October 2006 – artdiamondblog.com

Why Should We Be Forced to Subsidize Those Who Choose to Live in the Boonies?

Kerry Caruselle, the only passenger on her federally subsidized flight between Pueblo and Denver, leaves the plane. Source of the photo: online version of the NYT article cited below. Grant Campbell has plenty of room to spread out on his federally subsidized flight between Pueblo and Denver. Source of the photo: online version of the NYT article cited below.

(p. A1) PUEBLO, Colo. — Hoping for an empty seat beside you on your next flight? No problem — just schedule a trip to someplace like Kingman, Ariz.; Brookings, S.D.; or Pueblo.

They are among more than 100 locales around the country that receive federally subsidized airline service, and the average number of passengers on each flight is about three.

Most of these flights on 19-seat prop planes have plenty of elbow room — a rare luxury in this age of jampacked commercial jets. Some major airlines have cut their fleets about 20 percent since 2001 and have abandoned unprofitable routes, meaning planes are flying fuller than at any time since World War II.

The more tranquil cabins come courtesy of the Essential Air Service, put in place when the airline industry was deregulated in 1978. The idea was to help travelers in smaller cities adjust to the new competitive era of air travel. The intention was for the service to go away after 10 years, but it was renewed for a second decade — and then made permanent.

Over time, though, the program has come to seem mostly expensive and, to its critics, unessential.

After all, travelers adjusted very well after deregulation, and started driving the extra distance to busier regional airports nearby that offered increasingly cheap and plentiful jet service. That left the program with (p. C7) mostly empty planes, making them more costly to fly. Add in higher maintenance and fuel costs, and spending has more than quadrupled since 1996, to $110 million.

That, of course, is not a lot in the federal scheme of things. But the program is a good case study of how poorly the government sometimes keeps pace with the free market and consumer tastes, and how entrenched interests, even in the face of some creative map-drawing, can keep such a program aloft in the face of efforts to ground it.

. . .

The emptier the subsidized flights, it seems, the more cherished the program became. Members of Congress regularly pressured the Transportation Department to continue subsidies to towns they represented. A lobbying group sprang up solely to fight to preserve and expand the program.

For the full story, see:

JEFF BAILEY. "Subsidies Keep Airlines Flying to Small Towns." The New York Times (Fri., October 6, 2006): A1 & C7.

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

Italy Suffers from a “Growing Spirit of Cynicism and Escapism”

Source of book image: http://ec3.images-amazon.com/images/P/0767914392.01._SS500_SCLZZZZZZZ_V57219494_.jpg

As anyone can attest who has lived in Italy even briefly, its domestic life can be gracious and sweet. The question is whether this way of life can survive the many urgent challenges enumerated by Mr. Severgnini: an abysmal fertility rate, crushing pension obligations, marginal economic growth, a sclerotic legal system, the flight abroad of the most creative young minds, and a growing spirit of cynicism and escapism.

For the full review, see:

FRANCIS X. ROCCA. "BOOKS; An Italian Challenge; Keeping la dolce vita as modernity spreads." The Wall Street Journal (Sat., September 9, 2006): P8.

The reference to the book:

Beppe Severgnini. La Bella Figura. Broadway, 2006. 217 pages, $23.95.

In the Prague of Rudolf II, “Anything Seemed Possible”

Source of book image: http://ec3.images-amazon.com/images/P/0802715516.01._SS500_SCLZZZZZZZ_V61383943_.jpg

Ambassadors, nobles and church magnates routinely visited Prague Castle during Rudolf’s reign (1576-1612); so did astronomers and astrologists, alchemists, philosophers, charlatans and anyone else with something marvelous to relate. Bureaucratic busybodies might wait months for an audience with the emperor, but his doors flew open for those with esoteric knowledge.

. . .

