At the Chicago American Economic Association (AEA) meetings, I attended an 8 AM session on Sun., Jan. 8, 2012 in honor of the 30 anniversary of Gary Becker’s Treatise on the Family. At the end of the session, Becker discussed five issues related to the book.
One of these was the question of whether the features of the family are best understood on the basis of economic issues or cultural issues. He mentioned two examples: the Irish family and the Asian family. In the past it had been claimed that the Irish family would have enduring features due to religion and culture, features such as many children and women who stayed at home. Today, Becker noted, the Irish family looks much like other European families. He then paraphrased Singapore’s former ruler Lee Kuan Yew as having claimed in the past that the Asian family is superior to the Western family in its cohesiveness and loyalty. Today, Becker noted, Asian families look much more like Western families. Becker concluded that in the short run cultural factors may dominate, but that in the long run economic factors dominate. He said “Economics trumps culture.”
Becker’s discussion has broader relevance. One of the issues that I am grappling with in my research and teaching is the extent to which success at entrepreneurial innovation depends on cultural differences and the extent to which it depends on differences in constraints and policies.
If policies matter more, then it is easier to see a clear path toward progress, than if murkier cultural issues matter more.
Month: January 2012
Branson Advises Entrepreneurs: “Think of What Frustrates You”
Source of caricature: online version of the WSJ interview quoted and cited below.
(p. A13) Governments have long dominated space, starting with the Soviet Union’s 1957 launch of Sputnik 1. The U.S. soon followed. “If they’d used just a small fraction of that money as prize money and given it to the best commercial companies, that money would’ve been far better spent,” Mr. Branson muses. “The $10 million [Ansari] X Prize very much sparked our move into space travel,” he notes, referring to the competition organized by entrepreneur Peter Diamandis and launched in 1996.
Mr. Branson had dreamed of exploring the final frontier for decades. “I think it just simply goes back to watching the moon landing on blurry black-and-white television when I was a teenager and thinking, one day I would go to the moon–and then realizing that governments are not interested in us individuals and creating products that enable us to go into space,” he says. In 1995, after making billions of dollars in the music and airline businesses, Mr. Branson registered a new company, Virgin Galactic (the name “sounded good”), at London’s Companies House. Then the company started searching for rocket scientists and the right technology.
Several years later, in July 2002, Virgin’s team traveled to California to check on American aerospace designer Burt Rutan’s progress on the Virgin Atlantic Global Flyer, a plane built “to circumnavigate the globe non-stop on a single tank of fuel,” according to Virgin’s website. Virgin discovered that Mr. Rutan intended to compete for the X Prize with SpaceShip One, the world’s first privately developed spacecraft, financed by Microsoft co-founder Paul Allen.
Mr. Branson quickly struck a deal: Virgin would license Mr. Rutan’s SpaceShip One technology from Mr. Allen if he won the competition. In 2004, Mr. Rutan did just that, and Virgin Galactic was off to the races.
. . .
So what advice does Mr. Branson have for aspiring entrepreneurs? “Think of what frustrates you–and if you’re frustrated by something and you feel ‘Dammit, if only people could do this better,’ then go try to do it better yourself. It can start off in a really small way . . . and you’ll be surprised: If you’re doing it better yourself, in whatever field it is, you’ll be filling a gap and you suddenly might start creating a business.”
For the full interview, see:
MARY KISSEL. “THE WEEKEND INTERVIEW with Richard Branson; Space: The Next Business Frontier; By next Christmas the airline mogul could be ferrying paying customers outside the atmosphere–and, later, to the bottom of the ocean.” The Wall Street Journal (Sat., December 17, 2011): A13.
(Note: ellipsis added.)
You Have More Servants than the Sun King
(p. 36) The Sun King had dinner each night alone. He chose from forty dishes, served on gold and silver plate. It took a staggering 498 people to prepare each meal. He was rich because he consumed the work of other people, mainly in the form of their services. He was rich because other people did things for him. At that time, the average French family would have prepared and consumed its own meals as well as paid tax to support his servants in the palace. So it is not hard to conclude that Louis XIV was rich because others were poor.
