Economics – Page 223 – artdiamondblog.com

Success Came Late to Author of Wizard of Oz

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

I remember a conversation with the late labor economist Sherwin Rosen on the substantial decline in research productivity of economists as they age. My memory is that he said the decline usually wasn’t because of inability, but because, at some point, the older economists stop trying.
I think there’s some truth to that. The belief that it is too late to succeed, can lead people to stop trying, and thereby make the prediction self-fulfilling.
Fortunately, L. Frank Baum kept trying:

(p. A15) If L. Frank Baum had been listed on the stock exchange in 1900, his shares would have been trading near historic lows. The soon-to-be famous author of “The Wonderful Wizard of Oz” had at that point failed at a long series of energetic attempts to find a career. At 44, Baum had already been a chicken farmer, an actor, a seller of machinery lubricants, a purveyor of novelty goods and a newspaper publisher. All his life he’d written lively prose — plays, ads, columns — but most of it seemed to go nowhere.

Then, suddenly, it did. The story of a girl named Dorothy who with her little dog, Toto, travels to the wondrous land of Oz burst from Baum’s pencil, almost taking him by surprise. “The story really seemed to write itself,” he told his publisher. “Then, I couldn’t find any regular paper, so I took anything at all, including a bunch of old envelopes.” Turned into a proper book with defining illustrations by W.W. Denslow, the story most of us know as “The Wizard of Oz” was an immediate sensation in 1900. In a review, the New York Times commended it, saying that it was “ingeniously woven out of commonplace material.” Baum would produce 13 sequels, though none had quite the sparkle of the first.

For the full review, see:
JOHN STEELE GORDON. “Books; Inventing a New World; The men who engineered the astonishing emergence of the modern age.” Wall Street Journal (Sat., April 11, 2009): W8.

The book being reviewed, is:
Schwartz, Evan I. Finding Oz: How L. Frank Baum Discovered the Great American Story. Boston, MA: Houghton Mifflin Harcourt, 2009.

Democrats Continue Earmarks for Those Who Donated to Their Campaigns

(p. A5) WASHINGTON — A House panel approved a big Pentagon spending bill this week that included nearly 150 items tucked in by lawmakers on behalf of companies and other entities whose employees donated to their campaigns.

The Democratic Congress and President Barack Obama swept into power on a promise to reform the process of lawmakers trying to dictate in detail how funds are spent, known as “earmarks.” When Mr. Obama signed a spending bill for the current fiscal year in March, he said the earmark-laden legislation should be an “end to the old way of doing business, and the beginning of a new era of responsibility and accountability.”
But as lawmakers work their way through spending bills for the next fiscal year, which begins Oct. 1, earmarks appear alive and well — including those written for companies, foundations, and universities whose employees and political-action committees gave money to the campaigns of congressmen doing the earmarking.
The $636.3 billion 2010 defense-spending bill passed Wednesday by the House Appropriations Committee includes more than 1,100 earmarks, totaling more than $2.7 billion.
Members of the Defense Appropriations Subcommittee — the 18 members of Congress who wrote the bill — secured a total of 148 earmarks worth $461 million for entities whose employees have given $822,765 in campaign donations to those lawmakers since 2007. The data were compiled by the nonpartisan Taxpayers for Common Sense, which analyzed nearly 400 earmarks.

For the full story, see:
JAKE SHERMAN. “Bill Shows Earmarks Are Alive and Well.” Wall Street Journal (Sat., JULY 25, 2009): A5.

“The Single Most Important Question for the Future of America Is How We Treat Our Entrepreneurs”

(p. 13) The single most important question for the future of America is how we treat our entrepreneurs. If we smear, harass, overtax, and overregulate them, our liberal politicians will be shocked and horrified to discover how swiftly the physical tokens of the means of production collapse into so much corroded wire, eroding concrete, scrap metal, and jungle rot.

Source:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

Property Rights Would Allow American Indians to Prosper

(p. A19) President Barack Obama courted the Indian vote. During the campaign, he visited Montana’s Crow Reservation last May and was adopted into the tribe under the Crow name “One Who Helps People Throughout the Land.” There he said, “Few have been ignored by Washington for as long as Native Americans,” and vowed to improve their economic opportunities, health care and education.

Two vital steps in this direction are to strengthen property rights and the rule of law on reservations. Virtually every study of international development shows that both of these are crucial to prosperity. Indian country is no different. The effect of insecure property rights is evident on a drive through any western reservation. When you see 160 acres overgrazed and a house unfit for occupancy, you can be sure the title to the land is held by the federal government bureaucracy.
. . .

