Books – Page 146 – artdiamondblog.com

Documenting Dangers of Growing Public Debt (and of Replacing History with Math)

“Kenneth Rogoff and Carmen Reinhart at Ms. Reinhart’s Washington home. They started their book around 2003, years before the economy began to crumble.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) Like a pair of financial sleuths, Ms. Reinhart and her collaborator from Harvard, Kenneth S. Rogoff, have spent years investigating wreckage scattered across documents from nearly a millennium of economic crises and collapses. They have wandered the basements of rare-book libraries, riffled through monks’ yellowed journals and begged central banks worldwide for centuries-old debt records. And they have manually entered their findings, digit by digit, into one of the biggest spreadsheets you’ve ever seen.

Their handiwork is contained in their recent best seller, “This Time Is Different,” a quantitative reconstruction of hundreds of historical episodes in which perfectly smart people made perfectly disastrous decisions. It is a panoramic opus, both geographically and temporally, covering crises from 66 countries over the last 800 years.
The book, and Ms. Reinhart’s and Mr. Rogoff’s own professional journeys as economists, zero in on some of the broader shortcomings of their trade — thrown into harsh relief by economists’ widespread failure to anticipate or address the financial crisis that began in 2007.
“The mainstream of academic research in macroeconomics puts theoretical coherence and elegance first, and investigating the data second,” says Mr. Rogoff. For that reason, he says, much of the profession’s celebrated work “was not terribly useful in either predicting the financial crisis, or in assessing how it would it play out once it happened.”
“People almost pride themselves on not paying attention to current events,” he says.
. . .
(p. 6) Although their book is studiously nonideological, and is more focused on patterns than on policy recommendations, it has become fodder for the highly charged debate over the recent growth in government debt.
To bolster their calls for tightened government spending, budget hawks have cited the book’s warnings about the perils of escalating public and private debt. Left-leaning analysts have been quick to take issue with that argument, saying that fiscal austerity perpetuates joblessness, and have been attacking economists associated with it.
. . .
The economics profession generally began turning away from empirical work in the early 1970s. Around that time, economists fell in love with theoretical constructs, a shift that has no single explanation. Some analysts say it may reflect economists’ desire to be seen as scientists who describe and discover universal laws of nature.
“Economists have physics envy,” says Richard Sylla, a financial historian at the Stern School of Business at New York University. He argues that Paul Samuelson, the Nobel laureate whom many credit with endowing economists with a mathematical tool kit, “showed that a lot of physical theories and concepts had economic analogs.”
Since that time, he says, “economists like to think that there is some physical, stable state of the world if they get the model right.” But, he adds, “there is really no such thing as a stable state for the economy.”
Others suggest that incentives for young economists to publish in journals and gain tenure predispose them to pursue technical wizardry over deep empirical research and to choose narrow slices of topics. Historians, on the other hand, are more likely to focus on more comprehensive subjects — that is, the material for books — that reflect a deeply experienced, broadly informed sense of judgment.
“They say historians peak in their 50s, once they’ve accumulated enough knowledge and wisdom to know what to look for,” says Mr. Rogoff. “By contrast, economists seem to peak much earlier. It’s hard to find an important paper written by an economist after 40.”

For the full story, see:
CATHERINE RAMPELL. “They Did Their Homework (800 Years of It).” The New York Times, SundayBusiness Section (Sun., July 4, 2010): 1 & 6.
(Note: the online version of the article is dated July 2, 2010.)
(Note: ellipses added.)

The reference for the book is:
Reinhart, Carmen M., and Kenneth Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press, 2009.

Source of book image: http://www.paschaldonohoe.ie/wp-content/uploads/2010/02/This-time-is-different.jpg

We’re from the Government, and We Are Here to Help

In February, I heard a wonderful presentation by Emily Chamlee-Wright on the recovery process from Hurricane Katrina. One of my favorite parts of her presentation was an account of how the federal bureaucracy hindered those whose entrepreneurship was needed for recovery. The account is included in her book The Cultural and Political Economy of Recovery, that documents her research on Katrina:

(p. 142) . . . , the bureaucratic structure governing disaster relief can stifle, or at the very least frustrate local leadership driving community redevelopment. Doris Voitier’s efforts to re-open the public school system in St. Bernard Parish illustrate this point. Voitier had initially assumed that FEMA’s newly created task force on education would lend the support and expertise she needed. But she quickly learned that FEMA’s role was not so much to lend support as it was to regulate the decisions coming out of her office.

