&D were the most successful, we wouldn't be subsidizing General Motors ."

"There's no statistically significant relationship between how much a company spends on R&D and how they perform over time," adds Barry Jaruzelski of Booz & Co. "There's a set of people who just consistently seem to skin the cat better."


. . .


(p. B2) Booz & Co. in 2007 listed the biggest global corporate spenders of R&D. The top 10 were Toyota, Pfizer, Ford, Johnson & Johnson, DaimlerChrysler, General Motors, Microsoft, GlaxoSmithKline, Siemens and IBM.

Then it drew up a second list, a group of companies it called "high-leverage innovators" that returned the best financial performance for every dollar spent on R&D. Booz screened for companies that, over the five previous years, outperformed industry peers across seven measures--including profit, sales growth, and shareholder return--while also spending less on R&D as a percentage of sales than the median in their industries.

No company from the first list made the second list. (Winners included Adidas, Apple, Exxon, Google, Kobe Steel, Samsung and Tenneco.)

That disconnect essentially hasn't changed, says Mr. Jaruzelski. Winning at innovation "is all about talent, process, execution and strategy," he says. "That's given the U.S. a pretty strong advantage over time."

"Technology," he adds, "is not equal to innovation."



For the full commentary, see:

JOHN BUSSEY. "THE BUSINESS; Myths of the Big R&D Budget." The Wall Street Journal (Fri., June 15, 2012): B1-B2.

(Note: ellipsis added.)






July 19, 2012

Larry Page on Tesla, Commerce, and Changing the World







Funding is a key constraint for the innovative project entrepreneur. By "project entrepreneur" I mean the innovator who views money as a means to achieving the project, and not as an end in itself. In this brief clip from Page's 2007 AAAS talk, he discusses how as a 12 year-old reading Tesla's autobiography he almost cried at how Tesla's failure to commercialize his ideas limited his ability to change the world.


The Tesla autobiography is:

Tesla, Nikola. My Inventions: The Autobiography of Nikola Tesla. SoHo Books, 2012.






July 18, 2012

Neglecting Valid Stereotypes Has Costs



(p. 169) The social norm against stereotyping, including the opposition to profiling, has been highly beneficial in creating a more civilized and more equal society. It is useful to remember, however, that neglecting valid stereotypes inevitably results in suboptimal judgments. Resistance to stereotyping is a laudable moral position, but the simplistic idea that the resistance is costless is wrong. The costs are worth paying to achieve a better society, but denying that the costs exist, while satisfying to the soul and politically correct, is not scientifically defensible.


Source:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.





July 17, 2012

Web Expedites Labor Market for Small Projects



LangerAndBurksChore2012-06-22.jpg "Liz Langer helped John Burks retrieve his keys." Source of caption and photo: online version of the WSJ article quoted and cited below.


(p. A1) A new crop of websites and smartphone applications are allowing people to farm out chores to a growing army of temporary personal assistants. These micro-employees are taking the division of labor to once-unthinkable extremes.


. . .


(p. A14) Some investors see dollar signs. Zaarly Inc., an online marketplace for micro-labor and goods based in San Francisco, recently raised $14.1 million from Google Inc. GOOG -2.18% investor and venture-capital firm Kleiner Perkins Caufield & Byers. Actor Ashton Kutcher and clothing designer Marc Ecko have also put in money. In October, Hewlett-Packard Chief Executive Meg Whitman joined the company's board.

After launching six months ago, Zaarly is processing more than 1,000 transactions a week for jobs that cost around $50 a pop. Chief Executive and cofounder Bo Fishback, 33, says about half the requests involve tangible goods, and the rest involve some sort of service. One of his favorites: a person who hired someone to buy a Michael Jackson-themed dog costume for a puppy.

Sometimes the situation can be dire. John Burks, a 30-year-old actor who also runs an arts organization in Chicago, accidentally dropped his keys in a sewer during a rainstorm over the summer. To replace all the keys--including ones to his home, office and Mercedes--could cost well over $100.

After Googling "lost keys down sewer" to see what tactics others had used, Mr. Burks thought he could recover his keys with a fishing rod and a magnet, but had neither. His girlfriend at the time knew someone who worked at Zaarly, so he posted the job on its site. Liz Langer, a 27-year-old neuroscience graduate student and top Zaarly "fulfiller," spotted the job and within an hour arrived with the needed tools. Fifteen minutes later, they fished the keys out of the sewer. (Price: $80.)