Prague Castle was the perfect emblem of Rudolf’s scattered interests. It contained one of the greatest painting collections in Europe — including works by Durer, Arcimboldo, Titian and Veronese. Its inventory also included Egyptian mummies, stuffed exotic birds, unicorn horns, whale teeth, bezoars (gall stones taken from the stomach of animals, thought to be antidotes to poison), the nails of Noah’s ark and one dried and preserved dragon.

If a visitor to the castle wandered into its library, he might well come across such dodgy works as "Arcana arcanissima," "De Alchemiae difficultatibus" and "Mysterium cosmographicum," many dedicated to the monarch by their grateful authors. Yet if the visitor climbed to the top of the castle’s so-called Bishop’s Tower on a starry night, he might encounter the great astronomers Tycho Brahe and Johannes Kepler charting the sky. Clearly, it was a magical moment in the history of Western civilization, when anything seemed possible. Mr. Marshall brings it all wonderfully to life.

For the full review, see:

STUART FERGUSON. "BOOKS; Sense and Sorcery in Prague; Ready for the Renaissance; but not quite prepared to give up the unicorn." The Wall Street Journal (Sat., September 9, 2006): P9.

(Note: ellipsis added.)

The book reference is:

Peter Marshall. The Magic Circle of Rudolf II. Walker, 2006. 276 pages, $24.95.

Entrepreneur Makes Risky, Massive Infrastructure Bet

A Louisiana site where Cheniere is building a terminal for liquified natural gas. Source of image: online version of the NYT article cited below.

Charif Souki is making a risky business decision. If he is wrong, he and his investors will lose much. If he is right, consumers will be better off, having a larger supply of liquified natural gas (LNG). And if he is right, he should be allowed to make a lot of money, both because that is just, and because it is useful for those who have bet right in the past, to have ample means to bet right in the future.

(p. C1) CAMERON PARISH, La. — The Sabine River channel, where alligators and speckled trout live alongside petrochemical plants and oil refineries, has suddenly become the center of a quiet revolution in the world of natural gas.

And it is mainly at the prodding of a little-known company called Cheniere Energy, with help from Exxon Mobil and Sempra Energy. Together they have overcome formidable regulatory hurdles to build three new liquefied natural gas terminals on the channel that will double the nation’s capacity to import natural gas by 2011.

It has been 24 years since anyone on American shores has built a new liquefied natural gas terminal. Two of the country’s four existing onshore terminals, which dock tankers the size of aircraft carriers ferrying supercooled gas from places like Qatar and Trinidad, were mothballed for years because production at home was plentiful and prices were low.

As recently as five years ago almost nobody in the energy world thought it possible to make money from a new American terminal project — with price tags that start at $600 million — let alone get a federal permit.

One lonely believer was Charif Souki, a Lebanese immigrant entrepreneur who had previously raised (p. C4) money for real estate in Paris and hotels in Hawaii before becoming chairman of Cheniere, a floundering gas exploration company. Not even the 9/11 attacks, which made many people on the Atlantic and Pacific Coasts view liquefied natural gas terminals as potential terrorist targets, diverted him from his vision.

Now, even as natural gas prices sag, along with his company’s stock price, and the word glut is on the tip of the tongue among the drilling crowd, Mr. Souki says he is fixed on the longer view.

He is convinced the nation will need to import more gas because North American production is declining. That is the same view Mr. Souki held six years ago, when he decided to shake up the company’s business plan. He defiantly changed its stock symbol to LNG in 2003, and devoted himself to scoping out the country’s coastlines for potential terminal sites.

The already energy-intensive shoreline along the Gulf of Mexico, he concluded, made the most sense, economically and politically, and he started buying real estate in uninhabited harbors close to existing pipelines and gas-thirsty refineries and petrochemical plants.

“People were actually amused that we would be thinking about importing natural gas,” dryly giggled Mr. Souki, 53, a man with a taste for double-breasted suits. “Nobody took us very seriously.”

Cheniere was so unprofitable and utterly spurned by investors in 2002 that Mr. Souki had to borrow $30,000 from his company’s president just to meet a payroll. But over the last four years, Mr. Souki has managed to arrange financing, sign up long-term buyers and master the regulatory process.

