Category: Economics

87% of American Liberals Support Some Merit-Based Income Differences

In my Openness to Creative Destruction, I claim that most people do not care as much about inequality per se, as they do about unfair inequality. What they care about is the differences in income be roughly related to differences in contribution. I illustrate this by recounting a famous experiment that Frans de Waal conducted with capuchin monkeys. The evidence in the study quoted below, supports my claim.

(p. B3) In 2018, four economists at the Center for Experimental Research on Fairness, Inequality and Rationality at the Norwegian School of Economics conducted a huge experiment — mostly via face-to-face interviews — using the Gallup World Poll. The Norwegian team — Bertil Tungodden, Alexander Cappelen, Ingvild Almas and Erik O. Sorensen — worked with Gallup to survey 65,000 people across 60 countries about their beliefs related to the gaps between the rich and the poor.

Part of the survey was an experiment. Respondents were randomly assigned to different conditions and presented a real-life scenario: Two people were recently hired to independently complete a short assignment; they were both paid, but one was given an additional $6.

In the first group, survey takers were told that the additional $6 was given out randomly. In the second group, they were told the $6 went to the worker who was more productive in completing the assignment. In both cases, respondents were asked how they would divide the additional earnings: whether they would transfer none of it, some of it or all of it to the other worker.

. . .

American conservatives might assume liberals are averse to merit-based compensation. The experiment proves that’s not so. When told the bonus payment was made only to the most productive worker, only 13 percent of the liberals transferred all of the money equally to the less productive worker, which is within the margin of error of the American conservative response (10 percent).

Americans both liberal and conservative were more likely than most people worldwide to accept merit-based income differences. As one of the study’s investigators, Mr. Tungodden, mentioned in his public presentation on the study, people in richer countries were more likely than people in poorer countries to allow merit-based differences. In the rich and more egalitarian country of Norway, 88 percent of respondents transferred the bonus payment equally when told it was allocated by chance, but only 33 percent did so when allocated by merit.

For the full commentary, see:

Jonathan Rothwell. “THE UPSHOT; Think Only Liberals Will Share the Wealth? A Survey May Surprise You.” The New York Times (Friday, February 14, 2020): B3.

(Note: ellipsis added.)

(Note: the online version of the commentary was last updated February 14, 2020, and has the title “THE UPSHOT; Experiment Shows Conservatives More Willing to Share Wealth Than They Say.”)

The soon-to-be-published version of the research discussed above, is:

Almås, Ingvild, Alexander W. Cappelen, and Bertil Tungodden. “Cutthroat Capitalism Versus Cuddly Socialism: Are Americans More Meritocratic and Efficiency-Seeking Than Scandinavians?” Journal of Political Economy (forthcoming 2020).

My book, mentioned above, is:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

A City’s Prosperity “Can Be Fickle and Fleeting”

(p. 18) As the world pulls up its drawbridges during a time of pandemic and questions the merits of globalization, Malacca is a reminder that such transoceanic exchange has a long history of bringing both promise and peril.

And the city’s ultimate fate may serve as a warning that the prosperity globalization bestows on some can be fickle and fleeting. A city that once stood at the global crossroads can devolve into a backwater, and a once-thriving culture can face extinction.

Malacca’s port, once one of the richest on earth, silted up, and the city became a historical footnote. The spices that drove the age of exploration — nutmeg, cloves and mace — now molder in dusty cabinets, no longer treasured commodities.

And yes, a contagion struck, too, a plague that weakened the Portuguese hold on the city, paving the way for the Dutch and then the British, who favored other entrepôts and left Malacca to its slow decline.

For the full story, see:

Hannah Beech. “A Rich Melting Pot Centuries Ago, a Globalization Relic Today.” The New York Times, First Section (Sunday, April 12, 2020): 18.

(Note: the online version of the story has the date April 11, 2020, and has the title “500 Years Ago, This Port Linked East to West. Its Fate Was to Fade Away.”)

For Venturesome Amazon Toilet Paper Shoppers, “Like Sandpaper” Is “Better than Nothing”

(p. B5) Where name-brand products sell out, off-brand products sold by third-party sellers have filled the void. Many of the top search results for toilet paper with regular Prime delivery were novelty rolls with zombies or the faces of politicians like Hillary Clinton.

