Economics – Page 201 – artdiamondblog.com

Socialism Is “Morally Corrupting”

On balance, Stephen Pollard believes that Claire Berlinski’s book on Thatcher is poorly written. But he does believe that Berlinski got one important point right:

(p. 22) She is quite right, . . . , to stress that Thatcher’s crusade against socialism was not merely about economic efficiency and prosperity but that above all, “it was that socialism itself — in all its incarnations, wherever and however it was applied — was morally corrupting.”

For the full review, see:
STEPHEN POLLARD. “Thatcher’s Legacy.” The New York Times Book Review (Sun., January 18, 2009): 22.
(Note: ellipsis added.)
(Norte: the online version of the review has the date January 16, 2009.)

Book reviewed:
Berlinski, Claire. There Is No Alternative: Why Margaret Thatcher Matters. New York: Basic Books, 2008.

In Greece It Is Illegal for Brewers to Produce Tea

“Demetri Politopoulos at his microbrewery in northern Greece. He says Greek leaders need to do more to make the country an easier place to do business.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) DEMETRI POLITOPOULOS says he has suffered countless indignities in his 12-year battle to build a microbrewery and wrest a sliver of the Greek beer market from the Dutch colossus, Heineken.

His tires have been slashed and his products vandalized by unknown parties, he says, and his brewery has received threatening phone calls. And he says he has had to endure regular taunts — you left Manhattan to start up a beer factory in northern Greece? — not to mention the pain of losing 5.3 million euros.
Bad as all that has been, nothing prepared him for this reality: He would be breaking the law if he tried to fulfill his latest — and, he thinks, greatest — entrepreneurial dream. It is to have his brewery produce and export bottles of a Snapple-like beverage made from herbal tea, which he is cultivating in the mountains that surround this lush pocket of the country.
An obscure edict requires that brewers in Greece produce beer — and nothing else. Mr. Politopoulos has spent the better part of the last year trying fruitlessly to persuade the Greek government to strike it. “It’s probably a law that goes back to King Otto,” said Mr. Politopoulos with a grim chuckle, referring to the Bavarian-born king of Greece who introduced beer to the country around 1850.
Sitting in his office, Mr. Politopoulos took a long pull from a glass of his premium Vergina wheat beer and said it was absurd that he had to lobby Greek politicians to repeal a 19th-century law so that he could deliver the exports that Greece urgently needed. And, he said, his predicament was even worse than that: it was emblematic of the web of restrictions, monopolies and other distortions that have made many Greek companies uncompetitive, and pushed the country close to bankruptcy.

For the full story, see:
LANDON THOMAS Jr. “What’s Broken in Greece? Ask an Entrepreneur.” The New York Times, SundayBusiness Section (Sun., January 30, 2011): 1 & 5.
(Note: the online version of the article is dated January 29, 2011.)

“The Really Good People Want Autonomy”

BethuneGordonContinentalAirlinesFormerCEO2011-03-09.jpg

“Gordon M. Bethune, chief executive of Continental Airlines from 1994 to 2004, says that “being good at your job is predicated pretty much on how the people working for you feel.”” Source of caption and photo: online version of the NYT article quoted and cited below.

Gordon Bethune is usually given credit for introducing marginal cost pricing to the airline industry, and thereby bringing Continental Airlines back from bankruptcy.
His views on how to hire and manage employees are worth serious consideration:

(p. 2) Q. How do you hire people?

A. The really good people want autonomy — you let me do it, and I’ll do it. So I told the people I recruited: “You come in here and you’ve got to keep me informed, but you’re the guy, and you’ll make these decisions. It won’t be me second-guessing you. But everybody’s going to win together. We’re part of a team, but you’re going to run your part.” That’s all they want. They want a chance to do it.

For the full interview Adam Bryant conducted with Gordon Bethune, see:
Gordon M. Bethune. “Corner Office; Remember to Share the Stage.” The New York Times, SundayBusiness Section (Sun., January 3, 2010): 2.
(Note: the online version of the article is dated January 2, 2010.)

