February 2011 – Page 2 – artdiamondblog.com

Insider Training Increases the Efficiency of Markets

(p. W2) As argued forcefully by Henry Manne in his 1966 book “Insider Trading and the Stock Market,” prohibitions on insider trading prevent asset prices from adjusting in this way. Mr. Manne, dean emeritus at George Mason University School of Law, pointed out that when insiders trade on their nonpublic, nonproprietary information, they cause asset prices to reflect that information sooner than otherwise and therefore prompt other market participants to make better decisions.

This achievement can have ramifications beyond a few percentage-point increases in productivity growth.
According to Mr. Manne, corporate scandals such as Enron and Global Crossing would occur much less frequently and impose fewer costs if the government didn’t prohibit insider trading. As Mr. Manne said a few years ago in a radio interview, “I don’t think the scandals would ever have erupted if we had allowed insider trading because there would be plenty of people in those companies who would know exactly what was going on, and who couldn’t resist the temptation to get rich by trading on the information, and the stock market would have reflected those problems months and months earlier than they did under this cockamamie regulatory system we have.”
Another potential benefit of lifting the ban on insider trading is explained by Harvard University economist Jeffrey Miron: “In a world with no ban, small investors might fear to trade individual stocks and would face a greater incentive to diversify; that is also a good thing.”

For the full commentary, see:
DONALD J. BOUDREAUX. “Learning to Love Insider Trading; Here’s a hot tip: Want to keep companies honest, make the markets work more efficiently and encourage investors to diversify? Let insiders buy and sell, argues Donald J. Boudreaux.” The Wall Street Journal (Sat., OCTOBER 24, 2009): W1-W2.

The book mentioned is:
Manne, Henry. Insider Trading and the Stock Market. New York: The Free Press, 1966.

UFT “Trying to Deny Poor Parents Choice for Their Children”

Madeleine Sackler. Source of image: online version of the WSJ article quoted and cited below.

(p. A13) ‘What’s funny,” says Madeleine Sackler, “is that I’m not really a political person.” Yet the petite 27-year-old is the force behind “The Lottery”–an explosive new documentary about the battle over the future of public education opening nationwide this Tuesday.

In the spring of 2008, Ms. Sackler, then a freelance film editor, caught a segment on the local news about New York’s biggest lottery. It wasn’t the Powerball. It was a chance for 475 lucky kids to get into one of the city’s best charter schools (publicly funded schools that aren’t subject to union rules).

“I was blown away by the number of parents that were there,” Ms. Sackler tells me over coffee on Manhattan’s Upper West Side, recalling the thousands of people packed into the Harlem Armory that day for the drawing. “I wanted to know why so many parents were entering their kids into the lottery and what it would mean for them.” And so Ms. Sackler did what any aspiring filmmaker would do: She grabbed her camera.
. . .
But on the way to making the film she imagined, she “stumbled on this political mayhem–really like a turf war about the future of public education.” Or more accurately, she happened upon a raucous protest outside of a failing public school in which Harlem Success, already filled to capacity, had requested space.
“We drove by that protest,” Ms. Sackler recalls. “We were on our way to another interview and we jumped out of the van and started filming.” There she discovered that the majority of those protesting the proliferation of charter schools were not even from the neighborhood. They’d come from the Bronx and Queens.
“They all said ‘We’re not allowed to talk to you. We’re just here to support the parents.'” But there were only two parents there, says Ms. Sackler, and both were members of Acorn. And so, “after not a lot of digging,” she discovered that the United Federation of Teachers (UFT) had paid Acorn, the controversial community organizing group, “half a million dollars for the year.” (It cost less to make the film.)
Finding out that the teachers union had hired a rent-a-mob to protest on its behalf was “the turn for us in the process.” That story–of self-interested adults trying to deny poor parents choice for their children–provided an answer to Ms. Sackler’s fundamental question: “If there are these high-performing schools that are closing the achievement gap, why aren’t there more of them?”

