Economics – Page 172 – artdiamondblog.com

Many New Tech Entrepreneurs Shun “Fast Cars and Fancy Parties”

“Phil Libin, chief of Evernote, at its headquarters in Redwood City, Calif.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B1) SAN FRANCISCO — The number of privately held Silicon Valley start-ups that are worth more than $1 billion shocks even the executives running those companies.

“I thought we were special,” said Phil Libin, chief executive of Evernote, an online consumer service for storing clippings, photos and bits of information as he counted his $1 billion-plus peers.
He started Evernote in 2008 on the eve of the recession and built it methodically. “A lot of us didn’t set out to have a big valuation, we’re just trying to build something that lasts,” Mr. Libin said. “There is no safe industry anymore, even here.”
. . .
(p. B2) Silicon Valley entrepreneurs contend that the price spiral is not a sign of another tech bubble. The high prices are reasonable, they say, because innovations like smartphones and cloud computing will remake a technology industry that is already worth hundreds of billions of dollars.
. . .
The founders of the highly valued companies are old enough to remember past busts, and many shun the bubble lifestyle of fast cars and fancy parties.
Mr. Libin, who said he grew up on food stamps as the son of Russian immigrants in the Bronx, became a millionaire when he sold his first company, Engine5, to Vignette in 2000.
“The company I sold to, there were purple Lamborghinis in the garage. I got into watches,” he said. “Maybe a half-dozen, nothing over $10,000, but I needed this glass and leather watch winder.”
Evernote started as the financial crisis hit. “One night I was almost busted again,” he said, “and there was that watch winder on the shelf, mocking me.”
“Every job out there is insecure now,” he said. “People sell 10 percent of their stock, and they have an incentive to make the other 90 percent worth more. They are still working, but not worrying about what will happen to their home or their kids.”

For the full story, see:
QUENTIN HARDY. “A Billion-Dollar Club, and Not So Exclusive.” The New York Times (Weds., February 5, 2013): B1 & B2.
(Note: the online version of the story has the date February 4, 2013.)

To Avoid Economic Crises We Need to Look at Evidence from Economic History

(p. 1093) Methodologically, the most fundamental and forceful message from the book is that, by ignoring history and the fact that crises remain frequent, recurrent, episodic events–in both rich and poor countries–almost everyone, including researchers and policymakers, made themselves vulnerable to the wishful thinking encapsulated in the book’s title. There is a deeper statistical point here. Crises, and for that matter large recessions and other phenomena that are of first-order interest given their implications for economic activity, occur at quite a low frequency. They are rare events, meaning that they do not occur so frequently, at least for most countries in a short-span time series. Thus recent experience can be an unfaithful guide for scholars and statesmen alike, a good example being the complacent thinking that accompanied the erstwhile Great Moderation of recent decades even as financial pressures built up nationally and internationally. Possibly the most important lesson that readers will take away from this book is that if we are to do better in future, from our policy thinking in the chambers of power to our macroeconometric analyses in academe, (p. 1094) we need to admit the existence of, and come to grips with, a much broader universe of evidence.

For the full review, see:
Taylor, Alan M. “Global Financial Stability and the Lessons of History: A Review of Carmen M. Reinhart and Kenneth S. Rogoff’s This Time Is Different: Eight Centuries of Financial Folly.” Journal of Economic Literature 50, no. 4 (Dec. 2012): 1092-105.
(Note: italics in original.)

The book that Taylor reviews, is:
Reinhart, Carmen M., and Kenneth Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press, 2009.

Open Systems Limit the Integrated Vision that Creates Great Products

The following passage is Steve Jobs speaking, as quoted by Walter Isaacson.

(p. 568) People pay us to integrate things for them, because they don’t have the time to think about this stuff 24/7. If you have an extreme passion for producing great products, it pushes you to be integrated, to connect your hardware and your software and content management. You want to break new ground, so you have to do it yourself. If you want to allow your products to be open to other hardware or software, you have to give up some of your vision.

Source:
Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.

Steve Jobs: “Never Rely on Market Research”

The following passage is Steve Jobs speaking, as quoted by Walter Isaacson.

