Category: Economics

Entrepreneurial Archaeology

In the "Dig for a Day" program, participants pay $25.00 to spend three hours helping to excavate a Tel Maresha cave.  Source of the image:  the online version of the NYT article cited below. 

 

While most archaeological excavations require hundreds of thousands of dollars, Mr. Alpert said, this one is unusual because it is self-supporting.  “We have the people working and paying for the work, which has proven itself archaeologically and from a tourism standpoint,” he said.  “That’s why we are able to dig for so long.”  The Maresha excavation is licensed by the Israeli Antiquities Authority, and reports are submitted each year to evaluate its scientific contribution.

“This is the ultimate chutzpah,” said Ian Stern, another of the company’s three owners, who has a doctorate in archaeology and emigrated to Israel from New Jersey (the third owner is Asher Afriat, a historian and native Israeli).  “We are providing the public with an active educational experience, while they do the work.  Their money underwrites the excavation and is used for all the follow-up of putting the pottery together, registering and photographing the finds, and writing the scientific reports.” 

 

For the full story, see:

CAREN OSTEN GERSZBERG.  "Family Journeys; Israel; Amateur Archaeologists Get the Dirt on the Past."  The New York Times, Section 5 (Sun., July 16, 2006):   11.

 

  Amateur archaeologists excavate a cave.  Source of the image:  the online version of the NYT article cited above.

 

Internet Increases Variety of Goods, Services, and Culture

LongTailBK.jpg Source of book image:  the WSJ review cited below.

 

According to Mr. Anderson, technology is not just accelerating the delivery of traditional pop culture but affecting the choices we make.  The key to such change is a phenomenon he calls "the long tail."

In a traditional graph of sales and demand, there is a stratospheric swoop upward where hot products and services are tracked, and a long descending line tracing the less spectacular performance of low-volume also-rans.  For years, these outliers fell off the edge of the market or held only a marginal position, with minimal profits.  These days, though, technology has allowed such niche interests to thrive, finding steady customers and rising levels of interest.

For the full review, see: 

STEVEN ZEITCHIK. "BOOKS; A Nichefied Mediaquake; Technology has revolutionized distribution, but doesn’t talent still matter?" The Wall Street Journal (Sat., July 8, 2006): P8.

 

Anderson’s book highlights an important result of the internet revolution:  the increase in the variety.  In an earlier academic article, that discusses and measures this effect, Erik Brynjolfsson and his co-authors (see below) looked at the effects of Amazon.com on consumers.  They found a substantial benefit to consumers from lower book prices, due to more competition, and better information.  But their surprising result was that they found a much larger benefit to consumers from the greater variety of books that Amazon.com makes readily available.

The darkened long tail in graph below roughly represents the books available through Amazon that would not be available in even the very largest ‘bricks-and-mortar’ book store.

There are important implications for both readers and writers.  Readers are more likely to find the kinds of books they want.  Writers are more likely to find a sufficient readership to be able to sustain themselves through their writing.   

 

Source of graph is p. 1589 of:  Brynjolfsson, Erik, Yu (Jeffrey) Hu, and Michael D. Smith. "Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers." Management Science 49, no. 11 (2003): 1580-96.

 

The citation for the Anderson book is:

Anderson, Chris. The Long Tail. Hyperion, 2006.  (238 pages, $24.95)

Free International Labor Markets

 

As a fellow-signer of the Open Letter, I second Professor Armentano’s response to Rep. Rohrabacher: 

 

So according to Rep. Dana Rohrabacher (Letters, July 5), economists who advocate relatively free international labor markets must be "lefty academics."  Oh, yeah?  I thought that "lefties" took the opposite position, that government (and not the market) should control resource availability in the so-called "national interest."  And I also thought that advocating the removal of restrictions and penalties on the free movement of labor and other resources was the essence of a free-market position.

The economists (such as myself) who signed the Independent Institute’s Open Letter to the President on immigration were taking a consistent free-market position.  We hardly need to be slandered with a label that implies the exact opposite

 

Source:

Dominick T. Armentano.  "Open Letter to President Was a Free-Market Stance."  The Wall Street Journal (Sat., July 8, 2006):  A11.

