Economics – Page 131 – artdiamondblog.com

Technology Platforms Will Create Decades of Gales of Creative Destruction

(p. A11) For traditional businesses, economies of scale are the key to competitive advantage: Larger firms have lower average costs. In the digital economy, network effects matter most. In “Matchmakers” (Harvard Business Review, 260 pages, $35), David S. Evans (a consultant) and Richard Schmalensee (a professor of management) highlight two particular forms.
Direct network effects occur when additional users make a service more valuable for everyone. If one’s colleagues are all on, say, LinkedIn, it will be hard for another professional network to exert a strong appeal. Without the critical mass of LinkedIn, the alternative will have less utility even if its features are better. Indirect network effects arise from positive feedback loops between opposing sides of a market. The value of Rightmove, for instance, the leading online real-estate site in Britain, comes from a matching function: Since each home is unique, buyers prefer the site with the most properties, and real-estate agents favor the site with the most buyers. This virtuous cycle magnifies Rightmove’s advantage even though participants on each side of the market compete with one another: More buyers increase competition for the same homes, and agents compete for buyers.
. . .
“Matchmakers” is . . . measured and analytical . . . . The authors fairly conclude that, while the telegraph was “a far more important multisided platform” than anything produced so far by the Internet, platforms are “behind the gales of creative destruction that . . . will sweep industries for decades to come.”

For the full review, see:

JEREMY G. PHILIPS. “Why Facebook’s Imitators Failed; If one’s coworkers are all on the same platform, any alternative will have less utility–even if its features are better.” The Wall Street Journal (Thurs., May 19, 2016): A11.
(Note: the ellipsis between paragraphs, and the first two in the final quoted paragraph, are added; the third ellipsis in the final paragraph is in the original.)
(Note: the online version of the review has the date May 18, 2016.)

The book under review, is:
Evans, David S., and Richard Schmalensee. Matchmakers: The New Economics of Multisided Platforms. Boston: Harvard Business Review Press, 2016.

Taylor Swift Defends Intellectual Property Rights

(p. A11) In battles against tech titans, Chinese e-commerce swindlers and others, Ms. Swift has repeatedly insisted on being paid for her music and brand–and in the process has taught some valuable lessons in basic economics.
. . .
Last year she picked a fight with Apple after the company announced plans to launch its Apple Music streaming service with a three-month trial period during which users wouldn’t pay subscription fees and Apple wouldn’t pay royalties for the songs streamed.
. . .
Ms. Swift had less luck trying to get the Spotify streaming service to restrict her songs to paying customers, so in 2014 she pulled her catalog from the platform entirely. Her manager said Spotify’s royalty payments are miserly compared with regular album revenues: “Don’t forget this is for the most successful artist in music today. What about the rest of the artists out there struggling to make a career?”
Ms. Swift’s most ambitious crusade may be in China, where she has launched branded clothing lines with special antipiracy mechanisms to combat rampant counterfeiting on e-commerce sites like Alibaba’s Taobao. Said one of the branding executives leading the effort: “It’s time for Chinese companies to say, ‘We don’t want to be known for piracy anymore.’ ” Good luck with that.

For the full commentary, see:

DAVID FEITH. “In Support of Taylor Swift, Economist.” The Wall Street Journal (Thurs., July 21, 2016): A11.
(Note: ellipses added.)
(Note: the online version of the commentary has the date July 20, 2016.)

Based on Cost and Fairness, 76.9% of Swiss Voters Say “No” to Taxpayer-Paid Minimum Income for All

(p. C6) ZURICH–Swiss voters on Sunday overwhelmingly rejected a controversial initiative that would have guaranteed all Swiss residents a minimum income on which to live.
The Basic Income Initiative received just 23.1% of the vote in Sunday’s referendum, compared with 76.9% against. . . .
Rather, the significance of Sunday’s vote–which the plan’s backers ensured by collecting the necessary 100,000 signatures–was that it gave a high-profile airing to an idea that has gained traction among economists in Europe and the U.S. in recent years.
Though the monthly amount wasn’t spelled out, it was expected to have been around 2,500 Swiss francs ($2,560) per adult, with a smaller subsidy for children, without regard to employment, education, disability, age or even wealth.
. . .
Opponents, . . . , latched on to two critiques: cost and fairness.

