Books – Page 154 – artdiamondblog.com

Economic Understanding of the Great Depression is Still “Fragmentary”

In the last few decades the accepted opinion among most economists was that the profession understood what caused the Great Depression sufficiently so that we could be confident that we know how to avoid another Great Depression in the future.
Now the accepted opinion is becoming less accepted. I quote below the last sentence of Harold Cole’s review of a 2007 book that surveys current views of the Great Depression by distinguished economists:

(p. 418) I came away from the book struck by the fragmentary state of the science with respect to the Great Depression and the challenges that we still face in terms of developing a truly satisfactory quantitative theory of what happened.

Source:
Cole, Harold. “Review of Parker’s “the Economics of the Great Depression”.” Journal of Economic Literature 46, no. 2 (June 2008): 415-18.

The book under review is:
Parker, Randall E. The Economics of the Great Depression: A Twenty-First Century Look Back at the Economics of the Interwar Era. Cheltenham, U.K. and Northampton, Mass.: Elgar, 2007.

55% of Nebraskans Favor School Vouchers

The Friedman Foundation mentioned in the passage below, was founded by Nobel Prize winning economist Milton Friedman who is often credited with creating the idea of education vouchers in his classic book Capitalism and Freedom.
Capitalism and Freedom was based on a series of lectures that Friedman delivered at Wabash College at the invitation of my much-missed mentor Ben Rogge. (Before teaching me economics in Indiana, Rogge was a native Nebraskan who earned his bachelor’s degree from Hastings College.)

(p. 4B) A majority of Nebraskans are open to school-choice reforms such as school vouchers and tax-credit scholarships, according to a survey made public Thursday by a national school-choice group.

“It really appears Nebraska is ready to start talking about school-choice reform options,” said Paul DiPerna, director of partner services for the Friedman Foundation for Educational Choice, which commissioned the survey.
The group partnered with the Nebraska Catholic Conference and other state and national groups to conduct the telephone survey of 1,200 likely voters.
Fifty-five percent of those surveyed said they favored school vouchers and supported a tax-credit scholarship system, which would give tax credits to individuals and businesses that contribute money to nonprofit organizations that distribute private school scholarships.

For the full story, see:
Dejka, Joe. “Support for school choice tax plan seen; An Indianapolis organization says its survey shows Nebraskans would back a pending bill.” Omaha World-Herald (Fri., Sept. 18, 2009): 4B.

Jane Jacobs “Rightly Condemned the Arrogance and Elitism of Urban Planners”

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

(A15) In her day, she was a tenacious activist and an opponent of powerful interests, courting disfavor in high places. But today everyone loves Jane Jacobs, and understandably so. The author of the now-classic “The Death and Life of Great American Cities” (1961) is widely regarded as a common-sense visionary who reminded people about what makes cities livable.

According to Anthony Flint, the author of ”Wrestling With Moses,” Jacobs’s most important contribution was the idea that “cities and city neighborhoods had an organic structure of their own that couldn’t be produced at the drafting table.” Mr. Flint, a former journalist who now works at the Lincoln Institute of Land Policy, clearly counts himself as a Jacobs fan. His book is a lively and informative valentine to her, aimed at showing us especially how she “took on New York’s master builder and transformed the American city.”
The villain of the story is Robert Moses, the ”master builder” who for four decades–from the 1930s into the 1960s–led several well-funded, quasi-governmental agencies and radically transformed the landscape of New York, building roads, bridges, tunnels, parks, playgrounds, beaches and public housing. Though he never held elective office, he was powerful indeed, establishing a formidable base in the city and state bureaucracies. He might have fallen into obscurity after his death if it were not for Robert Caro, who immortalized Moses in “The Power Broker” (1974), a massive biography that portrays Moses as a despot whose creations helped to destroy the city.
. . .
One roots for Jacobs every step of the way, not least because she rightly condemned the arrogance and elitism of urban planners. And Moses was, in fact, a bully who had acquired too much power and disregarded the concerns of local residents. Slum clearance too often targeted functioning working-class neighborhoods, and urban renewal went far beyond what its utopian aims could possibly deliver.