For the full interview, see:
BARI WEISS. “THE WEEKEND INTERVIEW; Storming the School Barricades; A new documentary by a 27-year-old filmmaker could change the national debate about public education.” The Wall Street Journal (Sat., JUNE 5, 2010): A13.
(Note: ellipsis added.)
(Note: the first paragraph quoted above has slightly different wording in the online version than the print version; the second paragraph quoted is the same in both.)

Luddism in 1811 England

(p. 243) The stockingers began in the town of Arnold, where weaving frames were being used to make cut-ups and, even worse, were being operated by weavers who had not yet completed the seven-year apprenticeship that the law required. They moved next to Nottingham and the weaver-heavy villages surrounding it, attacking virtually every night for weeks, a few dozen men carrying torches and using prybars and hammers to turn wooden frames–and any doors, walls, or windows that surrounded them–into kindling. None of the perpetrators were arrested, much less convicted and punished.

The attacks continued throughout the spring of’ 1811, and after a brief summertime lull started up again in the fall, by which time nearly one thousand weaving frames had been destroyed (out of the 25.000 to 29,000 then in Nottingham, Leicestershire, and Derbyshire), resulting in damages of between £6,000 and £10.000. That November, a commander using the nom de sabotage of Ned Ludd (sometimes Lud)–the name was supposedly derived from an apprentice to a Leicester stockinger named Ned Ludham whose reaction to a reprimand was to hammer the nearest stocking frame to splinters–led a series of increasingly daring attacks throughout the Midlands. On November 13, a letter to the Home Office demanded action against the “2000 men, many of them armed, [who] were riotously traversing the County of Nottingham.”
By December 1811, rioters appeared in the cotton manufacturing capital of Manchester, where Luddites smashed both weaving and spinning machinery. Because Manchester was further down the path to industrialization, and therefore housed such machines in large factories as opposed to small shops, the destruction demanded larger, and better organized, mobs.

Source:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.
(Note: italics and bracketed word in original.)

Salesforce.com Needed More than New Economy Cockiness to Succeed

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

(p. A25) Mr. Benioff tells the story of his success in “Behind the Cloud,” a triumphalist memoir and business self-help manual. He makes it clear that, when he was starting out, he followed the standard dot-com playbook: Get some high-profile tech-industry backers and mentors–Mr. Benioff’s former boss, Oracle chief executive Larry Ellison, was one–create buzz and let the revenues flow in. Salesforce.com might have been launched with New Economy cockiness, but success followed for solid, old-fashioned reasons: The company’s products filled a market gap.

For the full review, see:

JESSICA HODGSON. “Selling and Software; How a start-up found a new way to deliver computer products to salespeople.” The Wall Street Journal (Thurs., DECEMBER 17, 2009): A25.
(Note: the online version of the article is dated DECEMBER 16, 2009.)

The book being reviewed, is:
Benioff, Marc. Behind the Cloud: The Untold Story of How Salesforce.Com Went from Idea to Billion-Dollar Company-and Revolutionized an Industry. San Francisco, CA: Jossey-Bass, 2009.

Internet Enabled Creative Destruction

(p. R4) To understand the challenges that faced businesses the past 10 years, consider the household names that didn’t make it through the decade: Anheuser-Busch, Compaq, Gillette, Enron, Lehman Brothers, Merrill Lynch, WorldCom.
. . .
As the decade rolled on, the Internet came to be known for destroying businesses. It upended decades-old business models in fields such as media, advertising, travel and entertainment, as consumers and advertisers migrated to the digital world.
But that same shift created opportunity. No one epitomized that better than Google Inc. A mere 15 months old at the beginning of the decade, it morphed from a startup technology company into an advertising and media powerhouse and is now plotting a move into communications. There, it will clash with Apple Inc., which was reborn following the return of co-founder Steve Jobs in 1997. Apple’s iPod and iTunes reshaped the music industry; its iPhone revolutionized communications by opening itself to independent innovators.
“This is what [Austrian economist Joseph] Schumpeter had in mind with his term ‘creative destruction,'” says Paul David, an economic historian at Stanford University. Industrial collapse is a “messy, messy process,” Mr. David says. “It’s a great drama, and watching it play out in this decade has been very interesting.”

