Unintended Consequences of the Government’s Pushing Ethanol

GrainPricesGraph.jpg Source of graphs: online version of the NYT article quoted and cited below.

(p. C1) Shopping at a Whole Foods Market in suburban Chicago, Meredith Estes said food prices have jumped so much she has resorted to coupons. Charles T. Rodgers Jr., an Arkansas cattle rancher, said normal feed rations so expensive and scarce he is scrambling for alternatives. In Oregon, Jack Joyce, the owner of Rogue Ales, said the cost of barley malt has soared 88 percent this year.

For years, cheap food and feed were taken for granted in the United States.
But now the price of some foods is rising sharply, and from the corridors of Washington to the aisles of neighborhood supermarkets, a blame alert is under way.
Among the favorite targets is ethanol, especially for food manufacturers and livestock farmers who seethe at government mandates for ethanol production. The ethanol boom, they contend, is raising corn prices, driving up the cost of producing dairy products and meat, and causing farmers to plant so much corn as to crowd out other crops.
The results are working their way through the marketplace, in this view, with overall consumer grocery costs up roughly 5 percent in a year and feed costs up more than 20 percent.
Now, with Congress poised to adopt a new mandate that would double the volume of ethanol made from corn, ethanol skeptics say a fateful moment has arrived, with the nation about to commit itself to decades of competition between food and fuel for the use (p. C4) of agricultural land.
(p. C4) “This is like a runaway freight train,” said Scott Faber, a lobbyist for the Grocery Manufacturers Association, who complained that ethanol has the same “magical effect” on politicians as the tooth fairy and Santa Claus have on children. “It’s great news for corn farmers, but terrible news for consumers.”
. . .
The price increases for corn have had a broad impact, both because farmers are planting more corn and less of other crops and because livestock producers are scrambling for feed substitutes. For instance, soybeans acreage planted this year was about 16 percent less than in 2006.
Feed costs have increased 25 to 30 percent in the last year, according to David Fairfield, director of feed services at the National Grain and Feed Association. He attributed virtually all of the increase to the demands of the ethanol industry
One consequence of the higher feed costs is rising competition for malt barley between livestock farmers, who want it for feed, and brewers, who need it for beer. Mr. Joyce, the Rogue Ales owner in Newport, Ore., said he has been forced to raise prices to pay for the additional costs of ingredients.
Mr. Rodgers, the Rison, Ark., rancher, said he used to feed his cattle a mixture of corn gluten and soybean hulls. But he said he cannot get corn gluten anymore, and the cost of soybean hulls has risen to $150 a ton from about $105 a ton.

For the full story, see:
ANDREW MARTIN. “The Price of Growing Fuel.” The New York Times (Tues., December 18, 2007): C1 & C4.
(Note: ellipsis added.)

JoyceJackRogueAlesOwner.jpg “Jack Joyce, the owner of Rogue Ales in Newport, Ore., says the cost of barley has skyrocketed, forcing him to raise prices.” Source of caption and photo: online version of the NYT article quoted and cited above.

Median Household Income Rose, and Poverty Rate Fell, in 2006


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


(p. A1)  . . .  slight improvements in household income and a drop in the poverty rate came during a period of job growth, particularly toward the end of 2006, and declining inflation as a result of falling oil prices.  .  . .

Some Republicans seized on the new data as evidence that Bush administration policies had been good for people’s pocketbooks. In a statement, President Bush said the news was a sign that Congress should not raise taxes. The data, he said, confirmed “that more of our citizens are doing better in this economy, with continued rising incomes (p. A14) and more Americans pulling themselves out of poverty.”

. . .

Over all, the nation’s median household income rose to $48,201 in 2006, from $47,845 in 2005. It was the second consecutive year in which income rose slightly faster than inflation, after five years of decline.

Douglas J. Besharov, a resident scholar at the American Enterprise Institute, a conservative research group, said that while the year-to-year increase in household income was small, the broader picture over the last few decades was more promising and more important.

“Over all,” Mr. Besharov said, “a lot of groups have done better over the last 40 years.”


For the full story, see: 

ABBY GOODNOUGH.  “Census Presents Mixed View of the Economy.”  The New York Times  (Weds., August 29, 2007):  A1 & A14.

(Note:  the online version of the article had the title:   “Census Shows a Modest Rise in U.S. Income.”)

(Note:  ellipses added.)


