October 2010 – artdiamondblog.com

“Small-Business Marketplace at a Standstill”

“David Wetzel tried for two years to sell his New Jersey hardware store.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. B1) Small-business owners banking on a big payoff when they sell their establishments may have to settle for a lot less than planned.

A combination of tight credit, skittish buyers and business owners unwilling to sell at rock-bottom prices–factors similarly affecting home sellers–has left the small-business marketplace at a standstill.
. . .

(p. B4) “Owners still think their businesses are worth what they used to be,” says Thomas Coffey, a partner in Malvern, Pa., with B2BCFO, a provider of outsourced chief financial officers to small businesses. In reality, many “small companies just aren’t earning what they used to earn,” he says.

For the full story, see:
SARAH E. NEEDLEMAN. “Businesses Put Up for Sale Smack Into Harsh Reality.” The Wall Street Journal (Thurs., OCTOBER 14, 2010): B1 & B4.
(Note: ellipsis added.)

All He “Could See Was Cows and Farms” in “Virginia’s High Tech Corner”

(p. A18) . . . government attempts to rejuvenate regional economies have a mixed track record, in the U.K. and elsewhere.

Stuart S. Rosenthal, an economics professor at Syracuse University, remembers driving through Virginia in 1997 and seeing a sign saying, “You are entering southwest Virginia’s high tech corner.”
“And all I could see was cows and farms,” he said. Recent employment data shows that aside from one pocket, little has changed.

For the full story, see:
ALISTAIR MACDONALD. “U-Turn in the U.K.: Big Spending Cuts.” The Wall Street Journal (Fri., OCTOBER 15, 2010): A18.
(Note: ellipsis added.)
(Note: the online version of the article is dated October 14, 2010.)

History Forgets Those Who Leave Little Paper Trail

Source of book image: online version of the WSJ review quoted and cited below.

Like most of his fellow students, Barry stayed on just long enough get a grasp on the three Rs without abandoning his Catholic faith. One result of this abbreviated education was a lifelong tendency to keep all correspondence as short and simple as possible. Thus this brave, able man of action left only a minimal paper trail for future historians and biographers. John Paul Jones–an eloquent, prolific and unabashedly self-promoting letter writer–has inspired at least three major biographies in the past few years alone. It has been 72 years since the appearance of the last reliable biography of his rival, William Bell Clark’s “Gallant John Barry.”

For the full review, see:
ARAM BAKSHIAN JR.. “BOOKSHELF; The Revolutionary War’s Other Naval Hero.” The New York Times (Sat., JUNE 5, 2010).

The book under review is:
McGrath, Tim. John Barry: An American Hero in the Age of Sail. Yardley, PA: Westholme Publishing, 2010.

Home Depot Co-Founder Asks Obama to Stop Blocking Startups

Below I quote from the comments that Home Depot co-founder Ken Langone addressed to President Obama:

(p. A21) A little more than 30 years ago, Bernie Marcus, Arthur Blank, Pat Farrah and I got together and founded The Home Depot. Our dream was to create (memo to DNC activists: that’s build, not take or coerce) a new kind of home-improvement center catering to do-it-yourselfers. The concept was to have a wide assortment, a high level of service, and the lowest pricing possible.

We opened the front door in 1979, also a time of severe economic slowdown. Yet today, Home Depot is staffed by more than 325,000 dedicated, well-trained, and highly motivated people offering outstanding service and knowledge to millions of consumers.
If we tried to start Home Depot today, under the kind of onerous regulatory controls that you have advocated, it’s a stone cold certainty that our business would never get off the ground, much less thrive. Rules against providing stock options would have prevented us from incentivizing worthy employees in the start-up phase–never mind the incredibly high cost of regulatory compliance overall and mandatory health insurance. Still worse are the ever-rapacious trial lawyers.
Meantime, you seem obsessed with repealing tax cuts for “millionaires and billionaires.” Contrary to what you might assume, I didn’t start with any advantages and neither did most of the successful people I know. I am the grandson of immigrants who came to this country seeking basic economic and personal liberty. My parents worked tirelessly to build on that opportunity. My first job was as a day laborer on the construction of the Long Island Expressway more than 50 years ago. The wealth that was created by my investments wasn’t put into a giant swimming pool as so many elected demagogues seem to imagine. Instead it benefitted our employees, their families and our community at large.