For the full review, see:
VINCENT J. CANNATO. “Not Here, She Said; How Jane Jacobs fought the ‘power broker’ to save the Village–and a city.” The Wall Street Journal (Thurs., July 29, 2009): A15.
(Note: ellipsis added.)

The source of the book being reviewed, is:
Flint, Anthony. Wrestling with Moses: How Jane Jacobs Took on New York’s Master Builder and Transformed the American City. New York, NY: Random House, Inc., 2009.

Obama Industrial Policy Risks Funding Dead Ends

(p. B1) President Obama has cast himself as a reluctant interventionist in two of the nation’s major industries, Wall Street and Detroit. The federal aid, he says, is a financial bridge to a postcrisis future and the hand-holding will be temporary.

Even so, the scale of the government investment and control — especially by the auto task force now vetting plans at Chrysler and General Motors — points to an approach that has been shunned by the United States more than other developed nations.
“By any coherent definition, this is industrial policy,” said Marcus Noland, a senior fellow at the Peterson Institute for International Economics.
. . .
(p. B7) . . . a more comprehensive, industrial-policylike approach to Detroit carries its own perils, economists say. In trying to manage the industrial shrinkage, they say, there is a fine line between easing the social impact and protecting jobs in ways that inhibit economic change and renewal. In pursuit of new growth, governments risk encouraging overinvestment in areas that prove to be technological dead ends.
In the Japanese experience, economists see evidence of both dangers. Problems, they say, are typically byproducts of what economists call “political capture.” That is, an industrial sector earmarked for special government attention builds up its own political constituency, lobbyists and government bureaucrats to serve that industry. They slow the pace of change, and an economy becomes less nimble and efficient as a result.
Economists say the phenomenon is scarcely confined to nations with explicit industrial policies and cite the history of agricultural subsidies in America or military procurement practices.
But going down the path of industrial policy certainly holds that risk. “You have to bear in mind the opportunity costs of these kinds of government interventions, and remember that life is not an economic textbook and that politics can easily override economic rationality,” said Mr. Noland, an author, with Howard Pack, of “Industrial Policy in an Era of Globalization: Lessons From Asia.”

For the full story, see:
STEVE LOHR. “Highway to the Unknown; Forays in Industrial Policy Bring Risks.” The New York Times (Weds., May 19, 2009): B1 & B7.
(Note: the online title is “In U.S., Steps Toward Industrial Policy in Autos.”)
(Note: ellipses added.)
The full reference to Noland and Pack’s book is:
Noland, Marcus, and Howard Pack. Industrial Policy in an Era of Globalization: Lessons from Asia, Policy Analyses in International Economics. Washington, D.C.: Peterson Institute, 2003.

“Axel Springer Has Dared to Compete with Itself”

The European newspaper publisher Axel Springer, discussed in the story quoted below, appears to be following the advice of Christensen and Raynor in their book The Innovator’s Solution. In that book, they suggest that incumbent firms need to be willing to set up units that compete with their older business models, if they hope to survive the introduction of disruptive innovations.

(p. B4) PARIS — As the death toll in the American newspaper industry mounted this month, the German publisher Axel Springer, which owns Bild, the biggest newspaper in Europe, reported the highest profit in its 62-year history.
. . .
Axel Springer generates 14 percent of its revenue online, more than most American newspapers, even though the markets in which it operates — primarily Germany and Eastern Europe — are less digitally developed than the United States.
One reason, Mr. Döpfner said, is that Axel Springer has dared to compete with itself. Instead of trying to protect existing publications, it acquired or created new ones, some of which distribute the same content to different audiences.
At one newsroom in Berlin, for example, journalists produce content for six publications: the national newspaper Die Welt, its Sunday edition and a tabloid version aimed at younger readers; a local paper called Berliner Morgenpost, and two Web sites.

For the full story, see:
ERIC PFANNER. “European Newspapers Find Creative Ways to Thrive in the Internet Age.” The New York Times (Mon., March 29, 2009): B4.
(Note: ellipsis added.)

