Category: Economics

Arabic Numerals Enabled Better Accounting Systems

ManOfNumbersBK2011-08-08.jpg

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

(p. A13) Humans have been recording counts for at least 35,000 years, if the notches in a Paleolithic-era baboon’s fibula are an indicator.
. . .
Before the 13th century, European businessmen recorded figures in Roman numerals and computed with their fingers or a counting board. But these creaky accounting systems began to buckle under the growing complexity of regional and international finance. In 1202, Leonardo of Pisa–better known by his family name, Fibonacci–published the “Liber Abbaci,” or “Book of Calculation,” a 600-page tome detailing the rules of Hindu-Arabic arithmetic and algebra. Fibonacci’s volume was directed not to scholars but to merchants, the first work in the West to demonstrate the commercial utility of Eastern mathematics. The book was an instant success and propelled the Pisan maestro d’abbaco to fame.
The “Liber Abbaci” inspired a flood of regionally produced (and lesser) primers on the subject. Arithmetic schools sprang up throughout Italy and would eventually count among their pupils da Vinci and Machiavelli. German merchants flocked to Venice during the 1300s to learn the new accounting practices. In “The Man of Numbers,” mathematician Keith Devlin makes the case that Fibonacci’s book spearheaded the decline and fall of the Roman numeral and transformed scientific, technological and commercial calculation in the West.
At age 15, Fibonacci accompanied his father, a Pisan trade representative, to the North African port of Bugia (now Bejaia, in Algeria). In the preface to “Liber Abbaci,” Fibonacci writes of his early introduction to the “art of the nine Indian figures” and their computational power. After more than a decade of his own studies and tutelage under Arabic mathematicians across North Africa, he returned to Pisa to write his masterwork. Such was the acclaim that Fibonacci appeared before Emperor Frederick II–a colorful intellectual who referred to himself as Stupor mundi or Wonder of the World–and vanquished the emperor’s court mathematician in an arithmetic duel.
. . .
. . . as Mr. Devlin reminds us, even something as prosaic as a sequence of 10 numbers can remake an entire world.

For the full review, see:
ALAN HIRSHFELD. “BOOKSHELF; Counting On Progress; Roman numerals were fine for adding and subtracting. Fibonacci saw that complex math required a better system.” The Wall Street Journal (Thurs., JULY 7, 2011): A13.
(Note: ellipses added; italics in original.)

Book under review:
Devlin, Keith. The Man of Numbers: Fibonacci’s Arithmetic Revolution. New York: Walker & Company, 2011.

Obama Regulations Are “Choking Off Innovation”

From 2007 to 2010 Nina V. Fedoroff was the science and technology adviser to Secretary of State Hilary Clinton in the Obama administration. Fedoroff is currently a Professor of Biology at Penn State. The passages quoted below are from her courageous commentary in The New York Times op-ed section:

(p. A21) . . . even as the Obama administration says it wants to stimulate innovation by eliminating unnecessary regulations, the Environmental Protection Agency wants to require even more data on genetically modified crops, which have been improved using technology with great promise and a track record of safety. The process for approving these crops has become so costly and burdensome that it is choking off innovation.

Civilization depends on our expanding ability to produce food efficiently, which has markedly accelerated thanks to science and technology. The use of chemicals for fertilization and for pest and disease control, the induction of beneficial mutations in plants with chemicals or radiation to improve yields, and the mechanization of agriculture have all increased the amount of food that can be grown on each acre of land by as much as 10 times in the last 100 years.
These extraordinary increases must be doubled by 2050 if we are to continue to feed an expanding population. . . .
. . .
Myths about the dire effects of genetically modified foods on health and the environment abound, but they have not held up to scientific scrutiny. And, although many concerns have been expressed about the potential for unexpected consequences, the unexpected effects that have been observed so far have been benign. Contamination by carcinogenic fungal toxins, for example, is as much as 90 percent lower in insect-resistant genetically modified corn than in nonmodified corn. This is because the fungi that make the toxins follow insects boring into the plants. No insect holes, no fungi, no toxins.
. . .
Only big companies can muster the money necessary to navigate the regulatory thicket woven by the government’s three oversight agencies: the E.P.A., the Department of Agriculture and the Food and Drug Administration.
. . .
. . . the evidence is in. These crop modification methods are not dangerous. The European Union has spent more than $425 million studying the safety of genetically modified crops over the past 25 years. Its recent, lengthy report on the matter can be summarized in one sentence: Crop modification by molecular methods is no more dangerous than crop modification by other methods. Serious scientific bodies that have analyzed the issue, including the National Academy of Sciences and the British Royal Society, have come to the same conclusion.