For the full story, see:

CLIFFORD KRAUSS. "A Big Bet on Natural Gas." The New York Times (Weds., October 4, 2006): C1 and C4.

The map shows the area in which the terminal is being built. The bottom photo shows a Louisiana site where Cheniere is building a terminal for liquified natural gas. Source of image: online version of the NYT article cited above.

300,000,000 Strong, and Free

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

The Census Bureau tells us that some time in the weeks ahead the U.S. population will reach 300 million. . . .

This demographic milestone is not cause for alarm — as some prophets of doom would have it. Rather, it is cause for celebration. We 300 million Americans are on balance healthier and wealthier and freer than any population ever: We breathe cleaner air, drink cleaner water, earn higher incomes, have more leisure time, and live in less crowded housing. Every natural resource we depend on — water, food, copper and, yes, even oil — is far more abundant today measured by affordability than when our population was 100 million or even 30 million.

Thanks to the rapid pace of technological progress, there’s every reason to believe these resources will be still more abundant when our population reaches 400 million — which should happen about 40 years from now. As the late economist Julian Simon reminded us, thanks to our free market capitalist system, the history of America is one of leaving the storehouse for every successive generation more endowed with wealth, knowledge and natural resources.

For the full commentary, see:

STEPHEN MOORE. "Supply Side; 300,000,000." Wall Street Journal (Tues., October 3, 2006): A26.

(Note: ellipsis added.)

Equatorial Guinea’s Kleptocracy: More on Why Africa is Poor

Nicholas D. Kristof. Source of image: online verison of the NYT commentary cited below.

The founding president of this country was a witch doctor who murdered tens of thousands, put enemies’ heads on pikes, denounced education and spread land mines on the road out of his country to prevent people from fleeing. This was then so vile a place that an American diplomat stabbed another to death here in 1971 and claimed in his trial that he had been driven insane partly by the screams of all the people being tortured.

When the president was finally ousted in 1979, he ran off into the bush with $60 million packed in suitcases. But he was pursued, and in a shootout, the nation’s entire foreign exchange reserves burned up.

. . .

Equatorial Guinea traditionally has been Africa’s poster boy for bad governance. Even after the old witch doctor was ousted, the kleptocracy continued under Teodoro Obiang, the current president. A new book about the country, “The Wonga Coup,” notes that in 2004 President Obiang bought a Boeing 737, one of six personal planes, for $55 million, and outfitted it with a king-sized bed and gold-plated fittings in the extra-large bathroom.

Schools and clinics are needy, but Forbes lists President Obiang as the world’s eighth richest ruler, with a net worth of $600 million. Just last year, “The Wonga Coup” says, the president’s son spent the equivalent of a third of his country’s entire education budget on a vacation home in South Africa and three cars — two Bentleys and a Lamborghini.

For the full commentary, see:

NICHOLAS D. KRISTOF. "Optimism and Africa." The New York Times (Tues., October 3, 2006): A27.

(Note: ellipsis added.)

The book mentioned in the commentary is:

Roberts, Adam. The Wonga Coup: Guns, Thugs and a Ruthless Determination to Create Mayhem in an Oil-Rich Corner of Africa. PublicAffairs, 2006.

Source of book image: http://images.amazon.com/images/P/1586483714.01._SS500_SCLZZZZZZZ_V65100719_.jpg

The Missing Pillow: A Lack of Incentives Leaves an Obvious ‘Job’ Undone

In late July, I had an appointment for a treadmill stress-test at Omaha’s Methodist Hospital. They told me the process would be over in an hour, but it took about two hours, due to another patient having some sort of crisis during their stress-test.

