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Wozniak writes of pre-1983 management troubles at Apple, in the passage quoted below. The passage highlights that large companies usually lose flexibility in hiring and firing. Good managers who have tacit (or just insufficiently documented) judgment about who the best employees are, have limited ability to act on that knowledge.

I wonder if this is a necessary disadvantage of size, or a disadvantage that is due to our laws, customs and institutions?

(p. 231) By this time, I should point out, Mike Scott--our president who took us public and the guy who took us through the phenomenally successful IPO--was gone. During the time the Apple III was being developed, he thought we'd grown a bit too large. There were good engineers, sure, but there were also a lot of lousy engineers floating around. That happens in any big company.

It's not necessarily the lousy engineer's fault, by the way. There's always going to be some mismatch between an engineer's interests and the job he's doing.

Anyway, Scotty had told Tom Whitney, our engineering manager, to take a vacation for a week. And meanwhile he did some research. He went around and talked to every engineer in the company and found out who was doing what and who was working and who wasn't doing much of anything.

Then he fired a whole bunch of people. That was called Bloody Monday. Or, at least, that's what it ended up being called in the Apple history books. I thought that, pretty much, he fired all the right ones. The laggards, I mean.

And then Mike Scott himself was fired. The board was just very pissed that he'd done this without a lot of backing and enough due process, the kind of procedure you're supposed to follow at a big company.

Also, Mike Markulla told me Mike Scott had been making a lot of rash decisions and decisions that just weren't right. Mike thought Scotty wasn't really capable of handling the company given the point and size it had gotten to.

I did not like this one bit. I liked Scotty very, very much as a person. I liked his way of thinking. I liked his way of being able to joke and be serious. With Scotty, I didn't see many things fall (p. 232) through the cracks. And I felt that he respected the good work that I did--the engineering work. He came from engineering.

And as I said, Scotty had been our president, our leader from day one of incorporation until we'd gone public in one of the biggest IPOs in U.S. history. And now, all of a sudden, he was just pushed aside and forgotten.

I think it's sad that none of the books today even seem to recall him. Nobody knows his name. Yet Mike Scott was the president that took us through the earliest days.

Source:

Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

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"The Droid X is the latest "best Android phone on the market."" Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B1) You think technology moves too fast now? You think your camera, camcorder and computer become obsolete quickly?

Try buying an app phone. In this business, the state of the art changes as often as Lady Gaga changes outfits.

Suppose, for example, that you want one of the increasingly popular phones that run Google's Android software.

Last November, you might have been tempted by the Motorola Droid, "the best Android phone on the market." A month later, the HTC Hero was "the best Android phone on the market." By January, "the best Android phone yet" was the Nexus One. In April, "the best Android device that you can purchase" was the HTC Incredible. In May, "the best Android phone on the market" was the Sprint Evo.

Either "the best Android phone on the market" is a tech critic's tic, or we're witnessing one seriously crazy game of leapfrog.

The latest buzz is about the Motorola Droid X, which Verizon will offer in mid-July for $200.

. . .

(p. B8) . . . , it's thrilling to see the array of excellent app phones that the original iPhone begat. If you who crave power, speed, flexibility, dropless calls an almost-Imax screen and Verizon's network (as opposed to Sprint and its similar Evo), the Droid X is a big, beautiful contender for the "best Android phone on the market" crown.

This month's crown, anyway.

For the full story, see:

DAVID POGUE. "State of the Art; Big Phone, Big Screen, Big Pleasure." The New York Times (Thurs., July 1, 2010): B1 & B8.

(Note: ellipses added.)

(Note: the online version of the article is dated June 30, 2010.)

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(p. 196) After Commodore turned us down, we went over to Al Alcorn's house. He was one of the founders of Atari with Nolan Bushnell, and he was the one who'd hired Steve to do video games there two years before.

Now, I knew Al knew me. He knew I had designed Breakout, the one-player version of Pong. I remember that when we went to his house I was so impressed because he had one of the earliest color projection TVs. Man, in 1976, he would have been among the first people to have one. That was cool.

But he told us later that Atari was too busy with the video game market to do a computer project.

A few days after that, venture capitalists Steve had contacted started to come by. One of them was Don Valentine at Sequoia. He kind of pooh-poohed the way we talked about it.

He said, "What's the market?"

"About a million," I told him.

"How do you know?"

I told him the ham radio market had one million users, and this could be at least that big.

Well, he turned us down, but he did get us in touch with a guy named Mike Markkula. He was only thirty, he told us, but already retired from Intel. He was into gadgets, he told us. Maybe Mike would know what to do with us.

Source:

Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

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George Shultz, former Dean of the University of Chicago Business School, former Secretary of the Treasury, and former Secretary of State. Source of photo: online version of the NYT article quoted and cited below.


(p. 12) What do you make of the direction the Republican Party has taken since you served in Washington? Isn't the Tea Party a corruption of the values you stood for?
From what I understand of it, it is a reaction, which I share, to the fact that our government seems to have gotten out of control. We're spending at a rate that's just unsustainable.

That's a legacy of the Bush era, I guess.
Everybody is conveniently blaming everything on Bush, but he's not responsible for what's happened in the last year.

You'll be 90 in December. How are you?
I'm terrific. Feeling great. I'm vertical, not horizontal. That's a big thing.

For the full interview, see:

DEBORAH SOLOMON. "Questions for George Shultz; The Statesman." The New York Times Magazine (Sun., July 4, 2010): 12.

(Note: bolding of interviewer questions was in original.)

(Note: the online version of the article is dated June 28, 2010.)

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(p. A15) Last November there was a world-wide outcry when a trove of emails were released suggesting some of the world's leading climate scientists engaged in professional misconduct, data manipulation and jiggering of both the scientific literature and climatic data to paint what scientist Keith Briffa called "a nice, tidy story" of climate history. The scandal became known as Climategate.

Now a supposedly independent review of the evidence says, in effect, "nothing to see here."

. . .

One of the panel's four members, Prof. Geoffrey Boulton, was on the faculty of East Anglia's School of Environmental Sciences for 18 years. At the beginning of his tenure, the Climatic Research Unit (CRU)--the source of the Climategate emails--was established in Mr. Boulton's school at East Anglia. Last December, Mr. Boulton signed a petition declaring that the scientists who established the global climate records at East Anglia "adhere to the highest levels of professional integrity."

This purportedly independent review comes on the heels of two others--one by the University of East Anglia itself and the other by Penn State University, both completed in the spring, concerning its own employee, Prof. Michael Mann. Mr. Mann was one of the Climategate principals who proposed a plan, which was clearly laid out in emails whose veracity Mr. Mann has not challenged, to destroy a scientific journal that dared to publish three papers with which he and his East Anglia friends disagreed. These two reviews also saw no evil. For example, Penn State "determined that Dr. Michael E. Mann did not engage in, nor did he participate in, directly or indirectly, any actions that seriously deviated from accepted practices within the academic community."

Readers of both earlier reports need to know that both institutions receive tens of millions in federal global warming research funding (which can be confirmed by perusing the grant histories of Messrs. Jones or Mann, compiled from public sources, that are available online at freerepublic.com). Any admission of substantial scientific misbehavior would likely result in a significant loss of funding.

It's impossible to find anything wrong if you really aren't looking.

For the full commentary, see

PATRICK J. MICHAELS. "The Climategate Whitewash Continues; Global warming alarmists claim vindication after last year's data manipulation scandal. Don't believe the 'independent' reviews.." The Wall Street Journal (Mon., JULY 12, 2010): A15.

(Note: the online version of the article is dated JULY 10, 2010.)

(Note: ellipsis added.)

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"Pumps draw petroleum from oil wells near a home." Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A15) As oil continues to gush from BP's Macondo well and politicians posture, it is time for us to ask why we are drilling in such risky places when there is oil available elsewhere. The answer lies in the mantra NIMBY--"not in my back yard."

. . .

In early June there was a blowout in western Pennsylvania. Did you see it on the nightly news? No, because it was capped in 16 hours.

. . .

Drilling can be done with greater environmental sensitivity onshore. For many years the Audubon Society actually allowed oil companies to pump oil for its privately owned sanctuaries in Louisiana and Michigan, but did so with strict requirements on the oil companies so that they would not disturb the bird habitat.

. . .

When kids play baseball, there is a risk that windows will get broken. Playing on baseball fields rather than in sand lots, however, lowers the risk considerably. Putting so much onshore land off limits to oil and gas development is like closing baseball parks. More windows will be broken and more blowouts result where they are difficult to prevent and stop.

For the full commentary, see:

TERRY ANDERSON. "Why It's Safer to Drill in the 'Backyard'; Texas has had 102 oil and gas well blowouts since the start of 2006, without catastrophic consequences." The Wall Street Journal (Fri., June 25, 2010): A15.

(Note: ellipses added.)

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"One promising device is an oil-water separator backed by the actor Kevin Costner, right." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A1) Two decades after the Exxon Valdez oil spill, cleanup technology has progressed so little that the biggest advancement in the Gulf of Mexico disaster -- at least in the public's mind -- is an oil-water separator based on a 17-year-old patent and promoted by the movie star Kevin Costner.

. . .

(p. A20) Ms. Kinner [co-director of the Coastal Response Research Center at the University of New Hampshire] and others cite many . . . reasons why cleanup technologies lag.

In testimony this month before Congress, Mr. Costner told of years of woe trying to market his separator, a centrifuge originally developed and patented in 1993 by the Idaho National Laboratory, for use in oil spills. One obstacle, he said, was that although his machines are effective, the water they discharge is still more contaminated than environmental regulations allow. He could not get spill-response companies interested in his machines, he said, without a federal stamp of approval.

For the full story, see:

HENRY FOUNTAIN. "Since Exxon Valdez, Little Has Changed in Cleaning Oil Spills." The New York Times (Fri., June 25, 2010): A1 & A20.

(Note: ellipses added; and bracketed words added from previous paragraph of article.)

(Note: the date of the online version of the article was June 24, 2010 and had the title "Advances in Oil Spill Cleanup Lag Since Valdez.")

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(p. A15) Americans are debating whether to substantially expand the size of their government. As Swedish economists who live in the developed world's largest welfare state, we urge our friends in the New World to look carefully before they leap.

Fifty years ago, Sweden and America spent about the same on their government, a bit under 30% of GDP. This is no longer true. In the years leading up to Sweden's financial crisis in the early 1990s, government spending went as high as 60% of GDP. In America it barely budged, increasing only to about 33%.

While America was maintaining its standing as one of the world's wealthiest nations, Sweden's standing fell. In 1970, Sweden was the fourth richest country in the world on a per capita basis. By 1993, it had fallen to 17th.

This led us to ask whether Sweden's dramatic increase in the size of government contributed to its sluggish growth. Our research shows that it did.

We surveyed the existing literature looking at the trade-offs between government size and economic growth throughout the world. While results vary, the most recent research, by Diego Romero-Avila in the European Journal of Political Economy (2008) and by Andreas Bergh and Martin Karlsson in Public Choice (2010) find a negative correlation between government size and economic growth in rich countries.

The weight of the evidence demonstrates that when government spending increases by 10 percentage points of GDP, the annual growth rate drops by 0.5 to 1 percentage point. This may not sound like much, but over 30 years this would result in the loss of trillions of dollars each year in an economy as large as America's.

For the full commentary, see

ANDREAS BERGH AND MAGNUS HENREKSON. "Lessons From the Swedish Welfare State; New research shows bigger government means slower growth. Our country is a prime example." The Wall Street Journal (Mon., JULY 12, 2010): A15.

(Note: the online version of the article is dated JULY 10, 2010.)

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(p. 184) After we started selling the boards to Paul Terrell--working day and night to get them to him on time--we had profits like I never imagined. Suddenly our little business was making more than I was making at HP. That wasn't very much, admittedly. But still, it was a lot. We were building the boxes for $220 and selling them wholesale to Paul Terrell for $500.

And, of course, we didn't need a ton of money to operate. I had a day job, so I looked at it as, Hey, cool. Extra money for pizza! As for Steve, he was living at home. I was twenty-five and he was only twenty-one at the time, so what expenses could we have, really? Apple didn't have to make that much to sustain itself and be ongoing. We weren't paying ourselves salaries or paying rent, after all. We didn't have any patents to pay for. Or lawyers. It was a small-time business, and we weren't worried that much about anything.

My dad, watching this, pointed out that we weren't actually making money because we weren't paying ourselves anything. But we didn't care, we were having too much fun.

But note, only several pages later:

(p. 194) Like I said before, we needed money. Steve knew it and I knew it.

So by that summer of 1976, we started talking to potential money people about Apple, showing them the Apple II working in color in Steve's garage.

Source:

Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

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(p. A1) As unlikely as it would seem against this backdrop, manufacturers who want to expand find that hiring is not always easy. During the recession, domestic manufacturers appear to have accelerated the long-term move (p. A3) toward greater automation, laying off more of their lowest-skilled workers and replacing them with cheaper labor abroad.

Now they are looking to hire people who can operate sophisticated computerized machinery, follow complex blueprints and demonstrate higher math proficiency than was previously required of the typical assembly line worker.

Makers of innovative products like advanced medical devices and wind turbines are among those growing quickly and looking to hire, and they too need higher skills.

. . .

Manufacturers who profess to being shorthanded say they have retooled the way they make products, calling for higher-skilled employees. "It's not just what is being made," said David Autor, an economist at the Massachusetts Institute of Technology, "but to the degree that you make it at all, you make it differently."

In a survey last year of 779 industrial companies by the National Association of Manufacturers, the Manufacturing Institute and Deloitte, the accounting and consulting firm, 32 percent of companies reported "moderate to serious" skills shortages. Sixty-three percent of life science companies, and 45 percent of energy firms cited such shortages.

For the full story, see:

MOTOKO RICH. "Jobs Go Begging as Gap is Exposed in Worker Skills." The New York Times (Fri., July 1, 2010): A1 & A3.

(Note: ellipsis added.)

(Note: the online version of the article is dated July 1, 2010 and has the title "Factory Jobs Return, but Employers Find Skills Shortage.")

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"Supporters of a proposed Wal-Mart store in Chicago demonstrated at a City Coumcil zoning panel hearing Thursday." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B4) "We need jobs for our neighborhood, and Wal-Mart is willing to come, and they're willing to provide the jobs," said the Rev. Dr. D. Darrell Griffin, the pastor at Oakdale Covenant Church.

Politicians who supported the Wal-Mart store said they did so in part because of employment and revenue for the city.

"There are major corporations willing to invest significant money within our communities, which has not been done, really, since the '60s, when a lot of the corporations left the communities after the riots," said Howard B. Brookins Jr., a member of the council. "This is huge for us."

. . .

On Thursday, the zoning committee meeting was filled with about 200 onlookers wearing T-shirts with the Wal-Mart logo and slogans like, "Our neighborhood. Our jobs. Our decision."

Before he asked for a simple yes or no vote, Daniel Solis, chairman of the zoning committee, told the crowd, "We are now the model in this country."

After the unanimous vote -- which sends the proposal to the full City Council, where it is expected to pass next week -- the audience stood and cheered.

"It's going to bring jobs and help the community," Shawn Polk, 20, a college student who lives near the proposed store, said afterward.

For the full story, see:

STEPHANIE CLIFFORD. "Wal-Mart Gains in Its Wooing of Chicago." The New York Times (Fri., June 25, 2010): B1 & B4.

(Note: the online version of the article is dated June 24, 2010.)

(Note: ellipsis added.)

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Wozniak tells the story of how he offered to develop the PC within HP, but HP turned him down. The story seems highly compatible with the account of disruptive innovations given by Clayton Christensen.

Another aspect of the story is worth highlighting. Sometimes it is alleged, as e.g., with the Tucker auto story, that large incumbent corporations suppress innovations. But in this case, although HP did not want to develop the PC themselves, they did not try to keep Wozniak and Jobs from developing it on their own.

(p. 175) Before the partnership agreement was even inked, I realized something and told Steve. Because I worked at HP, I told him, everything I'd designed during the term of my employment contract belonged to HP.

Whether that upset Steve or not, I couldn't tell. But it didn't matter to me if he was upset about it. I believed it was my duty to tell HP about what I had designed while working for them. That was the right thing and the ethical thing. Plus, I really loved that company and I really did believe this was a product they should do. I knew that a guy named Miles Judd, three levels above me in the company structure, had managed an engineering group at an HP division in Colorado Springs that had developed a desktop computer.

It wasn't like ours at all--it was aimed at scientists and engineers and it was really expensive--but it was programmable in BASIC.

I told my boss, Pete Dickinson, that I had designed an inexpensive desktop computer that could sell for under $800 and could run BASIC. He agreed to set up a meeting so I could talk Miles.

(p. 176) I remember going into the big conference room to meet Pete, his boss, Ed Heinsen, and Ed's boss, Miles. I made my presentation and showed them my design.

"Okay," Miles said after thinking about it for a couple of minutes. "There's a problem you'll have when you say you have output to a TV. What happens if it doesn't look right on every TV? I mean, is it an RCA TV a Sears TV or an HP product that's at fault?"

HP keeps a close eye on quality control, he told me. If HP couldn't control what TV the customer was using, how could it make sure the customer had a good experience? More to the point, the division didn't have the people or money to do a project like mine. So he turned it down.

I was disappointed, but I left it at that. Now I was free to enter into the Apple partnership with Steve and Ron. I kept my job, but after that I was officially moonlighting. Everybody I worked with knew about the computer board we were going to sell.

Over the next few months, Miles would keep coming up to me. He knew about BASIC-programmable computers because of his division out in Colorado, and even though they didn't want my design, he said he was intrigued by the idea of having a machine so cheap that anyone could own one and program it. He kept telling me he'd been losing sleep ever since he heard the idea.

But looking back, I see he was right. How could HP do it? It couldn't. This was nowhere near a complete and finished scientific engineer's product. Everybody saw that smaller, cheaper computers were going to be a coming thing, but HP couldn't justify it as a product. Not yet. Even if they had agreed, I see now that HP would've done it wrong anyway. I mean, when they finally did it in 1979, they did it wrong. That machine went nowhere.

Source:

Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

The main Christensen book is:

Christensen, Clayton M., and Michael E. Raynor. The Innovator's Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

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

(p. A16) "The euro was supposed to achieve higher productivity and growth by bringing about a deeper integration between economies," says Simon Tilford, chief economist at the Centre for European Reform, a London think tank. "Instead, integration is slowing. The lack of flexibility in labor and product markets raises serious questions about the likelihood of the euro delivering on its potential."

Structural changes are the last great hope in part because euro zone members have few other levers for lifting their economies. Individual members can't tweak interest rates to encourage lending, because those policies are set by the zone's central bank. The shared euro means countries don't have a sovereign currency to devalue, a move that would make exports cheaper and boost receipts abroad.

The remaining prescription, many economists say: chip away at the cherished "social model." That means limiting pensions and benefits to those who really need them, ensuring the able-bodied are working rather than living off the state, and eliminating business and labor laws that deter entrepreneurship and job creation.

That path suits Carlos Bock. The business-studies graduate from Bavaria spent months navigating Germany's dense bureaucracy in order to open a computer store and Internet café in 2004. Before he could offer a Web-surfing customer a mug of filter coffee, he said, he had to obtain a license to run a "gastronomic enterprise." One of its 38 requirements compelled Mr. Bock to attend a course on the hygienic handling of mincemeat.

Mr. Bock closed his store in 2008. Germany's strict regulations and social protections favor established businesses and workers over young ones, he said. He also struggled against German consumers' reluctance to spend, a problem economists blame in part on steep payroll taxes that cut into workers' takehome pay, and on high savings rates among Germans who are worried the country's pension system is unsustainable.

"If markets were freer, there might be chaos to begin with," Mr. Bock said. "But over time we'd reach a better economic level."

Even in France, some erstwhile opponents of reforms are changing their tune. Julie Coudry became a French household name four years ago when she helped organize huge student protests against a law introducing short-term contracts for young workers, a move the government believed would put unemployed youths to work.

With her blonde locks and signature beret, Ms. Coudry gave fiery speeches on television, arguing that young people deserved the cradle-to-grave contracts that older employees enjoy at most French companies. Critics in France and abroad saw the protests as a shocking sign that twentysomethings were among the strongest opponents of efforts to modernize the European economy. The measure was eventually repealed.

Today, the now 31-year-old Ms. Coudry runs a nonprofit organization that encourages French corporations to hire more university graduates. Ms. Coudry, while not repudiating her activism, says she realizes that past job protections are untenable.

"The state has huge debt, 25% of young people are jobless, and so I am part of a new generation that has decided to take matters into our own hands," she says. "We've decided that we can't expect everything from the state."

For the full story, see:

MARCUS WALKER And ALESSANDRA GALLONI. "Europe's Choice: Growth or Safety Net." The Wall Street Journal (Thurs., MARCH 25, 2010): A1 & A16.

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(p. A22) Smarter computing technology, experts say, ought to make the most skilled workers -- in science, the arts and business -- even more productive and prosperous by freeing them from routine tasks. Their prosperity translates to spending that creates jobs in stores, schools, gyms, construction and elsewhere.

Artificial intelligence, experts say, should also generate new jobs even as it displaces others. The smart machines of the future will need programming, servicing and upgrading -- work done, perhaps, by a new class of digital technicians. The intelligent machines, experts add, will be specialists in a field, like the medical assistant project at Microsoft. They must be tailored with specialized software, perhaps igniting a new industry for artificial intelligence applications.

Of course, no one really knows just what artificial intelligence will mean for jobs and the economy, but the technology is marching ahead. "Its potential is far greater than simply substituting technology for human labor," said Erik Brynjolfsson, an economist at the M.I.T Sloan School of Management.

For the full story, see:

STEVE LOHR. "Jobs Created and Displaced." The New York Times (Fri., June 25, 2010): A22.

(Note: the date of the online version of the article was June 24, 2010.)

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

The MediaTek example briefly mentioned below, seems a promising fit with Christensen's theory of disruptive innovators.

(p. B7) TAIPEI--A little-known Taiwanese chip-design company is making waves in the cellphone business, grabbing market share from larger U.S. rivals and helping drive down phone prices for consumers.

. . .

While MediaTek isn't known for cutting-edge innovation, it has been able to apply the nimble, cost-cutting approach of Taiwan's contract manufacturers to the business of designing semiconductors, in which engineers use advanced software to lay out the microscopic circuits that make gadgets like cellphones function.

"MediaTek has brought down the cost significantly," says Jessica Chang, an analyst at Credit Suisse Group AG, who says mobile-phone makers are increasingly drawn to MediaTek's products because of their functionality and low cost.

For the full story, see

TING-I TSAI. "Taiwan Chip Firm Shakes Up Cellphone Business." The Wall Street Journal (Mon., APRIL 19, 2010): B7.

(Note: ellipsis added.)

On Christensen's theories, see:

Christensen, Clayton M., and Michael E. Raynor. The Innovator's Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

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"Robert Deluce set up Porter Airlines at Billy Bishop Toronto City Airport in October 2006." Source of caption and photo: online version of the WSJ article quoted and cited below.

Clayton Christensen explains why upstart entrepreneurs who move up-market to serve under-served customers, will almost always lose to motivated incumbents.

Apparently Robert Deluce has not read Christensen.

(p. B8) TORONTO--As a teenager, Robert Deluce learned to fly at this city's small airport just outside the downtown on a Lake Ontario island.

Lately, the 59-year-old airline entrepreneur has been giving his own brand of flying lessons there in a dogfight with larger competitors over a lucrative flying niche: the high-margin business traveler.

n 2005, Mr. Deluce bought the airport's ramshackle terminal and later kicked out an Air Canada regional partner named Jazz Air. Then, he set up Porter Airlines, which has become a hit with business fliers for its top-notch service and convenient location, a one-minute ferry ride from the downtown waterfront. Earlier this month, closely held Porter opened the first phase of a gleaming, 150,000-square-foot terminal that eventually will house two passenger lounges and 10 aircraft gates.

. . .

The new carrier's mascot is a raccoon. "He's mischievous and determined and pretty much always achieves his desired goal," said Mr. Deluce, chuckling over breakfast at a Toronto hotel. "Air Canada and Jazz probably think he's over-mischievous."

. . .

In recent years, Toronto's waterfront has been revitalized, with high-rise condos and parks replacing grain elevators and industrial warehouses. Air Canada's partner Jazz and a predecessor, which had been flying to and from the downtown airport for years, reduced service even as the redevelopment was progressing. The airport's traffic waned to 25,000 fliers in 2005 from 400,000 a year in the late 1980s.

Smelling opportunity, Mr. Deluce pounced, acquiring the old terminal and evicting Jazz. He raised C$126 million in start-up capital and placed a US$500 million order for 20 Canadian-built turboprop aircraft. With 70 seats, they are perfectly sized for the airport's short, 4,000-foot runway. Porter took wing in October 2006.

His aggressive tactics as CEO have earned him both criticism and grudging respect. Brian Iler, chairman of CommunityAir, a Toronto citizens advocacy group that wants the airport shut because of noise issues and other concerns, gives Mr. Deluce his due. "Everything he has done, he's managed to turn things his way," Mr. Iler says. "It's an amazing run of luck."

. . .

Porter now flies to four U.S. destinations and seven other cities in Eastern Canada, with an eighth coming this month. It had its first month of profitability in June 2007 and paid out to its employee profit-sharing plan that year and in 2008, Mr. Deluce says. He won't say whether Porter was profitable in 2009.

The new airline has attracted a following for its downtown location, competitive fares, leather seats with generous legroom and complimentary beer, wine and snacks. Female flight attendants wear retro pillbox hats and peplum jackets.

Christopher Sears, vice president of research for Montreal-based brokerage firm MacDougall, MacDougall & MacTier Inc., said he has flown Porter 30 to 40 times between Montreal and Toronto. Once he arrives in Toronto, he grabs a free shuttle to a hotel two blocks from his firm's Toronto office.

"Porter has built up a lot of goodwill with me," he says, vowing to stick with the company even if rivals break into the downtown airport.

For the full story, see

SUSAN CAREY. "Tiny Airline Flies Circles Around Its Rivals; Top-Notch Service, Proximity to Downtown Toronto Make Porter a Hit With High-Margin Business Travelers." The Wall Street Journal (Weds., MARCH 17, 2010): B8.

(Note: ellipses added.)

(Note: the online version of the article has the slightly different title "Tiny Airline Flies Circles Around Rivals; Top-Notch Service, Proximity to Downtown Toronto Makes Porter a Hit With High-Margin Business Travelers.")

On Christensen's theories, see:

Christensen, Clayton M., and Michael E. Raynor. The Innovator's Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

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

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

(p. A2) The WTO says world trade fell 12.2% in 2009. On Friday, the organization predicted that trade would bounce back sharply this year, rising 9.5%.

But these figures don't tell the whole truth about trade.

