When Government Bets, It Bets with Your Money

   Source of graphic:  online version of the Omaha World-Herald article cited below.


When an entrepreneur takes a risk, she risks losing her own money; when the government takes a risk, it risks losing your money: 


(p. 1A)  Omaha taxpayers escaped paying for the Hilton Omaha this year, but they likely will have to come up with the money for some big bills before the hotel is paid off in 2032.

In April, city officials were almost euphoric.  They announced the city-owned convention hotel performed well enough that its owners, the taxpayers, wouldn’t have to pony up the money to make the debt payments on the hotel this year.

But a recent audit of city finances reveals a much gloomier financial picture.

The audit raises questions about how the hotel that is connected to the Qwest Center Omaha will generate enough money to maintain its upscale look in the years to come.  The report also causes city officials to doubt whether expanding the hotel is realistic in the near future.

The Hilton’s troubles come at the same time that five other hotels are proposed for downtown Omaha.  But those are not full-service, amenity-rich convention hotels that are costly to build and maintain.

Hilton Omaha mainly competes in a national market for convention business, and like Omaha as a whole, the Hilton has (p. 4A) found the convention market tougher than it expected.

Omaha borrowed nearly $103 million to build, equip and finance the state’s largest and fanciest hotel.

Before the 450-room hotel opened in April 2004, the city projected net revenues would be $8.4 million in 2005.

But net revenues last year totaled just $4.6 million, according to the audit conducted for the city by KPMG.


For the full story, see: 

C. DAVID KOTOK.  "Taxpayers Likely to Pay Hilton Bills."  Omaha World-Herald (Sunday, November 19, 2006):  1A & 4A.

(Note:  The online version has a slightly different title:  "Taxpayer to get handed Hilton bills.")


“Nebraskans Preparing for the Imminent Arrival of Several Million New York Refugees”

(p. 12) HOUSING prices are falling on both coasts, and bubble panic is around the corner.  The financial magazines are already grabbing their readers by the throat and taunting them with headlines like:  ”U.S. Housing Crash Continues!” ”Where Will Housing Prices Fall the Most?” ”Is It Time to Cash Out?”

What if it is time to cash out?  Where do you go?  If you sell on either coast, then you need to find real estate somewhere that the housing bubble missed.  Guam?  American Samoa?  Wait, how about eastern Nebraska?  Downright frothless when it comes to housing:  the median home price here usually chugs along at the annual rate of inflation and never goes down (up 4 percent last year, up 22 percent over the last five years).

Before you recoil in horror at the thought of living in Omaha, a city of 414,000 souls, consider that this year Money magazine ranked it seventh of the nation’s 10 best big cities to live in, ahead of New York City, which ranked 10th.  O.K., now you may recoil in horror.

These compelling statistics have Nebraskans preparing for the imminent arrival of several million New York refugees (victims of post-traumatic bubble anxiety disorder), who will need emergency real estate and housing triage services.


For the full commentary, see:

Richard Dooling.  "Sweet Home Omaha."  The New York Times, Section 4 (Sunday, October 29, 2006):  12.

Distinguished Physician: “I Hate Hospitals”

Dr. James Armitage is a leading lymphoma physician.  His honesty in the passage below, is refreshing.  But instead of it being viewed as a personality quirk of the physician, it should be viewed as one more reason to reform how our medical system is organized.


"I hate hospitals. I like working in them; I just don’t like being a patient."


Armitage, as quoted in:

MICHAEL KELLY.  "Michael Kelly: Doc lacks patience for being a patient."  Omaha World-Herald  (Thursday November 16, 2006):    1B. 

Jeffrey Sachs “Has Apparently Spent More Time Studying the Economic Thinking of Salma Hayek than that of Friedrich”

  Salma Hayek.  Source of image: http://www.imdb.com/gallery/granitz/0273-spe/Events/0273-spe/hayek_sa.lma?path=pgallery&path_key=Hayek,%20Salma


(p. A18) Scientific American, in its November 2006 issue, reaches a "scientific judgment" that the great Nobel Prize-winning economist Friedrich Hayek "was wrong" about free markets and prosperity in his classic, "The Road to Serfdom."  The natural scientists’ favorite economist — Prof. Jeffrey Sachs of Columbia University — announces this new scientific breakthrough in a column, saying "the evidence is now in."  To dispel any remaining doubts, Mr. Sachs clarifies that anyone who disagrees with him "is clouded by vested interests and by ideology."