For the full commentary, see:
KEN LANGONE. “Stop Bashing Business, Mr. President; If we tried to start The Home Depot today, it’s a stone cold certainty that it would never have gotten off the ground.” The Wall Street Journal (Fri., OCTOBER 15, 2010): A21.

Manuel “Muso” Ayau, RIP

Manuel “Muso” Ayau. Source of image: online version of the WSJ article quoted and cited below.

(p. A21) Lago Amatitlán, Guatemala

High on a hill overlooking this picturesque volcanic lake, Manuel “Muso” Ayau–arguably Latin America’s most influential champion of liberty in the second half of the 20th century–was laid to rest last month.
. . .
Ayau and his colleagues read voraciously and debated vociferously. “All of us were self-taught in these subjects, which would come to absorb much of our time,” he recalled. Over the next half century CEES would publish over 900 pamphlets in defense of the market. Ayau’s many contributions (98) had titles like “On the Morality of Government,” “Planning: Rational or Absurd,” and “Robinson and Friday Invent the Common Market.” In October 1978 he wrote an essay in a CEES pamphlet called “Price Controls,” while Milton Friedman penned “In Defense of Dumping” in the same publication.
Those pamphlets went all over the region. Peruvian Enrique Ghersi, one of the co-authors of the 1986 best-seller “The Other Path,” says that one called “Ten Lessons for Underdevelopment” was “key to awakening in me the vocation and commitment to defend liberty.” CEES brought to Guatemala such intellectual giants as Ludwig von Mises (1964), Friedrich Hayek (1965) and Ludwig Erhard (1968).

For the full commentary, see:
MARY ANASTASIA O’GRADY. “Manuel Ayau: Champion of Liberty; He opened Latin America’s eyes to the true source of prosperity.” The Wall Street Journal (Mon., SEPTEMBER 20, 2010): A21.
(Note: italics in original; ellipsis added.)
(Note: the online version of the article is dated SEPTEMBER 19, 2010.)

On the left is a photo autographed by Ayau and Hayek. On the right is a bust of Hayek. Source of photo: taken by Art Diamond on April 4, 2009 at the APEE meetings held at Francisco Marroquín University (UFM) in Guatemala City.

Stimulus Money Sent to the Jailed and the Dead

(p. A8) The Social Security Administration sent about 89,000 stimulus payments of $250 each to dead and incarcerated people–but almost half of them were returned, a new inspector-general’s report found.
. . .
. . . 17,000 payments went to recipients who were in prison at the time the payment was made in May 2009. However, not all of those payments were necessarily against the letter of the law. While lawmakers intended to prevent payments to people in prison, the law included only a provision prohibiting payments to people incarcerated in the three months before the plan was passed–from November 2008 through January 2009.
. . .
. . . : The SSA says that the stimulus package didn’t include a provision allowing it to try to retrieve funds that were mistakenly sent out, so it can’t try to retrieve the rest of the money. Money transferred electronically may be sitting untouched in bank accounts of dead people.
The combined total of the mistaken payments is $22.3 million. About $12 million hasn’t been returned.

For the full story, see:

LOUISE RADNOFSKY. “Stimulus Checks Sent to Dead, Incarcerated.” The Wall Street Journal (Fri., OCTOBER 8, 2010): A8.
(Note: ellipses added.)
(Note: the online version of the article was dated OCTOBER 7, 2010.)

Entrepreneurial Improvisation is Like “Jumping Rock to Rock Up a Stream”

“Crossing the Sulphurous River.” Source of caption and photo: http://www.flickr.com/photos/33506763@N00/211985842#/photos/sparlingo/211985842/lightbox/

In The Venturesome Economy book, and later (pp. 129 and 142) in the book quoted below, Bhidé describes the entrepreneur’s decision process as “improvisation.”