But what about today? Consider that you are an average person, say a woman of 35, living in, for the sake of argument, Paris and earning the median wage, with a working husband and two children. You are far from poor, but in relative terms, you are immeasurably poorer than Louis was. Where he was the richest of the rich in the world’s richest city, you have no servants, no palace, no carriage, no kingdom. As you toil home from work on the crowded Metro, stopping at the shop on the way to buy a ready meal for four, you might be thinking that Louis XIV’s dining arrangements were way beyond your reach. And yet consider this. The cornucopia that greets you as you enter the supermarket dwarfs anything that Louis XIV ever experienced (and it is probably less likely to contain salmonella). You can buy a fresh, frozen, tinned, smoked or pre-prepared meal made with beef, chicken, pork, lamb, fish, prawns, scallops, eggs, potatoes, beans, carrots, cabbage, aubergine, kumquats, celeriac, okra, seven kinds of lettuce, cooked in olive, walnut, sunflower or peanut oil and flavoured with cilantro, turmeric, basil or rosemary . . . You may have no chefs, but you can decide (p. 37) on a whim to choose between scores of nearby bistros, or Italian, Chinese, Japanese or Indian restaurants, in each of which a team of skilled chefs is waiting to serve your family at less than an hour’s notice. Think of this: never before this generation has the average person been able to afford to have somebody else prepare his meals.
You employ no tailor, but you can browse the internet and instantly order from an almost infinite range of excellent, affordable clothes of cotton, silk, linen, wool and nylon made up for you in factories all over Asia. You have no carriage, but you can buy a ticket which will summon the services of a skilled pilot of a budget airline to fly you to one of hundreds of destinations that Louis never dreamed of seeing. You have no woodcutters to bring you logs for the fire, but the operators of gas rigs in Russia are clamouring to bring you clean central heating. You have no wick-trimming footman, but your light switch gives you the instant and brilliant produce of hardworking people at a grid of distant nuclear power stations. You have no runner to send messages, but even now a repairman is climbing a mobile-phone mast somewhere in the world to make sure it is working properly just in case you need to call that cell. You have no private apothecary, but your local pharmacy supplies you with the handiwork of many thousands of chemists, engineers and logistics experts. You have no government ministers, but diligent reporters are even now standing ready to tell you about a film star’s divorce if you will only switch to their channel or log on to their blogs.
My point is that you have far, far more than 498 servants at your immediate beck and call. Of course, unlike the Sun King’s servants, these people work for many other people too, but from your perspective what is the difference? That is the magic that exchange and specialisation have wrought for the human species.
Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.
(Note: ellipsis in original.)
Krim Saw Use for Noisy CK722 Transistors
Norman Krim holding some early transistors. He first put transistors into hearing aids. Source of caption and photo: online version of the NYT obituary quoted and cited below.
(p. B11) Mr. Krim, who made several breakthroughs in a long career with the Raytheon Company and who had an early hand in the growth of the RadioShack chain, did not invent the transistor. (Three scientists did, in 1947, at Bell Laboratories.)
But he saw the device’s potential and persuaded his company to begin manufacturing it on a mass scale, particularly for use in miniaturized hearing aids that he had designed. Like the old tube, a transistor amplifies audio signals.
As Time magazine wrote in 1953: “This little device, a single speck of germanium, is smaller than a paper clip and works perfectly at one-tenth the power needed by the smallest vacuum tube. Today, much of Raytheon’s transistor output goes to America’s hearing aid industry.” (Germanium, a relatively rare metal, was the predecessor to silicon in transistors.)
. . .
Thousands of hearing-disabled people benefited from Mr. Krim’s initial use of the transistor in compact hearing aids. But not every transistor Raytheon made was suitable for them, he found.
“When transistors were first being manufactured by Raytheon on a commercial scale, there was a batch called CK722s that were too noisy for use in hearing aids,” said Harry Goldstein, an editor at IEEE Spectrum, the magazine of the Institute of Electrical and Electronics Engineers.
So Mr. Krim contacted editors at magazines like Popular Science and Radio Electronics and began marketing the CK722s to hobbyists.
“The result was that a whole generation of aspiring engineers — kids, really, working in their garages and basements — got to make all kinds of electronic projects,” Mr. Goldstein said, among them transistor radios, guitar amplifiers, code oscillators, Geiger counters and metal detectors. “A lot of them went on to become engineers.”
Mr. Ward called Mr. Krim “the father of the CK722.”
For the full obituary, see:
DENNIS HEVESI. “Norman Krim, 98, Dies; Championed the Transistor.” The New York Times (Weds, December 21, 2011): B11.
(Note: ellipsis added.)
(Note: the online version of the article is dated December 20, 2011 and has the title “Norman Krim, Who Championed the Transistor, Dies at 98.”)
What We Eat Affects Our Feelings and Choices?
But since we choose what we eat, we have the power to control how food affects our feelings and choices?
(p. C12) As the neuroscientist Antonio Damasio writes, “The mind is embodied, not just embrained.”
