Category: Economics

Regulations Deter Start-Ups, Creating a “Senile Economy”

(p. 5B) We may have a “senile economy,” says economist Robert Litan of the Brookings Institution. That’s senile as in old, rigid and undynamic.

. . .

Litan is not just blowing smoke. In a new study, he and Ian Hathaway measured the age of American businesses. They were astonished by what they found: From 1992 to 2011, the share of U.S. firms that were 16 and older jumped from 23 percent to 34 percent.

. . .

What happened to all the entrepreneurs? Good question.

“We do not have an explanation,” write the University of Maryland and the Census Bureau economists. Neither does Litan. “One theory is that the cumulative effect of regulations,” he says, discriminates against new businesses and favors “established firms that have the experience and resources to deal with it.” What allegedly deters and hampers startups is not any one regulation but the cost and time of complying with a blizzard of them.

For the full commentary, see:
ROBERT J. SAMUELSON. “Fewer entrepreneurs spells trouble.” Omaha World-Herald (Mon., August 11, 2014): 5B.
(Note: ellipses added.)

The article mentioned above by Hathaway and Litan is:
Hathaway, Ian, and Robert E. Litan. “The Other Aging of America: The Increasing Dominance of Older Firms.” In Economic Studies at Brookings, The Brookings Institution (July 2014): 1-17.

Pause in Global Warming Invalidates Climate-Change Models

(p. A13) When the climate scientist and geologist Bob Carter of James Cook University in Australia wrote an article in 2006 saying that there had been no global warming since 1998 according to the most widely used measure of average global air temperatures, there was an outcry. A year later, when David Whitehouse of the Global Warming Policy Foundation in London made the same point, the environmentalist and journalist Mark Lynas said in the New Statesman that Mr. Whitehouse was “wrong, completely wrong,” and was “deliberately, or otherwise, misleading the public.”
We know now that it was Mr. Lynas who was wrong. Two years before Mr. Whitehouse’s article, climate scientists were already admitting in emails among themselves that there had been no warming since the late 1990s. “The scientific community would come down on me in no uncertain terms if I said the world had cooled from 1998,” wrote Phil Jones of the University of East Anglia in Britain in 2005. He went on: “Okay it has but it is only seven years of data and it isn’t statistically significant.”
If the pause lasted 15 years, they conceded, then it would be so significant that it would invalidate the climate-change models upon which policy was being built. A report from the National Oceanic and Atmospheric Administration (NOAA) written in 2008 made this clear: “The simulations rule out (at the 95% level) zero trends for intervals of 15 yr or more.”
Well, the pause has now lasted for 16, 19 or 26 years–depending on whether you choose the surface temperature record or one of two satellite records of the lower atmosphere. That’s according to a new statistical calculation by Ross McKitrick, a professor of economics at the University of Guelph in Canada.

For the full commentary, see:
MATT RIDLEY. “OPINION; Whatever Happened to Global Warming? Now come climate scientists’ implausible explanations for why the ‘hiatus’ has passed the 15-year mark.” The Wall Street Journal (Fri., Sept. 5, 2014): A13.
(Note: the online version of the commentary has the date Sept. 4, 2014.)

The article mentioned above by economist McKitrick is:
McKitrick, Ross R. “HAC-Robust Measurement of the Duration of a Trendless Subsample in a Global Climate Time Series.” Open Journal of Statistics 4 (2014): 527-35. http://dx.doi.org/10.4236/ojs.2014.47050

For a possible deeper explanation of the McKitrick results, you may consult:
McMillan, David G., and Mark E. Wohar. “The Relationship between Temperature and CO2 Emissions: Evidence from a Short and Very Long Dataset.” Applied Economics 45, no. 26 (2013): 3683-90.

Less Time in Office Leaves Workers Happier, Less Stressed and Equally Productive

(p. 4) A recent study, published in The American Sociological Review, aimed to see whether the stress of work-life conflicts could be eased if employees had more control over their schedules, including being able to work from home.   . . .
The study, financed by the National Institutes of Health and the Centers for Disease Control and Prevention, involved the information technology department of a large corporation.   . . .
As part of the research, department managers received training to encourage them to show support for employees’ family and personal lives, said Erin Kelly, a sociology professor at the University of Minnesota and one of the lead authors of the study. Then employees were given much more control over their schedules than before. They “were free to work where and when they preferred, as long as the work got done,” she said.
The results: The employees almost doubled the amount of time they worked at home, to an average of 19.6 hours from 10.2 hours. Total work hours remained roughly the same. Focusing on results rather than time spent at the office, and cutting down on “low value” meetings and other tasks, helped employees achieve more flexibility, Professor Kelly said.
Compared with another group that did not have the same flexibility, employees interviewed by the researchers said they felt happier and less stressed, had more energy and were using their time more effectively, Professor Kelly said. There was no sign that the quality of the work improved or declined with the changed schedules, she added.