According to some economists, trade in finished products--the things consumers actually buy, such as cars, computers and iPods--declined by much less than 12.2% last year. That is because as much as two-thirds of the value of goods that go into trade statistics represent intermediate parts, which are imported from other countries and used to make finished products that then get re-exported. Economists call this the "valued-added effect." If the value of imported parts were stripped out, however, global trade would have declined by between 4% and around 8% last year, economists say.

By ignoring the multinational composition of goods, conventional trade data also make trade imbalances between some trading partners seem larger than they really are.

China imports a huge quantity of parts from places like Japan and South Korea, but when those components are assembled into finished goods and shipped to the U.S., all the pieces count as Chinese exports, inflating the U.S. trade imbalance with its most polarizing trade partner.

A study by the Sloan Foundation in 2007, for example, found that only $4 of an iPod that costs $150 to produce is made in China, even though the final assembly and export occurs in China. The remaining $146 represents parts imported to China. If only the value added by manufacturers in China were counted, the real U.S.-China trade deficit would be as much as 30% lower than last year's gap of at $226.8 billion, according to a number of economists.

At the same time, the U.S. trade deficit with Japan would have been 25% higher than the $44.8 billion reported last year, because many goods that China and others export to the U.S. contain parts purchased in Japan.

For the full story, see:

JOHN W. MILLER. "THE NUMBERS GUY; Some Say Trade Numbers Don't Deliver the Goods ." The Wall Street Journal (Sat., MARCH 27, 2010): A2.

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(p. B4) Government financing is not the best method to prod companies to be creative, said Edmund S. Phelps Jr., a professor of economics at Columbia University who won the Nobel Prize in 2006. But he said it could work.

He spoke at the forum about dwindling innovation in the United States economy. China, India and Brazil are catching up with innovative output, he said, but not Russia.

A high-technology start-up, he said, inherently runs more risk if it can present its product to only one potential buyer -- the government -- rather than to a range of customers, some of whom may want the product, he said.

"If Russian politicians see that their own prosperity, and that of their people, lies in a more arms-length relationship between the government and business, that would open a lot of possibilities," he said.

For the full story, see:

ANDREW E. KRAMER. "Russia Plans to Promote Technology Innovations." The Wall Street Journal (Mon., February 4, 2010): B4.

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"Titan Cement's Bob Odom in March at the site of a proposed plant near Wilmington, N.C. The company says hundreds of jobs would be created." Source of book image: online version of the WSJ review quoted and cited below.

Is it just me, or does entrepreneur Lloyd Smith, quoted below, come across as a bit arrogant in believing the government should enforce his view of what Wilmington should be like, even if that means violating the property rights of the owner of the land on which the cement plant will be built? (And even if that means that would-be janitor Ron Givens remains unemployed.)

(p. A3) WILMINGTON, N.C.--The old economy and the new economy are squaring off in this coastal city, which is having second thoughts about revisiting its roots in heavy industry.

Titan Cement Co. of Greece wants to build one of the largest U.S. cement plants on the outskirts of the city and is promising hundreds of jobs. The factory would be on the site of a cement plant that closed in 1982 and today is populated mainly by fire ants, copperhead snakes and the occasional skateboarder.

The proposed $450 million plant by Titan America LLC, Titan's U.S. unit, is welcome news to Ron Givens Sr., a 44-year-old unemployed Wilmington native. Mr. Givens's father supported 12 children while working at the former Ideal Cement plant, and Mr. Givens and two brothers have now applied for jobs with Titan. "I will apply for janitor if that's what is going to get me into that plant," he said.

But thousands of opponents have petitioned local and state politicians to block the plan. They object to the emissions from the plant and say it will scare off tourists, retirees, entrepreneurs and others who might otherwise want to live here.

An initial state environmental review has dragged on for two years, and critics of the plant have filed a lawsuit seeking to further broaden the review. The governor, amid public pressure, has asked the State Bureau of Investigation to probe the plant's permitting process.

"That's their tactic: Delay, delay, and at some point Titan will leave," said Bob Odom, Titan's general manager in Wilmington, of opposition efforts.

Among the most vocal opponents is a fast-growing class of high-tech entrepreneurs and telecommuters who moved to Wilmington in recent years, drawn to the temperate climate, sandy beaches and good fishing. They argue the plant, by curbing the community's appeal, will cost more jobs and tax revenue in the long run than it produces.

"I think we can be discriminating," said Lloyd Smith, a 43-year-old entrepreneur who moved here from northern Virginia in 2001 and founded Cortech Solutions Inc., a neuroscience company with nine employees and about $5 million in annual sales.

The standoff in Wilmington reflects a broader tug-of-war across the country as communities try to kick-start employment. It is unclear how much manufacturing will power the long-term U.S. economic recovery--even in southern states that have long embraced heavy industry but have begun to feel the new economy's pull.

For the full story, see:

MIKE ESTERL. "Clash of Old, New Economy; Cement Plant Is Resisted by Some Neighbors Who Would Rather Lure High-Tech Jobs." The Wall Street Journal (Tues., April 6, 2010): A3.

Source of graph: scanned from print version of the WSJ article quoted and cited above.

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(p. 147) The whole thing used forty-five chips, and Steve paid me half the seven hundred bucks he said they paid him for it. (They were paying us based on how few chips I could do it. in.) Later I found out he got paid a bit (p. 148) more for it--like a few thousand dollars--than he said at the time, but we were kids, you know. He got paid one amount, and told me he got paid another. He wasn't honest with me, and I was hurt. But I didn't make a big deal about it or anything.

Ethics always mattered to me, and I still don't really understand why he would've gotten paid one thing and told me he'd gotten paid another. But, you know, people are different. And in no way do I regret the experience at Atari with Steve Jobs. He was my best friend and I still feel extremely linked with him. I wish him well. And it was a great project that was so fun. Anyway, in the long run of money--Steve and I ended up getting very comfortable money-wise from our work founding Apple just a few years later--it certainly didn't add up to much.

Steve and I were the best of friends for a very, very long time. We had the same goals for a while. They jelled perfectly at forming Apple. But we were always different people, different people right from the start.

You know, it's strange, hut right around the time I started working on what later became the Apple I board, this idea popped into my mind about two guys who die on the same day. One guy is really successful, and he's spending all his time running companies, managing them, making sure they are profitable, and making sales goals all the time. And the other guy, all he does is lounge around, doesn't have much money, really likes to tell jokes and follow gadgets and technology and other things he finds interesting in the world, and he just spends his life laughing.

In my head, the guy who'd rather laugh than control things is going to be the one who has the happier life. That's just my opinion. I figure happiness is the most important thing in life, just how much you laugh. The guy whose head kind of floats, he's so happy. That's who I am, who I want to be and have always wanted to be.

(p. 149) And that's why I never let stuff like what happened with Breakout bother me. Though you can disagree--you can even split from a relationship--you don't have to hold it against the other. You're just different. That's the best way to live life and be happy

And I figured this all out even before Steve and I started Apple.

Source:

Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

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"Carbonless paper comes off a coating machine at Appleton Papers in March. Mexican tariffs have hit sales." Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A5) APPLETON, Wis.--Congress's vote last year to keep Mexican truck drivers south of the border was good news for DuWayne Marshall.

Mr. Marshall, 49 years old, owns a truck and hauls loads all over the U.S. from his home in Wisconsin. "Why should I have to compete against Third World drivers within my own borders?" Mr. Marshall asked during a break on a run to San Diego. "By closing down the borders, we are saving American jobs."

Elizabeth Villagomez, 38, isn't so sure. A single mother of two teens, she has worked at a paper plant in this community near Green Bay for 15 years. After the Mexican government retaliated against the trucking ban by slapping $2 billion in tariffs on U.S. paper, produce and other goods, orders plunged and managers began slashing shifts and overtime for the unionized work force.

"The company has done all it can to cut costs," Ms. Villagomez said. "I'm at the bottom of the list if they have layoffs. It's kind of scary, not knowing if you're going to have a job."

. . .

At Appleton Papers Inc., the fight over who can drive a truck across a border 1,600 miles away has translated into falling wages and rising anxiety.

Rick Bahr, head of the United Steelworkers union local that represents more than 500 employees at the Appleton plant, said six shifts have already been cut, cutting down on overtime.

"The battle ends up union versus union, truckers versus the paper workers," Mr. Bahr said. The national steelworkers' union has been supporting the Teamsters on the issue of Mexican trucks in the U.S.

Nearly half the company's revenue, about $420 million last year, comes from carbonless paper sales. Its largest foreign customer is Mexico. After Mexico put a 10% tariff on carbonless paper, revenue from Mexico fell to $37 million in 2009 from $46 million in 2008.

Now, more Mexican customers say they will look for alternative suppliers to avoid having to bear part of the tariff costs. Just last month a major customer told Appleton it was going to get its carbonless paper from a European producer.

Even before the tariffs were imposed, the company had seen business hit by the economic slowdown and had cut its work force in 2008 and stopped other benefits, such as reimbursing tuition and matching workers' contributions to their 401K retirement plans. Company officials said it was hard to quantify what part of the business downturn could be blamed directly on the tariffs, but they noted that Appleton sold 18% fewer tons of carbonless paper in the U.S. last year, compared with 2008. The number of tons sold to Mexican customers was down 24%.

Inside the plant, the machine that coats 4,000-pound rolls of paper to make it carbonless was idle one recent afternoon. Once run 24 hours a day, it is now used only half that time.

Kevin Bunnow, 50, a 33-year veteran of the plant, said the reduction in shifts had meant a wage cut of several thousand dollars last year.

"When elephants fight, the grass loses," he said. "It didn't take me long to realize, we're the grass."

For the full story, see:

GARY FIELDS. "Trade Dispute Divides Workers; It's 'Union vs. Union' as Ban on Mexican Trucks Cheers Drivers, Triggers Cut in Hours at Paper Plant." The Wall Street Journal (Tues., April 6, 2010): A5.

(Note: ellipsis added.)

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During the dot.com era one of the rationalizations for dot.com firms to be losing money was that they had to be the 'first mover' that would grab the demand-side economies of scale arising from network effects.

For a variety of reasons, including the clarity of hindsight, the current consensus if that profitability is always worth worrying about, and being first is far from a guarantee of success.

On the other hand, if the authors quoted below are correct that everyone should be a "fast follower," then who will ever make the first move?

Maybe the problem lies in the metrics of success. Maybe the main measure of success lies in moving an important project forward, rather than being the one who ends up best positioned to monetize the advance?

So, for example, maybe those who built Netscape should be proud of what they did, even though Internet Explorer ended up dominating the market.

(I use "maybe" a lot above, not out of some rhetorical pose of modesty, but because these are issues that I am really grappling with.)

(p. R4) One of the fiercest rivalries in the information-technology world has long been over platforms--products that link users in networks, like iTunes for online music or Windows for computer operating systems. It's often a winner-take-all business; platform leaders can earn huge profits as they tend to dominate markets with few serious competitors.

A myth, however, has attached itself to the history of platforms: that each platform's originator has the best chance of dominating its market for years to come.

The truth is, that is rarely the case.

Instead of there being an advantage to being first, we found the opposite to be true. Most owners of leading IT platforms today did not create the markets they now rule. In almost all of the industries we studied, the current platform leaders introduced their products after a different company had already established the market with a platform of its own.

Out of the 15 platform industries that we studied, 14 of the current leaders began as followers in a market created by a competitor's platform. In only one market, for integrated business software, was the original platform creator still the leader--SAP AG. Five were fast followers, which we define as the second, third or fourth company to enter a market. The other nine were later followers.

For the full commentary, see:

GEZINUS J. HIDDING, JEFFREY R. WILLIAMS And JOHN J. SVIOKLA. "Technology; The IT Platform Principle: The First Shall Not Be First ." The Wall Street Journal (Mon., January 25, 2010): R4.

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Source of graph: scanned from the print version of the WSJ article quoted and cited below.

(p. A8) The crop-biotechnology industry, growing frustrated as it watches the approval time for new seeds almost double under the Obama administration, is pressuring Washington to clear inventions more quickly.

The logjam at the U.S. Department of Agriculture, which must clear genetically modified seeds, is slowing the launch of products that could give farmers more alternatives to seeds from crop biotech giant Monsanto Co.

Also, some biotech-industry executives worry the delays signal that the Obama administration, which has painted itself as pro-biotech, is gearing up for a far tougher analysis of the potential environmental impact of these crops, which could make it harder for inventions to reach the marketplace.

On average, a genetically modified seed takes 1,188 days to pass federal scrutiny, almost twice as long as in 2008, the last year of the Bush administration, according to the Biotechnology Industry Organization, a Washington, D.C., trade group.

"There is concern we might see other countries move ahead of the U.S.," said Sharon Bomer Lauritsen, executive vice president of food and agriculture at BIO, who added that the delays "might stifle investment in what has been a very dynamic part of the U.S. economy." BIO's members include hundreds of companies such as DuPont Co., Syngenta AG and Monsanto, as well as academic institutions.

For the full story, see:

SCOTT KILMAN. "Biotech Firms Seek Speedier Reviews of Seeds; Approval Time for Genetically Modified Crops Doubles under Obama as Some Fear Tougher Stance; Feds Blame Logjam." The Wall Street Journal (Weds., April 28, 2010): A8.

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(p. 127) I think most people with day jobs like to do something totally different when they get home. Some people like to come home and watch TV. But my thing was electronics projects. It was my passion and it was my pastime.

Working on projects was something I did on my own time to reward myself, even though I wasn't getting rewarded on the outside, with money or other visible signs of success.

Source:

Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

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"Mohammad Haneef, [above], a farmer in Haider Nagar, said that Wal-Mart is better than his previous clients. "You have to establish trust," he said in Hindi. "Wal-Mart has been paying on time. We would just like them to buy more."" Source of caption and photo: online version of the NYT article quoted and cited below. (Note: bracketed word added.)

(p. B1) HAIDER NAGAR, India -- At first glance, the vegetable patches in this north Indian village look no different from the many small, spare farms that dot the country.

But up close, visitors can see some curious experiments: insect traps made with reusable plastic bags; bamboo poles helping bitter gourd grow bigger and straighter; and seedlings germinating from plastic trays under a fine net.

These are low-tech innovations, to be sure. But they are crucial to the goals of the benefactor -- Wal-Mart -- that supplied them.

Two years after Wal-Mart came to India, it is trying to do to agriculture here what it has done to industries around the world: change business models by using its hyper-efficient practices to improve productivity and speed the flow of goods.

. . .

(p. B3) Here in Haider Nagar, in the bread basket state of Punjab, farmers who supply vegetables to Wal-Mart say they like working with the company. It typically pays them 5 to 7 percent more than they earn from local wholesale markets, they said. And they do not have to pay to transport produce because Wal-Mart picks it up from their fields.

Abdul Majid, who sells cucumbers to Wal-Mart, says his yields have risen about 25 percent since he started following farming advice about when to apply fertilizers and which kinds -- more zinc, less potash -- from the company and its partner, Bayer CropScience.

Mohammad Haneef, a farmer in a nearby village, said he had sold to two other companies before Wal-Mart, but one shut down and the other cheated him and paid him late. Wal-Mart is much better, he said, but its buyers are picky, taking the best vegetables and leaving him with inferior ones that he still must truck to wholesale markets.

"You have to establish trust," he said in Hindi. "Wal-Mart has been paying on time. We would just like them to buy more."

For the full story, see:

VIKAS BAJAJ. "Cultivating a Market in India; Wal-Mart Nurtures Suppliers as It Lays Plans for Expansion." The New York Times (Tues., April 13, 2010): B1 & B3.

(Note: ellipsis added.)

(Note: the online version of the review is dated April 12, 2010 and has the title "In India, Wal-Mart Goes to the Farm.")

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(p. A13) If economics is a science, it is more like biology than physics. Biologists try to understand the relationships in a complex system. That's hard enough. But they can't tell you what will happen with any precision to the population of a particular species of frog if rainfall goes up this year in a particular rain forest. They might not even be able to count the number of frogs right now with any exactness.

We have the same problems in economics. The economy is a complex system, our data are imperfect and our models inevitably fail to account for all the interactions.

The bottom line is that we should expect less of economists. Economics is a powerful tool, a lens for organizing one's thinking about the complexity of the world around us. That should be enough. We should be honest about what we know, what we don't know and what we may never know. Admitting that publicly is the first step toward respectability.

For the full commentary, see:

RUSS ROBERTS. "Is the Dismal Science Really a Science? Some macroeconomists say if we just study the numbers long enough we'll be able to design better policy. That's like the sign in the bar: Free Beer Tomorrow." The Wall Street Journal (Thurs., FEBRUARY 26, 2010): A13.

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"The $42 million museum has been financed through a series of state, federal and local grants. It is set to open next March." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 4) The idea for the Las Vegas Museum of Organized Crime and Law Enforcement was seeded when the city bought the 1933 federal courthouse and post office from the federal government for $1 in 2002, with the strict understanding that the building -- one of the oldest in Southern Nevada -- be used for cultural purposes.

For much of the middle of the last century, organized crime ruled the Strip, developing and managing an array of casinos, skimming their way to success. Federal prosecutors put an end to their reign in the 1980s. The city determined its historical relationship to organized crime -- and the role the courthouse played in it -- made the site a perfect fit.

. . .

The $42 million project has been financed through a series of state, federal and local grants, and the work has progressed a bit glacially as money has trickled in.

The project, once listed as one that could stimulate this city's embattled economy, was attacked by Senator Mitch McConnell, the Republican leader, when city officials suggested that it might qualify for federal stimulus money.

For the full story, see:

JENNIFER STEINHAUER. "'2 Mob Museums in Las Vegas, Ready to Go to the Mattresses." The New York Times, First Section (Sun., April 25, 2010): 1 & 4.

(Note: ellipsis added.)

(Note: the online version of the article is dated April 24, 2010 and has the title "Vegas Mob Museums, Set to Go to the Mattresses.")

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If the government does not interfere with the price system, then the prospect of higher prices will provide private companies and entrepreneurs the incentive to take risks to provide us with what we need. In the article quoted below, the example is rare earth minerals that are used in high technology products.

(p. B1) On a high plateau where burros and jackrabbits wander an hour's drive southwest of Las Vegas, a 400-foot-deep chasm hewn from volcanic rock sits at the center of an international policy debate.

The chasm, in Mountain Pass, Calif., used to be the world's main mine for rare earth elements -- minerals crucial to military hardware and the latest wind turbines and hybrid gasoline-electric cars. Molycorp Minerals, which owns the mine, announced on Monday that it had registered with the Securities and Exchange Commission for an initial public offering to help raise the nearly $500 million needed to reopen and expand the mine.

Molycorp is making a big bet that its mine -- once the world leader in production of rare earth elements, but now a rusting relic -- can be made competitive again. Global demand is surging for the minerals. And customers, particularly the American military, are seeking alternatives to China, which now mines 97 percent of the world's rare earth elements.

As part of reopening the mine, Molycorp plans to increase its capacity to mine and refine neodymium for rare earth magnets, which are extremely lightweight and are used in many high-tech applications. It will also resume bulk production of lower-value rare earth elements like cerium, used in industrial processes like polishing glass and water filtration.

For the full story, see:

KEITH BRADSHER. "A Mine Owner's Risky Bet on Rare Minerals." The New York Times (Thur., April 22, 2010): B1 & B4.

(Note: italics in original; ellipses added.)

(Note: the online version of the review is dated April 21, 2010 and has the title "Challenging China in Rare Earth Mining.")

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(p. 1) If you blinked, you might have missed the ugly first-quarter report . . . from Freddie Mac, the mortgage finance giant that, along with its sister Fannie Mae, soldiers on as one of the financial world's biggest wards of the state.

Freddie -- already propped up with $52 billion in taxpayer funds used to rescue the company from its own mistakes -- recorded a loss of $6.7 billion and said it would require an additional $10.6 billion from taxpayers to shore up its financial position.

The news caused nary a ripple in the placid Washington scene. Perhaps that's because many lawmakers, especially those who once assured us that Fannie and Freddie would never cost taxpayers a dime, hope that their constituents don't notice the burgeoning money pit these mortgage monsters represent. Some $130 billion in federal money had already been larded on both companies before Freddie's latest request.

But taxpayers should examine Freddie's first-quarter numbers not only because the losses are our responsibility. Since they also include details on Freddie's delinquent mortgages, the company's sales of foreclosed properties and losses on those sales, the results provide a telling snapshot of the current state of the housing market.

That picture isn't pretty. Serious delinquencies in Freddie's single-family conventional loan portfolio -- those more than 90 days late -- came in at 4.13 percent, up from 2.41 percent for the period a year earlier. Delinquencies in the company's Alt-A book, one step up from subprime loans, totaled 12.84 percent, while delinquencies on interest-only mortgages were 18.5 percent. Delinquencies on its small portfolio of op-(p. 2)tion-adjustable rate loans totaled 19.8 percent.

The company's inventory of foreclosed properties rose from 29,145 units at the end of March 2009 to almost 54,000 units this year. Perhaps most troubling, Freddie's nonperforming assets almost doubled, rising to $115 billion from $62 billion.

For the full commentary, see:

Gretchen Morgenson. "Fair Game; Ignoring the Elephant in the Bailout." The New York Times, SundayBusiness (Sun., May 9, 2010): 1-2.

(Note: ellipsis added.)

(Note: the online version of the article was dated May 7, 2010.)

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Many attorneys are good people, including my late father, one of my brothers, and one of my favorite former students.

But a few attorneys must be conscience-challenged; for instance the ones "representing" the class in the case described below.

More importantly, class-action litigation increases the costs and uncertainty of doing business, and thereby increases the prices of the products and services we buy.

In speaking to one of my classes a few years ago, Omaha entrepreneur Joe Ricketts made a strong case for tort reform. it is hard to disagree, unless, like the Democratic Party, you are receiving large contributions from trial lawyers.

(p. B1) . . . , a 2008 settlement of a class action against Ford Motor Co., involving incidents in which Firestone tires exploded on Ford Explorers, offered certain Explorer owners coupons worth $500 toward the purchase of a new Explorer and $300 toward the purchase of any other Ford vehicle.

As of March, only 148 people had redeemed a coupon out of 1,647 people eligible. The plaintiffs' attorneys who led that litigation collected about $19 million in fees.

"It was rather absurd," said Julie Hamilton Webber of Glendale, Calif., a class member who has a 1993 Ford Explorer. "The net result was the attorneys were enriched and did nothing for the class."

For the full story, see:

DIONNE SEARCEY. "Toyota Owners May Reap Little." The Wall Street Journal (Thurs., MAY 20, 2010): B1-B2.

(Note: ellipsis added.)

(Note: the online version of the article has the slightly different title "Toyota Owners May See Little.")

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(p. A13) My last question involves a little story. Not long before Milton Friedman's death in 2006, I tell Mr. Becker, I had a conversation with Friedman. He had just reviewed the growth of spending that was then taking place under the Bush administration, and he was not happy. After a pause during the Reagan years, Friedman had explained, government spending had once again begun to rise. "The challenge for my generation," Friedman had told me, "was to provide an intellectual defense of liberty." Then Friedman had looked at me. "The challenge for your generation is to keep it."

What was the prospect, I asked Mr. Becker, that this generation would indeed keep its liberty? "It could go either way," he replies. "Milton was right about that."

Mr. Becker recites some figures. For years, federal spending remained level at about 20% of GDP. Now federal spending has risen to 25% of GDP. On current projections, federal spending would soon rise to 28%. "That concerns me," Mr. Becker says. "It concerns me a great deal.

"But when Milton was starting out," he continues, "people really believed a state-run economy was the most efficient way of promoting growth. Today nobody believes that, except maybe in North Korea. You go to China, India, Brazil, Argentina, Mexico, even Western Europe. Most of the economists under 50 have a free-market orientation. Now, there are differences of emphasis and opinion among them. But they're oriented toward the markets. That's a very, very important intellectual victory. Will this victory have an effect on policy? Yes. It already has. And in years to come, I believe it will have an even greater impact."

The sky outside his window has begun to darken. Mr. Becker stands, places some papers into his briefcase, then puts on a tweed jacket and cap. "When I think of my children and grandchildren," he says, "yes, they'll have to fight. Liberty can't be had on the cheap. But it's not a hopeless fight. It's not a hopeless fight by any means. I remain basically an optimist."

For the full interview, see:

PETER ROBINSON. "'Basically an Optimist'--Still; The Nobel economist says the health-care bill will cause serious damage, but that the American people can be trusted to vote for limited government in November." The Wall Street Journal (Sat., March 27, 2010): A13.

(Note: the online version of the interview is dated March 26, 2010.)

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(p. A23) In The Wall Street Journal, Russ Roberts of George Mason University wondered why economics is even considered a science. Real sciences make progress. But in economics, old thinkers cycle in and out of fashion. In real sciences, evidence solves problems. Roberts asked his colleagues if they could think of any econometric study so well done that it had definitively settled a dispute. Nobody could think of one.

"The bottom line is that we should expect less of economists," Roberts wrote.

In a column called "A Crisis of Understanding," Robert J. Shiller of Yale pointed out that the best explanation of the crisis isn't even a work of economic analysis. It's a history book -- "This Time is Different" by Carmen M. Reinhart and Kenneth S. Rogoff -- that is almost entirely devoid of theory.

One gets the sense, at least from the outside, that the intellectual energy is no longer with the economists who construct abstract and elaborate models. Instead, the field seems to be moving in a humanist direction. Many economists are now trying to absorb lessons learned by psychologists, neuroscientists and sociologists.

For the full commentary, see:

DAVID BROOKS. "The Return of History." The New York Times (Fri., March 26, 2010): A23.

(Note: the online version of the commentary was dated March 25, 2010.")

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(p. 51) The situation of the rural town of Marney was one of the most delightful easily to be imagined. In a spreading dale, contiguous to the margin of a dear and lively stream, surrounded by meadows and gardens, and backed by lofty hills, undulating and richly wooded, the traveller (sic) on the opposite heights of the dale would often stop to admire the merry prospect that recalled to him the traditional epithet of his country.

Beautiful illusion! For behind that laughing landscape, penury and disease fed upon the vitals of a miserable population.

The contrast between the interior of the town and its external aspect was as striking as it was full of pain. With the exception of the dull high street, which had the usual characteristics of a small agricultural market town, some sombre mansions, a dingy inn, and a petty bourse, Marney mainly consisted of a variety of narrow and crowded lanes formed by cottages built of rubble, or unhewn stones without cement, (p. 52) and, from age or badness of the material, looking as if they could scarcely hold together. The gaping chinks admitted every blast; the leaning chimneys had lost half their original height; the rotten rafters were evidently misplaced; while in many instances the thatch, yawning in some parts to admit the wind and wet, and in all utterly unfit for its original purpose of giving protection from the weather, looked more like the top of a dunghill than a cottage. Before the doors of these dwellings, and often surrounding them, ran open drains full of animal and vegetable refuse, decomposing into disease, or sometimes in their imperfect course filling foul pits or spreading into stagnant pools, while a concentrated solution of every species of dissolving filth was allowed to soak through, and thoroughly impregnate, the walls and ground adjoining.

