August 2008 – Page 2 – artdiamondblog.com

FDR Turned Schumpeter into a Fan of Ludwig von Mises

From McCraw writing about Schumpeter:

(pp. 318-319) The New Deal struck him as still another prelude to authoritarianism. He became convinced that Roosevelt’s program represented a step toward either fascism or socialism, and in either case potential dictatorship. He wrote a friend that Roosevelt was like a child mindlessly breaking a machine because he didn’t understand its design. The president “is going to turn me into a fan of [Ludwig von] Mises,” his classmate at the University of Vienna who had become a free-market fundamentalist and an opponent of almost all government intervention.

Source:
McCraw, Thomas K. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Cambridge, Mass.: Belknap Press, 2007.

“The Low Prices Today Seem Almost Ridiculous”

In 2008 dollars, a basic Brooks Brothers suit cost $788 in 1998 and costs $598 in 2008. Source of photo: online version of the NYT article quoted and cited below.

(p. E1) As luxury fashion has become more expensive, mainstream apparel has become markedly less so. Today, shoppers pay the same price for a basic Brooks Brothers men’s suit, $598, as they did in 1998. The suggested retail price of a pair of Levi’s 501 jeans, $46, is about $4 less than it was a decade ago. A three-pack of Calvin Klein men’s briefs costs $21.50, only $3.50 more than in 1998. Which is the better buy?
Factoring for inflation, each of these examples is actually less expensive today. In current dollars, the 1998 suit would cost $788, the jeans would be $66 and the underwear would be nearly $24.
. . .
(p. E9) Anyone who has spent time walking along 34th Street in Manhattan recently, from Kmart to Macy’s to Forever 21 and H&M, would think that the economic outlook is rosy. Shoppers there are still laden with bags from Payless and Victoria’s Secret, and several said they perceived fashion to be a better buy, with more variety and style at lower prices, than a decade ago.
“You can buy a lot more with your money today than before,” said Joanna Eliza, a recent graduate from the Fashion Institute of Technology, shopping on 34th Street on Tuesday. “Stores like H&M and Forever 21 make it more affordable for people who want to be fashionable, and that makes me feel really good.”
Over all, apparel prices have gone down primarily because of two factors: the overwhelming movement of manufacturing to countries with cheaper labor, where the clothes are made, and increased competition between traditional retailers and discounters, where the clothes are sold.
In some cases, the low prices today seem almost ridiculous. Steve & Barry’s sells celebrity-branded shoes and dresses for $8.98 or less. Target offers a silk faille ball gown from Isaac Mizrahi on sale for $129.99. Wal-Mart, the nation’s largest retailer, promotes an Op T-shirt for 97 cents.

For the full story, see:
ERIC WILSON. “Dress for Less and Less.” The New York Times (Thurs., May 29, 2008): E1 & E9.
(Note: ellipsis added.)

Bad Guys Might Think Twice, If More Good Guys Had Guns

“State Senator Karen S. Johnson of Arizona is the sponsor of a bill permitting firearms on campuses.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A10) PHOENIX — Horrified by recent campus shootings, a state lawmaker here has come up with a proposal in keeping with the Taurus .22-caliber pistol tucked in her purse: Get more guns on campus.
The lawmaker, State Senator Karen S. Johnson, has sponsored a bill, which the Senate Judiciary Committee approved last week, that would allow people with a concealed weapons permit — limited to those 21 and older here — to carry their firearms at public colleges and universities. Concealed weapons are generally not permitted at most public establishments, including colleges.
Ms. Johnson, a Republican from Mesa, said she believed that the recent carnage at Northern Illinois University could have been prevented or limited if an armed student or professor had intercepted the gunman. The police, she said, respond too slowly to such incidents and, besides, who better than the people staring down the barrel to take action?

For the full story, see:

RANDAL C. ARCHIBOLD. “Arizona Weighs Bill to Allow Guns on Campuses.” The New York Times (Weds., March 5, 2008): A10.

Post Office Wastes Money on 30,000 Ethanol Capable Vehicles

“A General Motors Corp. Chevrolet Uplander flexible fuel vehicle customized for the U.S. Postal Service (USPS) is shown in this handout photo taken on April 22, 2008. The USPS bought more than 30,000 ethanol-capable trucks and minivans from 1999 to 2005, making it the biggest American buyer of alternative-fuel vehicles.” Source of caption and photo: Bloomberg.com article quoted and cited below.

