Economics – Page 200 – artdiamondblog.com

Chinese Local Governments Hold Bad Infrastructure Debt

(p. C14) There is no such thing as a free stimulus.
At first sight, China’s response to the financial crisis looked cheap. A fiscal deficit totaling 3.1% of gross domestic product in 2009 and 2.6% in 2010 compares with 12.7% and 10.6% in the U.S. The reality is that it was considerably more expensive than that.
China’s response to the crisis came primarily from bank loans rather than central government debt. With many of those loans now threatening to turn bad, the cost may still end up on the government’s balance sheet.
The heart of the problem is debt taken on by local government financing vehicles in the course of two years of huge infrastructure investment. These are entities created and backed by local governments to get around legal constraints on their borrowing. No one knows how much debt they have.

For the full story, see:
TOM ORLIK. “Post-Stimulus: Who Pays for China’s Bad Loans?” The Wall Street Journal (Thurs., June 23, 2011): C14.

Fannie Mae Execs “Resorted to Ad Hominem Attacks” When They Vilified the “Economic Pencil Brains”

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

(p. C6) Although the financial crisis of 2008 has left a long trail of casualties, one group has benefited from the cataclysm: financial journalists. Several have already published books shedding light on the unprecedented events that caused investment banks to fail, global stock markets to plummet and borrowers to lose their homes. “Reckless Endangerment,” by Gretchen Morgenson, assistant business and financial editor and a columnist at The New York Times, and the financial analyst Joshua Rosner, is a worthy addition to the genre.
. . .
The book begins in 1994 with President Bill Clinton’s kicking off a public-private partnership to extend homeownership to more Americans. . . .
. . .
. . . the institution to which the authors devote the most ink is Fannie Mae, the government-supported enterprise created in 1938 to make home loans more accessible. And the person they hold most accountable is someone whose role in the “mortgage maelstrom” has until now “escaped scrutiny”: James A. Johnson, Fannie Mae’s chief executive from 1991 to 1998. Mr. Johnson was the “anonymous architect of the public-private homeownership drive that almost destroyed the economy in 2008,” the authors assert. “He was especially adept at manipulating lawmakers, eviscerating regulators and leaving taxpayers with the bill.”
The description of Mr. Johnson’s role is damning — and although the account lacks his perspective, it is thoroughly supported through scores of interviews with academics, government officials and industry executives, some of whom are granted anonymity. While Mr. Johnson didn’t respond to interview requests over five months, according to the authors, they overcome this obstacle with impressive use of public records and secondary sources, carefully attributed in the text or described in a two-page “Notes on Sources.”
. . .
A particular strength of this book is the number of doubters the authors unearthed: the unsung government analysts, public lawyers and private researchers who dared to question policy decisions and stand up to the formidable “housers,” as the true believers in government subsidies for home ownership are called.
The reader has a sickening sense of missed opportunity as these prophets are ignored or, worse, vilified, by those in a position to halt the mania. When a Congressional Budget Office researcher in 1995 reveals the multibillion-dollar extent of the government’s subsidy to Fannie Mae and its brother institution, Freddie Mac (and that one-third of these benefits never reached borrowers), he suggests that “Congress may want to revisit the special relationship.” Unable to assail the merits of his analysis, outraged Fannie Mae executives resorted to ad hominem attacks, calling budget office officials “digit-heads” and “economic pencil brains.”

For the full review, see:
PAM LUECKE. “BOOKS OF THE TIMES; Nation Goes on Its Merry Way to Ruin.” The New York Times (Tues., June 28, 2011): C6.
(Note: the online version of the review was dated June 27, 2011.)
(Note: ellipses added.)

Book being reviewed:
Morgenson, Gretchen, and Joshua Rosner. Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon. New York: Times Books, 2011.

Much of U.S. Job Gains Are in Texas

(p. 1A) While the nation’s job growth has limped along since the economic recovery began two years ago, the Lone Star State is enlarging payrolls in Texas-size fashion.

From June 2009 to June 2011 the state added 262,000 jobs, or half the USA’s 524,000 payroll gains, according to the Federal Reserve Bank of Dallas and the Bureau of Labor Statistics. Even by a more conservative estimate that omits states with net job losses, Texas’ advances make up 30% of the 1 million additions in the 34 states with net growth.

For the full story, see:
Paul Davidson. “Need a Job? Move to Texas.” USA Today (Tues., JULY 20, 2011): 1A.
(Note: the online version of the article has the title “Texas bucks national unemployment trend.”)