These wretched tenements seldom consisted of more than two rooms, in one of which the whole family, however numerous, were obliged to sleep, without distinction of age, or sex, or suffering. With the water streaming down the walls, the light distinguished through the roof, with no hearth even in winter, the virtuous mother in the sacred pangs of childbirth gives forth another victim to our thoughtless civilisation (sic); surrounded by three generations whose inevitable presence is more painful than her suffering in that hour of travail; while the father of her coming child, in another corner of the sordid chamber, lies stricken by that typhus which his contaminating dwelling has breathed into his veins, and for whose next prey is perhaps destined his new-horn child. These swarming walls had neither windows nor doors sufficient to keep out the weather, or admit the sun, or supply the means of ventilation; the humid and putrid roof of thatch exhaling malaria like all other decaying vegetable matter. The dwelling-rooms were neither boarded nor paved; and whether it were that some were situate in low and damp places, occasionally flooded by the river, and usually much below the level of the road; or that the springs, as was often the case, would burst through the mud floor; the ground was at no time better than so much clay, while sometimes you might see little channels cut from the centre under the doorways to carry off the water, the door itself removed from its hinges; a resting-place for infancy in its deluged home. These hovels were in many instances not (p. 53) provided with the commonest conveniences of the rudest police; contiguous to every door might be observed the dungheap on which every kind of filth was accumulated, for the purpose of being disposed of for manure, so that, when the poor man opened his narrow habitation in the hope of refreshing it with the breeze of summer, he was met with a mixture of gases from reeking dunghills.

Source:

Disraeli, Benjamin. Sybil. paperback ed, Oxford World's Classics. Oxford, UK: Oxford University Press, 2009 [1845].

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"Warren Buffett has a bit of an advantage in a game of table tennis Sunday with Ariel Hsing, the top U.S. table tennis under-20 player." Source of caption and photo: online version of the Omaha World-Herald article quoted and cited below.

(p. 1D) Buffett and Munger had the 100 or so journalists and others at the press conference laughing at times.

. . .

(p. 3D) The press conference followed a festive day for Buffett, including a brunch attended by Berkshire managers, a few table tennis shots with U.S. under-20 champion Ariel Hsing of Milpitas, Calif., and a few hands of bridge with his regular partner, Susan Ogborn, and Berkshire executive Ajit Jain.

About 800 people watched the table tennis, many of them sitting in bleachers erected in the Regency Court shopping center courtyard.

After losing some quick points to Hsing, Buffett pulled out a paddle that extended nearly the width of the table, but he had no better luck.

For the full story, see:

Steve Jordon. "Buffett Puts Paddle to Federal Regulators." Omaha World-Herald (Mon., May 3, 2010): 1D & 3D.

(Note: the online version of the article was dated May 2, 2010 and had the title "Fun and games with Berkshire.")

(Note: ellipsis added.)

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(p. 116) Roosevelt's social security plan created an array of problems. First, it retarded recovery from the Great Depression by contributing to unemployment. From 1937 to 1940. employers and employees were docked for social security, and that money was out of private hands and lying fallow in the treasury. Lloyd Peck of the Laundryowners National Association concluded, "The burden of this proposal for employers to carry, through a payroll tax, will act as a definite curb on business expansion, and will likely eliminate many businesses now on the verge of bankruptcy."

. . .

(p. 117) When an accountant quizzed Roosevelt about the economic problems with social security, especially its tendency to create unemployment, he responded, "I guess you're right on the economics, but those taxes were never a problem of economics. They are politics all the way through." Roosevelt explained that "with those taxes in there, no damn politician can ever scrap my social security program. That's why, as Roosevelt admitted, it's "politics all the way through." Most politicians, following Roosevelt's lead, have taken delight in raising social security payouts and using that gift to plead for votes from the elderly at election time.

Source:

Folsom, Burton W., Jr. New Deal or Raw Deal? How FDR's Economic Legacy Has Damaged America. New York: Threshold Editions, 2008.

(Note: ellipsis added.)

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(p. 91) . . . Thomas Gore, . . . was first elected to the Senate in 1907, the year Oklahoma became a state. Gore had a populist streak in him, but he always recognized the protections to individual liberty that came from limited government. In the 1930s, therefore, he strongly opposed the federal government going into the relief business. Interestingly, Gore was made totally blind by two childhood accidents. He still managed to become a lawyer, and as a senator, he had to have family members or staff assistants read bills, books, and newspapers to him. Yet he claimed to see clearly through the political chicanery that would occur if the federal government entered the relief business. No depression, Gore argued, "can be ended by gifts, gratuities, doles, and alms handed out by the Federal Treasury and extorted from taxpayers that are bleeding at every pore." On the issue of relief, especially, Gore argued that state and city officials "have immediate contact" with hardship cases and can best "superintend the dispensation of charity." Soon after the ERA brought federal relief into existence, Gore said, "The day on which we began to make these loans by the Federal Government to States, counties, and cities was a more evil day in the history of the Republic than the day on which the Confederacy fired upon Fort Sumter."

In 1935, Gore helped lead the charge in Congress against funding the WPA with $4.8 billion. After he spoke against the bill, thousands of people in southeast Oklahoma held a mass meeting to denounce Gore. They sent him a telegram demanding that he cast his vote for the WPA and, by implication, start bringing more fed-(p. 92)eral dollars into Oklahoma. Gore responded with a telegram of his own. Your action, he wrote, "shows how the dole spoils the soul. Your telegram intimates that your votes are for sale. Much as I value votes I am not in the market. I cannot consent to buy votes with the people's money. I owe a debt to the taxpayer as well as to the unemployed." Shortly after dictating these words, the blind Senator was led to the Senate floor to cast a lonely vote against the WPA.

Source:

Folsom, Burton W., Jr. New Deal or Raw Deal? How FDR's Economic Legacy Has Damaged America. New York: Threshold Editions, 2008.

(Note: ellipses added.)

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Stigler and Friedman's only co-authored paper showed the flaws in rent controls. Although excellent, the paper apparently is seldom read in Portugal (or New York City).

(p. B3) LISBON -- José Gago da Graça owns a Portuguese real estate company and has two identical apartments in the same building in the heart of Lisbon. One rents for €2,750 a month, the other for almost 40 times less, €75.

The discrepancy is a result of 100-year-old tenancy rules, which have frozen the rent of hundreds of thousands of tenants and protected them against eviction in Portugal. Mr. Gago da Graça has been in a lawsuit for a decade over the €75-a-month apartment, since his tenant died in 2000 and her son took over and refused to alter his mother's contract, which dates to the 1960s.

"We're the only country in Europe that doesn't have a free housing market and that's just amazing," Mr. Gago da Graça said.

Rules like these, which economists also blame for contributing to Portugal's private debt load, help explain why this nation of 11 million has followed Greece and Spain into investors' line of fire.

. . .

The . . . rules helped protect tenants, but also led to a chronic shortage of rental housing. This, in turn, persuaded a new generation of Portuguese to tap recently into low interest rates and buy instead -- often in new suburbs -- thereby exacerbating the country's mortgage debt and leaving Portugal with one of Europe's lowest savings rates, of 7.5 percent.

"This system of controlled rents is a major problem for the Portuguese economy, but we will probably be waiting for a generational change to have room for institutional reform," said Cristina Casalinho, chief economist of Banco BPI, a Portuguese bank. Beyond fueling housing credit, she added, the system "basically stops flexibility and mobility in the labor market because you can perhaps find a new job in another city but it will then be very difficult to rent a house there."

. . .

"Nobody has had the political courage to change something like these rental laws and I don't see the situation changing in the short term, even if I don't think the Portuguese tend to react as dramatically as the Greeks," said Salvador Posser, who runs a family-owned company renting out construction equipment.

Besides distorting pricing in the housing market, the tenancy rules have left physical scars. Portugal's historic city centers are dotted with abandoned and crumbling houses that are either subject to a court dispute or have rental income that cannot cover repair and maintenance costs.

"This economic crisis is clearly keeping our very slow courts even more occupied because of the amount of conflict that it is creating between landlords and tenants," said Menezes Leitão, a law professor and president of PLA, a property owners association.

Mr. Posser cited a recent estimate that 8 percent of the buildings in central Lisbon were deserted, in large part because of rent-related obstacles. In Porto, the second-largest city, less than 10 percent of inner-city housing is available for rent, which has helped shrink the population by a third over three decades.

"We're still losing about 30 inhabitants a day," said Rui Moreira, president of the Porto Commercial Association.

For the full story, see:

RAPHAEL MINDER. "Like Spain, Portugal Hopes to Make Cuts, but It Is Mired in Structural Weakness." The New York Times (Fri., May 14, 2010): B3.

(Note: the online version of the article is dated May 13, 2010 and has the title "Portugal Follows Spain on Austerity Cuts.")

(Note: ellipses added.)

The original source of the Friedman and Stigler article (in pamphlet form) was:

Friedman, Milton, and George J. Stigler. Roofs or Ceilings? The Current Housing Problem. Irvington-on-Hudson, New York: Foundation for Economic Education, 1946.

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"Why Omaha, Nebraska, is seeing a small business boom and boasts of having one of the lowest unemployment rates." Source of caption and video: http://money.cnn.com/video/news/2010/05/06/n_omaha_economy.cnnmoney/

Several days ago, CNN Money ran a very nice clip focusing on why Omaha's economy has fared better than the economies of many other U.S. cities. The piece was mainly brief fluff, though pleasant, complementary fluff.

But the one message of substance was that Nebraskans, and usually Nebraska governments, work harder at not spending more than we take in.

(The reporter for the piece is CNN Money's Poppy Harlow. Posted by CNN on May 6, 2010. Run time: 02:09.)

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"Buying on Day 1: Sayuri Watanabe came from Japan to be among the first to get an iPad last month at the Apple store in downtown San Francisco." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 6) WHY would anyone rush to buy a product knowing full well that it would be cheaper -- and probably better -- in a matter of months?

Hundreds of thousands of iPad buyers did just that last month. Steven P. Jobs, Apple's chief executive, crowed that in the first 28 days on the market, Apple sold one million iPads. He found it remarkable that buyers snatched up this new slate computer at twice the fervid pace of the first iPhone.

But what is truly remarkable about this surge in consumption is that early adopters -- those who simply have to own a new gadget right away -- cheerfully exhibited what might seem to be irrational behavior. These ardent consumers will stand in long lines, if that's what it takes, to get an overpriced gadget ahead of everyone else they know.

A tough lesson about buying early could have been learned by the iPhone's first buyers back in 2007. Those early adopters paid $600 for a phone. Two months later, Apple dropped the price to $400. Then, in June 2009, it introduced a better version, with twice the storage, for $200, one-third the original's price.

. . .

Dan Ariely, a professor of behavioral economics at Duke University and the author of a new book, "The Upside of Irrationality," has studied why earlier adopters do what they do. "It's not about the cost-benefit analysis," he says. And rarely is it a successful calculation of higher productivity, though many a person has tried to justify purchases of expensive toys that way.

It can be more about cementing one's identity. Although people who want to be first with a product aren't making a direct calculation -- "I'd pay $100 for my ego" -- they may derive value from showing off a new product or being perceived as being at technology's forefront.

"I realized years ago that I derive great pleasure from buying a new gadget," said Professor Ariely. "I bought a Segway."

And public awareness may matter. Professor Ariely says the behavior is akin to how we can be more willing to do something good if the public knows about it.

. . .

But even if you would never be the first in your neighborhood to buy a gadget, don't scorn the early adopters. They are working for you. "They, in a sense, provide valuable services to other consumers by their willingness to serve as a guinea pig," said Jay Pil Choi, a professor of economics at Michigan State University, who wrote a much-quoted paper on herd behavior and the "penguin effect."

. . .

HE described early adopters as pioneers. "If all consumers are striving for value and take the approach of 'wait and see,'" he said, "the new products will never be able to take off or take much longer to succeed in the marketplace."

He added, "Their early purchase allows the firms to go down the learning curve and enables a lower price for other consumers."

For the full commentary, see:

DAMON DARLIN. "Everybody's Business; Applause, Please, for Early Adopters." The New York Times, SundayBusiness Section (Sun., MAY 9, 2010): 6.

(Note: ellipses added.)

(Note: the online version of the article is dated May 7, 2010.)

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(p. 75) . . . when Roosevelt was spending his own money, he was sometimes very stingy. For example, when Roosevelt traveled by train from Washington to Hyde Park, he always wanted a private car for himself and his staff: Servicing this private car, which might include providing dozens of meals, newspapers, and various amenities for the president and his staff would require great diligence and attention to detail. But for round-trip service on Roosevelt's private car, he tipped the porter a mere five dollars. The reporters. on their car nearby, combined to tip eight to ten times more than the president did. Walter Trohan of the Chicago Tribune observed the unhappiness this created:

FDR wasn't a heavy tipper at any time, but was less so aboard trains. He gave five dollars to the porter on his car for the round trip from Washington to Hyde Park, which included payment for what guests he might have in his car. In the press car we each gave two dollars for the trip, but there were about twenty of us all told. Sam [Mitchell, the porter] soon begged off the private car; the honor of serving the President faded for a man raising a family and sending a boy to college as well as paying for a home, when he could count on forty dollars in the press car as against five dollars in the private car.

Source:

Folsom, Burton W., Jr. New Deal or Raw Deal? How FDR's Economic Legacy Has Damaged America. New York: Threshold Editions, 2008.

(Note: italics in original; ellipsis added.)

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(p. B6) If Steven D. Levitt and Stephen J. Dubner, the authors of "Freakonomics," were to examine the movie business, they might ask: Why do documentary filmmakers keep doing it?

It can't be the money, because the world is awash in documentaries that make little at the box office or are not distributed at all. Occasionally, though, a documentary makes a buck for those involved -- and the new documentary based on "Freakonomics" could do just that.

Magnolia Pictures is expected to announce on Monday that it has acquired domestic distribution rights to the film, which was produced by the Green Film Company and directed, in parts, by a series of well-known documentarians. Those include Alex Gibney ("Taxi to the Dark Side"), Rachel Grady and Heidi Ewing ("Jesus Camp"), Morgan Spurlock ("Super Size Me"), Eugene Jarecki ("Why We Fight") and Seth Gordon ("The King of Kong").

"Freakonomics," the film, got started when Chad Troutwine, a producer who worked on an earlier multidirector movie, "Paris, Je T'aime," became interested in the best-selling book, which looks into matters like the socioeconomic implications of baby naming.

For the full story, see:

MICHAEL CIEPLY. "'Freakonomics' Documentary May Be a Rarity: Profitable." The New York Times (Mon., April 5, 2010): B6.

(Note: the online version of the story is dated April 4, 2010.)

The source information on the revised edition of the Freakonomics book is:

Levitt, Steven D., and Stephen J. Dubner. Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. Revised and Expanded ed. New York: William Morrow, 2006.

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Angus Maddison. Source of photo: http://www.ggdc.net/maddison/

I neither met Angus Maddison, nor ever heard him speak, but I have often seen his work praised by those whom I respect.

One example is the praise given to Maddison by Brad DeLong in his wonderful "Cornucopia" essay that documents the benefits from the process of creative destruction.

(p. B10) Professor Maddison, a British-born economic historian with a compulsion for quantification, spent many of his 83 years calculating the size of economies over the last three millenniums. In one study he estimated the size of the world economy in A.D. 1 as about one five-hundredth of what it was in 2008.

He died on April 24 at a hospital in Paris after a long illness, his daughter, Elizabeth Maddison, said.

. . .

In his research, he tried to reconstruct thousands of years' worth of economic data, most notably in his 2007 book "Contours of the World Economy 1-2030 A.D.." He argued that per capita income around the globe had remained largely stagnant from about 1000 to 1820, after which the world became exponentially richer and life expectancies surged.

. . .

In his archaeological excavation of the economies of other eras, he was "trying to explain why some countries achieved faster growth or higher income levels than others," he wrote in an autobiographical essay, "Confessions of a Chiffrephile" published in 1994. He wanted to know what some countries did right and what others did wrong, and to figure out how growth influenced culture, and was influenced by it.

Professor Maddison often referred to himself as a "chiffrephile," or lover of numbers, a term he invented to characterize economists and economic historians like himself who were prone to quantifying the world.

While macroeconomic research in the last few decades was dominated by elegant mathematical models and technical wizardry, his focus on meat-and-potatoes data and cross-country historical comparisons has come back into vogue in recent years, especially in the wake of the financial crisis.

For the full obituary, see:

CATHERINE RAMPELL. "Angus Maddison, 83, Who Quantified Ancient Economies." The New York Times (Mon., May 3, 2010): B10.

(Note: ellipses added.)

(Note: the online version of the obituary is dated April 30, 2010 and has the title "Angus Maddison, Economic Historian, Dies at 83.")

The Maddison book mentioned in the obituary is:

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

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The size and structure of the "safety net" is a subject of hot debate. Hayek in The Road to Serfdom suggested that higher benefits would lead to slower labor market adjustments.

There may have been multiple causes for the high unemployment rate in the U.K. in the 1920s and 1930s. But it is highly plausible that higher unemployment benefits would have made the unemployed more selective in which jobs they would accept, and hence would have contributed to higher rates of unemployment and higher average duration of unemployment.

(p. 7B) The ultimate evidence . . . is from the 1920s, when the Labour Party came to power in the U.K. for the first time. As scholars Daniel K. Benjamin and Levis Kochin pointed out in a Journal of Political Economy paper, the moment was one in which "unemployment benefits were on a more generous scale relative to wages than ever before or since."

The result was the mother of all jobless recoveries. For almost two decades, from 1921 to 1938, U.K. unemployment averaged 14 percent and never got below 9.5 percent.

For the full story, see:

Amity Shlaes. "Help can hurt job hunters." Omaha World-Herald (Friday April 16, 2010): 7B.

(Note: ellipsis added.)

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(p. 50) Among those damaged was Carl Pharis, the general manager of Pharis Tire and Rubber Company in Newark, Ohio. Pharis employed over one thousand people, mainly in the Newark area. His company grew because, in Pharis's words, "we would make the best possible rubber tire and sell it at the lowest price consistent with a modest but safe profit." He and his employees had survived the grim Great Depression years because they had lower prices, a good tire, and solid support in central Ohio from buyers who knew the company because it was local and because it priced its tires lower than the larger firms. As Pharis said, "It is obvious that they cannot make as good a tire as we make and sell it at the price at which we can sell at a profit:"

Then came the NRA with its high fixed prices for tires. As Pharis said, "Since the industry began to formulate a Code under the N. R. A., in June, 1933, we have at all times opposed any form of price-fixing. We believe it to be illegal and we know it to be oppressive." He added, "We quite understand that, if we were compelled to sell our tires at exactly the same price as they sell their tires, their great national consumer acceptance would soon capture our purchasers and ruin us. Since we have so little of this consumer publicity when compared with them, our only hope is in our ability (p. 51) to make as good or a better tire than they make and to sell it at a less[er] price. . . . "

Since Pharis and other small companies were no longer allowed to sell tires at discounted rates, Goodyear and Firestone "could go out just as they have gone out," Pharis noted, "and say to prospective customers that, since they had to pay the same price, it would be wiser if they bought the nationally advertised lines."

In a nutshell, Pharis put it this way: "The Government deliberately raised our prices up towards the prices at which the big companies wanted to sell, at which they could make a profit, . . . where more easily, with much less loss, they could come down and 'get us' and where, bound by N. R. A. decrees, we could not use lower prices, although we could have lowered them and still made a decent profit."

Pharis was on the verge of closing down and having to lay off all of his one thousand employees. His company, with its low prices and quality tires, could weather the Great Depression, but not the NRA. "If we were asking favors from the Government," Pharis concluded, "there would be little justice in our complaints. . . . And so, if the big fellows, with their too-heavy investments and high costs of manufacturing and selling, cannot successfully compete with us little fellows without Government aid, they should quit."

Source:

Folsom, Burton W., Jr. New Deal or Raw Deal? How FDR's Economic Legacy Has Damaged America. New York: Threshold Editions, 2008.

(Note: ellipses in original.)

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Every semester in my principles of microeconomics course, I show the students a wonderful old 60 Minutes segment on the U.S. government's sugar quotas program. I tell them, alas, that the policy is still the same. Below is recent evidence:

(p. C1) . . . , U.S. sugar farmers have successfully blocked efforts to significantly increase imports, assuring them of little price competition.

Restrictions on imports have caused American users to pay much more than the rest of the world for sugar. That gap recently blew out to its widest in a decade.

Mr. Vilsack's comments raised the prospect of increased demand for global sugar and drove prices up 2.7%, or 0.44 cent, to 16.98 cents a pound on ICE Futures U.S. Prices for U.S. domestic sugar dropped 2.1%, to 30.8 cents a pound. That narrowed the gap between the two to 13.82 cents a pound.

For the full story, see:

CAROLYN CUI and BILL TOMSON , ILAN BRAT. "USDA Says It May Relax Sugar Quotas For This Year." The Wall Street Journal (Weds., APRIL 14, 2010): C1 & C2.

(Note: ellipsis added.)

(Note: the title of the online version of the article is "USDA Says It May Relax Sugar Quotas.")

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(p. A17) In a 2006 paper, Stanford University economist Lawrence Lau found that Chinese value-added accounted for about 37% of the total value of U.S. imports from China. In 2008, using a different methodology, U.S. International Trade Commission economist Robert Koopman, along with economists Zhi Wang and Shang-jin Wei, found the figure to be closer to 50%. In other words, despite all the hand-wringing about the value of imports from China, one-half to nearly two thirds of that value is not even Chinese. Instead, it reflects the efforts of workers and capital in other countries, including the U.S. In overstating Chinese value by 100% to 200%, the official U.S. import statistics are a poor proxy for job loss.

Seldom noted in the union-controlled discussion of trade on Capitol Hill is that the jobs of large numbers of American workers depend on imports from China. The proliferation of transnational production and supply chains has joined higher-value-added U.S. manufacturing, design, and R&D activities with lower-value manufacturing and assembly operations in China.

According to a widely cited 2007 study by Greg Linden, Kenneth L. Kraemer and Jason Dedrick of the University of California, Irvine, each Apple iPod costs $150 to produce. But only about $4 of that cost is Chinese value-added. Most of the value comes from components made in other countries, including the U.S. Yet when those iPods are imported from China, where they are snapped together, the full $150 is counted as an import from China, adding to the trade deficit and inflating EPI's job-loss figures.

In reality, those imported iPods support thousands of U.S. jobs up the value chain--in engineering, design, finance, manufacturing, marketing, distribution, retail and elsewhere. A 25% tariff on imports from China would penalize the non-Chinese companies and workers who create most of the iPod's value.

For the full commentary, see:

DANIEL IKENSON. "China Trade and American Jobs; Studies suggest that one-half to two-thirds of the value of 'Chinese' imports is added in other countries, including the U.S." The Wall Street Journal (Fri., APRIL 2, 2010): A17.

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Source of book image: http://mises.org/misesreview_detail.aspx?control=347

FDR has never been one of my heroes. But in the last few years, I have read two books that have revealed him to have been much worse than I expected. In earlier posts, I have praised Amity Shlaes' The Forgotten Man.

Here I praise Burt Folsom's New Deal or Raw Deal?

Folsom documents how the economic policies of Roosevelt lengthened and deepened the Great Depression.

But what I think I will remember most about the book, is the example after example of how FDR lied to both friend and foe; and the example after example of how FDR used government spending programs to buy votes.

I found this book very unpleasant. Rather than listen to another chapter in the car, I sometimes found myself playing music.

But we need to read this book. We need to know what really happened, so we can guard against it happening again.

In the next few weeks, I will quote a few of the more memorable and significant passages in Folsom's book.

Book discussed:

Folsom, Burton W., Jr. New Deal or Raw Deal? How FDR's Economic Legacy Has Damaged America. New York: Threshold Editions, 2008.

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"A LITTLE OFF THE TOP; Michigan residents may have to pay a 5.5 percent tax for haircuts. States across the nation are considering similar taxes on services to solve their budget problems." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) In the scramble to find something, anything, to generate more revenue, states are considering new taxes on virtually everything: garbage pickup, dating services, bowling night, haircuts, even clowns.

"It's hard enough doing what we do," grumbled John Luke, a plumber in the Philadelphia suburbs. His services would, for the first time, come with an added tax if the governor has his way.

Opponents of imposing taxes on services like funerals, legal advice, helicopter rides and dry cleaning argue that this push comes as businesses are barely clinging to life and can ill afford to see customers further put off by new taxes. This is especially true, they say, in states like Michigan and Pennsylvania, where some of the most sweeping proposals are being considered this spring.

But this is also a period of economic gloom for states. Pension funds are in the red, federal stimulus help will soon vanish, and revenues from traditional sources like income and property taxes are slumping ever lower, with few elected officials willing to risk voter wrath by raising them.

. . .

(p. 20) But from coast to coast, desperate governments are looking to tap into new revenue streams.

In Nebraska, a lawmaker has introduced a bill to tax armored car services, farm equipment repairs, shoe shines, taxidermy, reflexology and scooter repairs. In Kentucky, Jim Wayne, a state representative, and some fellow Democrats are proposing taxing high-end services: golf greens fees, limousine and hot-air-balloon rides, and private landscaping.

In June, voters in Maine will decide whether to accept a state overhaul of its tax system that would newly tax services like tailor alterations, blimp rides, and entertainment provided by clowns, comedians and jugglers.

For the full story, see:

MONICA DAVEY. "States Seeking Cash Hope to Expand Taxes to Services." The New York Times, First Section (Sun., ed: March 28, 2010): 1 & 20.

(Note: ellipsis added.)

(Note: the online version of the article is dated March 27, 2010, and has the title "States Seeking Cash Hope to Expand Taxes to Services.")

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

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(p. A19) Speculators earn a profit by absorbing risk that others don't want. Without speculators, investors would find it difficult to quickly hedge or sell their positions.

Speculators also provide us with information about the fundamental values of investments. When the fundamentals appear favorable, they buy. Otherwise, they sell. If their forecasts are correct, they profit. This causes prices to more accurately forecast an investment's value, spreading useful information.

For the full commentary, see:

DARRELL DUFFIE. "In Defense of Financial Speculation; It is not the same thing as market manipulation." The Wall Street Journal (Weds., FEBRUARY 24, 2010): A19.

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Source of book image: http://seekingalpha.com/article/188632-the-quants-review-when-the-money-grid-went-dark

(p. 7) The virtually exclusive use of mathematical models, Mr. Patterson says, was what separated the younger cohorts of quants from their Wall Street forebears. Unlike Warren Buffett or Peter Lynch, the quants did not focus on so-called market fundamentals like what goods or services a particular company actually produced. Seldom if ever did they act on old-fashioned gut instinct. Instead, they focused on factors like how cheap a stock was relative to the rest of the market or how quickly its price had risen or fallen.