This sounds like one of those moments in which the zeitgeist of mass confusion about national poverty, world poverty and prosperity comes together in one mad tragicomic brew.

. . .  

Mr. Sachs, who is currently best known for his star-driven campaign to end world poverty, has apparently spent more time studying the economic thinking of Salma Hayek than that of Friedrich. 

. . .

Mr. Sachs’s empirical analysis purports to show that Nordic welfare states are outperforming those states that follow the "English-speaking" tradition of laissez-faire, like the U.K. or the U.S. Poverty rates are indeed lower in the Nordic countries, although the skeptical reader (probably an ideologue) might wonder if the poverty outcome in, say, the U.S., with its tortured history of a black underclass and its de facto openness to impoverished but upwardly mobile immigrants, is really comparable to that of Nordic countries.

Then there is the big picture, where those laissez-faire Anglophones in, first, the U.K. and, then, the U.S., just happened to have been the leaders of the ongoing global industrial revolution that abolished far more poverty over the past two centuries than a few modest Scandinavian redistribution schemes.  Mr. Sachs apparently thinks the industrial revolution was led by IKEA.  Lastly, let’s hear from the Nordics themselves, who have been busily moving away from the social welfare state back toward laissez-faire.  According to the English-speaking ideologues that composed the Heritage Foundation/Wall Street Journal Index of Economic Freedom, Denmark, Finland and Sweden were all included in the 20 countries classified as "free" in 2006 (with Denmark actually ranked ahead of the U.S.).  Only Norway missed the cut — barely.

Mr. Sachs is wrong that Hayek was wrong.  In his own global antipoverty work, he is unintentionally demonstrating why more scientists, Hollywood actors and the rest of us should go back and read "The Road to Serfdom" if we want to know what will not work to achieve "The End of Poverty."  Hayek gave the best exposition ever of the unpopular ideas of economic freedom that somehow triumph anyway, alleviating far more national and global poverty than more fashionable Scandinavia-envy and grandiose plans to "make poverty history."


For the full commentary, see:

WILLIAM EASTERLY.  "Dismal Science."  Wall Street Journal  (Weds., November 15, 2006):  A18.

(Note:  ellipses added.) 


Hayek’s courageous masterpiece is:

Hayek, Friedrich A. Von. The Road to Serfdom. Chicago: Univ of Chicago Press, 1944.


Easterly’s great book on how to encourage economic development in poor countries, is:

Easterly, William. The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics. Cambridge, MA: The MIT Press, 2002.

Global Warming May Finally Open Northwest Passage to Shipping


  "The Canadian Coast Guard icebreaker Amundsen met a plate of "new ice" on the Northwest Passage, but it was easily traversed."  Source of caption, and photo:  online version of the Washington Post article quoted and cited below.


ICEBREAKER CHANNEL, Northwest Passage — The Amundsen’s engines growl low, as if in warning.  The ship steals ahead; its powerful spotlights stab at fog thick with the lore of crushed ships and frozen voyagers.  Ice floes gleam from the void like the eyes of animals in the night.

The Canadian Coast Guard icebreaker Amundsen weaves in graceful slow motion through the ice pack, advancing through the legendary Northwest Passage well after the Arctic should be iced over and shuttered to ships for the winter.

The fearsome ice is weakened and failing, sapped by climate change.  Ultimately, this night’s ghostly procession through Icebreaker Channel will be the worst the ship faces on its late-season voyage.  Much of the trip, crossing North America from west to east through the Northwest Passage, will be in open water, with no ice in sight.

The Amundsen is here to challenge the ice that has long guarded the legendary Northwest Passage across the roof of the Earth, and to plumb the scientific mysteries of an Arctic thawing from global warming.

A relentless climb of temperature — 5 degrees in 30 years — is shrinking the Arctic ice and reawakening dreams of a 4,000-mile shortcut just shy of the North Pole, passing beside the Arctic’s beckoning oil and mineral riches.

"Shipping companies are going to think about this, and if they think it’s worth it, they are going to try it," says the captain of the Amundsen, Cmdr. Alain Gariepy, 43.  "The question is not if, but when."


For full story, see: 

Doug Struck.  "Melting Arctic Makes Way for Man; Researchers Aboard Icebreaker Say Shipping Could Add to Risks for Ecosystem."  Washington Post  (Sunday, November 5, 2006):  A01.


