Economics – Page 186 – artdiamondblog.com

Same Government that Allows Violence, Prioritizes Taxing Soda

“One vocal opponent of the tax is Courtland Boozé, a City Council member who calls it a hardship on poor people.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 14) Even here at a sweaty Zumba class sponsored by a nonprofit group called Weigh of Life, the city’s proposal for a one-cent-per-ounce tax on sugar-sweetened beverages, which is to appear on the November ballot, meets up against the hard realities of residents’ lives.

“What don’t I have?” asked Rita Cerda, a longtime soda devotee, ticking off her ailments, including diabetes, high blood pressure and asthma. She is also overweight.
“I have problems drinking water,” she said. “I don’t like water.”
The proposed tax, a license fee on businesses selling sweetened drinks, would require owners of bodegas, theaters, convenience stores and other outlets to tally ounces sold and, presumably, pass the cost on to customers.
. . .
Courtland Boozé is a City Council member and a vocal opponent of the soda tax. “We are primarily an economically suppressed community,” he said. “It will be a huge hardship.
“I eat sweet potato pie and candied yams,” continued Mr. Boozé, who is from Louisiana. “And what about cupcakes? Are they going to tax those?”
The city’s Chamber of Commerce is also opposed to the tax. A group fighting the tax that includes the beverage industry has begun dropping off “Community Coalition Against Beverage Taxes” placards at La Flore de Jalisco Market, a small, cheerful grocery store where soda bottles in dozens of hues match the colorful piñatas hanging from the ceiling.
. . .
Charles Finnie, known as Chuck, a vice president of BMWL, a San Francisco lobbying firm, called the tax “an administrative nightmare for local businesses” that would also put them at a competitive disadvantage, with customers opting for cheaper soda in nearby cities.
. . .
At the RYSE Youth Center, founded 12 years ago after the killing of four high school students, the soda issue seemed both close to the heart and far away.
Kayla Miller, an 18-year-old college freshman, said that if complexion problems from too much sugar would not deter her friends from drinking sodas, neither would a tax.
Shivneel Sen, 14, does not favor the tax but knows how the money should be spent if it passes.
“The police came heck of late,” he said, recalling the recent death of a best friend. “We need more of them.”
Kimberly Aceves, the center’s executive director, says that too often, the burden for making healthy choices falls unfairly on young people. Society may say “go exercise,” she said, “but if the community isn’t safe, how many kids are going to go out running?”
“Soda is bad for you,” Ms. Aceves said. “So is violence.”

For the full story, see:
PATRICIA LEIGH BROWN. “RICHMOND JOURNAL; Plan to Tax Soda Gets a Mixed Reception.” The New York Times, First Section (Sun., June 3, 2012): 14.
(Note: ellipses added.)
(Note: the online version of the article has the date June 2, 2012.)

Hatfields and McCoys Show that Idleness Begets Violence

Kevin Costner as the patriarch of the Hatfield clan on the HBO miniseries. Source of photo:
http://www.cowboysindians.com/Blog/May-2012/Blasts-From-Our-Past-With-Kevin-Costner/costner-hatfield.jpg

Kevin Costner plausibly suggests that when the productive activities of capitalism and entrepreneurship are not available or sought, people are more likely to let annoyances lead to violence:

(p. 15) Q. What was the root of the feud?

K.C. It’s fair to say that the economics of the time were the provocateurs in this story. I think there was a moment when Hatfield and McCoy would have laid down their guns. But these young guys didn’t have jobs anymore as we moved toward industrialization. They started to have children, and their families doubled in size, and suddenly they had to feed 26. Young men killing young men — it really has a lot to do with the offspring not having enough to do. Look, you’re talking about alcohol and guns, and you’re talking about unemployment, so there’s a reason for the bitterness.

For the full interview, see:
Kathryn Shattuck, interviewer. “Firing Bullets Across a Border And a Bloodline.” The New York Times, Arts&Leisure Section (Sun., May 27, 2012): 15.
(Note: bold in original.)

Obama’s World Bank President Opposes Growth, Profits and Globalization

President Obama’s pick for World Bank President, Dr. Jim Yong Kim, is scheduled to take office on July 1, 2012.

(p. A8) Dr. Kim has drawn fire recently for comments in a book he co-edited in 2000, “Dying for Growth.” In a piece he co-authored for it, Dr. Kim co-wrote that “the quest for growth in GDP and corporate profits has in fact worsened the lives of millions of women and men.”
. . .
. . . an economist who has become one of Dr. Kim’s leading critics, New York University’s William Easterly, said the World Bank nominee offered an “amateur” approach to economics through an “antiglobalization point of view” that is critical of corporations.
“His critique was much more radical, that the system itself was responsible for creating poverty,” Mr. Easterly said.