For the full story, see:
SCOTT THURM. “Creativity, Meet Destruction; The Decade Rewrote the Corporate Handbook, Thanks to the Web, Globalization and the Collapse of Two Bubbles.” The Wall Street Journal (Mon., DECEMBER 21, 2009): R4.
(Note: ellipsis added.)
(Note: the online version of the article is dated DECEMBER 22, 2009.)

“Powerful Pressure for Scientists to Conform”

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

(p. A13) In “Hyping Health Risks,” Geoffrey Kabat, an epidemiologist himself, shows how activists, regulators and scientists distort or magnify minuscule environmental risks. He duly notes the accomplishments of epidemiology, such as uncovering the risks of tobacco smoking and the dangers of exposure to vinyl chloride and asbestos. And he acknowledges that industry has attempted to manipulate science. But he is concerned about a less reported problem: “The highly charged climate surrounding environmental health risks can create powerful pressure for scientists to conform and to fall into line with a particular position.”

Mr. Kabat looks at four claims — those trying to link cancer to man-made chemicals, electromagnetic fields and radon and to link cancer and heart disease to passive smoking. In each, he finds more bias than biology — until further research, years later, corrects exaggeration or error.
. . .
I know whereof Mr. Kabat speaks. In 1992, as the producer of a PBS program, I interviewed an epidemiologist who was on the EPA’s passive-smoking scientific advisory board. He admitted to me that the EPA had put its thumb on the evidentiary scales to come to its conclusion. He had lent his name to this process because, he said, he wanted “to remain relevant to the policy process.” Naturally, he didn’t want to appear on TV contradicting the EPA.

For the full review, see:
RONALD BAILEY. “Bookshelf; Scared Senseless.” The Wall Street Journal (Mon., AUGUST 11, 2008): A13.
(Note: ellipsis added.)
(Note: the first paragraph quoted above has slightly different wording in the online version than the print version; the second paragraph quoted is the same in both.)

The book under review is:
Kabat, Geoffrey C. Hyping Health Risks: Environmental Hazards in Daily Life and the Science of Epidemiology. New York: Columbia University Press, 2008.

Luddism in France

(p. 240) Not only was Richard Hargreaves’s original spinningjenny destroyed in 1767, but so also was his new and improved version in 1769.

Nor was the phenomenon exclusively British. Machine breaking in France was at least as frequent. and probably even more consequential, though it can be hard to tease out whether the phenomenon contributed to, or was a symptom of, some of the uglier aspects of the French Revolution. Normandy in particular, which was not only close to England but the most “English” region of France, was the site of dozens of incidents in 1789 alone. In July, hundreds of spinnigjennys were destroyed, along with a French version of Arkwright’s water frame. In October, an attorney in Rouen applauded the destruction of “the machines used in cotton-spinning that have deprived many workers of their jobs.” In Troyes, spinners rioted, killing the mayor and mutilating his body because he had favored machines.” The carders of Lille destroyed machines in 1790; in 1791, the spinning jennies of Roanne were hacked up and burned. By 1796, administrators in the Department of the Somme were complaining, it turns out presciently, that the prejudice against machinery has led the commercial classes . . . to abandon their interest in the cotton industry.

Source:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.
(Note: ellipsis in original.)