In early April, Arielle Ogletree and her mother, who live near Tampa, Fla., were almost out of toilet paper when they turned to Amazon. They found a 16-pack of the large commercial toilet paper rolls found in public restrooms for $42. A few days later, it was at their door.

“It was the only one they had, and we figured it would last a while,” Ms. Ogletree said.

The roll, too big for a regular holder, sits awkwardly on their bathroom counter. Though the single ply feels “like sandpaper,” Ms. Ogletree said, it was better than nothing.

For the full story, see:

Karen Weise. “Confusion And Chaos At Amazon.” The New York Times (Saturday, April 18, 2020): B1 & B5.

(Note: the online version of the story has the date April 17, 2020, and has the title “When Even Amazon Is Sold Out of Exploding Kittens.”)

Baiju May Violate the Law of Diminishing Marginal Utility

I remember Gary Becker suggesting that there may be rare exceptions to the Law of Diminishing Marginal Utility. Maybe baiju, discussed below, is one of those rare exceptions?

(p. A13) Newcomers to China are usually horrified by their first encounter with baijiu, the fiery spirit consumed at banquets and family dinners, typically comparing it to jet fuel, paint stripper or drain cleaner. Even long-term expatriates often shudder at the stuff. So can foreigners learn to love baijiu? Derek Sandhaus proves it is possible. But it takes some work, as he describes in “Drunk in China.”

A Mandarin-speaker and the trailing spouse of an American diplomat to China, Mr. Sandhaus sniffs his first glass of baijiu and compares it to “the last whiff one senses before waking up in a serial killer’s rumpus room.” So when a friend tells him it takes 300 shots to learn to love the liquor, he accepts the challenge and starts a blog about his odyssey. The promised epiphany comes after 70 shots when Mr. Sandhaus cracks open a bottle of National Cellar 1573, made by Sichuan’s Luzhou Laojiao distillery. “This was not simply a magnificent baijiu,” he writes. “It was a magnificent drink. Period.”

. . .

China’s distillers need to find new markets for baijiu, and Mr. Sandhaus has embraced this mission with the zeal of a convert. He co-founded Ming River Sichuan Baijiu to sell a baijiu produced by Luzhou Laojiao, the same distillery that produces the 1573 hooch he first fell in love with. He believes that cosmopolitans will embrace authentic Chinese baijiu if it is presented in a familiar form. To that end, he promotes the creation of baijiu cocktails. It’s a gutsy bet, especially by one who initially thought baijiu “smelled as if someone had wrung a garbage bag of soiled gym shorts into a bucket of fish sauce, stirred in an equal measure of Drano, rotten fruit, and blue cheese, and left it to marinate a few days.”

For the full review, see:

Hugo Restall. “BOOKSHELF; The Proletariat’s White Wine.” The Wall Street Journal (Friday, January 17, 2020): A13.

(Note: ellipsis added.)

(Note: the online version of the review has the date Jan. 16, 2020, and has the title “BOOKSHELF; ‘Drunk in China’ Review: The Proletariat’s White Wine.”)

The book under review, is:

Sandhaus, Derek. Drunk in China: Baijiu and the World’s Oldest Drinking Culture. Lincoln, NE: Potomac Books, 2020.

Starkweather Never Imagined How Low the Price of a Laser Printer Would Fall

(p. A20) Gary Starkweather, an engineer and inventor who designed the first laser printer, bringing the power of the printing press to almost anyone, died on Dec. 26 [2020] at a hospital in Orlando, Fla.

. . .

Mr. Starkweather was working as a junior engineer in the offices of the Xerox Corporation in Rochester, N.Y., in 1964 — several years after the company had introduced the photocopier to American office buildings — when he began working on a version that could transmit information between two distant copiers, so that a person could scan a document in one place and send a copy to someone else in another.

He decided that this could best be done with the precision of a laser, another recent invention, which can use amplified light to transfer images onto paper. But then he had a better idea: Rather than sending grainy images of paper documents from place to place, what if he used the precision of a laser to print more refined images straight from a computer?

. . .

Because his idea ventured away from the company’s core business, copiers, his boss hated it. At one point Mr. Starkweather was told that if he did not stop working on the project, his entire team would be laid off.