The latest evidence comes from a new study of probiotic bacteria, the microorganisms typically found in yogurt and dairy products. While most investigations of probiotics have focused on their gastrointestinal benefits–the bacteria reduce the symptoms of diarrhea and irritable bowel syndrome–this new research explored the effect of probiotics on the brain.
The experiment, led by Javier Bravo at University College Cork in Ireland, was straightforward. First, he fed normal lab mice a diet full of probiotics. Then, Mr. Bravo’s team tested for behavioral changes, which were significant: When probiotic-fed animals were put in stressful conditions, such as being dropped into a pool of water, they were less anxious and released less stress hormone.
How did the food induce these changes? The answer involves GABA, a neurotransmitter that reduces the activity of neurons. When Mr. Bravo looked at the brains of the mice, he found that those fed probiotics had more GABA receptors in areas associated with memory and the regulation of emotions. (This change mimics the effects of popular antianxiety medications in humans.)
For the full summary/commentary, see:
JONAH LEHRER. “HEAD CASE; The Yogurt Made Me Do It; There’s nothing metaphorical about ‘gut feelings’–bacteria influence our minds.” The Wall Street Journal (Sat., SEPTEMBER 17, 2011): C12.
In Supporting Bailouts Buffett Was More Bootlegger than Baptist
Source of book image: online version of the Omaha World-Herald review quoted and cited below.
(p. 9A) Peter Schweizer’s new book, “Throw Them All Out” (Houghton Mifflin Harcourt, 211 pages, $26) mostly goes after members of Congress for profiting from inside information and making investments that are legal for them but would be illegal for almost anyone else.
But Chapter 6 is titled, “Warren Buffett: Baptist and Bootlegger.”
Buffett is neither an actual Baptist nor a bootlegger, of course. Schweizer’s reference is to the alliance of churchgoers and illegal marketers of liquor who both favored laws to limit the legal sale of alcohol, although for different reasons.
Schweizer wrote that during the 2008-09 financial crisis, Buffett pushed for government action and called attention to the problems, looking like a noble Baptist, but profited from the bailouts, like a bootlegger, through investments in Goldman Sachs, General Electric, Wells Fargo and other financial companies.
“Buffett needed the bailout,” Schweizer wrote. “He began immediately to campaign for the $700 billion TARP rescue plan that was being hammered together in Washington.” Several senators, including Ben Nelson, D-Neb., are Berkshire shareholders, Schweizer wrote, “and they had to know that passing the bailout bill would bring big returns for their Berkshire stock.”
“There were many legitimate reasons to support the bill, and it can hardly be said that Buffett’s support was the deciding factor,” Schweizer wrote. “But his Baptist-bootlegger position was noteworthy for its strength in both directions: a lot of people followed his advice, and he and they made (p. 10A) a lot of money by pushing for the bailout. . . .
“Warren Buffett is a financial genius. But even more important for his portfolio, he’s a political genius.”
For the full story, see:
Steve Jordon. “Warren Watch: Author Says Buffett Is a ‘Political Genius’.” Omaha World-Herald (Sunday, November 20, 2011): 9A -10A.
(Note: ellipsis in original.)
(Note: the online version of the article has the title “Warren Watch: A ‘Political Genius’.”)
Steve Jordan is discussing the book:
Schweizer, Peter. Throw Them All Out. New York: Houghton Mifflin Harcourt Trade, 2011.
Bruce Yandle is the former President of APEE and the author of the classic article on how bootleggers and Baptists often become allies in calling for government action:
Yandle, Buce. “Bootleggers and Baptists: The Education of a Regulatory Economist.” Regulation 7, no. 3 (1983): 12-16.
Diversity of Sources of What We Consume in a Free Market
Matt Ridley’s wonderful riff below reminds one of Leonard Read’s classic essay “I, Pencil,” made even more famous by Milton Friedman’s rendition of it.
(p. 35) As I write this, it is nine o’clock in the morning. In the two hours since I got out of bed I have showered in water heated by North Sea gas, shaved using an American razor running on electricity made from British coal, eaten a slice of bread made from French wheat, spread with New Zealand butter and Spanish marmalade, then brewed a cup of tea using leaves grown in Sri Lanka, dressed myself in clothes of Indian cotton and Australian wool, with shoes of Chinese leather and Malaysian rubber, and read a newspaper made from Finnish wood pulp and Chinese ink. I am now sitting at a desk typing on a Thai plastic keyboard (which perhaps began life in an Arab oil well) in order to move electrons through a Korean silicon chip and some wires of Chilean copper to display text on a computer designed and manufactured by an American firm. I have consumed goods and services from dozens of countries already this morning. Actually, I am guessing at the nationalities of some of these items, because it is almost impossible to define some of them as coming from any country, so diverse are their sources.
Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.
Indian Middle Class: “The State Is Preventing Me from Doing What I Want to Do”
“Partho Nag, a childhood friend of Shubhrangshu Roy’s who lives in the same New Delhi suburb. Mr. Nag, who runs an IT service company out of his home, joined Mr. Roy and other friends as they volunteered at the Hazare protests. “We’ve been told since our childhoods, ‘Politics is bad, don’t get into politics,'” Mr. Nag said. “But the point is that somebody has to clean it up. We can’t just scold people.”” Source of caption and photo: online version of the NYT article quoted and cited below.
(p. 1) DWARKA, India — Shubhrangshu Barman Roy and his childhood friends are among the winners in India’s economic rise. They have earned graduate degrees, started small companies and settled into India’s expanding middle class. They sometimes take vacations together and meet for dinners or parties, maybe to celebrate a new baby or a new business deal.
Yet in August, Mr. Roy and his friends donned white Gandhi caps, boarded a Metro train in this fast-growing suburb of the Indian capital and rode into New Delhi like a band of revolutionaries to join the large anticorruption demonstrations led by the rural activist Anna Hazare. They waved Indian flags, distributed water to the crowds and vented their outrage at India’s political status quo.
“I could feel that people really wanted change,” Mr. Roy, 36, recalled proudly.
It may seem unlikely that middle-class Indians would crave change. They mostly live in rapidly growing cities and can afford cars, appliances and other conveniences that remain beyond the reach of most Indians. Theirs is the fastest growing demographic group in the country, and their buying power is expected to triple in the next 15 years, making India one of the most important consumer markets in the world.
But buying power is not political power, at least not yet in India. The wealthier India has become, the more politically disillusioned many of the beneficiaries have grown — an Indian paradox. The middle class has vast economic clout yet often remains politically marginalized in a huge democracy where the rural masses still dominate the outcome of elections and the tycoon class has the ear of politicians.
. . .
(p. 10) “This middle class is less about ‘what the state can do for me’ than ‘the state is preventing me from doing what I want to do,’ ” said Devesh Kapur, director of the Center for the Advanced Study of India at the University of Pennsylvania.
The Hazare movement rattled India’s political establishment because it offered a glimpse of what could happen if the middle class was mobilized across the country. Professionals and college students provided the organizational spine, and money, that brought hundreds of thousands of people of all backgrounds onto the streets in what many described as a political awakening.
. . .
Mr. Roy and his friends, including Mr. Nag, had grown up in New Delhi in the same government housing development. They were all the sons of government bureaucrats who would later offer similar advice: Get a government job.
“He always insisted,” Mr. Nag recalled of his father’s prodding. “But we had an idea that a government job was too lousy.”
They were teenagers in the early 1990s when Indian leaders embarked on the reforms that began dismantling the stifling licensing regulations that had choked the economy. Private enterprise, large and small, would steadily emerge as the engine of Indian growth and the delivery vehicle of growing aspirations. Mr. Nag would open a small IT service firm. Two other friends would start a textile trading company. Mr. Roy would earn graduate degrees and start a consulting firm.
. . .
On a recent afternoon, Mr. Roy pointed to a crude asphalt scar in the road where workers had installed an underground water connection. The scar extended along the road toward Mr. Roy’s house, only to abruptly turn left in the direction of another building.
“You see this?” he asked, angrily. “This is a connection that comes here, but it is illegal.”
For Mr. Roy, the scar in the street marks the corruption and collusion and the failure of the state to deliver on its end of India’s social contract. His family is supposed to get water from a legal connection for $4 a month. Except that water is unusable. For years, his father had paid a fee to fill large jugs from a private water tanker — until his father slipped while carrying one of them.
Mr. Roy then spent about $1,000 to build an underground water storage tank beside his home. Now, every week a tanker delivers a $30 shipment of water into the tank, while Mr. Roy also buys bottled water for drinking, bringing his monthly bill to about $160. Mr. Roy suspects that local officials, rather than correcting the situation, allow it to continue in exchange for kickbacks from the owners of the private water tankers. In the end, though, he pays.
These tales of petty graft proliferate across India, but especially in cities, analysts say, for the simple reason that cities now have more money.