Therein was the quants' flaw, according to Mr. Patterson. Pioneers like Mr. Thorp understood that while the math world and the financial world have much in common, they aren't always in sync. The quant traders' model emphasized the most likely moves a stock or bond price could make. It largely ignored the possibility of big jolts caused by human factors, especially investor panics.

"The model soon became so ubiquitous that, hall-of-mirrors-like, it became difficult to tell the difference between the model and the market itself," Mr. Patterson declares.

Move ahead to August 2007 and beyond, when markets swooned on doubts about subprime mortgages. Stocks that the model predicted were bound to go up went sharply down, and vice versa. Events that were supposed to happen only once in 10,000 years happened three days in a row.

For the full review, see:

HARRY HURT III. "Off the Shelf; In Practice, Stock Formulas Weren't Perfect." The New York Times, SundayBusiness Section (Sun., February 21, 2010): 7.

(Note: the online version of the article is dated February 20, 2010.)

The reference to Patterson's book, is:

Patterson, Scott. The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It. New York: Crown Business, 2010.

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"Some of the more than 500,000 plants at Backyard Farms at its Maine greenhouse." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. D1) AN icy mixture of rain and sleet fell on the glass roof of Greenhouse Two at Backyard Farms here, but as its big blue door slid open and the warm, green, celery smell of tomato plants wafted out, it was summer.

When it was built three years ago, the company's first 24-acre greenhouse in Madison was already the largest building in Maine. This second connected greenhouse, completed last year, brought the total area under glass to some 42 acres, or roughly the size of 32 football fields. Even in the depths of winter, a million tomatoes ripen indoors to harvest each week, snipped from their vines by workers in T-shirts and shorts.

. . .

Once, if you wanted tomatoes out of season, you mainly had to settle for hard pink ones picked green in the fields of Florida or Mexico and shipped by truck. Commercial greenhouses could do better, but they were a niche market.

Backed by consumer demand for fresh tomatoes year round, the indoor acreage devoted to growing tomatoes has become nearly six times as large since the early 1990s, said Roberta Cook, a marketing economist who helped write what many in the industry consider to be the definitive report on greenhouse tomatoes in 2005.

Those tough pink ones are still good and cheap enough for most fast food restaurants and the food service industry, which buy about half the fresh tomatoes sold in the United States. But with shoppers willing to pay a pre-(p. D5)mium -- even $4 to $5 a pound -- for red vine-ripened ones with more flavor, greenhouse tomatoes now represent more than half of every dollar spent on fresh tomatoes in American supermarkets, according to figures from the Perishables Group, a market research firm in Chicago.

. . .

Advances in genetics have allowed breeders to cross-pollinate precisely for control over specific attributes like size, color, disease resistance, firmness for shipping and levels of acids and sugars, the balance of which accounts for the bulk of a tomato's flavor. Too little sugar turns fruit tart. Too little acid turns it bland. Too little of both leaves tomatoes with little flavor.

As tomatoes ripen on the vine they develop more of those sugars and acids and other flavor elements. But most of the major farms growing tomatoes that are sold fresh year round are in areas where the climate is more hospitable to varieties best picked green.

By creating their own climate -- whether in Arizona, Maine or Canada -- greenhouses allow growers to pick and ship tomatoes only when they're ripe.

For the full story, see:

CHRIS LADD. "Endless Summer, Even in Maine." The New York Times (Weds., March 31, 2010): D1 & D5.

(Note: ellipses added.)

(Note: the online version of the article is dated March 30, 2010, and has the title "Giant Greenhouses Mean Flavorful Tomatoes All Year.")

"Even as snow falls outside, workers harvest tomatoes year-round at Backyard Farms in Madison, Maine. About 200 of them tend a half-million plants under 42 acres of glass, roughly the same amount of floorspace as in the Chrysler Building." Source of caption and photo: online version of the NYT article quoted and cited above.

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(p. A19) Mr. Obama and his advisers need to grasp this essential fact: Entrepreneurs are not just a cute little subsector of the American economy. They are the whole game. They will give us tomorrow's Apples and the multiplier effect of small businesses and exciting new jobs that go with them. Entrepreneurs are necessary to keep our large multinationals on their toes. It's no coincidence that the entrepreneurial flowering of the 1970s forced a managerial revolution in large companies during the 1980s and 1990s. Without Steve Jobs, there would have been no Lou Gerstner to reinvent IBM in the '90s. Entrepreneurs like Steve Jobs make everyone better.

For the full story, see:

RICH KARLGAARD. "Apple to the Rescue?" The Wall Street Journal (Thurs., JANUARY 28, 2010): A19.

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(p. 108) Noted Yale law professor Yochai Benkler has a theory. In a widely circulated and famous essay on the Internet called "Coase's Penguin," he offered his thinking on why people participate in efforts such as Linux and other "free" projects. There was already a culture, before Wikipedia, of folks donating their time, effort, and skills to the collective good for no monetary gain or immediate compensation. Benkler observed this part of the hacker ethos and was curious to know what the common thread was.

He dubbed it "commons-based peer production." It's a fancy moniker for the phenomenon of people working together toward the same end--creating computer code or content that is free to be copied, distributed, used, and modified by others.

Benkler believes the Internet and the "free culture" movement have allowed individuals to connect and combine their efforts in ways unprecedented in history. The legal academic is not shy to combine scholarship outside his area of training by drawing on economics, sociology, and technology to form his theory.

According to Benkler, if monetary rewards and the creation of corporate firms have been the accepted driving force for human innovation and progress, there has to be something else driving volunteers in Linux, Wikipedia, and other "free" projects that have become so pervasive and monumental in the digital age.

He asserts the motivation comes from two main things other than money: the "socio-psychological" reward of interacting with others, and the "hedonic" personal gratification of the task.

Wikipedia's magic occurs when these two things come together. One person's personal affection and indulgence---mapmaking, grammar checking, baseball statistics, history of stamps---easily finds a home in Wikipedia's amalgam of topics, where it also feeds into and inspires activities by others.

Source:

Lih, Andrew. The Wikipedia Revolution: How a Bunch of Nobodies Created the World's Greatest Encyclopedia. New York: Hyperion, 2009.

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

Daniel Pink's Free Agent Nation was a provocative account of how the entrepreneur benefits from being an entrepreneur. I enjoyed the book, and reference it frequently.

I have not had a chance to read Pink's recent Drive, but hope to do so soon.

(p. A17) Science, Mr. Pink says, has shown that we are motivated as much intrinsically, by the sheer joy and purpose of certain activities, as extrinsically, by rewards like pay raises and promotions.

The science that Mr. Pink is referring to rests largely on the work of Edward Deci and Richard Ryan at the University of Rochester and Mihaly Csikszentmihalyi at Claremont Graduate University. These three researchers have found that we do our best work when motivated from within, when we have control over our time and decisions and when we feel a deep sense of purpose. Under such conditions, we can achieve real mastery over whatever it is that we do.

The modern workplace, Mr. Pink laments, is too often set up to deny us this opportunity. Firms that hope to optimize efficiency by making their employees clock in and out, attend compulsory meetings, and receive pay for performance are de-motivating through excessive control. What they should be doing, he argues, is giving workers the chance to do their best work by granting them more autonomy and helping them to achieve the mastery that may come with it.

Mr. Pink cites an Australian software firm, Atlassian, that allows its programmers 20% of their time to work on any software problem they like, provided it is not part of their regular job. The programmers turn out to be much more efficient with that 20% of their time than they are with their regular work hours. Atlassian credits the 20% with many of its innovations and its high staff retention. Companies as large as Google and 3M have similar programs that have produced everything from Google News to the Post-It note.

. . .

. . . : Beyond serving our basic needs, money doesn't buy happiness. We need a greater purpose in our lives. Our most precious resource is time. We respond badly to conditions of servitude, whether the lash of the galley master or the more subtle enslavement of monthly paychecks, quarterly performance targets and the fear of losing health insurance. Work that allows us to feel in control of our lives is better than work that does not.     . . . , these lessons are worth repeating, and if more companies feel emboldened to follow Mr. Pink's advice, then so much the better.

For the full review, see:

PHILIP DELVES BROUGHTON. "More Than a Paycheck; Workers are more efficient, loyal and creative when they feel a sense of purpose--when work has meaning." The Wall Street Journal (Tues., Feb. 2, 2010): A17.

(Note: ellipses added.)

(Note: the online version of the review is dated Feb. 5, 2010.)

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"GAME CHANGER? After months of anticipation, Apple unveiled its iPad tablet computer last week." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) The more, the better. That's the fashionable recipe for nurturing new ideas these days. It emphasizes a kind of Internet-era egalitarianism that celebrates the "wisdom of the crowd" and "open innovation." Assemble all the contributions in the digital suggestion box, we're told in books and academic research, and the result will be collective intelligence.

Yet Apple, a creativity factory meticulously built by Steven P. Jobs since he returned to the company in 1997, suggests another innovation formula -- one more elitist and individual.

This approach is reflected in the company's latest potentially game-changing gadget, the iPad tablet, unveiled last week. It may succeed or stumble but it clearly carries the taste and perspective of Mr. Jobs and seems stamped by the company's earlier marketing motto: Think Different.

. . .

(p. 6) Great products, according to Mr. Jobs, are triumphs of "taste." And taste, he explains, is a byproduct of study, observation and being steeped in the culture of the past and present, of "trying to expose yourself to the best things humans have done and then bring those things into what you are doing."

His is not a product-design philosophy steered by committee or determined by market research. The Jobs formula, say colleagues, relies heavily on tenacity, patience, belief and instinct. He gets deeply involved in hardware and software design choices, which await his personal nod or veto. Mr. Jobs, of course, is one member of a large team at Apple, even if he is the leader. Indeed, he has often described his role as a team leader. In choosing key members of his team, he looks for the multiplier factor of excellence. Truly outstanding designers, engineers and managers, he says, are not just 10 percent, 20 percent or 30 percent better than merely very good ones, but 10 times better. Their contributions, he adds, are the raw material of "aha" products, which make users rethink their notions of, say, a music player or cellphone.

"Real innovation in technology involves a leap ahead, anticipating needs that no one really knew they had and then delivering capabilities that redefine product categories," said David B. Yoffie, a professor at the Harvard Business School. "That's what Steve Jobs has done."

For the full commentary, see:

STEVE LOHR. "The Apple in His Eye." The New York Times, Week in Review Section (Sun., MARCH 4, 2010): 1 & 6.

(Note: ellipsis added.)

(Note: the online version of the article is dated January 29, 2010 and had the title "Steve Jobs and the Economics of Elitism.")

Steve Jobs with an iPad. Source of photo: online version of the NYT article quoted and cited above.

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(p. A24) Last year, the State Legislature levied a new tariff on most of the businesses in the New York City region. The metropolitan commuter transportation mobility tax requires employers to set aside 34 cents for every $100 in payroll costs, and hand the money over to a battered, barely breathing patient on the state's fiscal operating table: the Metropolitan Transportation Authority.

The tax has not worked out so well. So far, its projected revenues are coming in about $400 million below the state's estimates -- which, in part, will mean reduced subway and bus service for New Yorkers starting this summer. It has also prompted a furious backlash from suburban officials who resent bankrolling an agency that, they say, benefits the city at the expense of its surrounding counties.

And then there is William Schoolman, 69, amateur activist, self-described ''prototypical entrepreneur,'' and proprietor of the Hampton Luxury Liner bus fleet. In December, he filed a lawsuit in State Supreme Court claiming the tax is unconstitutional and demanding its repeal. The reason?

''Competition,'' Mr. Schoolman said in a recent telephone interview, anger rising in his voice. ''This is the first time that I ever had to pay a subsidy directly to my competitor. That's the thing that really bothers me.''

For the full story, see:

MICHAEL M. GRYNBAUM. "Suing Over a Transit Tax, in the Name of Competition." The New York Times (Tues., February 16, 2010): A24.

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"Yang Jinlu, 18, left, and Zhang Yinghua, 37." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A10) KUNMING, China -- Chen Mingjing's entrepreneurial instincts vaulted him from a peasant upbringing to undreamed-of wealth, acquired in ventures ranging from making electric meters to investing in real estate. But when he was 44, the allure of making money for money's sake began to wane. He wanted to run a business that accomplished some good.

And so last September, Mr. Chen did what any socially aware entrepreneur might do: He opened a theme park of dwarfs, charging tourists about $9 a head to watch dozens of dwarfs in pink tutus perform a slapstick version of "Swan Lake" along with other skits.

Mr. Chen has big plans for his Kingdom of the Little People. Imagine a $115 million universe in miniature, set amid 13,000 acres of rolling hills and peaceful lakes in southern China's Yunnan Province, with tiny dogs, tiny fruit trees, a 230-foot-high performance hall that looks like the stump of a prehistoric tree and standard-size guest cabins.

Also, a black BMW modified to resemble a flying saucer, from which dwarfs will spill forth to begin their performances.

"It will be like a fairy tale," Mr. Chen said. "Everything here I have designed myself."

. . .

Critics say displaying dwarfs is at best misguided and at worst immoral, a throwback to times when freak shows pandered to people's morbid curiosity.

"Are they just going there to look at curious objects?" asked Yu Haibo, who leads a volunteer organization for the disabled in Jilin Province in the northeast.

"I think it is horrible," said Gary Arnold, the spokesman for Little People of America Inc., a dwarfism support group based in California. "What is the difference between it and a zoo?" Even the term "dwarf" is offensive to some; his organization prefers "person of short stature."

. . .

But there is another view, and Mr. Chen and some of his short-statured workers present it forcefully. One hundred permanently employed dwarfs, they contend, is better than 100 dwarfs scrounging for odd jobs. They insist that the audiences who see the dwarfs sing, dance and perform comic routines leave impressed by their skills and courage.

Many performers said they enjoyed being part of a community where everyone shares the same challenges, like the height of a sink. "Before, when we were at home, we didn't know anyone our size. When we hang out together with normal-size people, we can not really do the same things," said Wu Zhihong, 20. "So I really felt lonely sometimes."

. . .

Supporters and critics agree on one point: the fact that the park is awash in job applications shows the disturbing dearth of opportunities for the disabled in China. Cao Yu, Mr. Chen's assistant, says she receives three or four job inquiries a week.

"Under the current social situation in China, they really will not be able to find a better employment situation," she said.

. . .

Mr. Chen said his employees had gained self-respect and self-sufficiency. "It doesn't really matter to me what other people say," he said. "The question is whether meeting me has changed their lives."

For the full story, see:

SHARON LaFRANIERE. "Kunming Journal; A Miniature World Magnifies Dwarf Life." The New York Times (Thurs., March 4, 2010): A10.

(Note: ellipses added.)

(Note: the online version of the article is dated March 3, 2010.)

"Workers relaxed in the dormitories." Source of caption and photo: online version of the NYT article quoted and cited above.

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(p. A19) . . . , there is one way to create a lot more jobs without spending federal money. Let's import them. More precisely, let's import the people who create them: entrepreneurs.

A bipartisan bill that would begin to do just that was introduced on Feb. 24 by Sens. John Kerry (D., Mass.) and Richard Lugar (R., Ind.). Their "Startup Visa Act" would create a new, two-year visa for immigrant entrepreneurs whose firms attract at least $250,000 in financing from American angel investors or venture capital firms.

. . .

Here's a way to improve on the Kerry-Lugar plan. Create a true "job creator's visa," one tied directly and only to job creation by new immigrant entrepreneurs. The visa could be a temporary one for immigrants already here on another visa who establish a business. It could then be extended if the firm hires at least one American non-family resident. The visa should become permanent once the enterprise crosses a certain job threshold (such as five or 10 workers). But it would not be tied to financing.

. . .

Google was founded by Sergey Brin, a Russian immigrant, and American Larry Page by borrowing funds from their own credit cards. Why on earth would we want to create an entrepreneurs' visa that couldn't let in the future Sergey Brin?

For the full commentary, see:

ROBERT E. LITAN. "Visas for the Next Sergey Brin; To create more jobs, let's import more employers." The Wall Street Journal (Mon., MARCH 8, 2010): A19.

(Note: ellipses added.)

(Note: the online version of the article is dated MARCH 7, 2010.)

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

(p. A23) Exports of American services have jumped by 84 percent since 2000, while the growth rate among goods was 66 percent. America trails both China and Germany in sales of goods abroad, but ranks No. 1 in global services by a wide margin. And while trade deficits in goods have been enormous -- $840 billion in 2008 -- the country runs a large and growing surplus in services: we exported $144 billion more in services than we imported, dwarfing the surpluses of $75 billion in 2000 and $58 billion in 1992.

Equally important, Commerce Department data show that the United States is a top-notch competitor in many of the high-value-added services that support well-paying jobs.

. . .

. . . , will Washington offer tax breaks or other export incentives? While businesses may clamor for them, these would be a setback for freer trade -- after all, for years it has been America that has been hectoring other countries to end their subsidies to exporters. Will Washington try to pick winners in the global marketplace, like green energy? More often than not, this kind of industrial policy wastes money, fosters inefficiency and creates few permanent jobs.

For the full story, see:

W. MICHAEL COX. "An Order of Prosperity, to Go." The New York Times (Weds., February 17, 2010): A23.

(Note: ellipses added.)

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(p. 67) Adams did something unexpected for the academic community, but common in open source culture--release early and release often. Within weeks of its launch, one of the biggest annoyances of Wikipedia was resolved directly by the software's author. It was not because of monetary compensation or any formal request, but simply because the author was interested in solving it on his own time, and sharing it with others. It was the hacker ethos, and it had crossed from the domain of tech programmers into the world of encyclopedias.

Source:

Lih, Andrew. The Wikipedia Revolution: How a Bunch of Nobodies Created the World's Greatest Encyclopedia. New York: Hyperion, 2009.

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". . . apparently a photo that was snapped from the iPhone as Ballmer brandished it above his head." Source of caption and photo: http://www.gearfuse.com/ballmer-lashes-out-at-microsoft-employed-iphone-user-threatens-to-smash-iphone/

(p. A1) REDMOND, Wash.--Microsoft Corp. employees are passionate users of the latest tech toys. But there is one gadget love that many at the company dare not name: the iPhone.

The iPhone is made, of course, by Microsoft's longtime rival, Apple Inc. The device's success is a nagging reminder for Microsoft executives of how the company's own efforts to compete in the mobile business have fallen short in recent years. What is especially painful is that many of Microsoft's own employees are nuts for the device.

The perils of being an iPhone user at Microsoft were on display last September. At an all- company meeting in a Seattle sports stadium, one hapless employee used his iPhone to snap photos of Microsoft Chief Executive Steve Ballmer. Mr. Ballmer snatched the iPhone out of the employee's hands, placed it on the ground and pretended to stomp on it in front of thousands of Microsoft workers, according to people present.

. . .

Nearly 10,000 iPhone users were accessing the Microsoft employee email system last year, say two people who heard the estimates from senior Microsoft executives. That figure equals about 10% of the company's glo-(p. A10)bal work force.

Employees at Apple, in contrast, appear to be more devoted to the company's own mobile phone. Several people who work at the company or deal regularly with employees there say they can't recall seeing Apple workers with mobile phones other than the iPhone in recent memory.

For the full story, see:

NICK WINGFIELD. "Forbidden Fruit: Microsoft Workers Hide Their iPhones; Steve Ballmer Sours on Apple Product; Work for Ford, Drive a Ford." The Wall Street Journal (Sat., MARCH 13, 2010): A1 & A10.

(Note: ellipses added.)

(Note: the online version of the article had the date MARCH 12, 2010.)

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(p. 22) By 1998, the business was good enough that Wales wanted to leave not just the world of Chicago Options Associates but the city of Chicago too. As a trader, he had made enough money to live comfortably for a while, or as he would say, "I made out OK" and earned "enough." With no incentive to stay in the Windy City, and with the warmer weather of California calling, Wales and Shell decided they could relocate to San Diego and run the business from there. Wales and his wife, Christine, made the move in 1998.

Source:

Lih, Andrew. The Wikipedia Revolution: How a Bunch of Nobodies Created the World's Greatest Encyclopedia. New York: Hyperion, 2009.

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"Co-founder Sergey Brin has been active in Google's dealings with China." Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A8) As a boy growing up in the Soviet Union, Sergey Brin witnessed the consequences of censorship. Now the Google Inc. co-founder is drawing on that experience in shaping the company's showdown with the Chinese government.

Mr. Brin has long been Google's moral compass on China-related issues, say people familiar with the matter. He expressed the greatest concern among decision makers, they say, about the compromises Google made when it launched its Chinese-language search engine, Google.cn, in 2006. He is now the guiding force behind Google's decision to stop filtering search results in China, say people familiar with the decision.

. . .

The move is the clearest manifestation yet of a tension that has always existed at Google.

The Internet company, on one hand, is analytical: It built its core search business on algorithms that determine the relevance of Web sites and has tried to apply quantitative analysis to traditionally subjective parts of a business, such as hiring decisions. On the other hand, Mr. Brin and co-founder Larry Page have passionately touted Google's ability to spread democracy through access to information, and adopted the unofficial and now-famous motto, "Don't Be Evil."

"At its best, Google is data-driven with an ethical trump card," said Larry Brilliant, who headed up the company's philanthropic efforts until 2009. Always it was the founders, Messrs. Brin and Page, who could play that card, he added.

For the full story, see:

BEN WORTHEN. "Soviet-Born Brin Has Shaped Google's Stand." The Wall Street Journal (Sat., MARCH 13, 2010): A8.

(Note: ellipsis added.)

(Note: the online version of the article had the date MARCH 12, 2010 and has the slightly longer title "Soviet-Born Brin Has Shaped Google's Stand on China.")

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(p. 20) Jimmy walked into the offices of Chicago Options Associates in 1994 and met the CEO Michael Davis for a job interview. Davis had looked over Wales's academic publication about options pricing.

"It was impressive looking," says Wales wryly about the paper. "It was a very theoretical paper but it wasn't very practical." But Davis was sufficiently intrigued, as he wanted someone like Wales to pore over the firm's financial models and help improve them. So he took on young Wales, who seemed to be sharp and had acumen for numbers. Little did either of them know they would have a long road ahead together, with Wikipedia in the future.

Wales's first job was to go over the firm's current pricing models. "What was really fascinating was that it was truly a step beyond what I'd seen in academia," he recalls. "It was very practical, and didn't have a real theoretical foundation." Wales was intrigued that the firm traded on principles that worked in practice, not in theory. (This is something he would say about his future endeavor Wikipedia.) "Basically they just knew in the marketplace that the existing models were wrong."

Source:

Lih, Andrew. The Wikipedia Revolution: How a Bunch of Nobodies Created the World's Greatest Encyclopedia. New York: Hyperion, 2009.

(Note: italics in original.)

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"Nathan Myhrvold, chief of Intellectual Ventures, says patent holders are being treated unfairly." Source of caption and photo: online version of the NYT article quoted and cited below.

When Nathan Myhrvold was at Microsoft, he helped Bill Gates write The Road Ahead, a well-written book full of realistically optimistic speculation, forecast and analysis.

Besides his main initiative, discussed below, he has recently been in the news due to his bold and controversial suggestion for how to cheaply solve global warming.

(p. B1) BELLEVUE, Wash. -- Nathan Myhrvold wants to shake up the marketplace for ideas. His mission and the activities of the company he heads, Intellectual Ventures, a secretive $5 billion investment firm that has scooped up 30,000 patents, inspire admiration and angst.

Admirers of Mr. Myhrvold, the scientist who led Microsoft's technology development in the 1990s, see an innovator seeking to elevate the economic role and financial rewards for inventors whose patented ideas are often used without compensation by big technology companies. His detractors see a cynical operator deploying his bulging patent trove as a powerful bargaining chip, along with the implied threat of costly litigation, to prod high-tech companies to pay him lucrative fees. They call his company "Intellectual Vultures."

White hat or black hat, Intellectual Ventures is growing rapidly and becoming a major force in the marketplace for intellectual capital. Its rise comes as Congress is considering legislation, championed by large technology companies, that would make it more difficult for patent holders to win large damage awards in court -- changes that Mr. Myhrvold has opposed in Congressional testimony and that his company has lobbied against.

. . .

(p. B10) The issues surrounding Intellectual Ventures, viewed broadly, are the ground rules and incentives for innovation. "How this plays out will be crucial to the American economy," said Josh Lerner, an economist and patent expert at the Harvard Business School.

Mr. Myhrvold certainly thinks so. He says he is trying to build a robust, efficient market for "invention capital," much as private equity and venture capital developed in recent decades. "They started from nothing, were deeply misunderstood and were trashed by people threatened by new business models," he said in his offices here.

Mr. Myhrvold presents his case at length in a 7,000-word article published on Thursday in the Harvard Business Review. "If we and firms like us succeed," he writes, "the invention capital system will turbocharge technological progress, create many more new businesses, and change the world for the better."

In the article and in conversation, Mr. Myhrvold describes the patent world as a vastly underdeveloped market, starved for private capital and too dependent on federal financing for universities and government agencies, which is mainly aimed at scientific discovery anyway. Eventually, he foresees patents being valued as a separate asset class, like real estate or securities.

His antagonists, he says, are the "cozy oligarchy" of big technology companies like I.B.M., Hewlett-Packard and others that typically reach cross-licensing agreements with each other, and then refuse to deal with or acknowledge the work of inventors or smaller companies.

. . .

Mr. Myhrvold personifies the term polymath. He is a prolific patent producer himself, with more than 100 held or applied for. He earned his Ph.D. in physics from Princeton and did postdoctorate research on quantum field theory under Stephen Hawking, before founding a start-up that Microsoft acquired.

He is an accomplished French chef, who has also won a national barbecue contest in Tennessee. He is an avid wildlife photographer, and he has dabbled in paleontology, working on research projects digging for dinosaur remains in the Rockies.

For the full story, see:

STEVE LOHR. "Turning Patents Into 'Invention Capital'." The New York Times (Thur., February 18, 2010): B1 & B10.

(Note: ellipses added.)

(Note: the online version of the article is dated February 17, 2010.)

The Bill Gates book is:

Gates, Bill. The Road Ahead. New York: Viking Penguin, 1995.

Myhrvold's Harvard Business Review essay is:

Myhrvold, Nathan. "The Big Idea: Funding Eureka!" Harvard Business Review 88, no. 2 (March 2010): 40-50.

"Nathan Myhrvold with a machine that freeze-dries food. Intellectual Ventures so far has paid $315 million to individual inventors." Source of caption and photo: online version of the NYT article quoted and cited above.

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"Keli Carender resists the idea of a Tea Party leader -- "there are a thousand leaders," she says. But she has become a leader, and a celebrity. Ms. Carender at a recent rally in Olympia, Wash." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) SEATTLE -- Keli Carender has a pierced nose, performs improv on weekends and lives here in a neighborhood with more Mexican grocers than coffeehouses. You might mistake her for the kind of young person whose vote powered President Obama to the White House. You probably would not think of her as a Tea Party type.

But leaders of the Tea Party movement credit her with being the first.

