Economics – Page 229 – artdiamondblog.com

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.)

Gladwell Misses His Own Central Message: Long Hard Work Matters Most

Source of book image: http://bharatkhetan.com/akanksha/?p=19

Malcolm Gladwell is on a roll. His three recent books have been best-sellers: The Tipping Point, Blink, and now Outliers. All three books are well-written, and deal with important issues.
I suspect that sometimes Gladwell over-simplifies and over-generalizes. But he often makes plausible, thought-provoking claims, and he presents academic research in a clear, painless way.
In the Outliers book, I enjoyed his examples: the NHL hockey players who are overwhelmingly born in the same three months, the entrepreneurial immigrant Jews entering the clothing business, silicon valley superstars having access to computers at an early age.
To Gladwell, the main point of the book is that over-achievers owe their success to lucky circumstances. But to me, the main point was a different one: in case after case, the successful put in a huge number of hours (about 10,000) of practice to achieve the mastery of their activities.
To use the memorable analogy from Collins’ Good to Great: hour after hour, day after day, year after year, they all kept “pushing the flywheel” to reach the threshold of excellence.

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

The reference for Collins’ book is:
Collins, Jim. Good to Great: Why Some Companies Make the Leap. And Others Don’t. New York: HarperCollins Publishers, Inc., 2001.

OSHA Did Not Make the Workplace Safer

Source of image of graph: http://www.econ.canterbury.ac.nz/personal_pages/bob_reed/econ3003/book/chap26a.gif (Original source of graph: Viscusi, W. Kip, John M. Vernon, and Joseph E. Harrington, Jr. Economics of Regulation and Antitrust. 2nd ed. Lexington, MA: D.C. Heath and Company, 1992, page 714.)

The graph above, from a leading textbook on the economics of regulation, strikingly shows that OSHA had no discernible effect on reducing workplace accidents.
(Note: I am grateful to Susan Dudley who mentioned this graph in one of the Association of Private Enterprise Education sessions in Guatemala City, and who graciously elaborated the source in conversation afterwards.)

Economic Freedom Map

Source of image: http://divisionoflabour.com/archives/EFWposter.JPG

I heard a useful presentation by John Morton on the Fraser Institute’s Economic Freedom Map at the April 2009 Association of Private Enterprise Education meetings in Guatemala City. Using data developed by Jim Gwartney, Robert Lawson, and their associates, the map provides striking visual evidence of the relationship between economic freedom and economic growth.

For additional information, and to purchase a copy of the map, visit: http://www.freetheworld.com/ef_map.html

Greenmarket Rules Are “Cumbersome, Confusing and Contradictory”

“Dante Hesse, . . . , of Milk Thistle Farm, thinks Greenmarket rules are too hard on dairies.” Source of caption and photo: online version of the NYT article quoted and cited below. (Note: ellipsis in caption added.)

(p. D4) The basic aim of the producer-only rules is to ensure that all foods sold at market originate entirely or mostly on family farms within a half day’s drive from New York City. The 10-page document detailing these rules, however, is anything but clear.

“Cumbersome, confusing and contradictory,” was the assessment of Michael Hurwitz, the director of Greenmarket, which operates 45 markets in the five boroughs.
Pickle makers can sell preserved foods such as peppers in vinegar, but not processed foods such as hot sauce. Farmers, on the other hand, can sell processed hot sauce if it is made with their peppers. Dairies may purchase a higher percentage of their milk for cheese if the cheese is made from one type of milk rather than two milks, such as cow and sheep. Cider makers can buy 40 percent of the apples they press from local farmers, whereas wheatgrass juice sellers must grow all their wheatgrass.

For the full story, see:
INDRANI SEN. “Greenmarket Sellers Debate Maze of Producer-Only Rules.” The New York Times (Weds., August 6, 2008): D4.

“Every Organization Has Too Many Meetings”

“Reid Hastie, a professor at the University of Chicago, contends that “every organization has too many meetings, and far too many poorly designed ones.” ” Source of photo and caption: online version of the NYT article quoted and cited below.

The author of the following wise words is a Professor of Behavioral Science at the School of Business at the University of Chicago. One of the main points of the commentary, in the language of economics, is that meeting planners often fail to consider the opportunity cost of attendees’ time:

(p. 2) As a general rule, meetings make individuals perform below their capacity and skill levels.

This doesn’t mean we should always avoid face-to-face meetings — but it is certain that every organization has too many meetings, and far too many poorly designed ones.
The main reason we don’t make meetings more productive is that we don’t value our time properly. The people who call meetings and those who attend them are not thinking about time as their most valuable resource.
. . .
Probably most important, we are blind to lost time opportunities. When we choose where to invest our time, as opposed to where to invest money, we are more likely to neglect what else we could have done with it.

For the full commentary, see:
REID HASTIE. “Preoccupations – Meetings Are a Matter of Precious Time.” The New York Times, SundayBusiness Section (Sun., January 18, 2009): 2.
(Note: ellipsis added.)