   Source of map:  online version of the Washington Post article quoted and cited above.


FDA Hurdles Block Widespread Use of Baby-Saving Drug

(p. A1)  BOSTON — Like thousands of children in the U.S., Maggie Leaver has short bowel syndrome.  These children can’t absorb enough nutrients from food, and some need intravenous feedings to survive.

A baby’s digestive system can adapt over time, but that may take months or years.  Many of these babies can’t wait.  For reasons not fully understood, children put on intravenous nutrition may suffer liver damage.  Some require liver and small bowel transplants, risky procedures that don’t always work.  Others die waiting for a transplant.

In July, in a paper in the scientific journal Pediatrics, researchers at Children’s Hospital Boston reported on a small study that suggested a promising treatment.  They found that by switching from the standard intravenous formula to a different kind — called Omegaven — babies weren’t progressing to liver failure.  Omegaven, used in Europe for adults, isn’t approved in the U.S. and is considered experimental treatment.

"The kids aren’t dying anymore," says Mark Puder, a pediatric surgeon who was lead investigator on the study.  "We think we have a good treatment."

But Dr. Puder’s effort to get Omegaven widely used in babies has put him in an unusual conflict with the German company that developed the drug.  Fresenius Kabi AG, which makes Omegaven, says it isn’t interested in bringing the drug to the U.S. market.  The company says it doesn’t agree that Omegaven is the best drug for these babies and has a new product that it believes is better.

In 28 of 29 babies treated with Omegaven so far at Children’s Hospital, Dr. Puder says they were able to stop further liver damage — and damage that children already incurred seemed to improve.  Some babies who were switched to Omegaven rebounded enough that they were taken off the waiting list for an organ transplant.  At one point, Maggie Leaver’s condition deteriorated so much that her surgeon thought she was going to die.  Now the 18-month-old is thriving at home in Hingham, Mass.

. . .

Mr. Ducker says the company’s new product, called SMOFlipid, "presents a better option for pediatric feeding."  The company believes the new product does contain all the essential fatty acids babies need and can be used on its own.

Fresenius Kabi says it doesn’t want to invest the resources required to test both products for approval by the U.S. Food and Drug Administration.  It hopes to eventually sell the new product in the U.S., Mr. Ducker says, although no timetable has been set and no trials are under way.

. . .

Because Omegaven is considered experimental in the U.S., if hospitals want to try it, they have to ask permission from the FDA for each individual patient.  The FDA has regulations that enable doctors to use experimental drugs in certain (p. A15) emergency situations.

If hospitals obtain the required permissions, they must then find a way to buy the drug on their own, since insurers typically won’t cover Omegaven because it’s experimental.  The cost can run from $50 to $100 a day per patient.  At Children’s Hospital Boston, the surgical department has already spent close to $100,000 to buy Omegaven for babies.

. . .

Dr. Mooney says he wrestled almost from the beginning about whether to put Maggie on Omegaven. He knew about Dr. Puder’s results, which he calls "amazingly great," but the number of children treated was still small.  He worried about adverse effects.  "It is so easy to get caught in the hype of new things," Dr. Mooney says.  Maggie was already fragile.  What if he put her on Omegaven, he says, "and there was a horrible side effect that could tip her over the edge?"

But when standard therapies failed, he felt "there was nothing else to do."  Given that the treatment is experimental, Dr. Mooney says he believes it was right to wait.  But he also feels Omegaven has made a difference.  "Five years ago, every single one of the kids taking Omegaven would be dead by now, Maggie included," he says.


For the full story, see:

MARCUS, AMY DOCKSER.  "Different Rx; A Doctor’s Push For Drug Pits Him Against Its Maker; Dr. Puder Thinks Omegaven Is Best Option for Sick Babies; Company Prefers New Product Turnaround for Little Maggie."  Wall Street Journal  (Mon., November 13, 2006):  A1 & A15.

Cheap, Easy, Transparent Property Rights Institutions Are Key to Developing Long Tail

Chris Anderson points out that the main thing currently holding back the long tail, are legal restrictions in the form of clearing copyrights.  This is somewhat analogous to how the legal restrictions to starting up a small business, end up protecting the larger incumbent companies, a la Hernando de Soto’s The Other Path

Figuring out how to quickly and cheaply process small intellectual property rights claims is the key.  The assumption that this could and would be done was an underpinning of Bill Gates’ prediction of the key importance of content in his The Road Ahead.