For the full story, see:
BRIAN BLACKSTONE. “Switzerland Votes to Reject Basic Income Initiative.” The Wall Street Journal (Mon., June 6, 2016): C6.
(Note: ellipses added.)
(Note: the online version of the story has the date June 5, 2016.)

Obama and Koch Brothers Agree Occupational Licensing Restricts Opportunity

“Grace Granatelli, a certified canine massage therapist. In 2013, Arizona’s Veterinary Medical Examining Board demanded that she close up shop for medically treating animals without a veterinary degree.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B1) SCOTTSDALE, Ariz. — “I usually start behind the neck,” Grace Granatelli said from her plump brown sofa. “There’s two pressure points back behind the ears that help relax them a little bit.” In her lap, she held the head of Sketch, her mixed beagle rat terrier, as her fingers traced small circles through his fur.

Ms. Granatelli, whose passion for dogs can be glimpsed in the oil portrait of her deceased pets and the bronzed casts of their paws, started an animal massage business during the recession after taking several courses and workshops. Her primary form of advertising was her car, with its “K9 RUBS” license plate and her website, Pawsitive Touch, stenciled onto her rear window.
But in 2013, Arizona’s Veterinary Medical Examining Board sent her a cease-and-desist order, demanding that she close up shop for medically treating animals without a veterinary degree. If not, the board warned, every Swedish doggy massage she completed could cost her a $1,000 fine.
To comply with the ruling and obtain a license, Ms. Granatelli would have to spend about $250,000 over four years at an accredited veterinary school. None require courses in massage technique; many don’t even offer one.
. . .
(p. B5) The Obama administration and the conservative political network financed by the Koch brothers don’t agree on much, but the belief that the zeal among states for licensing all sorts of occupations has spiraled out of control is one of them. In recent months, they have collaborated with an array of like-minded organizations and political leaders in a bid to roll back licensing rules.
. . .
. . . the current mishmash of requirements is too often “inconsistent, inefficient, and arbitrary,” a White House report concluded last year. Many of them, the report said, have little purpose other than to protect those already in the field from further competition.
. . .
Only rarely are licensing requirements removed. Last month, though, Arizona agreed to curb them for yoga teachers, geologists, citrus fruit packers and cremationists.
But dozens more professions escaped the ax. “Arizona is perceived as a low-regulatory state, but this was the most difficult bill we worked on this session,” said Daniel Scarpinato, a spokesman for the Republican governor, Douglas Ducey.
Licensing boards are generally dominated by members of the regulated profession. And in Arizona, more than two dozen of the boards are allowed to keep 90 percent of their fees, turning over a mere 10 percent of the revenue to the state.
“They use that money to hire contract lobbyists and P.R. people,” Mr. Scarpinato said. “This is really a dark corner of state government.”
They are often joined in their campaign by lobbyists from industry trade associations and for-profit colleges, which sell the required training courses.

For the full story, see:
PATRICIA COHEN. “Horse Rub? Where’s Your License?” The New York Times (Sat., JUNE 18, 2016): B1 & B5.
(Note: ellipses added.)
(Note: the online version of the story has the date JUNE 17, 2016, and has the title “Moving to Arizona Soon? You Might Need a License.”)

The White House report mentioned above, is:
The White House. “Occupational Licensing: A Framework for Policy Makers.” July 2015.