I saw a great CNN video clip on 8/11/08 showing some of the specially designed Post Office vehicles that were expensive, but that were mainly running on regular gasoline because it was too difficult to fill them with the high-ethanol blend that they were converted to use.
Before I finally found the clip on CNNMoney.com, by searching for it using the TRUVEO video search engine, I discovered that a version of the story had run back in May on Bloomberg.com. I quote from the story below.

May 21 (Bloomberg) — The U.S. Postal Service purchased more than 30,000 ethanol-capable trucks and minivans from 1999 to 2005, making it the biggest American buyer of alternative-fuel vehicles. Gasoline consumption jumped by more than 1.5 million gallons as a result.
The trucks, derived from Ford Motor Co.’s Explorer sport- utility vehicle, had bigger engines than Jeeps from the former Chrysler Corp. they replaced. A Postal Service study found the new vehicles got as much as 29 percent fewer miles to the gallon. Mail carriers used the corn-based fuel in just 1,000 of them because there weren’t enough places to buy it.

For the full story, see:
Peter Robison, Alan Ohnsman and Alan Bjerga. “Ethanol Vehicles for Post Office Burn More Gas, Get Fewer Miles.” Last Updated: May 21, 2008 00:01 EDT Downloaded on August 8, 2008 from:
http://www.bloomberg.com/apps/news?pid=20601072&refer=energy&sid=aj.h0coJSkpw

On the CNN Money video clip:
Jason Carroll was the reporter on the CNN Money clip that was added to CNNMoney.com on August 12, 2008, under the title “Snail Mail by Ethanol,” and is viewable at http://money.cnn.com/video/#/video/news/2008/08/12/news.usps.081108.cnnmoney

Reporter Jason Carroll talks with mail carrier Richard Malik, who says he has never used ethanol in his expensive mail truck that had been specially designed to use ethanol. Source of photo: screen capture from the CNN Money video clip discussed above.

Schumpeter on the Government Execution of an Entrepreneur

(p. 257) Entrenched interests fought tenaciously against mechanization and the factory system. Unlike the Prussian inventor of a ribbon-weaving loom, who was put to death in 1579 by order of the Danzig Municipal authority, “Entrepreneurs were not necessarily strangled,” but “they were not infrequently in danger of their lives.”

Source:
McCraw, Thomas K. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Cambridge, Mass.: Belknap Press, 2007.
(Note: the phrases in quotation marks are quotations from Schumpeter’s Business Cycles book.)

How to Save a Species by Eating It

Source of book image:
http://ecx.images-amazon.com/images/I/61cDbDl665L._SS500_.jpg

(p. D1) SOME people would just as soon ignore the culinary potential of the Carolina flying squirrel or the Waldoboro green neck rutabaga. To them, the creamy Hutterite soup bean is too obscure and the Tennessee fainting goat, which keels over when startled, sounds more like a sideshow act than the centerpiece of a barbecue.
But not Gary Paul Nabhan. He has spent most of the past four years compiling a list of endangered plants and animals that were once fairly commonplace in American kitchens but are now threatened, endangered or essentially extinct in the marketplace. He has set out to save them, which often involves urging people to eat them.
Mr. Nabhan’s list, 1,080 items and growing, forms the basis of his new book, an engaging journey through the nooks and crannies of American culinary history titled “Renewing America’s Food Traditions: Saving and Savoring the Continent’s Most Endangered Foods” (Chelsea Green Publishing, $35).
. . .
(p. C5) Some of the items on the list, like Ojai pixie tangerines and Sonoma County Gravenstein apples, were well on their way back before Mr. Nabhan came along. But other foods are enjoying a renaissance largely as a result of the coalition’s work.
The Makah ozette potato, a nutty fingerling with such a rich, creamy texture that it needs only a whisper of oil, is one of the success stories. It is named after the Makah Indians, who live at the northwest tip of Washington state and have been growing the potatoes for more than 200 years.
The Seattle chapters of Slow Food and the Chefs Collaborative adopted the rare potato. In 2006, Slow Food passed out seed potatoes to a handful of local farmers and gardeners, and chefs like Seth Caswell at the Stumbling Goat Bistro in Seattle began putting them on the menu.
Mr. Caswell says they are delicious roasted with a little hazelnut oil for salads or cut into wedges to go with burgers made with wagyu beef and Washington State black truffle oil.
There have been other revivals, the moon and stars watermelon and the tepary bean among them. The effort to reintroduce heritage turkeys to the American table was a precursor to the work of Mr. Nabhan and his collaborators.
The meaty Buckeye chicken, with its long legs suitable for ranging around, is considered one of five most endangered chicken breeds. Last year over 1,000 chicks were hatched and delivered to breeders, Mr. Nabhan said.
Justin Pitts, whose family has raised Pineywoods cattle in southern Mississippi for generations, credits the coalition with saving those animals. The small, lean cattle that provide milk, meat and labor spent centuries adapting to the pine barrens of the deep south, raised by families who can trace their herds back as far as anyone can remember. There are less than a dozen of those families left, and at one point the number of pure Pineywoods breeding animals fell to under 200. In the past few years, it has grown to nearly 1,000.
Mr. Pitts, who has “90 head if I can find them all,” sells New York strips and other cuts at the New Orleans farmers’ market and to chefs.
“I can’t raise cattle fast as they eat them,” he said.
He supports the notion that you’ve got to eat something to save it.
“If you’re keeping them for a museum piece,” he said, “you’ve just signed their death warrant.”