(p. 567) Some people say, “Give the customers what they want.” But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, “If I’d asked customers what they wanted, they would have told me, ‘A faster horse!'” People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.

Source:
Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.

Carbon Dioxide (CO2) Emissions Have Little Effect on Global Warming

My colleague Mark Wohar, and his co-author David McMillan, have used sophisticated econometrics to analyze a very long time-series dataset on carbon dioxide (CO2) and temperature. They find that CO2 has little, if any, effect on temperature. Here is the abstract of their paper:

(p. 3683) The debate regarding rising temperatures and CO2 emissions has attracted the attention of economists employing recent econometric techniques. This article extends the previous literature using a dataset that covers 800,000 years, as well as a shorter dataset, and examines the interaction between temperature and CO2 emissions. Unit root tests reveal a difference between the two datasets. For the long dataset, all tests support the view that both temperature and CO2 are stationary around a constant. For the short dataset, temperature exhibits trend-stationary behaviour, while CO2 contains a unit root. This result is robust to nonlinear trends or trend breaks. Modelling the long dataset reveals that while contemporaneous CO2 appears positive and significant in the temperature equation, including lags results in a joint effect that is near zero. This result is confirmed using a different lag structure and Vector Autoregressive (VAR) model. A Generalized Method of Moments (GMM) approach to account for endogeneity suggests an insignificant relationship. In sum, the key result from our analysis is that CO2 has, at best, a weak relationship with temperature, while there is no evidence of trending when using a sufficiently long dataset. Thus, as a secondary result we highlight the danger of using a small sample in this context.

Source:
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.
(Note: bold added.)

Google’s Eric Schmidt Saw that “Regulation Prohibits Real Innovation”

(p. A13) Eric Schmidt, executive chairman of Google, gave a remarkable interview this month to The Washington Post. So remarkable that Post editors preceded the transcript with this disclosure: “He had just come from the dentist. And he had a toothache.”
Perhaps it was the Novocain talking, but Mr. Schmidt has done us a service. He said in public what most technologists will say only in private. Whatever caused him to speak forthrightly about the disconnects between Silicon Valley and Washington, his comments deserve wider attention.
Mr. Schmidt had just given his first congressional testimony. He was called before the Senate Judiciary Antitrust Subcommittee to answer allegations that Google is a monopolist, a charge the Federal Trade Commission is also investigating.
“So we get hauled in front of the Congress for developing a product that’s free, that serves a billion people. OK? I mean, I don’t know how to say it any clearer,” Mr. Schmidt told the Post. “It’s not like we raised prices. We could lower prices from free to . . . lower than free? You see what I’m saying?”
. . .
“Regulation prohibits real innovation, because the regulation essentially defines a path to follow,” Mr. Schmidt said. This “by definition has a bias to the current outcome, because it’s a path for the current outcome.”
. . .
Washington is always slow to recognize technological change, which is why in their time IBM and Microsoft were also investigated after competing technologies had emerged.
Mr. Schmidt recounted a dinner in 1995 featuring a talk by Andy Grove, a founder of Intel: “He says, ‘This is easy to understand. High tech runs three times faster than normal businesses. And the government runs three times slower than normal businesses. So we have a nine-times gap.’ All of my experiences are consistent with Andy Grove’s observation.”
Mr. Schmidt explained there was only one way to deal with this nine-times gap, which this column hereby christens “Grove’s Law of Government.” That is “to make sure that the government does not get in the way and slow things down.”
Mr. Schmidt recounted that when Silicon Valley first started playing a large role in the economy in the 1990s, “all of a sudden the politicians showed up. We thought the politicians showed up because they loved us. It’s fair to say they loved us for our money.”
He contrasted innovation in Silicon Valley with innovation in Washington. “Now there are startups in Washington,” he said, “founded by people who were policy makers. . . . They’re very clever people, and they’ve figured out a way in regulation to discriminate, to find a new satellite spectrum or a new frequency or whatever. They immediately hired a whole bunch of lobbyists. They raised some money to do that. And they’re trying to innovate through regulation. So that’s what passes for innovation in Washington.”

