Category: Economics

Steady-State Stagnation Is Not an Option

Some environmentalists advocate an end to economic growth. Inside economics, and in the broader world, a heated debate has considered whether an economy can long stagnate in a steady-state. The idea that it can, is captured in the circular flow diagram that has been a fixture of many introductory economics textbooks for many decades. I argue that without the dynamism that is achieved by innovative entrepreneurs, long-term stagnation is not an option. Exogenous events, such as earthquakes, will always come along to disturb the steady-state. And when they do, only entrepreneurs can restore the steady-state. If there are no entrepreneurs, there will be decline. If there are entrepreneurs, they will not stop at the steady-state; they will seek progress. The choice is forward or backward. Long-term steady-state stagnation is not an option.

(p. 10) SANKHU, Nepal — As the anniversary of Nepal’s devastating earthquake came and went last week, Tilakmananda Bajracharya peered up at the mountainside temple his family has tended for 13 generations, wondering how long it would remain upright.

. . .
Many people here pin their hopes on promises of foreign aid: After the disaster, images of collapsed temples and stoic villagers in a sea of rubble were beamed around the world, and donors came forward with pledges of $4.1 billion in foreign grants and soft loans.
But those promises, so far, have not done much to speed the progress of Nepal’s reconstruction effort. Outside Kathmandu, the capital, many towns and villages remain choked with rubble, as if the earthquake had happened yesterday. The government, hampered by red tape and political turmoil, has only begun to approve projects. Nearly all of the pledged funds remain in the hands of the donors, unused.
The delay is misery for the 770,000 households awaiting a promised subsidy to rebuild their homes. Because a yearly stretch of bad weather begins in June, large-scale rebuilding is unlikely to begin before early 2017, consigning families to a second monsoon season and a second winter in leaky shelters made of zinc sheeting.
. . .
. . . , some visitors who came here to assess the reconstruction expressed shock at how little had been done.
. . .
“It has been a horrible year,” said Anju Shrestha, 36, whose shed stands on a site that once held a three-story brick house.
A neighbor, Kanchhi Shrestha, guessed her age at about 75, based on a major earthquake that occurred two years before she was born. She pulled her skirt up to show feet splotchy with raw sores.
“I will die in this shelter if they do not give me money,” she said. “I have nothing to eat.”
However, she added, it would be inappropriate for a person like her to demand assistance from Nepal’s government.
“We cannot scold the government,” she said. “If the government provides, we will fold our hands and tell them, ‘You are God.’ “

For the full story, see:
ELLEN BARRY. “A Year Later, Nepal Is Trapped in the Shambles of a Devastating Quake.” The New York Times, First Section (Sun., May 1, 2016): 10.
(Note: ellipses added.)
(Note: the online version of the story has the date APRIL 30, 2016, and has the title “A Year After Earthquake, Nepal’s Recovery Is Just Beginning.”)

Plastic Buttons Replaced Seashell Buttons, but Technology Can Be Restored

In What Technology Wants, Kevin Kelly has made the point that most obsolete technologies remain available to satisfy nostalgia, or for more practical uses, if the need arises. Below is another example.

(p. C27) In a tan outbuilding overlooking a pond in northeastern Connecticut, equipment for turning seashells into buttons has lain fallow for nearly eight decades. The building’s owner, Mark Masinda, a retired university administrator, is working to transform the site into a tourist attraction.

In the early 1900s, his grandfather William Masinda, a Czech immigrant, supervised a dozen button makers in the building, which is on a rural road in Willington. They cut, drilled and polished bits of shells imported from Africa and Australia to make “ocean pearl buttons” with two or four holes. The area’s half-dozen button factories supplemented the incomes of families struggling to farm on rocky terrain.
The Masinda operation closed in 1938, as plastic flooded the market. “The equipment he had just couldn’t make the transition,” Mr. Masinda said.
. . .
Mr. Masinda is planning to reactivate the equipment and open the site for tours by . . . spring [2016].

For the full story, see:
EVE M. KAHN. “Antiques; Restoring a Button Factory.” The New York Times (Thurs., DEC. 3, 2015): C27.
(Note: ellipses, and bracketed year, added.)
(Note: the online version of the story has the date DEC. 3, 2015, and has the title “Antiques; Yale Buys Collection of Scattered Medieval Pages; Restoring a Button Factory.”)