VOITIER: [W]e had our kickoff meeting in September. We didn’t even know what a kickoff meeting was nor did we know we were in one until after it was over . . . . In their little book, which I read later, they tell them, “meet in the person’s home territory,” basically. Now . . . we were operating out of Baton Rouge, and so were all of the people who attended this meeting. We all got rental cars and drove down [to St. Bernard Parish] and met on the third floor of the building over by Chalmette Refining at 2 o’clock in the afternoon in 100 degree heat with no air conditioning or anything. [M]y assistant superintendent and I walk into this meeting and there were 27 people in this meeting are sitting around this table . . . and we were going through the introductions. And the first two people said, “We’re so and so. We are the FEMA historical restoration team” I said, okay, tell me what you do. “Well, we make sure any buildings that are 40 years old or more, they’re designated a historical building, we make sure all of the rules and regulations are followed for that or if there are any historical documents, paintings, or whatever, that they’re preserved properly, and that you do (p. 143) everything you’re supposed to do . . . .” Now here we are just trying to, you know, trying to recover, not worrying too much about that sort of stuff, but . . . thank you very much. So the next two introduced themselves and I said, “Well who are you?” “We are the FEMA environmental protection team.” I said, “Tell me what you do.” Well, same thing. “We make sure all of the environmental laws are followed, that if there are any endangered species that they’re protected,” you know, yadda, yadda, yadda. Okay. The next two, “We are the FEMA 404 mitigation team.” I’m looking at them and I’m thinking, what in the heck is 404 mitigation? Because the next two were the FEMA 406 . . . . So I’m looking at them, I’m thinking, I don’t know what 404 was and I certainly don’t know what 406 is . . . . And you know. . . [I’m thinking] can’t somebody help me get a school started and clean my schools . . . ?

Source:
Chamlee-Wright, Emily. The Cultural and Political Economy of Recovery: Social Learning in a Post-Disaster Environment, Routledge Advances in Heterodox Economics. London: Routledge, 2010.
(Note: first ellipsis added; other ellipses in original.)

“Vast Majority of People” Will Reject a New Idea at the Start

(p. 288) . . . , my advice has to do with what you do when you find yours elf sitting there with ideas in your head and a desire to build them. But you’re young. You have no money. All you have is the stuff in your brain. And you think it’s good stuff, those ideas you have in your brain. Those ideas are what drive you, they’re all you think about.

(p. 289) But there’s a big difference between just thinking about inventing something and doing it. So how do you do it? How do you actually set about changing the world?

. . .

Well, first you need to believe in yourself. Don’t waver. There will be people–and I’m talking about the vast majority of people, practically everybody you’ll ever meet–who just think in black-and-white terms. Most people see things the way the media sees them or the way their friends see them, and they think if they’re right, everyone else is wrong. So a new idea–a revolutionary new product or product feature–won’t be understandable to most people because they see things so black and white. Maybe they don’t get it because they can’t imagine it, or maybe they don’t get it because someone else has already told them what’s useful or good, and what they heard doesn’t include your idea.
Don’t let these people bring you down. Remember that they’re just taking the point of view that matches whatever the popular cultural view of the moment is. They only know what they’re exposed to. It’s a type of prejudice, actually, a type of prejudice that is absolutely against the spirit of invention.

Source:
Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.
(Note: Italics and centered ellipsis in original; initial ellipsis added.)

Inventor Wozniak Tries Entrepreneurship

(p. 247) In a way, that happened to me. The US Festival was exactly the opposite of the Apple experience for me. It didn’t come easily. It involved having plans to get certain groups, and having those groups cancel. It involved having plans for sites, and having those sites cancel. It involved having plans for equipment, and having the equipment not come through. It was a costly battle to do all the right things, but we did them anyway.