. . .

But he soon finagled a move to the company’s new research lab in Northern California, where a group of visionaries was developing what would become the most important digital technologies of the next three decades, including the personal computer as it is known today.

At the Palo Alto Research Center, or PARC, Mr. Starkweather built the first working laser printer in 1971 in less than nine months. By the 1990s, it was a staple of offices around the world. By the new millennium, it was nearly ubiquitous in homes as well.

. . .

His father owned a local dairy; his mother was a homemaker. Their home was near a junk shop, where Gary would bargain for old radios, washing machines and car parts that he could tinker with in the basement, taking them apart and then putting them back together.

“As long as I didn’t blow up the house, I was allowed to do whatever I wanted down there,” he said in a 2010 interview with the Computer History Museum.

. . .

In 1997, while still at Apple, he gave a speech about the rise of the laser printer.

The first successful product sold by Xerox in the late 1970s cost more than $5,000 to manufacture, he said. He then held up a circuit board that drove the printers of the late 1990s. It cost just $38, making his product accessible to nearly any home or business.

That was not something he had ever imagined.

For the full obituary, see:

Cade Metz. “Gary Starkweather, Inventor of the Laser Printer, Is Dead at 81.” The New York Times (Thursday, January 16, 2020): A20.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the obituary has the date Jan. 15, 2020 and has the title “Gary Starkweather, Inventor of the Laser Printer, Dies at 81.”)

To Survive, Venezuelan Socialists Retreat from Socialism

(p. 14) CARACAS, Venezuela — After decades of dominating its oil industry, the Venezuelan government is quietly surrendering control to foreign companies in a desperate bid to keep the economy afloat and hold on to power.

The opening is a startling reversal for Venezuela, breaking decades of state command over its crude reserves, the world’s biggest.

The government’s power and legitimacy have always rested on its ability to control its oil fields — the backbone of the country’s economy — and use their profits for the benefit of its people.

But the nation’s authoritarian leader, Nicolás Maduro, in his struggle to retain his grip over a country in its seventh year of a crippling economic crisis, is giving up policies that once were central to its socialist-inspired revolution.

For the full story, see:

Anatoly Kurmanaev and Clifford Krauss. “Economy Mired in Crisis, Venezuela Quietly Surrenders Control of Its Oil.” The New York Times, First Section (Sunday, February 9, 2020): 14.

(Note: the online version of the story was updated Feb. 18, 2020, and has the title “To Survive, Venezuela’s Leader Gives Up Decades of Control Over Oil.” The online version says that the article was on p. A8 of the print version. But it was on p. 14 of my National Edition print version.)

“Very Smart People Doing Things in Half the Time With Great Urgency and Loving It”

(p. A15) As World War II gave way to the Cold War, jet engines and nuclear weapons increased the importance of radar and the strategic significance of countering it. Mr. Westwick fast-forwards through early, tentative attempts to do so, taking the reader to Southern California in the 1970s, where two defense contractors—Lockheed and Northrop—competed to develop modern stealth aircraft.

. . .

“Stealth” is leavened with plenty of anecdotes. One engineer designs a key curve for a stealth plane called Tacit Blue by fidgeting with modeling clay while on a trip to Disneyland with his kids. Another jury-rigs an F-117 by stringing a grid of piano wire over a hollow in its exterior to block incoming radar waves. It was meant to be a stopgap but ended up becoming part of the aircraft’s design. But Mr. Westwick’s main concern is to convey a sense of what it was like to work with such collaborative intensity. As one engineer recalls: “It’s very smart people doing things in half the time with great urgency and loving it. Absolutely loving it and in a way loving the people they work with.”

For the full review, see:

Konstantin Kakaes. “BOOKSHELF; Mission: Invisible.” The Wall Street Journal (Thursday, January 30, 2020): A15.

(Note: ellipsis added.)

(Note: the online version of the review has the date Jan. 29, 2020, and has the title “BOOKSHELF; ‘Stealth’ Review: Mission Invisible.”)

The book under review, is:

Westwick, Peter. Stealth: The Secret Contest to Invent Invisible Aircraft. New York: Oxford University Press, 2020.