Robert Lucas Sees Lower Growth Due to Too Much Regulation and Taxes

(p. A15) Robert Lucas, the 1995 Nobel laureate in economics, has spent his career thinking about why economies grow, and in particular about the effect of policy making on growth. From his office at the University of Chicago, Prof. Lucas has been wondering, like the rest of us, why, if the recession officially ended in the first half of 2009, there hasn’t been more growth in the U.S. economy. He’s also been wondering why this delayed recovery resembles the long non-recovery years of the 1930s. And he has been thinking about the U.S. and Europe.

In May, Bob Lucas pulled his thoughts together and delivered them as the Milliman Lecture at the University of Washington, an exercise he described to me this week as “intelligent speculation.”
Here is the lecture’s provocative final thought: “Is it possible that by imitating European policies on labor markets, welfare and taxes, the U.S. has chosen a new, lower GDP trend? If so, it may be that the weak recovery we have had so far is all the recovery we will get.”
. . .
“If we’re going to move to a European welfare state,” says Prof. Lucas, “we’re going to have to pay a European price.” And that price could be a permanently lower level of GDP per person. The U.S.’s amazing 100-year ride would slow.
Among the many things any such drop in GDP will siphon away is America’s relentless productive vitality. “So much new happens in the United States,” Prof. Lucas says. But will it still?

For the full commentary, see:
DANIEL HENNINGER. “The Disappearing Recovery; What if the weak recovery is all the recovery we are going to get?” The Wall Street Journal (Thurs., JULY 14, 2011): A15.
(Note: ellipsis added.)
(Note: online version of article had the date JULY 13, 2011.)

Ralph Nader Blasts Cisco for NOT Maximizing Shareholder Value

(p. C1) Ralph Nader, the scourge of American business and onetime presidential candidate, has found his next corporate demon: Cisco Systems Inc.

Mr. Nader isn’t calling for a router recall or claiming the company’s networks are unsafe at any speed. Instead, he wants the tech company to pay a bigger dividend to boost its shares.
The consumer advocate’s motives are far from altruistic. He is a longtime disgruntled Cisco investor who called the company’s share performance “appalling.” In a private letter to Cisco Chief Executive John Chambers sent June 13, Mr. Nader blasted the CEO for not doing enough to lift shares of the technology company and said “it is time for a long overdue Cisco shareholder revolt against a management that is oblivious to building or even maintaining shareholder value,” according to the letter.
. . .
The 77-year-old Mr. Nader, who rose to fame in the 1960s on his claims that American automobiles were unsafe, admitted the letter is a departure from his typical antibusiness stance. He said he has been an “adversary of corporate capitalism,” but he is a believer in capitalism, so long as shareholders have a voice. He wrote the letter to Mr. Chambers, he said, because he objects to the “powerlessness of owner shareholders.”

For the full story, see:
SUSAN PULLIAM. “Nader Kindles Fires of Revolt.” The Wall Street Journal (Fri., JUNE 24, 2011): C1-C2.
(Note: ellipsis added.)

Capitalism Was Not Inevitable

Source of book image:
http://ecx.images-amazon.com/images/I/519PfT2oUtL.jpg

(p. 15) What is the nature of capitalism? For Joseph Schumpeter, the Austrian-born economist whose writings have acquired a special relevance in the past year or two, this most modern of economic systems “incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” Capitalism, Schumpeter proclaimed, cannot stand still; it is a system driven by waves of entrepreneurial innovation, or what he memorably described as a “perennial gale of creative destruction.”

