Bloggers See Bad Conditions for Entrepreneurs

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The chart above and the one below are from the recently-released results of the First Quarter 2011 influential blogger survey conducted by the Kauffman Foundation. (Tim Kane gave permission to put the charts on my blog.) artdiamondblog.com is one of the blogs included in the survey.

The results above show a perception that conditions are currently tough for entrepreneurs. The chart below displays one of the main reasons: the current economy is perceived as uncertain and fragile. There are many reasons for the uncertainty, but one of them is surely that the bloggers have doubts about the depth of support in government for the institutions and policies upon which entrepreneurship depends (like private property, restrained regulations, and low taxes).

For a full PDF report on the 2011 Q1 survey results, see:
http://www.kauffman.org/uploadedfiles/econ_blogger_outlook_q1_2011.pdf

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Insider Training Increases the Efficiency of Markets

(p. W2) As argued forcefully by Henry Manne in his 1966 book “Insider Trading and the Stock Market,” prohibitions on insider trading prevent asset prices from adjusting in this way. Mr. Manne, dean emeritus at George Mason University School of Law, pointed out that when insiders trade on their nonpublic, nonproprietary information, they cause asset prices to reflect that information sooner than otherwise and therefore prompt other market participants to make better decisions.

This achievement can have ramifications beyond a few percentage-point increases in productivity growth.
According to Mr. Manne, corporate scandals such as Enron and Global Crossing would occur much less frequently and impose fewer costs if the government didn’t prohibit insider trading. As Mr. Manne said a few years ago in a radio interview, “I don’t think the scandals would ever have erupted if we had allowed insider trading because there would be plenty of people in those companies who would know exactly what was going on, and who couldn’t resist the temptation to get rich by trading on the information, and the stock market would have reflected those problems months and months earlier than they did under this cockamamie regulatory system we have.”
Another potential benefit of lifting the ban on insider trading is explained by Harvard University economist Jeffrey Miron: “In a world with no ban, small investors might fear to trade individual stocks and would face a greater incentive to diversify; that is also a good thing.”

For the full commentary, see:
DONALD J. BOUDREAUX. “Learning to Love Insider Trading; Here’s a hot tip: Want to keep companies honest, make the markets work more efficiently and encourage investors to diversify? Let insiders buy and sell, argues Donald J. Boudreaux.” The Wall Street Journal (Sat., OCTOBER 24, 2009): W1-W2.

The book mentioned is:
Manne, Henry. Insider Trading and the Stock Market. New York: The Free Press, 1966.

UFT “Trying to Deny Poor Parents Choice for Their Children”

SacklerMadeleine2011-02-05.jpg

Madeleine Sackler. Source of image: online version of the WSJ article quoted and cited below.

(p. A13) ‘What’s funny,” says Madeleine Sackler, “is that I’m not really a political person.” Yet the petite 27-year-old is the force behind “The Lottery”–an explosive new documentary about the battle over the future of public education opening nationwide this Tuesday.

In the spring of 2008, Ms. Sackler, then a freelance film editor, caught a segment on the local news about New York’s biggest lottery. It wasn’t the Powerball. It was a chance for 475 lucky kids to get into one of the city’s best charter schools (publicly funded schools that aren’t subject to union rules).

“I was blown away by the number of parents that were there,” Ms. Sackler tells me over coffee on Manhattan’s Upper West Side, recalling the thousands of people packed into the Harlem Armory that day for the drawing. “I wanted to know why so many parents were entering their kids into the lottery and what it would mean for them.” And so Ms. Sackler did what any aspiring filmmaker would do: She grabbed her camera.
. . .
But on the way to making the film she imagined, she “stumbled on this political mayhem–really like a turf war about the future of public education.” Or more accurately, she happened upon a raucous protest outside of a failing public school in which Harlem Success, already filled to capacity, had requested space.
“We drove by that protest,” Ms. Sackler recalls. “We were on our way to another interview and we jumped out of the van and started filming.” There she discovered that the majority of those protesting the proliferation of charter schools were not even from the neighborhood. They’d come from the Bronx and Queens.
“They all said ‘We’re not allowed to talk to you. We’re just here to support the parents.'” But there were only two parents there, says Ms. Sackler, and both were members of Acorn. And so, “after not a lot of digging,” she discovered that the United Federation of Teachers (UFT) had paid Acorn, the controversial community organizing group, “half a million dollars for the year.” (It cost less to make the film.)
Finding out that the teachers union had hired a rent-a-mob to protest on its behalf was “the turn for us in the process.” That story–of self-interested adults trying to deny poor parents choice for their children–provided an answer to Ms. Sackler’s fundamental question: “If there are these high-performing schools that are closing the achievement gap, why aren’t there more of them?”