A year ago, frustrated that every time she called her senators to urge them to vote against the $787 billion stimulus bill their mailboxes were full, and tired of wearing out the ear of her Obama-voting fiancé, Ms. Carender decided to hold a protest against what she called the "porkulus."

. . .

(p. 19) The daughter of Democrats who became disaffected in the Clinton years, Ms. Carender, 30, began paying attention to politics during the 2008 campaign, but none of the candidates appealed to her. She had studied math at Western Washington University before earning a teaching certificate at Oxford -- she teaches basic math to adult learners -- and began reading more on economics, particularly the writings of Thomas Sowell, the libertarian economist, and National Review.

Reading about the stimulus, she said, "it didn't make any sense to me to be spending all this money when we don't have it."

"It seems more logical to me that we create an atmosphere where private industry can start to grow again and create jobs," she said.

For the full story, see:

KATE ZERNIKE. "Early Arrival at the Tea Party: A Young and Unlikely Activist." The New York Times, First Section (Sun., February 26, 2010): 1 & 19.

(Note: ellipsis added.)

(Note: the online version of the article is dated February 27, 2010 and has the title "Unlikely Activist Who Got to the Tea Party Early.")

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Source of book image: http://kellylowenstein.files.wordpress.com/2009/04/wikipedia-revolution1.jpg

Wikipedia is a very unexpected and disruptive institution. Amateurs have produced an encyclopedia that is bigger, deeper, more up-to-date, and arguably of at least equal accuracy, with the best professional encyclopedias, such as Britannica.

I learned a lot from Lih's book. For instance I did not know that the founders of Wikipedia were admirers of Ayn Rand. And I did not know that the Oxford English Dictionary was constructed mainly by volunteer amateurs.

I also did not know anything about the information technology precursors and the back-history of the institutions that helped Wikipedia to work.

I learned much about the background, values, and choices of Wikipedia entrepreneur "Jimbo" Wales. (Jimbo Wales seems not to be perfect, but on balance to be one of the 'good guys' in the world---one of those entrepreneurs who can be admired for something beyond their particular entrepreneurial innovation.)

Lih's book also does a good job of sketching the problems and tensions within Wikipedia.

I believe that Wikipedia is a key step in the development of faster and better institutions of knowledge generation and communication. I also believe that substantial further improvements can and will be made.

Most importantly, I think that you can only go so far with volunteers--ways must be found to reward and compensate.

In the meantime, much can be learned from Lih. In the next few weeks, I will be quoting a few passages that I found especially illuminating.

Book discussed:

Lih, Andrew. The Wikipedia Revolution: How a Bunch of Nobodies Created the World's Greatest Encyclopedia. New York: Hyperion, 2009.

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(p. 32) "I was in search of a one-armed economist, so that the guy could never make a statement and then say: "on the other hand.""

Source:

Harry S. Truman as quoted in: Keyes, Ralph. The Wit & Wisdom of Harry S. Truman. New York: Gramercy Books, 1999.

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

(p. A17) This has been an unforgettable year in the history of American spending.

It began with an eye-popping $800 billion stimulus bill that came from nowhere and went to nowhere. Done with that, the Washington Democrats turned to President Obama's health-care reform, which looked big at first, but turned out to be bigger. A well-publicized June estimate of the Senate bill's cost by the Congressional Budget Office put the 10-year price tag at $1.6 trillion. So $800 billion, then a trillion.

Dollar signs rocketed into the sky all year: hundreds of billions on various TARP salvage projects, much drawn from some magic stash held by the Federal Reserve. The Obama cap-and-trade bill was going to use an auction to siphon $3.3 trillion from various states to Washington over 40 years. Oh, almost forgot--an FY 2011 $3.8 trillion budget.

For the full commentary, see:

DANIEL HENNINGER. "It's the Spending, America ." The Wall Street Journal (Thurs., February 18, 2010): A17.

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"An unoccupied office building in San Jose, Calif., in December. Many tech firms are hiring engineers abroad to do their work." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B3) SAN FRANCISCO -- Silicon Valley's economy is sputtering and risks permanently stalling, according to an annual report by a group of researchers in the region.

Part of the toll on Silicon Valley has resulted from the recession. The region, the center of the global technology industry, lost 90,000 jobs from the second quarter of 2008 to the second quarter of 2009. Unemployment is higher than national levels and the worst in the region since 2005, when technology companies were still recovering from the dot-com implosion.

The drop in the number of midlevel jobs -- the engineers who drive much of the Valley's growth -- has been sharpest. And when companies do hire, they are cautiously hiring independent contractors instead of regular employees, and are hiring abroad, according to the "2010 Index of Silicon Valley" report, which was produced by the Joint Venture: Silicon Valley Network and the Silicon Valley Community Foundation, two local nonprofit groups.

Other economic indicators are also gloomy, the report found.

"We show no evidence that the recovery has arrived," said Russell Hancock, chief executive of Joint Venture.

For the full story, see:

CLAIRE CAIN MILLER. "Report Warns Silicon Valley Could Lose Its Edge." The New York Times (Thurs., February 11, 2010): B3.

Note: The online version of the article is dated February 10, 2010, and has the title "Report Warns Silicon Valley Could Lose Its Edge.")

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Chamber of Commerce President Tom Donohoe. Source of caricature: online version of the WSJ article quoted and cited below.

(p. A13) The White House's war on the Chamber has come just as the group is launching a new $100 million campaign promoting free enterprise.

"We want to encourage and promote and educate and get a bunch of enthusiasm behind . . . the free enterprise system with free capital markets and free trade and the ability to fail and fall right on your ass and get up and do it again!" he says.

The belief in that system, Mr. Donohue says, has been eroded by the recession and subsequent criticism of the free market. "The purpose of this is to get out of the doldrums! Quit sulking and worrying." He hopes the campaign will remind Americans that "We created 20 million jobs in the '90s, we can do it again. We don't have to do it exactly like that--Adam Smith didn't have a BlackBerry--but we ought to pay attention to what made it work."

For the full interview, see:

KIMBERLEY A. STRASSEL. "OPINION: THE WEEKEND INTERVIEW with Tom Donohue; Business Fights Back; His organization under attack by the White House, the president of the Chamber of Commerce stands by his defense of free enterprise." The Wall Street Journal (Sat., October 24, 2009): A13.

(Note: the online version of the article has the date October 23, 2009.)

(Note: ellipsis in original.)

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"The image of Ali Bongo, the son of longtime ruler Omar Bongo, blanketed Libreville." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A5) The "Bongo system," as people here refer to it -- forsaking roads, schools and hospitals for the sake of Mr. Bongo's 66 bank accounts, 183 cars, 39 luxury properties in France and grandiose government constructions in Libreville -- is etched in the streets of this languid seaside capital, where he ruled for 41 years, and also in the minds of its inhabitants.

. . .

A Western family here spoke of embarrassment at visiting a government minister whose house is packed with the latest flat-screen televisions and other expensive electronic gadgets, and whose garage was full of luxury cars. The top aide to a leading opposition figure, discussing the "Bongo system," said: "You had to bring a suitcase to the palace. Bongo didn't write checks." The president, he said, "calls everybody to the palace, and the money is handed out. That's how the country was run."

He spoke of a "sandwich system" of vote-buying employed by the ruling party in rural districts: notables are called together for a meeting, and at the end, when all are tired, a tray of "sandwiches" is passed around. Inside each "sandwich" is up to $600.

Looking around at an outdoor restaurant, he asked not to be named because he said: "It's a police state. They mess up your life."

. . .

On paper, the government's budget allocations for health, education and transportation were impressive, "huge," said the Western development official. "But in reality, it was actually about 20 percent of what was on paper," the official said. "The rest was embezzled," he added, asking to remain anonymous because identifying him would complicate his work in the country.

. . .

"It's a tiny number that benefits from the country's riches," said a cigarette vendor, Price Nyamam, squatting on the pavement in the poor Rio district. He said he had degrees in economics and sociology. "You are obliged to do work that doesn't correspond to your aspirations."

For the full story, see:

ADAM NOSSITER. "Libreville Journal; Underneath Palatial Skin, Corruption Rules Gabon." The New York Times (Tues., September 15, 2009): A5.

(Note: the online version of the article has the date September 14, 2009.)

(Note: ellipses added.)

"Foraging for food at the main dump." Source of caption and photo: online version of the NYT article quoted and cited above.

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(p. A3) Organized labor lost 10% of its members in the private sector last year, the largest decline in more than 25 years. The drop is on par with the fall in total employment but threatens to significantly limit labor's ability to influence elections and legislation.

On Friday, the Labor Department reported private-sector unions lost 834,000 members, bringing membership down to 7.2% of the private-sector work force, from 7.6% the year before. The broader drop in U.S. employment and a small gain by public-sector unions helped keep the total share of union membership flat at 12.3% in 2009. In the early 1980s, unions represented 20% of workers.

For the full story, see:

KRIS MAHER. "Union Membership Declines by 10%." The Wall Street Journal (Sat., January 23, 2010): A3.

(Note: the online version of the article has the slightly different title "Union Membership Drops 10%.")

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Rita Gunther McGrath is a member of the faculty of the Columbia Business School. Source of photo: online version of the WSJ article quoted and cited below.

(p. R2) BUSINESS INSIGHT: You and Prof. Ian C. MacMillan of the Wharton School of the University of Pennsylvania wrote a book called "Discovery-Driven Growth." What is discovery-driven growth?

DR. MCGRATH: Discovery-driven growth is a way of planning to grow that doesn't require a lot of analytical information at the outset. It recognizes that many of the data that you need to make decisions don't exist at the time that you have to make the decisions. It's a plan to learn.

I think we all live with a conceptual overhang from an industrial era when things were more predictable. You had big production runs. At least if you were an American company, you had a lot of markets with very little competition, and what competition there was was more or less predictable. In many businesses you could use the past as an adequate guide to what the future held for you.

In more and more industries, those conditions no longer apply. You're seeing temporary advantages, very rapid swings in who's on top competitively, new technologies that make older ones irrelevant at an ever-faster clip--the usual litany of things people moan about today. But I think one of the things that has not yet quite been fully recognized is that these have an impact on our management processes--or should.

For the full interview, see:

Martha E. Mangelsdorf. "Executive Briefing; Learning From Corporate Flops; When starting new ventures, companies should revisit their assumptions early and often." The Wall Street Jounal (Mon., OCTOBER 26, 2009): R2.

(Note: italics in original.)

Source of book image: http://events.roundtable.com/iguru/DiscoveryDrivenGrowth.gif.

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Entrepreneurs may develop a good sense of people, even though they cannot articulate their judgment. Yet their firms, and our economy, might be more efficient and productive if they were allowed to follow their judgments, rather than follow Human Resource Department credentialism and paper trails.

The entrepreneurs might make mistakes, but in an open economy they would pay a price for their mistakes in profits foregone, and hance would have an incentive to correct the mistakes. And there would be plenty of alternative jobs for anyone mistakenly fired.

(p. 91) I've been wrong in my judgments about men, I suppose, but not very often. Bob Frost, one of our key executives on the West Coast, will remember the time he and I were checking out stores, and I got a very unfavorable impression of one of his young managers. As we drove away from the store I said to Bob, "I think you'd better fire that man." "Oh, Ray, come on!" he exclaimed. "Give the kid a break. He's young, he has a good attitude, and I think he will come along."

"You could be right, Bob," I said, "but I don't think so. He has no potential."

Later in the day, as we were driving back to Los Angeles, that conversation was still bugging me. Finally I turned to Bob and yelled, "Listen goddammit I want you to fire that man!"

One thing that makes Bob Frost a good executive is that he has the courage of his convictions. He also sticks up for his people. He's a retired Navy man, and he knows how to keep his head under fire. He simply pursed his lips and nodded solemnly and said, "If you are ordering me to do it, Ray, I will. But I would like to give him another six months and see how he works out."

I agreed, reluctantly. What happened after that was the kind of (p. 92) personnel hocus-pocus that government is famous for but should never be permitted in business, least of all in McDonald's. The man hung on. He was on the verge of being fired several times in the following years, but he was transferred or got a new supervisor each time. He was a decent guy, so each new boss would struggle to reform him. Many years later he was fired. The assessment of the executive who finally swung the ax was that "this man has no potential."

Bob Frost now admits he was wrong. I had the guy pegged accurately from the outset. But that's not the point. Our expenditure of time and effort on that fellow was wasted and, worst of all, he spent several years of his life in what turned out to be a blind alley. It would have been far better for his career if he'd been severed early and forced to find work more suited to his talents. It was an unfortunate episode for both parties, but it serves to show that an astute judgment can seem arbitrary to everyone but the man who makes it.

Source:

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

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"A man took in the view of Dubai from the 124th floor of the newly opened, $1.5 billion Burj Khalifa, a rocket-shaped building that soars 2,717 feet." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A7) CAIRO -- In the heady days of the Dubai gold rush, when real estate sold and resold even before a shovel hit the ground, the ambitious emirate was hailed as the model of Middle Eastern modernity, a boomtown that built an effective, efficient and accessible form of government.

Then the crash came and revealed how paper-thin that image was, political and financial analysts said. That realization, not just in Dubai but also in Abu Dhabi, the oil-rich capital of the United Arab Emirates, has cast a harsh light on an opaque, top-down decision-making process, not just in business but in matters of crime and punishment as well, political and financial analysts said.

The financial crisis and now two criminal cases that have generated critical headlines in other countries have demonstrated that the emirates remain an absolute monarchy, where institutions are far less important than royalty and where the law is particularly capricious -- applied differently based on social standing, religion and nationality, political experts and human rights advocates said.

"I think what we learned here the last four months is that the government, at least on a political level, is still very undeveloped," said a financial analyst based in Dubai who asked not to be identified to avoid compromising his ability to work in the emirates. "It's very difficult to read or interpret or understand what is going on. The institutions have not shaped up to people's expectations."

For the full story, see:

MICHAEL SLACKMAN. "Dubai Memo; Entrenched Monarchy Thwarts Aspirations for Modernity." The New York Times (Fri., January 22, 2010): A7.

(Note: the online version of the article is dated January 21, 2010.)

(Note: ellipsis added.)

"Workers repaired a phone line next to an office building in Dubai's Internet City. Even after a bailout, Dubai remains heavily burdened by debt." Source of caption and photo: online version of the NYT article quoted and cited above.

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(p. 5) . . . subsidies, . . . , have spurred excess capacity and created a dangerous political dynamic in which these investments have to be propped up at all cost.

China has been building factories and production capacity in virtually every sector of its economy, but it's not clear that the latest round of investments will be profitable anytime soon. Automobiles, steel, semiconductors, cement, aluminum and real estate all show signs of too much capacity. In Shanghai, the central business district appears to have high vacancy rates, yet building continues.

. . .

Over all, there is a lack of transparency. China's statistics on its gross domestic product are based more on recorded production activity than on what is actually sold. Chinese fiscal and credit policies are geared toward jobs and political stability, and thus the authorities shy away from revealing which projects are most troubled or should be canceled.

Put all of this together and there is a very real possibility of trouble.

For the full commentary, see:

TYLER COWEN. "Economic View; Dangers of an Overheated China." The New York Times, SundayBusiness Section (Sun., November 29, 2009 ): 5.

(Note: the online version of the commentary has the date November 28, 2009.)

(Note: ellipsis added.)

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"A woman examined bouquets and messages left by Google users on Wednesday outside the Internet search company's headquarters in Beijing." Source of caption and photo: online version of the NYT article cited way below (after the citation to the quoted article, which is a different article).

David Smick in The World as Curved, has suggested that restrictions on the internet in China, limit entrepreneurship, and ultimately economic growth.

(p. 5) BEIJING -- At the elite Tsinghua University here, some students were joking Friday that they had better download all the Internet information they wanted now in case Google left the country.

But to many of the young, well-educated Chinese who are Google's loyal users here, the company's threat to leave is in fact no laughing matter. Interviews in Beijing's downtown and university district indicated that many viewed the possible loss of Google's maps, translation service, sketching software, access to scholarly papers and search function with real distress.

"How am I going to live without Google?" asked Wang Yuanyuan, a 29-year-old businessman, as he left a convenience store in Beijing's business district.

. . .

Li An, a Tsinghua University senior, said she used to download episodes of "Desperate Housewives" and "Grey's Anatomy" from sites run by BT China that are now closed. "I love American television series," she said with frustration during a pause from studying Japanese at a university fast-food restaurant on Friday.

The loss of Google would hit her much harder, she said, because she relies on Google Scholar to download academic papers for her classes in polymer science. "For me, this is terrible," Ms. Li said.

Some students contend that even after Google pulls out, Internet space will continue to shrink. Until now, Google has shielded Baidu by manning the front line in the censorship battle, said a 20-year-old computer science major at Tsinghua.

"Without Google, Baidu will be very easy to manipulate," he said. "I don't want to see this trend."

A 21-year old civil engineering student predicted a strong reaction against the government. "If Google really leaves, people will feel the government has gone too far," he insisted over lunch in the university cafe.

But asked whether that reaction would influence the government to soften its policies, he concentrated on his French fries. "I really don't know," he said.

For the full story, see:

SHARON LaFRANIERE. "Google Users in China, Mostly Young and Educated, Fear Losing Important Tool." The New York Times, First Section (Sun., January 17, 2010): 5.

(Note: the online version of the article has the title "China at Odds With Future in Internet Fight" and is dated January 16, 2010.)

(Note: ellipsis added.)

The source of the photo at the top is the online version of:

KEITH BRADSHER and DAVID BARBOZA. "Google Is Not Alone in Discontent, But Its Threat Stands Out." The New York Times (Thurs., January 13, 2010): B1 & B4.

(Note: the online version of the article has the slightly different title "Google Is Not Alone in Discontent, But Its Threat to Leave Stands Out" and is dated January 14, 2010.)

The reference to the Smick book is:

Smick, David M. The World Is Curved: Hidden Dangers to the Global Economy. New York: Portfolio Hardcover, 2008.

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"A member of the National Guard stands guard during a inspection of prices at a store in La Guaira outside Caracas Jan. 12." Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A8) CARACAS -- President Hugo Chávez's decision to devalue Venezuela's currency in order to shore up government finances could backfire on the populist leader if the move leads to substantially higher prices and extends an economic downturn.

Just days after Mr. Chávez cut the value of the "strong bolivar" currency, some businesses were marking up prices. Shoppers jammed stores to stock up on goods before the increases took hold.

Amelia Soto, a 52-year-old housewife waited in line at a Caracas drugstore to buy 23 tubes of toothpaste. "Everywhere I hear that prices are going to skyrocket so I want to buy as much as I can now," she said.

Airlines have doubled fares; government officials said they were looking into reports that large retail chains were also increasing prices.

. . .

The price increases are setting the stage for confrontations with authorities following Mr. Chávez's orders to shut down retailers that raise prices.

. . .

The higher prices for consumer goods represent a huge liability for a country facing 27% inflation, one of the highest levels in the world.

For the full story, see:

DARCY CROWE and DAN MOLINSKI. "Prices in Venezuela Surge After Devaluation." The Wall Street Journal (Weds., JANUARY 13, 2010): A8.

(Note: the online version of the article has the title "Venezuelans Rush to Shop as Stores Increase Prices.")

(Note: ellipses added.)

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

(p. B1) Call it the mystery of the European sugar triangle.

It began when Belgian customs officials examined shipping records for dozens of giant tanker trucks that outlined an odd, triangular journey across Europe. The trucks, each carrying 22 tons of liquid sugar, swung through eight nations and covered a driving distance of roughly 2,500 miles from a Belgian sugar refinery to Croatia and back -- instead of taking the most direct, 900-mile route.

Along the way the trucks made a brief stop in Kaliningrad, a grim and bustling Russian border checkpoint on the Baltic Sea.

Suddenly the sugar triangle made sense to them. Because Russia, and not Croatia, was listed as the intended destination, the shipments qualified for valuable special payments known as export rebates from the European Union's farm subsidy program.

Some 200 shipments roared along this route over a three-year-period, investigators say, earning 3 million euros in refunds (about $4.5 million) for the Belgian sugar maker Beneo-Orafti. In the spring, dozens of Belgian and European investigators raided the company's offices, freezing half of its refunds and initiating an investigation that could cost the company the remaining 1.5 million euros, and possibly more.

In the sprawling European subsidy program -- which lavishes more than 50 billion euros ($75 billion at current exchange rates) a year in agricultural aid -- no commodity is more susceptible to fraud, chicanery and rule-bending, experts say, than simple household sugar.

(p. B4) Across Europe there are some 2.5 million acres of beet fields that will produce 16.7 million metric tons of sugar this year for an industry worth 7 billion euros. Last year the European Union spent 475 million euros in price supports for sugar, including export subsidies. Then it spent another 1.3 billion euros on restructuring aid to reform a subsidy regime so lavish that it even prompted cold-weather Finland to start producing more sugar.

Sugar producers across the Continent cashed in -- from Italy, where Italia Zuccheri collected more than 139 million euros, to France, where a handful of sugar producers received 128.5 million.

With this much money at stake, critics and some analysts say, the sugar subsidy system is like a cookie jar waiting to be pilfered.

. . .

"There's a whole world of commercial fraud, which goes under the radar for most people," said James Byrne, a law professor at the George Mason University School of Law in Virginia who has studied the global sugar trade. "It is a parallel universe that mimics the real world of commerce and finance."

For the full story, see:

STEPHEN CASTLE and DOREEN CARVAJAL. "Subsidies Spur Fraud In European Sugar." The New York Times (Tues., October 27, 2009): B1 & B4.

(Note: the online version of the article has the title "Fraud Plagues Sugar Subsidy System in Europe" and has the date October 26, 2009. The online version reverses the order of the authors' names, and differs significantly in the first several paragraphs, mainly stylistically, but also somewhat in substance. The version quoted here is the online version.)

(Note: ellipsis added.)

Source of both the map and the table: online version of the NYT article quoted and cited above.

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(p. B5) Venture capitalists, whose money provides fuel to technology start-ups, last year invested the lowest amount in such companies since 1997, according to a report from PricewaterhouseCoopers and the National Venture Capital Association released on Friday.

. . .

In 2009, venture capitalists invested $17.7 billion in 2,795 start-ups -- 37 percent less cash and 30 percent fewer deals than in 2008. Internet companies, which have excited investors for more than a decade, took a big hit as investment declined 39 percent.

For the full story, see:

CLAIRE CAIN MILLER. "Venture Capital Was Tight for Tech Start-Ups in '09." The New York Times (Fri., January 22, 2010): B5.

(Note: ellipsis added.)

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"Collection of Studebaker National Museum, South Bend, Ind." "Those who disparage buggies as a dead end forget Studebaker switched from carriages to cars." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 4) I spoke recently about buggy whips with Thomas A. Kinney, an assistant professor of history at Bluefield College in Virginia and author of "The Carriage Trade: Making Horse-Drawn Vehicles in America."

There were 13,000 businesses in the wagon and carriage industry in 1890, Mr. Kinney said. A company survived not by conceiving of itself as being in the "personal transportation" business, but by commanding technological expertise relevant to the automobile, he said. "The people who made the most successful transition were not the carriage makers, but the carriage parts makers," he said, some of whom are still in business.

One is the giant Timken Company, whose signature products, roller bearings, were first used in wagon wheels in the 1890s. They easily adapted to the automobile because they could be applied "to nearly anything that moved," Mr. Kinney wrote.

Westfield, Mass., still known as "Whip City," once had more than 40 businesses that made whips, tools and carriage parts. Today, only Westfield Whip Manufacturing, founded in 1884, remains. Although it produces buggy whips -- now called carriage whips -- most of its whips and crops, called "bats," are for equestrian activities like dressage and jumping.

Buggy whips, with their long, rigid handles and flexible end lashes, were created by braiding fiber around a hard core and had no automotive analog.

The carriage makers did, and they tried their best to remake themselves into automakers. But they were expert woodworkers without expertise in precision metalworking, Mr. Kinney said: "Bicycle manufacturers were actually better suited for auto manufacturing than were carriage makers."

Businesses do die, even big ones. Leslie Hannah, a visiting professor of economic history at the London School of Economics, studied the 100 largest industrial companies in the world between 1912 and 1995. Almost half of them disappeared, "and more than a quarter experienced bankruptcy or a similar close shave with it," he wrote in "Learning by Doing in Markets, Firms and Countries."

The standout carriage business that succeeded was the Studebaker Brothers Manufacturing Company, which began as a blacksmith shop in 1852 and had the financial resources to acquire smaller companies that supplied it with the precision metalworking expertise it lacked when it decided to enter the auto business. In 1913, its automobile production was second only to that of Ford Motor.

For the full story, see:

RANDALL STROSS. "Digital Domain; Failing Like a Buggy Whip Maker? Better Check Your Simile." The New York Times, SundayBusiness Section (Sun., January 10, 2010): 4.

(Note: the online version of the article is dated January 9, 2010.)

(Note: bold added.)

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(p. 265) On the snowy morning of January 13, 1976, . . . , there was unusual traffic on Rogers Street. Outside the gray one-story buildings with their clouded tilt-out windows, vans from various television channels maneuvered to park. A man from the National Federation of the Blind struggled over a snow bank onto the sidewalk and began tapping earnestly to get his bearings. A dark-haired young man set our on a three-block trek to the nearest vendor of coffee and donuts for the gathering media. In the room at number 68, two engineers poked at a gray box that looked like a mimeograph machine sprouting wires to a Digital Equipment Corporation computer. Several intense young men in their early twenties debated when to begin a demonstration of the device. The short, curly-haired leader of the group, twenty-seven-year-old Raymond Kurzweil, refused to start until the arrival of a reporter from The New York Times.

The event was a press conference announcing the first breakthrough product in the field of artificial intelligence: a reader for the blind. Described as an "omnifont character recognition device" linked to a synthetic voice, the machine could read nearly any kind of book or document laid face down on its glass lens. With a learning faculty that improved the device's performance as it proceeded through blurred, faded, or otherwise illegible print, the machine solved problems of pattern recognition and synthesis that had long confounded IBM, Xerox, and the Japanese conglomerates, as well as thousands of university researchers.

. . .

(p. 266) Stevie Wonder, the great blind musician, called. He had heard about the device after its appearance on the "Today Show" and it seemed a lifelong dream come true. He headed up to Cambridge to meet with Kurzweil.

. . .

As Kurzweil remembers, "He was very excited about it and wanted (p. 267) one right away, so we actually turned the factory upside down and produced a unit that day. We showed him how to hook it up himself. He left with it practically under his arm. I understand he took it straight to his hotel room, set it up. and read all night." As Wonder said, the technology has been "a brother and a friend . . . . without question, another sunshine of my life." Wonder stayed in touch with Kurzweil over the years and would play a key role in conceiving and launching a second major Kurzweil product.

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.

(Note: italics in original; all ellipses added except the ellipsis internal to the last paragraph, which was in the original.)

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"James Chanos made his hedge fund fortune predicting problems at companies and shorting their stock." Source of caption and photo: online version of the NYT article quoted and cited below.