Schumpeter died in 1950, but his ghost looms large over Joyce Appleby’s splendid new account of the “relentless revolution” unleashed by capitalism from the 16th century onward. Appleby, a distinguished historian who has dedicated her career to studying the origins of capitalism in the Anglo-American world, here broadens her scope to take in the global history of capitalism in all its creative — and destructive — glory.
She begins “The Relentless Revolution” by noting that the rise of the economic system we call capitalism was in many ways improbable. It was, she rightly observes, “a startling departure from the norms that had prevailed for 4,000 years,” signaling the arrival of a new mentality, one that permitted private investors to pursue profits at the expense of older values and customs.
In viewing capitalism as an extension of a culture unique to a particular time and place, Appleby is understandably contemptuous of those who posit, in the spirit of Adam Smith, that capitalism was a natural outgrowth of human nature. She is equally scornful of those who believe that its emergence was in any way inevitable or inexorable.
. . .
. . . , she captures how a new generation of now forgotten economic writers active long before Adam Smith built a case “that the elements in any economy were negotiable and fluid, the exact opposite of the stasis so long desired.” This was a revolution of the mind, not machines, and it ushered in profound changes in how people viewed everything from usury to joint stock companies. As she bluntly concludes, “there can be no capitalism . . . without a culture of capitalism.”
. . .
The individual entrepreneur is at the center of her analysis, and her book offers thumbnail sketches of British innovators from James Watt to Josiah Wedgwood. She continues on to the United States and Germany, giving readers a whirlwind tour of the lives and achievements of a host of men whom she calls “industrial leviathans” — Vanderbilt, Rockefeller and Carnegie in the United States; Thyssen, Siemens and Zeiss in Germany. All created new industries while destroying old ones.

For the full review, see:
STEPHEN MIHM. “Capitalist Chameleon.” The New York Times Book Review (Sun., January 24, 2010): 15.
(Note: ellipses added except for the one in the “there can be no capitalism . . . without a culture of capitalism” quote.)
(Note: the online version of the review is dated January 22, 2010.)

Book under review:
Appleby, Joyce. The Relentless Revolution: A History of Capitalism. New York: W. W. Norton & Company, 2010.

Bricks-and-Mortar Restaurants Use Police (Instead of Better Food) to Beat Food Trucks

“Kim Ima and Kenny Lao parked their food trucks on Front Street in Dumbo.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. D4) FOOD trucks, those rolling symbols of New York City’s infatuation with haute casual food, are suddenly being chased from Midtown Manhattan. In the last 10 days, the Treats Truck, which has sold cookies and brownies for four years during lunchtime at West 45th Street near Avenue of the Americas, has been told by police officers that it is no longer welcome there, nor at its late-afternoon 38th Street and Fifth Avenue location. The Rickshaw Dumpling truck, a presence for three years at West 45th Street near the Treats Truck, has been shooed away as well.

The police “have told us they no longer want food trucks in Midtown,” said Kim Ima, the owner of the Treats Truck, a pioneer of the city’s new-wave food-truck movement, who began cultivating customers on West 45th Street in 2007.
. . .
Mr. Lao and other food-truck operators said they suspect that the police are responding to complaints by brick-and-mortar businesses that resent competition. Such was the case last year, when store merchants on the Upper East Side complained about Patty’s Taco Truck, which sold tortas, tacos de lengua and cemitas on Lexington Avenue. The truck was towed several times and the operator arrested, prompting the Street Vendor Project, an advocate for vendors based at the Urban Justice Center, to file the lawsuit that resulted in Judge Wright’s ruling, which said food is merchandise that can be regulated.

For the full story, see:
GLENN COLLINS. “Food Trucks Shooed From Midtown.” The New York Times (Weds., June 29, 2011): D4.
(Note: ellipsis added.)
(Note: the online version of the story is dated June 28, 2011.)

Entrepreneurs Stanley and Wood Apply Econometrics to Business Data Analysis

“Grant Stanley, left, and Tadd Wood founded Contemporary Analysis, which uses data to solve sales, marketing, customer retention, employee management and planning problems.” Source of caption and photo: online version of the Omaha World-Herald article quoted and cited below.

The entrepreneurs celebrated in the article quoted below are former students of mine. Grant Stanley was in my Economics of Entrepreneurship and Economics of Technology seminars and Tadd Wood was in my Honors Colloquium on Creative Destruction. I wish them well.

(p. 1D) A half-dozen 20-something math, economics and neuroscience whizzes form Contemporary Analysis, an Omaha-based firm that is making predictive analytics available to a wider array of firms faster and for less money.

The team, which has a penchant for roaming around its Old Market office shoeless, is led by Grant Stanley, 23, the company’s chief executive. He founded the firm in March 2008 with Tadd Wood, 23, who is now a senior analyst.
For nearly three years, Contemporary Analysis has built a customer base mostly of companies and businesses with lean budgets, meaning they didn’t have a lot of cash to spend on analytics products. Traditionally, analytics firms lock clients into expensive, long-term contracts.
Not Contemporary Analysis.
Their products are designed to yield results in about a month, and average contracts are about $5,000, Stanley said. The company’s analytics tools use data to solve sales, marketing, customer retention, employee management and planning problems.
. . .
(p. 2D) A . . . report from the IBM Institute for Business Value found that top-performing organizations use analytics five times more than lower performers.
Of the 3,000 executives, managers and analysts polled for the IBM report, those who came from high-performing companies said they used analytics to guide future strategies 45 percent of the time and day-to-day operations 53 percent of the time. By comparison, lower-performing firms used analytics 20 percent when addressing future business matters and 27 percent on a daily basis.

