Category: Economics

Silicon Valley Pioneer at Age 16 Survived on 5 Cents of Carrots a Day

(p. A23) Jay Last, a physicist who helped create the silicon chips that power the world’s computers, and who was among the eight entrepreneurs whose company laid the technical, financial and cultural foundation for Silicon Valley, died on Nov. 11 [2021] in Los Angeles.

. . .

Ultimately, he agreed to join the Shockley Semiconductor Laboratory because it sat in the Northern California valley where he had spent a summer harvesting fruit after hitchhiking there from his home in Pennsylvania steel country.

But he and seven of his collaborators at the lab clashed with Dr. Shockley, who later became infamous for his theory that Black people were genetically inferior in intelligence to white people. They quickly left the lab to create their own transistor company. They later came to be called “the traitorous eight,” and their company, Fairchild Semiconductor, is now seen as ground zero for what became known as Silicon Valley.

. . .

With the blessing of his parents — and carrying a letter from the local police chief saying he was not running away from home — he hitchhiked to San Jose, Calif., which was then a small farming town. He had planned on making a little money picking fruit, but he arrived before the harvest began.

Until it did, he lived, as he often recalled in later years, on a nickel’s worth of carrots a day. Whenever he faced a difficult situation, he said in an interview for the Chemical Heritage Foundation (now the Science History Institute) in 2004, he told himself, “I got through that when I was 16, and this is not that bad a problem.”

. . .

Using materials like silicon and germanium, Dr. Shockley and two other scientists had shown how to build the tiny transistors that would one day be used to store and move information in the form of an electrical signal. The question was how to connect them together to form a larger machine.

After using chemical compounds to etch the transistors into a sheet of silicon, Dr. Last and his colleagues could have cut each one from the sheet and connected them with individual wires, much like any other electrical device. But this was enormously difficult, inefficient and expensive.

One of the founders of Fairchild, Robert Noyce, suggested an alternative method, and this was realized by a team Dr. Last oversaw. They developed a way of building both the transistors and the wires into the same sheet of silicon.

This method is still used to build silicon chips, whose transistors are now exponentially smaller than those manufactured in the 1960s, in accordance with Moore’s Law, the famous maxim laid down by another Fairchild founder, Gordon Moore.

For the full obituary, see:

Cade Metz. “Jay Last, 92, Physicist and a Pioneer of Silicon Valley.” The New York Times (Monday, November 22, 2021): A23.

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

(Note: the online version of the obituary has the date Nov. 20, 2021, and has the title “Jay Last, One of the Rebels Who Founded Silicon Valley, Dies at 92.”)

Regulators Allow U.S. Carmakers to Offer Consumers the Same Safer Adaptive Driving Beam Headlights Already Allowed in Europe

(p. B5) I am driving in the California hills high above Malibu, in a deep-blue electric Audi E-tron, and I turn onto a pitch-black winding road. Instinctively, I reach to turn on the high beams. But before I have a chance to do so, the low beams automatically rise and spread out like a hand fan, filling the entire roadway with light and projecting it far into the distance.

A few seconds later, the headlights of an approaching vehicle set my headlights in motion; the high beams angle down as the light continually shape-shifts, changing patterns to avoid illuminating the oncoming car.

I had just experienced adaptive driving beam, or A.D.B., headlights, one of the most important advances in vehicle lighting technology in decades. With A.D.B. lighting, a vehicle’s headlights are essentially always on high beam, while cameras and software instruct them to constantly reshape the beam to avoid blinding oncoming drivers or shining in the rearview mirrors of those close ahead.

The bad news is that while widely used in Europe and Asia for over a decade, these smart headlights are illegal in the United States. On my demonstration drive, I was piloting a not-for-sale-here European model of the E-tron equipped with Audi’s futuristic digital matrix headlighting system.

The good news is that after years of unsuccessful attempts to allow the technology, A.D.B. lights will soon be on American cars and trucks, thanks to a section in the recently passed Infrastructure Investment and Jobs Act that mandates their use.

According to the infrastructure act, adaptive beam headlights must be approved for U.S. use within two years.

. . .