McKinsey Global Institute, a consulting group, has estimated that India’s middle class could grow to nearly 600 million people by 2030. Today, nearly three-quarters of India’s gross domestic product comes from cities, where less than a third of India’s population lives, an imbalance that correlates with the divide between middle-class economic and political power.
“For politicians, the city has primarily become a site of extraction, and the countryside is predominantly a site of legitimacy and power,” Ashutosh Varshney, an India specialist at Brown University, wrote recently. “The countryside is where the vote is; the city is where the money is. Villages do have corruption, but the scale of corruption is vastly greater in cities.”
For the full story, see:
JIM YARDLEY. “INDIA’S WAY; Protests Help Awaken a Goliath in India.” The New York Times, First Section (Sun., October 30, 2011): 1 & 10.
(Note: ellipses added.)
(Note: the online version of the article is dated October 29, 2011 and has the title “INDIA’S WAY; Protests Awaken a Goliath in India.”)
AFA Scholars Predict Sovereign Defaults
At the Chicago American Finance Association (AFA) meetings (held in conjunction with the AEA meetings), I attended a panel discussion on Fri., Jan. 6, 2012 on “Sovereign Default.” The session was chaired by Simon Johnson, and included Kenneth Singleton and Carmen Reinhart (who has co-authored a much-discussed book on the history of economic crises). (Martin Feldstein was supposed to participate but did not, and I did not catch the name of the scholar who replaced him on the panel).
When asked if they expected multiple countries in Europe to default in the near to medium term, all panel members agreed that such default would happen. (The consensus was that Greece, and at least a couple of other countries, would eventually default—the Euros needed to bail them out were too large, even if the Germans and the ECB changed course and wanted to try.) Before seeing the panel, I was not aware that expert academic opinion was so agreed on this prediction.
There was less certainty about whether this would necessarily lead to the end of the Euro. Reinhart pointed out that even in Greece, where austerity is severe and unpopular, there is currently little popular support for abandoning the Euro.
The panelists seemed to believe that sovereign defaults might lead to slow growth, high taxes and inflation, but might not lead to catastrophe.
Reinhart suggested that Europe, and maybe also the United States and the rest of the world, might just muddle along for an extended period.
Gentle Oshman Inspired Loyalty as He Made Work Fun in Silicon Valley
“M. Kenneth Oshman” Source of caption and photo: online version of the NYT obituary quoted and cited below.
(p. 19) M. Kenneth Oshman, who helped create one of the early successful technology start-up firms in Silicon Valley, one that embodied the informal management style that came to set the Valley apart from corporate America, died on Saturday in Palo Alto, Calif. He was 71.
. . .
In the 1970s and ’80s, Rolm was the best example of an emerging Silicon Valley management style that effectively broke down the barrier between work and play. Setting out to recruit the most talented technical minds, Rolm became known as a great place to work, so much so that it was nicknamed “G.P.W.”
Early on as chief executive, Mr. Oshman took funds normally used for company Christmas parties and used them to help construct a company recreational center, consisting of swimming pools, racquetball courts, exercise rooms and other amenities to attract new employees and underline the image that Rolm was a fun place to work.
But there was a tradeoff, said Keith Raffel, who left a staff position on Capitol Hill to become an assistant to Mr. Oshman at Rolm before starting his own company.
“The quid pro quo was you would be driven and work really hard,” he said.
With a gentle, understated style, Mr. Oshman stood apart from other well-known leaders in Silicon Valley, many of whom were seen as capricious and even tyrannical. He was a mentor to a generation of Silicon Valley technologists and able to inspire a kind of loyalty in his employees not frequently seen in high-tech industries.
For the full obituary, see:
JOHN MARKOFF. “M. Kenneth Oshman, Silicon Valley Mentor, Dies at 71.” The New York Times, First Section (Sun., August 10, 2011): A10.
(Note: ellipsis added.)
(Note: the online version of the obituary is dated August 10, 2011 and has the title “M. Kenneth Oshman, Who Brought Fun to Silicon Valley, Dies at 71.”)
Happiness Depends Most on Being Free to Choose
(p. 27) Getting richer is not the only or even the best way of getting happier. Social and political liberation is far more effective, says the political scientist Ronald Ingleheart: the big gains in happiness come from living in a society that frees you to make choices about your lifestyle – about where to live, who to marry, how to express your sexuality and so on. It is the increase in free (p. 28) choice since 1981 that has been responsible for the increase in happiness recorded since then in forty-five out of fifty-two countries. Ruut Veenhoven finds that ‘the more individualized the nation, the more citizens enjoy their life.’
Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.