American Gangster as Destructive Entrepreneur

Denzel_Washington_American_Gangster2011-08-09.jpgSource of image:

William Baumol famously categorized entrepreneurs as productive, unproductive, or destructive. (Somewhat similarly, Burt Folsom distinguished market entrepreneurs from political entrepreneurs.) Baumol’s view is that we cannot much influence the supply of entrepreneurs, but good policies can increase the percent of entrepreneurs who are productive.
Frank Lucas, at least as portrayed in the 2007 film American Gangster, is an apt example of the destructive entrepreneur. As portrayed by Denzel Washington, the character is intense, willing to take risks, and works hards. There is a scene where Lucas argues that the quality of his product (cocaine) must not be adulterated, because his business depends on his customers knowing that his brand is better than that of competitors. He finds ways of making his supply chain shorter, and his distribution system more trustworthy (by hiring brothers and cousins).
One can easily imagine that with different incentives and constraints, the Denzel Washington character might have brought the world a product that made the world better, rather than worse.

The Baumol article mentioned is:
Baumol, William J. “Entrepreneurship: Productive, Unproductive, and Destructive.” The Journal of Political Economy 98, no. 5, Part 1 (Oct. 1990): 893-921.

The Folsom book mentioned is:
Folsom, Burton W. The Myth of the Robber Barons. 4th ed: Young America’s Foundation, 2003 (1st ed. 1987).

McKinsey Finds 30% of Employers Will Drop Health Coverage in Response to Obamacare

McKinsey is probably the best known business consulting and forecasting firm in the United States. Many well-known management gurus, and corporate executives, have spent time working for McKinsey (as did Chelsea Clinton). One of their senior partners (Foster) co-authored a useful book called Creative Destruction.

(p. A2) A report by McKinsey & Co. has found that 30% of employers are likely to stop offering workers health insurance after the bulk of the Obama administration’s health overhaul takes effect in 2014.
. . .
Previous research has suggested the number of employers who opt to drop coverage altogether in 2014 would be minimal.
But the McKinsey study predicts a more dramatic shift from employer-sponsored health plans once the new marketplace takes effect. Starting in 2014, all but the smallest employers will be required to provide insurance or pay a fine, while most Americans will have to carry coverage or pay a different fine. Lower earners will get subsidies to help them pay for plans.
In surveying 1,300 employers earlier this year, McKinsey found that 30% said they would “definitely or probably” stop offering employer coverage in the years after 2014. That figure increased to more than 50% among employers with a high awareness of the overhaul law.

For the full story, see:
JANET ADAMY. “Study Sees Cuts to Health Plans.” The Wall Street Journal (Weds., JUNE 8, 2011): A15.
(Note: ellipsis added.)

The Foster book is:
Foster, Richard N., and Sarah Kaplan. Creative Destruction: Why Companies That Are Built to Last Underperform the Market—and How to Successfully Transform Them. New York: Currency Books, 2001.

We Tend to Ignore Information that Contradicts Our Beliefs


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

We learn the most when our priors are contradicted. But the dissonance between evidence and beliefs is painful. So we often do not see, or soon forget, evidence that does not fit with our beliefs.
The innovative entrepreneur is often a person who sees and forces herself to remember, the dissonant fact, storing it away to make sense of, or make use of, later. At the start, she may be alone in what she sees and what she remembers. So if we are to benefit from her ability and willingness to bear the pain of dissonance, she must have the freedom to differ, and she must have the financial wherewith-all to support herself until her vision is more widely shared, better understood, and more fruitfully applied.

(p. A13) Beliefs come first; reasons second. That’s the insightful message of “The Believing Brain,” by Michael Shermer, the founder of Skeptic magazine. In the book, he brilliantly lays out what modern cognitive research has to tell us about his subject–namely, that our brains are “belief engines” that naturally “look for and find patterns” and then infuse them with meaning. These meaningful patterns form beliefs that shape our understanding of reality. Our brains tend to seek out information that confirms our beliefs, ignoring information that contradicts them. Mr. Shermer calls this “belief-dependent reality.” The well-worn phrase “seeing is believing” has it backward: Our believing dictates what we’re seeing.
. . .
One of the book’s most enjoyable discussions concerns the politics of belief. Mr. Shermer takes an entertaining look at academic research claiming to prove that conservative beliefs largely result from psychopathologies. He drolly cites survey results showing that 80% of professors in the humanities and social sciences describe themselves as liberals. Could these findings about psychopathological conservative political beliefs possibly be the result of the researchers’ confirmation bias?
As for his own political bias, Mr. Shermer says that he’s “a fiscally conservative civil libertarian.” He is a fan of old-style liberalism, as in liberality of outlook, and cites “The Science of Liberty” author Timothy Ferris’s splendid formulation: “Liberalism and science are methods, not ideologies.” The “scientific solution to the political problem of oppressive governments,” Mr. Shermer says, “is the tried-and-true method of spreading liberal democracy and market capitalism through the open exchange of information, products, and services across porous economic borders.”
But it is science itself that Mr. Shermer most heartily embraces. “The Believing Brain” ends with an engaging history of astronomy that illustrates how the scientific method developed as the only reliable way for us to discover true patterns and true agents at work. Seeing through a telescope, it seems, is believing of the best kind.