The Christensen and Raynor book mentioned above, is:
Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

Aid Dependency “Kills Entrepreneurship”

Dambisa Moyo. Source of photo: online version of the NYT article quoted and cited below.

(p.11) You argue in your book that Western aid to Africa has not only perpetuated poverty but also worsened it, and you are perhaps the first African to request in book form that all development aid be halted within five years.

Think about it this way — China has 1.3 billion people, only 300 million of whom live like us, if you will, with Western living standards. There are a billion Chinese who are living in substandard conditions. Do you know anybody who feels sorry for China? Nobody.

Maybe that’s because they have so much money that we here in the U.S. are begging the Chinese for loans.

Forty years ago, China was poorer than many African countries. Yes, they have money today, but where did that money come from? They built that, they worked very hard to create a situation where they are not dependent on aid.

What do you think has held back Africans?

I believe it’s largely aid. You get the corruption — historically, leaders have stolen the money without penalty — and you get the dependency, which kills entrepreneurship. You also disenfranchise African citizens, because the government is beholden to foreign donors and not accountable to its people.

If people want to help out, what do you think they should do with their money if not make donations?

Microfinance. Give people jobs.

For the full interview, see:
DEBORAH SOLOMON, interviewer. “Questions for Dambisa Moyo; The Anti-Bono.” The New York Times, Magazine (Sun., Feb. 22, 2009): 11.

Source of book image: http://media.us.macmillan.com/jackets/500H/9780374139568.jpg

Government Regulations Stifle Creative Venture Capital

(p. A9) This is a good time to recall that the venture-capital industry was born as a reaction to New Deal regulations that stifled capital and prolonged the Depression. The country’s first venture-capital firm (other than family-run funds) was American Research and Development, planned in the 1930s and launched after World War II in Boston.

Its leader was longtime Harvard Business School professor Georges Doriot, who is the subject of a fascinating recent biography, “Creative Capital,” by Spencer Ante. Mr. Ante, a BusinessWeek editor, tells me that as he researched the topic “one of the most surprising things I learned was how concerned financiers and industrialists had become about the riskless economy in direct response to the New Deal. Even in the 1930s, people understood that small business was the lifeblood of the economy.”
American Research and Development backed early-stage companies deemed too risky by banks and investment trusts at the time. The firm was an early investor in Digital Equipment Corp., the Boston-area company that revolutionized computing.
Despite financial success, the history of the firm is a reminder that our regulatory system, by its nature focused on avoiding risk, has a hard time dealing with investment firms whose mission is to take risks. Doriot was a well-known name in commerce and academia from the 1940s through the 1970s. He was the first French graduate of Harvard Business School, a founder of the INSEAD business school and a leading adviser to the U.S. military.
But even as a pillar of Boston’s commercial and academic worlds, Doriot had many run-ins with federal regulators. Over the years, regulators dictated compensation for the American Research and Development staff, tried to force disclosure of the performance of its early-stage companies, and second-guessed how it tracked the valuations of its investments.
The Securities and Exchange Commission hounded the company so often that Doriot once wrote a three-page memo saying, “ARD has more knowledge of what is right and wrong than the average person at the SEC.” He was prudent enough not to send it. He did mail another memo to the SEC enforcement office in Boston, in 1965: “I rather resent, after 20 years of experience, to have two men come here, spend two days, and tell us that we do not know what we are doing.”
. . .
No venture capital firm has asked to be bailed out, and none are too big to fail. As hard as it is for regulators to understand, the nature of venture capital is such that it should not even aspire to be a low-risk enterprise

For the full commentary, see:

L. GORDON CROVITZ. “No Such Thing as Riskless Venture Capital; New regulations could retard the innovation our economy needs.” The Wall Street Journal (Weds., AUGUST 9, 2009): A19.
(Note: ellipsis added.)