"It's like stranger than fiction," Mr. Burks says. "I thought there was a very small chance that anything like that can happen."



For the full story, see:

EMILY GLAZER. "Serfing the Web: Sites Let People Farm Out Their Chores; Workers Choose Jobs, Negotiate Wages; Mr. Kutcher, Anonymously, Asks for Coffee." The Wall Street Journal (Mon., November 28, 2011): A1 & A14.

(Note: ellipsis added.)






July 16, 2012

"Why Would I Ever Need 10 Floppy Disks?"



Steven Johnson's early The Ghost Map is a wondrous story of a courageous medical entrepreneur who fairly single-handedly changes accepted wisdom on a hugely important issue (what causes disease). Steven Johnson's recent Where Ideas Come From provides a mechanical account that attributes new ideas to the inevitable exploration of "the adjacent possible," leaving little room for the great innovative entrepreneur.

It takes guts to contradict one's most recent book, and to contradict it so eloquently. So please join me in welcoming back the Steven Johnson of The Ghost Map:



(p. C3) In the fall of 1986, during the first week of my freshman year of college, my cousin took me to the university computer store to help me buy my first Macintosh. The Mac platform was two years old at that point, and Apple had just released a new machine called the Mac Plus that featured a then-staggering 1 megabyte of RAM. (In today's mileage, that would be just enough memory to store the first few verses of a Katy Perry song.) But the Mac did not yet offer a hard drive, and so my more tech-savvy cousin told me to buy a 10-pack of floppy disks as well.

I looked at him with astonishment. I was an art kid, not a techie. I needed a computer to write plays and short stories and term papers. The computer was just a tool, nothing more. "Why would I ever need 10 floppy disks?" I asked. "I just need one disk for my Microsoft Word files." My cousin smiled, knowing full well where I was headed. "Just buy the disks. Trust me."

He was right, of course, and to this day whenever I call him up to tell him about my latest computer purchase, with its terabytes of storage and gigabytes of memory, he laughs and says, "Just one disk. That's all I need."


. . .


The genius of famous innovators and CEOs is often exaggerated: Most fortunes are built on good fortune as much as sheer brilliance, and invention is a collaborative art. But there is no contesting the fact of Steve Jobs's genius--just a debate about its defining qualities.

I worry that we miss something in hailing him as either a master salesman or a master designer, though he is clearly both. His real gift, from an early age, has been the ability to see that these two worlds could, and should, productively collide. It isn't just that he made computers cool or put them in pretty boxes. It's that he put those computers in new conceptual boxes. A machine originally designed for processing equations and building bombs turned out to have a wonderful hidden potential: for song, laughter, poetry, community, family.


. . .


When I heard the news that he was stepping down from Apple, the image that flashed in my head was of a kid in a computer store trying to save a few bucks by skimping on floppy disks. I suspect my own story is not so unusual. There is, on the one hand, the simple, factual accounting of it: Steve Jobs persuaded me to buy a lot more than 10 disks over the years. But the other hand is so much more interesting: all the wonderful, unexpected things that he got me to put on those disks.



For the full commentary, see:

STEVEN JOHNSON. "THE GENIUS OF JOBS; Marrying Tech and Art; Steven Johnson on the magic of his first Mac--and how it changed his life." The Wall Street Journal (Sat., August 27, 2011): C3.

(Note: ellipses added.)






July 14, 2012

Some Irrationality Occurs Because Not Much Is at Stake, and Rationality Takes Time and Effort



(p. 164) The laziness of System 2 is part of the story. If their next vacation had depended on it, and if they had been given indefinite time and told to follow logic and not to answer until they were sure of their answer, I believe that most of our subjects would have avoided the conjunction fallacy. However, their vacation did not depend on a correct answer; they spent very little time on it, and were content to answer as if they had only been "asked for their opinion." The laziness of System 2 is an important fact of life, and the observation that representativeness can block the application of an obvious logical rule is also of some interest.


Source:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.





July 12, 2012

A Firm's Social Responsibility Is to Make a Profit



(p. B1) Milton Friedman, the Nobel laureate economist, blasted the very idea of corporate social responsibility four decades ago, calling it a "fundamentally subversive doctrine." Speaking for many capitalists then and now, he said, "there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game."