 

The text of the Open Letter can be found at:   http://www.independent.org/newsroom/article.asp?id=1727

 

Or access the Open Letter by clicking the link below:

Continue reading “Free International Labor Markets”

When Public Schools Fail, Give Parents a Refund

Writing on Weds., July 12th, libertarian litigator Clint Bolick, seeks to improve failing schools by using the courts to increase parental choice:

 

A world of education reform will change tomorrow when a group of families files a class action lawsuit in Chancery Court in Newark, N.J.  They are asking for an immediate and meaningful remedy for 60,000 children trapped in failing schools — by transferring control over education funds from bureaucrats to parents.

Seeking to vindicate the state constitutional guarantee of a "thorough and efficient" education, the plaintiffs in Crawford v. Davy ask that children be allowed to leave public schools where fewer than half of the students pass the state math and language literacy assessments that measure educational proficiency; and that the parents of these children be permitted to take the pro rata share of the public money spent on their children, to seek better opportunities in other public or private schools.  Supporting the families are three prominent New Jersey groups:  the Black Ministers Council, the Latino Leadership Alliance, and Excellent Education for Everyone.

The remedy these parents seek is fundamentally different from the one established by more than three decades of litigation across the country.  Courts in states like New York, Texas and California have ordered massive increases in school funding to fulfill state constitutional mandates for educational "equity" or "adequacy," all on the belief that more money will boost school quality and student performance.  The funds have produced new programs and bureaucracies, but too often they fail to trickle down to the students by way of improved educational quality.

In any area other than education such a remedy would be considered bizarre.  Suppose you purchased a car whose warranty promised "thorough and efficient" transportation, and it turned out to be a lemon.  If you sued to enforce the warranty, would a court order a multibillion dollar payment to the auto maker in the hope that someday it would produce a better product?  Of course not:  It would order the company to give your money back so you could buy a different car.

 

For the full commentary, see:

CLINT BOLICK. "Remedial Education." The Wall Street Journal  (Weds., July 12, 2006):  A16.

Buffett and Gates Should Strengthen Foundations of Free-Market

If Warren Buffett is as serious about doing good with his wealth, as he was in becoming wealthy, he would ponder the Wall Street Journal‘s sage editorial page advice:

We can’t think of two people less in need of our two cents than Messrs. Buffett and Gates.  But since giving free advice is our business, we’d suggest that they put at least a smidgen of their money back into strengthening the foundations of the free-market system that has allowed them to become so fabulously rich.  There’s something to be said for reinvesting in the moral capital of a free society and trying to sustain and export free-enterprise policies.

Capitalism has done very well not just by Mr. Buffett but also by the world’s poor, as several hundred million Chinese and Indians might attest.  African nations in particular need property rights and a rule of law as badly as they need vaccines.  On that score we were encouraged by a report this week that the Gateses thanked Mr. Buffett for his gift by presenting him with a book from their personal library:  Adam Smith’s "The Wealth of Nations."

 

For the full editorial, see:

"Mr. Buffett’s Gift."  The Wall Street Journal  (Weds., June 28, 2006):  A14.

Global Warming Ranked at Bottom of World Priorities by Economists and Ambassadors


LomborgBjorn.gif Bjorn Lomborg.  Source of image:  online version of WSJ article cited below.

 

(p. A10) Bjorn Lomborg busted — and that is the only word for it — onto the world scene in 2001 with the publication of his book "The Skeptical Environmentalist."  A one-time Greenpeace enthusiast, he’d originally planned to disprove those who said the environment was getting better.  He failed.  And to his credit, his book said so, supplying a damning critique of today’s environmental pessimism.  Carefully researched, it offered endless statistics — from official sources such as the U.N. — showing that from biodiversity to global warming, there simply were no apocalypses in the offing.  "Our history shows that we solve more problems than we create," he tells me. For his efforts, Mr. Lomborg was labeled a heretic by environmental groups — whose fundraising depends on scaring the jeepers out of the public — and became more hated by these alarmists than even (if possible) President Bush.