(p. 18) Entrepreneurs who start uncertain businesses with limited funds have little reason to devote much effort to prior planning and research. They cannot afford to spend much time or money on the research; the modest likely profit doesn’t merit much; and the high uncertainty of the business limits its value.

Sketchy planning and high uncertainty require entrepreneurs to adapt to many unanticipated problems and opportunities. One entrepreneur likens the process of starting a new business to jumping from rock to rock up a stream rather than constructing the Golden Gate Bridge from a detailed blueprint. Often, to borrow a term from Elster’s discussion of biological evolution, entrepreneurs adapt to unexpected circumstances in an “opportunistic” fashion: Their response derives from a spur-of-the- moment calculation made to maximize immediate cash flow. Capital-constrained entrepreneurs cannot afford to sacrifice short-term cash for long-term profits. They have to play rapid-fire pinball rather than a strategic game of chess.

Source:
Bhidé, Amar. The Origin and Evolution of New Businesses. Oxford and New York: Oxford University Press, 2000.
[Note to self: the search phrase “jumping rock stream” seems most productive of relevant images]

“Chris and Andrea Jumping from Rock to Rock Up a Stream.” Source of caption and photo: http://picasaweb.google.com/lh/photo/Q-FvMT8GFG7kZdvUm8d_Jw

“Girl (10-12) jumping on rocks in river.” Source of caption and photo: http://cache4.asset-cache.net/xc/200447463-001.jpg?v=1&c=NewsMaker&k=2&d=B3B7071D257FC0393BFC8E309AE4811E35B7CE0CF91BE8709437A3EAE6A5D3E800123AA3B5A18ED0

Wilderness Act Makes Wilderness Inaccessible and Dangerous

(p. A19) ONE day in early 1970, a cross-country skier got lost along the 46-mile Kekekabic Trail, which winds through the Boundary Waters Canoe Area Wilderness in northern Minnesota. Unable to make his way out, he died of exposure.

In response, the Forest Service installed markers along the trail. But when, years later, it became time to replace them, the agency refused, claiming that the 1964 Wilderness Act banned signage in the nation’s wilderness areas.
. . .
Over the decades an obvious contradiction has emerged between preservation and access. As the Forest Service, the National Park Service and the Bureau of Land Management — each of which claims jurisdiction over different wilderness areas — adopted stricter interpretations of the act, they forbade signs, baby strollers, certain climbing tools and carts that hunters use to carry game.
As a result, the agencies have made these supposedly open recreational areas inaccessible and even dangerous, putting themselves in opposition to healthy and environmentally sound human-powered activities, the very thing Congress intended the Wilderness Act to promote.

For the full commentary, see:

TED STROLL. “Aw, Wilderness!.” The New York Times (Fri., August 27, 2010): A19.
(Note: ellipsis added.)
(Note: the online version of the article was dated August 26, 2010.)

Arne Duncan on “Waiting for Superman” and Teachers’ Unions

Arne Duncan. Source of photo: online version of the NYT article quoted and cited below.

(p. 26) Have you seen the new film “Waiting for Superman,” a documentary opening this week that makes public education in this country seem totally dysfunctional?
I did. I think it’s going to help the country to understand the tremendous sense of urgency that I feel. We have parents who know their child is getting a subpar education. That is devastating to them and ultimately it’s devastating to our country.
The film blames teachers’ unions for the failure of public schools because the unions have made it almost impossible to fire lazy teachers. Are you against teachers’ unions?
Of course not. I’m a big fan of Randi’s.

Randi Weingarten, of the American Federation of Teachers? The film depicts her as a villain.
I think Randi is providing some courageous leadership and is actually taking some heat internally in the union because she said publicly that the union shouldn’t be protecting bad teachers.

For the full interview, see:
DEBORAH SOLOMON. “Questions for Arne Duncan; The School of Hard Drives.” The New York Times, Magazine Section (Sun., September 17, 2010): 26.
(Note: the online version of the article is dated September 16, 2010.)

