Tax Hikes Punish Hard Work and Reduce Incentives to Invest

(p. A15) The supply-sider has a different view from both the Keynesian and the budget balancer. Fundamentally, supply-side advocates focus on the harmful effects of tax increases. Raising tax rates hurts the economy directly because tax hikes reduce incentives to invest and because they punish hard work. As such, tax increases slow growth. But budget cuts work in the right direction by making lower tax revenues sustainable. If spending exceeds revenues, then the government must borrow and this commits future governments to raising taxes in order to service the debt.
. . .
On the tax side, there is strong evidence that supports the supply-siders. Christina Romer, President Obama’s first chairwoman of the President’s Council of Economic Advisers, and David Romer document the strong unfavorable effect of increasing tax rates on economic growth (American Economic Review, 2010). They report that an increase in taxes of 1% of gross domestic product lowers GDP by almost 3%. The evidence on government spending also suggests that high spending means lower growth.
For example, Swedish economists Andreas Bergh and Magnus Henrekson (Journal of Economic Surveys 2011) survey a large literature and conclude that an increase in government size by 10 percentage points of GDP is associated with a half to one percentage point lower annual growth rate.

For the full commentary, see:
EDWARD P. LAZEAR. “OPINION; Three Views of the ‘Fiscal Cliff’; It’s the tax increases we have to fear. Spending cuts won’t hurt the economy.” The Wall Street Journal (Mon., May 21, 2012): A15.
(Note: ellipsis added.)
(Note: the online version of the commentary is dated May 20, 2012 and has the title “OPINION; Edward Lazear: Three Views of the ‘Fiscal Cliff’; It’s the tax increases we have to fear. Spending cuts won’t hurt the economy.”)

The Romer and Romer paper mentioned is:
Romer, Christina D., and David H. Romer. “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks.” American Economic Review 100, no. 3 (June 2010): 763-801.

The Bergh and Henrekson paper mentioned is:
Bergh, Andreas, and Magnus Henrekson. “Government Size and Growth: A Survey and Interpretation of the Evidence.” Journal of Economic Surveys 25, no. 5 (Dec. 2011): 872-97.

“Innovation” Should Be Reserved for Electricity, Printing Press, Telephone and iPhone

LightBulbInnovationGraphic2012-05-29.jpg Source of graphic: online version of the WSJ article quoted and cited below.

(p. B1) “Most companies say they’re innovative in the hope they can somehow con investors into thinking there is growth when there isn’t,” says Clayton Christensen, a professor at Harvard Business School and the author of the 1997 book, “The Innovator’s Dilemma.”
. . .
Scott Berkun, the author of the 2007 book “The Myths of Innovation,” which warns about the dilution of the word, says that what most people call an innovation is usually just a “very good product.”
He prefers to reserve the word for civilization-changing inventions like electricity, the printing press and the telephone–and, more recently, perhaps the iPhone.
. . .
Mr. Berkun tracks innovation’s popularity as a buzzword back to the 1990s, amid the dot-com bubble and the release of James M. Utterback’s “Mastering the Dynamics of Innovation” and Mr. Christensen’s “Dilemma.”
. . .
(p. B8) Mr. Christensen classifies innovations into three types: efficiency innovations, which produce the same product more cheaply, such as automating credit checks; sustaining innovations, which turn good products into better ones, such as the hybrid car; and disruptive innovations, which transform expensive, complex products into affordable, simple ones, such as the shift from mainframe to personal computers.
A company’s biggest potential for growth lies in disruptive innovation, he says, noting that the other types could just as well be called ordinary progress and normally don’t create more jobs or business.
But the disruptive innovations can take five to eight years to bear fruit, he says, so companies lose patience.
It is far easier, he adds, for companies to just say they’re innovating. “Everybody’s innovating, because any change is innovation.”

For the full story, see:
LESLIE KWOH. “You Call That Innovation? Companies Love to Say They Innovate, but the Term Has Begun to Lose Meaning.” The Wall Street Journal (Weds., May 23, 2012): B1 & B8.
(Note: ellipses added.)

“I Can’t Explain Strategy at the Same Time that I’m Inventing It”

(p. 75) I felt deceived. I felt betrayed. Their 51 percent control could be like working for IBM or Honeywell again. I felt a threat to the most important value I was seeking: independence. I had to ask myself “Do I say no? Or do I say yes and accept their contract, even though it isn’t what we shook hands on and it makes me uncomfortable?” “This was a major difficulty for me. The 51 percent issue is at the very core of what every entrepreneur is trying to do: control his own destiny.
We were talking about my company. I dreamed it up. I put it together and I was going to run it. I was not going to hand it over to some committee of lawyers and accountants. But neither could I let anger get hold of me.
I knew that “those whom the gods would destroy, they first make angry.” That said, not getting angry does not mean not being firm. So I firmly told Jerry, “I want to run this company. I don’t have time to sit around and explain to your staff what I’m doing. No offense, but they don’t know beans about what I’m (p. 76) trying to do, and neither do you, for that matter. I’ve got to be able to run this business. I can’t explain strategy at the same time that I’m inventing it.”

