Economics – Page 227 – artdiamondblog.com

Becker and Farmer on the Economics of Discrimination

“ROYAL SUBJECTS; Donna Farmer, with her children, applauds Disney’s efforts.” Source of photo and caption: online version of the NYT article quoted and cited below.

In Gary Becker’s initially controversial doctoral dissertation, he argued that those who discriminate in the labor market pay a price for their prejudice: they end up paying higher wages, than do those employers are not prejudiced.
The bottom line is that the free market provides incentives for the encouragement of diversity and tolerance.
Similarly, Donna Farmer argues, in the passages below, that the marketplace provides the Disney company with incentives to have “The Princess and the Frog” appeal to black audiences.

(p. 1) “THE Princess and the Frog” does not open nationwide until December, but the buzz is already breathless: For the first time in Walt Disney animation history, the fairest of them all is black.
. . .
After viewing some photographs of merchandise tied to the movie, which is still unfinished, Black Voices, a Web site on AOL dedicated to African-American culture, faulted the prince’s relatively light skin color. Prince Naveen hails from the fictional land of Maldonia and is voiced by a Brazilian actor; Disney says that he is not white.
“Disney obviously doesn’t think a black man is worthy of the title of prince,” Angela Bronner Helm wrote March 19 on the site. “His hair and features are decidedly non-black. This has left many in the community shaking (p. 8) their head in befuddlement and even rage.”
Others see insensitivity in the locale.
“Disney should be ashamed,” William Blackburn, a former columnist at The Charlotte Observer, told London’s Daily Telegraph. “This princess story is set in New Orleans, the setting of one of the most devastating tragedies to beset a black community.”
ALSO under scrutiny is Ray the firefly, performed by Jim Cummings (the voice of Winnie the Pooh and Yosemite Sam). Some people think Ray sounds too much like the stereotype of an uneducated Southerner in an early trailer.
Of course, armchair critics have also been complaining about the princess. Disney originally called her Maddy (short for Madeleine). Too much like Mammy and thus racist. A rumor surfaced on the Internet that an early script called for her to be a chambermaid to a white woman, a historically correct profession. Too much like slavery.
And wait: We finally get a black princess and she spends the majority of her time on screen as a frog?
. . .
Donna Farmer, a Los Angeles Web designer who is African-American and has two children, applauded Disney’s efforts to add diversity.
“I don’t know how important having a black princess is to little girls — my daughter loves Ariel and I see nothing wrong with that — but I think it’s important to moms,” she said.
“Who knows if Disney will get it right,” she added. “They haven’t always in the past, but the idea that Disney is not bending over backward to be sensitive is laughable. It wants to sell a whole lot of Tiana dolls and some Tiana paper plates and make people line up to see Tiana at Disney World.”

For the full article, see:

BROOKS BARNES. “Her Prince Has Come. Critics, Too.” The New York Times, SundayStyles Section (Sun., May 31, 2009): 1, 8-9.
(Note: ellipses added.)

The published version of Becker’s doctoral dissertation is:
Becker, Gary S. The Economics of Discrimination. 2nd Rev ed, Economic Research Studies. Chicago: University of Chicago Press, 1971.

Movie still of Princess Tiana from Disney’s “The Princess and the Frog” to be released in December 2009. Source of movie still: online version of the NYT article quoted and cited above.

“Whoever Was Prudent, Is Always the One Who Has to Pick Up the Pieces”

(p. A3) “We like a nice, gentle, upward slope,” said Donald E. Goetz, the president of DeMotte State Bank, an 11-branch operation in the northwest part of Indiana.

“This kind of growth, like you see in the stock market” — Mr. Goetz ran his hand through the air, tracing the shape of a mountain range — “that doesn’t interest us.”
. . .
Mr. Goetz, who was wearing a tie and a short-sleeve shirt, started as a teller at DeMotte right after he graduated from college in 1976, and he’s been president since 1988. He is a stolid guy who, when asked what he does for fun, offered two words: “Yard work.”
He sounds somewhat aggrieved. His bank, which opened in 1917, didn’t make any subprime loans, nor did it take any bailout money. Even when bank stocks were soaring, not one of his 246 shareholders needled him to earn more than the 3 to 4 percent dividend that DeMotte has generated for years.
. . .
“We had three or four people panic,” he said. “A couple of them said, ‘It’s not the bank. We just don’t trust the government.’ And I told them, ‘If the government fails, the money you’re taking out of this bank won’t be worth anything.’ ”
Mr. Goetz, like a lot of his competitors, is livid about the mortgage shenanigans born of the securitization craze. But he thinks his public relations problem had many authors.
“The media, Congress, the president, everyone just keeps saying ‘the banks, the banks, the banks,’ like we’re all the same thing,” he said. “Well, we’re not all the same thing.”
. . .
At DeMotte, Mr. Goetz is bracing for a steep increase in a crucial overhead cost: the bill from the Federal Deposit Insurance Corporation, which is basically an insurance fund underwritten by banks.
Last year, DeMotte paid $42,000 into the fund. This year, because of failures in other parts of the country and particularly among national banks, that sum will rise to $500,000 or more.
“Isn’t that the American way?” he says, folding his arms. “Whoever is left standing, whoever was prudent, is always the one who has to pick up the pieces.”