The changeover to A.D.B.-capable headlamps could be swift for some drivers who own Audi, BMW or Mercedes models with deactivated units. Once the A.D.B. standard is approved, it’s possible that a simple software upgrade will activate them.

Some owners who could not wait for legalization say they have figured out how to activate their matrix headlights, and at least one aftermarket service dealer in Southern California will turn them on for $900.

For the full commentary, see:

Eric A. Taub. “WHEELS: Coming Soon: The Perfect Glow on the Road.” The New York Times (Friday, January 14, 2022): B5.

(Note: ellipsis added.)

(Note: the online version of the commentary was updated Jan. 18, 2022, and has the title “WHEELS: Smart Headlights Are Finally on Their Way.”)

Charles Morris Uncovered “Tantalizing Nuggets” on Innovation and Entrepreneurship

In researching my Openness to Creative Destruction, I found two of Charles Morris’s books very useful, providing thought-provoking analysis and compelling examples. The two were The Dawn of Innovation and The Tycoons.

(p. A24) Charles R. Morris, a former government official, banker and self-taught historian of economics who as a prolific, iconoclastic author challenged conventional political and economic pieties, died on Monday [December 13, 2021] in Hampton, N.H.

. . .

Mr. Morris wrote his signature first book, “The Cost of Good Intentions: New York City and the Liberal Experiment” (1980), after serving as director of welfare programs under Mayor John V. Lindsay and as secretary of social and health services in Washington State.

The book was a trenchant Emperor’s New Clothes analysis of how the Lindsay administration’s unfettered investment in social welfare programs to ward off civil unrest had delivered the city to the brink of bankruptcy, and it pigeonholed Mr. Morris as a neoconservative.

But as a law school graduate with no formal training in economics, he defied facile labeling.

While his 15 nonfiction books often revisited well-trodden topics — including the Great Depression, the nation’s tycoons, the cost of health care, the Cold War arms race and the political evolution of the Roman Catholic church — he injected them with revealing details, provocative insights and fluid narratives.

“The Cost of Good Intentions” (1981) was less a screed about liberal profligacy as it was an expression of disappointment that benevolent officials had become wedded to programs that didn’t work. He concluded that the best and the brightest in the government, as well as complicit players on the outside, had figured that if a day of reckoning ever came, it would not be on their watch.

. . .

He would . . . belie Thomas Carlyle’s characterization of economics as “the dismal science” by injecting tantalizing nuggets.

Reviewing Mr. Morris’s “A Time of Passion: America 1960-1980” (1984) for The Times Book Review, Michael Kinsley wrote that “some of the most vivid moments in this book come when he stops the rush of history to describe incidents from his own time as a poverty-program and prison administrator.”

“He truly has been ‘mugged by reality,’ in Irving Kristol’s famous definition of a neoconservative,” Mr. Kinsley added, but concluded, “Overall, his book radiates a generosity and good will that set it apart from the typically sour neoconservative creed.”

. . .

“I think we’re heading for the mother of all crashes,” Mr. Morris wrote his publisher, Peter Osnos, the founder of PublicAffairs books, early in 2007, adding, “It will happen in summer of 2008, I think.”

Mr. Osnos recalled that after the book was published, “George Soros and Paul Volcker called me and asked, ‘Who is this Morris, and how did he get this so right, so early?’”

For the full obituary, see:

Sam Roberts. “Charles R. Morris, Author Who Disputed Economic Dogma, Dies at 82.” The New York Times (Wednesday, December 15, 2021): A24.

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

(Note: the online version of the obituary was updated Dec. 15, 2021, and has the title “Charles R. Morris, Iconoclastic Author on Economics, Dies at 82.”)

The books by Morris that I found especially useful were:

Morris, Charles R. The Dawn of Innovation: The First American Industrial Revolution. Philadelphia, PA: PublicAffairs, 2012.

Morris, Charles R. The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J. P. Morgan Invented the American Supereconomy. New York: Times Books, 2005.

Rational Environmentalism Takes Account of Costs of Climate Regulations

Source of graph: online version of WSJ article cited below, based on Nordhaus model.