My own research, published in the Journal of Law and Economics, shows that for tribes with state jurisdiction, per capita income grew 20% faster between 1969 and 1999 than for their counterparts under tribal court jurisdiction. All Indians are less likely than whites to get home loans, but the likelihood of a loan rejection falls by 50% on reservations under state jurisdiction.
. . .

Mr. Obama’s rallying cry was “change,” and that is exactly what he needs to bring about in Indian policy. The first Americans deserve to be freed from the bureaucratic shackles that have made them victims, and allowed to establish property rights and legal systems that can make them victors.

For the full commentary, see:
TERRY L. ANDERSON. “OPINION; Native Americans Need the Rule of Law.” The Wall Street Journal (Mon., MARCH 16, 2009): A19.
(Note: ellipses in original.)

“It Is No Time to Concede”

Gary Becker. Source of caricature: online version of the WSJ interview quoted and cited below.

(p. A9) “What can we do that would be beneficial? [One thing] is lower corporate taxes and businesses taxes and maybe taxes in general. Particularly, you want to lower the tax on capital so you raise the after-tax return to investing and get more investing going on.”
. . .
What Mr. Becker has seen over a career spanning more than five decades is that free markets are good for human progress. And at a time when increasing government intervention in the economy is all the rage, he insists that economic liberals must not withdraw from the debate simply because their cause, for now, appears quixotic.
As a young academic in 1956, Mr. Becker wrote an important paper against conscription. He was discouraged from publishing it because, at the time, the popular view was that the military draft could never be abolished. Of course it was, and looking back, he says, “that taught me a lesson.” Today as Washington appears unstoppable in its quest for more power and lovers of liberty are accused of tilting at windmills, he says it is no time to concede.

For the full interview, see:
MARY ANASTASIA O’GRADY. “OPINION: THE WEEKEND INTERVIEW; Now Is No Time to Give Up on Markets.” The Wall Street Journal (Sat., MARCH 21, 2009): A9.
(Note: ellipsis added.)

Gary Becker. Source of photo: http://larryevansphotography.com/Gary%20Becker_2.jpg

People Do Not Appreciate the Entrepreneur’s Accomplishment

(p. A17) Bertrand de Jouvenel, writing in 1951 about popular attitudes toward income inequality in “The Ethics of Redistribution”:

The film-star or the crooner is not grudged the income that is grudged to the oil magnate, because the people appreciate the entertainer’s accomplishment and not the entrepreneur’s, and because the former’s personality is liked and the latter’s is not. They feel that consumption of the entertainer’s income is itself an entertainment, while the capitalist’s is not, and somehow think that what the entertainer enjoys is deliberately given by them while the capitalist’s income is somehow filched from them.

Source:
“Notable & Quotable.” The Wall Street Journal (Thurs., MARCH 5, 2009): A17.
(Note: italics in original.)

Original source of de Jouvenel quote:
Jouvenel, Bertrand de. The Ethics of Redistribution. Indianapolis, IN: Liberty Fund Inc., 1990 (originally published by Cambridge University Press in 1951).

Today’s Middle Class Citizens of the U.S. Are Better Off Than Emperor Tiberius, Emperor Napoleon, and Saint Thomas Aquinas

In conversation at the HES meeting in Denver, Pete Boettke mentioned that the opportunity cost of blogging can be very high.
The passage below is from a draft of a key chapter of a long-awaited book authored by Berkeley economist and world-renowned blogger Brad DeLong. (At least in this case, Boettke is right.)

(p. 3) Could the Emperor Tiberius have eaten fresh grapes in January? Could the Emperor Napoleon have crossed the Atlantic in a night, or gotten from Paris to London in two hours? Could Thomas Aquinas have written a 2000-word letter in two hours–and then dispatched it off to 1,000 recipients with the touch of a key, and begun to receive replies within the hour? Computers, automobiles, airplanes, VCR’ s, washing machines, vacuum cleaners, telephones, and other technologies–combined with mass production–give middle-class citizens of the United States today degrees of material wealth–control over commodities, and the ability to consume services–that previous generations could barely imagine.

Source:
DeLong, J. Bradford. “Cornucopia: The Pace of Economic Growth in the Twentieth Century.” NBER Working Paper, w7602, 2000.

Government Regulatory Costs Impede Energy Innovation

Robert Metcalfe receiving the National Medal of Technology in 2003. Source of photo: http://en.wikipedia.org/wiki/Robert_Metcalfe

The author of the commentary quoted below is famous in the history of information technology. His Harvard dissertation draft on packet switching was rejected as unrealistic. So he left the academy and became the main innovator responsible for making packet switching a reality, through the ethernet.
(He is also the “Metcalfe” behind “Metcalfe’s Law” about the value of a network increasing at a faster rate than the increase in the network’s size.)