I’d written a check. I had confidence in my people. I’d already taken a stand, and when you take a stand, you don’t back away from it. Sometimes this has been a big problem in my life–especially marriage-wise–but if I’m in, I’m in. I don’t back out. And by the time I could see this was a disaster, I had this guy, Pete Ellis, and all the people he’d hired, counting on me. I couldn’t just (p. 248) all of a sudden pull the rug out. And we’d already planned the date: the first US Festival would be the Labor Day weekend of 1982, right after my first year back at school.
. . .
(p. 255) I loved that first US Festival concert, and I knew I’d made so many people happy doing it. We thought from press reports that enough people–nearly half a million–had shown up. So we thought that would make us money. But we lost money, nearly $12 million, because it turned out we didn’t sell as many tickets as there were people.

Source:
Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

Obama Mentor Saul Alinsky on Chicago Reform Candidates

(p. A15) When Barack Obama came to prominence as a presidential candidate, his Chicago background–in particular, his efforts as a “community organizer”–reignited an interest in Saul Alinsky (1909-72), the hard-charging activist whose 1971 book, “Rules for Radicals,” was said to have had a formative influence on Mr. Obama’s thinking.
. . .
Hardscrabble though his youth had been, Alinsky managed to get into the University of Chicago, where his major was archaeology. When the Depression dried up money for digs, he wangled a fellowship to study criminology and began hanging out with gangsters as part of his study, including Al Capone’s “enforcer,” Frank Nitti.
Mr. von Hoffman tells us that one of Alinsky’s favorite stories involved a meeting between Nitti and Anton Cermak just after Cermak had been elected Chicago’s mayor in 1931. The meeting’s purpose was to negotiate the money that Capone would pay the city to keep its speakeasies stocked with beer and liquor: “As Saul told the story,” Mr. von Hoffman writes, “Cermak explained to Nitti, ‘You know I was elected as a reform candidate.’ To which Nitti replied, ‘What the hell does that mean, Tony?’ and waited for an answer. ‘It means,’ the mayor said after a suitable pause, ‘that the price is double.’ ”
The anecdote nicely illustrates the cynicism that informed Alinsky’s ideas about the way the world works.

For the full review, see:
CHRISTOPHER WILLCOX. “A Chicago-Style Peace Disturber; ‘Community organizer’ Saul Alinsky lumped politicians in with gangsters..” The Wall Street Journal (Thurs., July 15, 2010): A15.
(Note: ellipsis added.)

The book under review is:
von Hoffman, Nicholas. Radical: A Portrait of Saul Alinsky. New York: Nation Books, 2010.

Apple Fired Mike Scott for Firing the Laggards

Wozniak writes of pre-1983 management troubles at Apple, in the passage quoted below. The passage highlights that large companies usually lose flexibility in hiring and firing. Good managers who have tacit (or just insufficiently documented) judgment about who the best employees are, have limited ability to act on that knowledge.
I wonder if this is a necessary disadvantage of size, or a disadvantage that is due to our laws, customs and institutions?

(p. 231) By this time, I should point out, Mike Scott–our president who took us public and the guy who took us through the phenomenally successful IPO–was gone. During the time the Apple III was being developed, he thought we’d grown a bit too large. There were good engineers, sure, but there were also a lot of lousy engineers floating around. That happens in any big company.

It’s not necessarily the lousy engineer’s fault, by the way. There’s always going to be some mismatch between an engineer’s interests and the job he’s doing.
Anyway, Scotty had told Tom Whitney, our engineering manager, to take a vacation for a week. And meanwhile he did some research. He went around and talked to every engineer in the company and found out who was doing what and who was working and who wasn’t doing much of anything.
Then he fired a whole bunch of people. That was called Bloody Monday. Or, at least, that’s what it ended up being called in the Apple history books. I thought that, pretty much, he fired all the right ones. The laggards, I mean.
And then Mike Scott himself was fired. The board was just very pissed that he’d done this without a lot of backing and enough due process, the kind of procedure you’re supposed to follow at a big company.
Also, Mike Markulla told me Mike Scott had been making a lot of rash decisions and decisions that just weren’t right. Mike thought Scotty wasn’t really capable of handling the company given the point and size it had gotten to.
I did not like this one bit. I liked Scotty very, very much as a person. I liked his way of thinking. I liked his way of being able to joke and be serious. With Scotty, I didn’t see many things fall (p. 232) through the cracks. And I felt that he respected the good work that I did–the engineering work. He came from engineering.
And as I said, Scotty had been our president, our leader from day one of incorporation until we’d gone public in one of the biggest IPOs in U.S. history. And now, all of a sudden, he was just pushed aside and forgotten.
I think it’s sad that none of the books today even seem to recall him. Nobody knows his name. Yet Mike Scott was the president that took us through the earliest days.