(p. A19) The U.N. estimates that even if no country does anything to slow global warming, the annual damage by 2100 will be equivalent to a 2.6% cut in global gross domestic product. Given that the U.N. also expects the average person to be 450% as rich in 2100 as today, that figure falls only to 434% if the temperature rises unimpeded. This is a problem, but not the end of the world.

That means we don’t have to panic but instead can decide policy rationally. Economist William Nordhaus won the Nobel Prize in 2018 for his work on effective climate solutions, and the chart nearby shows the outcome of his model to find the optimal climate policy. His crucial point is that the damage global warming inflicts aren’t the only costly part of climate change; climate policies also create significant economic harm. Since we have to pay both costs, his model aims to minimize their sum.

. . .

That model shows that the optimal policy mix would be one that slows the average temperature’s rise so that by 2100 it only reaches 6.3 degrees. That’s the option that minimizes the total damages from climate change and climate policies.

. . .

. . . carbon taxes aren’t the only smart way to ameliorate climate change. There are two other effective solutions.

The first is innovation. If research could drive the cost of one source of clean energy below that of fossil fuels, consumers would switch with no prompting.

. . .

The second is economic growth. Just about every problem, including the dangers of global warming, are easier to deal with when people are more prosperous.

For the full commentary, see:

Bjorn Lomborg. “A Reasonable Alternative to Preaching Climate Doom.” The Wall Street Journal (Thursday, Nov. 11, 2021): A19.

(Note: ellipses added.)

(Note: the online version of the commentary was updated November 10, 2021, and has the title “A Reasonable Alternative to COP26 and Preaching Climate Doom.”)

The survey mentioned above is reported in detail in:

Association, American Psychological. “Stress in America™ 2021: Stress and Decision-Making During the Pandemic.” Washington, D.C., 2021.

Xi’s Micromanaging “Zero Covid” Policy Hurting Chinese Economic Growth

(p. A1) Earlier this year, Xi Jinping issued brief instructions to education officials in Beijing. China’s leader wanted to reform the country’s $100 billion private tutoring industry, which the state worried was helping well-to-do families gain advantages for their offspring and creating anxiety among families that couldn’t afford the help.

Education officials drafted a plan that included new limits on tutoring for children up to the equivalent of ninth grade, said people familiar with the effort.

The plan was too soft, Mr. Xi said, in a one-sentence note to the education ministry, according to the people.

Scrambling to please him, the ministry expanded the limits to include students up to the equivalent of 12th grade. In addition, it required all private education companies to re-register as nonprofits.

The more extreme rules, issued in July [2021], triggered panic selling that erased tens of billions of dollars from the value of education com-(p. A14)panies listed on U.S. and Hong Kong stock exchanges. Officials from the China Securities Regulatory Commission hastily scheduled meetings with foreign investors to calm them down, according to people familiar with the conversations, and promised that Beijing would consider market impact before introducing future policies.

The episode is just one example of Mr. Xi’s evolving management style as the Chinese president consolidates control of the world’s second-largest economy. He is widely considered the most powerful Chinese leader in a generation. He is also a micromanager who intervenes often, unpredictably and sometimes vaguely in policy matters big and small.

. . .

Behind the scenes, many officials question some of Mr. Xi’s decisions.

In late July [2021], a Covid-19 outbreak caused more than 1,200 infections after months of nearly zero reported cases. Some central government officials, eyeing other countries, suggested it might be time for China to stop its strategy of pursuing “zero Covid” and learn to live with the virus, according to a person familiar with the discussions.

Mr. Xi was furious, said people familiar with the issue. In a note to underlings, he asked if officials were becoming “lax and numbed” in fighting the virus, according to these people and to state media reports. “Zero Covid” would remain the policy.

Local officials intensified their efforts. In late October [2021], they locked more than 30,000 visitors into Shanghai Disneyland and forced them to undergo Covid-19 tests after one customer tested positive. Authorities temporarily shut one of China’s biggest container ports after a single case, hurting global supply chains.