(p. A15) . . . new small reactors meet important criteria for nuclear power plants. With no control rods to jam, they are far safer than the old models — you might well call them nuclear batteries. By not using weapons-grade enriched fuels, they are nonproliferating. They minimize nuclear waste. And they’re economical.
. . .
As venture capitalists, we at Polaris might have invested in one or two of these fission-energy start-ups. Alas, we had to pass. The problem with their business plans weren’t their designs, but the high costs and astronomical risks of designing nuclear reactors for certification in Washington.
The start-ups estimate that it will cost each of them roughly $100 million and five years to get their small reactor designs certified by the Nuclear Regulatory Commission. About $50 million of each $100 million would go to the commission itself. That’s a lot of risk capital for any venture-backed start-up, especially considering that not one new commercial nuclear reactor design has been approved and built in the United States for 30 years.
. . .

As we learned by building the Internet, fiercely competitive teams of research professors, graduate students, engineers, entrepreneurs and venture capitalists are the best drivers of technological innovation — not big corporations, and certainly not government bureaucracies. So, if it’s cheap and clean energy we want, we should clear the way for fission energy start-ups. We should lower the barriers at the Nuclear Regulatory Commission for the approval of new nuclear reactors, especially the new small ones. In particular, we should drop the requirement that the commission be reimbursed for reconsidering new fission reactor designs.

For the full commentary, see:
BOB METCALFE. “The New Nuclear Revolution; Safe fission power is our future — if regulators allow it..” Wall Street Journal (Weds., JUNE 24, 2009): A15.
(Note: ellipses added.)

The Epistemological Implications of Wikipedia

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

I think the crucial feature of Wikipedia is in its being quick (what “wiki” means in Hawaiian), rather than in its current open source model. Academic knowledge arises in a slow, vetted process. Publication depends on refereeing and revision. On Wikipedia (and the web more generally) knowledge is posted first, and corrected later.
In the actual fact, Wikipedia’s coverage is vast, and its accuracy is high.
I speculate that Wikipedia provides clues to developing new, faster, more efficient knowledge generating institutions.
(Chris Anderson has a nice discussion of Wikipedia in The Long Tail, starting on p. 65.)

(p. A13) Until just a couple of years ago, the largest reference work ever published was something called the Yongle Encyclopedia. A vast project consisting of thousands of volumes, it brought together the knowledge of some 2,000 scholars and was published, in China, in 1408. Roughly 600 years later, Wikipedia surpassed its size and scope with fewer than 25 employees and no official editor.

In “The Wikipedia Revolution,” Andrew Lih, a new-media academic and former Wikipedia insider, tells the story of how a free, Web-based encyclopedia — edited by its user base and overseen by a small group of dedicated volunteers — came to be so large and so popular, to the point of overshadowing the Encyclopedia Britannica and many other classic reference works. As Mr. Lih makes clear, it wasn’t Wikipedia that finished off print encyclopedias; it was the proliferation of the personal computer itself.
. . .
By 2000, both Britannica and Microsoft had subscription-based online encyclopedias. But by then Jimmy Wales, a former options trader in Chicago, was already at work on what he called “Nupedia” — an “open source, collaborative encyclopedia, using volunteers on the Internet.” Mr. Wales hoped that his project, without subscribers, would generate its revenue by selling advertising. Nupedia was not an immediate success. What turned it around was its conversion from a conventionally edited document into a wiki (Hawaiian for “fast”) — that is, a site that allowed anyone browsing it to edit its pages or contribute to its content. Wikipedia was born.
The site grew quickly. By 2003, according to Mr. Lih, “the English edition had more than 100,000 articles, putting it on par with commercial online encyclopedias. It was clear Wikipedia had joined the big leagues.” Plans to sell advertising, though, fell through: The user community — Wikipedia’s core constituency — objected to the whole idea of the site being used for commercial purposes. Thus Wikipedia came to be run as a not-for-profit foundation, funded through donations.
. . .
It is clear by the end of “The Wikipedia Revolution” that the site, for all its faults, stands as an extraordinary demonstration of the power of the open-source content model and of the supremacy of search traffic. Mr. Lih observes that when “dominant encyclopedias” were still hiding behind “paid fire walls” — and some still are — Wikipedia was freely available and thus easily crawled by search engines. Not surprisingly, more than half of Wikipedia’s traffic comes from Google.