Source:
Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

“A Rare Phenomenon in Europe — A Genuine Business Celebrity”

“Nicolas Hayek was asked to help shut the troubled Swiss watch industry, but instead he revived it by introducing the Swatch.” Source of caption and photo: online version of the NYT article quoted and cited below.

Richard Langlois has used the story of Nicolas Hayek to illustrate why Schumpeter was wrong when he worried that the entrepreneur might become obsolete.

(p. A23) Nicolas Hayek, a Lebanese-born business consultant who is widely credited with having saved the Swiss watch industry with the introduction of the Swatch, the inexpensive, plastic — and, as it transpired, highly collectible — wristwatch that made its debut in 1983, died Monday in Biel, Switzerland. He was 82.

Mr. Hayek, a founder and the chairman of the Swatch Group, died of heart failure while working at the company’s headquarters, according to an announcement on the company Web site.
The formation of the Swatch Group, which in addition to Swatch today comprises high-end watch brands like Breguet, Omega, Longines, Tissot, Calvin Klein and Mido, made Mr. Hayek one of Switzerland’s wealthiest men. The exquisite irony is that the company came about after Mr. Hayek was brought in to help shut the foundering Swiss watch industry altogether.
A flamboyant figure with a roguish sense of humor, Mr. Hayek was “a rare phenomenon in Europe — a genuine business celebrity,” as The Harvard Business Review described him in 1993.

For the full story, see:
MARGALIT FOX. “Nicolas Hayek Dies at 82; His Swatch Saved an Industry.” The New York Times (Tues., June 29, 2010): A23.
(Note: the online version of the article is dated June 28, 2010.)

Nicolas Hayek’s entrepreneurship is nicely summarized and analyzed on pp. 59-65 of:
Langlois, Richard N. The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy. London: Routledge, 2006.

The Problems of Design by a Marketing Committee

(p. 226) So why did the Apple Ill have so many problems, despite the fact that all of our other products had worked so great? I can answer that. It’s because the Apple III was not developed by a single engineer or a couple of engineers working together. It was developed by committee, by the marketing department. These (p. 227) were executives in the company who could take a lot of their power and decide to put all their money and resources in the direction of their own ideas. Their own ideas as to what a computer should be.

Marketing saw that the business community would be the bigger market. They saw that the typical small businessman went into a computer store, bought an Apple II, a printer, the VisiCalc spreadsheet program, and two plug-in cards. One was a memory card, which allowed them to run larger spreadsheets. And the other was an eighty-column card, which allowed them to present eighty columns of characters across the video display, instead of the normal forty. Forty columns was the limit of American TVs.
So they came up with the idea that this should all be built into a single machine: the Apple III. And it was built.
Initially there was virtually no software designed for the Apple III. Yet there were hundreds of software programs you could buy for the Apple II. So to have a lot of software right away, Apple built the Apple III as a dual computer–there was a switch that let you select whether the computer started up as an Apple II or as an Apple III. (The Apple III hardware was designed to be extremely compatible with the Apple II, which was hard to improve on.) It couldn’t be both at. once.
And it was here they did something very wrong. They wanted to set the public perception of the Apple III as a business computer and position the Apple II as the so-called home hobby machine. The little brother of the family. But get this. Marketing had us add chips–and therefore expense and complexity–to the Apple III in order to disable the extra memory and eighty column triodes if you booted it up as an Apple II.
This is what killed the Apple Ill’s chances from the get-go. Here’s why. A businessman buying an Apple II for his work could easily say, “I’ll buy an Apple III, and use it in the Apple II mode since I’m used to it, but I’ll still have the more modern machine.” (p. 228) But Apple killed the product that businessman would want by disabling the very Apple II features (extra memory and eighty- column mode) he was buying the computer for.
Out of the chute, the Apple Ill got a lot of publicity, but there was almost nothing you could run on it. As I said, it wasn’t reliable. And in Apple II mode, it was crippled.
To this day, it boggles my mind. It’s just not the way an engineer–or any rational person, for that matter–would think. It disillusioned me that big companies could work this way.