For the full story, see:
PHYLLIS KORKKI. “Yes, Flexible Hours Ease Stress. But Is Everyone on Board?.” The New York Times, SundayBusiness Section (Sun., AUG. 24, 2014): C4.
(Note: the online version of the story has the date AUG. 23, 2014.)

The study mentioned above is:
Kelly, Erin L., Phyllis Moen, and Eric Tranby. “Changing Workplaces to Reduce Work-Family Conflict: Schedule Control in a White-Collar Organization.” American Sociological Review 76, no. 2 (April 2011): 265-90.

Modelers Can Often Obtain the Desired Result

(p. A13) After earning a master’s degree in environmental engineering in 1982, I spent most of the next 10 years building large-scale environmental computer models. My first job was as a consultant to the Environmental Protection Agency. I was hired to build a model to assess the impact of its Construction Grants Program, a nationwide effort in the 1970s and 1980s to upgrade sewer-treatment plants.
The computer model was huge–it analyzed every river, sewer treatment plant and drinking-water intake (the places in rivers where municipalities draw their water) in the country. I’ll spare you the details, but the model showed huge gains from the program as water quality improved dramatically. By the late 1980s, however, any gains from upgrading sewer treatments would be offset by the additional pollution load coming from people who moved from on-site septic tanks to public sewers, which dump the waste into rivers. Basically the model said we had hit the point of diminishing returns.
When I presented the results to the EPA official in charge, he said that I should go back and “sharpen my pencil.” I did. I reviewed assumptions, tweaked coefficients and recalibrated data. But when I reran everything the numbers didn’t change much. At our next meeting he told me to run the numbers again.
After three iterations I finally blurted out, “What number are you looking for?” He didn’t miss a beat: He told me that he needed to show $2 billion of benefits to get the program renewed. I finally turned enough knobs to get the answer he wanted, and everyone was happy.
. . .
There are no exact values for the coefficients in models such as these. There are only ranges of potential values. By moving a bunch of these parameters to one side or the other you can usually get very different results, often (surprise) in line with your initial beliefs.

For the full commentary, see:
ROBERT J. CAPRARA. “OPINION; Confessions of a Computer Modeler; Any model, including those predicting climate doom, can be tweaked to yield a desired result. I should know.” The Wall Street Journal (Weds., July 9, 2014): A13.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date July 8, 2014.)

Bill Gates on Xerox’s Inventions and Mistakes

(p. C3) Not long after I first met Warren Buffett back in 1991, I asked him to recommend his favorite book about business. He didn’t miss a beat: “It’s ‘Business Adventures,’ by John Brooks, ” he said. “I’ll send you my copy.” I was intrigued: I had never heard of “Business Adventures” or John Brooks.
Today, more than two decades after Warren lent it to me–and more than four decades after it was first published–“Business Adventures” remains the best business book I’ve ever read. John Brooks is still my favorite business writer. (And Warren, if you’re reading this, I still have your copy.)
. . .
One of Brooks’s most instructive stories is “Xerox Xerox Xerox Xerox.” (The headline alone belongs in the Journalism Hall of Fame.) The example of Xerox is one that everyone in the tech industry should study. Starting in the early ’70s, Xerox funded a huge amount of R&D that wasn’t directly related to copiers, including research that led to Ethernet networks and the first graphical user interface (the look you know today as Windows or OS X).
But because Xerox executives didn’t think these ideas fit their core business, they chose not to turn them into marketable products. Others stepped in and went to market with products based on the research that Xerox had done. Both Apple and Microsoft, for example, drew on Xerox’s work on graphical user interfaces.
I know I’m not alone in seeing this decision as a mistake on Xerox’s part. I was certainly determined to avoid it at Microsoft. I pushed hard to make sure that we kept thinking big about the opportunities created by our research in areas like computer vision and speech recognition. Many other journalists have written about Xerox, but Brooks’s article tells an important part of the company’s early story. He shows how it was built on original, outside-the-box thinking, which makes it all the more surprising that as Xerox matured, it would miss out on unconventional ideas developed by its own researchers. (To download a free e-book of “Xerox Xerox Xerox Xerox,” go to GatesNotes.com.)