Yet the experience left Mr. Lomborg with a taste for challenging conventional wisdom.  In 2004, he invited eight of the world’s top economists — including four Nobel Laureates — to Copenhagen, where they were asked to evaluate the world’s problems, think of the costs and efficiencies attached to solving each, and then produce a prioritized list of those most deserving of money.  The well-publicized results (and let it be said here that Mr. Lomborg is no slouch when it comes to promoting himself and his work) were stunning.  While the economists were from varying political stripes, they largely agreed.  The numbers were just so compelling:  $1 spent preventing HIV/AIDS would result in about $40 of social benefits, so the economists put it at the top of the list (followed by malnutrition, free trade and malaria).  In contrast, $1 spent to abate global warming would result in only about two cents to 25 cents worth of good; so that project dropped to the bottom.

"Most people, average people, when faced with these clear choices, would pick the $40-of-good project over others — that’s rational," says Mr. Lomborg.  "The problem is that most people are simply presented with a menu of projects, with no prices and no quantities.  What the Copenhagen Consensus was trying to do was put the slices and prices on a menu.  And then require people to make choices."

Easier said than done.  As Mr. Lomborg explains, "It’s fine to ask economists to prioritize, but economists don’t run the world."  .  .  .

So all the more credit to Mr. Lomborg, who several weeks ago got his first big shot at reprogramming world leaders.  His organization,  the Copenhagen Consensus Center,  held a new version of the exercise in Georgetown.  In attendance were eight U.N. ambassadors, including John Bolton.  (China and India signed on, though no Europeans.)  They were presented with global projects, the merits of each of which were passionately argued by experts in those fields.  Then they were asked:  If you had an extra $50 billion, how would you prioritize your spending?

Mr. Lomborg grins and says that before the event he briefed the ambassadors:  "Several of them looked down the list and said ‘Wait, I want to put a No. 1 by each of these projects, they are all so important.’  And I had to say, ‘Yeah, uh, that’s exactly the point of this exercise — to make you not do that.’"  So rank they did.  And perhaps no surprise, their final list looked very similar to that of the wise economists.  At the top were better health care, cleaner water, more schools and improved nutrition.  At the bottom was . . . global warming.

 

For the full interview, see:

KIMBERLEY A. STRASSEL.  "The Weekend Interview with Bjorn Lomborg; Get Your Priorities Right."  The Wall Street Journal  (Sat., July 8, 2006):  A10.

(Note:  first ellipsis is added; the second ellipsis is in the original.)  

 

    Source of book image:   http://www.amazon.com/gp/product/customer-reviews/0521010683/ref=cm_cr_dp_2_1/104-0101568-2686373?ie=UTF8&customer-reviews.sort%5Fby=-SubmissionDate&n=283155


Foreign Aid Is Harmful to African Countries: More on Why Africa is Poor

TroubleWithAftricaBK.jpg Source of book image:  online version of WSJ article cited below.

 

As Robert Calderisi makes clear in "The Trouble With Africa," foreign aid is usually mismanaged, wasted or simply diverted to various precincts of the continent’s busy kleptocracies, subverting the evolution of normal markets.

Africa is by no means the only region in the world where corruption seems endemic.  Paul Wolfowitz, the head of the World Bank, addressed the problem of corruption on a trip to Indonesia earlier this year.  Even building a new baseball stadium in the Bronx can involve community-outreach efforts that might better be called payoffs.  But Africa seems to find it especially difficult to set up a legal system that can enforce contracts and compel transparency.

Mr. Calderisi says more explicitly than anyone — except perhaps George B.N. Ayittey and the late British economist P.T. Bauer — that foreign aid is almost always harmful to the African counties that receive it.  The fault, he notes, is not in the stars but in the behavior of Africans themselves, especially the leaders who have pocketed so much of the money intended for their citizens.

 

For the full review, see:

Roger Kaplan.  "Bookmarks."  Wall Street Journal  (Fri., June 2, 2006):  W7.

 

The full reference to the Calderisi book is:

Calderisi, Robert. The Trouble with Africa. Palgrave Macmillan, 2006.  (249 pages, $24.95)

Government Paid 34 Cents to Collect a 15 Cent Toll

The 157-mile Indiana Toll Road had lost money five of the last seven years.  A principal reason was its antique pricing; tolls had not changed since 1985 and were far below what comparable American toll ways charged.

As a private citizen, I had always been intrigued to stop at a concrete booth and fish out a dime and a nickel to pay the 15-cent toll at Gary.  As governor, I asked, ”What does it cost us to collect a toll?”  This being government, no one knew, but after a few days of calculation, the answer came:  ”About 34 cents, we think.”  I said, only half in jest, that we should just go to the honor system and we’d come out way ahead.