Mackey Reduced Role in Whole Foods after Being “Drained” by Antitrust Battle

“Higher existing-store sales powered Whole Foods earnings. Above, co-founder John Mackey juggles apples in a New York store last November.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. B6) Whole Foods Market Inc. reported Wednesday that fiscal second-quarter profits had more than doubled and raised its full-year earnings forecast. The company also shook up its management team, naming a co-chief executive, though current CEO and co-founder John Mackey said he expects to work “for another decade or so.”
. . .
Mr. Mackey in December resigned as Whole Foods’ chairman after a year of controversy. Last summer, he wrote a controversial opinion article for The Wall Street Journal on his views of health care reform that led to boycotts of the natural grocer by some of his most loyal shoppers. Last spring, the Fair Trade Commission ordered the sale of 37 former Wild Oats Markets Inc. stores, a multi-year battle that Mr. Mackey says left him drained and influenced his decision to appoint Mr. Robb as co-CEO.

For the full story, see:
TIMOTHY W. MARTIN. “Profit Soars at Whole Foods; Grocery Chain Forecasts Sharply Higher Profit, Promotes Two Veteran Executives.” The Wall Street Journal (Thurs., MAY 13, 2010): B6.
(Note: ellipsis added.)
(Note: the first paragraph quoted above has slightly different wording in the online version than the print version; the second paragraph quoted is the same in both.)

Informal Sector Responded Quicker to Quake than Established Companies

“In Port-au-Prince . . . , Haitian vendors peddled small bags of coal.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A10) PORT-AU-PRINCE, Haiti — The price of candles in the teeming La Saline market here has climbed 60 percent since last week’s earthquake. A box of matches is up 50 percent. A package of Perdue Chicken Franks has gone up 30 percent.
. . .
Haiti’s huge informal sector reacted faster to the quake than did established companies and banks. Outdoor markets like La Saline are already filled with goods from the countryside, including salt, cornmeal, fruits like mangoes and used clothing from the United States.
. . .
“People want candles because they have no electricity or fuel for their generators,” said Manouchka Wendiwou, 21, a vendor in La Saline who raised her candle prices by 60 percent and made no apology for charging what the market would bear.

For the full story, see:

SIMON ROMERO. “Economy in Shock Struggles to Restart.” The New York Times (Fri., January 22, 2010): A10.
(Note: ellipses added.)
(Note: the online version of the article is dated January 21, 2010.)

Socialism Cut Venezuelan GDP, So Chavez Rejected GDP

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

(p. A15) President Hugo Chávez wasn’t pleased with data . . . that showed the Venezuelan economy tumbling into a recession. So the populist leader came up with a solution: Forget traditional measures of economic growth, and find a new, “Socialist-friendly” gauge.

“We simply can’t permit that they continue calculating GDP with the old capitalist method,” President Chávez said in a televised speech before members of his Socialist party . . . . “It’s harmful.”
Mr. Chávez’s comments came shortly after data showed Venezuela’s gross domestic product — a broad measure of annual economic output — fell 4.5% in the third quarter from the year-earlier period. It was the second consecutive quarterly decline, and observers have questioned how Mr. Chávez will be able to generate growth without high oil prices.
. . .
“It’s hard to say if [Mr. Chávez] is serious or not,” said Robert Bottome of publisher VenEconomía. “They’ve already tampered with the way they compute unemployment and how they determine how much oil [state oil company] PdVSA exports. So why not tamper with the economy figures as well.”

For the full story, see:
DAN MOLINSKI and DAVID LUHNOW. “Chávez Discounts Accuracy of GDP.” The Wall Street Journal (Fri., NOVEMBER 20, 2009): A15.
(Note: ellipses added.)

After a Series of Anonymous Threats, Cartwright Power Looms Were Burned Down

(p. 239) Cartwright constructed twenty looms using his design and put them to work in a weaving “shed” in Doncaster. He further agreed to license the design to a cotton manufacturer named Robert Grimshaw, who started building five hundred Cartwright looms at a new mill in Manchester in the spring of 1792. By summertime, only a few dozen had been built and installed, but that was enough to provoke Manchester’s weavers, who accurately saw the threat they represented. Whether their anger flamed hot enough to burn down Grimshaw’s mill remains unknown, but something certainly did: In March 1792, after a series of anonymous threats, the mill was destroyed.

Cartwright’s power looms were not the first textile machines to be attacked, and they would not be the last.

Source:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.