For the full story, see:

DAVID SEGAL. “We’re Dull, Small Banks Say, and Have Profit to Show for It.” The New York Times (Tues., May 12, 2009): A1 & A3.
(Note: ellipses added.)

Past Successful Entrepreneurship is a Predictor of Future Successful Entrepreneurship

“William H. Davidow, a venture capitalist, says he would want to know why an entrepreneur’s last deal failed “and what the person learned from it.” ” Source of photo and caption: online version of the NYT article quoted and cited below.

The research reported below, goes against the conclusions of some (such as Christensen and Raynor) that entrepreneurs often learn useful lessons from their failures. However, if true, the research has interesting policy implications.
For instance, if it is true that entrepreneurs who have succeeded in the past, are also more likely to succeed in the future, then it makes sense to allow them to keep the wealth from their entrepreneurship. In that case, the wealth is not only an incentive and reward for hard work, and taking risks. It also provides them the seed-funds for ever-more ambitious future entrepreneurial efforts that have a better-than-average chance of success. E.g., the profits from Disney’s cartoon movies, were crucial for funding Disneyland.
(The Gompers et al research is consistent with one of Edwin Mansfield’s papers, that I think I mention in my review of Mansfield’s contributions to the economics of technology.)

(p. 3) Professor Gompers and his co-authors Anna Kovner, Josh Lerner and David S. Scharfstein found that first-time entrepreneurs who received venture capital funding had a 22 percent chance of success. Success was defined as going public or filing to go public; Professor Gompers says the results were similar when using other measures, like acquisition or merger.

Already-successful entrepreneurs were far more likely to succeed again: their success rate for later venture-backed companies was 34 percent. But entrepreneurs whose companies had been liquidated or gone bankrupt had almost the same follow-on success rate as the first-timers: 23 percent.
In other words, trying and failing bought the entrepreneurs nothing — it was as if they never tried. Or, as Professor Gompers puts it, “for the average entrepreneur who failed, no learning happened.”
This finding flies in the face of conventional wisdom in Silicon Valley, where failure is regarded as an important opportunity for learning. No less an authority than Gordon Moore, a co-founder of Intel, says that in the Valley, “You’re more valuable because of the experiences you’ve been through under failures.”

For the full article, see:

LESLIE BERLIN. “Prototype; Try, Try Again, or Maybe Not.” The New York Times, SundayBusiness Section (Sun., March 22, 2009): 3.

The research by Gompers et al, can be downloaded from:
Gompers, Paul A., Anna Kovner, Josh Lerner, and David S. Scharfstein. “Performance Persistence in Entrepreneurship.” Harvard Business School Working Paper, No. 09-028, 2008.

“Mark Pincus, who founded Tribe.net and then Zynga, says: “As an entrepreneur, you have to get used to failure. It is just part of the path to success.” ” Source of photo and caption: online version of the NYT article quoted and cited above.

Costs of Entry Were Low in Entrepreneurial Garment Industry in 1900

(p. 146) This was the second great advantage of the garment
industry. It wasn’t just that it was growing by leaps and bounds. It was also explicitly entrepreneurial. Clothes weren’t made in a single big factory. Instead, a number of established firms designed patterns and prepared the fabric, and then the complicated stitching and pressing and button attaching were all sent out to small contractors. And if a contractor got big enough, or ambitious enough, he started designing his own patterns and preparing his own fabric. By 1913, there were approximately (p. 147) sixteen thousand separate companies in New York City’s garment business, many just like the Borgenichts’ shop on Sheriff Street.

“The threshold for getting involved in the business was very low. It’s basically a business built on the sewing machine, and sewing machines don’t cost that much,” says Daniel Soyer, a historian who has written widely on the garment industry. “So you didn’t need a lot of capital. At the turn of the twentieth century, it was probably fifty dollars to buy a machine or two. All you had to do to be a contractor was to have a couple sewing machines, some irons, and a couple of workers. The profit margins were very low but you could make some money.”

Source:
Gladwell, Malcolm. Outliers: The Story of Success. New York, NY: Little, Brown, and Co., 2008.

Major Advances Seldom Come from Big Incumbent Firms

(p. 109) Most of today’s Fortune 500 were not there fifty years ago. All of the private sector’s net new jobs in the United States during the past twenty years were added by companies not on the Fortune 1000 twenty years ago: two thirds of the net new jobs came from companies with fewer than twenty employees twenty years ago. Ten years ago our automobile giants seemed invincible. Today we wonder whether more than one will survive.