For the full story, see:
Ross Boettcher. “Omaha Whizzes Bring Analytics to More Companies.” Omaha World-Herald (Thursday, July 14, 2011): 1D & 2D.
(Note: ellipses added.)
(Note: the online version of the article has the title “Making analytics affordable.”)

“People Condemned to Short Lives and Chronic Hardship Are Perhaps Unlikely to Worry Overmuch about Decor”

If “necessity is the mother of invention,” then why did it take so long for someone to invent the louvered slats mentioned at the end of this passage?

(p. 55) In even the best homes comfort was in short supply. It really is extraordinary how long it took people to achieve even the most elemental levels of comfort. There was one good reason for it: life was tough. Throughout the Middle Ages, a good deal of every life was devoted simply to surviving. Famine was common. The medieval world was a world without reserves; when harvests were poor, as they were about one year in four on average, hunger was immediate. When crops failed altogether, starvation inevitably followed. England suffered especially catastrophic harvests in 1272, 1277, 1283, 1292, and 1311, and then an unrelievedly murderous stretch from 1315 to 1319. And this was of course on top of plagues and other illnesses that swept away millions. People condemned to short lives and chronic hardship are perhaps unlikely to worry overmuch about decor. But even allowing for all that, there was just a great, strange slowness to strive for even modest levels of comfort. Roof holes, for instance, let smoke escape, but they also let in rain and drafts until somebody finally, belatedly invented a lantern structure with louvered slats that allowed smoke to escape but kept out rain, birds, and wind. It was a marvelous invention, but by the time it (p. 56) was thought of, in the fourteenth century, chimneys were already coming in and louvered caps were not needed.

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

“If We Can’t Win on Quality, We Shouldn’t Win at All”

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

(p. A13) At the tail end of the 1990s dot-com boom, Douglas Edwards took a gamble: He left his marketing job at an old-media company, taking a $25,000 salary cut to start work at a small, little-known Internet concern in its second year of operation. That his new employer was losing money and burning through venture capital went without saying. But unlike the footloose 20-somethings who usually populated Silicon Valley start-ups, Mr. Edwards had little margin to bet wrong; he was 41, with a mortgage, three children and a worried wife. He hoped he could get his old job back if the company ran out of money.

. . .
Mr. Edwards came to his job as a subscriber to the conventional wisdom. In an early presentation to cofounder Larry Page and others, Mr. Edwards unwisely declared that only marketing, not technology, could set Google apart. “In a world where all search engines are equal,” he asserted, “we’ll need to rely on branding to differentiate us from our competitors.”
The room became quiet. Then Mr. Page spoke up. “If we can’t win on quality,” he said, “we shouldn’t win at all.”

For the full review, see:
DAVID A. PRICE. “BOOKSHELF; How Google Got Going; Branding, shmanding, a marketer was told. ‘If we can’t win on quality,’ Larry Page said, ‘we shouldn’t win at all.'” The Wall Street Journal (Tues., July 12, 2011): A13.
(Note: ellipsis added.)

Book being reviewed:
Edwards, Douglas. I’m Feeling Lucky: The Confessions of Google Employee Number 59. New York: Houghton Mifflin Harcourt Publishing Co., 2011.

Medieval Halls of the Rich Incubated Plague in a Nest of “Filth Unmentionable”

(p. 51) In even the best houses, floors were generally just bare earth strewn with rushes, harboring “spittle and vomit and urine of dogs and men, beer that hath been cast forth and remnants of fishes and other filth unmentionable,” as the Dutch theologian and traveler Desiderius Erasmus rather crisply summarized in 1524. New layers of rushes were laid down twice a year normally, but the old accretions were seldom removed, so that, Erasmus added glumly, “the substratum may be unmolested for twenty years.” The floors were in effect a very large nest, much appreciated by insects and furtive rodents, and a perfect incubator for plague. Yet a deep pile of flooring was generally a sign of prestige. It was common among the French to say of a rich man that he was “waist deep in straw.”

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