$10,000 Universal Income Would Reduce Work and Cost Taxpayers Trillions

(p. B4) This month [June 2016], Charles Murray of the American Enterprise Institute will publish an updated version of his plan to replace welfare as we know it with a dollop of $10,000 in after-tax income for every American above the age of 21.
. . .
Its first hurdle is arithmetic. As Robert Greenstein of the left-leaning Center on Budget and Policy Priorities put it, a check of $10,000 to each of 300 million Americans would cost more than $3 trillion a year.
Where would that money come from? It amounts to nearly all the tax revenue collected by the federal government. Nothing in the history of this country suggests Americans are ready to add that kind of burden to their current taxes. Cut it by half to $5,000?
. . .
As Lawrence H. Summers, the former Treasury secretary and onetime top economic adviser to President Obama, told me, paying a $5,000 universal basic income to the 250 million nonpoor Americans would cost about $1.25 trillion a year. . . .
The popularity of the universal basic income stems from a fanciful diagnosis born in Silicon Valley of the challenges faced by the working class across industrialized nations: one that sees declining employment rates and stagnant wages and concludes that robots are about to take over all the jobs in the world.
. . .
Work, as Lawrence Katz of Harvard once pointed out, is not just what people do for a living. It is a source of status. It organizes people’s lives. It offers an opportunity for progress. None of this can be replaced by a check.
A universal basic income has many undesirable features, starting with its non-negligible disincentive to work. Almost a quarter of American households make less than $25,000. It would be hardly surprising if a $10,000 check each for mom and dad sapped their desire to work.
. . .
As Mr. Summers told a gathering last week at the Brookings Institution, “a universal basic income is one of those ideas that the longer you look at it, the less enthusiastic you become.”

For the full commentary, see:
Porter, Eduardo. “ECONOMIC SCENE; Plan to End Poverty Is Wide of the Target.” The New York Times (Weds., June 1, 2016): B1 & B4.
(Note: ellipses, and bracketed date, added.)
(Note: the online version of the commentary has the date MAY 31, 2016, and has the title “ECONOMIC SCENE; A Universal Basic Income Is a Poor Tool to Fight Poverty.”)

The Role of Steve Jobs in the Creation of Pixar

(p. B4) . . . [a] book that isn’t out yet (until November [2016]): “To Pixar and Beyond: My Unlikely Journey with Steve Jobs to Make Entertainment History” by Lawrence Levy, the former chief financial officer of Pixar. What a delightful book about the creation of Pixar from the inside. I learned more about Mr. Jobs, Pixar and business in Silicon Valley than I have in quite some time. And like a good Pixar film, it’ll put a smile on your face.

For the full commentary, see:
Sorkin, Andrew Ross. “DEALBOOK; Tell-Alls, Strategic Plans and Cautionary Tales.” The New York Times (Tues., JULY 5, 2016): B1 & B4.
(Note: ellipsis, and bracketed word and year, added.)
(Note: the online version of the commentary has the date JULY 4, 2016, and has the title “DEALBOOK; A Reading List of Tell-Alls, Strategic Plans and Cautionary Tales in Finance.”)

The book praised by Sorkin in the passage quoted above, is:
Levy, Lawrence. To Pixar and Beyond: My Unlikely Journey with Steve Jobs to Make Entertainment History. Boston, MA: Houghton Mifflin Harcourt, 2016.

Bourgeois Ideology Caused the Great Enrichment

(p. A13) What accounts for the wealth and prosperity of the developed nations of the world? How did we get so rich, and how might others join the fold?
Deirdre McCloskey, a distinguished economist and historian, has a clarion answer: ideas. It was ideas, she insists–about commerce, innovation and the virtues that support them–that account for the “Great Enrichment” that has transformed much of the world since 1800.
. . .
. . . , this monumental achievement was caused by a change in values, Ms. McCloskey says–the rise of what she calls, in a mocking nod to Marx, a “bourgeois ideology.” It was far from an apology for greed, however. Anglo-Dutch in origin, the new ideology presented a deeply moral vision of the world that vaunted the value of work and innovation, earthly happiness and prosperity, and the liberty, dignity and equality of ordinary people. Preaching tolerance of difference and respect for the individual, it applauded those who sought to improve their lives (and the lives of others) through material betterment, scientific and technological inquiry, self-improvement, and honest work. Suspicious of hierarchy and stasis, proponents of bourgeois values attacked monopoly and privilege and extolled free trade and free lives while setting great store by prudence, enterprise, decency and hope.