For the full review, see:
BILL GATES. “My Favorite Business Book.” The Wall Street Journal (Sat., July 12, 2014): C3.
(Note: ellipsis added.)
(Note: the last quoted sentence is in the location, and has the wording, of the printer version, not the online version.)
(Note: the online version of the review has the date July 11, 2014, and has the title “Bill Gates’s Favorite Business Book.”)

The book being reviewed is:
Brooks, John. Business Adventures: Twelve Classic Tales from the World of Wall Street. pb ed. New York: Open Road Integrated Media, Inc., 2014.

Structural Reforms Needed to Increase Innovation

(p. A13) . . . , a lack of “demand” is no longer the problem.
. . .
Where, instead, are the problems? John Taylor, Stanford’s Nick Bloom and Chicago Booth’s Steve Davis see the uncertainty induced by seat-of-the-pants policy at fault. Who wants to hire, lend or invest when the next stroke of the presidential pen or Justice Department witch hunt can undo all the hard work? Ed Prescott emphasizes large distorting taxes and intrusive regulations. The University of Chicago’s Casey Mulligan deconstructs the unintended disincentives of social programs. And so forth. These problems did not cause the recession. But they are worse now, and they can impede recovery and retard growth.
These views are a lot less sexy than a unicausal “demand,” fixable by simple, magic-bullet policies. They require us to do the hard work of fixing the things we all agree need fixing: our tax code, our cronyist regulatory state, our welter of anticompetitive and anti-innovative protections, education, immigration, social program disincentives, and so on. They require “structural reform,” not “stimulus,” in policy lingo.

For the commentary, see:
JOHN H. COCHRANE. “OPINION; The Failure of Macroeconomics; When models don’t yield the spending policies they want, some Keynesians abandon models–but not the spending.” The Wall Street Journal (Thur., July 3, 2014): A13.
(Note: ellipses added.)
(Note: the online version of the commentary has the date July 2, 2014.)

“Malthus Was Wrong”

(p. 20) The biggest problem with Malthusiasm, as Mayhew addresses at length, is that Malthus was wrong. He thought England was nearing the limits of its ability to provide for its growing population. But as that population continued to grow in the 19th century, the country proved more than able to feed itself by increasing agricultural productivity and importing food that it could easily pay for with its industrial wealth. And toward the end of the century, birthrates began falling and population growth slowed.
. . .
There is evidence enough in this book for a pretty withering attack on Malthusianism, if not on Malthus. Mayhew, however, prefers the role of calm and evenhanded guide. At the end he’s even hinting that today’s Malthusian prophets of environmental doom are on to something. They may be: Just because Malthus was wrong about nature’s limits in 1798 doesn’t prove we won’t ever hit those limits. Past performance is no guarantee of future results. Still, you’d think it would put more of a damper on people’s Malthusiasm.

For the full review, see:
JUSTIN FOX. “Head Count.” The New York Times Book Review (Sun., Aug. 3, 2014): 20.
(Note: ellipsis added.)
(Note: the online version of the review has the date Aug. 1, 2014. )

The book being reviewed is:
Mayhew, Robert J. Malthus: The Life and Legacies of an Untimely Prophet. Cambridge, MA: Belknap Press, 2014.

Predictors of Technological Doom Have “All Been Wrong”

GrowingAndDecliningJobsGraph2014.jpgSource of graph: online version of the NYT article quoted and cited below.

(p. 4) JUST over 50 years ago, the cover of Life magazine breathlessly declared the “point of no return for everybody.” Above that stark warning, a smaller headline proclaimed, “Automation’s really here; jobs go scarce.”
As events unfolded, it was Life that was nearing the point of no return — the magazine suspended weekly publication in 1972. For the rest of America, jobs boomed; in the following decade, 21 million Americans were added to the employment rolls.
Throughout history, aspiring Cassandras have regularly proclaimed that new waves of technological innovation would render huge numbers of workers idle, leading to all manner of economic, social and political disruption.
As early as 1589, Queen Elizabeth I refused a patent on a knitting machine for fear it would put “my poor subjects” out of work.
In the 1930s, the great John Maynard Keynes predicted widespread job losses “due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.”
So far, of course, they’ve all been wrong. But that has not prevented a cascade of shrill new proclamations that — notwithstanding centuries of history — “this time is different”: . . .

