Economics – Page 166 – artdiamondblog.com

Growth of Labor Safety Net Made Great Recession Deeper and Longer

Source of book image: http://si.wsj.net/public/resources/images/OB-VE881_bkrvre_GV_20121101145828.jpg

(p. 309) [Mulligan’s empirical results suggest] that employment was dropping not only because of declining demand for the employees’ products, but also because employers were substituting capital and other factors for labor. This surprising finding suggests that although a decline in aggregate demand for goods and services was one of the reasons for the decline in labor, other causes were also at play in most sectors of the economy. This fact is consistent with an inward shift in the supply of labor to the marketplace during this period.

In chapter 3, Mulligan introduces the main culprit responsible for this supplycurve shift–the unintended consequences of increases in the social safety net that substantially increased the marginal tax rate on work. In his model, Mulligan operationalizes this force into changes in the replacement rate (the fraction of productivity that the average nonemployed person receives in the form of means-tested benefits) and the self-reliance rate (1 minus the replacement rate), which is the fraction of lost productivity not replaced by means-tested benefits.
His conjecture is that, in a reverse of government policies in the 1990s that made work pay for single mothers by transforming welfare as we knew it into a program that nudged single mothers off the Aid to Families with Dependent Children rolls and into the workforce, “temporary” government program expansions to mitigate the (p. 310) short-run consequences of unemployment and the bursting of the housing bubble made a prolonged paid period of nonwork an offer that many Americans found too tempting to refuse.
Mulligan identifies and incorporates the major expansions in eligibility and benefit amounts for Unemployment Insurance and food stamps into an eligibility index that shows that most of the 199 percent growth in these programs between 2007 and 2009 was due to these changes. He uses this growth rate in a weighted index of overall statutory safety-net generosity to determine the degree to which it has influenced overall employment. He does a similar analysis of the means-tested Home Affordable Modification Program (HAMP), which facilitated substantial lender-provided discounts on home mortgage expenses for unemployment insurance-eligible workers. He finds that these market distortions that increased the marginal tax on work grew substantially in 2008, peaked in 2009–at almost triple their 2007 level–and then modestly fell in 2010 to a level appreciably above the 2007 level.
. . .
But his empirical evidence shows that the implementation of these “recession cures” was primarily responsible for the Great Recession’s depth and duration.

For the full review, see:
Burkhauser, Richard V. “Review of: “The Redistributive Recession: How Labor Market Distortions Contracted the Economy” by Casey B. Mulligan.” The Independent Review 18, no. 2 (Fall 2013): 308-11.
(Note: ellipsis, and words in brackets, added.)

Book that is under review:
Mulligan, Casey B. The Redistribution Recession: How Labor Market Distortions Contracted the Economy. New York: Oxford University Press, USA, 2012.

Brazil’s Cardozo Envies England’s Rule of Law

“Michael Palin.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. C11) For his most recent project in Brazil, which will go on to become a PBS series, Mr. Palin interviewed former Brazilian President Fernando Cardoso, who is often credited with the country’s economic turnaround. Whereas he says most political leaders are hesitant to say anything controversial, Mr. Cardoso was refreshingly straightforward. “I asked him, ‘Brazil has so many good things going for it–the people are friendly and relaxed, the economy is booming. Is there anything you envy about us in England?’ ” He was surprised by Mr. Cardoso’s answer. “He said straight out, ‘The rule of law.’ He said, ‘Our problem here is we have endemic corruption,’ ” says Mr. Palin. “I just thought it was incredibly honest for a world leader.”

For the full story, see:
ALEXANDRA WOLFE. “WEEKEND CONFIDENTIAL; Michael Palin Takes on the World; The former Monty Python performer is turning his global adventures into comic tales.” The Wall Street Journal (Sat., August 31, 2013): C11.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date August 30, 2013.)