For the full interview, see:
BARI WEISS. “THE WEEKEND INTERVIEW; Storming the School Barricades; A new documentary by a 27-year-old filmmaker could change the national debate about public education.” The Wall Street Journal (Sat., JUNE 5, 2010): A13.
(Note: ellipsis added.)
(Note: the first paragraph quoted above has slightly different wording in the online version than the print version; the second paragraph quoted is the same in both.)

Internet Enabled Creative Destruction

(p. R4) To understand the challenges that faced businesses the past 10 years, consider the household names that didn’t make it through the decade: Anheuser-Busch, Compaq, Gillette, Enron, Lehman Brothers, Merrill Lynch, WorldCom.
. . .
As the decade rolled on, the Internet came to be known for destroying businesses. It upended decades-old business models in fields such as media, advertising, travel and entertainment, as consumers and advertisers migrated to the digital world.
But that same shift created opportunity. No one epitomized that better than Google Inc. A mere 15 months old at the beginning of the decade, it morphed from a startup technology company into an advertising and media powerhouse and is now plotting a move into communications. There, it will clash with Apple Inc., which was reborn following the return of co-founder Steve Jobs in 1997. Apple’s iPod and iTunes reshaped the music industry; its iPhone revolutionized communications by opening itself to independent innovators.
“This is what [Austrian economist Joseph] Schumpeter had in mind with his term ‘creative destruction,'” says Paul David, an economic historian at Stanford University. Industrial collapse is a “messy, messy process,” Mr. David says. “It’s a great drama, and watching it play out in this decade has been very interesting.”

For the full story, see:
SCOTT THURM. “Creativity, Meet Destruction; The Decade Rewrote the Corporate Handbook, Thanks to the Web, Globalization and the Collapse of Two Bubbles.” The Wall Street Journal (Mon., DECEMBER 21, 2009): R4.
(Note: ellipsis added.)
(Note: the online version of the article is dated DECEMBER 22, 2009.)

Mackey Reduced Role in Whole Foods after Being “Drained” by Antitrust Battle

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“Higher existing-store sales powered Whole Foods earnings. Above, co-founder John Mackey juggles apples in a New York store last November.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. B6) Whole Foods Market Inc. reported Wednesday that fiscal second-quarter profits had more than doubled and raised its full-year earnings forecast. The company also shook up its management team, naming a co-chief executive, though current CEO and co-founder John Mackey said he expects to work “for another decade or so.”
. . .
Mr. Mackey in December resigned as Whole Foods’ chairman after a year of controversy. Last summer, he wrote a controversial opinion article for The Wall Street Journal on his views of health care reform that led to boycotts of the natural grocer by some of his most loyal shoppers. Last spring, the Fair Trade Commission ordered the sale of 37 former Wild Oats Markets Inc. stores, a multi-year battle that Mr. Mackey says left him drained and influenced his decision to appoint Mr. Robb as co-CEO.

For the full story, see:
TIMOTHY W. MARTIN. “Profit Soars at Whole Foods; Grocery Chain Forecasts Sharply Higher Profit, Promotes Two Veteran Executives.” The Wall Street Journal (Thurs., MAY 13, 2010): B6.
(Note: ellipsis added.)
(Note: the first paragraph quoted above has slightly different wording in the online version than the print version; the second paragraph quoted is the same in both.)

Informal Sector Responded Quicker to Quake than Established Companies

HaitianCoalVendors2011-02-02.jpg “In Port-au-Prince . . . , Haitian vendors peddled small bags of coal.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A10) PORT-AU-PRINCE, Haiti — The price of candles in the teeming La Saline market here has climbed 60 percent since last week’s earthquake. A box of matches is up 50 percent. A package of Perdue Chicken Franks has gone up 30 percent.
. . .
Haiti’s huge informal sector reacted faster to the quake than did established companies and banks. Outdoor markets like La Saline are already filled with goods from the countryside, including salt, cornmeal, fruits like mangoes and used clothing from the United States.
. . .
“People want candles because they have no electricity or fuel for their generators,” said Manouchka Wendiwou, 21, a vendor in La Saline who raised her candle prices by 60 percent and made no apology for charging what the market would bear.