In 1960, Theodore Levitt of Harvard wrote an article in the Harvard Business Review, “Marketing Myopia,” in which he pointed out that every industry was once a growth industry. Perversely, a vicious cycle sets in. After experiencing continued growth for a while, managers in the industry come to believe that continuing growth is assured. They persuade themselves that there is no competitive substitute for their product, and develop too much faith in (p. 110) the benefits of mass production and the inevitable steady cost reduction that results as output rises. Managements become preoccupied with products that lend themselves to carefully controlled improvement and the benefits of manufacturing cost reduction. All of these forces combine to produce an inevitable stagnation or decline.
In Dynamic Economics, the economist Burton Klein puts forward a carefully researched and very similar view: “Assuming that an industry has already reached the stage of slow history, the advances will seldom come from the major firms in the industry. In fact, of some fifty inventions [fifty key twentieth-century breakthrough innovations that he studied] that resulted in new S-shaped curves [major new growth patterns] in relatively static industries, I could find no case in which the advance in question came from a major firm in the industry.” George Gilder elaborates on Klein’s work “The very process by which a firm becomes most productive in an industry tends to render it less flexible and inventive.”
It appears that evolution is continuously at work in the marketplace; that adaptation is crucial; and that few big businesses, if any, pull it off. Many of our excellent companies most probably will not stay buoyant forever. We would merely argue that they’ve had a long run–a much longer and more successful run than most–and are coming much closer than the rest to maintaining adaptability and size at the same time.

Source:
Peters, Thomas J., and Robert H. Waterman. In Search of Excellence: Lessons from America’s Best-Run Companies. New York: HarperCollins, 2004.
(Note: italics and brackets in original.)

Taiwan Government’s Industrial Policy Ruins Economy

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

(p. A8) Taiwan, where for years the government encouraged information technology companies with tax breaks, cheap land, loans and more, is probably the most endangered of the small Asian economies. The result of that government largess is an economy extremely dependent on a single industrial sector that has been devastated by plunging worldwide sales of electronics. “Half of the industries just got a bad cold, they probably can recover quickly — the other 50 percent, they’ve got, not cancer, but close,” said Preston W. Chen, a chemicals tycoon who is also the chairman of Taiwan’s Chinese National Federation of Industries.

For the full article, see:
KEITH BRADSHER. “Memo From Singapore – East Asia’s Small Edens of Trade Wilt as Need for Exports Dries Up.” The New York Times (Thurs., March 5, 2009): A8.

Jewish Immigrant Garment Entrepreneurs “Worked Hard”

(p. 145) “There is no doubt that those Jewish immigrants
arrived at the perfect time, with the perfect skills,” says
the sociologist Stephen Steinberg. “To exploit that opportunity,
you had to have certain virtues, and those immigrants
worked hard. They sacrificed. They scrimped and
saved and invested wisely. But still, you have to remember
that the garment industry in those years was growing
by leaps and bounds. The economy was desperate for the
skills that they possessed.”

Source:
Gladwell, Malcolm. Outliers: The Story of Success. New York, NY: Little, Brown, and Co., 2008.
(Note: italics in original.)

The Meaningful Work of Immigrant Sweatshop Entrepreneurs

(p. 141) “To me the greatest wonder in this was not the mere
quantity of garments–although that was a miracle in
itself–” Borgenicht would write years later, after he
became a prosperous manufacturer of women’s and children’s
clothing, “but the fact that in America even poor
people could save all the dreary, time-consuming labor of
making their own clothes simply by going into a store and
walking out with what they needed. There was a field to
go into, a field to thrill to.”

Borgenicht took out a small notebook. Everywhere he
went, he wrote down what people were wearing and what
was for sale–mens wear, women’s wear, children’s wear. He
wanted to find a “novel” item, something that people would
wear that was not being sold in the stores. For four more
days he walked the streets. On the evening of the final day
as he walked toward home, he saw a half dozen girls playing
hopscotch. One of the girls was wearing a tiny embroidered
apron over her dress, cut low in the front with a tie in the
back, and it struck him, suddenly, that in his previous days
of relentlessly inventorying the clothing shops of the Lower
East Side, he had never seen one of those aprons for sale.
He came home and told Regina. She had an ancient
sewing machine that they had bought upon their arrival in
America. The next morning, he went to a dry-goods store
on Hester Street and bought a hundred yards of gingham
and fifty yards of white crossbar. He came back to their
tiny apartment and laid the goods out on the dining room
table. Regina began to cut the gingham–small sizes for
toddlers, larger for small children–until she had forty (p. 142)
aprons. She began to sew. At midnight, she went to bed
and Louis took up where she had left off. At dawn, she rose
and began cutting buttonholes and adding buttons. By ten
in the morning, the aprons were finished. Louis gathered
them up over his arm and ventured out onto Hester Street.
“Children’s aprons! Little girls’ aprons! Colored ones,
ten cents. White ones, fifteen cents! Little girls’ aprons!”
By one o’clock, all forty were gone.
“Ma, we’ve got our business,” he shouted out to Regina,
after running all the way home from Hester Street.
He grabbed her by the waist and began swinging her
around and around.
“You’ve got to help me,” he cried out. “We’ll work
together! Ma, this is our business.”