For the full commentary, see:
NINA V. FEDOROFF. “Engineering Food for All.” The New York Times (Fri., August 19, 2011): A21.
(Note: ellipses added.)
(Note: the online version of the commentary was dated August 18, 2011.)

Bathtubs Started Out “Extremely Expensive” and Then Prices Fell

(p. 372) At last the world had baths that looked good and stayed looking good for a long time. But they were still extremely expensive. A bath alone could easily cost $200 in 1910 – a price well beyond the range of most households. But as manufacturers improved the processes of mass manufacture, prices fell and by 1940 an American could buy an entire bath suite – sink, bath and toilet – for $70, a price nearly everyone could afford.

Elsewhere, however, baths remained luxuries. In Europe a big part of the problem was a lack of space in which to put bathrooms. In 1954 just one French residence in ten had a shower or bath. In Britain the journalist Katharine Whitehorn has recalled that as recently as the late 1950s she and her colleagues on the magazine Woman’s Own were not allowed to do features on bathrooms as not enough British homes had them, and such articles would only promote envy.

Source:
Bryson, Bill. At Home: A Short History of Private Life. New York: Doubleday, 2010.

Fewer Entrepreneurial Startups Leads to Fewer New Jobs

JobsCreatedByStartupsGraph2011-10-18.jpg

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

(p. B1) Start-ups fuel job growth disproportionately since by definition they are starting and growing, adding employees, says the Kauffman Foundation, which researches and advocates for entrepreneurship.
Though there was start-up activity during and after the recession, driven partly by unemployed individuals putting out a shingle, Bureau of Labor Statistics data show the total number of “births” of new businesses declined sharply from previous years. What’s more, the number of people employed by new businesses that are less than a year old–a common definition of a start-up–also declined. That trend started a decade ago.
In a recent report on entrepreneurship, the BLS said the number of new businesses less than a year old that existed in the year ending March 2010 “was lower than any other year” since its research began in 1994. The downdraft started with the recession.
“More people who were self-employed failed and left self-employment than people who entered,” says Scott Shane, an economics professor at Case Western Reserve University who wrote a study on entrepreneurship and the recession for the Cleveland Fed. “The net effect is negative, not positive, largely because downturns hurt those in business and those thinking of entering business.”

For the full story, see:
JOHN BUSSEY. “THE BUSINESS; Shrinking in a Bad Economy: America’s Entrepreneur Class.” The Wall Street Journal (Fri., AUGUST 12, 2011): B1 & B2.
(Note: ellipsis added.)

The BLS report mentioned above can be found at: http://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm

The Scott Shane commentary mentioned above can be found at:
http://www.clevelandfed.org/research/commentary/2011/2011-04.cfm

YoungFirmsGraph2011-10-18.jpg

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

Jobs Haiku

jobs and Jobs are gone
need more Jobs to get more jobs
innovate to grow

Arthur Diamond

In his Q4 survey of influential economics bloggers, Tim Kane of the Kauffman Foundation whimsically requested that we create a haiku that speaks to the state of the economy. I sent him my haiku, above, on Sunday, October 16, 2011.
(Do not worry—I have no plans to retire and devote myself to writing poetry.)

Another Nod to Planck’s “Cynical View of Science”

The Max Planck view expressed in the quote below, has been called “Planck’s Principle” and has been empirically tested in three papers cited at the end of the entry.

(p. 12) How’s this for a cynical view of science? “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”

Scientific truth, according to this view, is established less by the noble use of reason than by the stubborn exertion of will. One hopes that the Nobel Prize-winning physicist Max Planck, the author of the quotation above, was writing in an unusually dark moment.
And yet a large body of psychological data supports Planck’s view: we humans quickly develop an irrational loyalty to our beliefs, and work hard to find evidence that supports those opinions and to discredit, discount or avoid information that does not.

For the full commentary, see:
CORDELIA FINE. “GRAY MATTER; Biased but Brilliant.” The New York Times, SundayReview Section (Sun., July 31, 2011): 12.
(Note: ellipses added.)
(Note: the online version of the article is dated July 30, 2011.)

Three of my papers that present evidence on Planck’s Principle, are:
“Age and the Acceptance of Cliometrics.” The Journal of Economic History 40, no. 4 (December 1980): 838-841.
“Planck’s Principle: Do Younger Scientists Accept New Scientific Ideas with Greater Alacrity than Older Scientists?” Science 202 (November 17, 1978): 717-723 (with David L. Hull and Peter D. Tessner).
“The Polywater Episode and the Appraisal of Theories.” In A. Donovan, L. Laudan and R. Laudan, eds., Scrutinizing Science: Empirical Studies of Scientific Change. Dordrecht, Holland: Kluwer Academic Publishers, 1988, 181-198.

