Economics – Page 192 – artdiamondblog.com

Pedro de Verona Rodrigues Pires Wins Ibrahim Prize for Achievement in African Leadership

“Pedro de Verona Rodrigues Pires” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A10) MONROVIA, Liberia — Pedro de Verona Rodrigues Pires, the former president of Cape Verde, the desertlike archipelago about 300 miles off the coast of West Africa, has won one of the world’s major prizes, the $5 million Ibrahim Prize for Achievement in African Leadership.

The record of governing in Africa has been poor enough lately that the Mo Ibrahim Foundation decided not to award the prize for the past two years. In many African countries, leaders have refused to leave office after losing elections, tried to alter constitutions to ensure their continued tenure or gone back on pledges not to run for re-election.
. . .
Mr. Pires served two terms — 10 years — as president until stepping down last month. During that period, the foundation noted, Cape Verde became only the second African nation to move up from the United Nations’ “least developed” category. The foundation says the prize is given only to a democratically elected president who has stayed “within the limits set by the country’s constitution, has left office in the last three years and has demonstrated excellence in office.”

For the full story, see:
ADAM NOSSITER. “Ex-President of Cape Verde Wins Good-Government Prize.” The New York Times (Tues., October 11, 2011): A10.
(Note: ellipsis added.)
(Note: the online version of the article is dated October 10, 2011.)

Mackay Warned about Delusions, then Was Deluded by Bubble

(p. B1) Can you spot a bubble?
Ever since 1841, when a Scottish journalist named Charles Mackay published the book known today as “Extraordinary Popular Delusions and the Madness of Crowds,” the answer has seemed clear. If you watch carefully for signs of euphoria, you can sidestep the damage when markets go mad.
But bubble spotting isn’t as simple as Mackay made it sound–even, it turns out, for Mackay himself. Investors should always guard against the glib assertions of pundits who claim they can detect bubbles before they burst.
. . .
But new research tells the untold tale of Mackay’s own behavior in the face of a bubble–and it is a shocker. A mathematician and former cryptographer at Bell Labs named Andrew Odlyzko has spent much of the past decade researching a forgotten stock mania. One of its biggest boosters was none other than Charles Mackay.
A bubble in British railroad stocks began in 1844, only three years after Mackay published his book, and it didn’t start to collapse until late 1845. Even with the history of market folly fresh in his mind, Mackay urged British investors to pile into railway stocks, whose extravagant prices were based on absurdly unrealistic projections of future growth.
The most famous critic of bubbles who ever lived fell like a chump for a craze that was unfolding before his very eyes. On Oct. 2, 1845, Mackay wrote that “those who sound the alarm of an approaching railway crisis have somewhat exaggerated the danger.”
He went on to ridicule anyone who argued that “the Railway mania of the present day” was similar to the devastating bubbles he had described in his own book. “There is no reason whatever to fear” a crash, he concluded.
He couldn’t have been more wrong. From 1845 to the bottom in 1850, railway stocks fell by two-thirds–the equivalent of roughly $1 trillion of losses in today’s money. Mackay never fessed up to his own extraordinary delusion.

For the full commentary, see:
JASON ZWEIG. “THE INTELLIGENT INVESTOR; The Extraordinary Popular Delusion of Bubble Spotting.” The Wall Street Journal (Sat., NOVEMBER 5, 2011): B1.
(Note: ellipsis added.)

In 1800 the Life of a Peasant Was Not Pleasant

(p. 12) There are people today who think life was better in the past. They argue that there was not only a simplicity, tranquility, sociability and spirituality about life in the distant past that has been lost, but a virtue too. This rose-tinted nostalgia, please note, is generally confined to the wealthy. It is easier to wax elegiac for the life of a peasant when you do not have to use a long-drop toilet. Imagine that it is 1800, somewhere in Western Europe or eastern North America. The family is gathering around the hearth in the (p. 13) simple timber-framed house. Father reads aloud from the Bible while mother prepares to dish out a stew of beef and onions. The baby boy is being comforted by one of his sisters and the eldest lad is pouring water from a pitcher into the earthenware mugs on the table. His elder sister is feeding the horse in the stable. Outside there is no noise of traffic, there are no drug dealers and neither dioxins nor radioactive fall-out have been found in the cow’s milk. All is tranquil; a bird sings outside the window.
Oh please! Though this is one of the better-off families in the village, father’s Scripture reading is interrupted by a bronchitic cough that presages the pneumonia that will kill him at 53 – not helped by the wood smoke of the fire. (He is lucky: life expectancy even in England was less than 40 in 1800.) The baby will die of the smallpox that is now causing him to cry; his sister will soon be the chattel of a drunken husband. The water the son is pouring tastes of the cows that drink from the brook. Toothache tortures the mother. The neighbour’s lodger is getting the other girl pregnant in the hayshed even now and her child will be sent to an orphanage. The stew is grey and gristly yet meat is a rare change from gruel; there is no fruit or salad at this season. It is eaten with a wooden spoon from a wooden bowl. Candles cost too much, so firelight is all there is to see by. Nobody in the family has ever seen a play, painted a picture or heard a piano. School is a few years of dull Latin taught by a bigoted martinet at the vicarage. Father visited the city once, but the travel cost him a week’s wages and the others have never travelled more than fifteen miles from home. Each daughter owns two wool dresses, two linen shirts and one pair of shoes. Father’s jacket cost him a month’s wages but is now infested with lice. The children sleep two to a bed on straw mattresses on the floor. As for the bird outside the window, tomorrow it will be trapped and eaten by the boy.

Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

The Kauffman Foundation’s Startup Act Would Encourage Entrepreneurs

The WSJ tells us the credentials of the authors of the following advice: “Mr. Muller is CEO of GenOn Energy. Mr. Zimpleman is president and CEO of the Principal Financial Group.”

(p. A15) In our view, there is no hope of giving consumers renewed confidence in America unless governments at all levels mount a vigorous effort to get rid of rules that discourage entrepreneurs from launching and growing new businesses.

The Kauffman Foundation recently proposed a way to do that with a set of ideas aptly called the Startup Act. Those ideas, which would cost the government virtually nothing, include:
• Letting in immigrant entrepreneurs who hire American workers.
• Reducing the cost of capital through capital gains tax relief for early stage investments.
• Reducing barriers to IPOs by allowing shareholders to opt out of Sarbanes-Oxley.
• Charging higher fees for patent applicants who want quick decisions to remove the backlog of applications at the Patent Office.
• Giving licensing freedom to academic entrepreneurs at universities to accelerate the commercialization of their ideas.
• Having the government provide data to permit rankings of startup friendliness of states and localities.
• Regular sunsets for regulations and a consistent policy of putting new ones in place only if their benefits exceed their costs.

For the full commentary, see:
EDWARD R. MULLER and LARRY ZIMPLEMAN. “OPINION; An Entrepreneurial Fix for the U.S. Economy; Several reforms can make it faster and easier for new business startups..” The Wall Street Journal (Mon., AUGUST 29, 2011): A15.

Ridley Argues that Our Future Can Be Bright

Source of book image: http://1.bp.blogspot.com/_cheRMv1X2oI/TAOvTFTnoeI/AAAAAAAAAgU/WAp7q0I_5mw/s1600/Ridley+Rational+Optimist.jpg

Ridley’s book is very well-written, well-argued and well-documented. He takes on all the main arguments against a happy future for humans. I agree with most of what he writes. (One exception is that I think he underestimates the importance of patents in enabling a broader group of inventors to continue inventing.)
In the coming weeks, I will be quoting some of the more memorable, thought-provoking, or useful passages.

Book discussed:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

Federal Subsidies Create Few Green Jobs

(p. F2) . . . solar power, which makes extensive use of robots in fabricating the cells, and has no moving parts to service once it is up and running, may be an odd choice for job creation.
“It’s just not that labor-intensive,” said Howard Axelrod, an engineer and economist. And as for the jobs it creates, there may be a price elsewhere, Dr. Axelrod said.
. . .
Build enough solar plants and some coal plants will shut down; that would amount to firing Peter to hire Paul.
. . .
And, economists point out, some of the work that renewable energy creates goes to people who already have jobs — roofers who install the panels or truck drivers who move them around, or steel workers who make towers for new wind machines.
Some of the jobs could eventually go elsewhere. Two years ago, Evergreen Solar, which got $58 million in aid from Massachusetts for a factory in Devens, said it would shift production to China instead.
. . .
The debate is part of a larger discussion of what constitutes a “green” job. In October 2009, Congress gave the Bureau of Labor Statistics a special appropriation to count them.
. . .
“Driving a bus is driving a bus, right?” said Connie Mack, Republican of Florida. Hilda Solis, the secretary of labor, said they were “green buses.” But aides later clarified that the bureau counted any bus driving job as green because it preserved natural resources.
None of this suggests that green is bad, just that it is not particularly job-heavy. In December 2010, Susan Combs, the comptroller of Texas, reported that school districts in her state were giving tax abatements to lure new jobs, but had to give $1.6 million for every wind energy job. Manufacturing jobs could be created for $166,000 each.