Chanos' views discussed below are plausible and worth taking seriously. Earlier and overlapping worries about the sustainability of China's boom were expressed in a credible and scary book by David Smick called The World is Curved.

In addition to some of the concerns expressed by Chanos, Smick also emphasizes that China's restrictions on the internet will dampen the ability of its entrepreneurs to succeed. That view seems prescient given China's growing attempts to censor the internet and to hack Google.

(p. B1) SHANGHAI -- James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.

Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.

As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China's hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like "Dubai times 1,000 -- or worse," he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

"Bubbles are best identified by credit excesses, not valuation excesses," he said in a recent appearance on CNBC. "And there's no bigger credit excess than in China." He is planning a speech later this month at the University of Oxford to drive home his point.

. . .

(p. B4) . . . he is tagging along with the bears, who see mounting evidence that China's stimulus package and aggressive bank lending are creating artificial demand, raising the risk of a wave of nonperforming loans.

"In China, he seems to see the excesses, to the third and fourth power, that he's been tilting against all these decades," said Jim Grant, a longtime friend and the editor of Grant's Interest Rate Observer, who is also bearish on China. "He homes in on the excesses of the markets and profits from them. That's been his stock and trade."

Mr. Chanos declined to be interviewed, citing his continuing research on China. But he has already been spreading the view that the China miracle is blinding investors to the risk that the country is producing far too much.

"The Chinese," he warned in an interview in November with Politico.com, "are in danger of producing huge quantities of goods and products that they will be unable to sell."

For the full story, see:

DAVID BARBOZA. "Shorting China: the Man Who Predicted Enron's Fall Sees a Bigger Collapse Ahead." The New York Times (Fri., January 8, 2010): B1 & B5.

(Note: the online version of the article has the title "Contrarian Investor Sees Economic Crash in China" and is dated January 7, 2010.)

(Note: ellipses added.)

The reference to the Smick book is:

Smick, David M. The World Is Curved: Hidden Dangers to the Global Economy. New York: Portfolio Hardcover, 2008.

"Now Mr. Chanos is betting against China, and is promoting his view that the China miracle has blinded investors to the risks in that economy." Source of caption and poster: online version of the NYT article quoted and cited above.

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

(p. A17) The United States is losing ground to its major competitors in the global marketplace, according to the 2010 Index of Economic Freedom released today by the Heritage Foundation and The Wall Street Journal. This year, of the world's 20 largest economies, the U.S. suffered the largest drop in overall economic freedom. Its score declined to 78 from 80.7 on the 0 to 100 Index scale.

The U.S. lost ground on many fronts. Scores declined in seven of the 10 categories of economic freedom. Losses were particularly significant in the areas of financial and monetary freedom and property rights. Driving it all were the federal government's interventionist responses to the financial and economic crises of the last two years, which have included politically influenced regulatory changes, protectionist trade restrictions, massive stimulus spending and bailouts of financial and automotive firms deemed "too big to fail." These policies have resulted in job losses, discouraged entrepreneurship, and saddled America with unprecedented government deficits.

. . .

The abiding lesson of the last few years is that the battle for liberty requires perpetual vigilance. President Obama professes desire to foster prosperity, environmental protection, poverty reduction and better health care. How ironic, then, that his economic proposals so consistently ignore or even undermine the one system--free enterprise capitalism--that has proven best able to achieve those goals.

Now America's once high-flying economy is barely crawling forward. Americans deserve better, and they can do better--as soon as they reverse course and start regaining the economic freedom that made America the most prosperous country in the world.

For the full story, see:

TERRY MILLER. "The U.S. Isn't as Free as It Used to Be; Canada now boasts North America's freest economy." The Wall Street Journal (Weds., JANUARY 20, 2010): A17.

(Note: the online version of the article is dated JANUARY 19, 2010.)

(Note: ellipsis added.)

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Source of graph: http://image.exct.net/lib/fef61175736207/m/1/Q9-Report-Card2.gif

The Kauffman Foundation recently invited me to participate in a quarterly survey on economic policy that they are compiling from among bloggers who they have identified as among "the country's most prolific and influential economics bloggers." I agreed to participate.

Apparently tomorrow (2/2/10) they will release the results of the first survey.

Below I have quoted most of a press release that they emailed out today.

(The Kauffman Foundation is one of the leading non-profit organizations supporting research on entrepreneurship.)

Top Economics Bloggers Grade U.S. Institutions that Influence Economy in New Kauffman Survey

Watch for complete results tomorrow of the first
'Kauffman Economic Outlook:
A Quarterly Survey of Leading Economics Bloggers'

The country's most prolific and influential economics bloggers grade the institutions and organizations that impact the economy in a new Kauffman Foundation survey. On an A to F grading scale, the nation's top economics bloggers give the highest marks to the Congressional Budget Office (CBO) and General Accountability Office (GAO), as well as to the "U.S. business community." Central banks such as the Federal Reserve and European Central Bank got passing grades by most, with few A's and many F's. Similarly, the World Bank had mixed marks. The worst marks went to Wall Street firms (31 percent F's) and the U.S. Congress (51 percent F's).

Learn more about what these insightful analysts think about U.S. economic performance, policy, institutions, and the deficit in the first "Kauffman Economic Outlook: A Quarterly Survey of Economics Bloggers," which will debut tomorrow, Feb. 2, 2010, at www.kauffman.org.

The survey was conducted in mid-January 2010 by soliciting input from bloggers ranked among the top 200 economics bloggers according to Palgrave's Econolog.net. Ten core questions and seven topical questions were designed in coordination with a distinguished board of advisors.

Web version of press release:

http://view.exacttarget.com/?j=fe5916727d650c747316&m=fef61175736207&ls=fded1c77726707797712717c&l=fe5815757461007a7c13&s=fe27157476630575771d75&jb=ffcf14&ju=fe2f16767565027b701575

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"Members of the public watched the first test flight of the Boeing 787 on Tuesday in Everett, Wash." Source of caption and photo: online version of the NYT article quoted and cited below.

In their stimulating business best-seller Built to Last Collins and Porrus have a chapter in which they argue that one way to attract and retain the best employees is to give them a difficult but important project to work on. They call such projects "BHAGs," which stands for Big Hairy Audacious Goals. Among their main examples (e.g., p. 104) of BHAGs were Boeing's development of the 707 and 747.

Boeing's latest BHAG is the 787 Dreamliner.

(p. A25) EVERETT, Wash. -- The new Boeing 787 Dreamliner lifted into the gray skies here for the first time on Tuesday morning, more than two years behind schedule and burdened with restoring Boeing's pre-eminence in global commercial aviation.

"Engines, engines, engines, engines!" shouted April Seixeiro, 37, when the glossy twin-engine plane began warming up across from where spectators had informally gathered at Paine Field. Ms. Seixeiro was among scores of local residents and self-described "aviation geeks" who came to watch the first flight.

Moments after the plane took off at 10:27 a.m., Mrs. Seixeiro was wiping tears from her eyes. A friend, Katie Bailey, 34, cried, too.

"That was so beautiful," Ms. Bailey said.

For the full story, see:

WILLIAM YARDLEY. "As 787 Takes Flight, Seattle Wonders About Boeing's Future." The New York Times (Weds., December 16, 2009): A25.

(Note: the online version of the article has the title "A Takeoff, and Hope, for Boeing Dreamliner" and is dated December 15, 2009.)

The reference for the Collins and Porras book is:

Collins, James C., and Jerry I. Porras. Built to Last: Successful Habits of Visionary Companies. New York: HarperBusiness, 1994.

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"Amelia Frank-Vitale, a former union organizer, said the practice of pink sheeting sent her into therapy." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B1) After six years working in the laundry of a Miami hotel, Julia Rivera was thrilled when her union tapped her to become a full-time union organizer.

But her excitement soon turned to outrage.

Ms. Rivera said her supervisors at Unite Here, the hotel and restaurant workers' union, repeatedly pressed her to reveal highly personal information, getting her to divulge that her father had sexually abused her.

Later, she said, her supervisors ordered her to recount her tale of abuse again and again to workers they were trying to unionize at Tampa International Airport, convinced that Ms. Rivera's story would move them, making them more likely to join the union.

"I was scared not to do what they said," said Ms. Rivera, adding that she resented being pressured to disclose intimate information and then speak about it in public. "To me, it was sick. It was horrible."

Ms. Rivera and other current and former Unite Here organizers are speaking out against what they say is a longstanding practice in which Unite Here officials pressured subordinates to disclose sensitive personal information -- for example, that their mother was an alcoholic or that they were fighting with their spouse.

More than a dozen organizers said in interviews that they had often been pressured to detail such personal anguish -- sometimes under the threat of dismissal from their union positions -- and that their supervisors later used the information to press them to comply with their orders.

"It's extremely cultlike and extremely manipulative," said Amelia Frank-Vitale, a Yale graduate and former hotel union organizer who said these practices drove her to see a therapist.

Several organizers grew incensed when they discovered that details of their history had been put into the union's database so that supervisors could use that information to manipulate them.

"This information is extremely personal," said Matthew Edwards, an organizer who had disclosed that he was from a broken home and was overweight when young. "It is catalogued and shared throughout the whole organizing department."

. . .

(p. B5) Several organizers likened pink sheeting to a practice that Cesar Chavez, former president of the United Farm Workers, used when he embraced a mind-control practice developed by Synanon, a drug rehabilitation center founded in Santa Monica, Calif. Union staff members were systematically subjected to intense, prolonged verbal abuse in an effort to break them down and assure loyalty.

. . .

Ms. Frank-Vitale, now a graduate student at American University, says she is still haunted by memories of pink sheeting.

"One night my supervisor pushed me and pushed me, and I started talking about being an overweight woman in America, what that was like in high school, that it was very difficult for me," she said. "I felt kind of violated."

For the full story, see:

STEVEN GREENHOUSE. "Some Organizers Protest Their Union's Tactics." The New York Times (Thurs., November 19, 2009): B1 & B5.

(Note: the online version of the article is dated November 18, 2009.)

(Note: ellipses added.)

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(p. 10) Happiness is, . . . , a complex concept and difficult to measure, and John Stuart Mill had a point when he suggested: "It is better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied."

For the full commentary, see:

NICHOLAS D. KRISTOF. "Our Basic Human Pleasures: Food, Sex and Giving." The New York Times, Week in Review Section (Sun.., January 16, 2010): 10.

(Note: the online version of the article is dated January 16, 2010.)

(Note: ellipsis added.)

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Not Microsoft. "Mark Clemente, a Steinreich Communications vice president, in the firm's smaller Hackensack, N.J., office." Source of caption and photo: online version of the WSJ article quoted and cited below.

The article quoted below documents the trend in business toward small, and more open offices. I believe that this trend is largely a mistake.

Another trend in business (see Levy and Murnane 2004) is for more jobs to involve thinking and creativity. Thinking and creativity are harder in an environment of noise and frequent and unpredictable interruptions.

David Thielen's book on the secrets of Microsoft's success that said that Microsoft emphasized hiring really good people, and then respected them enough to give them an office with a door, so they could have the space and privacy to think and create (e.g., pp. 17-35 & 147-150).

Microsoft had the right idea.

(p. B7) The office cubicle is shrinking, along with workers' sense of privacy.

Many employers are trimming the space allotted for each worker. The trend has accelerated during the recession as employers seek to cut costs and boost productivity.

. . .

Tighter quarters and open floor plans also can present challenges. David Lewis, president of OperationsInc LLC, a Stamford, Conn., provider of human-resources services to more than 300 U.S. companies, says open floor plans and low cubicle walls can create discord and lead to increased turnover.

"Now everybody knows everybody else's business," he says. "It actually starts to create a level of tension in an office that never existed before. People can't focus on work because they're on top of each other."

For the full story, see:

SARAH E. NEEDLEMAN. "THEORY & PRACTICE; Office Personal Space Is Crowded Out; Workstations Become Smaller to Save Costs, Taking a Toll on Employee Privacy." The Wall Street Journal (Mon., DECEMBER 7, 2009): B7.

(Note: ellipsis added.)

The Levy and Murnane book mentioned above, is:

Levy, Frank, and Richard J. Murnane. The New Division of Labor: How Computers Are Creating the Next Job Market. Princeton, NJ: Princeton University Press, 2004.

The Thielen book is:

Thielen, David. The 12 Simple Secrets of Microsoft Management: How to Think and Act Like a Microsoft Manager and Take Your Company to the Top. New York: McGraw-Hill, 1999.

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(p. A17) Several pieces of evidence point to extreme caution by businesses and households. A regular survey by the National Federation of Independent Businesses (NFIB) shows that recent capital expenditures and near-term plans for new capital investments remain stuck at 35-year lows. The same survey reveals that only 7% of small businesses see the next few months as a good time to expand. Only 8% of small businesses report job openings, as compared to 14%-24% in 2008, depending on month, and 19%-26% in 2007.

The weak economy is far and away the most prevalent reason given for why the next few months is "not a good time" to expand, but "political climate" is the next most frequently cited reason, well ahead of borrowing costs and financing availability. The authors of the NFIB December 2009 report on Small Business Economic Trends state: "the other major concern is the level of uncertainty being created by government, the usually [sic] source of uncertainty for the economy. The 'turbulence' created when Congress is in session is often debilitating, this year being one of the worst. . . . There is not much to look forward to here."

Government statistics tell a similar story. Business investment in the third quarter of 2009 is down 20% from the low levels a year earlier. Job openings are at the lowest level since the government began measuring the concept in 2000. The pace of new job creation by expanding businesses is slower than at any time in the past two decades and, though older data are not as reliable, likely slower than at any time in the past half-century. While layoffs and new claims for unemployment benefits have declined in recent months, job prospects for unemployed workers have continued to deteriorate. The exit rate from unemployment is lower now than any time on record, dating back to 1967.

According to the Michigan Survey of Consumers, 37% of households plan to postpone purchases because of uncertainty about jobs and income, a figure that has not budged since the second quarter of 2009, and one that remains higher than any previous year back to 1960.

These facts suggest that it was a serious economic mistake to press for a hasty, major transformation of the U.S. economy on the heels of the worst financial crisis in decades. A more effective approach would have been to concentrate first on fighting the recession and laying solid foundations for growth. They should have put plans to re-engineer the economy on the backburner, and kept them there until the economy emerged fully from the recession and returned to robust growth. By failing to adopt a measured approach to economic policy, Congress and the president may be slowing the economic recovery, and thereby prolonging the distress from the recession.

For the full commentary, see:

GARY S. BECKER, STEVEN J. DAVIS AND KEVIN M. MURPHY. "OPINION; Uncertainty and the Slow Recovery; A recession is a terrible time to make major changes in the economic rules of the game." The Wall Street Journal (Mon., JANUARY 4, 2010): A17.

(Note: ellipsis in original.)

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(p. A21) The saddest fact of climate change--and the chief reason we should be concerned about finding a proper response--is that the countries it will hit hardest are already among the poorest and most long-suffering.

In the run-up to this month's global climate summit in Copenhagen, the Copenhagen Consensus Center dispatched researchers to the world's most likely global-warming hot spots. Their assignment: to ask locals to tell us their views about the problems they face. Over the past seven weeks, I recounted in these pages what they told us concerned them the most. In nearly every case, it wasn't global warming.

Everywhere we went we found people who spoke powerfully of the need to focus more attention on more immediate problems. In the Bauleni slum compound in Lusaka, Zambia, 27-year-old Samson Banda asked, "If I die from malaria tomorrow, why should I care about global warming?" In a camp for stateless Biharis in Bangladesh, 45-year-old Momota Begum said, "When my kids haven't got enough to eat, I don't think global warming will be an issue I will be thinking about." On the southeast slopes of Mt. Kilimanjaro in Tanzania, 45-year-old widow and HIV/AIDS sufferer Mary Thomas said she had noticed changes in the mountain's glaciers, but declared: "There is no need for ice on the mountain if there is no people around because of HIV/AIDS."

For the full commentary, see:

BJORN LOMBORG. "OPINION; Time for a Smarter Approach to Global Warming; Investing in energy R&D might work. Mandated emissions cuts won't.." The Wall Street Journal (Tues., DECEMBER 15, 2009): A21.

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"The Bose QuietComfort 15 has refined circuitry and redesigned earcaps." 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. B8) . . . , if your sales are getting eaten alive by cheaper rivals, and you don't want to play the price game, you have only one option: play leapfrog. Make your gadget so much better than the me-toos that people will be willing to pay your premium once again.

That's the idea behind Bose's new QuietComfort 15 model ($300), which replaces the QuietComfort 2.

. . .

First, the QC15 model really, truly does advance the art of noise cancellation -- big time. The QC 2 headphones and my Panasonics cut the airplane roar by half. But the 15 reduced it by, say, 85 percent, leaving only a distant, whispery whoosh to remind you that you're in an aluminum tube 39,000 feet up in the air. Taking them off after a while, as you'll want to do because your ears get sweaty, is like walking into a rock concert when you've been outside the building.

For the full story, see:

DAVID POGUE. "State of the Art; Ho Ho Ho? You Won't Hear a Thing." The New York Times (Thurs., December 3, 2009): B1 & B8.

(Note: the online version of the article is "State of the Art; Bose's Latest Headphones Can Quell the Clangor" and is dated December 2, 2009.)

(Note: ellipses added.)

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"Scientists scanned 20 mummies, and examined scans of two more, for the study." Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A5) ORLANDO, Fla. -- Researchers said they found evidence of hardening of the arteries in Egyptian mummies dating as far back as 3,500 years, challenging longstanding assumptions that cardiovascular disease is mainly a malady of modern societies.

A team of heart-imaging experts and Egyptologists examined 22 mummies from the Egyptian National Museum of Antiquities in Cairo in a CT scanning machine, looking for evidence of calcium buildup that could indicate vascular disease.

They were able to identify the hearts, arteries or both in 16 of the mummies, nine of whom had deposits of calcification. An analysis determined the deposits were either definite or probable evidence of atherosclerosis, the condition that leads to heart attacks and strokes.

"Not only do we have atherosclerosis now, it was prevalent as long as 3,500 years ago," said Gregory Thomas, a cardiologist and imaging specialist at University of California, Irvine, who was principal investigator of the study. "It is part of the human condition."

The research was presented Tuesday at the American Heart Association scientific meeting here. A report is also scheduled to appear in Wednesday's issue of the Journal of the American Medical Association.

For the full story, see:

RON WINSLOW. "Heart Disease Found in Egyptian Mummies." The Wall Street Journal (Weds., NOVEMBER 18, 2009): A5.

(Note: the online version of the article has a date of NOVEMBER 19, 2009 and is titled "Heart Disease Found in Egyptian Mummies.")

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(p. 113) Firms that win by the curve of mind often abandon it when they establish themselves in the world of matter. They fight to preserve the value of their material investments in plant and equipment that embody the ideas and experience of their early years of success. They begin to exalt expertise and old knowledge, rights and reputation, over the constant learning and experience of innovative capitalism. They get fat.

A fat cat drifting off the curve, however, is a sitting duck for new nations and companies getting on it. The curve of mind thus tends to favor outsiders over establishments of all kinds. At the capitalist ball, the blood is seldom blue or the money rarely seasoned. Microcosmic technologies are no exception. Capitalism's most lavish display, the microcosm, is no respecter of persons.

The United States did not enter the microcosm through the portals of the Ivy League, with Brooks Brothers suits, gentleman Cs, and warbling society wives. Few people who think they are in already can summon the energies to break in. From immigrants and outcasts, street toughs and science wonks, nerds and boffins, the bearded and the beer-bellied, the tacky and uptight, and sometimes weird, the born again and born yesterday, with Adam's apples bobbing, psyches (p. 114) throbbing, and acne galore, the fraternity of the pizza breakfast, the Ferrari dream, the silicon truth, the midnight modem, and the seventy-hour week, from dirt farms and redneck shanties, trailer parks and Levittowns, in a rainbow parade of all colors and wavelengths, of the hyperneat and the sty high, the crewcut and khaki, the pony-tailed and punk, accented from Britain and Madras, from Israel and Malaya, from Paris and Parris Island, from Iowa and Havana, from Brooklyn and Boise and Belgrade and Vienna and Vietnam, from the coarse fanaticism and desperation, ambition and hunger, genius and sweat of the outsider, the downtrodden, the banished, and the bullied come most of the progress in the world and in Silicon Valley.

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.

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"Josef Janicek, 61, was on the keyboard for a concert in Prague last week by the band Plastic People of the Universe." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A10) PRAGUE -- It has been called the Velvet Revolution, a revolution so velvety that not a single bullet was fired.

But the largely peaceful overthrow of four decades of Communism in Czechoslovakia that kicked off on Nov. 17, 1989, can also be linked decades earlier to a Velvet Underground-inspired rock band called the Plastic People of the Universe. Band members donned satin togas, painted their faces with lurid colors and wrote wild, sometimes angry, incendiary songs.

It was their refusal to cut their long, dank hair; their willingness to brave prison cells rather than alter their darkly subversive lyrics ("peace, peace, peace, just like toilet paper!"); and their talent for tapping into a generation's collective despair that helped change the future direction of a nation.

"We were unwilling heroes who just wanted to play rock 'n' roll," said Josef Janicek, 61, the band's doughy-faced keyboard player, who bears a striking resemblance to John Lennon and still sports the grungy look that once helped get him arrested. "The Bolsheviks understood that culture and music has a strong influence on people, and our refusal to compromise drove them insane."

. . .

In 1970, the Communist government revoked the license for the Plastics to perform in public, forcing the band to go underground. In February 1976, the Plastic People organized a music festival in the small town of Bojanovice -- dubbed "Magor's Wedding" -- featuring 13 other bands. One month later, the police set out to silence the musical rebels, arresting dozens. Mr. Janicek was jailed for six months; Mr. Jirous and other band members got longer sentences.

Mr. Havel, already a leading dissident, was irate. The trial of the Plastic People that soon followed became a cause célèbre.

Looking back on the Velvet Revolution they helped inspire, however indirectly, Mr. Janicek recalled that on Nov. 17, 1989, the day of mass demonstrations, he was in a pub nursing a beer. He argued that the revolution had been an evolution, fomented by the loosening of Communism's grip under Mikhail Gorbachev and the overwhelming frustration of ordinary people with their grim, everyday lives. "The Bolsheviks knew the game was up," he said, "when the sons of the Communists themselves wanted to become capitalists and entrepreneurs."

For the full story, see:

DAN BILEFSKY. "Czechs' Velvet Revolution Paved by Plastic People." The New York Times (Mon., November 16, 2009): A10.

(Note: the online version of the article is dated November 15, 2009.)

(Note: ellipsis added.)

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(p. 111) By launching the computer-on-a-chip, Intel gave America an enduring advantage in this key product in information technology--an edge no less significant because it was achieved largely by immigrants from Hungary, Italy, Israel, and Japan. Intel's three innovations of 1971--plus the silicon gate process that made them the smallest, fastest, and best-selling devices in the industry--nearly twenty years later remain in newer versions the most powerful force in electronics.

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.

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Source of book image: http://www.globalnerdy.com/wordpress/wp-content/uploads/2009/11/makers.jpg

Awhile back I mentioned a science fiction book that made use of the process of creative destruction. Here's a discussion of another one---called Makers, it apparently adopts the unlikely premise that a world of creative destruction would have a 20% unemployment rate. (I say "unlikely" because the evidence is that in a world of creative destruction, as many new jobs are created as old ones are destroyed.)

(p. A19) Consider the world of "Makers," the latest by best-selling writer Cory Doctorow. This novel is set in a not-too distant future, when the creative destruction of technological change has created an economy so efficient, with profit margins so thin, that traditional companies can hardly stay in business.

The inventor-heroes of "Makers" take technology to its conclusion: They figure out a way to use three-dimensional printers to produce copies of machines and most anything else at close to no cost. This sparks "New Work," with geeky investment bankers scouring the country to fund promising artisans who use the technology to build things cheaply. The heroes also run a series of entertainment rides across the country in abandoned Wal-Marts, until Disney unleashes its lawyers on them.

Mr. Doctorow, a Canadian living in London, has a keen eye for the pressures on contemporary business. In the novel, an M.B.A. brought in to work with the inventors explains, "The system makes it hard to sell anything above the marginal cost of goods, unless you have a really innovative idea, which can't stay innovative for long, so you need continuous invention and reinvention, too."

. . .

In the world of "Makers," and perhaps in our own world, "we're approaching a kind of pure and perfect state now, with competition and invention getting easier and easier--it's producing a kind of superabundance."

Mr. Doctorow paints a bleak picture of the process of getting there, even if many of us take a more benign view of increasingly efficient capitalism. "Makers" features widespread unemployment, with 20% of workers relocating to look for jobs. Even with scientific advances--obesity is solved, for example--life is brutal. There are squatter neighborhoods alongside abandoned strip malls.

For the full story, see:

L. GORDON CROVITZ. "Technology Is Stranger Than Fiction; Best-selling writer Cory Doctorow on change and its discontents." The Wall Street Journal (Mon., NOVEMBER 23, 2009): A19.

(Note: ellipsis added.)

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

(p. A19) Suppose for a minute--. . . --that global warming poses an imminent threat to the survival of our species. Suppose, too, that the best solution involves a helium balloon, several miles of garden hose and a harmless stream of sulfur dioxide being pumped into the upper atmosphere, all at a cost of a single F-22 fighter jet.

. . .

The hose-in-the-sky approach to global warming is the brainchild of Intellectual Ventures, a Bellevue, Wash.-based firm founded by former Microsoft Chief Technology Officer Nathan Myhrvold. The basic idea is to engineer effects similar to those of the 1991 mega-eruption of Mt. Pinatubo in the Philippines, which spewed so much sulfuric ash into the stratosphere that it cooled the earth by about one degree Fahrenheit for a couple of years.

Could it work? Mr. Myhrvold and his associates think it might, and they're a smart bunch. Also smart are University of Chicago economist Steven Levitt and writer Stephen Dubner, whose delightful "SuperFreakonomics"--the sequel to their runaway 2005 bestseller "Freakonomics"--gives Myhrvold and Co. pride of place in their lengthy chapter on global warming. Not surprisingly, global warming fanatics are experiencing a Pinatubo-like eruption of their own.

. . .

. . . , Messrs. Levitt and Dubner show every sign of being careful researchers, going so far as to send chapter drafts to their interviewees for comment prior to publication. Nor are they global warming "deniers," insofar as they acknowledge that temperatures have risen by 1.3 degrees Fahrenheit over the past century.

But when it comes to the religion of global warming--the First Commandment of which is Thou Shalt Not Call It A Religion--Messrs. Levitt and Dubner are grievous sinners. They point out that belching, flatulent cows are adding more greenhouse gases to the atmosphere than all SUVs combined. They note that sea levels will probably not rise much more than 18 inches by 2100, "less than the twice-daily tidal variation in most coastal locations." They observe that "not only is carbon plainly not poisonous, but changes in carbon-dioxide levels don't necessarily mirror human activity." They quote Mr. Myhrvold as saying that Mr. Gore's doomsday scenarios "don't have any basis in physical reality in any reasonable time frame."

