October 2008 – Page 3 – artdiamondblog.com

SNL CSPAN Pelosi, Frank Bailout Skit

Source: screen capture from the NBC video clip mentioned, and linked to below.

Most Saturday Night Live (SNL) skits support liberal causes and politicians, and are critical of those with sympathies for free markets.
There was a wonderful, rare exception aired as the second skit on the 10/04/08 show. The skit pokes fun at the Democrats for their responsibility in creating the mortgage meltdown crisis. Nancy Pelosi and Barney Frank are shown expressing sympathy for various miscreants who expect the taxpayer to bail them out of their financial responsibilites.
(An interesting sidenote is that NBC pulled the clip from their web site for a about a full day, even though they left up other clips from the same show. Some bloggers suggested that employees of NBC had political motivations for their act of quasi-censorshp.)

The skit was entitled “C-span Bailout” and as of 10/08/08, could be found at:
http://www.nbc.com/Saturday_Night_Live/video/clips/c-span-bailout/727521/

Steve Jobs Shows Schumpeter Was Wrong About Bureaucratization of the Entrepreneurial Function

“Steven P. Jobs during a conference in June in San Francisco.” Source of caption and photo: online version of the NYT article cited below.

Sometimes Schumpeter suggested that in mature capitalism, it would be possible for some aspects of entrepreneurship to be made routine enough to be performed by corporate bureaucracies.
The creative innovations of Steve Jobs, and the stock market reaction to rumors of his ill-health, illustrate that individual entrepreneurs still matter.

(p. B2) During Apple’s earnings conference call Monday, Chief Financial Officer Peter Oppenheimer declined to answer an analyst’s question about Mr. Jobs’s health, calling it “a private matter.” Apple’s demurral raised new concerns among investors, who have been worried about Mr. Jobs’s health since a 2004 bout with pancreatic cancer.

Their fears flared earlier this year, when Mr. Jobs appeared gaunt at a public appearance; the company at the time blamed “a common bug.” The fears were stoked anew this week with a report in the New York Post that the CEO is unwell. Now, said one Apple fund investor, “everyone’s worried.”
Apple shares fell as low as $146.53 earlier Tuesday following the company’s lackluster outlook for the current quarter. Some analysts suggested that concerns about Mr. Jobs’s health were also weighing on the stock, which closed at $162.02, down $4.27, in 4 p.m. Nasdaq Stock Market trading.
. . .
The dearth of information has led investors to do their own digging over the years. In 2004, one hedge fund hired private investigators to tail Mr. Jobs to hospital appointments in the hopes of figuring out how sick he was, said a portfolio manager at the fund. Eventually, he said, Mr. Jobs “seemed to catch on,” and became harder to track.
More recently, hedge-fund managers said Tuesday, fund managers have talked of asking doctors to closely analyze pictures of Mr. Jobs to monitor changes in his physical appearance, and have been talking about once again hiring investigators to find out Mr. Jobs’s prognosis.

For the full story, see:
BEN CHARNY and JUSTIN SCHECK. “Worries Over Jobs’s Health Weighs on the Stock.” The Wall Street Journal (Weds., July 23, 2008): B2.
(Note: ellipses added.)

Another relevant WSJ article is:
breakingviews.com. “GE Deal Is Looking Bright; Abu Dhabi Capital Accord Yields Potential Benefits For Both Participants; Boardroom Health.” The Wall Street Journal (Weds., July 23, 2008): C18.
(Note: The online version of the title of this second WSJ article is: “GE’s Imagination at Work Challenged at Home, Company Strikes Gusher With Abu Dhabi Linkup.” )

The NYT article is:
JOHN MARKOFF. “Talk of Chief’s Health Weighs on Apple’s Share Price.”
The New York Times (Weds., July 23, 2008): C5.

In fairness to Schumpeter, his position on this issue was frequently conflicted, as has been shown and discussed in:
Langlois, Richard N. “Schumpeter and the Obsolescence of the Entrepreneur.” Advances in Austrian Economics 6 (2003): 287-302.

