November 2006 – artdiamondblog.com

Copenhagen Consensus: Money Spent on Global Warming Would Do More Good Elsewhere

(p. A12) The report on climate change by Nicholas Stern and the U.K. government has sparked publicity and scary headlines around the world. Much attention has been devoted to Mr. Stern’s core argument that the price of inaction would be extraordinary and the cost of action modest.

Unfortunately, this claim falls apart when one actually reads the 700-page tome. Despite using many good references, the Stern Review on the Economics of Climate Change is selective and its conclusion flawed. Its fear-mongering arguments have been sensationalized, which is ultimately only likely to make the world worse off.

. . .

Mr. Stern is also selective, often seeming to cherry-pick statistics to fit an argument. This is demonstrated most clearly in the review’s examination of the social damage costs of CO2 — essentially the environmental cost of emitting each extra ton of CO2. The most well-recognized climate economist in the world is probably Yale University’s William Nordhaus, whose "approach is perhaps closest in spirit to ours," according to the Stern review. Mr. Nordhaus finds that the social cost of CO2 is $2.50 per ton. Mr. Stern, however, uses a figure of $85 per ton. Picking a rate even higher than the official U.K. estimates — that have themselves been criticized for being over the top — speaks volumes.

. . .

Last weekend in New York, I asked 24 U.N. ambassadors — from nations including China, India and the U.S. — to prioritize the best solutions for the world’s greatest challenges, in a project known as Copenhagen Consensus. They looked at what spending money to combat climate change and other major problems could achieve. They found that the world should prioritize the need for better health, nutrition, water, sanitation and education, long before we turn our attention to the costly mitigation of global warning.

We all want a better world. But we must not let ourselves be swept up in making a bad investment, simply because we have been scared by sensationalist headlines.

For the full story, see:

BJORN LOMBORG. "Stern Review." Wall Street Journal (Thurs., November 2, 2006): A12.

(Note: the ellipses are added.)

Without Incentives, the Energetic become Lazy

Wise words from Frederick W. Taylor, who is known as the father of scientific management:

(p. B1) "When a naturally energetic man works for a few days beside a lazy one," Mr. Taylor wrote, "the logic of the situation is unanswerable. ‘Why should I work hard when that lazy fellow gets the same pay I do and does only half the work?’ "

As quoted in:

CYNTHIA CROSSEN. "DEJA VU; Early Industry Expert Soon Realized a Staff Has Its Own Efficiency." Wall Street Journal (Mon., November 6, 2006): B1.

Is Variety Good?

Chris Anderson has a stimulating and useful chapter in The Long Tail on why having variety and choice is good.

Not all agree. My old Wabash economics professor, Ben Rogge, with wry amusement, used to refer us to Alvin Toffler’s Future Shock. Toffler’s view was that choice was stressful—visualize the Robin Williams’ Russian émigré character in "Moscow on the Hudson," when he collapses in panic on not knowing how to choose amongst the variety of coffees in the Manhattan supermarket aisle.

What amused Rogge was the contrast between the old critics of capitalism, who criticized capitalism for providing too few goods for the proletariat, and the new critics, like Toffler, who criticized capitalism for providing too many goods for the proletariat.

Although Toffler has recanted his earlier views, others, such as Barry Schwartz in The Paradox of Choice, have picked up the anti-choice banner.

Here’s my current two cents worth. Sometimes we value variety for its own sake, and sometimes not. I may find the variety of ethnic restaurants exciting, but not the variety of music on I-tunes.

But even when I don’t value variety for its own sake, I still may value it because it increases the odds that the product I can find matches the product I want. Let me explain.

In the language of Clayton Christensen and co-author Raynor, in The Innovator’s Solution, generally what I want is a good that does well, a "job" that I want or need to get done.

Some critics of mass production descried the loss of the variety of products produced by pre-industrial craftsmen. But what good did it do the peasants that no two chairs were quite alike, if all of them were too hard and misshapen for the job of comfortably sitting in them?

Mass production reduced variety, but increased quality, in the sense of bringing (cheaply) to market, products that were far better at doing the jobs that most people wanted/needed to get done.