The Kelly book mentioned above, is:
Kelly, Kevin. What Technology Wants. New York: Viking Adult, 2010.

Basic Goods Unavailable in Socialist Venezuela

(p. 5) I used to laugh when I heard that reporters were headed to Caracas with their own deodorant. I thought they were just being fussy.
Then came my turn.
I brought Old Spice. For detergent, I brought a ton of Tide. That’s one of my bags above, and all the other essentials that came along: two nasal spray bottles, three tubes of toothpaste, one package of floss, a bottle of body wash, shaving cream, contact lens solution, AA batteries, sponges, detergent, toilet paper and a big bottle of ibuprofen. Two bottles of Scotch.
If a selfie in the airport is a rite of passage for those leaving Venezuela, a preflight run to the supermarket to fill a suitcase with basic goods is the ritual for those arriving here.
Since the economy fell into deep collapse in 2015, some things just aren’t sold here. Other items — like toilet paper — are on the black market but can be tricky to find.
My friend Girish has been making these trips for the last five years. I asked him before moving here what to pack, besides toilet paper.
He responded, via text: “Medicine. First Aid stuff. Spices/other food you like. Kindle (as books aren’t so easy to get here), shampoos/toiletries etc if you like something specific…”
Like some people here, Girish brings enough to get him through a month or so. Then he makes a pit stop in Colombia to fill up the cabinet again.
But most people in Venezuela can’t leave and have to make do with whatever they can find.

For the full story, see:
NICHOLAS CASEY. “Settling Into Venezuela, a Land in Turmoil.” The New York Times, First Section (Sun., Jan. 24, 2016): 5 & 9.
(Note: ellipsis added.)
(Note: the online version of the story has the date January 5 [sic], 2016, and has the title “Moving to Venezuela, a Land in Turmoil.”)

Tesla Direct Sales Thwarted by Laws that Protect Dealers Instead of Consumers

(p. B3) Tesla Motors Inc. hopes to capture mainstream auto buyers with its Model 3, an electric car it plans to unveil this week at a price about the same as the average gasoline-powered vehicle, but it may need a federal court ruling to succeed.
The Palo Alto, Calif., auto maker’s direct-to-consumer sales are prohibited by law in six states that represent about 18% of the U.S. new-car market. Barring a change of heart by those states, Tesla is preparing to make a federal case out of the direct-sales bans.
The auto maker’s legal staff has been studying a 2013 federal appeals court ruling in New Orleans that determined St. Joseph Abbey could sell monk-made coffins to customers without having a funeral director’s license. The case emerged amid a casket shortage after Hurricane Katrina. The abbey had tried to sell coffins, only to find state laws restricted such sales to those licensed by the Louisiana Board of Funeral Directors.
For now, Tesla is banking on a combination of new legislation, pending dealer applications and other factors to open doors to selling directly in Arizona, Michigan, Texas, Connecticut, Utah and West Virginia. But the company said it is ready to argue in federal court using the coffin case if necessary.
“It is widely accepted that laws that have a protectionist motivation or effect are not proper,” Todd Maron, the auto maker’s chief counsel, said in an interview. “Tesla is committed to not being foreclosed from operating in the states it desires to operate in, and all options are on the table.”
. . .
“There is no legitimate competitive interest in having consumers purchase cars through an independent dealership,” Greg Reed, an attorney with Washington D.C.-based Institute for Justice, a libertarian-leaning law firm, said. He calls Michigan’s laws “anti-competitive protectionism.”

For the full story, see:
MIKE RAMSEY. “Tesla Weighs Legal Fight.” The Wall Street Journal (Tues., March 29, 2016): B3.
(Note: ellipsis added.)
(Note: the online version of the story has the date March 28, 2016, and has the title “Tesla Weighs New Challenge to State Direct-Sales Bans.”)