For the full review, see:
SUDEEP REDDY. “WORLD NEWS; Criticism Over U.S.’s World Bank Pick Swells.” The Wall Street Journal (Mon., April 9, 2012): A8.
(Note: ellipses added.)
(Note: online version of the article is dated April 8, 2012.)

William Easterly’s wonderful and courageous book is:
Easterly, William. The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics. Cambridge, MA: The MIT Press, 2002 [1st ed. 2001].

If Milken’s Bonds Are “Junk” then Yunis’ Microloans Are “Junk” Too

(p. 167) The world owes a debt of gratitude to Mike Milken and his creative team. Did some people go too far? Yes. Did some of them take advantage of the freer flow of capital and end up doing more damage than good? Sure. But markets are messy. Major shifts in the flow of capital often lead to periods of excess before the pendulum swings back and equilibrium is restored. Mike Milken and his team made a major contribution to today’s market atmosphere of high liquidity, which in turn has also helped lift the world’s poor out of poverty. Today the Grameen Bank in Bangladesh has created microloans for mothers living on $2 a day. And that won Grameen the Nobel Prize. The Nobel Committee didn’t call microloans “junk” debt.

Source:
Wyly, Sam. 1,000 Dollars and an Idea: Entrepreneur to Billionaire. New York: Newmarket Press, 2008.

Happiness Research Undermines European-Style Labor-Market Regulation

Bryan Caplan persuasively pans the book he is revieiwng. But along the way Caplan makes an intriguing observation of his own:

(p. A11) . . . , happiness research makes a powerful case against European-style labor-market regulation. For most economists, the effect on worker well-being is unclear. On the one hand, regulation boosts wages; on the other, it increases the probability that you will have no wages at all. From the standpoint of a happiness researcher, however, this is a no-brainer. A small increase in wages has but a small and ephemeral effect on happiness. A small increase in unemployment, by contrast, has a massive and–unlike most other factors–durable effect on happiness. Supposedly “humane” regulations to boost workers’ incomes have a dire cost in terms of human happiness.

For the full review, see:
BRYAN CAPLAN. “BOOKSHELF; Lessons From Cloud Nine; Happiness predicts higher job performance and even future health. But what predicts happiness?” The Wall Street Journal (Tues., August 16, 2011): A11.
(Note: ellipsis added.)

Michael Milken Provided “Access to Capital for Growing Companies”

(p. 163) Although [high yield] . . . bonds eventually became known as a favored tool for leveraged–buyout specialists in the 1980s, Mike’s original goal was different. He wanted to provide access to capital for growing companies that needed financing to expand and create jobs. Most of these companies lacked the investment grade” bond ratings required before the big financial institutions would back them. Mike knew that non-investment-grade (a k a “junk”) companies create virtually all new jobs, and he believed that helping these companies grow strengthened the American economy and created good jobs for American workers.
It was by studying credit history at Berkeley in the 1960s that Mike developed his first great insight. He found that while there could be significant risk in any one high-yield bond, a carefully constructed portfolio of these assets produced a consistently better return over the long run than supposedly “safe” investment-grade debt. This was proved during the two decades of the 1970s and ’80s when returns on high-yield bonds topped all other asset classes. Mike saw a great opportunity when he realized that the perception of default risk far exceeded the reality. In fact, these bonds had a surprisingly low-risk profile when adjusted for the potential returns.
After twenty years of superior gains, the high-yield bond market finally fell in 1990. Actually, it didn’t fall–it was pushed by unwise government regulation that forced institutions to sell their bonds. The dip only lasted a year, however, with the market roaring back 46 percent in 1991.
Mike’s competitors–Goldman Sachs, Morgan Stanley, and Credit Suisse First Boston, the old oligopolies of the syndication (p. 164) business–labeled them “junk bonds” to disparage Mike’s brainchild. He was not a member of their white-shoe club and they were not going to take his act lying down.

Source:
Wyly, Sam. 1,000 Dollars and an Idea: Entrepreneur to Billionaire. New York: Newmarket Press, 2008.
(Note: bracketed words and ellipsis added.)

Open Offices Create “the Urgent Desire to Throttle One’s Neighbor”

John Tierney “at his cubicle with a wall of books.” Source of caption quote and photo: online version of John Tierney’s NYT article quoted and cited below.