To Save Lego, CEO Fired Almost a Third of Workers

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

(p. A15) Only 10 years ago, Lego was posting record losses; retailers were backlogged with unsold Lego toys; and it was unclear whether Lego would survive as an independent company. An internal review discovered that 94% of the sets in its product line were unprofitable. The turnaround story that followed is well told by Wharton professor David Robertson in “Brick by Brick.”
. . .
Upon coming to power, Mr. Knudstorp cut 30% of Lego’s product portfolio, including many of its newer offerings. To stave off financial doom, he also sold the company’s headquarters building and moved into simpler accommodations–and, more painfully, let go almost a third of the workforce.
But how to move beyond the rescue stage and toward growth? Based on input from top retailers and a large customer-research study, Lego executives concluded that even though young fans of buildable toys were a minority, there were enough of them to make a worthwhile market–and their parents were willing to pay premium prices. The company would now organize its innovation efforts around its potentially very profitable core audience.
Mr. Robertson, with the benefit of access to staff at Lego and partner companies, provides unusually detailed reporting of the processes that led to Lego’s current hits (and, inevitably, some misses). Among the hits is the Mindstorms NXT, the second generation of Lego’s robotics set, which hadn’t been updated or advertised since 2001. Mr. Robertson describes how Lego navigated between relying on sophisticated users to determine the product’s design and relying on its own expertise in the creation of building experiences.

For the full review, see:
DAVID A. PRICE. “BOOKSHELF; The House That Lego Built; Lego balked at licensing warlike ‘Star Wars’ toys. But then anthropological research convinced company executives that kids like to compete.” The Wall Street Journal (Tues., July 23, 2013): A15.
(Note: ellipsis added.)
(Note: the online version of the review has the date July 22, 2013.)

The book under review, is:
Robertson, David. Brick by Brick: How Lego Rewrote the Rules of Innovation and Conquered the Global Toy Industry. New York: Crown Business, 2013.

When Google Earned a Profit, Sergey Brin “Felt Like We Had Built a Real Business”

(p. 94) . . . , Google was reaping rewards, and 2002 was its first profitable year. “That’s really satisfying,” Brin said at the time. “Honestly, when we were still in the dot-com boom days, I felt like a schmuck. I had an Internet start-up– so did everybody else. It was unprofitable, like everybody else’s, and how hard is that? But when we became profitable, I felt like we had built a real business.”

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.
(Note: ellipsis added.)

Yahoo Valued “Marketing Gimmicks” More than Search Speed

(p. 44) Google had struck a deal to handle all the search traffic of Yahoo, one of the biggest portals on the web.
The deal–announced on June 26, 2000–was a frustrating development to the head of Yahoo’s search team, Udi Manber. He had been arguing that Yahoo should develop its own search product (at the time, it was licensing technology from Inktomi), but his bosses weren’t interested. Yahoo’s executives, led by a VC-approved CEO named Timothy Koogle (described in a BusinessWeek cover story as “The Grown-up Voice of Reason at Yahoo”), instead were devoting their attention to branding–marketing gimmicks such as putting the purple corporate logo on the Zamboni machine that swept the ice between periods of San Jose Sharks hockey games. “I had six people working on my search team,” Manber said. “I couldn’t get the seventh. This was a company that had thousands of people. I could not get the seventh.” Since Yahoo wasn’t going to develop its own search, Manber had the task of finding the best one to license.

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.
(Note: italics in original.)

In Conflict Between Ecologist and Economist, the Economist Won

Paul Ehrlich (left) and Julian Simon (right). Source of caricature: online version of the WSJ review quoted and cited below.