For the full story, see:
MATTHEW L. WALD. “Solar Power Industry Falls Short of Hopes in Job Creation.” The New York Times (Weds., October 26, 2011): F2.
(Note: ellipses added.)
(Note: the online version of the article has the date October 25, 2011.)

More Firms Adopt ‘Bring Your Own Device’ (BYOD) Policies to Empower Workers and Cut Costs

“At Citrix Systems, Berkley Reynolds, left, uses his Alienware laptop, and Alan Meridian, his MacBook Pro, paid for with stipends.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B1) SAN FRANCISCO — Throughout the information age, the corporate I.T. department has stood at the chokepoint of office technology with a firm hand on what equipment and software employees use in the workplace.

They are now in retreat. Employees are bringing in the technology they use at home and demanding the I.T. department accommodate them. The I.T. department often complies.
Some companies have even surrendered to what is being called the consumerization of I.T. At Kraft Foods, the I.T. department’s involvement in choosing technology for employees is limited to handing out a stipend. Employees use the money to buy whatever laptop they want from Best Buy, Amazon.com or the local Apple store.
“We heard from people saying, ‘How come I have better equipment at home?’ ” said Mike Cunningham, chief technology officer for Kraft Foods. “We said, hey, we can address that.”
Encouraging employees to buy their own laptops, or bring their mobile phones and iPads from home, is gaining traction in the workplace. A survey published on Thursday by Forrester Research found that 48 percent of information workers buy smartphones for work without considering what their I.T. department supports. By being more flexible, companies are hoping that workers will be more comfortable with their devices and therefore more productive.
“Bring your own device” policies, as they are called, are also shifting the balance of power among electronics makers. Manufacturers good at selling to consumers are increasingly gaining the upper hand, while those focused on bulk corporate sales are slipping.
. . .
(p. B6) Letting workers bring their iPhones and iPads to work can . . . save companies money. In some cases, employees pay for equipment themselves and seek tech help from store staff rather than their company’s I.T. department. “You can basically outsource your I.T. department to Apple,” said Ben Reitzes, an analyst with Barclays Capital.
A similar B.Y.O.D. program at Citrix Systems, a software maker that also helps its clients implement such programs, saves the company about 20 percent on each laptop over three years. Of the 1,000 or so employees in Citrix’s program, 46 percent have bought Mac computers, according to Paul Martine, Citrix’s chief information officer. “That was a little bit of a surprise.”

For the full story, see:
VERNE G. KOPYTOFF. “More Offices Let Workers Choose Their Own Devices.” The New York Times (Fri., September 23, 2011): B1 & B6.
(Note: ellipses added.)
(Note: the online version of the article is dated September 22, 2011.)

Collins Says Successful CEOs Are Empirical and Disciplined

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

(p. A15) ‘Great by Choice” is a sequel to Jim Collins’s best-selling “Good to Great” (2001), which identified seven characteristics that enabled companies to become truly great over an extended period of time. Never mind that one of the 11 featured companies is now bankrupt (Circuit City) and another is in government receivership (Fannie Mae). Mr. Collins has a knack for analysis that business readers find compelling.

Mr. Collins’s new book tackles the question of how to steer a company to lasting success in an environment characterized by change, uncertainty and even chaos. Like his previous work, this book builds its conclusions on a framework of painstaking research, conducted over nine years and overseen by Mr. Collins and his co-author, Morten T. Hansen, a management professor at the University of California, Berkeley.
. . .
Messrs. Collins and Hansen draw some interesting and counterintuitive conclusions from their research. First, the successful leaders were not the most “visionary” or the biggest risk-takers; instead, they tended to be more empirical and disciplined, relying on evidence over gut instinct and preferring consistent gains to blow-out winners. The successful companies were not more innovative than the control companies; indeed, they were in some cases less innovative. Rather, they managed to “scale innovation”–introducing changes gradually, then moving quickly to capitalize on those that showed promise. The successful companies weren’t necessarily the most likely to adopt internal changes as a response to a changing environment. “The 10X companies changed less in reaction to their changing world than the comparison cases,” the authors conclude.
. . .
If “Great by Choice” shares the qualities that made “Good to Great” so popular, it also shares some that drew criticism. The authors’ conclusions sometimes feel like the claims of a well-written horoscope–so broadly stated that they are hard to disprove. Their 10X leaders are both “disciplined” and “creative,” “prudent” and “bold”; they go fast when they must but slow when they can; they are consistent but open to change. This encompassing approach allows the authors to fit pretty much any leader who achieves 10X performance into their analysis. Would it ever be possible, one wonders, to find a leader whose success contradicted their thesis?