Source:
Gladwell, Malcolm. Outliers: The Story of Success. New York, NY: Little, Brown, and Co., 2008.
(Note: italics in original.)

Entrepreneurs, Not MITI, Decided Japan Outcomes in ’60s, ’70s and ’80s

(p. 164) Ishibashi’s regime was followed in the early 1960s by the “income-doubling campaign” of his associate Hayato Ikeda, who assumed power in 1961 and continued the supply-side thrust. The result was a steady upsurge of domestic growth, with firms and industries rapidly gaining experience in intense rivalries at home before entering the global arena as low-cost producers, and with government cutting taxes and increasing revenues and savings.

It is from this domestic crucible of intense competition with normal rates of bankruptcy far above those in the United States, with scores of rivals in every field, that the great Japanese companies have emerged. At various times during the last three decades, for example, there have been 58 integrated steel firms, 50 motorbike companies, 12 auto firms, 42 makers of hand-held calculators, 13 makers of facsimile machines, and 250 producers of robots. Overlooking this welter are always the crested bureaucrats of MITI, sometimes offering useful aid and guidance–but at the center, deciding outcomes, have always been the entrepreneurs.

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

High State Taxes “Repel Jobs and Businesses”

Source of cartoon: online version of the WSJ commentary quoted and cited below.

(p. A17) . . . the evidence that we discovered in our new study for the American Legislative Exchange Council, “Rich States, Poor States,” published in March, shows that Americans are more sensitive to high taxes than ever before. The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.

Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.
Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair? No. Dozens of academic studies — old and new — have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.
. . .
. . . , Barry W. Poulson of the University of Colorado last year examined many factors that explain why some states grew richer than others from 1964 to 2004 and found “a significant negative impact of higher marginal tax rates on state economic growth.” In other words, soaking the rich doesn’t work. To the contrary, middle-class workers end up taking the hit.

For the full commentary, see:
ARTHUR LAFFER and STEPHEN MOORE. “Soak the Rich, Lose the Rich Americans know how to use the moving van to escape high taxes.” Wall Street Journal (Mon., MAY 18, 2009): A17.
(Note: ellipses added.)

“Dynamism Has Been Leached From Our System,” But Not from Our Brains or Our Hearts

Sometimes one of Peggy Noonan’s columns reminds us that she was once one of Ronald Reagan’s best speech writers:

(p. A11) I heard a man named Nathan Myhrvold speak of a thing called Microsoft. I saw a young man named Steve Jobs prowl a New York stage and unveil a computer that then we thought tiny and today we’d call huge. A man named Steve Wozniak became a household god as my son reported his visionary ways. It was a time so full of genius and dynamism that it went beyond words like “breakthrough” and summoned words like “revolution.” If you were paying attention, if you understood you were witnessing something great, the invention of a new age, the computer age, it caught at your throat. It was like hearing great music. People literally said what had been said in the age of Thomas Edison: “What will they think of next?” What a buoyant era.
. . .
And for a moment, as I sent and received my first airborne Wi-Fi emails, I was back there. And I was moved because I realized how much I missed it, how much we all do, that “There are no walls” feeling. “Think different.” “On January 24th, Apple Computer will introduce Macintosh. And you’ll see why 1984 won’t be like ‘1984.’ ” That was 25 years ago. The world was on fire.
It has cooled. And the essential problem with the crash we’re in is no one can imagine quite feeling that way again. People can remember it, but they can’t quite resummon it.
. . .
I end with a hunch that is not an unhappy one. Dynamism has been leached from our system for now, but not from the human brain or heart. Just as our political regeneration will happen locally, in counties and states that learn how to control themselves and demonstrate how to govern effectively in a time of limits, so will our economic regeneration. That will begin in someone’s garage, somebody’s kitchen, as it did in the case of Messrs. Jobs and Wozniak. The comeback will be from the ground up and will start with innovation. No one trusts big anymore. In the future everything will be local. That’s where the magic will be. And no amount of pessimism will stop it once it starts.

For the full commentary, see:
PEGGY NOONAN. “Remembering the Dawn of the Age of Abundance; Times are hard, but dynamism isn’t dead.” Wall Street Journal (Sat., Feb. 21, 2009): A11.
(Note: ellipses added.)