For the full review, see:
DARRIN M. MCMAHON. “BOOKSHELF; The Morality of Prosperity; Grinding poverty was the norm for humanity until 1800. It changed with the rise of values like tolerance and respect for individual liberty.” The Wall Street Journal (Mon., June 13, 2016): A13.
(Note: ellipses added.)
(Note: the online version of the review has the date June 12, 2016.)

The book under review, is:
McCloskey, Deirdre N. Bourgeois Equality: How Ideas, Not Capital, Transformed the World. Chicago: University of Chicago Press, 2016.

Government Land Use Regulations Increase Income Inequality

(p. A1) . . . a growing body of economic literature suggests that anti-growth sentiment, when multiplied across countless unheralded local development battles, is a major factor in creating a stagnant and less equal American economy.
It has even to some extent changed how Americans of different incomes view opportunity. Unlike past decades, when people of different socioeconomic backgrounds tended to move to similar areas, today, less-skilled workers often go where jobs are scarcer but housing is cheap, instead of heading to places with the most promising job opportunities, according to research by Daniel Shoag, a professor of public policy at Harvard, and Peter Ganong, (p. B2 [sic]) also of Harvard.
. . .
“To most people, zoning and land-use regulations might conjure up little more than images of late-night City Council meetings full of gadflies and minutiae. But these laws go a long way toward determining some fundamental aspects of life: what American neighborhoods look like, who gets to live where and what schools their children attend.
And when zoning laws get out of hand, economists say, the damage to the American economy and society can be profound. Studies have shown that laws aimed at things like “maintaining neighborhood character” or limiting how many unrelated people can live together in the same house contribute to racial segregation and deeper class disparities. They also exacerbate inequality by restricting the housing supply in places where demand is greatest.
The lost opportunities for development may theoretically reduce the output of the United States economy by as much as $1.5 trillion a year, according to estimates in a recent paper by the economists Chang-Tai Hsieh and Enrico Moretti. Regardless of the actual gains in dollars that could be achieved if zoning laws were significantly cut back, the research on land-use restrictions highlights some of the consequences of giving local communities too much control over who is allowed to live there.
“You don’t want rules made entirely for people that have something, at the expense of people who don’t,” said Jason Furman, chairman of the White House Council of Economic Advisers.

For the full story, see:
CONOR DOUGHERTY. “When Cities Spurn Growth, Equality Suffers.” The New York Times (Mon., July 4, 2016): A1 & B2 [sic].
(Note: the online version of the story has the date July 3, 2016, and has the title “How Anti-Growth Sentiment, Reflected in Zoning Laws, Thwarts Equality.”)

The paper mentioned above by Ganong and Shoag, is:
Ganong, Peter, and Daniel Shoag. “Why Has Regional Income Convergence in the U.S. Declined?” Working Paper, Jan. 2015.

The paper mentioned above by Hsieh and Moretti, is:
Hsieh, Chang-Tai, and Enrico Moretti. “Why Do Cities Matter? Local Growth and Aggregate Growth.” National Bureau of Economic Research (NBER) Working Paper # 21154, May 2015.