For the full story, see:
KIM SEVERSON. “An Unlikely Way to Save a Species: Serve It for Dinner.” The New York Times (Weds., April 30, 2008): D1 & D5.
(Note: ellipses added.)

Reference to book:
Nabhan, Gary Paul. Renewing America’s Food Traditions: Saving and Savoring the Continent’s Most Endangered Foods. White River Junction, VT: Chelsea Green Publishing Company, 2008.

Moon and stars watermelon. Source of image: http://bp0.blogger.com/_Tyq14YRMHCI/SBlWLE9tynI/AAAAAAAAAD8/gphhc3wgK-4/s1600/purplewatermelon266.jpg

Obama Beholden to Ethanol Special Interest Groups

“Senator Barack Obama last July in Adel, Iowa. His strong support of ethanol helped propel him to his first caucus victory there.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A1) When VeraSun Energy inaugurated a new ethanol processing plant last summer in Charles City, Iowa, some of that industry’s most prominent boosters showed up. Leaders of the National Corn Growers Association and the Renewable Fuels Association, for instance, came to help cut the ribbon — and so did Senator Barack Obama.

Then running far behind Senator Hillary Rodham Clinton in name recognition and in the polls, Mr. Obama was in the midst of a campaign swing through the state where he would eventually register his first caucus victory. And as befits a senator from Illinois, the country’s second largest corn-producing state, he delivered a ringing endorsement of ethanol as an alternative fuel.
Mr. Obama is running as a reformer who is seeking to reduce the influence of special interests. But like any other politician, he has powerful constituencies that help shape his views. And when it comes to domestic ethanol, almost all of which is made from corn, he also has advisers and prominent supporters with close ties to the industry at a time when energy policy is a point of sharp contrast between the parties and their presidential candidates.
. . .
(p. A19) Many economists, consumer advocates, environmental experts and tax groups have been critical of corn ethanol programs as a boondoggle that benefits agribusiness conglomerates more than small farmers. Those complaints have intensified recently as corn prices have risen sharply in tandem with oil prices and corn normally used for food stock has been diverted to ethanol production.

For the full story, see:
LARRY ROHTER. “Obama Camp Closely Linked With Ethanol.” The New York Times (Mon., June 23, 2008): A1 & A19.
(Note: ellipsis added.)

High Prices Provide Incentive to Innovate

“A Monsanto researcher, Mohammadreza Ghaffarzadeh, monitored drought-resistant corn technology in Davis, Calif.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 4) CORN prices are at record high levels. Costs for other agricultural essentials, from wheat to coffee to rice, have surged, too. And many people are stunned, even frightened, by all the increases.
But some entrepreneurs and analysts — recognizing that relative price increases in specific goods always encourage innovators to find ways around the problem — say they see an opportunity for creative solutions.
“When something becomes dear, you invent around it as much as you can,” says David Warsh, editor of Economicprincipals.com, a newsletter on trends in economic thinking.
Joel Mokyr, an economic historian at Northwestern University, adds, “All of a sudden, some things that didn’t look profitable now do.”
. . .
A study in the 1950s by the economist Zvi Griliches of American farmers’ adoption of more productive varieties of corn showed how higher prices reduced the cost of adopting new technologies.
. . .
Ultimately, higher food prices give innovators room to cover the cost of protecting human health. But prices are a democratic signal: when all innovators see them, their ability to sneak up on an opportunity, while others nap, vanishes.
“The bigger the prize people are chasing, the more people go after it,” says Paul Romer, a theorist on sources of economic growth. “As people pile into an area, the expected return to any one innovator goes down.”
Yet, fortunately, the return to society goes up.