They had me put on a gown, they stuck an I-V "dye" drip in back of my hand, and they pasted about six electrodes to my chest, after shaving and applying something like sand paper to the parts of the chest where the electrodes were attached. Then they had me lie on my side on a hard table, to wait. It was very uncomfortable. The first nurse said that there was supposed to be a pillow on the table, but did nothing to obtain one. Every several minutes some technician or nurse would stop in to ask if I was ready for them. (I was always ready.) But it turned out that someone needed to do something to me first, and that person was, I guess, taking care of the crisis next door. At least one of these visitors also mentioned that I was supposed to have a pillow, but did nothing to acquire one. If memory serves, the first nurse came back in, and again mentioned that I was supposed to have a pillow, but again did nothing to obtain one.

These people were all pleasant and friendly. For example, they had a lot of friendly chats amongst themselves, that I could not help but over-hear. (One of them was pregnant with twins, but did not know the genders of the babes-to-be, and so had not yet spent the time to come up with names.)

But two hours later, when the whole process was over, I still did not have a pillow.

A week or two after the test, I received a several page survey from Methodist Hospital asking a bunch of questions about how I thought they had done during the test. You see they really "care" about my opinion. (They also run frequent, slick TV ads about how much they "care.")

Marketers, and management gurus, say that organizations need to invest in surveys and the like to figure out what the customer wants and needs. And Clayton Christensen advocates spending resources to figure out what "job" the customer needs to have done. And maybe, sometimes, it does take surveys and research.

But sometimes it is obvious that the customer needs a pillow.

What is missing is not a survey, or statistical analysis.

What is missing is the incentive for someone to go get the pillow.

P.S. You may wonder, then, if it is simply a mistake for the hospital to send out the survey? I suspect that those who send out the survey are not making a mistake, but are trying to get a different job done than the one that appears to be intended. It appears that they are trying to find out what customers want and need. But maybe they already know that. Maybe they are mainly sending out the survey so that if anyone asks if they are "customer-oriented" they can whip out the survey to prove that yes-indeed, they sure are. In other words, the point of the survey is not to learn about customers; it is to cover rear-ends.

How Speculators Stablilize Gas Prices

As long ago as 1953, Milton Friedman argued that speculation normally helps to stabilize prices rather than destabilize them.

Mr. Friedman’s argument was applied to currency trading, but the same reasoning works here.  If speculative trading tends to push prices higher when they are already high and lower when they are already low, then traders must be buying high and selling low.

That would mean that traders have to lose money on average — which does not seem very likely.  To the contrary, speculative traders try to buy low and sell high, activities that by their nature tend to push prices up when they are too low and down when they are too high.

Since Mr. Friedman’s 1953 article several papers have been published, both supporting and attacking this argument.  But the general principle seems quite robust.

For the full commentary, see:

Hal R. Varian. "ECONOMIC SCENE; The Rapidly Changing Signs at the Gas Station Show Markets at Work." The New York Times (Thurs., August 24, 2006): C3.

The Milton Friedman article that Varian refers to, is:

Friedman, Milton. "The Case for Flexible Exchange Rates." In Friedman. Essays in Positive Economics. Chicago: University of Chicago Press, 1953.

United States Cardiologists Fail to Prescribe Fish Oil, Despite Low Cost, Safety, and Evidence of Efficacy

Source of graphic: online verison of the NYT article quoted and cited below.

United States cardiologists are reluctant to prescribe fish oil, wanting more definitive data on efficacy. But a lack of definitive data on efficacy doesn’t stop them from performing costly and risky procedures such as the application of stents. Possibly relevant: installing stents is much more lucrative for cardiologists, than prescribing fish oil. Doctors are not bad people, but like most of us, they respond to financial incentives.

(p. D5) ROME — Every patient in the cardiac care unit at the San Filippo Neri Hospital who survives a heart attack goes home with a prescription for purified fish oil, or omega-3 fatty acids.

“It is clearly recommended in international guidelines,” said Dr. Massimo Santini, the hospital’s chief of cardiology, who added that it would be considered tantamount to malpractice in Italy to omit the drug.

In a large number of studies, prescription fish oil has been shown to improve survival after heart attacks and to reduce fatal heart rhythms. The American College of Cardiology recently strengthened its position on the medical benefit of fish oil, although some critics say that studies have not defined the magnitude of the effect.