Philanthro-Capitalism Is Inefficient, and Betrays Shareholders

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

(p. A13) One of the more interesting ideas found in this somewhat rambling book contends that “philanthropic” business activity is in fact at odds with what is best about capitalism itself and thus counterproductive.

Lawrence Summers, the former Harvard president and former Treasury secretary, states the difficulty succinctly: “It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too.” He offers as an example Fannie Mae and Freddie Mac, government-created corporations that were supposed to achieve a social goal — affordable housing — while operating as businesses. They did neither well, eventually leaving their catastrophic debts for taxpayers to pay.

U.S. Circuit Court Judge Richard Posner, along with other contributors, notes that companies often suffer losses when they set out to address a social problem. If they could really make a profit by doing good works, the argument goes, they would no doubt already be hard at it. But if they do good works at the expense of profit, they will become less efficient, making themselves more vulnerable to competitors. Economist Steven Landsburg suggests that companies sacrificing profit to accomplish philanthropic goals end up betraying their shareholders, who rightly expect the best return on investment. Sometimes acting philanthropically will result in an indirect business benefit, such as improving worker skills. In that case, philanthro-capitalism might be in a company’s interest — but Judge Posner and others of like mind suspect that such instances are rare.

Their skepticism echoes Milton Friedman’s objections to “corporate social responsibility,” expressed in a 1970 article that is usefully reprinted in the book’s appendix.

For the full review, see:

LESLIE LENKOWSKY. “Bookshelf; The Do-Good Marketplace; Reducing poverty, improving lives – maybe ‘philanthro-capitalism’ is just another name for capitalism.” Wall Street Journal (Fri., JANUARY 2, 2009): A13.

The book under review is:
Kinsley, Michael, and Conor Clarke, eds. Creative Capitalism. New York: Simon & Schuster, 2008.

Stagnation Caused by “Depriving Creative Individuals of Financial Power”

(p. 164) The key to growth is quite simple: creative men with money. The cause of stagnation is similarly clear: depriving creative individuals of financial power. To revive the slumping nations of social democracy, the prime need is to reverse the policies of entrepreneurial euthanasia. Individuals must be allowed to accumulate disposable savings and wield them in the economies of the West. The crux is individual, not corporate or collective, wealth.

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

System of Capitalism without Capitalists Is Failing in Europe

(p. 164) The reason the system of capitalism without capitalists is failing throughout most of Europe is that it misconceives the essential nature of growth. Poring over huge aggregations of economic data, economists see the rise to wealth as a slow upward climb achieved through the marginal productivity gains of millions of workers, through the slow accumulation of plant and machinery, and through the continued improvement of “human capital” by advances in education, training, and health. But, in fact, all these sources of growth are dwarfed by the role of entrepreneurs launching new companies based on new concepts or technologies. These gains generate the wealth that finances the welfare state, that makes possible the long-term investments in human capital that are often seen as the primary source of growth.

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

Do Recessions Sometimes Encourage Creative Destruction?

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

(p. B1) The dot-com bust earlier in the decade dragged down high-fliers like Sun Microsystems and America Online but set the stage for a new generation of Web powerhouses like Google and other innovative Internet software companies like Salesforce.com, founded on disrupting the status quo.

The recession of the early 1990s sent I.B.M., then the dominant force in technology, into a five-year tailspin. But it also propelled Microsoft and Compaq, later acquired by Hewlett-Packard, and Dell to the forefront of computing.

Indeed, Silicon Valley may be one of the few places where businesses are still aware of the ideas of Joseph Schumpeter, an Austrian economist who wrote about business cycles during the first half of the last century. He said the lifeblood of capitalism was “creative destruction.” Companies rising and falling would unleash innovation and in (p. B4) the end make the economy stronger.

Recessions “can cause people to think more about the effective use of their assets,” said Craig R. Barrett, the retiring chairman of Intel, who has seen 10 such downturns in his long career. “In the good times, you can get a bit careless or not focused as much on efficiency. In bad times, you’re forced to see if there is a technology” that will help.

So who’s up, who’s down and who’s out this time around? Microsoft’s valuable Windows franchise appears vulnerable after two decades of dominance. Revenue for the company’s Windows operating system fell for the first time in history in the last quarter of 2008. The popularity of Linux, a free operating system installed on many netbooks instead of Windows, forced Microsoft to lower the prices on its operating system to compete.

Intel’s high-power processors are also under assault: revenue tumbled by 23 percent last quarter, marking the steepest decline since 1985.

Meanwhile, more experimental but lower-cost technologies like netbooks, Internet-based software services (called cloud computing) and virtualization, which lets companies run more software on each physical server, are on the rise.

For the full story, see:

BRAD STONE and ASHLEE VANCE. “$200 Laptops Break a Business Model.” The New York Times (Mon., January 25, 2009): B1 & B4.