For the full commentary, see:
L. GORDON CROVITZ. “INFORMATION AGE; Google Speaks Truth to Power; About the growing regulatory state, even Google’s Eric Schmidt–a big supporter of the Obama administration–now feels the need to tell it like it is.” The Wall Street Journal (Mon., October 24, 2011): A13.
(Note: ellipses between paragraphs added; ellipsis internal to Schmidt quote, in original WSJ commentary.)

The original Eric Schmidt interview with the Washington Post, can be read at:
http://articles.washingtonpost.com/2011-10-01/national/35278181_1_google-chairman-eric-schmidt-regulation-disconnects

Steve Jobs’ “Nasty Edge” Helped Him Create an Apple “Crammed with A Players”

(p. 565) . . . I think . . . [Jobs] actually could have controlled himself, if he had wanted. When he hurt people, it was not because he was lacking in emotional awareness. Quite the contrary: He could size people up, understand their inner thoughts, and know how to relate to them, cajole them, or hurt them at will.
The nasty edge to his personality was not necessary. It hindered him more than it helped him. But it did, at times, serve a purpose. Polite and velvety leaders, who take care to avoid bruising others, are generally not as effective at forcing change. Dozens of the colleagues whom Jobs most abused ended their litany of horror stories by saying that he got them to do things they never dreamed possible. And he created a corporation crammed with A players.

Source:
Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.
(Note: ellipses and bracketed “Jobs” added.)

Entrepreneur Mackey Says Whole Foods Drops Prices as Larger Size Creates Economies of Scale

“John Mackey.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 16) In your new book, “Conscious Capitalism,” you write that Whole Foods sees its customers as its “most important stakeholders” and that the company is obsessed with their happiness. The biggest complaint I hear about Whole Foods is how expensive it is. Why not drop prices to make your customers happier?
People always complain about prices being too high. Whole Foods prices have dropped every year as we get to be larger and we have economies of scale. Also, people are not historically well informed about food prices. We’re only spending about 7 percent of our disposable personal income on food. Fifty years ago, it was nearly 16 percent.
. . .
In 2009, some Whole Foods customers organized boycotts after you wrote an op-ed in The Wall Street Journal expressing opposition to Obama’s health care proposals. Do you wish you hadn’t written it?
No, I don’t. I regret that a lot of people didn’t actually read it and it got taken out of context. President Obama asked for ideas about health care reform, and I put my ideas out there. Whole Foods has a good health care plan. It’s not a solution to America’s health care problems, but it’s part of the solution.
So did you vote for Romney?
I did.
I imagine a certain percentage of Whole Foods customers will also boycott because of this.
I don’t know what to say except that I’m a capitalist, first. There are many things I don’t like about Romney, but more things I don’t like about Obama. This is America, and people disagree on things.

For the full interview, see:
Andrew Goldman, Interviewer. “TALK; The Kale King.” The New York Times Magazine (Sun., January 20, 2013): 16.
(Note: ellipsis added; bold in original, indicating interviewer questions.)
(Note: the online version of the interview has the date January 18, 2013, and has the title “TALK; John Mackey, the Kale King.”)

Mackey’s book is:
Mackey, John, and Rajendra Sisodia. Conscious Capitalism: Liberating the Heroic Spirit of Business. Boston, MA: Harvard Business Review Press, 2013.

Higher Taxes Would Slow Creation of Entrepreneur Bronfein’s Time-Saving Medical Robotic Systems

(p. A11) . . . in Baltimore, . . . a local entrepreneur, following the logic of need, invested seven years and $30 million developing a robotic system for packaging prescription drugs for long-term patients in nursing homes and hospitals.
In a conversation last year, inventor Michael Bronfein told me if he’d known what it would cost him in time and money, he might never have started. How many entrepreneurs say the same? Probably all of them. But Mr. Bronfein saw a need and the power of technology to meet it, and the result was the Paxit automated medication dispensing system.
He saw workers spending hours under the old system sticking pills in monthly blister packs known as “bingo cards,” a process expensive and error-prone. He saw nurses on the receiving end then spending time to pluck the pills out of blister packs and into paper cups, to create the proper daily drug regimen for each patient.
. . .
He followed the economic logic that indicated that all the people involved in the old system were becoming too valuable to have their time wasted by the old system. Backed by his company, Remedi SeniorCare, Paxit–in which a robot packages, labels and dispatches a daily round of medicines for each patient–is spreading across the mid-Atlantic and Midwest and winning plaudits from medical-care providers.
. . .
We need to preserve the incentive for investors to bring us the robots that will make the future bearable, rather than burying entrepreneurs in taxes in a vain attempt to seize the returns of investments before those investments are made.