Schumpeter Poem on People Wanting to Be in Control of Their Lives

A few lines from an unpublished Schumpeter poem (written September 6, 1941) that McCraw quotes at length:

(p. 400) To live the lives which are our own
To manage our affairs
That’s what the people wanted

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

The Fragility of Freedom

Source of book image on the left:
http://images.barnesandnoble.com/images/25780000/25788683.jpg
Source of book image on the right: http://www.churchillsociety.org/Churchill%20Book%20Discussion%20Group.htm

Several recent books support a common conclusion that freedom is fragile, and its preservation can sometimes depend on the courage of a few individuals. I recently heard discussions on C-SPAN of a couple of books (images above) on WW2 that emphasize this point. Hitler might very well have succeeded in the long-term conquest of continental Europe, and even Great Britain, if Churchill and a few others had not taken a stand.
Earlier, also on C-SPAN, I heard John Ferling make a similar point with regard to the American Revolution. (See the images of his two relevant books below.) Were it not for the actions of George Washington, and a few others, the revolution very well might have failed.
One can view this as a bad news, good news, story. In earlier entries on the blog, I have quoted articles suggesting that the French are especially bothered by how “precarious” life can be. Well, the bad news is, that on this, the French may be right.
But, on the other hand, the stories of Churchill, and Washington, also tell us that with some courage and determination and wisdom, individuals can sometimes make a big difference in how stories end. That is the good news.
(And yes, Nassim, luck matters too.)

Books referred to:
Ferling, John. Almost a Miracle: The American Victory in the War of Independence. New York: Oxford University Press, USA, 2007.
Ferling, John. A Leap in the Dark: The Struggle to Create the American Republic. 1st ed. New York: Oxford University Press, USA, 2003.
Lukacs, John R. Blood, Toil, Tears and Sweat: The Dire Warning: Churchill’s First Speech as Prime Minister. New York: Basic Books, 2008.
Olson, Lynne. Troublesome Young Men: The Rebels Who Brought Churchill to Power and Helped Save England. 1st ed. New York: Farrar, Straus and Giroux, 2007.

McCain Supports Construction of Nuclear Power Plants

“Sen. John McCain, center, visits the Enrico Fermi nuclear plant in Michigan. From left: shift manager Phil Skarbek, CEO Anthony Earley, Sen. Lindsey Graham, R-S.C., and Rep. Fred Upton, R-Mich.” Source of caption and photo: http://www.usatoday.com/news/politics/election2008/2008-08-05-mccain-nuclear_N.htm

I believe that the market is the most efficient institution for deciding the best mix of technologies for providing energy. But I am ‘pro-nuclear’ in the sense that the government should reduce past regulatory barriers, that have unjustifiably increased the cost of nuclear power relative to other energy technologies.

(p. A16) NEWPORT, Mich. — Senator John McCain toured a nuclear power plant in Michigan on Tuesday to highlight his support for the construction of 45 new nuclear power generators by 2030, a position that he said distinguished him from his Democratic rival, Senator Barack Obama.

Mr. McCain, an Arizona Republican, portrayed his support of nuclear energy as part of an “all-of-the-above approach” to addressing the nation’s energy needs at a time of $4-a-gallon gasoline. He called it “safe, efficient, inexpensive and obviously a vital ingredient in the future of the economy of our nation and in our mission to eliminate over time our dependence on foreign oil.”
“If we really want to enable new technologies tomorrow like plug-in electric cars, we need electricity to plug into,” he said in a statement after touring the Fermi 2 nuclear plant, its twin cooling towers spewing vapors used as a backdrop. “We need to do all this and more.”
. . .
But market conditions have improved as demand for power has risen and the price of natural gas, a competing fuel, has jumped. Lately some environmental groups that had been critical of nuclear power have embraced it, seeing the technology as a way to meet the nation’s growing energy demands without contributing more heat-trapping gases.
In addressing the nation’s energy demands, Mr. Obama has focused on alternative energy sources like wind and solar, as well as conservation, which would apparently also be the main beneficiaries of the decade-long $150 billion government investment effort he promises if elected. He barely mentions nuclear power, usually just alluding to it in a sentence here or there.

For the full story, see:

MARY ANN GIORDANO and LARRY ROHTER. “McCain at Nuclear Plant Highlights Energy Issue.” The New York Times (Weds., August 5, 2008): A16.
(Note: ellipsis added.)

Making a Profit Selling Solid Houses to Citizens of New Orleans

“The Everhouse.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A9) Tomorrow, tens of thousands of people who lost their homes in Hurricane Katrina and are still living in federally owned trailers will be forced to find a new place to live. After nearly three years, the federal government’s temporary housing is coming to an end.

These folks are not going to have an easy time of it, because affordable housing in the Gulf Coast region is scarce. The problem has persisted despite billions in government aid – and the efforts of large private developers – because of a shortage of skilled laborers and sky-high insurance rates.

Yet now there is hope, in the person of John Sawyer. Not only does this 64-year-old Bostonian believe he can build houses people can afford to buy and insure; he says they will withstand the next big storm. And, by the way, he intends to makes a tidy profit.
. . .
The dwellings will arrive in the form of kits that can be assembled in as little as 14 days. With walls of reinforced concrete, there isn’t much wood, and so mold won’t pose a major problem if the houses are ever flooded. They can “take a bath” as the locals say. Everhouses also cost $68 a square foot, less than half the going rate for affordable housing in New Orleans.