If the modern varieties of chairs are a response to differences in the jobs that different consumers need to get done, then I might generally, and accurately, presume that variety is usually good, not because I want to constantly sample a lot of different chairs (like I want to sample a lot of different ethnic foods), but rather because variety increases the odds that I will find the one or two particular chairs that allow me to do the job that I want a chair to do for me.

Specifically, recently, we were looking for a chair that was firm, spill-resistant, would swivel to allow talking to someone in the kitchen, would recline for watching television, would be dog-chew resistant, and would have a color/fabric complementary to the rest of the furniture. We shopped at Nebraska Furniture Mart, which is the largest furniture store in the U.S., with the greatest selection, because we hoped to find the one chair that would do all of these jobs.

We came close, but I wish there was a store with even greater selection.

People Want to Live (So There, Leon Kass)

Source of edited screen capture: http://www.nytimes.com/gst/mostemailed.html

In an earlier post, Leon Kass was quoted as opining that life is better when it is short.

The table above is from the New York Times list of most emailed articles within the last 24 hour period. The listing above was for the period ending at 1:00 PM CST on Thursday, November 2, 2006.

Notice that of the top four articles, three of them have to do with the study showing that reversatrol may lengthen life.

More Evidence that Reagan Was Much More than a “Genial Idiot”

Source of book image: http://ec2.images-amazon.com/images/P/0688146139.01._SS500_SCLZZZZZZZ_V1056466100_.jpg

Reagan was smart and disciplined. That was one of the main messages of Mike Deaver’s book. But in these pages, there is much additional evidence. See, especially, the essay by Martin Anderson.

Also, Lee Edwards talks about one of his early encounters with the Reagans; he visited their home, and he was especially anxious to see Reagan’s library. He saw a large library with dog-eared, heavily annotated books. He also mentions quizing the GE manager (CEO?) who used to travel by train with Reagan to visit GE plants. Edwards asked what Reagan did during the train trips. The GE manager reported that Reagan devoured books, periodicals, and reports, taking extensive notes on his index cards.

(Sounds like Reagan could have used a computer, and would have made a great blogger?)

The reference for the book is:

Hannaford, Peter, ed. Recollections of Reagan: A Portrait of Ronald Reagan: William Morrow & Company, 1997.

Does Focus on Scarcity, Blind Us to Abundance?

Chris Anderson ends chapter 8 of his stimulating The Long Tale, with a provocative jab at economists:

(p. 146) Finally, it’s worth noting that economics, for all its charms, doesn’t have the answer to everything. Many phenomena are simply left to other disciplines, from psychology to physics, or left without an academic theory at all. Abundance, like growth itself, is a force that is changing our world in ways that we experience every day, whether we have an equation to describe it or not.

The reference to Anderson’s book, is:

Anderson, Chris. The Long Tail. New York: Hyperion, 2006.

Resveratrol May Slow Aging

Harvard Medical School antiaging researcher Dr. David Sinclair. Source of image: http://webweekly.hms.harvard.edu/archive/2003/8_25/index.html

If our institutions sufficiently allow and reward entrepreneurial innovation in health care, substantial gains in the length and quality of life are possible. (In the WSJ article passages that follow, "CR" stands for "calorie restriction.")

(p. A1) Now a coterie of scientists and biotech ventures are rekindling interest in CR as they try to mimic its antiaging effects with medicines. It is still a highly speculative quest, and many researchers fret that it hasn’t completely shaken its association with centuries of dubious nostrums to slow aging, from inhaling virgins’ breath to eating gold to implanting monkey glands.

Much of the new focus is on a substance in red wine called resveratrol. The interest in it started three years ago when a group led by Harvard Medical School biologist David Sinclair reported that it boosted yeast cells’ life span by 70% via a mechanism resembling CR. He later co-authored a study showing that it also boosts life span in fruit flies and roundworms. But his tendency to make bold leaps based on tentative data has also sparked intense controversy. One big question: Does he really understand the workings of CR well enough to mimic them in a drug?

Last spring, Italian scientists reported that resveratrol boosted life span more than 50% in a kind of short-lived fish. Intriguingly, fish on resveratrol had much faster swimming speeds as they aged, and spent far more time moving around, than did undosed control fish.