For the full review, see:
ALAN MURRAY. “BOOKSHELF; Turbulent Times, Steady Success; How certain companies achieved shareholder returns at least 10 times greater than their industry.” The Wall Street Journal (Tues., OCTOBER 11, 2011): A15.
(Note: ellipses added.)

Innovation Not Highly Correlated with R&D Spending

Source of graph: online version of the WSJ article quoted and cited below.

(p. B9) Many companies say innovation is a top priority, but even those who spend the most on research and development can have little to show for it, a new study says.

A report expected to be released Monday by consulting firm Booz & Co., says that few of the biggest R&D spenders crack the top 10 in terms of being considered “innovative” by their peers.
Booz identified 1,000 companies with the biggest 2010 research-and-development budgets and invited 600 executives from those companies to rate which ones they deemed most innovative. The most frequent pick was Apple Inc.–the 70th biggest research-and-development spender–followed by Google Inc. and 3M Co., also not among the top-20 spenders.

For the full story, see:
MELISSA KORN. “Top ‘Innovators’ Rank Low in R&D Spending.” The Wall Street Journal (Mon., OCTOBER 24, 2011): B9.

Lazear’s Popcorn Theory of Economic Destruction

(p. A15) . . . , consider two theories of economic destruction, which can be labeled the domino theory and the popcorn theory. Everyone knows the domino theory; it is the analogy that is commonly used to denote contagion. If one domino falls, it will topple the others, and conversely, if the first domino remains upright, the others will not fall. It is this logic that underlies most bailout strategies.
The popcorn theory emphasizes a different mechanism. When popcorn is made (the old fashioned way), oil and corn kernels are placed in the bottom of a pan, heat is applied and the kernels pop. Were the first kernel to pop removed from the pan, there would be no noticeable difference. The other kernels would pop anyway because of the heat. The fundamental structural cause is the heat, not the fact that one kernel popped, triggering others to follow.
Many who believe that bailouts will solve Europe’s problems cite the Sept. 15, 2008 bankruptcy of Lehman Brothers as evidence of what allowing one domino to fall can do to an economy. This is a misreading of the historical record. Our financial crisis was mostly a popcorn phenomenon.
. . .
But our financial crisis was caused by factors that affected the entire system, just as all corn kernels pop when they are warmed by the same flame. This lesson is important because interpreting our crisis as primarily a contagion event leads to the wrong strategies for dealing with potential disasters. After Lehman, Europeans seem to be so taken with worries of contagion that they are failing to emphasize remedies that actually have a chance of making things better. In their case, and in ours, the solution is primarily a reduction in the bloated size of government expenditures that come about by making promises that cannot be kept.

For the full commentary, see:
EDWARD P. LAZEAR. “OPINION; The Euro Crisis: Doubting the ‘Domino’ Effect; Preventing a Greek default will not reverse the lackluster growth that has plagued the other vulnerable countries for many years now.” The Wall Street Journal (Mon., OCTOBER 31, 2011): A15.
(Note: ellipses added.)

A&P Sold Consumers Better and Lower-Priced Food

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

(p. A15) Mr. Levinson’s history centers on the two Hartford sons who followed their father into the business. They would spend their entire working lives at the company being known simply as “Mr. George” and “Mr. John.” Thoughtful and studious, Mr. George’s idea of excitement was a good jigsaw puzzle; Mr. John, somewhat more outgoing, liked the horses but also a daily lunch of milk and crackers. Together the brothers, neither of whom had finished high school, built what would be, for 40 years, the largest retail outlet in the world.

The brothers’ business philosophy was simple, writes Mr. Levinson: “If the company keeps its costs down and prices low, more shoppers would come through its doors, producing more profits than if it kept prices high.” The more stores they could open, the greater the take.
But the Hartfords had a public-relations problem. Since the nation’s earliest days, small family stores had served as community anchors. There were thousands across the country. Mom and pop knew every customer who came through their door; they extended credit to families down on their luck. If low-priced chains drove out such stores, what would happen to small-town America?
In fact, many mom-and-pop operations were inefficiently and incompetently run. A&P might be coldly corporate by comparison, but it offered consumers far more variety and fresher, better-quality goods at less cost to the family budget.

For the full review, see:
PATRICK COOKE. “BOOKSHELF; How a Grocer Bagged Profits; At its peak, the chain had nearly 16,000 stores. Critics charged it with competing unfairly by offering too-low prices.” The Wall Street Journal (Mon., AUGUST 29, 2011): A15.
(Note: ellipsis added.)

The book under review is:
Levinson, Marc. The Great A&P and the Struggle for Small Business in America. New York: Hill and Wang, 2011.