The Progress Paradox Documents How Life Is Better Here and Now

Source of book image: http://grigr.com/

Greg Easterbrook’s book has been out for several years, but I am a slow reader and have a long “to read” list. I enjoyed the first half or so of the book very much, and also enjoyed some parts of the second half. Roughly speaking, the first half is devoted to illustrating how much better life is now than before, and here (the West) than there (the less-developed countries). Roughly speaking, the second half of the book asks why we aren’t happier, and complains about areas of life where Easterbrook sees room for improvement.
Some of the part I like has now been updated, or written with better argument or more panache, by Matt Ridley in The Rational Optimist. But even so, Easterbrook often gives examples, or arguments, that complement Ridley’s case.
And even though Ridley is on average more eloquent than Easterbrook, the latter is eloquent plenty often enough to be worth reading. (And maybe my judgment about eloquence is colored by my agreeing with Ridley 90% of the time, and only agreeing with Easterbrook 75% of the time.)
On the less-satisfying second half of the book: worthwhile questions are often asked, but the answers are few and not very satisfying.
In the next few weeks, I’ll occasionally be quoting a few of the more illuminating or edifying passages in the Easterbrook book.

Easterbrook’s book:
Easterbrook, Gregg. The Progress Paradox: How Life Gets Better While People Feel Worse. Paperback ed. New York: Random House, 2004.

The Ridley book that I mention:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

Estonia Re-Elects “Government that Continued to Embrace Laissez-Faire Capitalism”

(p. A5) MOSCOW — Early results in Estonia’s parliamentary election on Sunday showed the ruling coalition headed for a victory, in a remarkable show of support for a government that has imposed harsh austerity measures to lift the country out of recession.
. . .
The vote reflects approval for a government that continued to embrace laissez-faire capitalism during the painful months after the global downturn. After Estonia’s economy shrank nearly 15 percent, the state reduced its budget by the equivalent of 9 percent of gross domestic product. Demand fell steeply, and unemployment crept up, early in 2010, to 19.8 percent.
But in contrast to their neighbors in Latvia, where economic troubles led to riots and the government’s collapse, Estonians stoically absorbed the suffering. These sacrifices allowed Estonia to join the euro zone in January, a move its leaders hailed as a sign that the country was on its way to achieving Western European standards of living. Meanwhile, the economy has been projected to grow by 4 percent this year, and unemployment has dropped to around 10 percent, according to the Estonian Unemployment Insurance Fund.

For the full story, see:
ELLEN BARRY. “After Cuts, Voters Back Ruling Bloc in Estonia.” The New York Times (Mon., March 7, 2011): A5.
(Note: ellipsis added.)
(Note: the online version of the article is dated March 6, 2011.)

“The Adventurous, Pioneering Spirit”

Source of book image: http://www.jetagebook.com/

(p. 30) “Jet Age” is ostensibly about the race between two companies and nations to commercialize a military technology and define a new era of air travel. There’s Boeing with its back to the wall and its military contracts drying up, betting everything on passenger jets, pitted against de Havilland and the government-subsidized project meant to reclaim some of Britain’s lost glory. . . .
. . .
But the book is really about the risk-taking essential for making any extreme endeavor commonplace. “Jet Age” celebrates the managers, pilots, engineers, flight attendants and, yes, even passengers (for without passengers there is no business) who gambled everything so that we might cross oceans and continents in hours rather than days.
It is easy to forget, in this time of overcrowded flights, demoralizing security checks, embattled flight attendants and dwindling service, that risk was once embraced as a necessary, even desirable, part of flying. Quoted in the book, the celebrated aviator Lord Brabazon summed it up in post-accident testimony: “You know, and I know, the cause of this accident. It is due to the adventurous, pioneering spirit of our race. It has been like that in the past, it is like that in the present, and I hope it will be in the future.”