Incentives Matter: Capital Punishment Deters Murders


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

(p. A13) Recent high-profile events have reopened the debate about the value of capital punishment in a just society. This is an important discussion, because the taking of a human life is always a serious matter.
Most commentators who oppose capital punishment assert that an execution has no deterrent effect on future crimes. Recent evidence, however, suggests that the death penalty, when carried out, has an enormous deterrent effect on the number of murders. More precisely, our recent research shows that each execution carried out is correlated with about 74 fewer murders the following year.
For any society concerned about human life, that type of evidence is something that should be taken very seriously.
The study examined the relationship between the number of executions and the number of murders in the U.S. for the 26-year period from 1979 to 2004, using data from publicly available FBI sources. The chart nearby shows the number of executions and murders by year.

For the full commentary, see:
ROY D. ADLER and MICHAEL SUMMERS. “Capital Punishment Works.” The Wall Street Journal (Fri., November 2, 2007): A13.

Chinese Wages and Productivity Rise

      “At the Dahon bicycle plant in Shenzhen, China, pay has risen 10 to 15 percent a year, but productivity gains have held down costs.”  Source of caption and photo:  online version of the NYT article quoted and cited below.

(p. A1) SHENZHEN, China, Aug. 28 — At the Dahon bicycle factory here, Zhang Jingming’s fingers move quickly and methodically — grabbing bicycle seats, wrapping them in cardboard and smoothly attaching them to frames.
Working a 45-hour week, Mr. Zhang makes the equivalent of $263 a month; as recently as February, he was making just $197. Some of his higher pay comes from working more efficiently. “When I first started, I wasn’t this fast,” he said.
But a good portion reflects a raise Mr. Zhang got: to 1.45 cents for each bicycle seat from 1.32 cents. It is a small difference that signifies major change.
Chinese wages are on the rise. No reliable figures for average wages exist; the government’s economic data are notably unreliable. But factory owners and experts who monitor the nation’s labor market say that businesses are having a hard time finding able-bodied workers and are having to pay the workers they can find more money.
And higher wages in China are likely to lead to higher prices in the United States — at the mall, at the grocery, even at the gas pump.
Chinese companies are already passing along some of their higher costs to overseas customers. Prices for goods from China, after years of gradual decline, have risen 1.2 percent since February, according to the Labor Department. July’s increase was the biggest yet: 0.4 percent compared with June. Chinese companies and contractors are also passing on the cost of the rising value of their currency, the yuan, up 8.8 percent against the dollar in the last two years.
For decades, many labor economists said that China’s vast population would supply a nearly bottomless pool of workers. So many people would be seeking jobs at any given time, this rea-(p. A9)soning went, that wages in this country would be stuck just above subsistence levels. As recently as four years ago, some experts estimated that most of the perhaps 150 million underemployed workers in the countryside would be heading to cities.
Instead, sporadic labor shortages started to appear in 2003 at factories in the Pearl River delta of southeastern China. Now those shortages have spread to factories up and down the Chinese coast, specialists say.
. . .
(p. A9) The hardest variable to judge in China’s changing labor market is the pace of productivity growth. Since there are few reliable statistics, the best way to assess productivity is to look at individual factories like the Dahon operation here, which produces bicycles that collapse for easy storage.
David T. Hon, chief executive of the privately held Dahon Group, said that while he had been raising wages 10 to 15 percent a year, the average labor cost for each bicycle had actually edged downward. This is possible, he said, because sales are growing 30 percent a year and increasingly large-scale production has brought savings. The cost of engineering a new bicycle design, or handling the accounting and other back-office operations, is spread over more and more bicycles as production rises.

For the full story, see: 
KEITH BRADSHER.  “Wages Are on the Rise in China As Young Workers Grow Scarce.”  The New York Times   (Weds., August 29, 2007):  A1 & A9.
(Note: ellipsis added.)

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

Britain’s “Novel Immigration Problem”: Too Few Polish Immigrants

PolishSausage.jpg “Polish women selling sausages at the Borough Market in London. The British have also grown to enjoy Polish food.” Source of caption and photo: online version of the International Herald Tribune version of the article quoted and cited below.

(p. C1) LONDON, Oct. 18 — When Piotr Farbiszewski landed here three years ago, he had enough money in his pocket to live for two weeks.
A successful technology consultant in Warsaw, he and his wife, Ela, a schoolteacher, had come to London to try it on for size; if they liked it, they would stay. To earn money, he worked as a builder while she flipped hamburgers.
They decided that they liked London, and within a year, Mr. Farbiszewski was a senior programmer at a software company. In March, the couple bought a small terraced house outside London, where they plan to raise a family.
“We’re very happy here,” Mr. Farbiszewski, 31, said. “The quality of life is better, the economy is stronger, there is less bureaucracy, it’s a multicultural society and the lady in the supermarket will smile at me. People don’t smile at each other in Poland.”
The Farbiszewskis are small players in one of Europe’s most successful immigration stories. Since Poland joined the European Union in 2004 and Britain, unlike France and most other members, welcomed Polish workers, an estimated 1.1 million Poles, mainly young, have come to Britain. Today, they are the third-largest group of immigrants in the country, behind (p. C5) Irish and Indians.
Britain has benefited. On Tuesday, the Home Office estimated that immigration added £6 billion ($12.3 billion) to the nation’s economy last year. According to David Blanchflower of the Bank of England’s monetary policy committee, East European immigration has also reduced inflation pressure by increasing the supply of goods and services.
Indeed, Britain may soon face a novel immigration problem. As Poland’s economy has improved this year, immigration has slowed, which economists say could cause labor shortages in British industries.