(p. C6) . . . in 1980 Simon made Mr. Ehrlich a bet. If Mr. Ehrlich’s predictions about overpopulation and the depletion of resources were correct, Simon said, then over the next decade the prices of commodities would rise as they became more scarce. Simon contended that, because markets spur innovation and create efficiencies, commodity prices would fall. He proposed that each party put up $1,000 to purchase a basket of five commodities. If the prices of these went down, Mr. Ehrlich would pay Simon the difference between the 1980 and 1990 prices. If the prices went up, Simon would pay. This meant that Mr. Ehrlich’s exposure was limited while Simon’s was theoretically infinite.
. . .
In October 1990, Mr. Ehrlich mailed a check for $576.07 to Simon.
. . .
Mr. Ehrlich was more than a sore loser. In 1995, he told this paper: “If Simon disappeared from the face of the Earth, that would be great for humanity.” (Simon would die in 1998.)
. . .
Mr. Sabin’s portrait of Mr. Ehrlich suggests that he is among the more pernicious figures in the last century of American public life. As Mr. Sabin shows, he pushed an authoritarian vision of America, proposing “luxury taxes” on items such as diapers and bottles and refusing to rule out the use of coercive force in order to prevent Americans from having children. In many ways, Mr. Ehrlich was an early instigator of the worst aspects of America’s culture wars. This picture is all the more damning because Mr. Sabin paints it not with malice but with sympathy. A history professor at Yale, Mr. Sabin shares Mr. Ehrlich’s devotion to environmentalism. Yet this affinity doesn’t prevent Mr. Sabin from being clear-eyed.
At heart, “The Bet” is about not just a conflict of men; it is about a conflict of disciplines, pitting ecologists against economists. Mr. Sabin cautiously posits that neither side has been completely vindicated by the events of the past 40 years. But this may be charity on his part: While not everything Simon predicted has come to pass, in the main he has been vindicated.
. . .
Mr. Ehrlich may have been defeated in the wager, but he has continued to flourish in the public realm. The great mystery left unsolved by “The Bet” is why Paul Ehrlich and his confederates have paid so small a price for their mistakes. And perhaps even been rewarded for them. In 1990, just as Mr. Ehrlich was mailing his check to Simon, the MacArthur Foundation awarded him one of its “genius” grants. And 20 years later his partner in the wager, John Holdren, was appointed by President Obama to be director of the White House Office of Science and Technology Policy.

For the full review, see:
JONATHAN V. LAST. “A Prediction that Bombed; Paul Ehrlich predicted an imminent population catastrophe; Julian Simon wagered he was wrong.” The Wall Street Journal (Sat., August 31, 2013): C6.
(Note: ellipses added.)
(Note: the online version of the review has the date August 30, 2013, and has the title “Book Review: ‘The Bet’ by Paul Sabin; Paul Ehrlich predicted an imminent population catastrophe–Julian Simon wagered he was wrong.”)

The book discussed above is:
Sabin, Paul. The Bet: Paul Ehrlich, Julian Simon, and Our Gamble over Earth’s Future. New Haven, Conn.: Yale University Press, 2013.

Source of book image: http://paulsabin.com/wp-content/uploads/2013/06/sabin_the_bet_wr.jpg

Venezuelan Socialists Seize Private Toilet Paper

(p. A6) CARACAS, Venezuela (AP) — Police in Venezuela say they have seized nearly 2,500 rolls of toilet paper in an overnight raid of a clandestine warehouse storing scarce goods.
. . .
The socialist government says the shortages are part of a plot by opponents to destabilize the country. Economists blame the government’s price and currency controls.

For the full story, see:
AP. “World; Police Seize 2,500 Rolls of Toilet Paper.” Omaha World-Herald (Fri., May 31, 2013): 6A.
(Note: ellipsis added.)

Redundancy Allowed Google to Function with Cheap and Failure-Prone Hard Drives

(p. 42) . . . as the web kept growing, Google added more machines–by the end of 1999, there were eighty machines involved in the crawl (out of a total of almost three thousand Google computers at that time)–and the likelihood that something would break increased dramatically. Especially since Google made a point of buying what its engineers referred to as “el cheapo” equipment. Instead of commercial units that carefully processed and checked information, Google would buy discounted consumer models without built-in processes to protect the integrity of data.
As a stopgap measure, the engineers had implemented a scheme where the indexing data was stored on different hard drives. If a machine went bad, everyone’s pager would start buzzing, even if it was the middle of the night, and they’d barrel into the office immediately to stop the crawl, copy the data, and change the configuration files. “This happened every few days, and it basically stopped everything and was very painful,” says Sanjay Ghemawat, one of the DEC research wizards who had joined Google.
. . .
(p. 43) The experience led to an ambitious revamp of the way the entire Google infrastructure dealt with files. “I always had wanted to build a file system, and it was pretty clear that this was something we were going to have to do,” says Ghemawat, who led the team. Though there had previously been systems that handled information distributed over multiple files, Google’s could handle bigger data loads and was more nimble at running full speed in the face of disk crashes– which it had to be because, with Google’s philosophy of buying supercheap components, failure was the norm. “The main idea was that we wanted the file system to automate dealing with failures, and to do that, the file system would keep multiple copies and it would make new copies when some copy failed,” says Ghemawat.