The upshot of the house’s durability and cost is that it’s easy to insure.

For the full commentary, see:
JAKE HALPERN. “A Market Solution to Hurricane Risk.” The Wall Street Journal (Sat., May 31, 2008): A9.
(Note: ellipsis added.)

McCraw on Communist Versus Capitalist Imperialism

From McCraw’s summary of an article entitled “The Function of Entrepreneurs and the Interest of the Worker” that Schumpeter published in 1927 in a labor magazine :

(p. 384) By the end of the war, every nation in Eastern Europe and most in Central Europe had fallen under the control of the Soviets. They stripped industrial machinery, works of art, gold, and other movable assets from many of those countries and shipped them all to Russia. The total amount stolen equaled in value the aid to Western Europe under the American-sponsored Marshall Plan, the largest foreign aid program in history.

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

Worst Hard Time

Source of book image: http://www.bookswim.com/images_books/large/The_Worst_Hard_Time_The_Untold_Story_of_Those_Who_Survived_the_Great_American_Dust_Bowl-119185970830588.jpg

Timothy Egan’s book presents an engrossing picture of what life was like in a particular time and place in U.S. history. The time is the 1920s and 1930s, and the place is the lower “high” plains, mainly of Oklahoma and Texas. Egan is a master of telling us meaningful stories about the goals and struggles of particular people, so that we care when the land blows away from them, and they suffer.
You will need, however, to look elsewhere for a deep understanding of the causes of what happened. Egan mainly aims at describing, not explaining. And when he explains, he mainly rounds up the usual suspects one would expect a New York Times reporter to round up (e.g., Herbert Hoover).
(For deeper and more illuminating explanations of what was going on during the worst of the period, you’d do better by consulting Amity Shlaes’s The Forgotten Man.)

References to books mentioned above:
Egan, Timothy. The Worst Hard Time: The Untold Story of Those Who Survived the Great American Dust Bowl. Boston: Houghton Mifflin, 2006.
Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.

Musings on the Financial Crisis and the Paulson Plan

A few people have asked me for my views on the current financial turmoil. Below, is an email that I sent this morning (10/1/08) to my brother Eric.

Hi Eric,
I’m with Abby in the ‘stewing’ department. I’m way conflicted.
On the one hand I believe that the least government is usually the best. On the other hand, I’ve read a couple of books recently about the Great Depression, and I’d rather keep that title in the “history” folder than in the “personal experience” folder.
I’m mad about the irresponsible home loans taken on by irresponsible consumers, and encouraged by irresponsible, and sometimes dishonest, mortgage pushers, and government and quasi-governmental agencies (aka Fannie Mae and Freddie Mac).
I’m also mad at investment bankers who created totally nontransparent securities based on these mortgages, garnering huge bonuses for themselves, without creating any value for consumers.
And I’m most mad that the fallout from this will almost certainly result in more government, and more taxes, that will reduce innovation, economic progress, and freedom.
In the long-run, I think we need to get the government out of the business of encouraging, and selling mortgage loans. And investment banks need to change the incentive structure for their high flyers, to make surer that they’re rewarding good judgment, rather than rewarding opacity and unjustified risk-taking.
But the short-run gives me trouble. I have no sympathy for the investment banks. They deserve to go down.
The problem is the claim that the investment banks are an integral part of the financial infrastructure of the country. If that is true, then letting them totally fail, will take down many firms and taxpayers, who had no responsibility for the problems.
One crucial question is whether in fact, letting the investment banks fail would result in systemic collapse of the financial infrastructure. And I do not know the answer. This is a difficult question, outside my area of specialization.
But in the Great Depression, something sort of like that happened. And historians/economists have blamed Mellon/Hoover for adopting a position something akin to what the rebel house Republicans are adopting.
I have never met Ben Bernanke, and have never read any of his articles. But my impression is that he is a conscientious, serious scholar, who is generally friendly to free markets, and whose main research focus was the economics of the Great Depression. So when he looks worried, and says that something major needs to be done, I give that credibility.
I don’t like growing the government in this way. But if we don’t act, and if the collapse comes, then the proposed growth in government in the Paulson proposal will look petty ante, compared to what will follow.
I believe the government should provide national defense, police and courts. On infrastructure I’ve always been conflicted. I think a lot of infrastructure can be usefully privatized, and when it can, I favor it (although when I’m talking to Mom, I try not to mention my admiration for Mitch Daniels ;).
On the other hand I usually don’t lose much sleep about government infrastructure like the Omaha streets and FDIC insurance.
It’s a stretch, but maybe you can kind of think of what they are proposing as an emergency extension of infrastructure?
I didn’t mean to write a long message. But I couldn’t think of a good short one.
Cheers,
Art