At least two groups of researchers are now testing whether resveratrol can extend life span in mice — the first such studies in mammals. At a meeting of the American Aging Association in June, Dr. Sinclair and colleagues presented preliminary results from a study showing that resveratrol had "CR-like protective effects" against the buildup of fatty deposits in the livers of mice on high-calorie diets. That suggests that resveratrol could lead to new drugs for diseases of aging associated with rich diets, such as adult-onset diabetes.

A company that Dr. Sinclair co-founded in 2004, Sirtris Pharmaceuticals Inc., of Cambridge, Mass., has begun testing a resveratrol-based drug in diabetic patients. It has raised $82 million from venture capitalists, a hefty sum for an early-stage biotech. . . .

. . .

(p. A11) Dr. Guarente recalls that Dr. Sinclair, who came to MIT in 1995 to do post-doctoral studies, breezed into his lab as if out of a Crocodile Dundee movie, greeting everyone with a cheery, "Hello, mate." The eldest son of parents who both worked in medical diagnostics, he was known in high school as a talented class clown and risk-taker, a kid who aced science classes but got in trouble for setting off minor explosions in chemistry lab. The idea of taking part in unorthodox, high-risk studies on aging suited him.

. . .

. . . , Dr. Sinclair joined forces with a researcher at the National Institute on Aging, Rafael de Cabo, to plan one of the ongoing studies of resveratrol in mice. But he had a problem: He lacked the $20,000 needed to buy mice. Then he got a call out of the blue from Tom LoGiudice, foreman at the U4EA ("euphoria") Ranch near Thousand Oaks, Calif. Mr. LoGiudice had phoned on behalf of the ranch’s owner, Harman Rasnow, who was considering taking resveratrol pills and wanted to know more about them. When Mr. LoGiudice heard about Dr. Sinclair’s problem, he arranged for his boss to talk directly to the researcher. "I have an 85-year-old passion for longevity," says Mr. Rasnow, pinpointing his age. "David sounded like he was really onto something. So I told him, ‘I’ll send you a check for $20,000.’ "

Dr. Sinclair later got another call from Mr. LoGiudice, this time inviting him to make a pitch for funding to one of Mr. Rasnow’s wealthy acquaintances, Paul Glenn, a venture capitalist and a longtime supporter of research on aging. After Dr. Sinclair did so, the Glenn Foundation for Medical Research in Santa Barbara, Calif., awarded $5 million to Harvard Medical School to launch a center on the basic mechanisms of aging with Dr. Sinclair as its founding director. Now plans are afoot to expand the center into a leading institute on aging, says Mr. Glenn, with start-up funding of $75 million to $100 million.

For the full story, see:

DAVID STIPP. "Youthful Pursuit; Researchers Seek Key to Antiaging In Calorie Cutback A Controversial Hypothesis Draws Scientists, Investors; Will It Work in Humans? Fighting Fat in Lab Mice." Wall Street Journal (Mon., October 30, 2006): A1 & A11.

(Note: ellipses added.)

The NBC nightly news on Weds, Nov. 1, 2006 ran a brief, but nice story, reported by Robert Bazell, on the basics of this: http://www.msnbc.msn.com/id/15511128/

Government War on Drugs Kills 92 Year Old Shut-In Who Defended Her Home

As a live-and-let-live libertarian, I think the war on drugs is a waste of money and a violation of rights.

Consider the news report of the police breaking down the door of a 92 year-old Atlanta woman, who defended her property, and was shot dead.

In the CNN report, the woman’s 75 year old niece expresses understandable outrage.

View CNN’s airing of a WSB report by Eric Phillips, broadcast on Weds., Nov. 22nd.

Examine Your Assets and See If, and Where, They Can Add Value

In Gerstner’s book, there is an intriguing passage in which he defends turning IBM into an integrated services firm. As an aside, he says that it might not now have made sense to build up IBM’s diverse assets, but now, having them in existence, it made sense to use them. And he points out that even in the age of modularity, many customers needed, and were willing to pay for, a company that was able and willing to put everything together for them.