For the full review, see:
RONALD BAILEY. “A Trick Of the Mind; Looking for patterns in life and then infusing them with meaning, from alien intervention to federal conspiracy.” The Wall Street Journal (Weds., July 27, 2011): A13.
(Note: ellipsis added.)

Book reviewed:
Shermer, Michael. The Believing Brain: From Ghosts and Gods to Politics and Conspiracies—How We Construct Beliefs and Reinforce Them as Truths. New York: Times Books, 2011.

Brits Sent Low Quality Goods to American Colonists

(p. 299) It was easy – and for many agents irresistibly tempting – to offload on to Americans clothes and furnishings that were unsold because they were no longer fashionable in England. ‘You cannot really form an idea of the trash that is to be found in the best shops,’ an English visitor named Margaret Hall wrote home to a friend. A cheerful catchphrase of English (p. 300) factories became: ‘It’s good enough for America.’ Being over-charged was a constant suspicion. Washington wrote furiously to Cary after one consignment that many of the products supplied were ‘mean in quality but not in price, for in this they excel indeed far above any I have ever had’.

Bryson, Bill. At Home: A Short History of Private Life. New York: Doubleday, 2010.

Solyndra Debacle Illustrates Why Feds Should Not Pick Tech Winners

The clip above is embedded from the Jon Stewart “The Daily Show” episode that was aired on Thurs., September 15, 2011.

Government “industrial policy” is likely to fail for many reasons. One is that the government decision makers are unlikely to know which future technologies will turn out to be the best ones. Another reason is that even if they know, government decision makers often decide based on what is politically expedient or what is beneficial to their friends.

Solyndra is a case in point, as Jon Stewart hilariously reveals.

Lunar Entrepreneurs

(p. A1) Now that the last space shuttle has landed back on Earth, a new generation of space entrepreneurs would like to whip up excitement about the prospect of returning to the Moon.
. . .
(p. A3) “It’s probably the biggest wealth creation opportunity in modern history,” said Barney Pell, a former NASA computer scientist turned entrepreneur and now a co-founder of Moon Express. While Moon Express might initially make money by sending small payloads, the big fortune would come from bringing back platinum and other rare metals, Dr. Pell said.
“Long term, the market is massive, no doubt,” he said. “This is not a question of if. It’s a question of who and when. We hope it’s us and soon.”
Like the aviation prizes that jump-started airplane technology a century ago, the Google Lunar X Prize is meant to rally technologists and entrepreneurs. It is administered by the X Prize Foundation, which handed out $10 million in 2004 to the first private team to build a spacecraft that could carry people 60 miles above the Earth’s surface. (The winner, SpaceShipOne, was built by the aerospace designer Burt Rutan with backing from Paul Allen, the software magnate.)

For the full story, see:
KENNETH CHANG. “In a Private Race to the Moon, Flights of Fancy Are in the Air.” The New York Times (Fri., July 22, 2011): A1 & A3.
(Note: the online version of the story is dated July 21, 2011 and has the title “Race to the Moon Heats Up for Private Firms.”)

Chinese Boom Financed by Government Debt and “Clever Accounting”

EmptyLotForWuhanTower2011-08-08.jpg “An empty lot in Wuhan, China, where developers intend to build a tower taller than the Empire State Building in New York.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A1) . . . the Wuhan Metro is only one piece of a $120 billion municipal master plan that includes two new airport terminals, a new financial district, a cultural district and a riverfront promenade with an office tower half again as high as the Empire State Building.
. . .
The plans for Wuhan, a provincial capital about 425 miles west of Shanghai, might seem extravagant. But they are not unusual. Dozens of other Chinese cities are racing to complete infrastructure projects just as expensive and ambitious, or more (p. A8) so, as they play their roles in this nation’s celebrated economic miracle.
In the last few years, cities’ efforts have helped government infrastructure and real estate spending surpass foreign trade as the biggest contributor to China’s growth. Subways and skyscrapers, in other words, are replacing exports of furniture and iPhones as the symbols of this nation’s prowess.
But there are growing signs that China’s long-running economic boom could be undermined by these building binges, which are financed through heavy borrowing by local governments and clever accounting that masks the true size of the debt.
The danger, experts say, is that China’s municipal governments could already be sitting on huge mountains of hidden debt — a lurking liability that threatens to stunt the nation’s economic growth for years or even decades to come. Just last week China’s national auditor, who reports to the cabinet, warned of the perils of local government borrowing. And on Tuesday the Beijing office of Moody’s Investors Service issued a report saying the national auditor might have understated Chinese banks’ actual risks from loans to local governments.
Because Chinese growth has been one of the few steady engines in the global economy in recent years, any significant slowdown in this country would have international repercussions.

For the full story, see:
DAVID BARBOZA. “Building Boom in China Stirs Fears of Debt Overload.” The New York Times (Thurs., July 7, 2011): C8.
(Note: online version of the article is dated July 6, 2011 and has the title “Building Boom in China Stirs Fears of Debt Overload.”)
(Note: ellipses added.)