For the full review, see:
JEREMY PHILIPS. “Business Bookshelf; Everybody Knows Everything.” Wall Street Journal (Weds., March 18, 2009): A13.
(Note: ellipses added.)

The book being reviewed, is:
Lih, Andrew. The Wikipedia Revolution: How a Bunch of Nobodies Created the World’s Greatest Encyclopedia. New York: Hyperion, 2009.

Increase in Prizes to Advance Innovation

Source of graphic on past prizes: online version of the WSJ article quoted and cited below.

(p. A9) Are we impatient with NASA? Google offers $30 million in prizes for a better lunar lander. Do we like solving practical puzzles? InnoCentive Inc. has posted hundreds of lucrative research contests, offering cash prizes up to $1 million for problems in industrial chemistry, remote sensing, plant genetics and dozens of other technical disciplines. Perhaps we crave guilt-free fried chicken. The People for the Ethical Treatment of Animals offers a $1 million prize for the first to create test-tube poultry tissue that can be safely served for dinner.

Call it crowd-sourcing; call it open innovation; call it behavioral economics and applied psychology; it’s a prescription for progress that is transforming philanthropy. In fields from manned spaceflight to the genetics of aging, prizes may soon rival traditional research grants as a spur to innovation. “We see a renaissance in the use of prizes to solve problems,” says Tony Goland, a partner at McKinsey & Co. which recently analyzed trends in prize philanthropy.
. . .
Since 2000, private foundations and corporations have launched more than 60 major prizes, totaling $250 million in new award money, most of it focused on science, medicine, environment and technology, the McKinsey study found.
. . .
In growing numbers, corporate sponsors are embracing the prize challenge as a safe, inexpensive way to farm out product research, at a time when tight credit and business cutbacks have slowed innovation. Venture-capital investments have dropped by almost half since last year, reaching the lowest level since 1997, the National Venture Capital Association recently reported. “Here is a mechanism for off-balance-sheet risk-taking,” says Peter Diamandis, founder of the X Prize Foundation. “A corporation can put up a prize that is bold and audacious with very little downside. You only pay the winner. It is a fixed-price innovation.”

For the full article, see:
ROBERT LEE HOTZ. “SCIENCE JOURNAL; The Science Prize: Innovation or Stealth Advertising? Rewards for Advancing Knowledge Have Blossomed Recently, but Some Say They Don’t Help Solve Big Problems.” Wall Street Journal (Tues., May 8, 2009): A9.
(Note: ellipses added.)

The McKinsey study mentioned in the quotes above, was funded by the Templeton Foundation, and can be downloaded from:

McKinsey&Company. “”And the Winner Is …” Capturing the Promise of Philanthropic Prizes.” McKinsey & Company, 2009.
(Note: ellipsis in study title is in the original.)

Foreign Aid to Africa “Underwrites Brutal and Corrupt Regimes”

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

(p. A13) It is one of the great conundrums of the modern age: More than 300 million people living across the continent of Africa are still mired in poverty after decades of effort — by the World Bank, foreign governments and charitable organizations — to lift them out if it. While a few African countries have achieved notable rates of economic growth in recent years, per-capita income in Africa as a whole has inched up only slightly since 1960. In that year, the region’s gross domestic product was about equal to that of East Asia. By 2005, East Asia’s GDP was five times higher. The total aid package to Africa, over the past 50 years, exceeds $1 trillion. There is far too little to show for it.

Dambisa Moyo, a native of Zambia and a former World Bank consultant, believes that it is time to end the charade — to stop proceeding as if foreign aid does the good that it is supposed to do. The problem, she says in “Dead Aid,” is not that foreign money is poorly spent (though much of it is) or that development programs are badly managed (though many of them are). No, the problem is more fundamental: Aid, she writes, is “no longer part of the potential solution, it’s part of the problem — in fact, aid is the problem.”
In a tightly argued brief, Ms. Moyo spells out how attempts to help Africa actually hurt it. The aid money pouring into Africa, she says, underwrites brutal and corrupt regimes; it stifles investment; and it leads to higher rates of poverty — all of which, in turn, creates a demand for yet more aid. Africa, Ms. Moyo notes, seems hopelessly trapped in this spiral, and she wants to see it break free. Over the past 30 years, she says, the most aid-dependent countries in Africa have experienced economic contraction averaging 0.2% a year.

For the full review, see:

MATTHEW REES. “Bookshelf; When Help Does Harm.” Wall Street Journal (Tues., Mach 17, 2009): A13.

The reference to the book under review, is:
Moyo, Dambisa. Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa. New York: Farrar, Straus and Giroux, 2009.