China’s economic growth slowed to 4.9% in the third quarter from the previous quarter’s 7.9% rate. Economists have said China’s zero-tolerance pandemic measures, including lockdowns of residential compounds and cancellations of public events, are likely to have a significant impact on China’s growth if they don’t succeed in snuffing out the virus soon.

Some local government officials have warned against “excessive pandemic prevention” measures, according to speeches quoted on websites. Yet officials keep pressing, fearful they might be punished if a Covid-19 case emerged in their area.

. . .

Mr. Xi later “personally planned, personally proposed, personally deployed and promoted” the development of Xiongan, a new “eco-city,” out of farmland about 60 miles from Beijing, according to state media, and urged state firms to move there. Despite billions of dollars of investment, it hasn’t matched the quick success of Deng-era special economic zones such as Shenzhen.

To comply with the new regulatory regime for after-school tutoring this year, education companies have laid off tens of thousands of employees, including teachers. Given the impact on the industry, officials have been enforcing the rules on tutoring for children only up to the equivalent of ninth grade—as originally proposed.

. . .

“Some only act when the party’s central leadership has instructed them to do so,” Mr. Xi said in a speech to the party’s top disciplinary officials last January, made public only recently. He complained that many officials aren’t competent to deal with complicated issues, and that if he didn’t issue so many instructions, little would get done.

“I issue instructions as a last line of defense,” he said.

For the full story, see:

Josh Chin. “Xi Jinping’s Style: Micromanagement.” The Wall Street Journal (Thursday, Dec. 16, 2021): A1 & A14.

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

(Note: the online version of the story has the December 15, 2021, and has the title “Xi Jinping’s Leadership Style: Micromanagement That Leaves Underlings Scrambling.”)

Boeing Maximized Short-Term Profits Instead of Long-Term Quality (and Profits)

(p. A19) Boeing remains one of America’s leading manufacturers, but it is reduced in reputation as well as equity. The “fall” that Mr. Robison’s subtitle alludes to is the corrosion of a culture that had emphasized quality.

. . .

Mr. Robison is upset that Boeing followed the unremarkable philosophy of the Business Roundtable (recently revised under woke pressure) that the first duty of any company is to its shareholders. He says that Boeing focused on metrics that “tend to favor investors over employees and customers.” This is an easy but misworded critique. In the long term, the interests of shareholders and customers are aligned. A manufacturer that disregards either customers or employees will eventually not have profits to distribute.

In fact, Boeing forgot that its long-term success depended on its reputation for superior engineering. Executives like Alan Mulally, project leader in the 1990s for the costly but highly successful Boeing 777, were passed over for the top job. The corporate metamorphosis was accelerated by the 1997 merger with rival McDonnell Douglas. The executive suite was colonized by such figures as McDonnell’s Harry Stonecipher, a Jack Welch protégé who was explicit about changing the culture. His intent, he said, was to run Boeing “like a business rather than a great engineering firm.” Increasingly that meant doing whatever it took to hike the share price. Phil Condit, the CEO who orchestrated the merger, pushed his managers to quintuple the stock in five years, which suggested that his eye was on Wall Street and not on the planes.

. . .

Test flights showed a tendency for the MAX to pitch up. Designers corrected the problem on the cheap, with software that pushed the nose down. Somewhat perilously, a single sensor measuring the angle of the wings against oncoming air could force the plane into a downward trajectory. An optional cockpit indicator—alerting pilots that the sensor might be faulty—was not included on cheaper models. And the sensors, which sat outside the plane, were vulnerable to bird strikes or improper installation.

. . .

. . ., the FAA, as Mr. Robison shows, was compromised by years of having adapted its regulatory role to promote manufacturers. Even after the first plane went down, it kept the MAX flying—despite an agency analysis predicting more crashes.

For the full review, see:

Roger Lowenstein. “BOOKSHELF; Downward Trajectory.” The Wall Street Journal (Monday, Nov. 29, 2021): A19.

(Note: ellipses added.)

(Note: the online version of the review has the date November 28, 2021, and has the title “BOOKSHELF; ‘Flying Blind’ Review: Downward Trajectory.”)