Wyly, Sam. 1,000 Dollars and an Idea: Entrepreneur to Billionaire. New York: Newmarket Press, 2008.

Proof of Concept: “A Determined Entrepreneur Can Start a Rocket Company from Scratch”

Falcon9RocketLiftoff2012-05-27.jpg ‘The Falcon 9 rocket seen in a time-exposure photograph during liftoff.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A13) CAPE CANAVERAL, Fla. — He does not have the name recognition of some other space entrepreneurs, people like Richard Branson, the founder of the Virgin empire, or Paul Allen of Microsoft fame, or Jeff Bezos, the billionaire.

That will probably change if things keep going his way. Elon Musk, a computer prodigy and serial entrepreneur whose ambitions include solving the world’s energy needs and colonizing the solar system, was the man of the hour — or of 3:44 a.m. Tuesday, Eastern time — when the rocket ship built by his company, SpaceX, lifted off gracefully in a nighttime launching and arced off in a streak of light amid loud applause.
. . .
If all goes as planned, his unmanned Dragon capsule, lifted into orbit by his Falcon 9 rocket, will berth at the International Space Station on Friday bearing a modest cargo: 162 meal packets (45 of them low-sodium), a laptop computer, a change of clothes for the station astronauts and 15 student experiments.
Far more important than the supplies is the proof of concept. Mr. Musk is trying to show the world that a determined entrepreneur can start a rocket company from scratch and, a decade later, end up doing a job that has until now been the exclusive province of federal governments.
. . .
Just four years ago, SpaceX went through a near-death experience. The first three launchings of the company’s small Falcon 1 rocket failed. One more failure, Mr. Musk said, and he would have run out of money. As he went through a divorce from his first wife, with whom he has five sons, he had to borrow money from friends.
The fourth launching succeeded. Late in 2008, NASA awarded SpaceX the cargo contract. The first two Falcon 9 launchings, in 2010, also succeeded.
Early Tuesday morning, the success streak continued. As the countdown clock hit zero, the engines remained ignited. Less than 10 minutes later, the Dragon was in orbit. It then aced several other early tasks like the deployment of solar arrays and navigational sensors and the testing of GPS equipment.
“Anything could have gone wrong,” Mr. Musk said. “And everything went right, fortunately.”

For the full story, see:
KENNETH CHANG. “Big Day for Entrepreneur Who Promises More.” The New York Times (Weds., May 23, 2012): A13.
(Note: ellipses added.)
(Note: the online version of the story is dated May 22, 2012, and has the title “Big Day for a Space Entrepreneur Promising More.”)


“Elon Musk.” Source of caption and photo: online version of the NYT article quoted and cited above.

Private Equity Firms Increase Efficiency and Create as Many Jobs as They Destroy

(p. A23) Forty years ago, corporate America was bloated, sluggish and losing ground to competitors in Japan and beyond. But then something astonishing happened. Financiers, private equity firms and bare-knuckled corporate executives initiated a series of reforms and transformations.
The process was brutal and involved streamlining and layoffs. But, at the end of it, American businesses emerged leaner, quicker and more efficient.
. . .
As Reihan Salam noted in a fair-minded review of the literature in National Review, in any industry there is an astonishing difference in the productivity levels of leading companies and the lagging companies. Private equity firms like Bain acquire bad companies and often replace management, compel executives to own more stock in their own company and reform company operations.
Most of the time they succeed. Research from around the world clearly confirms that companies that have been acquired by private equity firms are more productive than comparable firms.
This process involves a great deal of churn and creative destruction. It does not, on net, lead to fewer jobs. A giant study by economists from the University of Chicago, Harvard, the University of Maryland and the Census Bureau found that when private equity firms acquire a company, jobs are lost in old operations. Jobs are created in new, promising operations. The overall effect on employment is modest.

For the full commentary, see:
DAVID BROOKS. “How Change Happens.” The New York Times (Tues., May 22, 2012): A23.
(Note: ellipsis added.)
(Note: the online version of the commentary is dated May 21, 2012.)

The “giant study by economists” mentioned by Brooks is:
Davis, Steven J., John C. Haltiwanger, Ron S. Jarmin, Josh Lerner, and Javier Miranda. “Private Equity and Employment.” National Bureau of Economic Research, Inc, NBER Working Papers: # 17399, Sept. 2011.