For the full review, see:
MICHAEL BELFIORE. “Fatal Flaws.” The New York Times Book Review (Sun., February 6, 2011): 30.
(Note: ellipses added.)
(Note: the online version of the article is dated February 4, 2011.)

The book under review is:
Verhovek, Sam Howe. Jet Age: The Comet, the 707, and the Race to Shrink the World. New York: Avery, 2010.

Egypt’s Urban Decline as Cause (or Symptom) of Slow Growth

Source of graphs: online version of the NYT article quoted and cited below.

We all know that correlation is not the same as causation. The main cause of Egypt’s slow growth is its lack of institutions and policies supporting entrepreneurial capitalism, and not the decline of Egyptian cities. (But the decline of Egyptian cities does not help.)

(p. B1) Since then, the cities of Asia have expanded rapidly, drawing in millions of peasant farmers looking for a better life — and, more often than not, finding it. Almost 50 percent of East Asians now live in cities. And Egypt? It is the only large country to have become less urban in the last 30 years, according to the World Bank. About 43 percent of Egyptians are city dwellers today.

This urban stagnation helps explain Egypt’s broader stagnation. As tough as city life in poor countries can be, it’s also fertile ground for economic growth. Nearly everything can be done more efficiently in a well-run city, be it plumbing, transportation or the generation of new ideas and businesses. “Being around other people,” says Paul Romer, the economist and growth expert, “helps make us smarter.”
Edward Glaeser, a Harvard economist (and weekly contributor to the Times’s Economix blog), has just published a book, “The Triumph of the City, making the case that cities are humanity’s greatest invention. Countries that become more urban tend to become far more productive, Mr. Glaeser writes. The effect is even bigger for poor countries than rich ones.
. . .
Three researchers — Michael Clemens, Lant Pritchett and Claudio Montenegro — recently found a novel way to measure how well various countries use the workers they have. The three compared the wages of immigrants to the United States with the wages of similar workers from the same country who remained home.
A 35-year-old urban Egyptian man with a high school education who moves to the United States can expect an incredible eightfold increase in living standards, the researchers found. Immigrants from only two countries, Yemen and Nigeria, receive a larger boost. In effect, these are the countries with the biggest gap between what their workers can produce in a different environment and what they are actually producing at home.
No wonder 19 percent of Egyptians told Gallup (well before the protests) that they would move to another country if they could. Mr. Clemens says that for every green card the United States awarded in a recent immigration lottery, 146 Egyptians had applied.

For the full commentary, see:
DAVID LEONHARDT. “Economic Scene; For Egypt, a Fresh Start, With Cities.” The New York Times (Weds., February 16, 2011): B1 & B11.
(Note: ellipsis added.)
(Note: the online version of the article was dated February 15, 2011.)

The scholarly article summarized is:
Clemens, Michael, Claudio Montenegro, and Lant Pritchett. “The Place Premium: Wage Differences for Identical Workers across the Us Border.” HKS Faculty Research Working Paper Series # RWP09-004, January 2009.

The Glaeser book is:
Glaeser, Edward L. Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier. New York: Penguin Press, 2011.

Warren Buffett Says “the American System” Unleashes “Human Potential”

(p. 16) Mr. Buffett said Berkshire last year spent more than $5 billion on property and equipment in the United States – more than 90 percent of the company’s total expenditure – and that the overwhelming part of the company’s future investment will be at home.

“The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective,” he wrote.
“Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead.”

For the full story, see:
PETER LATTMAN. “Buffett Plans to Buy Local, Investing Mostly in the U.S.” The New York Times, First Section (Sun., February 27, 2011): 16.
(Note: the online version of the article was dated February 26, 2011 and has the title “As Berkshire Improves, Buffett Sings Praises of U.S.”)