For the full commentary, see:
Steven Rattner. “Fear Not the Coming of the Robots.” The New York Times, SundayReview Section (Sun., JUNE 22, 2014): 4.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date June 21, 2014.)

“The Metric System Can Be Our Operating System Without Being Our Interface”

(p. C6) The outcome was perhaps foreshadowed, as Mr. Marciano points out, when President Ford, using a customary unit, noted that American industries were “miles ahead” when it came to adopting the metric system.
Mr. Marciano tells his story more or less without editorializing, until the end. Surveying the centuries of fights over measurement, he finishes on a rather intriguing point: Standardization no longer matters that much.
. . .
. . . , with the computerization of life, we don’t have to worry about converting from one measurement to another; our software does this for us. We can still speak in pounds or feet, even if everything in the world of manufacturing and technology is really, at bottom, done in the metric system. In the evocative terminology of Mr. Marciano, “the metric system can be our operating system without being our interface.”

For the full review, see:
SAMUEL ARBESMAN. “Liters and Followers; Gerald Ford once proudly declared the country was ‘miles ahead’ in converting to the metric system.” The Wall Street Journal (Sat., Aug. 2, 2014): C6.
(Note: ellipses added.)
(Note: the online version of the review has the date Aug. 1, 2014, and has the title “Book Review: ‘Whatever Happened to the Metric System?’ by John Bemelmans Marciano; Gerald Ford once proudly declared the country was ‘miles ahead’ in converting to the metric system.” )

The book being reviewed is:
Marciano, John Bemelmans. Whatever Happened to the Metric System?: How America Kept Its Feet. New York: Bloomsbury USA, 2014.

“A Few Really Good Artisanal Cheese Shops Is No Substitute for a Strong School System”

(p. 836) Moretti’s writing on the “creative class” takes issue with policies associated with Richard Florida, who has exerted a considerable influence on local policymakers worldwide. Moretti uses the example of Berlin, which is a cool place full of creative types but still isn’t much of an economic powerhouse, to make the case against Florida’s recommendations.
. . .
A problem exists if city governments start thinking that their main job is to be hip rather than competent. Having a few really good artisanal cheese shops is no substitute for a strong school system. Local leaders would do well to remember that an externality-creating skilled resident is as likely to be a forty-two-year-old mother who works in (p. 837) a lab as a twenty-five-year-old looking for a good time. The forty-two-year-old’s tastes in local amenities are likely to be quite different from those of the twenty-five-year-old. If Moretti’s caution against creative class policies achieves that end, then it will have done something quite positive.

For the full review, see:
Glaeser, Edward. “A Review of Enrico Moretti’s the New Geography of Jobs.” Journal of Economic Literature 51, no. 3 (Sept. 2013): 825-37.
(Note: ellipsis added.)

The book under review is:
Moretti, Enrico. The New Geography of Jobs. New York: Houghton Mifflin Harcourt Publishing Co., 2012.

Big Increase in Costs of Adhering to Moore’s Law

(p. 219) Harald Bauer, Jan Veira, and Florian Weig consider “Moore’s Law: Repeal or Renewal?” “Moore’s law states that the number of transistors on integrated circuits doubles every two years, and for the past four decades it has set the pace for progress in the semiconductor industry. . . . Adherence to Moore’s law has led to continuously falling semiconductor prices. Per-bit prices of dynamic random-access memory chips, for example, have fallen by as much as 30 to 35 percent a year for several decades. . . . Some estimates ascribe up to 40 percent of the global productivity growth achieved during the last two decades to the expansion of information and communication technologies made possible by semiconductor performance and cost improvements.” But this continued technological progress comes at an ever-higher price. “A McKinsey analysis shows that moving from 32nm (p. 220) to 22nm nodes on 300-millimeter (mm) wafers causes typical fabrication costs to grow by roughly 40 percent. It also boosts the costs associated with process development by about 45 percent and with chip design by up to 50 percent. These dramatic increases will lead to process-development costs that exceed $1 billion for nodes below 20nm. In addition, the state-of-the art fabs needed to produce them will likely cost $10 billion or more. As a result, the number of companies capable of financing next-generation nodes and fabs will likely dwindle.” McKinsey Global Institute, December 2013, http://www.mckinsey.com/insights/high_tech_telecoms_internet/moores_law_repeal_or_renewal.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 28, no. 2 (Spring 2014): 213-20.
(Note: ellipses in original.)