Why would a losing enterprise with an underpriced product drift on in that way?  Because it was run by politicians, who are rarely businesslike and deathly afraid to annoy anyone.  So the state lost money on the road, postponed repairs and expansions and failed to install the electronic technology that makes toll ways elsewhere faster, more convenient and more efficient.

Just as many business units are more valuable if separated from their conglomerate parent, an asset like a highway can be worth vastly more under different management.  When we offered our road for long-term lease, we received a high bid of $3.8 billion, cash, from Macquarie-Cintra, an Australian-Spanish consortium.  The highest estimate of the road’s net present value in state hands was less than half that amount, and even that estimate assumed regular toll increases of the kind past governors steadfastly refused to impose.  Noting the road’s record of losses, one finance professor remarked, ”If they’d gotten a dollar for it, it would have been a good deal.”  Instead, Indiana will soon cash a check that closes a gap most had believed insoluble.  Future toll increases will be capped at the level of inflation.

 

For the full commentary, see: 

MITCH DANIELS.  "For Whom the Road Tolls."  The New York Times  (Sat., May 27, 2006):  A13.

 

Government Corn Subsidies Are Inefficient

 

(p. 19) That the United States is using corn, among the more expensive crops to grow and harvest, to help meet the country’s fuel needs is a testament to the politics underlying ethanol’s 30-year rise to prominence.  Brazilian farmers produce ethanol from sugar at a cost roughly 30 percent less.

But in America’s farm belt, politicians have backed the ethanol movement as a way to promote the use of corn, the nation’s most plentiful and heavily subsidized crop.  Those generous government subsidies have kept corn prices artificially low — at about $2 a bushel — and encouraged flat-out production by farmers, leading to large surpluses symbolized by golden corn piles towering next to grain silos in Iowa and Illinois.

 

For the full story, see:

ALEXEI BARRIONUEVO.  "THE ENERGY CHALLENGE: A Modern Gold Rush; For Good or Ill, Boom in Ethanol Reshapes Economy of Heartland." The New York Times, Section 1 (Sunday, June 25, 2006): 1 & 19.

 

Chinese Central Planning Turns Lake Into Desert

   Tall grass grows where Qingtu Lake used to be; and the desert encroaches on the grass.  Source of image:  online version of the NYT article cited below.

 

(p. A1)  An ever-rising tide of sand has claimed grasslands, ponds, lakes and forests, swallowed whole villages and forced tens of thousands of people to flee as it surges south and threatens to leave this ancient Silk Road greenbelt uninhabitable.

Han Chinese women here cover their heads and faces like Muslims to protect against violent sandstorms.  Farmers dig wells down hundreds of feet.  If they find water, it is often brackish, even poisonous.

Chinese leaders have vowed to protect Minqin and surrounding towns in Gansu Province.  The area divides two deserts, the Badain Jaran and the Tengger, and its precarious state threatens to accelerate the spread of barren wasteland to the heart of China.

The national 937 Project, set up to fight the encroaching desert, estimated in April that 1,500 square miles of land, roughly the size of (p. A14) Rhode Island, is buried each year.  Nearly all of north central China, including Beijing, is at risk.

Expanding deserts and a severe drought are also making this a near-record year for dust storms carried east in the jet stream.  Sand squalls have blanketed Beijing and other northern cities, leaving a stubborn yellow haze in the air and coating roads, buildings, cars and lungs.

. . .

Government-led cultivation, deforestation, irrigation and reclamation almost certainly contributed to the desert’s advance, which began in the 1950’s and the 1960’s, and has accelerated.  Critics warn that some lessons of past engineering fiascoes remained unlearned.

During the ill-fated Great Leap Forward in the late 1950’s, Mao ordered construction of the giant Hongyashan reservoir near Minqin, which diverted the flow of the Shiyang River and runoff from the Qilian Mountains into an irrigation system.  It briefly made Minqin’s farmland fertile enough to grow grain.

But Minqin is a desert oasis that gets almost no rainfall.  The Shiyang and its offshoots had been its ecological lifeline.  With the available water resources monopolized for farming, nearly all other land became a target for the desert.

Today, patches of farmland that cling to irrigation channels are emerald islands in a sea of beige, an agricultural Palm Springs.