For the full story, see:

SIMON ROMERO. “Economy in Shock Struggles to Restart.” The New York Times (Fri., January 22, 2010): A10.

(Note: ellipses added.)
(Note: the online version of the article is dated January 21, 2010.)

Socialism Cut Venezuelan GDP, So Chavez Rejected GDP

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

(p. A15) President Hugo Chávez wasn’t pleased with data . . . that showed the Venezuelan economy tumbling into a recession. So the populist leader came up with a solution: Forget traditional measures of economic growth, and find a new, “Socialist-friendly” gauge.

“We simply can’t permit that they continue calculating GDP with the old capitalist method,” President Chávez said in a televised speech before members of his Socialist party . . . . “It’s harmful.”
Mr. Chávez’s comments came shortly after data showed Venezuela’s gross domestic product — a broad measure of annual economic output — fell 4.5% in the third quarter from the year-earlier period. It was the second consecutive quarterly decline, and observers have questioned how Mr. Chávez will be able to generate growth without high oil prices.
. . .
“It’s hard to say if [Mr. Chávez] is serious or not,” said Robert Bottome of publisher VenEconomía. “They’ve already tampered with the way they compute unemployment and how they determine how much oil [state oil company] PdVSA exports. So why not tamper with the economy figures as well.”

For the full story, see:
DAN MOLINSKI and DAVID LUHNOW. “Chávez Discounts Accuracy of GDP.” The Wall Street Journal (Fri., NOVEMBER 20, 2009): A15.
(Note: ellipses added.)

Healthy Longevity Can Mean You “Get a Do-Over in Life”

PoolGidComic2011-02-02.jpg “Gid Pool performing at the Buford Variety Theater . . . ” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. R1) It’s easy, these days, to think about later life and retirement as limiting. And with good reason: The economy remains fragile; nest eggs are smaller than they should be; and Social Security and Medicare are looking pale. Millions of people are delaying retirement and scaling back plans for the future.

And then there’s Gid Pool.
Almost five years ago, on something of a lark, he enrolled in a class near his home in North Port, Fla., that taught stand-up comedy. He was 61 years old. Today, he performs in clubs, theaters, colleges and corporate settings throughout much of the South, playing at times to hundreds of people and clearing as much as $1,000 an evening. For good measure, he spends, on average, a week each month on cruise ships, where he teaches comedy classes.
. . .
“I was thinking last night about how lucky I am, at this stage in my life, to have something that really gets me up in the morning,” he says. “I saw my grandfather, an engineer on the Illinois Central Railroad, turn my age with a body beaten down by his daily job. My father was a pilot in World War II and suffered all his adult life from an injury in a plane crash.
“Today I’m part of a generation that has literally been given a second chance to live a first life. People say you don’t get a do-over in life. I beg to differ.”

For the full story, see:
GLENN RUFFENACH. “Did You Hear the One About the Retired Real-Estate Agent? He became a stand-up comedian. And he has never been happier.” The Wall Street Journal (Mon., December 20, 2010): R1 & R9.
(Note: ellipsis added.)

Suppliers Hold Back Some Supply When They Expect Prices to Rise in the Future

YuFengChineseCottonFarmer2011-02-01.jpg “Farmer Yu Feng tends his stockpile of roughly 7,700 pounds of cotton that he is storing in his home in Huji, China.” Source of caption and photo: online version of the WSJ article quoted and cited below.

In my Micro Principles classes I explain some of the variables that shift demand curves and some of the variables that shift supply curves. Supply curves, for instance, can be shifted by a change in the expectations of future prices. So, if suppliers come to expect that prices will go up in the future, that will shift the supply curve today to the left.
When I saw the photo above, I thought it was a wonderful illustration of the point.

(p. B1) Yu Lianmin, a cotton farmer in Huji, China, harvested 6,600 pounds of cotton this year. Despite record cotton prices, he didn’t sell any of it.
Instead, mounds of cotton are piled up in two empty rooms of Mr. Yu’s home, and the homes of many of the farmers in his small township of Yujia, which is part of the bigger township of Huji in northern Shandong province, 220 miles southeast of Beijing.
. . .
“I think there’s still hope for prices to go higher,” he said.
. . .
Expectations that prices will rise are driving the apparent stockpiling, . . .