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.
(Note: ellipses added.)

“Inflexible Labor Laws” Lead Indian Firms “to Substitute Machines for Unskilled Labor”

(p. A19) . . . , India is failing to make full use of the estimated one million low-skilled workers who enter the job market every month.
Manufacturing requires transparent rules and reliable infrastructure. India is deficient in both. High-profile scandals over the allocation of mobile broadband spectrum, coal and land have undermined confidence in the government. If land cannot be easily acquired and coal supplies easily guaranteed, the private sector will shy away from investing in the power grid. Irregular electricity holds back investments in factories.
India’s panoply of regulations, including inflexible labor laws, discourages companies from expanding. As they grow, large Indian businesses prefer to substitute machines for unskilled labor.

For the full commentary, see:
ARVIND SUBRAMANIAN. “Why India’s Economy Is Stumbling.” The New York Times (Sat., August 31, 2013): A19.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date August 30, 2013.)

“We Just Begged and Borrowed” for Equipment

(p. 32) Google was handling as many as 10,000 queries a day. At times it was consuming half of Stanford’s Internet capacity. Its appetite for equipment and bandwidth was voracious. “We just begged and borrowed,” says Page. “There were tons of computers around, and we managed to get some.” Page’s dorm room was essentially Google’s operations center, with a motley assortment of computers from various manufacturers stuffed into a homemade version of a server rack– a storage cabinet made of Legos. Larry and Sergey would hang around the loading dock to see who on campus was getting computers– companies like Intel and Sun gave lots of free machines to Stanford to curry favor with employees of the future– (p. 33) and then the pair would ask the recipients if they could share some of the bounty.
That still wasn’t enough. To store the millions of pages they had crawled, the pair had to buy their own high-capacity disk drives. Page, who had a talent for squeezing the most out of a buck, found a place that sold refurbished disks at prices so low– a tenth of the original cost– that something was clearly wrong with them. “I did the research and figured out that they were okay as long as you replaced the [disk] operating system,” he says. “We got 120 drives, about nine gigs each. So it was about a terabyte of space.” It was an approach that Google would later adopt in building infrastructure at low cost.
Larry and Sergey would be sitting by the monitor, watching the queries– at peak times, there would be a new one every second– and it would be clear that they’d need even more equipment. What next? they’d ask themselves. Maybe this is real.

Source:
Levy, Steven. In the Plex: How Google Thinks, Works, and Shapes Our Lives. New York: Simon & Schuster, 2011.
(Note: italics in original.)

In Greece, Votes Are Traded for Government Jobs

(p. A4) Some members of Parliament have lobbied for fishing licenses for the owners of pleasure boats in the Aegean islands. Others have asked for government jobs for award-winning athletes or members of dismantled state agencies. One sought to exempt theaters and cinemas from a controversial property tax. Another to reduce fines for the owners of illegally built homes in parts of northern Greece. The list goes on.
In all, more than 90 such budget-busting proposals have been floated as lawmakers scramble to push through last-minute amendments to bills otherwise intended to meet the demands of creditors who want Greece to liberalize its job market, cut red tape and shrink state payrolls.
. . .
But the proliferation of items threatens to delay that step, as lawmakers go to the trough one last time. Greece’s practice of trading favors — often government jobs — for political support is as old as its 400 years of Ottoman rule, when the system evolved. The word for it, “rousfeti,” which means favor, has its roots in the Turkish word for bribe.
. . .
“In Greece, the cross is sold in exchange for a government job,” said one of them, Theodoros Pangalos, the outspoken deputy prime minister and seasoned Socialist, referring to the X that voters make on the ballot.
“No one has dared touch this system to date,” Mr. Pangalos, who will not seek re-election, said this month in an interview with the French-German television channel Arte. “But it is time for it to change.”

For the full story, see:
NIKI KITSANTONIS. “Despite Warning, Old Handouts Die Hard for Greek Politicians Facing Voters Soon.” The New York Times (Tues., April 10, 2012): A4.
(Note: ellipses added.)
(Note: the online version of the article has the date April 9, 2012.)