The book under review is:

Robison, Peter. Flying Blind: The 737 MAX Tragedy and the Fall of Boeing. New York: Doubleday, 2021.

Applying Coase Theorem to Refute the Externality Argument Used to Defend Covid-19 Mandates and Lockdowns

(p. A17) The online Merriam-Webster dictionary defines “anti-vaxxer” as “a person who opposes the use of vaccines or regulations mandating vaccination.” Where does that leave us? We both strongly favor vaccination against Covid-19; one of us (Mr. Hooper) has spent years working and consulting for vaccine manufacturers. But we strongly oppose government vaccine mandates. If you’re crazy about Hondas but don’t think the government should force everyone to buy a Honda, are you “anti-Honda”?

. . .

. . ., early in the pandemic the Food and Drug Administration used its coercive power to discourage the development of diagnostic tests for Covid-19. The FDA required private labs wanting to develop tests to submit special paperwork to get approval that it had never required for other diagnostic tests. That, in combination with the CDC’s claims that it had enough testing capacity, meant that testing necessitated the use of a CDC test later determined to be so defective that it found the coronavirus in laboratory-grade water.

With voluntary approaches, we get the benefit of millions of people around the world actively trying to solve problems and make our lives better. We get high-quality vaccines from BioNTech/ Pfizer, Johnson & Johnson and Moderna, instead of the suspect vaccines from the governments of Cuba and Russia. We get good diagnostic tests from Thermo Fisher Scientific instead of the defective CDC one. We get promising therapeutics such as Pfizer’s Paxlovid and Merck’s molnupiravir.

. . .

The supposed trump card of those who favor coercion is externalities: One person’s behavior can put another at risk. But that’s only half the story. The other half is that we choose how much risk we accept. If some customers at a store exhibit risky behavior, then we can vaccinate, wear masks, keep our distance, shop at quieter times, or avoid the store.

Economists understand how one person can impose a cost on another. But it takes two to tango, and it’s generally more efficient if the person who can change his behavior with the lower cost changes how he behaves. In other words, to perform a proper evaluation of policies to deal with externalities, we must consider the responses available to both parties. Many people, including economists, ignore this insight.

For the full commentary, see:

David R. Henderson and Charles L. Hooper. “Coercion Made the Pandemic Worse.” The Wall Street Journal (Tuesday, December 28, 2021): A17.

(Note: ellipses added.)

(Note: the online version of the commentary has the date December 27, 2021, and has the same title as the print version.)

Mars Can Be Terraformed to Reduce Costs of Colonization

(p. D5) Since joining NASA in 1980, Jim Green has seen it all. He has helped the space agency understand Earth’s magnetic field, explore the outer solar system and search for life on Mars. As the new year arrived on Saturday, he bade farewell to the agency.

Over the past four decades, which includes 12 years as the director of NASA’s planetary science division and the last three years as its chief scientist, he has shaped much of NASA’s scientific inquiry, overseeing missions across the solar system and contributing to more than 100 scientific papers across a range of topics. While specializing in Earth’s magnetic field and plasma waves early in his career, he went on to diversify his research portfolio.

. . .

Ahead of a December [2021] meeting of the American Geophysical Union in New Orleans, Dr. Green spoke about some of this wide-ranging work and the search for life in the solar system. Below are edited and condensed excerpts from our interview.

. . .

    You’ve previously suggested it might be possible to terraform Mars by placing a giant magnetic shield between the planet and the sun, which would stop the sun from stripping its atmosphere, allowing the planet to trap more heat and warm its climate to make it habitable. Is that really doable?

Yeah, it’s doable. Stop the stripping, and the pressure is going to increase. Mars is going to start terraforming itself. That’s what we want: the planet to participate in this any way it can. When the pressure goes up, the temperature goes up.

The first level of terraforming is at 60 millibars, a factor of 10 from where we are now. That’s called the Armstrong limit, where your blood doesn’t boil if you walked out on the surface. If you didn’t need a spacesuit, you could have much more flexibility and mobility. The higher temperature and pressure enable you to begin the process of growing plants in the soils.