More Evidence that Once-Dynamic Florence Is Now Stagnant

(p. C1) New research from a pair of Italian economists documents an extraordinary fact: The wealthiest families in Florence today are descended from the wealthiest families of Florence nearly 600 years ago.
The two economists — Guglielmo Barone and Sauro Mocetti of the Bank of Italy — compared data on Florentine taxpayers in 1427 against tax data in 2011. Because Italian surnames are highly regional and distinctive, they could compare the income of families with a certain surname today, to those with the same surname in 1427. They found that the occupations, income and wealth of those distant ancestors with the same surname can help predict the occupation, income and wealth of their descendants today.

For the full story, see:
JOSH ZUMBRUN. “Florence’s Rich Stay Rich–for 600 Years.” The Wall Street Journal (Fri., May 20, 2016): C1-C2.
(Note: the online version of the story has the date May 19, 2016, and has the title “The Wealthy in Florence Today Are the Same Families as 600 Years Ago.” Where there are minor differences in the two versions, the passages quoted above follow the online version.)

The Barone and Mocetti working paper, is:
Barone, Guglielmo, and Sauro Mocetti “Intergenerational Mobility in the Very Long Run: Florence 1427-2011.” Bank of Italy Working Paper #1060, April 2016.

“Liberated People Are Ingenious”

(p. C1) Nothing like the Great Enrichment of the past two centuries had ever happened before. Doublings of income–mere 100% betterments in the human condition–had happened often, during the glory of Greece and the grandeur of Rome, in Song China and Mughal India. But people soon fell back to the miserable routine of Afghanistan’s income nowadays, $3 or worse. A revolutionary betterment of 10,000%, taking into account everything from canned goods to antidepressants, was out of the question. Until it happened.
. . .
(p. C2) Why did it all start at first in Holland about 1600 and then England about 1700 and then the North American colonies and England’s impoverished neighbor, Scotland, and then Belgium and northern France and the Rhineland?
The answer, in a word, is “liberty.” Liberated people, it turns out, are ingenious. Slaves, serfs, subordinated women, people frozen in a hierarchy of lords or bureaucrats are not. By certain accidents of European politics, having nothing to do with deep European virtue, more and more Europeans were liberated. From Luther’s reformation through the Dutch revolt against Spain after 1568 and England’s turmoil in the Civil War of the 1640s, down to the American and French revolutions, Europeans came to believe that common people should be liberated to have a go. You might call it: life, liberty and the pursuit of happiness.
To use another big concept, what came–slowly, imperfectly–was equality. It was not an equality of outcome, which might be labeled “French” in honor of Jean-Jacques Rousseau and Thomas Piketty. It was, so to speak, “Scottish,” in honor of David Hume and Adam Smith: equality before the law and equality of social dignity. It made people bold to pursue betterments on their own account. It was, as Smith put it, “allowing every man to pursue his own interest his own way, upon the liberal plan of equality, liberty and justice.”

For the full commentary, see:

DEIRDRE N. MCCLOSKEY. “How the West (and the Rest) Got Rich; The Great Enrichment of the past two centuries has one primary source: the liberation of ordinary people to pursue their dreams of economic betterment.” The Wall Street Journal (Sat., May 21, 2016): C1-C2.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date May 20, 2016.)

McCloskey’s commentary is based on her “bourgeois” trilogy, the final volume of which is:
McCloskey, Deirdre N. Bourgeois Equality: How Ideas, Not Capital, Transformed the World. Chicago: University of Chicago Press, 2016.

Some Entrepreneurs Support Big Government, Except When They Are the Ones Regulated

(p. A11) In October [2015], author Steven Hill will publish a book called “Raw Deal: How the ‘Uber Economy’ and Naked Capitalism Are Screwing American Workers.” At the political conventions next summer, which party’s attendees will be most likely to have read that book?
The ironies run deep. The Uber driver who ferried Jeb Bush around San Francisco said the former Florida governor was a nice chap but added that he still planned to vote for Mrs. Clinton–the candidate who regards the innovations that has led to the creation of his job as a problem that government needs to solve.
But is Uber co-founder Travis Kalanick any different? Even as he struggles with regulators taking aim at his business model, Mr. Kalanick has spoken up in favor of ObamaCare. During a visit to New York last November, he enthused that ObamaCare was “huge” for companies like his, on the grounds that the individual market has democratized benefits such as health care.
That’s true insofar as it means he doesn’t have to provide it for his drivers. But the reality is that ObamaCare is to health what taxi commissions are to transportation. And if Uber’s co-founder can’t see the difference, maybe he deserves the Bill de Blasios and Hillary Clintons coming after him.