Middle Class “Doesn’t Want to Fight Wars. It Has Other Things to Do.”

IndiaTradeShowInPakistanCloseShot2012-05-25.jpg “A booth for Motherson International, an Indian company that produces clothes and costume jewelry, at the Indian trade show in Lahore, Pakistan, in February.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 6) LAHORE, Pakistan — On the day the Indian trade delegation came across the border, Pakistan was having another political crisis. The prime minister was embroiled in a showdown with the country’s Supreme Court. Early elections were rumored. And Islamists had just staged a rally in Karachi to protest “foreign intervention” on Pakistani soil.

Not, perhaps, the perfect moment to hammer out closer trade ties.
Yet Rajiv Kumar, a leader of the Indian delegation, was pleased. It was mid-February, and his business group was staging the first Indian trade show ever held in Pakistan. Tens of thousands of visitors would attend during three days. And Indian and Pakistani business leaders, as well as both countries’ commerce ministers, swapped cards, sipped tea and feasted at lavish banquets.
“Look at this!” Mr. Kumar exclaimed as his car rolled up to the convention center here in Lahore, where crowds were thronging for the trade show. “My God! Quite good, I’d say.”
. . .
(p. 12) Ashok Malik, a journalist who was one of the writers of an academic analysis of India’s private sector diplomacy, said the influence of Indian business is evident beyond the changed relationship with the United States.
. . .
Mr. Malik noted that the rise of India’s middle class, as well as the growing domestic influence of the private sector, has created a quiet constituency for easing hostilities with Pakistan. “The growth phenomenon has made the Indian middle class less tolerant of adventurism, lawlessness and war,” he said. “It is still worried about terrorism. But it doesn’t want to fight wars. It has other things to do.”

For the full story, see:
JIM YARDLEY. “INDIA’S WAY; Propelling a Nation Onto the World Stage; Industry Opens Doors to India’s Neighbors and Rivals, Including Pakistan.” The New York Times, First Section (Sun., April 1, 2012): 6 & 12.
(Note: ellipses added.)
(Note: the online version of the story is dated March 31, 2012 and has the title “INDIA’S WAY; Industry in India Helps Open a Door to the World.”)

IndiaTradeShowInPakistanWideShot2012-05-25.jpg “India held its first trade show in Pakistan in Lahore.” Source of caption and photo: online version of the NYT article quoted and cited above.

Wise and Wyly Words on Air Conditioning

(p. 42) It was February 1958. I got myself a room, not far from the office, in a little house built in the 1920s owned by a seventy-five-year-old woman named Mrs. Thompson. I lived in her “in-law’s room,” which meant I had my own front door, but I had to share the bathroom with her and, because I did not have a kitchen, I had to eat out. My rent was $10 a week.
I had my car, which meant I could get around, and the training school was air-conditioned, which meant my second summer in Dallas was a lot more pleasant than my first.
Thank you, Willis Haviland Carrier, for inventing air-conditioning. I owe you one. And I’m not the only one. At the height of the dot-com stock market bubble of 1999, Barton Biggs–the wise, graying investments guru at Morgan Stanley–posed this question to seventy-one people: which invention is more important, the Internet or air-conditioning? Barton was on the losing side of the vote, 70-2.
Obviously, he’d found seventy people who’d never spent an August in Texas.

Wyly, Sam. 1,000 Dollars and an Idea: Entrepreneur to Billionaire. New York: Newmarket Press, 2008.

Emperor Penguins Thrive in Antarctica

PenguinsGaloreInAntarctica2012-05-17.jpg “Using satellites, researchers counted Antarctica’s emperor penguins at 46 colonies like this one near the Halley Research Station, finding numbers twice as high as previously thought.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. 2) Antarctica has twice as many emperor penguins as scientists had thought, according to a new study using satellite imagery in the first comprehensive survey of one of the world’s most iconic birds.
British and U.S. geospatial mapping experts reported Friday in the journal PLoS One that they had counted 595,000 emperor penguins living in 46 colonies along the coast of Antarctica, compared with previous estimates of 270,000 to 350,000 penguins based on surveys of just five colonies. The researchers also discovered four previously unknown emperor-penguin colonies and confirmed the location of three others.
“It is good news from a conservation point of view,” said geographer Peter Fretwell at the British Antarctic Survey in Cambridge, England, who led the penguin satellite census. “This is the first comprehensive census of a species taken from space.”
Although all of Antarctica’s wildlife is protected by international treaty, the emperor penguins are not an officially endangered species. But they are considered a bellwether of any future climate changes in Antarctica because their icy habitat is so sensitive to rising temperatures.