But in the United States, heart attack victims are not generally given omega-3 fatty acids, even as they are routinely offered more expensive and invasive treatments, like pills to lower cholesterol or implantable defibrillators. Prescription fish oil, sold under the brand name Omacor, is not even approved by the Food and Drug Administration for use in heart patients.

“Most cardiologists here are not giving omega-3’s even though the data supports it — there’s a real disconnect,” said Dr. Terry Jacobson, a preventive cardiologist at Emory University in Atlanta. “They have been very slow to incorporate the therapy.”

For the full story, see:

ELISABETH ROSENTHAL "In Europe It’ s Fish Oil After Heart Attacks, but Not in U.S." The New York Times (Tues., October 3, 2006): D5.

Indian Infrastructure: “If the Public Sector Cannot Deliver, Let’s Try the Private Sector”

BANGALORE, India, Oct. 2 — About 25 miles south of the Chennai airport, past rows of ramshackle shops and pavements crowded with roadside vendors and assorted cattle, a short turnoff leads to a gated modern oasis.

Inside, at complete variance with the chaos of its surroundings, are the lakes, promenades, lush landscaping and security systems of Mahindra World City. Its modern office high rises already house 4,000 workers with space for several thousand more.

This is the first of India’s special economic zones, or S.E.Z.’s, which could offer a partial solution to the extreme weaknesses in India’s infrastructure: narrow, pothole-filled roads; erratic supplies of electricity and other utility services; and inadequate communication links.

The zone strategy borrows from China’s playbook, and in many ways, is a means to compete with China. In fact, if all goes according to government plan, hundreds of these privately run zones will sprout like miniature foreign islands, offering better infrastructure and jobs, increasing exports and attracting investment from foreigners.

For the full story, see:

SARITHA RAI. "Oases of Modernity Amid India’ s Desert of Public Services." The New York Times (Tues., October 3, 2006): C5.

In Egypt: The Authorities Versus the Entrepreneur

Cairo entrepreneur serves good food to willing customers. Source of image: online version of the NYT article quoted and cited below.

In The Other Path, Hernando de Soto wrote about how governments in much of the world make it nearly impossible for the poor to legally get a start as entrepreneurs. Here is a perfect example of de Soto’s point:

CAIRO, Oct. 2 — With his cart tucked beneath a highway overpass, just beside the railroad tracks and behind a parked taxi, Farouk Salem darted his eyes back and forth nervously as he awaited customers.

On most days, except during Ramadan, the sun has barely risen and worshipers are shuffling out of the nearby mosque after morning prayers as the first customers make their way to Mr. Salem. A few quick flicks of a ladle, the shaking of a bottle or two, and breakfast is ready.

Mr. Salem sells ful, the fava bean stew that is a staple of Egyptian cuisine, as a cheap, hearty breakfast for just 20 cents. But he is an unlicensed street vendor, one of the many hundreds of thousands of Egyptians who make their living in what economists here describe as Egypt’s informal work force: selling, delivering, cooking, cleaning, serving, ferrying, shoeshining, anything that will provide income.

Dr. Rashad Abdou, a professor of economics at Cairo University, estimated that the informal sector might account for as much as 60 percent of Egypt’s economy.

“As long as I keep a low profile, they don’t bother me,” Mr. Salem said on a recent day, as his brother worked behind the parked metal cart, dishing out bowls of ful. The police have forced him to move many times and have even confiscated his cart. But it is hard to keep a really low profile when the food is good and the prices are cheap.

As the sun began to heat up the morning air, customers showed up in a steady stream, some still in their pajamas.

“It’s good,” said Muhammad Abbadi. “It’s clean. And the most important thing is it’s cheap. We are poor. You see how poor we are in Egypt.”

. . .

“If the authorities want to chase me away, they will do it,” he says, his face tight and nervous. “If they want to put me in prison, they can. If they want to take my cart away, they can.”

He walked over to get some more bread as Muhammad kept ladling.