Companies shouldn't spend profits on unrelated job creation or social causes, he said. That money should go to shareholders--the owners of the companies. Pronouncements about corporate social responsibility, he added, are the indulgence of "pontificating executives" who are "incredibly shortsighted and muddleheaded in matters that are outside their businesses." And that indulgence can lead to inefficient markets.


. . .


(p. B2) "Jobs are an input, not an output; they're a cost of doing business, not a goal of doing business," says William Frezza, a Boston-based venture capitalist and fellow at the Competitive Enterprise Institute.

"From the perspective of defending capitalism, if you accept the premise of your opponent that business has to give back to society, you've already lost," he says. "To put sack cloth and ashes on--you've delegitimized capitalism, which is the goal of the protesters. Businesses give back to society every day by pleasing their customers and employing their employees. There's nothing business owes other than selling the best product at the best price."



For the full commentary, see:

JOHN BUSSEY. "THE BUSINESS; Are Companies Responsible for Creating Jobs?." The Wall Street Journal (Fri., October 28, 2011): B1-B2.

(Note: ellipsis added.)






July 5, 2012

Steve Jobs Showed that Art and Commerce Could Be "Happy Bedfellows"



OldmanGary2012-06-22.jpg














Gary Oldman. Source of photo: online version of the NYT article quoted and cited below.







(p. 2) Gary Oldman is an English actor . . . widely known for his roles as Sirius Black in the "Harry Potter" film series and Jim Gordon in the Batman movies.


. . .


READING Right now I'm reading the Steve Jobs biography by Walter Isaacson. I love when people have a singleness of purpose and don't get dissuaded. I can connect with that. I can recognize it. I think a lot of artists have that. Art and commerce are not particularly happy bedfellows, but he was the exception.

I read quite a lot of biographies. I like nonfiction. The other book I'm carrying around with me at the moment is "River of Shadows: Eadweard Muybridge and the Technological Wild West" by Rebecca Solnit. It deals with the 19th century and the arrival of speed with the coming of the industrial age. We were very much governed by nature before; we were at the mercy of our own speed and horses and the like. It's interesting to think of living at that pace.



For the full interview, see:

KATE MURPHY. "DOWNLOAD; Gary Oldman." The New York Times, SundayReview Section (Sun., February 5, 2012): 2.

(Note: ellipses added; bold in original.)

(Note: online version of the interview is dated February 4, 2012.)






July 3, 2012

Our Cups Will Runneth Over If We Choose Entrepreneurship, Imagination, Will and Optimism



AbundanceBK2012-06-11.jpg



















Source of book image: http://www.abundancethebook.com/wp-content/uploads/2012/01/cover-NYTimes-3d-500.jpg?139d23


(p. 18) in Silicon Valley, where the locals tend to be too busy starting companies to wallow in gloom, Peter Diamandis has stood out as one of the more striking optimists. Several years ago, Diamandis founded the X Prize Foundation, which rewards entrepreneurs with cash for achieving difficult goals, like putting a reusable spaceship into flight on a limited budget. More recently he helped start Singularity University, an academic program that convenes several weeks a year in the Valley and educates business leaders about the "disruptive" -- i.e., phenomenally innovative -- technological changes Diamandis is anticipating. To be sure, Diamandis is both very bright (he studied molecular biology and aerospace engineering at M.I.T. before getting an M.D. at Harvard) and well informed. Moreover, he's not the kind of optimist who will merely see the glass as half full. He'll give you dozens of reasons, some highly technical, why it's half full. Then he'll explain that your cognitive biases are tricking you into seeing the glass of water in a negative light, and cart out the research of acclaimed psychologists like Daniel Kahne­man to prove his point. Finally he may suggest you stop fretting: new technologies will soon fill the glass up anyway. Indeed, they are likely to overfill it.


. . .


(p. 19) Throughout the book Diamandis . . . offers small groups of driven entrepreneurs as a kind of Leatherman solution to the world's problems. It's true that plenty of insurgents are doing impressive things out there -- Elon Musk's Tesla Motors, which helped jump-start the world's electric car industry, is a good example.


. . .


. . . , there's a significant idea embedded within "Abundance": We should remain aware, as writers like Jared Diamond have likewise told us, that societies can choose their own future, and thus their own fate. In that spirit Diamandis and Kotler put forth a range of possible goals we may achieve if we have the imagination and the will. A little optimism wouldn't hurt, either.