More subversively, they suggest that climatologists, like everyone else, respond to incentives in a way that shapes their conclusions. "The economic reality of research funding, rather than a disinterested and uncoordinated scientific consensus, leads the [climate] models to approximately match one another." In other words, the herd-of-independent-minds phenomenon happens to scientists too and isn't the sole province of painters, politicians and news anchors

For the full commentary, see:

BRET STEPHENS. "Freaked Out Over SuperFreakonomics; Global warming might be solved with a helium balloon and a few miles of garden hose." The Wall Street Journal (Tues., OCTOBER 27, 2009): A19.

(Note: ellipsis added.)

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Clayton Christensen has shown how good management, following respected practices, can fail in the face of disruptive technologies. It would be interesting to investigate whether Fairchild was an example of what Christensen is talking about, or whether it just did not have good management.

(p. 89) Andrew Grove . . . had played a central role in bringing Fairchild to the threshold of a new era. But Fairchild would not enjoy the fruits of his work. Following the path of venture capital pioneer Peter Sprague were scores of other venture capitalists seeking to exploit the new opportunities he had shown them. Collectively, they accelerated the pace of entrepreneurial change--splits and spinoffs, startups and staff shifts--to a level that might be termed California Business Time ("What do you mean, I left Motorola quickly?" asked Gordon Campbell with sincere indignation. "I was there eight months!").

The venture capitalist focused on Fairchild: that extraordinary pool of electronic talent assembled by Noyce and Moore, but left essentially unattended, undervalued, and little understood by the executives of the company back in Syosset, New York. Fairchild leaders John Carter and Sherman Fairchild commanded the microcosm: the most important technology in the history of the human race. Noyce, Moore, Hoerni, Grove, Sporck, design genius Robert Widlar, and marketeer Jerry Sanders represented possibly the most potent management and technical team ever assembled in the history of world business. But, hey, you guys, don't forget to report back to Syosset. Don't forget who's boss. Don't give out any bonuses without clearing them through the folks at Camera and Instrument. You might upset some light-meter manager in Philadelphia.

They even made Charles Sporck, the manufacturing titan, feel like "a little kid pissing in his pants." Good work, Sherman, don't let the big lug put on airs, don't let him feel important. He only controls 80 percent of the company's growth. Widlar is leaving? Great, he never fit in with the corporate culture anyway. Sporck has gone off with Peter Sprague? There are plenty more where he came from.

"It was weird," said Grove, "they had no idea about what the company or the industry was like, nor did they seem to care. . . . Fairchild was just crumbling. If you wish, the semiconductor division management consisted of twenty significant players: eight went to National, eight went into Intel, and four of them went to Alcoholics Anonymous or something." Actually there were more than twenty and they went into startups all over the Valley; some twenty-six new semiconductor firms sprouted up between 1967 and 1970. "It got to the point," recalled one man quoted in Dirk Hanson's The New Alchemists, "where people were practically driving trucks over to Fairchild and loading up with employees."

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.

(Note: the first ellipsis was added; the others were in the original. The italics were also in the original.)

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(p. A17) Getting basic sanitation and safe drinking water to the three billion people around the world who do not have it now would cost nearly $4 billion a year. By contrast, cuts in global carbon emissions that aim to limit global temperature increases to less than two degrees Celsius over the next century would cost $40 trillion a year by 2100. These cuts will do nothing to increase the number of people with access to clean drinking water and sanitation. Cutting carbon emissions will likely increase water scarcity, because global warming is expected to increase average rainfall levels around the world.

For Mrs. Begum, the choice is simple. After global warming was explained to her, she said: "When my kids haven't got enough to eat, I don't think global warming will be an issue I will be thinking about."

One of Bangladesh's most vulnerable citizens, Mrs. Begum has lost faith in the media and politicians.

"So many people like you have come and interviewed us. I have not seen any improvement in our conditions," she said.

It is time the developed world started listening.

For the full commentary, see:

Bjørn LOMBORG. "Global Warming as Seen From Bangladesh; Momota Begum worries about hunger, not climate change." The Wall Street Journal (Mon., NOVEMBER 9, 2009): A17.

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(p. 54) . . . in 1950, Shockley published his book Electrons and Holes in Semiconductors, which stood for many years as the definitive work in the field and confirmed his credentials for the Nobel Prize that he shared with Brattain and Bardeen in 1956. The fact was that for his theory of the field effect transistor that later dominated the industry and for the junction transistor that was dominating it at the time, Shockley deserved the prize alone. He had at last made his point.

Yet Shockley was not satisfied. "Every physicist," he said at the time, "wants two things: glory and money. I have won the glory. Now I want the money."

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.

(Note: ellipsis added.)

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In the commentary quoted below, "LTCM" stands for the Long-Term Capital Management hedge fund.

(p. A25) Because families without the real economic means to repay traditional 30-year mortgages were getting them, housing prices grew to artificially high levels.

This is where the real sin of Fannie Mae and Freddie Mac comes into play. Both were created by Congress to make housing affordable to the middle class. But when they began guaranteeing subprime loans, they actually began pricing out the working class from the market until the banking business responded with ways to make repayment of mortgages allegedly easier through adjustable rates loans that start off with low payments. But these loans, fully sanctioned by the government, were a ticking time bomb, as we're all now so painfully aware.

A similar bomb exploded in 1998, when LTCM blew up. The policy response to the LTCM debacle is instructive; more than anything else it solidified Wall Street's belief that there were little if any real risks to risk-taking. With $5 billion under management, LTCM was deemed too big to fail because, with nearly every major firm copying its money losing trades, much of Wall Street might have failed with it.

That's what the policy makers told us anyway. On Wall Street there's general agreement that the implosion of LTCM would have tanked one of the biggest risk takers in the market, Lehman Brothers, a full decade before its historic bankruptcy filing. Officials at Merrill, including its then-CFO (and future CEO) Stan O'Neal, believed Merrill's risk-taking in esoteric bonds could have led to a similar implosion 10 years before its calamitous merger with Bank of America.

We'll never know if LTCM's demise would have tanked the financial system or simply tanked a couple of firms that bet wrong. But one thing is certain: A valuable lesson in risk-taking was lost. By 2007, the years of excessive risk-taking, aided and abetted by the belief that the government was ready to paper over mistakes, had taken their toll.

With so much easy money, with the government always ready to ease their pain, Wall Street developed new and even more innovative ways to make money through risk-taking.

For the full commentary, see:

CHARLES GASPARINO. "Three Decades of Subsidized Risk; There's a reason Dick Fuld didn't believe Lehman would be allowed to fail." The Wall Street Journal (Fri., NOVEMBER 6, 2009): A25.

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Source of book image: http://images.indiebound.com/923/705/9780671705923.jpg

Many years ago Telecosm was the first George Gilder book that I read; I enjoyed it for its over-the-top verbal exuberance in detailing, praising and predicting the progress of the then-new broadband technologies. I bought his earlier Microcosm at about the same time, but didn't get around to reading it because I assumed it would be a dated read, dealing in a similar manner with the earlier personal computer (PC) technology.

In the last year or so I have read Gilder's Wealth and Poverty and Recapturing the Spirit of Enterprise. There is some interesting material in Gilder's famous Wealth and Poverty, which has sometimes been described as one of the main intellectual manifestos of the Reagan administration. But Recapturing the Spirit of Enterprise has become my favorite Gilder book (so far).

In each chapter, the main modus operandi of that book is to present a case study of a recent entrepreneur, with plenty of interpretation of the lessons to be learned about why entrepreneurship is important to the economy, what sort of personal characteristics are common in entrepreneurs, and what government policies encourage or discourage entrepreneurs.

In that book I read that the original plan had been to include several chapters on the entrepreneurs who had built the personal computer revolution. But the original manuscript grew to unwieldy size, and so the personal computer chapters became the basis of the book Microcosm.

So Microcosm moved to the top of my "to-read" list, and turned out to be a much less-dated book than I had expected.

Microcosm does for the personal computer entrepreneurs what Recapturing the Spirit of Enterprise did for a broader set of entrepreneurs.

In the next few weeks, I will occasionally quote a few especially important examples or thought-provoking observations from Microcosm.




Reference to Gilder's MIcrocosm:

Gilder, George. Microcosm: The Quantum Revolution in Economics and Technology. Paperback ed. New York: Touchstone, 1990.

Other Gilder books mentioned:

Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992. (The first edition was called simply The Spirit of Enterprise, and appeared in 1984.)

Gilder, George. Telecosm: The World after Bandwidth Abundance. Paperback ed. New York: Touchstone, 2002.

Gilder, George. Wealth and Poverty. 3rd ed. New York: ICS Press, 1993.

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(p. A25) While a slight improvement over last month's numbers, today's employment update from the Bureau of Labor Statistics presents a dismal picture for American workers. As policy makers search for the best remedies to strengthen our economic performance, they can't afford to overlook new firms and young firms.

Unfortunately, in troubled economic times the language of recovery is too often tilted toward large, established companies or to "small businesses," a broad term that traditionally applies to businesses with fewer than 500 employees. The conventional wisdom is that such businesses account for half of the labor force and are therefore the engine of future job creation.

That's not quite the case. The more precise factor is not the size of businesses, but rather their age. According to the Census Bureau, nearly all net job creation in the U.S. since 1980 occurred in firms less than five years old. A Kauffman Foundation report released yesterday shows that as recently as 2007, two-thirds of the jobs created were in such firms. Put more starkly, without new businesses, job creation in the American economy would have been negative for many years.

. . .

Entrepreneurs have a proven track record of job creation, especially in the early years of their firms. Eliminating or lowering the economic and regulatory hurdles that stand in the way of their success will pave the way for sustained expansion after the government's current stimulus measures come to their inevitable end.

For the full commentary, see:

CARL SCHRAMM, ROBERT LITAN AND DANE STANGLER. "New Business, Not Small Business, Is What Creates Jobs; Nearly all net job creation since 1980 occurred in firms less than five years old." The Wall Street Journal (Fri., NOVEMBER 6, 2009): A25.

(Note: ellipsis added.)

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

(p. C1) Last year, a typical investment portfolio of 60% stocks and 40% bonds lost roughly a fifth of its value. Standard portfolio-construction tools assume that will happen only once every 111 years.

With once-in-a-century floods seemingly occurring every few years, financial-services firms ranging from J.P. Morgan Chase & Co. to MSCI Inc.'s MSCI Barra are concocting new ways to protect investors from such steep losses. The shift comes from increasing recognition that conventional assumptions about market behavior are off the mark, substantially underestimating risk.

. . .

(p. C9) Many of Wall Street's new tools assume market returns fall along a "fat-tailed" distribution, where, say, last year's nearly 40% stock-market decline would be more common than previously thought.

Fat-tailed distributions are nothing new. Mathematician Benoit Mandelbrot recognized their relevance to finance in the 1960s. But they were never widely used in portfolio-building tools, partly because the math was so unwieldy.

For the full story, see:

ELEANOR LAISE. "Some Funds Stop Grading on the Curve." The Wall Street Journal (Tues., SEPTEMBER 8, 2009): C1 & C9.

(Note: ellipsis added.)

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(p. A19) After reporting GDP, the government released new numbers claiming that the stimulus programs have "created or saved" over a million jobs. These data were collected from responses by government agencies that received federal funds under the American Recovery and Reinvestment Act of 2009. Agencies were required to report "an estimate of the number of jobs created and the number of jobs retained by the project or activity." This report is required of all recipients (generally private contractors) of agency funds.

Unfortunately, these data are not reliable indicators of job creation nor of the even vaguer notion of job retention. There are two major problems. The first and most obvious is reporting bias. Recipients have strong incentives to inflate their reported numbers. In a race for federal dollars, contractors may assume that the programs that show the most job creation may be favored by the government when it allocates additional stimulus funds.

No dishonesty on the part of recipients is implied or required. But when a hire conceivably can be classified as resulting from the stimulus money, recipients have every incentive to classify the hire as such. Classification as stimulus-induced is even more likely if a respondent must only say that, except for the money, an employee would have been fired. In this case, no hiring need occur at all.

. . .

Net labor market figures do exist. Administrations have always been held to the time-tested and well-understood monthly job numbers put out by the Bureau of Labor Statistics, which reports the unemployment rate and the net job gain or loss for the economy as a whole. It is important to use reliable, accurate and well-understood numbers to determine the true causes of recovery. The unemployment rate, now at 9.8%, has continued to rise, and job losses have remained at high levels throughout the stimulus period. Few will be comforted by the good-news-only claim that the stimulus "created or saved" over one million jobs.

For the full commentary, see:

EDWARD P. LAZEAR. "Stimulus and the Jobless Recovery; Jobs 'created or saved' is meaningless. What matters is net job gain or loss, and that means the unemployment rate." The Wall Street Journal (Mon., NOVEMBER 2, 2009): A19.

(Note: ellipsis added.)

(Note: the online version of the article was dated Nov. 1st.)

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"Wu Jinglian helped to create China's market economy, and now he is defending it against conservative hardliners in the Communist Party." Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) AT 79, Wu Jinglian is considered China's most famous economist.

In the 1980s and '90s, he was an adviser to China's leaders, including Deng Xiaoping. He helped push through some of this country's earliest market reforms, paving the way for China's spectacular rise and earning him the nickname "Market Wu."

Last year, China's state-controlled media slapped him with a new moniker: spy.

Mr. Wu has not been interrogated, charged or imprisoned. But the fact that a state newspaper, The People's Daily, among others, was allowed to publish Internet rumors alleging that he had been detained on suspicions of being a spy for the United States hints that he is annoying some very important people in the government.

He denied the allegations, and soon after they were published, China's cabinet denied that an investigation was under way.

But in a country that often jails critics, Mr. Wu seems to be testing the limits of what Beijing deems permissible. While many economists argue that China's growth model is flawed, rarely does a prominent Chinese figure, in the government or out, speak with such candor about flaws he sees in China's leadership.

Mr. Wu -- who still holds a research post at an institute affiliated with the State Council, China's cabinet -- has white hair and an amiable face, and he appears frail. But his assessments are often harsh. In books, speeches, interviews and television appearances, he warns that conservative hardliners in the Communist Party have gained influence in the government and are trying to dismantle the market reforms he helped formulate.

He complains that business tycoons and corrupt officials have hijacked the economy and manipulated it for their own ends, a system he calls crony capitalism. He has even called on Beijing to establish a British-style democracy, arguing that political reform is inevitable.

Provocative statements have made him a kind of dissident economist here, and revealed the sharp debates behind the scenes, at the highest levels of the Communist Party, about the direction of China's half-market, half-socialist economy.

In many ways, it is a continuation of the debate that has been raging for three decades: What role should the government play in China's hybrid economy?

Mr. Wu says the spy rumors were "dirty tricks" employed by his critics to discredit him.

"I have two enemies," he said in a recent interview. "The crony capitalists and the Maoists. They will use any means to attack me."

. . .

(p. 7) In interviews, Mr. Wu says he feels compelled to speak out because conservatives and "old-style Maoists" have been gaining influence in the government since 2004. These groups, he said, are pressing for a return to central planning and placing blame for corruption and social inequality on the very market reforms he championed.

At the same time, Mr. Wu says, corrupt bureaucrats are pushing for the state to take a larger economic role so they can cash in on their positions through payoffs and bribes, as well as by steering business to allies.

"I'm not optimistic about the future," Mr. Wu said. "The Maoists want to go back to central planning and the cronies want to get richer."

For the full story, see:

DAVID BARBOZA. "China's Mr. Wu Keeps Talking." The New York Times, SundayBusiness Section (Sun., September 26, 2009): 1 & 7.

(Note: ellipsis added.)

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

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Graph of total electric power load and total wind power generation from the Bonneville Power Authority (BPA) for a week in late July 2009. Source of graph: http://blog.oregonlive.com/environment_impact/2009/07/real_time_wind.jpg

(p. A14) For more than a century, producing power has been a matter of flipping a switch. Need more electricity? Fire up some fuel. Need less? Dial the flame back down.

Things won't be that easy in a world that gets much of its energy from renewable sources, which come and go at nature's whim. Wind tends to blow hardest at night -- a problem, since people use electricity mostly during the day. Sunshine can lose its intensity in seconds if eclipsed by a cloud -- inconvenient for people who like their air conditioners to run steadily on summer days.

. . .

Most of the electricity in Bonneville's service area comes from hydroelectric power. To compensate for the volatility of wind, Bonneville tweaks the amount of water it lets through the dams. But that doesn't work for the most extreme shifts in wind. Sometimes, when the wind is blowing hard, Bonneville releases extra water over the tops of dams without using it to generate electricity. Otherwise, electrical wires might get overloaded. And when the wind is so strong that Bonneville can't ditch enough water, the utility orders wind turbines shut off.

"Everything changes with wind," says Bart McManus, a wind expert at Bonneville.

Sudden doldrums can be as troublesome as sudden gusts. That was the problem on Feb. 26, 2008, in Texas, which produces more wind power than any other state.

At 3 p.m. that afternoon, Texas's wind farms, concentrated in the western part of the state, were throwing off about 2,000 megawatts of electricity, enough to serve about one million households. Then a cold front blew in. By 6:30 p.m. -- when electricity demand typically peaks -- wind production in Texas had cratered to about 360 megawatts.

Exacerbating matters, Texans began turning up their heat -- much of which, in rural parts of the state, comes from electricity. So, just as wind power unexpectedly plummeted, demand for power spiked.

For the full commentary, see:

JEFFREY BALL. "Unbridled Energy: Predicting Volatile Wind, Sun
Utilities Ramp Up Focus on Forecasting When Renewable Fuel Is at a Peak to Avoid Squandering Power That Still Can't Be Stored." The Wall Street Journal (Fri., OCTOBER 5, 2009): A14.

(Note: ellipsis added.)

(Note: the last sentence of the quoted passage, appeared in the print edition, but was inexplicably deleted from the online version.)

For an updated "Near-Real-Time" graph of BPA load and wind generation, see:

http://www.transmission.bpa.gov/Business/Operations/Wind/baltwg.aspx

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(p. A17) In the West, campaigners for carbon regulations point out that global warming will increase the number of malaria victims. This is often used as an argument for drastic, immediate carbon cuts.

Warmer, wetter weather will improve conditions for the malaria parasite. Most estimates suggest that global warming will put 3% more of the Earth's population at risk of catching malaria by 2100. If we invest in the most efficient, global carbon cuts--designed to keep temperature rises under two degrees Celsius--we would spend a massive $40 trillion a year by 2100. In the best case scenario, we would reduce the at-risk population by only 3%.

In comparison, research commissioned by the Copenhagen Consensus Center shows that spending $3 billion annually on mosquito nets, environmentally safe indoor DDT sprays, and subsidies for effective new combination therapies could halve the number of those infected with malaria within one decade. For the money it takes to save one life with carbon cuts, smarter policies could save 78,000 lives. . . .

Malaria is only weakly related to temperature; it is strongly related to poverty. It has risen in sub-Saharan Africa over the past 20 years not because of global warming, but because of failing medical response.

For the full commentary, see:

BJORN LOMBORG. "Climate Change and Malaria in Africa; Limiting carbon emissions won't do much to stop disease in Zambia." The Wall Street Journal (Mon., NOVEMBER 2, 2009): A17.

(Note: ellipsis added.)

(Note: the online version of the article was dated Nov. 1st.)

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"The Mexican Union of Electricians protests the government's decision to liquidate the state-owned electricity company in Mexico City." Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A19) Eight days ago, just after midnight on a Sunday morning, Mexican President Felipe Calderón instructed federal police to take over the operations of the state-owned electricity monopoly, Luz y Fuerza del Centro (LyFC), which serves Mexico City and parts of surrounding states. The company's assets will stay in the hands of the government but will now be run by the Federal Electricity Commission (CFE), a national state-owned utility and the major supplier of LyFC's energy.

The net effect of the move is to dethrone 42,000 members of the Mexican Union of Electricians, which had won benefits over the decades to make Big Three auto workers in Detroit blush. When the liquidation is complete, it is expected that the company will employ about 8,000. To appreciate the magnitude of Mr. Calderón's decision, think of Ronald Reagan's firing of the air traffic controllers--only bigger. As one internationally renowned Mexican economist remarked on Sunday, it is "the most important act of government in 20 years."

For the full commentary, see:

MARY ANASTASIA O'GRADY. "Mexico's Calderón Takes on Big Labor; Its state-owned electricity company was bleeding the national treasury dry." The Wall Street Journal (Mon., October 19, 2009): A19.

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

(p. C7) Over the last three decades the number of history faculty members at four-year institutions has more than doubled to 20,000-plus, said Robert B. Townsend, assistant director for research at the American Historical Association. Yet the growth has been predominantly in the newer specializations, spurring those in diplomatic, military, legal and economic history to complain they are being squeezed out.

In 1975, for example, three-quarters of college history departments employed at least one diplomatic historian; in 2005 fewer than half did. The number of departments with an economic historian fell to 31.7 percent from 54.7 percent. By contrast the biggest gains were in women's history, which now has a representative in four out of five history departments.

For the full story, see:

PATRICIA COHEN. "Great Caesar's Ghost! Are Traditional History Courses Vanishing?" The New York Times (Thurs., June 11, 2009): C1 & C7.

(Note: the online version is dated Weds., June 10.)

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"A man walks past a tire store in Beijing on Sunday. A new U.S. tariff on Chinese tires could lead to shortages in the lower-cost-tire market segment as retailers scramble to find alternative sources in other countries." Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A3) Consumers who buy low-price Chinese tires -- the bulk of the tires China exports to the U.S. -- will be hit hardest by the new tariff, as shortages in this market segment cause retailers to scramble to find alternative sources in other countries.

The tariffs, which apply to all Chinese tires, will cut off much of the flow of the more than 46 million Chinese tires that came to the U.S. last year, nearly 17% of all tires sold in the country.

The low end of the market will feel the impact of the tariff most, as U.S. manufacturers, who joined the Chinese in opposing the tariffs, have said it isn't profitable to produce inexpensive tires in domestic plants.

"I think within the next 60 days you'll see some pretty significant price increases," said Jim Mayfield, president of Del-Nat Tire Corp. of Memphis, Tenn., a large importer and distributor of Chinese tires. He estimates prices for "entry-level" tires could increase 20% to 30%.

For the full story, see:

TIMOTHY AEPPEL. "Tariff on Tires to Cost Consumers; Higher Prices Expected at Market's Low End, Where China Focuses Its Exports." The Wall Street Journal (Mon., SEPTEMBER 14, 2009): A3.

(Note: the online version of the article has the date Tues., Sept. 15.)

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(p. A13) The Energy Independence and Security Act of 2007 will effectively phase out incandescent light bulbs by 2012-2014 in favor of compact fluorescent lamps, or CFLs. Other countries around the world have passed similar legislation to ban most incandescents.

Will some energy be saved? Probably. The problem is this benefit will be more than offset by rampant dissatisfaction with lighting. We are not talking about giving up a small luxury for the greater good. We are talking about compromising light. Light is fundamental. And light is obviously for people, not buildings. The primary objective in the design of any space is to make it comfortable and habitable. This is most critical in homes, where this law will impact our lives the most. And yet while energy conservation, a worthy cause, has strong advocacy in public policy, good lighting has very little.

. . .

As a lighting designer with more than 50 years of experience, having designed more than 2,500 projects including the relighting of the Statue of Liberty, I encourage people who care about their lighting to contact their elected officials and urge them to re-evaluate our nation's energy legislation so that it serves people, not an energy-saving agenda.

For the full commentary, see:

HOWARD M. BRANDSTON. "Save the Light Bulb!; Compact fluorescents don't produce good quality light." The Wall Street Journal (Mon., AUGUST 31, 2009): A13.

(Note: ellipsis added.)

(Note: the online version of the article is dated Sun., Aug. 30.)

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The small dark blue squares indicate the "number of nations that have imposed protectionist measures on each country" and the light blue squares indicate the "number of measures imposed on each category of goods." Source of quotations in caption and of graph: online version of the WSJ article quoted and cited below.

(p. A5) BRUSSELS -- This weekend's U.S.-China trade skirmish is just the tip of a coming protectionist iceberg, according to a report released Monday by Global Trade Alert, a team of trade analysts backed by independent think tanks, the World Bank and the U.K. government.

A report by the World Trade Organization, backed by its 153 members and also released Monday, found "slippage" in promises to abstain from protectionism, but drew less dramatic conclusions.

Governments have planned 130 protectionist measures that have yet to be implemented, according to the GTA's research. These include state aid funds, higher tariffs, immigration restrictions and export subsidies.

. . .

According to the GTA report, the number of discriminatory trade laws outnumbers liberalizing trade laws by six to one. Governments are applying protectionist measures at the rate of 60 per quarter. More than 90% of goods traded in the world have been affected by some sort of protectionist measure.

For the full story, see:

JOHN W. MILLER. "Protectionist Measures Expected to Rise, Report Warns." The Wall Street Journal (Tues., SEPTEMBER 15, 2009): A5.

(Note: ellipsis added.)

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(p. A19) In a warning often repeated by environmental campaigners, the Vanuatuan president told the United Nations that entire island nations could be submerged. "If such a tragedy does happen," he said, "then the United Nations and its members would have failed in their first and most basic duty to a member nation and its innocent people."

Torethy Frank, a 39-year-old woman carving out a subsistence lifestyle on Vanuatu's Nguna Island, is one of those "innocent people." Yet, she has never heard of the problem that her government rates as a top priority. "What is global warming?" she asks a researcher for the Copenhagen Consensus Center.

. . .

Torethy and her family of six live in a small house made of concrete and brick with no running water. As a toilet, they use a hole dug in the ground. They have no shower and there is no fixed electricity supply. Torethy's family was given a battery-powered DVD player but cannot afford to use it.

. . .

What would change her life? Having a boat in the village to use for fishing, transporting goods to sell, and to get to hospital in emergencies. She doesn't want more aid money because, "there is too much corruption in the government and it goes in people's pockets," but she would like microfinance schemes instead. "Give the money directly to the people for businesses so we can support ourselves without having to rely on the government."

Vanuatu's politicians speak with a loud voice on the world stage. But the inhabitants of Vanuatu, like Torethy Frank, tell a very different story.

For the full commentary, see:

BJøRN LOMBORG. "The View from Vanuatu on Climate Change; Torethy Frank had never heard of global warming. She is worried about power and running water." The Wall Street Journal (Fri., OCTOBER 23, 2009): A19.

(Note: ellipses added.)

(Note: the online version is dated Thurs., Oct. 22.)

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Whole Foods CEO John Mackey. Source of the caricature: online version of the WSJ interview quoted and cited below.

(p. A11) "I honestly don't know why the article became such a lightning rod," says John Mackey, CEO and founder of Whole Foods Market Inc., as he tries to explain the firestorm caused by his August op-ed on these pages opposing government-run health care.

. . .