There are several scenarios on how to do the magnetic shield. I’m trying to get a paper out I’ve been working on for about two years. It’s not going to be well received. The planetary community does not like the idea of terraforming anything. But you know. I think we can change Venus, too, with a physical shield that reflects light. We create a shield, and the whole temperature starts going down.

For the full story, see:

Jonathan O’Callaghan, interviewer. “Inhabiting Mars? He Calls It ‘Doable.’” The New York Times (Tuesday, January 4, 2022): D5.

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

(Note: the online version of the story has the date Jan. 2, 2021, and has the title “NASA’s Retiring Top Scientist Says We Can Terraform Mars and Maybe Venus, Too.” The first three paragraphs, and the block-indented sentence and question, are by the interviewer Jonathan O’Callaghan. The answer after the question is by Jim Green.)

Californians Move to Texas, to Prosper

(p. 5) A Californian will feel right at home in Dallas even before touching the ground. Like the suburbs around Los Angeles, San Diego and across the Bay Area, Dallas and other Texas metros are built on the certainty of cars and infinite sprawl; from the air, as I landed, I could see the familiar landscape of endless blocks of strip malls and single-family houses, all connected by a circulatory system of freeways.

. . .

My guide through the Dallas suburbs was Marie Bailey, a real estate agent who runs Move to Texas From California!, a Facebook group that helps disillusioned Californians find their way to the promised land. Bailey is herself a Californian. She and her family moved in 2017 from El Segundo, a beach city next to Los Angeles International Airport, to Prosper, a landlocked oasis of new housing developments north of Dallas. In El Segundo, the median home list price is $1.3 million; in Prosper, it’s less than half that.

And in Prosper, the houses are palatial, many of them part of sprawling new developments that brim with amenities unheard-of in California. “It’s like living in a country club,” Bailey told me, which sounded like hyperbole until she showed me the five-acre lagoon and white sand beach in the development where she and her husband purchased a home. Their house is 5,000 square feet; they bought it for about the same price for which they sold a home they owned in Orange County, which was 1,500 square feet.

Bailey’s move gets to the heart of the great California-Texas migration: housing. As she drove me around Dallas’s suburbs, Bailey would point out cute house after cute house now occupied by a Californian. I had been talking about the idea of choosing between California and Texas, but for many people moving here, Bailey suggested, there really was not much choice at all — it was simply that, economically, they could not make their lives work in California, and in Texas, they could.

. . .

Texas, now, feels a bit like California did when I first moved here in the late 1980s — a thriving, dynamic place where it doesn’t take a lot to establish a good life. For many people, that’s more than enough.

For the full commentary, see:

Farhad Manjoo, Gus Wezerek and Yaryna Serkez. “Is Texas the New California?” The New York Times, SundayReview Section (Sunday, November 28, 2021): 4-5.

(Note: ellipses added.)

(Note: the online version of the commentary has the date Nov. 23, 2021, and has the title “Everyone’s Moving to Texas. Here’s Why.”)

Butterworth Made “Steady Forward Progress” an “Ingenious” Business Model for Tractor Success

(p. A15) The story of Ford’s dream of perfecting an affordable, all-purpose tractor—or, as Ford later imagined it, a gasoline-powered “automobile plow”—is seldom told. Neil Dahlstrom’s “Tractor Wars” tells it well.

. . .

By 1918 there were many competitors in America’s great tractor pull. Most were small or mid-sized firms, including the Gas Traction Co. of Minneapolis, and the Moline (Ill.) Plow Co. and the Waterloo (Iowa) Gasoline Engine Co. Two ultimately broke out of the pack with loud, gas-guzzling chugs.

. . .

Early attempts by International Harvester to develop a gas-powered tractor were only moderately successful, but in 1920 its engineers made a breakthrough, converting the two front wheels into “traction wheels,” moving the engine from the rear to the middle, and adding three reverse speeds. All of this, plus enhancements to compatible cultivating attachments, made Harvester’s Farmall tractor competitive with the Fordson.