Source:
Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

Commodore, Atari, and Some Venture Capitalists, Refused to Fund Jobs and Wozniak

(p. 196) After Commodore turned us down, we went over to Al Alcorn’s house. He was one of the founders of Atari with Nolan Bushnell, and he was the one who’d hired Steve to do video games there two years before.

Now, I knew Al knew me. He knew I had designed Breakout, the one-player version of Pong. I remember that when we went to his house I was so impressed because he had one of the earliest color projection TVs. Man, in 1976, he would have been among the first people to have one. That was cool.
But he told us later that Atari was too busy with the video game market to do a computer project.
A few days after that, venture capitalists Steve had contacted started to come by. One of them was Don Valentine at Sequoia. He kind of pooh-poohed the way we talked about it.
He said, “What’s the market?”
“About a million,” I told him.
“How do you know?”
I told him the ham radio market had one million users, and this could be at least that big.
Well, he turned us down, but he did get us in touch with a guy named Mike Markkula. He was only thirty, he told us, but already retired from Intel. He was into gadgets, he told us. Maybe Mike would know what to do with us.

Source:
Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

HP Turns Down Wozniak Again

(p. 193) But I went to talk to the project manager, Kent Stockwell. Although I had done all these computer things with the Apple I and Apple II, I wanted to work on a computer at HP so bad I would have done anything. I would even be a measely printer interface engineer. Something tiny.

I told him, “My whole interest in life has been computers. Not calculators.”
(p. 194) After a few days, I was turned down again.
I still believe HP made a huge mistake by not letting me go to its computer project. I was so loyal to HP. I wanted to work there for life. When you have an employee who says he’s tired of calculators and is really productive in computers, you should put him where he’s productive. Where he’s happy. The only thing I can figure is there were managers and submanagers on this computer project who felt threatened. I had already done a whole computer. Maybe they bypassed me because I had done this single-handedly. I don’t know what they were thinking.
But they should’ve said to themselves, “How do we get Steve Wozniak on board? Just make him a little printer interface engineer.” I would’ve been so happy, but they didn’t bother to put me where I would’ve been happiest.

Source:
Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.

“Fun” and “Profits” as Motives for Entrepreneurship

(p. 184) After we started selling the boards to Paul Terrell–working day and night to get them to him on time–we had profits like I never imagined. Suddenly our little business was making more than I was making at HP. That wasn’t very much, admittedly. But still, it was a lot. We were building the boxes for $220 and selling them wholesale to Paul Terrell for $500.

And, of course, we didn’t need a ton of money to operate. I had a day job, so I looked at it as, Hey, cool. Extra money for pizza! As for Steve, he was living at home. I was twenty-five and he was only twenty-one at the time, so what expenses could we have, really? Apple didn’t have to make that much to sustain itself and be ongoing. We weren’t paying ourselves salaries or paying rent, after all. We didn’t have any patents to pay for. Or lawyers. It was a small-time business, and we weren’t worried that much about anything.
My dad, watching this, pointed out that we weren’t actually making money because we weren’t paying ourselves anything. But we didn’t care, we were having too much fun.

But note, only several pages later:

(p. 194) Like I said before, we needed money. Steve knew it and I knew it.

So by that summer of 1976, we started talking to potential money people about Apple, showing them the Apple II working in color in Steve’s garage.

Source:
Wozniak, Steve, and Gina Smith. iWoz: Computer Geek to Cult Icon: How I Invented the Personal Computer, Co-Founded Apple, and Had Fun Doing It. New York: W. W. Norton & Co., 2006.