Tesla and Google Bet on Different Paths to Driverless Cars

(p. B1) SAN FRANCISCO — In Silicon Valley, where companies big and small are at work on self-driving cars, there have been a variety of approaches, and even some false starts.
The most divergent paths may be the ones taken by Tesla, which is already selling cars that have some rudimentary self-driving functions, and Google, which is still very much in experimental mode.
Google’s initial efforts in 2010 focused on cars that would drive themselves, but with a person behind the wheel to take over at the first sign of trouble and a second technician monitoring the navigational computer.
As a general concept, Google was trying to achieve the same goal as Tesla is claiming with the Autopilot feature it has promoted with the Model S, which has hands-free technology that has come under scrutiny after a fatal accident on a Florida highway.
But Google decided to play down the vigilant-human approach after an experiment in 2013, when the company let some of its employees sit behind the wheel of the self-driving cars on their daily commutes.
Engineers using onboard video cameras to remotely monitor the results were alarmed by what (p. B5) they observed — a range of distracted-driving behavior that included falling asleep.
“We saw stuff that made us a little nervous,” Christopher Urmson, a former Carnegie Mellon University roboticist who directs the car project at Google, said at the time.
The experiment convinced the engineers that it might not be possible to have a human driver quickly snap back to “situational awareness,” the reflexive response required for a person to handle a split-second crisis.
So Google engineers chose another route, taking the human driver completely out of the loop. They created a fleet of cars without brake pedals, accelerators or steering wheels, and designed to travel no faster than 25 miles an hour.
For good measure they added a heavy layer of foam to the front of their cars and a plastic windshield, should the car make a mistake. While not suitable for high-speed interstate road trips, such cars might one day be able to function as, say, robotic taxis in stop-and-go urban settings.

For the full story, see:
JOHN MARKOFF. “Tesla and Google Take Two Roads to Driverless Car.” The New York Times (Tues., JULY 5, 2016): B1 & B5.
(Note: the online version of the commentary has the date JULY 4, 2016, and has the title “Tesla and Google Take Different Roads to Self-Driving Car.”)

Most Eventually Successful Entrepreneurs Don’t Quickly Quit Their Day Jobs

(p. B4) For people who prefer an introspective read that is both inspiring and has a dash of self-help, Adam Grant’s “Originals: How Non-Conformists Move the World” is truly original. Mr. Grant, the youngest-ever tenured full professor at the Wharton School at the University of Pennsylvania, dives into what it takes to be a shoot-the-moon, Steve-Jobs-like success. Many of his conclusions are counterintuitive and based on deep research.
The biggest surprise for me was that the most successful entrepreneurs didn’t quit their day jobs to pursue their ideas; instead, they stayed at work until they had worked all the kinks out of their plans and gotten them off the ground. The other head-scratcher in this book? Procrastination is a great thing. (This was a terrific revelation.)
Mr. Grant’s research shows that some of the most creative thoughts develop during periods of so-called procrastination.

For the full commentary, see:
Sorkin, Andrew Ross. “DEALBOOK; Tell-Alls, Strategic Plans and Cautionary Tales.” The New York Times (Tues., JULY 5, 2016): B1 & B4.
(Note: the online version of the commentary has the date JULY 4, 2016, and has the title “DEALBOOK; A Reading List of Tell-Alls, Strategic Plans and Cautionary Tales in Finance.”)

The book praised by Sorkin in the passage quoted above, is:
Grant, Adam. Originals: How Non-Conformists Move the World. New York: Viking, 2016.

The Lucky Success of the Half-Blind “Becomes the Inevitable Coup of the Assured Visionary”

(p. B1) The most fun business book I have read this year? “Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley,” by a former Facebook executive, Antonio García Martinez. I was sent a galley copy several months ago and picked it up with no intention of reading more than the first couple of pages. I don’t think I looked up until about three hours later.
This is a tell-all of Mr. Martinez’s experience in venture capital and later at Facebook, filled with insights about Silicon Valley — what he calls “the tech whorehouse” — mixed with score-settling anecdotes that will occasionally make you laugh out loud. Clearly there will be people who hate this book — which is probably one of the things that makes it such a great read.
The dedication page includes this gem: “To all my enemies: I could not have done it without you.” Mr. Martinez is particularly incisive when it comes to illustrating how failed ideas that happen to work are often spun into great successes: “What was an improbable bonanza at the hands of the flailing half-blind becomes the inevitable coup of the assured visionary,” he writes. “The world crowns you a genius, and you start acting like one.”

The book praised by Sorkin in the passage quoted above, is:
Martinez, Antonio Garcia. Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley. New York: Harper, 2016.