(p. 18) The original rationale for the open-plan office, aside from saving space and money, was to foster communication among workers, the better to coax them to collaborate and innovate. But it turned out that too much communication sometimes had the opposite effect: a loss of privacy, plus the urgent desire to throttle one’s neighbor.

“Many studies show that people have shorter and more superficial conversations in open offices because they’re self-conscious about being overheard,” said Anne-Laure Fayard, a professor of management at the Polytechnic Institute of New York University who has studied open offices. . . .
Take Mr. Udeshi’s office, at the N.Y.U.-Poly business incubator, a SoHo loft with dozens of start-up companies housed in low cubicles. The entrepreneurs there say they sometimes get useful ideas from overheard conversations but also find themselves retreating to a bathroom or a broom closet for private chats. When they have to discuss a delicate matter with someone sitting next to them, they often use e-mail or instant messaging.
“You talk to more people in an open office, but I think you have fewer meaningful conversations,” said Jonathan McClelland, an energy consultant working in the loft. “You end up getting interrupted a lot by people’s random thoughts.”
. . .
Researchers at Finland’s Institute of Occupational Health have studied precisely how far those conversations carry and analyzed their effect on the unwilling listener: a decline of 5 percent to 10 percent on the performance of cognitive tasks requiring efficient use of short-term memory, like reading, writing and other forms of creative work.
“Noise is the most serious problem in the open-plan office, and speech is the most disturbing type of sound because it is directly understood in the brain’s working memory,” said Valtteri Hongisto, an acoustician at the institute. He found that workers were more satisfied and performed better at cognitive tasks when speech sounds were masked by a background noise of a gently burbling brook

.
For the full story, see:
JOHN TIERNEY. “From Cubicles, Cry for Quiet Pierces Office Buzz.” The New York Times, First Section (Sun., May 20, 2012): 1 & 18.
(Note: the online version of the article is dated May 19, 2012, and has the title “From Cubicles, Cry for Quiet Pierces Office Buzz.”)

In Antitrust, as in Medicine, First Do No Harm

(p. 94) Western Union’s lawyers carne up with a dusty old New York Stale law, dated 1905, that said no one could buy more than 10 percent of a telegraph company chartered in that state without the approval of Albany lawmakers. Hard to believe, but it was right there in black and white and there was no possibility of getting the New York State legislature to understand why it was vital to build digital highways.
Talk about unintended consequences!
(p. 95) Originally, the law was written to stop Western Union from monopolizing the telegram business, but the law backfired and was used by the monopolist for its own protection.

Source:
Wyly, Sam. 1,000 Dollars and an Idea: Entrepreneur to Billionaire. New York: Newmarket Press, 2008.

Tax Hikes Punish Hard Work and Reduce Incentives to Invest

(p. A15) The supply-sider has a different view from both the Keynesian and the budget balancer. Fundamentally, supply-side advocates focus on the harmful effects of tax increases. Raising tax rates hurts the economy directly because tax hikes reduce incentives to invest and because they punish hard work. As such, tax increases slow growth. But budget cuts work in the right direction by making lower tax revenues sustainable. If spending exceeds revenues, then the government must borrow and this commits future governments to raising taxes in order to service the debt.
. . .
On the tax side, there is strong evidence that supports the supply-siders. Christina Romer, President Obama’s first chairwoman of the President’s Council of Economic Advisers, and David Romer document the strong unfavorable effect of increasing tax rates on economic growth (American Economic Review, 2010). They report that an increase in taxes of 1% of gross domestic product lowers GDP by almost 3%. The evidence on government spending also suggests that high spending means lower growth.
For example, Swedish economists Andreas Bergh and Magnus Henrekson (Journal of Economic Surveys 2011) survey a large literature and conclude that an increase in government size by 10 percentage points of GDP is associated with a half to one percentage point lower annual growth rate.

For the full commentary, see:
EDWARD P. LAZEAR. “OPINION; Three Views of the ‘Fiscal Cliff’; It’s the tax increases we have to fear. Spending cuts won’t hurt the economy.” The Wall Street Journal (Mon., May 21, 2012): A15.
(Note: ellipsis added.)
(Note: the online version of the commentary is dated May 20, 2012 and has the title “OPINION; Edward Lazear: Three Views of the ‘Fiscal Cliff’; It’s the tax increases we have to fear. Spending cuts won’t hurt the economy.”)