If Gates’ vision could be realized, it would provide the consumer much greater variety (and much closer matches between what is sought and what is found); and it would provide many more producers of content, the opportunity to support themselves through their productive activities.  (As opposed to the current situation where most such producers must produce as a part-time, labor-of-love, while they support themselves by their unrelated ‘day job.’)


Books mentioned:

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

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

Soto, Hernando de. The Other Path. New York: Harper and Row, 1989.


Microsoft’s VX-6000 LifeCam Really Stinks

  Microsoft’s VX-6000 LifeCam.  Source of image:  http://www.microsoft.com/presspass/images/gallery/hardware/WC6_Angle_Silver_lg.jpg


I posted this to Amazon.com, late on Thurs., Nov. 30, 2006:

I have spent a frustrating afternoon and evening trying to install the VX-6000 on a fully updated MS XP pro system. The install took forever, because every couple of minutes the install program couldn’t find a needed file (if they need it, why not put it on the install CD?). So I had to browse my system and point them to where the file was (why couldn’t they design the install program to search for the file instead of making me do it?). Finally I got a successful install, and then I was informed there was an updated version, and I needed to install that. So I went through the whole time-consuming process all over again, including the schtick about searching for the location of several files. Finally it again said I had installed the program successfully. So I rebooted my PC, and clicked on the Microsoft LifeCam icon. After cranking for awhile I get "initialization error". I try rebooting again—same error. So I type in "initialization error" in the search bar of the "help" section, and I get back "no topics found." So they sell me an expensive camera, run me ragged installing it, send me a repeated error message, and provide me no clue on what to do about it. (I guess now that Bill Gates is saving the world through philanthropy, nobody’s left minding the shop?)


The final comment is probably a bit too snide or harsh.  Microsoft has always had the deserved reputation of letting some products out the door before they are ready.  E.g., the first couple of versions of Windows paled in comparison to the graphical-user-interface operating system that Apple was offering at the time.  And the CD that accompanied Bill Gates’ The Road Ahead would not work on what was then Microsoft’s premier operating system:  Windows NT.

Maybe these kind of glitches result from a conscious operating strategy that gives employees a lot of freedom to make their own decisions.  The upside can be speedy decisions, and creativity.  The downside can be glitches such as the VX-6000 LifeCam.  Taking the broad, professorial view, maybe overall, the upside justifies the downside.  Tom Peters endorses companies accepting this trade-off rather than adopting layered, rule-bound, slow, bureaucratic decision-making.  (See his:  Re-imagine!)

(But did I mention that the VX-6000 LifeCam really stinks?) 


The reference to the Peters book is:

Peters, Tom. Re-Imagine! London: DK, 2003.


We Will Always Want More Income

Karl Marx, John Maynard Keynes, and many others, have suggested that there is some level of income at which we will have enough, and want no more. 

David Friedman, in his price theory text, and others, have doubted this.  I am with the doubters.  I suspect that we sometimes think a certain amount of money would satiate us, because at some level way beyond our current income, it does not reward us to think too much about how we might spend so much money.

But if you are Rockefeller, and you see what good comes with founding universities, curing diseases, and the like, then you can easily imagine what good would come from even more money, even if, like Rockefeller, you are the richest person on the face of the earth.

In the discussion excerpted below, Robert Frank gives another argument for joining the doubters:  that as our income rises, so do our standards for quality.  (I think this argument is sound, but less important than the one sketched above.)  


When my wife and I were living in Paris a few years ago, we went out to dinner with well-to-do friends who were visiting from the United States.  The restaurant we chose had a good reputation and, by our standards, was not cheap.  But although my wife and I enjoyed our meals enormously, our friends found theirs disappointing.  I’m confident they were not trying to impress us or make us feel inferior.  By virtue of their substantially higher income, they had simply grown accustomed to a higher standard of cuisine.

. . .

By placing the desire to outdo others at the heart of his description of insatiable demands, Keynes relegated such demands to the periphery.  But the desire for higher quality has no natural limits.  Keynes and others were wrong to have imagined that a two-hour work week might someday enable us to buy everything we want.  That hasn’t happened and never will.


For the full commentary, see: 

ROBERT H. FRANK.  "ECONOMIC SCENE; The More We Make, the Better We Want."  The New York Times  (Thurs., September 28, 2006):  C3.

(Note:  ellipsis added.)