“Insanely Great” Entrepreneur Steve Jobs Wanted “a Chance to Change the World”

Steve Jobs died yesterday (Weds., October 5, 2011).
Jobs was an innovator of my favorite kind, what I call a “project entrepreneur.” He showed us what excitement and progress is possible if we preserve the institutions that allow entrepreneurial capitalism to exist.
When he was recruiting John Sculley to leave Pepsi and join Apple, Jobs asked him: “Do you want to spend the rest of your life selling sugared water or do you want a chance to change the world?” (p. 90).
Steve Jobs wanted to change the world. He got the job done.

Source of quote of Jobs’ question to Sculley:
Sculley, John, and John A. Byrne. Odyssey: Pepsi to Apple. paperback ed. New York: HarperCollins, 1988.

“Coolidge Helped Americans Prosper by Letting Them Be Free”

(p. A15) Ronald Reagan, who grew up during the Coolidge presidency, admired “Silent Cal,” even going so far as to read a biography of the 30th president as he recovered from a surgery in 1985 and to praise him in letters to his constituents. To Reagan, Coolidge wasn’t silent, but was silenced by New Deal supporters, whose intellectual heirs control much of Washington today.
. . .
Unlike President Obama, President Coolidge didn’t want to “spread the wealth around,” but to grow it. He didn’t call for “shared sacrifice”–Americans had sacrificed enough during the great war–but for good character.
There “is no surer road to destruction than prosperity without character,” he said in a speech at the University of Pennsylvania in 1921. And from the White House lawn in 1924 he said, “I want the people of America to be able to work less for the Government and more for themselves. I want them to have the rewards of their own industry. That is the chief meaning of freedom.”
. . .
As Coolidge saw things in 1924, “A government which lays taxes on the people not required by urgent public necessity and sound public policy is not a protector of liberty, but an instrument of tyranny. It condemns the citizen to servitude.” Coolidge helped Americans prosper by letting them be free.

For the full commentary, see:
CHARLES C. JOHNSON. “How Silent Cal Beat a Recession; The late president inherited a bad economy, and he cut taxes and slashed spending to spur growth.” The Wall Street Journal (Thurs., August 4, 2011): A15.
(Note: ellipses added.)

Americans Resented Being Kept as a Captive Market

(p. 300) This suppression of free trade greatly angered the Scottish economist Adam Smith (whose Wealth of Nations, not coincidentally, came out the same year that America declared its independence) but not nearly as much as it did the Americans, who naturally resented the idea of being kept eternally as a captive market. It would be overstating matters to suggest that the exasperations of commerce were the cause of the American revolution, but they were certainly a powerful component.

Source:
Bryson, Bill. At Home: A Short History of Private Life. New York: Doubleday, 2010.

McKinsey Finds 30% of Employers Will Drop Health Coverage in Response to Obamacare

McKinsey is probably the best known business consulting and forecasting firm in the United States. Many well-known management gurus, and corporate executives, have spent time working for McKinsey (as did Chelsea Clinton). One of their senior partners (Foster) co-authored a useful book called Creative Destruction.

(p. A2) A report by McKinsey & Co. has found that 30% of employers are likely to stop offering workers health insurance after the bulk of the Obama administration’s health overhaul takes effect in 2014.
. . .
Previous research has suggested the number of employers who opt to drop coverage altogether in 2014 would be minimal.
But the McKinsey study predicts a more dramatic shift from employer-sponsored health plans once the new marketplace takes effect. Starting in 2014, all but the smallest employers will be required to provide insurance or pay a fine, while most Americans will have to carry coverage or pay a different fine. Lower earners will get subsidies to help them pay for plans.
In surveying 1,300 employers earlier this year, McKinsey found that 30% said they would “definitely or probably” stop offering employer coverage in the years after 2014. That figure increased to more than 50% among employers with a high awareness of the overhaul law.

For the full story, see:
JANET ADAMY. “Study Sees Cuts to Health Plans.” The Wall Street Journal (Weds., JUNE 8, 2011): A15.
(Note: ellipsis added.)

The Foster book is:
Foster, Richard N., and Sarah Kaplan. Creative Destruction: Why Companies That Are Built to Last Underperform the Market—and How to Successfully Transform Them. New York: Currency Books, 2001.

Solyndra Debacle Illustrates Why Feds Should Not Pick Tech Winners

The clip above is embedded from the Jon Stewart “The Daily Show” episode that was aired on Thurs., September 15, 2011.

Government “industrial policy” is likely to fail for many reasons. One is that the government decision makers are unlikely to know which future technologies will turn out to be the best ones. Another reason is that even if they know, government decision makers often decide based on what is politically expedient or what is beneficial to their friends.

Solyndra is a case in point, as Jon Stewart hilariously reveals.