For the full review, see:

JON GERTNER. "Plenty to Go Around." The New York Times Book Review (Sun., April 1, 2012): 18 & 19.

(Note: ellipses added.)

(Note: the online version of the review has the date March 30, 2012.)


The book under review is:

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






July 2, 2012

Even with Subsidies and High Gas Prices, Electric Cars Cost More



(p. 12) The Ford Focus Electric has a base price of $39,995 -- minus a $7,500 federal tax credit and a $2,500 rebate in California. That puts its tab at $30,000, some $7,000 above the upscale Focus Titanium. I can hear the electric naysayers exclaiming "Aha! You won't make back the savings at the pumps." That's despite $4 gasoline, and the Focus Electric's 110 m.p.g. equivalent rating.

But when buying any new car, especially an innovative model of any kind, emotions, aesthetics and externalities eclipse economics.



For the full story, see:

BRADLEY BERMAN. "BEHIND THE WHEEL; 2012 FORD FOCUS ELECTRIC; The Battery-Driven Car Just Got a Lot More Normal." The New York Times, SportsSunday (Sun., May 6, 2012): 12.

(Note: online version of the story is dated May 4, 2012.)






July 1, 2012

Behavioral Economics Does Not Undermine Capitalism



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Source of book image: http://www.brainpickings.org/wp-content/uploads/2011/10/thinkingfastandslow.jpg





Daniel Kahneman first gained fame in economics through research with Tversky in which they showed that some of economists' assumptions about human rationality do not always hold true.

Kahneman, whose discipline is psychology, went on to win the Nobel Prize in economics, sharing the prize with Vernon Smith. (Since the Prize is not normally awarded posthumously, Tversky was not a candidate.)

I have always thought that ultimately there should be only one unified science of human behavior---not claims that are "true" in economics and other claims that are "true" in psychology. (I even thought of minoring in psychology in college, before I realized that the price of minoring included taking time-intensive lab courses where you watched rats run through mazes.)

But I don't think the implications of current work in behavioral economics are as clear as has often been asserted.

Some important results in economics do not depend on strong claims of rationality. For instance, the most important "law" in economics is the law of demand, and that law is due to human constraints more than to human rationality. Gary Becker, early in his career, wrote an interesting paper in which he showed that the law of demand could also be derived from habitual and random behavior. (I remember in conversation, George Stigler saying that he did not like this paper by Becker, because it did not hone closely to the rationality assumption that Stigler and Becker defended in their "De Gustibus" article.)

The latest book by Kahneman is rich and stimulating. It mainly consists of cataloging the names of, and evidence for, a host of biases and errors that humans make in thinking. But that does not mean we cannot choose to be more rational when it matters. Kahneman believes that there is a conscious System 2 that can over-ride the unconscious System 1. In fact, part of his motive for cataloging bias and irrationality is precisely so that we can be aware, and over-ride when it matters.

Sometimes it is claimed, as for instance in a Nova episode on PBS, that bias and irrationality were the main reasons for the financial crisis of 2008. I believe the more important causes were policy mistakes, like Clinton and Congress pressuring Fannie Mae and Freddie Mac to make home loans to those who did not have the resources to repay them; and past government bailouts encouraging finance firms to take greater risks. And the length and depth of the crisis were increased by government stimulus and bailout programs. If instead, long-term cuts had been made in taxes, entrepreneurs would have had more of the resources they need to create start-ups that would have stimulated growth and reduced unemployment.

More broadly, aspects of behavioral economics mentioned, but not emphasized, by Kahneman, can actually strengthen the underpinnings for the case in favor of entrepreneurial capitalism. Entrepreneurs may be more successful when they are allowed to make use of informal knowledge that would not be classified as "rational" in the usual sense. (I discuss this some in my forthcoming paper, "The Epistemology of Entrepreneurship.")

Still, there are some useful and important examples and discussions in Kahneman's book. In the next several weeks, I will be quoting some of these.


Book discussed:

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.


The Becker article mentioned above is:

Becker, Gary S. "Irrational Behavior and Economic Theory." Journal of Political Economy 70, no. 1 (Feb. 1962): 1-13.


The Stigler-Becker article mentioned above is:

Stigler, George J., and Gary S. Becker. "De Gustibus Non Est Disputandum." American Economic Review 67, no. 2 (March 1977): 76-90.





June 29, 2012

A Renting Labor Force Is More Dynamically Mobil



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