America’s “Wealth Culture” is Democratic, Diverse, and Resilient

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

(p. W6) . . . “Rich” contains an interesting argument, if only one can find it. Mr. Samuel contends that the 20th century has seen the creation of a distinctly American “wealth culture” that is more democratic and more diverse than anything the world has seen before, and consequently more resilient.
. . .
The Reagan revolution, thanks to its lowered taxes and deregulated economy, produced a flood of new millionaires; it also removed some of the guilt that had come to cling to wealth. (President Reagan said that he wanted America to remain a country in which people could dare to be rich.) More than the Reaganauts, though, it was the computer geeks of Silicon Valley who both stimulated and legitimized wealth- creation. They not only pioneered a productivity miracle, they also embodied the “American” values of meritocracy and democracy, earning big rewards for big innovations and scattering stock options among their employees. America Online, Mr. Samuel observes, created 2,000 millionaires during the 1990s.
The road from the top-hatted John D. Rockefeller to the be-chinoed Bill Gates is undoubtedly a long one, and yet, remarkably, much of the landscape of American wealth remains the same. The U.S. has a genius for producing entrepreneurs who can turn the latest technology into piles of gold. Less than 10% of today’s rich inherited their wealth, for example, and many are ”instapreneurs,” transformed in an instant from penury to prosperity.

For the full review, see:

ADRIAN WOOLDRIDGE. “Review; The Evolution of Wealth; Discerning a distinctly American style of affluence.” The Wall Street Journal (Fri., July 31, 2009): W6.
(Note: ellipses added.)

Reference to the reviewed book:
Samuel, Larry. Rich: The Rise and Fall of American Wealth Culture. New York: AMACOM, 2009.

In Early Days Entrepreneur Honda “Pawned His Wife’s Jewelry for Funds”

(p. 217) At the root and origin of all great empires of industry can usually be found a perspiring entrepreneur, often frustrated and fatigued, struggling over a machine that won’t quite work.

Honda, for example, was to become the world’s single most brilliant and successful entrepreneur of mechanical engineering since Henry Ford. But only the perspiration of genius was in sight during that period before the war when he embarked on a siege of day-and-night study and experiment in the techniques of casting, in his attempt to make a piston ring. He lived at the factory, turning from a gay blade into a hirsute and harried hermit, stinking of grease and sweat, while his savings ran out, his friends fretted, his parents reminded him of promising opportunities in auto repair, and he pawned his wife’s jewelry for funds.

Source:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

Wealth Consists Mainly in Ideas

(p. 67) Through all the centuries of man, there has recurred this same morbid misunderstanding of the nature of wealth and the wealth of nations. Always wealth is seen as something solid and calculable: to be seized and held, clutched and hoarded, measured and inventoried, amassed and monopolized. In the age of imperialism, it was imagined to consist in land and the armies that could acquire it; in the mercantilist era, it was recognized as bullion, gained through a favorable balance of trade; in every period, men have fawned over gems and glitter; in the modern age, fossil fuels and strategic minerals have seemed to be the open sesame, but seekers of wealth still fumble for gold and baubles, and real estate as well.

All bespeak the materialistic fallacy, a fixation of leftists, but a shibboleth also for much of the intelligentsia of capitalism: the idea that wealth is material and collectible, finite and definable, subject to measurement and inventory, to entropy and exhaustion. The way to get rich is to find some precious substance and (p. 68) hold It. Its price will inevitably rise in time as its quantity declines with use. This is the fantasy through which Pierre Trudeau was bankrupting Canada in the early 1980s and the Arab leaders were impoverishing the world and destroying their own future.
Wealth consists not chiefly in things but in thought: in the ideas and applications that confer value to what seems useless to the uninformed. The Arab leaders should learn that they can best enhance the value of oil–and the wealth of oil-producing nations–by lowering its price and enlarging its uses. This is the central rule of riches, understood by every major titan of wealth, from John D. Rockefeller and Henry Ford to the entrepreneurs of modern computers and the industrialists of contemporary Japan. Each gained his fortune not by increasing the price of his product but by drastically dropping it, bringing it within the reach of the creative uses and ideas of millions, and thus vastly enlarging its total value and market.

Source:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

“Established Experts Flee in Horror to All Available Caves and Cages”

(p. 96) While science and enterprise open vast new panoramas of opportunity, our established experts flee in horror to all available caves and cages, like so many primitives, terrified by freedom and change.

Source:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.