For the full story, see:
ROBERT LEE HOTZ. “Emperor Penguins Are Teeming in Antarctica.” The Wall Street Journal (Sat., April 14, 2012): A13.
(Note: the online version of the interview is dated April 13, 2012.)

First Principle for Trustbusters Should Be “Do No Harm”

(p. A2) In essence, Justice says that, beginning in 2008, several plankton, in the form of five publishers, conspired against a whale, Amazon, whose monopoly clout had imposed a $9.99 retail price for e-books.
The deal the publishers eventually reached with Apple unfixed the price of e-books by linking their prices to the cover price of the print version. More importantly, publishers could begin to reclaim the right to set e-book retail prices generally.
. . .
Apple, with 15% of the e-book market, is no monopolist. The five publishers, though Justice insists they dominate trade publishing, account for only about half of e-book sales. Crucially for antitrust, the barriers to entry are zilch: Amazon, with 60% market share, could create its own e-book imprint tomorrow and begin bidding for the most popular authors.
. . .
Let’s go back to “per se” vs. “rule of reason.” Because the 1890 Sherman Act is so sweeping and almost any business arrangement could be read as prohibited, courts understandably evolved a “rule of reason” to distinguish the permissible from the impermissible. Unfortunately, the result has been antitrust as we know it: wild and fluctuating discretion masquerading as law. Retail price maintenance alone has been embraced and dumped so many times by the courts that it must feel like Jennifer Aniston.
“Do no harm” would be a better principle for trustbusters.

For the full commentary, see:
HOLMAN W. JENKINS, JR. “BUSINESS WORLD; Washington vs. Books; What about piracy, low barriers to entry and the fact that literature isn’t chopped liver?” The Wall Street Journal (Sat., April 14, 2012): A15.
(Note: the online version of the commentary is dated April 13, 2012.)

Entrepreneur Krupp Was Paternalistically “Benevolent” and Was Skeptical of Capitalism


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

(p. A13) Harold James, professor of history and international affairs at Princeton University, portrays a vastly different organization in “Krupp,” a painstaking chronicle of a company that traces its roots to a steel foundry in Essen in 1810. Mr. James’s Krupp is a company for which the manufacturing of war matériel was always of secondary interest to that of civilian production. The company might have preferred to concentrate on manufacturing railroad equipment and consumer goods, but in the developing and expansionist German empire of the 19th century, state requirements for the tools of power dovetailed with Krupp’s desire for regular long-term contracts. The result for Krupp was a practical, if not deliberate, focus on armaments.

From the manufacturer’s perspective, the emphasis on war matériel did not consign Krupp to the ranks of belligerent militarists; it was just smart business. “The purpose of work should be the common good,” founder Alfred Krupp once said, or at least that quote graces a statue the company erected after his death in 1887. All through the 19th century, Mr. James says, the pursuit of profit was less central to the Krupp mission than building a solid enterprise within a framework of social responsibility. As early as 1836, Krupp established a voluntary health-insurance program for its workers. By the middle of the century, life-insurance and pension plans had been instituted. Workers’ hostels and company hospitals were constructed. In exchange for this paternalistic benevolence, Krupp expected complete loyalty from its work force and vehemently opposed the slightest hint of union organization or political activity among its employees.
“Alfred Krupp perfectly fits the mold of the heroic entrepreneur,” Mr. James writes. “Profoundly skeptical of joint-stock companies, banks, and capitalism in general, but also of big-scale science and modern research methods, he was a genius at extending to its utmost limits the possibilities of the craft entrepreneur.”

For the full review, see:
JENNIFER SIEGEL. “BOOKSHELF; Heavy Industry, Burdened Past; The company’s 19th-century founder said it was devoted to the “common good.” In World War II, it worked hard for the Third Reich.” The Wall Street Journal (Tues., April 17, 2012): A13.
(Note: the online version of the interview is dated April 16, 2012.)

Texas Was a Place Where It Was OK for an Entrepreneur to Be Poco Loco

(p. 42) Today, everybody knows something about Texas, but in those days Texas was still like an undiscovered oasis of freethinking, individualistic, action-oriented, business-minded people. It was a place where gut American characteristics were concentrated and magnified. A place where you could taste the frontier spirit that is part of our national heritage. There was a feeling in the air that you could invent yourself as any character you chose, and that your neighbors would leave you alone to be whoever you wanted to be. I liked the aggressiveness of the people in pursuing their goals, and the fact that you could be poco loco, as Spanish speakers say: a little crazy. This quality is a big help when you’re an entrepreneur. I felt that, in Dallas. there was extra oxygen in the air.

Wyly, Sam. 1,000 Dollars and an Idea: Entrepreneur to Billionaire. New York: Newmarket Press, 2008.
(Note: italics in original.)