Competitors Have “Incentive to Misuse the Government to Obtain an Advantage”

(p. A15) Today’s technology behemoth risks becoming tomorrow’s dinosaur, and competitors sometimes plead for government intervention to obtain what they fail to achieve in the market. As a former head of a competition agency, I offer . . . principles to guide competition policy toward successful innovators.

. . . , be wary of competitor complaints. When a competitor tells government that its rival acts unfairly, the complaint should be viewed with great suspicion. Competitor complaints are driving recent EU investigations into companies that include Qualcomm, Google, Oracle and IBM. Competitors can provide valuable information about marketplace realities, but they have every incentive to misuse the government to obtain an advantage that is otherwise unattainable.
. . .
. . . , don’t create disincentives for innovation. Complaining competitors often want innovators to be forced to share the source of their success, regardless of intellectual property rights. Nothing could be more destructive to the incentives for future innovation than rules that prevent innovators from reaping the full benefits of their work. As a unanimous U.S. Supreme Court said in its 2004 Verizon v. Trinko decision, “[f]irms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers.”

For the full commentary, see:
TIMOTHY J. MURIS. “Antitrust in a High-Tech World; The first rule of regulators should be to be wary of complaints from competitors..” The Wall Street Journal (Tues., August 12, 2010): A15.
(Note: ellipses added.)

Joe Ricketts Stands Tall Against Earmarks

Entrepreneur Joe Ricketts. Source of photo: online version of the Omaha World-Herald article quoted and cited below.

I used to teach an Economics of Technology course in the UNO EMBA program (until a curriculum committee axed the course). As a long-shot I once invited Joe Ricketts to speak to the class. I was surprised that he accepted, and maybe also surprised that he clearly invested some time and thought in his presentation. The class was riveted not only by the story of his own entrepreneurial challenges, but also of his views of the policy issues of the day. I remember his good-natured persistence in arguing with one student who challenged him on his view of the importance of tort-reform.
From his manner, and some of the stories he told, he seemed to be the sort of entrepreneur who exemplified George Gilder’s view that great entrepreneurs have a kind of humility that leaves them open to learning, at least in key areas related to their business goals. By all accounts, Sam Walton was another example. And I heard Charles Koch speak this summer and saw him interact with some of his executives; he also gave the impression of being down-to-earth, and open to learning.
(Of course, then there’s Steve Jobs and Larry Ellison—generalizations on entrepreneurship are hard to come by!)
Ricketts and Koch also share another trait—this one too rare among successful entrepreneurs. They are both willing to invest a considerable part of their hard-earned wealth in order to preserve and protect the institutions of limited government that will make it possible for future entrepreneurs to succeed. In Ricketts’ case, for example:

(p. 7A) WASHINGTON — Joe Ricketts wants to bring down at least one Capitol Hill lawmaker who seeks earmarks so he can get the rest of Congress’ attention.

The founder and former CEO of what is now TD Ameritrade has started a new organization called Taxpayers Against Earmarks, which will seek to highlight what he describes as the evils of legislators setting aside money for pet projects back home.
. . .
Ricketts said that while some earmarks support worthy projects, he is against them all because the process is flawed. He compared those who support earmarks to addicts and criminals.
“I’m sure that all over the country there are people that like earmarks and people come to defend earmarks, and those are the people that are on the dope,” he said.
Ricketts said those who seek earmarks are asking legislators to spend other people’s money for their purposes.
“That’s theft,” he said. “As Tom Coburn says, that’s intergenerational theft. So those people that like earmarks, you can consider thieves.”
. . .
Ricketts said . . . the process encourages lawmakers to throw their support behind other spending bills to gain other lawmakers’ support for their earmarks.
“A lot of elected officials like the earmarks, but they’ve never had anybody like me or anybody else push back. … So now the scales are going to balance a little bit,” he said. “I’m going to spend as many years and as many dollars as it takes to be successful.”

For the full story, see:
Joseph Morton. “Joe Ricketts Will Put Up Big Bucks to Fight Earmarks.” Omaha World-Herald (Friday, October 1, 2010): 7A.
(Note: all ellipses added, except for the last one which was in the original.)
(Note: the online version of the article has the title “Joe Ricketts will help fight earmarks.”)