For the full story, see:
CAROLYN CUI. “Chinese Take a Cotton to Hoarding.” The Wall Street Journal (Sat., January 29, 2011): B1 & B11.
(Note: ellipses added.)

“It Isn’t the Consumers’ Job to Know What They Want”

iPadChild2011-01-21.jpg “Steven P. Jobs has played a significant role in a string of successful products at Apple, including the iPad, shown above, which was introduced last year.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B1) Shortly before the iPad tablet went on sale last year, Steven P. Jobs showed off Apple’s latest creation to a small group of journalists. One asked what consumer and market research Apple had done to guide the development of the new product.

“None,” Mr. Jobs replied. “It isn’t the consumers’ job to know what they want.”
For years, and across a career, knowing what consumers want has been the self-appointed task of Mr. Jobs, Apple’s charismatic co-founder. Though he has not always been right, his string of successes at Apple is uncanny. His biggest user-pleasing hits include the Macintosh, the iMac, iBook, iPod, iPhone and iPad.
But as he takes a medical leave of absence, announced on Monday, the question is: Without him at the helm, can Apple continue its streak of innovation, particularly in an industry where rapid-fire product cycles can make today’s leader tomorrow’s laggard?
. . .
(p. B4) With the iPad tablet, Apple jump-started a product category. But with the iPod (a music and media player) and iPhone (smartphone), Apple moved into markets with many millions of users using rival products, but he gave consumers a much improved experience.
“These are seeing-around-the-corner innovations,” said John Kao, an innovation consultant to corporations and governments. “Steve Jobs is totally tuned into what consumers want. But these are not the kind of breakthroughs that market research, where you are asking people’s opinions, really help you make.”
Regis McKenna, a Silicon Valley investor and marketing consultant, said employees at Apple stores provide the company with a powerful window into user habits and needs, even if it is not conventional market research.
“Steve visits the Apple store in Palo Alto frequently,” said Mr. McKenna, a former consultant to Apple.
. . .
In a conversation years ago, Mr. Jobs said he was disturbed when he heard young entrepreneurs in Silicon Valley use the term “exit strategy” — a quick, lucrative sale of a start-up. It was a small ambition, Mr. Jobs said, instead of trying to build companies that last for decades, if not a century or more.
That was a sentiment, Mr. Jobs said, that he shared with his sometime luncheon companion, Andrew S. Grove, then the chief executive of Intel.
“There are builders and traders,” Mr. Grove said on Tuesday. “Steve Jobs is a builder.”

For the full story, see:

STEVE LOHR. “The Missing Tastemaker?” The New York Times (Weds., JANUARY 19, 2011): B1 & B4.

(Note: ellipses added.)
(Note: the online version of the article is dated January 18, 2011 and has the title “Can Apple Find More Hits Without Its Tastemaker?.”)

REVISE THIS ONE: Patents Needed to Provide Money for “the Many Fruitless Experiments”

(p. 234) . . . ; together, Watt and Arkwright wrote a manuscript entitled “Heads of a Bill to explain and amend the laws relative to Letters Patent and grants of privileges for new inventions,” essentially a reworking of Coke’s Statute of 1623 that had created England’s first patent law. In addition to its policy prescriptions, which were largely an unsuccessful argument against the requirement that patent applications be (p. 235) as specific as possible, the manuscript offered a remarkable insight into Watt’s perspective on the life of the inventor, who should, in Watt’s own (perhaps inadvertently revealing) words, “be considered an Infant, who cannot guard his own Rights”:

An engineer’s life without patent is not worthwhile . . . few men of ingenuity make fortunes without suffering to think seriously whether the article he manufactures might, or might not, be Improved. The man of ingenuity in order to succeed must seclude himself from Society, he must devote the whole powers of his mind to that one object, he must persevere in spite of the many fruitless experiments he makes, and he must apply money to the expenses of these experiments, which strict Prudence would dedicate to other purposes. By seclusion from the world he becomes ignorant of its manners, and unable to grapple with the more artful tradesman, who has applied the powers of his mind, not to the improvement of the commodity he deals in, but to the means of buying cheap and selling dear, or to the still less laudable purpose of oppressing such ingenious workmen as their ill fate may have thrown into his power.

Source:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.
(Note: the second ellipsis and the italics in original; the first ellipsis added.)