For the full story, see:
JULIA WERDIGIER. “As the Poles Get Richer, Fewer Seek British Jobs.” The New York Times (Fri., October 19, 2007): C1 & C5.

Why Entrepreneurs Are Needed to Bring Important Innovations to Market


   Source of book image:  http://www.bigbadbookblog.com/wp-content/uploads/Blink.jpg


In my classes I sometimes comment on the failure of much marketing research, sometimes quoting the founder of Sony on using his own judgment on what is useful to customers.

There’s some useful insight into this issue in Malcolm Gladwell’s stimulating Blink book.  He argues, and presents examples, that marketing research can provide useful information when the product being evaluated is familiar to the customers being surveyed.  But when the product is new and unfamiliar, it may take awhile for the customer to figure out what they think of it.  There initial reaction will usually be negative, simply as a reaction to the unfamiliarity.  But with time, the product may grow on them as they figure out what “jobs” the product might be able to do for them in the full context of their lives.  (The “jobs” formulation is Christensen’s, not Gladwell’s.)

What is worse, it is precisely those innovations that are most innovative, and ultimately prove most useful, that are most unfamiliar, and hence are most likely to be panned by customers in initial evaluations. 

This has implications for why an entrepreneur-friendly economy is so important for innovations.  Incumbent firms are apt to rely on some formal (a.k.a. marketing research) methods to evaluate new innovations.  So if innovations are to be introduced, it is crucial that there be entrepreneurs with the courage, passion, knowledge, and financial means to pursue the innovation through the period of skepticism.


The reference for the Blink book, is: 

Gladwell, Malcolm.  Blink: The Power of Thinking without Thinking.  Back Bay Books, 2005.


The Government’s War on Working Bodega Cats

CatHollyBrooklynDeli.jpg “Holly scares the rodents away at home, a deli in Williamsburg, Brooklyn.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A28) Across the city, delis and bodegas are a familiar and vital part of the streetscape, modest places where customers can pick up necessities, a container of milk, a can of soup, a loaf of bread.
Amid the goods found in the stores, there is one thing that many owners and employees say they cannot do without: their cats. And it goes beyond cuddly companionship. These cats are workers, tireless and enthusiastic hunters of unwanted vermin, and they typically do a far better job than exterminators and poisons.
When a bodega cat is on the prowl, workers say, rats and mice vanish.
. . .
To store owners, the services of cats are indispensable in a city where the rodent problem is serious enough to be documented in a still popular two-minute video clip on YouTube from late February (youtube.com/watch?v=su0U37w2tws) of rats running amok in a KFC/Taco Bell in Greenwich Village. Store-dwelling cats are so common that there is a Web site, workingclasscats.com, dedicated to telling their tales.
But as efficient as the cats may be, their presence in stores can lead to legal trouble. The city’s health code and state law forbid animals in places where food or beverages are sold for human consumption. Fines range from $300 for a first offense to $2,000 or higher for subsequent offenses.
. . .
In October, a health inspector fined Mr. Martinez $300 and warned him that if Junior was still there by the time of the next inspection he would be fined $2,000.
“He wants me to get rid of the cat, but the rats will take over if I do,” Mr. Martinez said. “I need the cat, and the cat needs a home.”
Because stores do not get advance notification of an inspection, Mr. Martinez is trying to keep Junior in his office as much as possible. Many bodega owners reason that a cat is less of a health threat than an army of nibbling rats. “If cats live in homes and apartments where people have food, a cat shouldn’t be a threat in a store if it’s well maintained,” Mr. Fernández said.

For the full story, see:
KATE HAMMER. “To Dismay Of Inspectors, Prowling Cats Keep Rodents On the Run At City Delis The New York Times (Fri., December 21, 2007): A28.
(Note: ellipses added.)
CatOreoBroolynDeli.jpg “Oreo roams at a deli in Greenpoint, Brooklyn.” Source of caption and photo: online version of the NYT article quoted and cited above.

Racetrack Memory May Become a General Purpose Technology


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


The article quoted below suggests that an important new “disruptive” memory technology may be on the horizon.  It sounds as though it would be what economists call a “general purpose technology” that would be useful in generating a large number of innovative applications. 