The Romer and Romer paper mentioned is:
Romer, Christina D., and David H. Romer. “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks.” American Economic Review 100, no. 3 (June 2010): 763-801.

The Bergh and Henrekson paper mentioned is:
Bergh, Andreas, and Magnus Henrekson. “Government Size and Growth: A Survey and Interpretation of the Evidence.” Journal of Economic Surveys 25, no. 5 (Dec. 2011): 872-97.

Proof of Concept: “A Determined Entrepreneur Can Start a Rocket Company from Scratch”

‘The Falcon 9 rocket seen in a time-exposure photograph during liftoff.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A13) CAPE CANAVERAL, Fla. — He does not have the name recognition of some other space entrepreneurs, people like Richard Branson, the founder of the Virgin empire, or Paul Allen of Microsoft fame, or Jeff Bezos, the Amazon.com billionaire.

That will probably change if things keep going his way. Elon Musk, a computer prodigy and serial entrepreneur whose ambitions include solving the world’s energy needs and colonizing the solar system, was the man of the hour — or of 3:44 a.m. Tuesday, Eastern time — when the rocket ship built by his company, SpaceX, lifted off gracefully in a nighttime launching and arced off in a streak of light amid loud applause.
. . .
If all goes as planned, his unmanned Dragon capsule, lifted into orbit by his Falcon 9 rocket, will berth at the International Space Station on Friday bearing a modest cargo: 162 meal packets (45 of them low-sodium), a laptop computer, a change of clothes for the station astronauts and 15 student experiments.
Far more important than the supplies is the proof of concept. Mr. Musk is trying to show the world that a determined entrepreneur can start a rocket company from scratch and, a decade later, end up doing a job that has until now been the exclusive province of federal governments.
. . .
Just four years ago, SpaceX went through a near-death experience. The first three launchings of the company’s small Falcon 1 rocket failed. One more failure, Mr. Musk said, and he would have run out of money. As he went through a divorce from his first wife, with whom he has five sons, he had to borrow money from friends.
The fourth launching succeeded. Late in 2008, NASA awarded SpaceX the cargo contract. The first two Falcon 9 launchings, in 2010, also succeeded.
Early Tuesday morning, the success streak continued. As the countdown clock hit zero, the engines remained ignited. Less than 10 minutes later, the Dragon was in orbit. It then aced several other early tasks like the deployment of solar arrays and navigational sensors and the testing of GPS equipment.
“Anything could have gone wrong,” Mr. Musk said. “And everything went right, fortunately.”

For the full story, see:
KENNETH CHANG. “Big Day for Entrepreneur Who Promises More.” The New York Times (Weds., May 23, 2012): A13.
(Note: ellipses added.)
(Note: the online version of the story is dated May 22, 2012, and has the title “Big Day for a Space Entrepreneur Promising More.”)

“Elon Musk.” Source of caption and photo: online version of the NYT article quoted and cited above.

Private Equity Firms Increase Efficiency and Create as Many Jobs as They Destroy

(p. A23) Forty years ago, corporate America was bloated, sluggish and losing ground to competitors in Japan and beyond. But then something astonishing happened. Financiers, private equity firms and bare-knuckled corporate executives initiated a series of reforms and transformations.
The process was brutal and involved streamlining and layoffs. But, at the end of it, American businesses emerged leaner, quicker and more efficient.
. . .
As Reihan Salam noted in a fair-minded review of the literature in National Review, in any industry there is an astonishing difference in the productivity levels of leading companies and the lagging companies. Private equity firms like Bain acquire bad companies and often replace management, compel executives to own more stock in their own company and reform company operations.
Most of the time they succeed. Research from around the world clearly confirms that companies that have been acquired by private equity firms are more productive than comparable firms.
This process involves a great deal of churn and creative destruction. It does not, on net, lead to fewer jobs. A giant study by economists from the University of Chicago, Harvard, the University of Maryland and the Census Bureau found that when private equity firms acquire a company, jobs are lost in old operations. Jobs are created in new, promising operations. The overall effect on employment is modest.

For the full commentary, see:
DAVID BROOKS. “How Change Happens.” The New York Times (Tues., May 22, 2012): A23.
(Note: ellipsis added.)
(Note: the online version of the commentary is dated May 21, 2012.)

The “giant study by economists” mentioned by Brooks is:
Davis, Steven J., John C. Haltiwanger, Ron S. Jarmin, Josh Lerner, and Javier Miranda. “Private Equity and Employment.” National Bureau of Economic Research, Inc, NBER Working Papers: # 17399, Sept. 2011.