At first glance, this comment might seem at odds with the economist’s dictum that "sunk costs are sunk." But Gerstner was not advocating the integration of IBM services because IBM had historically invested a lot in building up the parts of the organization. He was pointing out that diverse parts, if properly integrated, would provide substantial added-value to an important sub-group of customers.

Here is the relevant passage from Gerstner:

(p. 61) Unfortunately, in 1993 IBM was rocketing down a path that would have made it a virtual mirror image of the rest of the industry. The company was being splintered—you could say it was being destroyed.

Now, I must tell you, I am not sure that in 1993 I or anyone else would have started out to create an IBM. But, given IBM’s scale and broad-based capabilities, and the trajectories of the information technology industry, it would have been insane to destroy its unique competitive advantage and turn IBM into a group of individual component suppliers—more minnows in an ocean.

The reference to the book, is:

Gerstner, Louis V., Jr. Who Says Elephants Can’t Dance? Leading a Great Enterprise through Dramatic Change. New York: HarperCollins, 2002.

“Come With Me, If You Want to Live”

Schumpeter famously stated that creative destruction is "the essential fact" about capitalism. Was he right?

To determine what is "the essential fact" you need to first answer the question "essential for what purpose?" If the purpose is "life, liberty, and the pursuit of happiness" then I think you can show that creative detruction is indeed the essential fact about capitalism; in the key sense that with creative destruction you have a form of capitalism that is best able to enhance "live, liberty, and the pursuit of happiness."

The Terminator famously said "Come with me, if you want to live!" ("Terminator 2: Judgment Day," 1991). Life is a choice. You can choose death instead. Most people, most of the time, choose life. But there are examples of choosing death. E.g., Leon Kass, an oft-quoted "expert" on medical ethics issues, is against current efforts to lengthen the human life span:

(p. D4) While an anti-aging pill may be the next big blockbuster, some ethicists believe that the all-out determination to extend life span is veined with arrogance. As appointments with death are postponed, says Dr. Leon R. Kass, former chairman of the President’s Council on Bioethics, human lives may become less engaging, less meaningful, even less beautiful.

“Mortality makes life matter,” Dr. Kass recently wrote. “Immortality is a kind of oblivion — like death itself.”

That man’s time on this planet is limited, and rightfully so, is a cultural belief deeply held by many. But whether an increasing life span affords greater opportunity to find meaning or distracts from the pursuit, the prospect has become too great a temptation to ignore — least of all, for scientists.

“It’s a just big waste of talent and wisdom to have people die in their 60s and 70s,” said Dr. Sinclair of Harvard.

(And there’s the occasional hermit, like the unibomber, who chooses to live a brutish life without electricity and indoor plumbing.) So long as I, Arnold, and our compatriots, are allowed an island somewhere to peacefully pursue life, I do not much care what Leon and his friends do. My argument, and the book I am writing on creative destruction, are not written for Leon. They are written for all those who choose life, liberty, and the pursuit of happiness.

The NYT quote related to Leon Kass’s praise of mortality, is from p. D4 of:

MICHAEL MASON. "One for the Ages: A Prescription That May Extend Life." The New York Times (Tues., October 31, 2006): D1 & D4.

Good Management Takes Guts and Time

Gerstner recognizes that decentralization is sometimes a good thing, but thinks in some ways the trend has gone to far in business—some business functions may be efficient to centralize:

(p. 246) I’m thinking here of common customer databases, common fulfillment systems, common parts numbering systems, and common customer relationship management systems that permit your customer-service people to provide integrated information about everything a customer does with our company.

On the surface it would seem that these are logical and powerful things to do in an enterprise. Nevertheless, they usually require profit-center managers to do something very hard—relinquish some of the control they have over how they run their business. Staff executives, consultants, or reengineering teams cannot do this without active line management involvement. The CEO and top management have got to be deeply involved, reach tough-minded conclusions, then ensure that those decisions are enforced and executed across the enterprise. It takes guts, it takes time, and it takes superb execution.

Reference to the book:

Gerstner, Louis V., Jr. Who Says Elephants Can’t Dance? Leading a Great Enterprise through Dramatic Change. New York: HarperCollins, 2002.