(My guess is that in Christensen’s terminology, this technology would be more sustaining, than disruptive, since the technology seems as though it would be of immediate interest to the mainstream market.)


(p. C1)  SAN JOSE, Calif. — The ability to cram more data into less space on a memory chip or a hard drive has been the crucial force propelling consumer electronics companies to make ever smaller devices.

It shrank the mainframe computer to fit on the desktop, shrank it again to fit on our laps and again to fit into our shirt pockets.

. . .  

Mr. Parkin thinks he is poised to bring about another breakthrough that could increase the amount of data stored on a chip or a hard drive by a factor of a hundred. If he proves successful in his quest, he will create a “universal” computer memory, one that can potentially replace dynamic random access memory, or DRAM, and flash memory chips, and even make a “disk drive on a chip” possible.

. . .

(p. C8)  Mr. Parkin’s new approach, referred to as “racetrack memory,” could outpace both solid-state flash memory chips as well as computer hard disks, making it a technology that could transform not only the storage business but the entire computing industry.

“Finally, after all these years, we’re reaching fundamental physics limits,” he said. “Racetrack says we’re going to break those scaling rules by going into the third dimension.”

His idea is to stand billions of ultrafine wire loops around the edge of a silicon chip — hence the name racetrack — and use electric current to slide infinitesimally small magnets up and down along each of the wires to be read and written as digital ones and zeros.

. . .

Mr. Parkin said he had recently shifted his focus and now thought that his racetracks might be competitive with other storage technologies even if they were laid horizontally on a silicon chip.

I.B.M. executives are cautious about the timing of the commercial introduction of the technology. But ultimately, the technology may have even more dramatic implications than just smaller music players or wristwatch TVs, said Mark Dean, vice president for systems at I.B.M. Research.

“Something along these lines will be very disruptive,” he said. “It will not only change the way we look at storage, but it could change the way we look at processing information. We’re moving into a world that is more data-centric than computing-centric.”

This is just a hint, but it suggests that I.B.M. may think that racetrack memory could blur the line between storage and computing, providing a key to a new way to search for data, as well as store and retrieve data.

And if it is, Mr. Parkin’s experimental physics lab will have transformed the computing world yet again.


For the full story, see: 

JOHN MARKOFF.  “Redefining the Architecture of Memory.”  The New York Times   (Tues., September 11, 2007):  C1 & C8.

(Note:  ellipses added.)


     Of the two photos at the bottom of the entry, the first is of Stuart S. P. Parkin’s lab at I.B.M, and the second is of Parkin in the lab.  Source of photos:  online version of the NYT article quoted and cited above.


Study Finds Over a Third of Entrepreneurs Are Dyslexic

(p. C1) It has long been known that dyslexics are drawn to running their own businesses, where they can get around their weaknesses in reading and writing and play on their strengths. But a new study of entrepreneurs in the United States suggests that dyslexia is much more common among small-business owners than even the experts had thought.

The report, compiled by Julie Logan, a professor of entrepreneurship at the Cass Business School in London, found that more than a third of the entrepreneurs she had surveyed — 35 percent — identified themselves as dyslexic. The study also concluded that dyslexics were more likely than nondyslexics to delegate authority, to excel in oral communication and problem solving and were twice as likely to own two or more businesses.
“We found that dyslexics who succeed had overcome an awful lot in their lives by developing compensatory skills,” Professor Logan said in an interview. “If you tell your friends and acquaintances that you plan to start a business, you’ll hear over and over, ‘It won’t work. It can’t be done.’ But dyslexics are (p. C6) extraordinarily creative about maneuvering their way around problems.”
. . .
(p. C6) Much has been written about the link between dyslexia and entrepreneurial success. Fortune Magazine, for example, ran a cover story five years ago about dyslexic business leaders, including Richard Branson, founder of Virgin Atlantic Airways; Charles R. Schwab, founder of the discount brokerage firm that bears his name; John T. Chambers, chief executive of Cisco; and Paul Orfalea, founder of the Kinko’s copy chain.
Similarly, Rosalie P. Fink, a professor at Lesley College in Cambridge, Mass., wrote a paper in 1998 on 60 highly accomplished people with dyslexia.
But Professor Logan said hers was the first study that she knew of that tried to measure the percentage of entrepreneurs who have dyslexia. Carl Schramm, president of the Kauffman Foundation, which financed the research, agreed. He said the findings were surprising but, he said, there was no previous baseline to measure it against.

For the full story, see:
BRENT BOWERS. “Tracing Business Acumen to Dyslexia.” The New York Times (Thurs., December 6, 2007): C1 & C6.
(Note: ellipsis added.)