Even the irrigated plots risk extinction. Competing reservoirs on upper reaches of the Shiyang reduced its flow so severely by 2004 that the Hongyashan went dry for the first time since its construction in 1959.  It was refilled after Beijing ordered an emergency diversion of water from the Yellow River, which now runs dry through much of the year here in its northern reaches.

Local officials, whose promotions in the government and Communist Party hierarchy depend more on increasing economic output than on improving the environment, have tried desperately to preserve Minqin’s farming.

. . .

"This is not a natural disaster — it is man-made," Mr. Chai said.  "And unless people study the lesson of Minqin, it will repeat itself clear across China." 

 

For the full story, see: 

JOSEPH KAHN.  "A Sea of Sand Is Threatening China’s Heart."  The New York Times (Thurs., June 8, 2006):  A1 & A14.

 

  Women wear headresses and face masks, not out of modesty, but to protect against the sand.  Source of photo:  online versio of the NYT article cited above.

 

ChinaDesertMaps.gif Close, and distant, maps of the areas effected.  Source of maps:  online version of the NYT article cited above.

Russians Try to Steal Rocker’s Vacuum Tube Factory

Mike Matthews holding one of the vacuum tubes produced in the Russian factory he owns.  Source of photo:  online version of the NYT article cited below.

 

(p. C1)  SARATOV, Russia — Mike Matthews, a sound-effects designer and one-time promoter of Jimi Hendrix, bought an unusual Russian factory making vacuum tubes for guitar amplifiers.  Now he has encountered a problem increasingly common here: someone is trying to steal his company.

Sharp-elbowed personalities in Russia’s business world are threatening this factory in a case that features accusations of bribery and dark hints of involvement by the agency that used to be the K.G.B.

Though similar to hundreds of such disputes across Russia, this one is resonating around the world, particularly in circles of musicians and fans of high-end audio equipment.

Russia is one of only three countries still making vacuum tubes for use in reproducing music, an aging technology that nonetheless "warms up" the sound of electronic music in audio equipment.

"It’s rock ‘n’ roll versus the mob," Mr. Matthews, 64, said in a telephone interview from New York, where he manages his business distributing the Russian vacuum tubes.  "I will not give in to racketeers."

Yet the hostile takeover under way here is not strictly mob-related.  It is a dispute peculiar to a country where property rights — whether for large oil companies, car dealerships or this midsize factory — seem always open to renegotiation.  It provides a view of the wobbly understanding of ownership that still prevails.

. . .

(p. C4)  If the tube factory dies, so will the future of a rock ‘n’ roll sound dating back half a century, the rich grumble of a guitar tube amplifier — think of Jimi Hendrix’s version of "The Star-Spangled Banner" — that musicians say cannot be replicated with modern technology.

"It’s nice and sweet and just pleasing sounding," Peter Stroud, the guitarist for Sheryl Crow, said in a telephone interview from Atlanta.  "It’s a smooth, crunchy distortion that just sounds good.  It just feels good to play on a tube amp."

He added:  "It would be a catastrophe for the music industry if something happened to that plant."

 

For the full story, see: 

ANDREW E. KRAMER.  "From Russia, With Dread; American Faces a Truly Hostile Takeover Attempt at His Factory."  The New York Times   (Tuesday, May 16, 2006):  C1 & C4.

 

The transistor disrupted the vacuum tube, a case that would usually be described as an episode of creative destruction.  One secondary lesson from the story above is that there may be a previously unremarked symmetry to the process of disruption.  A disruptive technology typically appeals only to a niche in the market, while the incumbent technology dominates the mainstream.  But after the disruptive technology improves sufficiently to capture much of the mainstream market, maybe there often will remain a niche market that still prefers the older disruptive technology?

To use Danny DeVito’s example in "Other People’s Money," the car may have disrupted horse-and-buggies.  But for some nostalgic "jobs" the horse-and-buggy may still be the better product, so there will likely remain some demand for buggy whips.

To the extent that this phenomenon is significant, it might serve to ease the labor market transition when one technology leapfrogs another.

 

VacuumTubeBox.jpg A vacuum tube used in guitar amplifiers, that was produced in the factory that Mike Matthews owned.  Source of photo:  online version of the NYT article cited above.