Caballero Worries about the Relevance of Mainstream Macro Modeling

In the past, I have found some of MIT economist Ricardo Caballero’s research useful because he takes Schumpeter’s process of creative destruction seriously.
In a recent paper, he joins a growing number of mainstream economists who worry that the recent and continuing economic crisis has implications for the methodology of economics:

In this paper I argue that the current core of macroeconomics–by which I mainly mean the so-called dynamic stochastic general equilibrium approach–has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the precision that it has about the real one. This is dangerous for both methodological and policy reasons. On the methodology front, macroeconomic research has been in “fine-tuning” mode within the local-maximum of the dynamic stochastic general equilibrium world, when we should be in “broad-exploration” mode. We are too far from absolute truth to be so specialized and to make the kind of confident quantitative claims that often emerge from the core. On the policy front, this confused precision creates the illusion that a minor adjustment in the standard policy framework will prevent future crises, and by doing so it leaves us overly exposed to the new and unexpected.

Source:
Caballero, Ricardo J. “Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome.” NBER Working Paper # w16429, October 2010.

The paper has been published as:
Caballero, Ricardo J. “Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome.” Journal of Economic Perspectives 24, no. 4 (Fall 2010): 85-102.

France Lacked Good Patent Laws; Great French Inventors “Died Penniless”

(p. 367) If one secret to sustaining an inventive culture was making inventors into national heroes, it was a secret that didn’t translate well into French. Between 1740 and 1780, the French inclination to reward inventors not by enforcing a natural right but by the grant of pensions and prizes resulted in the award of nearly 7 million livres–approximately $600 million today–to inventors of largely forgot-(p. 268)ten devices, but Claude-François Jouffroy d’Abbans (inventor of one of the first working steamboats), Barthélemy Thimonnier (creator of the first sewing machine), and Airné Argand (a partner of Boulton and friend of Watt whose oil lamp became the world’s standard) all died penniless.

Source:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.

Occupational Licensing Adds Billions a Year to Cost of Services

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

(p. A1) . . . economists–and workers shut out of fields by educational requirements or difficult exams–say licensing mostly serves as a form of protectionism, allowing veterans of the trade to box out competitors who might undercut them on price or offer new services.

“Occupations prefer to be li-(p. A16)censed because they can restrict competition and obtain higher wages,” said Morris Kleiner, a labor professor at the University of Minnesota. “If you go to any statehouse, you’ll see a line of occupations out the door wanting to be licensed.”
While some states have long required licensing for workers who handle food or touch others–caterers and hair stylists, for example–economists say such regulation is spreading to more states for more industries. The most recent study, from 2008, found 23% of U.S. workers were required to obtain state licenses, up from just 5% in 1950, according to data from Mr. Kleiner. In the mid-1980s, about 800 professions were licensed in at least one state. Today, at least 1,100 are, according to the Council on Licensure, Enforcement and Regulation, a trade group for regulatory bodies. Among the professions licensed by one or more states: florists, interior designers, private detectives, hearing-aid fitters, conveyor-belt operators and retailers of frozen desserts.
. . .
Mr. Kleiner, of the University of Minnesota, looked at census data covering several occupations that are regulated in some states but not others, including librarians, nutritionists and respiratory therapists. He found that employment growth in those professions was about 20% greater, on average, in the unregulated states between 1990 and 2000.
Licensing can also drive up costs to consumers. Licensed workers earn, on average, 15% more than their unlicensed counterparts in other states–a premium that may be reflected in their prices, according to a study published by the National Bureau of Economic Research and conducted by Mr. Kleiner and Alan Krueger, an economist at Princeton University.
Mr. Kleiner estimates that across the U.S. economy, occupational licensing adds at least $116 billion a year to the cost of services, which amounts to about 1% of total consumer spending. In a look at dentistry, Mr. Kleiner found that the average price of dental services rose 11% when a state made it more difficult to get a dental license.

For the full story, see:

STEPHANIE SIMON. “A License to Shampoo: Jobs Needing State Approval Rise.” The Wall Street Journal (Mon., February 7, 2011): A1 & A16.
(Note: ellipses added.)

“Some of the jobs that require licensing in one or more states.” Source of caption and table: online version of the WSJ article quoted and cited above.