For the full commentary, see:
WILLIAM MCGURN. “MAIN STREET; Uber Crashes the Democratic Party; The ride-share app is bringing out the inner Elizabeth Warren.” The New York Times (Tues., July 21, 2015): A11.
(Note: bracketed year added.)
(Note: the online version of the commentary has the date July 20, 2015.)

Sanders’s Economics Agenda: “Magic Flying Puppies with Winning Lotto Tickets Tied to Their Collars”

(p. A9) WASHINGTON — With his expansive plans to increase the size and role of government, Senator Bernie Sanders has provoked a debate not only with his Democratic rival for president, Hillary Clinton, but also with liberal-leaning economists who share his goals but question his numbers and political realism.
. . .
By the reckoning of the left-of-center economists, none of whom are working for Mrs. Clinton, the proposals would add $2 trillion to $3 trillion a year on average to federal spending; by comparison, total federal spending is projected to be above $4 trillion in the next president’s first year. “The numbers don’t remotely add up,” said Austan Goolsbee, formerly chairman of President Obama’s Council of Economic Advisers, now at the University of Chicago.
Alluding to one progressive analyst’s criticism of the Sanders agenda as “puppies and rainbows,” Mr. Goolsbee said that after his and others’ further study, “they’ve evolved into magic flying puppies with winning Lotto tickets tied to their collars.”

For the full story, see:
JACKIE CALMES. “Left-Leaning Economists Question Sanders’s Plans.” The New York Times (Tues., FEB. 16, 2016): A9.
(Note: ellipsis added.)
(Note: the online version of the story has the date FEB. 15, 2016, and has the title “Left-Leaning Economists Question Cost of Bernie Sanders’s Plans.”)

Many Empirical Research Results Are False

(p. B7) Research on 100 studies in psychology found in 2015 that more than 60% couldn’t be replicated. Similar results have been found in medicine and economics. Campbell Harvey, a professor at Duke University and president of the American Finance Association, estimates that at least half of all “discoveries” in investment research, and financial products based on them, are false.
. . .
Brian Nosek, a psychology professor at the University of Virginia and executive director of the Center for Open Science, a nonprofit seeking to improve research practices, has spent much of the last decade analyzing why so many studies don’t stand up over time.
Because researchers have an incentive to come up with results that are “positive and clean and novel,” he says, they often test a plethora of ideas, throwing out those that don’t appear to work and pursuing those that confirm their own hunches.
If the researchers test enough possibilities, they may find positive results by chance alone — and may fool themselves into believing that luck didn’t determine the outcomes.

For the full commentary, see:
JASON ZWEIG. “Chasing Hot Returns in ‘Smart-Beta’ Can Be Dumb.” The Wall Street Journal (Sat., Feb 13, 2016): B1 & B7.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Feb 12, 2016, and has the title “Chasing Hot Returns in ‘Smart-Beta’ Funds Can Be a Dumb Idea.”)