. . . his now famous op-ed incited a boycott of Whole Foods by some of his left-wing customers. His piece advised that "the last thing our country needs is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us closer to a complete government takeover of our health-care system." Free-market groups retaliated with a "buy-cott," encouraging people to purchase more groceries at Whole Foods.

. . .

What Mr. Mackey is proposing is more or less what he has already implemented at his company--a plan that would allow more health savings accounts (HSAs), more low-premium, high-deductible plans, more incentives for wellness, and medical malpractice reform. None of these initiatives are in any of the Democratic bills winding their way through Congress. In fact, the Democrats want to kill HSAs and high-deductible plans and mandate coverage options that would inflate health insurance costs.

. . .

Mr. Mackey's latest crusade involves traveling to college campuses across the country, trying to persuade young people that business, profits and capitalism aren't forces of evil. He calls his concept "conscious capitalism."

What is that? "It means that business has the potential to have a deeper purpose. I mean, Whole Foods has a deeper purpose," he says, now sounding very much like a philosopher. "Most of the companies I most admire in the world I think have a deeper purpose." He continues, "I've met a lot of successful entrepreneurs. They all started their businesses not to maximize shareholder value or money but because they were pursuing a dream."

Mr. Mackey tells me he is trying to save capitalism: "I think that business has a noble purpose. It's not that there's anything wrong with making money. It's one of the important things that business contributes to society. But it's not the sole reason that businesses exist."

What does he mean by a "noble purpose"? "It means that just like every other profession, business serves society. They produce goods and services that make people's lives better. Doctors heal the sick. Teachers educate people. Architects design buildings. Lawyers promote justice. Whole Foods puts food on people's tables and we improve people's health."

Then he adds: "And we provide jobs. And we provide capital through profits that spur improvements in the world.

. . .

"I don't think anybody's too big to fail," he says. "If a business fails, what happens is, there are still assets, and those assets get reorganized. Either new management comes in or it's sold off to another business or it's bid on and the good assets are retained and the bad assets are eliminated. I believe in the dynamic creativity of capitalism, and it's self-correcting, if you just allow it to self-correct."

That's something Washington won't let happen these days, which helps explain why Mr. Mackey felt compelled to write that the Whole Foods health-insurance program is smarter and cheaper than the latest government proposals.

For the full interview, see:

STEPHEN MOORE. "The Conscience of a Capitalist; The Whole Foods founder talks about his Journal health-care op-ed that spawned a boycott, how he deals with unions, and why he thinks CEOs are overpaid." The Wall Street Journal (Sat., OCTOBER 3, 2009): A11.

(Note: ellipses added.)

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"Michael Kellerman and daughter Jovi, 1, wait in line near 69th and Underwood for a flu shot Thursday morning." Source of caption and photo: online version of the Omaha World-Herald article quoted and cited below.

Thousands turned out this morning for Douglas County's first public clinic for H1N1 flu vaccinations.

The line ran out of the First United Methodist Church to the east, then down 69th Street before hooking west along Cass Street toward 72nd Street.

Police estimated that 4,000 people had gathered by 9:20 a.m.

Phil Rooney of the Douglas County Health Department said the turnout was no surprise.

"There hasn't been a clinic this size done in the county or in the surrounding counties recently, so we were prepared for a very large crowd, and that's what we've got," he said.

He said 252 people were vaccinated in the clinic's first hour. "The pace the first hour was slower than we wanted, so we're trying to pick that up," he added.

For the full story, see:

John Keenan and Rick Ruggles. "Long line for flu shots." Omaha World-Herald online edition (Thurs., Nov. 5, 2009).

(Note: as far as I can tell, having checked several online e-editions for Nov. 5 and Nov. 6, this version of the article was never published in any of the print editions of the paper.)

(Note: at some point the title of the online version of this article was changed to "Flu shot seekers turned away.")

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(p. A9) Cash-for-clunkers programs have no lasting economic benefit and could even lead to a "substantial weakening" in euro-zone automobile sales next year, the European Central Bank said.

The findings, though far from original, amount to an official slap on the wrist to European governments including those of Germany, France and Spain that rolled out the popular programs to stoke demand in their auto sectors at the height of the financial crisis.

. . .

Such incentive measures should be applied "with caution," the ECB said, "as they may hamper the efficiency of the functioning of a free-market economy and may delay necessary structural change, thereby undermining overall income and employment prospects in the longer term."

For the full story, see:

BRIAN BLACKSTONE. "Clunker Plans Are Risky Route, Central Bank Says." The Wall Street Journal (Fri., OCTOBER 16, 2009): A9.

(Note: ellipsis added.)

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Source of cartoon: online version of the NYT commentary quoted and cited below.

(p. A25) . . . the vast majority of books ever written are not accessible to anyone except the most tenacious researchers at premier academic libraries. Books written after 1923 quickly disappear into a literary black hole. With rare exceptions, one can buy them only for the small number of years they are in print. After that, they are found only in a vanishing number of libraries and used book stores. As the years pass, contracts get lost and forgotten, authors and publishers disappear, the rights holders become impossible to track down.

Inevitably, the few remaining copies of the books are left to deteriorate slowly or are lost to fires, floods and other disasters. While I was at Stanford in 1998, floods damaged or destroyed tens of thousands of books. Unfortunately, such events are not uncommon -- a similar flood happened at Stanford just 20 years prior. You could read about it in The Stanford-Lockheed Meyer Library Flood Report, published in 1980, but this book itself is no longer available.

Because books are such an important part of the world's collective knowledge and cultural heritage, Larry Page, the co-founder of Google, first proposed that we digitize all books a decade ago, when we were a fledgling startup. At the time, it was viewed as so ambitious and challenging a project that we were unable to attract anyone to work on it. But five years later, in 2004, Google Books (then called Google Print) was born, allowing users to search hundreds of thousands of books. Today, they number over 10 million and counting.

. . .

In the Insurance Year Book 1880-1881, which I found on Google Books, Cornelius Walford chronicles the destruction of dozens of libraries and millions of books, in the hope that such a record will "impress the necessity of something being done" to preserve them. The famous library at Alexandria burned three times, in 48 B.C., A.D. 273 and A.D. 640, as did the Library of Congress, where a fire in 1851 destroyed two-thirds of the collection.

I hope such destruction never happens again, but history would suggest otherwise. More important, even if our cultural heritage stays intact in the world's foremost libraries, it is effectively lost if no one can access it easily. Many companies, libraries and organizations will play a role in saving and making available the works of the 20th century. Together, authors, publishers and Google are taking just one step toward this goal, but it's an important step. Let's not miss this opportunity.

For the full commentary, see:

SERGEY BRIN. "A Library to Last Forever." The New York Times (Fri., October 9, 2009): A25.

(Note: ellipses added.)

(Note: the online version is dated October 8th.)

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(p. A19) In "A Journey to the Western Islands of Scotland," an account of his travels with James Boswell through the Hebrides in 1773, Johnson vividly described the desolation of a feudal land, untouched by commercial exuberance. He was struck by the utter hopelessness in a country where money was largely unknown, and the lack of basic material improvements--the windows, he noticed, did not operate on hinges, but had to be held up by hand, making the houses unbearably stuffy.

He was even more struck by the contrast between places where markets thrived and those where they didn't. In Old Aberdeen, where "commerce was yet unstudied," Johnson found nothing but decay, whereas New Aberdeen, which "has all the bustle of prosperous trade," was beautiful, opulent, and promised to be "very lasting."

Johnson also understood that what Smith would later call the division of labor was instrumental for human happiness and progress. "The Adventurer 67," which he wrote in 1753 at the height of a commercial boom (and 23 years before Smith published "The Wealth of Nations"), delights in the sheer number of occupations available in a commercial capital like London.

For the full commentary, see:

ELIZA GRAY. "Samuel Johnson and the Virtue of Capitalism; The great 18th century writer on commerce and human happiness." The Wall Street Journal (Fri., Sept. 11, 2009): A19.

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"Work has been put on hold for this stretch of 132nd Street between Blondo Street and West Maple Road. Omaha officials say the stimulus funds will be worth the wait, but some nearby residents are upset about the slowdown." Source of caption and photo: online version of the Omaha World-Herald article quoted and cited below.

We live near the still-two-lane stretch of 132nd pictured above, and were happy to read in the Omaha World-Herald early last spring that the city would be finishing the widening of 132nd, by widening the above stretch during the summer of 2009. As the summer progressed and widening did not, we became more and more puzzled.

Well, after you read the passages quoted below, you will 'know the rest of the story' as Paul Harvey used to say:

(p. 1A) The federal stimulus program, which was designed to accelerate roads projects around the country, instead put the brakes on widening a major Omaha thoroughfare.

The chance to grab $3.5 million in stimulus funds was worth delaying a widening project along 132nd Street between West Maple Road and Blondo Street, Omaha officials decided.

Work was supposed to begin last summer. Now the project between the Champions and Eagle Run golf courses won't begin until next spring.

Preliminary work was begun in March, when utility lines were moved out of the way. Part of the street was closed for that work.

Area residents expected more crews to start work during the summer.

When nothing happened for months, a handful of residents in the nearby Sunridge neighborhood called the city. They com-(p. A2)plained that digging from the utility work was causing mud and rainwater to pool near the subdivision's entrances off 132nd Street.

Resident Mary Ellen Pollard was surprised to find out that the widening work had been put on hold because of the stimulus program.

"I thought that stimulus package was for projects that were ready to go," she said Monday. "If it was ready to go, why didn't they proceed with it? . . . The barricades are up. Let's go get it done."

Plans change, public works officials said.

Meeting federal stimulus guidelines for environmental studies on the 132nd Street project, plus other planning and documentation requirements, took several months, City Engineer Charlie Krajicek said.

"We expected to have some work going this year, but it just didn't work out," he said.

For the full story, see:

Tom Shaw. "Stimulus slows 132nd St. work." Omaha World-Herald (Tuesday October 6, 2009): 1A-2A.

(Note: the online version of the article is dated Weds., October 7 and has the slightly expanded title: "Stimulus Watch: Program slows 132nd St. work.")

(Note: ellipsis in original.)

Source of map: online version of the Omaha World-Herald article quoted and cited above.

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Nobel Prize winning economist Vernon Smith sees that the current health care system is an incentive and information "nightmare." The third parties, who pay, have neither the incentive nor the information to reward the providers who do a good job. And patients, who have the information, do not have the power or incentives to reward those who do a good job. And since providers are not being rewarded for doing a good job, they will only avoid becoming cynical bureaucrats as long as they are mission-driven saints.

A better system, that goes a long way toward Smith's "solution," has been suggested by Susan Feigenbaum, who suggests that third parties provide payments directly to patients, who then may choose what services to buy from which providers.

Here is the core of Smith's analysis:

(p. A11) The health-care provider, A, is in the position of recommending to the patient, B, what B should buy from A. A third party--the insurance company or the government--is paying A for it.

This structure defines an incentive nightmare.

. . .

I don't know whether this problem has a solution. If it does, I think it requires us to find mechanisms whereby third-party payment is made to the patient, B, who in turn pays A, supplemented with any co-payment from B for services. Hence, from the moment B seeks services from A both know who is going to be paying A for what is delivered. A and B each has need for what the other brings to the table, and this structure carries the potential for nurturing the relationship between A and B. B is empowered to become better informed about the services recommended by various A's that he might choose among, and the A's might find it particularly important to build good reputations with B's.

For the full commentary, see:

VERNON L. SMITH. "The ABC Dilemma of Health Reform; Third-party payment creates a big incentive problem." The Wall Street Journal (Sat., OCTOBER 16, 2009): A11.

(Note: ellipsis added.)

Feigenbaum's prescient suggestion for reform can be found in:

Feigenbaum, Susan. "Body Shop' Economics: What's Good for Our Cars May Be Good for Our Health." Regulation 15, no. 4 (Fall 1992): 26-27.

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(p. A23) If you want to know why Americans are so fearful of a government takeover of the health-care system, take a look at the results of a new Gallup poll on government waste released Sept. 15. One question posed was: "Of every tax dollar that goes to Washington, D.C., how many cents of each dollar would you say is wasted?" Gallup found that the mean response was 50 cents. With Uncle Sam spending just shy of $4 trillion this year, that means the public believes that $2 trillion is wasted.

In a separate poll released on Monday, Gallup found that nearly twice as many Americans believe that there is "too much government regulation of business and industry" as believe there is "too little" (45% to 24%).

Perhaps most significantly, in both of these polls Gallup found that skepticism about government's effectiveness is the highest it's been in decades. "Perceptions of federal waste were significantly lower 30 years ago than today," say the Gallup researchers. Even when Ronald Reagan was elected president in 1980 with the help of the antigovernment revolt of that era, Americans believed only 40 cents of every dollar was wasted, according to Gallup.

. . .

Over the last decade, the federal government has become bloated and inefficient. Voters are on to the scam. Mr. Obama keeps calling federal spending an "investment," but Americans apparently feel this is the worst investment they've ever made. They've come to regard Washington as a $2 trillion Bridge to Nowhere. They are right.

For the full commentary, see:

STEPHEN MOORE. "Our $2 Trillion Bridge to Nowhere; Americans believe Washington squanders half of every tax dollar." The Wall Street Journal (Weds., SEPTEMBER 23, 2009): A23.

(Note: ellipsis added.)

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(p. A23) The global recession and financial crisis have refocused attention on government stimulus packages. These packages typically emphasize spending, predicated on the view that the expenditure "multipliers" are greater than one--so that gross domestic product expands by more than government spending itself. Stimulus packages typically also feature tax reductions, designed partly to boost consumer demand (by raising disposable income) and partly to stimulate work effort, production and investment (by lowering rates).

The existing empirical evidence on the response of real gross domestic product to added government spending and tax changes is thin. In ongoing research, we use long-term U.S. macroeconomic data to contribute to the evidence. The results mostly favor tax rate reductions over increases in government spending as a means to increase GDP.

. . .

The bottom line is this: The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending. Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.

For the full commentary, see:

ROBERT J. BARRO AND CHARLES J. REDLICK. "Stimulus Spending Doesn't Work; Our new research shows no evidence of a Keynesian 'multiplier' effect. There is evidence that tax cuts boost growth." The Wall Street Journal (Thurs., OCTOBER 1, 2009): A23.

(Note: ellipsis added.)

A longer and much more detailed account of Barro and Redlick's recent research on this topic can be found in:

Barro, Robert J., and Charles J. Redlick. "Macroeconomic Effects from Government Purchases and Taxes." NBER Working Paper # w15369, Sept. 2009.

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"Print of New Amsterdam by Joost Hartgers, 1626." Source of caption and image: online version of the WSJ article quoted and cited below.

(p. A15) The financial collapse of 2008 and the Great Recession have had, not surprisingly, a major adverse impact on the economy of the country's financial center, New York City. There have been over 40,000 job losses in the financial community alone and both city and state budgets are deeply dependent on tax revenues from this one industry. There has been much talk that New York might take years to recover--if, indeed, it ever can.

But if one looks at the history of New York there is reason for much optimism. The city's whole raison d'être since its earliest days explains why.

The Puritans in New England, the Quakers in Pennsylvania, and the Catholics in Maryland first and foremost came to what would be the United States to find the freedom to worship God as they saw fit. The Dutch--who invented many aspects of modern capitalism and became immensely rich in the process--came to Manhattan to make money. And they didn't much care who else came to do the same. Indeed, they were so busy trading beaver pelts they didn't even get around to building a church for 17 years.

Twenty years after the Dutch arrived, the settlement at the end of Manhattan had only about a thousand inhabitants. But it was already so cosmopolitan that a French priest heard no fewer than 18 languages being spoken on its streets.

. . .

Deep within the heart of this vast metropolis--like the child within the adult--there is still to be found that little hustly-bustly, live-and-let-live, let's-make-a-deal Dutch village. And the creation of wealth is still the city's dearest love.

For the full commentary, see:

JOHN STEELE GORDON. "Opinion; Don't Bet Against New York; The financial crisis has been devastating, but the city has reinvented itself many times before.." The Wall Street Journal (Sat., Sept. 19, 2009): A15.

(Note: ellipsis added.)

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(p. 45) The most compelling evidence that freedom promotes happiness comes from the fact that migration is almost always toward more freedom.

Source:

Lee, Dwight R. "Happiness and Liberty." Intercollegiate Review 42, no. 2 (Fall 2007): 41-48.

(Note: italics in original.)

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"A nurse practitioner with a patient at a retail clinic in Wilmington, Del." Source of caption and photo: online version of the WSJ article quoted and cited below.

Clayton Christensen, in a chapter of Seeing What's Next, and at greater length in The Innovator's Prescription, has persuasively advocated the evolution of nurse practitioners and retail health clinics as disruptive innovations that have the potential to improve the quality and reduce the costs of health care.

An obstacle to the realization of Christensen's vision would be government regulation demanded by health care incumbents who would rather not have to compete with nurse practitioners and retail health clinics. See below for more:

(p. B1) Retail health clinics are adding treatments for chronic diseases such as asthma to their repertoire, hoping to find steadier revenue, but putting the clinics into greater competition with doctors' groups and hospitals.

Walgreen Co.'s Take Care retail clinic recently started a pilot program in Tampa and Orlando offering injected and infused drugs for asthma and osteoporosis to Medicare patients. At some MinuteClinics run by CVS Caremark Corp., nurse practitioners now counsel teenagers about acne, recommend over-the-counter products and sometimes prescribe antibiotics.

. . .

As part of their efforts to halt losses at the clinics, the chains are lobbying for more insurance coverage, and angling for a place in pending health-care reform legislation, while trying to temper calls for regulations.

. . .

(p. B2) But such moves are raising the ire of physicians' groups that see the in-store clinics as inappropriate venues for treating complex illnesses. In May, the Massachusetts Medical Society urged its members to press insurance companies on co-payments to eliminate any financial incentive to use retail clinics.

. . .

The clinics are helping alter the practice of medicine. Doctors are expanding office hours to evenings and weekends. Hospitals are opening more urgent-care centers to treat relatively minor health problems.

For the full story, see:

AMY MERRICK. "Retail Health Clinics Move to Treat Complex Illnesses, Rankling Doctors." The Wall Street Journal (Thurs., SEPTEMBER 10, 2009): B1-B2.

(Note: ellipses added.)

A brief commentary by Christensen (and Hwang) on these issues, can be found at:

CLAYTON CHRISTENSEN and JASON HWANG. "How CEOs Can Help Fix Health Care." The New York Times (Tues., July 28, 2009).

For the full account, see:

Christensen, Clayton M., Jerome H. Grossman, and Jason Hwang. The Innovator's Prescription: A Disruptive Solution for Health Care. New York: NY: McGraw-Hill, 2008.

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

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One of the advantages of flexible economic systems, such as capitalism, is that they can adapt to unexpected or exogenous changes in the environment (e.g., changes in the weather). In the empirical analysis quoted from below, the primary finding is that roughly half of the short-term negative effects on income from rising temperatures, "are offset in the long run through adaptation."

Almost all of the countries in the sample of 12 deviate substantially from the ideal of entrepreneurial capitalism. So the reduction by half is probably a much smaller amount of adaptation than would occur in a sample of countries that had adopted policies that allowed a flourishing of entrepreneurship.

(p. 203) Using subnational data from 12 countries in the Americas, we show that the negative crosssectional relationship between temperature and income exists within countries, as well as across countries. We then provide a theoretical framework for reconciling the substantial, negative association between temperature and income in cross section with the even stronger short-run effects of temperature shown in panel models. The theoretical framework suggests that half of the negative short-term effects of temperature are offset in the long run through adaptation.

Source:

Dell, Melissa, Benjamin F. Jones, and Benjamin A. Olken. "Temperature and Income: Reconciling New Cross-Sectional and Panel Estimates." American Economic Review 99, no. 2 (May 2009): 198-204.

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In the last few decades the accepted opinion among most economists was that the profession understood what caused the Great Depression sufficiently so that we could be confident that we know how to avoid another Great Depression in the future.

Now the accepted opinion is becoming less accepted. I quote below the last sentence of Harold Cole's review of a 2007 book that surveys current views of the Great Depression by distinguished economists:

(p. 418) I came away from the book struck by the fragmentary state of the science with respect to the Great Depression and the challenges that we still face in terms of developing a truly satisfactory quantitative theory of what happened.

Source:

Cole, Harold. "Review of Parker's "the Economics of the Great Depression"." Journal of Economic Literature 46, no. 2 (June 2008): 415-18.

The book under review is:

Parker, Randall E. The Economics of the Great Depression: A Twenty-First Century Look Back at the Economics of the Interwar Era. Cheltenham, U.K. and Northampton, Mass.: Elgar, 2007.

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The Friedman Foundation mentioned in the passage below, was founded by Nobel Prize winning economist Milton Friedman who is often credited with creating the idea of education vouchers in his classic book Capitalism and Freedom.

Capitalism and Freedom was based on a series of lectures that Friedman delivered at Wabash College at the invitation of my much-missed mentor Ben Rogge. (Before teaching me economics in Indiana, Rogge was a native Nebraskan who earned his bachelor's degree from Hastings College.)

(p. 4B) A majority of Nebraskans are open to school-choice reforms such as school vouchers and tax­-credit scholarships, according to a survey made public Thurs­day by a national school-choice group.

"It really appears Nebraska is ready to start talking about school-choice reform options," said Paul DiPerna, director of partner services for the Fried­man Foundation for Educational Choice, which commissioned the survey.

The group partnered with the Nebraska Catholic Conference and other state and national groups to conduct the telephone survey of 1,200 likely voters.

Fifty-five percent of those sur­veyed said they favored school vouchers and supported a tax­-credit scholarship system, which would give tax credits to indi­viduals and businesses that con­tribute money to nonprofit orga­nizations that distribute private school scholarships.

For the full story, see:

Dejka, Joe. "Support for school choice tax plan seen; An Indianapolis organization says its survey shows Nebraskans would back a pending bill." Omaha World-Herald (Fri., Sept. 18, 2009): 4B.

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

(p. A23) The nearby chart reviews income and consumption through July, the latest month this data is available for the U.S. economy as a whole.

Consider first the part of the chart pertaining to the spring of this year and observe that disposable personal income (DPI)--the total amount of income people have left to spend after they pay taxes and receive transfers from the government--jumped. The increase is due to the transfer and rebate payments in the 2009 stimulus package. However, as the chart also shows, there was no noticeable impact on personal consumption expenditures. Because the boost to income is temporary, at best only a very small fraction was consumed.

This is exactly what one would expect from "permanent income" or "life-cycle" theories of consumption, which argue that temporary changes in income have little effect on consumption. These theories were developed by Milton Friedman and Franco Modigliani 50 years ago, and have been empirically tested many times. They are much more accurate than simple Keynesian theories of consumption, so the lack of an impact should not be surprising.

. . .

Incoming data will reveal more in coming months, but the data available so far tell us that the government transfers and rebates have not stimulated consumption at all, and that the resilience of the private sector following the fall 2008 panic--not the fiscal stimulus program--deserves the lion's share of the credit for the impressive growth improvement from the first to the second quarter. As the economic recovery takes hold, it is important to continue assessing the role played by the stimulus package and other factors. These assessments can be a valuable guide to future policy makers in designing effective policy responses to economic downturns.

For the full commentary, see:

JOHN F. COGAN, JOHN B. TAYLOR AND VOLKER WIELAND. "The Stimulus Didn't Work; The data show government transfers and rebates have not increased consumption at all." The Wall Street Journal (Thurs., SEPTEMBER 17, 2009): A23.

(Note: ellipsis added.)

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As an economics graduate student at Harvard, David Rockefeller was a student of Joseph Schumpeter.

After Schumpeter died, his wife spent the last few years of her life working to pull together the disorganized, but nearly completed, manuscript of Schumpeter's magnificent History of Economic Analysis. In her preface, Mrs. Schumpeter writes: "It seems appropriate at this point to acknowledge gratefully a gift from David Rockefeller and a grant from the Rockefeller Foundation which made possible much of the secretarial and editorial assistance outlined above." (p. x)

Below I quote a few passages from David Rockefeller's reaction to Obama's imposition of tariffs on Chinese automobile tires:

(p. A21) AS if he needed another policy concern to distract him from the health care debate, President Obama now finds himself embroiled in a quarrel with China over his imposition of a steep tariff on automobile tires from that country that is to take effect this week. The Chinese have responded by threatening to impose higher tariffs on American chicken. This may seem like a petty dispute, but the controversy could endanger the global economic recovery if the underlying issue -- the rise in protectionism --is not resolved quickly and forcefully. Perhaps Washington has justification for increasing tariffs in this particular case, but in general it sets a bad precedent.

President Obama should resist the desire to accommodate the forces of protectionism from unions, environmentalists and cable television pundits alike. Giving in to their demands may be politically astute, but it would send the wrong message to our trading partners and, more important, inflict damage on the already weakened American economy. Despite the recent rally in the stock market, the next two or three years could still be very painful.

I lived through the stock market crash of 1929 and the Great Depression that followed it, and I saw that there was no direct cause and effect relationship. Rather, there were specific governmental actions and equally important failures to act, often driven by political expediency, that brought on the Depression and determined its severity and longevity.

One critical mistake was America's retreat from international trade. This not only helped to turn the 1929 stock market decline into a depression, it also chipped away at trust between nations, paving the way for World War II.

For the full commentary, see:

DAVID ROCKEFELLER. "Present at the Trade Wars." The New York Times (Mon., September 21, 2009): A21.

(Note: the online version of the commentary is dated Sun., Sept. 20.)

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Baron Karl-Theodor Maria Nikolaus Johann Jakob Philipp Franz Joseph Sylvester Freiherr von und zu Guttenberg. Source of name and photo: online version of the NYT article quoted and cited below.

(p. A7) BERLIN -- Could the heir apparent to Chancellor Angela Merkel be a wealthy, handsome 37-year-old baron who loves rock 'n' roll?

The baron, Karl-Theodor zu Guttenberg, vaulted to prominence this year when he took over the often dull job of economics minister in the midst of the financial crisis. His independent stand on a thorny economic matter earned him the respect of voters.

. . .

It was his independent streak that earned him the respect of voters, rather than just their curiosity. Mr. Guttenberg broke ranks with Mrs. Merkel over how to handle the troubled German automaker Opel. Mrs. Merkel supported a consortium led by Magna International, a Canadian auto parts maker, and Sberbank, a Russian bank. Mr. Guttenberg favored bankruptcy, and even offered to resign just months into his tenure.

He lost the battle, but gained credibility with voters -- an important commodity with a disenchanted electorate that has largely ignored the coming vote. At the big kickoff campaign rally in Düsseldorf for Mrs. Merkel's conservative Christian Democratic Union, Mr. Guttenberg was the only politician to receive a spontaneous ovation from the crowd of 9,000.

For the full story, see:

NICHOLAS KULISH and JUDY DEMPSEY. "Aristocrat's Rise Shakes German Doldrums." The New York Times (Weds., September 22, 2009): A7.

(Note: ellipsis added.)

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