Ford’s other chief rival was the John Deere Co. Its earliest claim to fame was becoming the “world’s largest manufacturer of steel plows.” The company shifted course in 1907 when William Butterworth, the son-in-law of Charles Deere, took control. According to Mr. Dahlstrom, Butterworth was “cautious with the family money that still financed the company, pushing for long-term gains in a cyclical, low-margin, weather-dependent business.” While some outsiders “mistook Butterworth’s preference for steady forward progress as indecision,” his business model turned out to be ingenious.

. . .

Mr. Dahlstrom, to his credit, has written a superb history of the tractor and this long-forgotten period of capitalism in U.S. agriculture.

For the full review, see:

Michael Taube. “BOOKSHELF; American Power Pull.” The Wall Street Journal (Thursday, December 30, 2021): A15.

(Note: the online version of the review has the date December 29, 2021, and has the title “BOOKSHELF; ‘Tractor Wars’ Review: American Power Pull.”)

The book under review is:

Dahlstrom, Neil. Tractor Wars: John Deere, Henry Ford, International Harvester, and the Birth of Modern Agriculture. Dallas, TX: Matt Holt Books, 2022.

The “Adventure” and “Fun” of Driving Cars

(p. B6) For one Monday in early December, the New York Stock Exchange played the role of vintage car museum. At one end of Broad Street, outside the exchange, sat a high-roofed and stately 1921 Duesenberg coupe. At the other, a fearsome 1966 Ford GT40 racecar. Between them, encased in a glass vitrine, was an imperturbably cheery 1967 Porsche 911S.

Shaking hands by the coffee stand was McKeel Hagerty. The chief executive of the classic car insurance company that bears his name, Mr. Hagerty was there to ring the opening bell, and celebrate the first day of trading for his newly public company (HGTY). Later, at a brunch in the Big Board’s boardroom, Mr. Hagerty wielded a ceremonial gavel and said, “This is only just the beginning.”

The origins of Hagerty, the company, are far humbler. It was founded by his parents, Frank and Louise, in 1984, in their basement in Traverse City, Mich., as a boutique insurer of wooden boats.

In the early 1990s, the company began insuring collectible cars. With Mr. Hagerty at the helm, it has become one of the largest indemnifiers of vintage vehicles, with over two million classics on its rolls. The actuarial data necessary to determine repair and replacement costs on these cars has also made it a foremost authority on their valuation.

. . .

Hagerty went public via a SPAC, or special-purpose acquisition company, raising roughly $265 million in the process with a goal of expanding. So, what are Hagerty’s ambitions now? And why did it need to become a publicly traded company in order to achieve them?

“The purpose of the company is to save driving and car culture,” Mr. Hagerty said flatly, as we piloted a zippy, Hagerty-insured 1972 BMW 2002 tii toward the tip of Lower Manhattan. “If we’re going to save car culture, we have to make investments outside of the core business, and really help create a whole ecosystem.” Achieving this lofty goal required hundreds of millions of dollars in additional investment, he said: “That would have been tough for us to afford just as a private company.”

. . .

Outside experts agreed with this assessment of Mr. Hagerty’s vocation. “They encourage driving. Their tag lines all the time are, ‘Drive your cars,’” Mr. Gross said. “In some ways, you think, that’s a little strange for an insurance company. You think they’d want you to drive as little as possible to minimize the risk.” He laughed.

Instead, Mr. Hagerty said he sincerely wants to help people find the pleasure in “the experiential sides” of the automobile, those organized around adventure, preservation, culture and legacy. “I think that if we can help steward along the reasons that people drive and love cars, other than to get from Point A to Point B, then we win.”

Mr. Gross concurred with this plan. “I don’t know how many companies there are that take the long way around. And that’s what Hagerty is doing here. They’re not only selling insurance. They’re trying to make sure that the reason you need that insurance is viable and fun, and lots of people are doing it,” he said. “As a business strategy, it’s pretty smart.”

For the full commentary, see:

Brett Berk. “A Classic Car Insurer’s Vision to ‘Save Driving’.” The New York Times (Friday, Dec. 17, 2021): B6.

(Note: ellipses added.)

(Note: the online version of the commentary has the date December 16, 2021, and has the title “A Classic Car Giant With a Lofty Mission: Save Driving.”)