Info Tech Boomed Because It Was Least Regulated Sector

(p. A9) “The regulatory environment has become so onerous in America that it is now easier to start a business in England than in the U.S.,” Mr. Hill says–and he would know.
. . .
In 1973 and only 27 years old, Mr. Hill founded Commerce Bank with one branch in Marlton, N.J. The fledgling company focused on customer service and called itself “America’s most convenient bank.” By the time Mr. Hill left Commerce Bancorp 34 years later, only months before the company announced it would be bought by TD Bank for $8.5 billion, he had grown the business to some 460 branches, with 14,000 employees and combined deposits of about $40 billion.
Now he’s replicating that model in the United Kingdom with Metro Bank, which he founded in 2010. And Mr. Hill says there’s an ocean of difference between doing business in the overregulated U.S. and in the U.K. “When I went to Britain I thought the regulatory environment would be much worse,” he says. “It’s infinitely better there.”
The problem in the U.S. starts with towering federal regulations, such as the voluminous reporting and compliance rules in Dodd-Frank, the financial reform act that recently celebrated its fifth birthday. “Regulators are making it impossible for the medium and small banks to comply with the rules,” he says. “The burdens get so intense that it is destroying the small and medium-size banks in America.”
The result is that Dodd-Frank, a law intended to take on the systemic risk of “too-big-to-fail” banks, is multiplying the problem. “The big banks that are too big to fail are bigger now than ever, but the regulations have trickled down to the smaller banks that didn’t cause the financial crisis” Mr. Hill says. As a result, community banks are disappearing. “When I started my first bank in the 1970s there were 24,000 banks in America,” he says. “There are now 7,000 banks. It may soon be 500 or even fewer.”
But it’s more than Dodd-Frank that leaves him frustrated. “The feds have taken anti-money-laundering rules to the extreme,” Mr. Hill says. “We have to monitor every deposit account every 24 hours. Somebody’s monitoring your account every day.” That’s invasive and expensive.
He laments that the Community Reinvestment Act, a catalyst of the 2008 subprime mortgage crisis, still hasn’t been repealed. “We are literally required to make loans that we know are going to fail,” he says.
Then there’s the tangle of local regulations that every American small business must cut through. “You don’t need a building permit in Britain. Here [the U.S.] you have to get permits and you have to get inspections,” he says. All that can eat up months and months. “I can build 100 branch banks in Britain before I can get one built in the U.S., thanks to regulators.”
Policy makers and economists in Washington fret about what’s slowing the rate of business startups and entrepreneurial ventures. But Mr. Hill says it’s no wonder, with all this red tape, and it’s no accident that the industry that is really booming, technology, is the one least regulated by government–though the assault against Uber suggests that Silicon Valley might not be immune for long.
. . .
And how much should we be worried about overregulation–or competition from abroad? “Here’s my story in a nutshell and I hope Washington is paying close attention,” Mr. Hill says. “A very successful American business model has been transferred to Britain, where it’s even more successful because it doesn’t have to deal with the same burdens of government.”
He continues: “The politicians keep talking about fairness and helping the little guy. But it’s the little startup businesses that get hurt the most from the heavy hand of excessive government regulation. How is that fair?”

For the full interview, see:
STEPHEN MOORE. “THE WEEKEND INTERVIEW; The Demise of the Small American Bank; The man who put the customer first in retail banking says Dodd-Frank is crushing community banks and Britain is now a better bet.” The Wall Street Journal (Sat., Aug. 1, 2015): A9.
(Note: ellipses added.)
(Note: the online version of the interview has the date July 31, 2015.)

Tesla Model 3 Excites Venturesome Consumers

America’s venturesome consumers are hungry for products exciting enough to justify enthusiasm. They are desperate for evidence that the future can continue to look bright.

(p. B2) DETROIT — Despite a steady stream of new models from a number of automakers, sales this year of electric and hybrid vehicles have failed to keep pace with the growth in the overall American market.
But if the market for electrified cars was slumbering, Tesla Motors woke it up with a jolt Thursday [March 31, 2016] with the unveiling of its coming Model 3 lineup of affordable, zero-emission vehicles.
Given that electric and hybrid vehicles account for only about 2 percent of last year’s record-setting sales in the United States, the extraordinary reaction to Tesla’s first mass-market model was a vivid demonstration of the potential demand in the segment.
“It shows that the future of electric vehicles is not necessarily bleak,” said Alec Gutierrez, an analyst with the research firm Kelley Blue Book. “Maybe we’ve been waiting for the right products that resonate with consumers.”
Tesla said on Friday that it had booked reservations — at $1,000 each — from nearly 200,000 people for the first Model 3 sedans, which will not be available until next year.
With a starting price of $35,000 and a battery range of 215 miles, the new Tesla is a big leap in the company’s expansion beyond expensive luxury models.
“The final step in the master plan is a mass-market, affordable car,” Elon Musk, Tesla’s chief executive, said at the lavish introduction of the Model 3 held at the company’s design studios in Hawthorne, Calif.

For the full story, see:
BILL VLASIC “In Clamor for new Tesla, Signs of an Electric Future.” The New York Times (Sat., APRIL 2, 2016): B2.
(Note: bracketed date added.)
(Note: the online version of the story has the date APRIL 1, 2016, and has the title “Tesla’s New Model 3 Jump-Starts Demand for Electric Cars.”)