For the full commentary, see:

G. PASCAL ZACHARY. “Ping; A Brighter Side of High Prices.” The New York Times, SundayBusiness Section (Sun., May 18, 2008): 4.
(Note: ellipses added.)
For more on Zvi Griliches’s contributions to the economics of innovation, see:
Diamond, Arthur M., Jr. “Zvi Griliches’s Contributions to the Economics of Technology and Growth.” Economics of Innovation and New Technology 13, no. 4 (June 2004): 365-397.

Schumpeter on Fools, Asses, and Academic Committees

(p. 225) The longer Schumpeter taught at Harvard, the more he came to resent the bureaucratic routines of academic life that impinged on his research and writing. He especially disliked departmental meetings, and after several years he began to refer to his colleagues as the “fools” (full professors, a play on the German pronunciation of “full”) and “asses” (associate and assistant professors). “These committees!” he wrote a friend, “This mentality, that believes that the core of the world is that one committee dines and makes a report for another committee, which in turn dines.”

Source:
McCraw, Thomas K. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Cambridge, Mass.: Belknap Press, 2007.

Soros Warns Against Too Much Creative Destruction

Investor George Soros as the boy who cried “wolf” one time too often. Source of Soros caricature: online version of the WSJ article quoted and cited below.

I have mixed feelings about George Soros. He likes Karl Popper, and I like Karl Popper. He donated a bunch of money to help worthy scholars in Eastern Europe, and financed a conference in Romania on private philanthropy, at which I gave a presentation.
On the other hand, he has also given a bunch of money to politicians who oppose economic freedom. And I think the high level of government regulation he favors would greatly reduce innovation.

(p. B2) WSJ: Are you getting recognition from heavyweights in academia or policy making?
Mr. Soros: It has certainly not penetrated academia, and not policy makers either. There was an article in The Wall Street Journal about people doing research on bubbles at Princeton, so I’m going to meet with one of them. I wish I could engage in a discussion with [the Federal Reserve]. I’m waiting for a phone call. I’m [meeting with] Alan Greenspan.
WSJ: But you are quite critical of Greenspan.
Mr. Soros: Greenspan is one of the great manipulators of financial markets. I mean it in a good way. He managed [in 2001] to forestall a more serious recession. He kept interest rates [low] too long. And he did not heed the warnings that lending standards were being lowered, that deceptive practices were being used. He was too much of a market fundamentalist. He believed that if you leave it to markets, everything will be all right. That’s initially self-reinforcing, but eventually self-defeating.
WSJ: Greenspan argues that the benefits of innovation are worth the occasional bubble.
Mr. Soros: This is, of course, [Joseph] Schumpeter’s creative destruction idea. However … going overboard in generating change is not necessarily a good thing. Financial innovation may not be an unmixed blessing because it really prevents proper regulation.
If you look at the 19th century, you had creative destruction going on, one financial crisis after another. But each time you had a crisis, you had an examination of what went wrong, and you put in some instrument or some institution to prevent it from happening.
I’m not advocating … central planning because that’s worse than markets. But the regulators need to learn from the mistakes that they have made. I think it’s pretty clear that you’ve got to accept responsibility for moderating asset bubbles. … That involves regulating credit as well as [interest rates].

For the full story, see:
GREG IP. “Soros, the Man Who Cries Wolf, Now Is Warning of a ‘Superbubble’.” The Wall Street Journal (Sat., June 21, 2008): B1-B2.
(Note: brackets and ellipses in original.)
(Note: I am grateful to Jamie McDonald for calling this article to my attention.)

“We Educate Them and Then Tell them to Go Home”

(p. C3) The United States may be synonymous with the high-tech revolution, but it is in danger of losing its high-tech edge, according to Cybercities 2008, a report released Tuesday by AeA, a technology industry trade association.
Because the federal government does not issue a sufficient number of green cards or work visas to talented foreign students studying here, there are a “tremendous number of unfilled jobs,” said Christopher Hansen, AeA’s chief executive.
“We educate them and then tell them to go home. This is absurd,” said Mr. Hansen, whose group has lobbied to increase the number of visas for foreign technology industry workers.

For the full story, see:
ERIC A. TAUB. “U.S. High Tech Said to Slip.” The New York Times (Weds., June 25, 2008): C3.