For the full commentary, see:
Jenkins, HOLMAN W., JR. “BUSINESS WORLD; Robots to the Rescue? The flip side of an entitlements crisis is a labor shortage.” The Wall Street Journal (Weds., January 9, 2013): A11.
(Note: ellipses added.)
(Note: the online version of the review has the date January 8, 2013.)

IKEA Says Government Bureaucracy Slows Job Creation

“The economy ‘will remain challenging for a long time,’ says IKEA Chief Executive Mikael Ohlsson.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. B3) MALMO, Sweden–IKEA is poised to embark on a global spending spree, but its departing chief executive says red tape is slowing how fast the home-furnishings retailer can open its pocket book.

With the company set to report record sales on Wednesday, CEO Mikael Ohlsson said the amount of time it takes to open a store has roughly doubled in recent years.
“What some years ago took two to three years, now takes four to six years. And we also see that there’s a lot of hidden obstacles in different markets and also within the [European Union] that’s holding us back,” he said in an interview recently at an IKEA store on Sweden’s western coast.
. . .
IKEA plans to invest €2 billion in stores, factories and renewable energy this year. But the company fell €1 billion short of its goal of investing €3 billion in new projects last year, largely because of bureaucratic obstacles, he said. For 10 years IKEA has tried unsuccessfully to relocate a store in France, for example. The company also is challenging German policy dictating what can be sold and where, saying the rules are out of sync with EU legislation.
“It’s a pity, because it can help create jobs and investments at a time when unemployment is high in many countries,” Mr. Ohlsson said. A new IKEA store creates construction and store jobs for about 1,000 workers, he said.
. . .
The company’s highest-profile headaches have come in India, an untapped market where IKEA wants to open a first store in at least five years and roll out an additional three soon thereafter.

For the full story, see:
ANNA MOLIN. “IKEA Chief Takes Aim at Red Tape.” The Wall Street Journal (Weds., January 23, 2013): B3.
(Note: ellipses added.)
(Note: the online version of the story has the date January 22, 2013.)

Behavioral Economists and Psychologists Pledged to Keep Silent on Their Advice to Re-Elect Obama

(p. D1) Late last year Matthew Barzun, an official with the Obama campaign, called Craig Fox, a psychologist in Los Angeles, and invited him to a political planning meeting in Chicago, according to two people who attended the session.
“He said, ‘Bring the whole group; let’s hear what you have to say,’ ” recalled Dr. Fox, a behavioral economist at the University of California, Los Angeles.
So began an effort by a team of social scientists to help their favored candidate in the 2012 presidential election. Some members of the team had consulted with the Obama campaign in the 2008 cycle, but the meeting in January signaled a different direction.
“The culture of the campaign had changed,” Dr. Fox said. “Before then I felt like we had to sell ourselves; this time there was a real hunger for our ideas.”
. . .
(p. D6) When asked about the outside psychologists, the Obama campaign would neither confirm nor deny a relationship with them.
. . .
For their part, consortium members said they did nothing more than pass on research-based ideas, in e-mails and conference calls. They said they could talk only in general terms about the research, because they had signed nondisclosure agreements with the campaign.
In addition to Dr. Fox, the consortium included Susan T. Fiske of Princeton University; Samuel L. Popkin of the University of California, San Diego; Robert Cialdini, a professor emeritus at Arizona State University; Richard H. Thaler, a professor of behavioral science and economics at the University of Chicago’s business school; and Michael Morris, a psychologist at Columbia.
“A kind of dream team, in my opinion,” Dr. Fox said.

For the full story, see:
BENEDICT CAREY. “Academic ‘Dream Team’ Helped Obama’s Effort.” The New York Times (Tues., November 13, 2012): D1 & D6.
(Note: ellipses added.)
(Note: the online version of the story has the date November 12, 2012.)