Category: Economics

Milton Friedman Will Be Vindicated on China

I was lucky to be able to take Milton Friedman’s Price Theory graduate course the last time he taught a full version of it. (I think he taught an abbreviated version a year or two later.) He was, and remains, one of my heroes. He predicted that China’s move to the market would also lead it to more political freedom. I suspect that he will still turn out to be correct, but with a longer delay than he or I thought likely. A dynamic economy depends on innovative entrepreneurship and innovative entrepreneurship depends on freedom of thought and speech. Xi is systematically destroying freedom of thought and speech in China; the house of cards will fall and Milton will be vindicated in the end.

(p. A15) “I predict that China will move increasingly toward political freedom if it continues its successful move to economic freedom.”

So spoke Milton Friedman in 2003. It seemed a good idea at the time, especially after the transformations of the dictatorships in Taiwan and South Korea into messy but functioning democracies.

. . .

Under Mr. Xi, Beijing has carried out genocide against China’s Uyghur minority, threatened Taiwan with invasion, shut down a pro-democracy newspaper in Hong Kong, covered up the origins of Covid-19, and so on. Even so, China’s economy continues to boom—it grew more than 18% in the first quarter from a year earlier—and Friedman now looks to have gotten it colossally wrong about capitalism and freedom.

For the full commentary, see:

William McGurn. “Milton Friedman Wrong About China?” The Wall Street Journal (Tuesday, June 29, 2021): A15.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date June 28, 2021, and has the title “Was Milton Friedman Wrong About China?”)

“Creatively Destructive Innovation” Is Continuous in Book Publishing Industry

(p. A13) In 2000 the RAND Corporation invited a group of historians—including me—to address a newly pressing question: Would digital media revolutionize society as profoundly as Gutenberg and movable type? Two decades later, John Thompson’s answer is yes, but not entirely as predicted. And our forecasts were often wrong because we overlooked key variables: We cannot understand the impact of technologies “without taking account of the complex social processes in which these technologies were embedded and of which they were part.”

Mr. Thompson provides that context in “Book Wars” (Polity, 511 pages, $35), an expert diagnosis of publishers and publishing, robustly illustrated with charts, graphs, tables, statistics and case studies.

. . .

My warning to the RAND corporation was to avoid succumbing to the “Two Big Bangs Theory”—the assumption that there were only two world-changing events in the history of print, in or around 1450 and 2000. With books, change is a constant. In the last two centuries the publishing trade has dealt with one creatively destructive innovation after another—mechanized printing and papermaking, railway bookstalls and distribution networks, linotype and offset printing, photomechanical reproduction, paperbacking and books-of-the-month. The movies opened up vast new possibilities (and revenues) for novelists, who increasingly wrote with the screen in mind, as Ernest Hemingway did when he insisted on casting Gary Cooper in “For Whom the Bell Tolls.” And television supercharged book publicity, climaxing (so far) with Oprah. While Mr. Thompson is entirely right to conclude that the transformation of publishing in the past 20 years has been bewildering, that’s nothing new. In a dynamic capitalist economy, the dust never settles.

For the full review, see:

Jonathan Rose. “BOOKSHELF; Publishing In a Protean Age.” The Wall Street Journal (Monday, August 9, 2021): A13.

(Note: ellipsis added.)

(Note: the online version of the review has the date August 8, 2021, and has the title “BOOKSHELF; ‘Book Wars’ Review: Publishing in a Protean Age.”)

The book under review is:

Thompson, John B. Book Wars: The Digital Revolution in Publishing. Cambridge, UK: Polity Press, 2021.

Capitalist Innovations Made Rapid Covid-19 Vaccines Possible

(p. A15) The Wuhan lab appears to have operated, in part, with U.S. government grant funding, although American scientists had no oversight role. Chinese scientists allegedly pursued gain-of-function research, increasing the virulence and transmissibility of certain viruses. It isn’t unheard of for a virus to escape from a government-funded lab, and the evidence increasingly suggests that’s what happened in Wuhan, even as China dubiously points a finger at the U.S. military.

Regardless of which government, if any, contributed to the emergence of Covid-19, the pandemic was quickly controlled by innovation from the private economy. New vaccines and private protocols, not government mandates, mainly slowed the spread in workplaces and schools. The pandemic originated from government failures that had to be corrected by private actors.

Even if the lab-leak theory proves false, and it turns out that SARS-CoV2 passed directly from animals to humans, one could still argue the Chinese government’s actions created the pandemic. Beijing covered up evidence of the virus’s early spread and allowed international flights from Wuhan during January and February 2020 while locking down domestic travel.

. . .

American capitalism supported decades of innovation that created conditions conducive to the rapid development of the Covid vaccines. About 70% of the returns to medical research and development across the world come from the U.S., where price controls are less prevalent than elsewhere and companies compete to bring new treatments and cures to market. Without the U.S. market, investors would have shied away from funding the cumulative advances that eventually led to successful Covid vaccines. In this sense, the U.S. market-based healthcare economy saved the world from Covid-19. None of it would have happened in a government-run health system.

For the full commentary see:

Casey B. Mulligan and Tomas J. Philipson. “Government Failure Gave the World Covid.” The Wall Street Journal (Tuesday, Aug. 10, 2021): A15.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date August 9, 2021, and has the same title as the print version.)

Subsidy of “Thriving” Chip Industry Is “Inexcusable”

(p. A16) Consider this recent summary, by the Cato Institute’s Scott Lincicome, of the healthy state of America’s semiconductor industry: “The United States is also a top-five global exporter of semiconductors and related equipment, shipping almost $47 billion of those goods in 2019. These and other data led the SIA [Semiconductor Industry of America] to conclude in its 2020 State of the U.S. Semiconductor Industry report that ‘the semiconductor manufacturing base in the United States remains on solid footing.’”

“The SIA also reports that the U.S. industry has ‘nearly half’ of all global semiconductor sales—a market share that has been steady (ranging from the mid‐40s to low 50s) since the late 1990s—and is the top seller in every major regional market, including China. Sales by U.S. semiconductor firms also grew from $76.7 billion in 1999 to $192.8 billion in 2019—a compound annual growth rate of almost 5%.”

“Beyond output and sales, the U.S. semiconductor industry has been a global leader in capital spending (capex) and R&D.”

Subsidies are always suspect, but when showered on industries that are thriving, they are beyond doubt inexcusable. What further proof do we need to conclude that politicians cannot be trusted to allocate resources wisely?

For Boudreaux’s full letter to the editor, see:

Boudreaux, Donald J. “LETTERS; U.S. Chip Industry Chipper, Subsidy a Waste.” The Wall Street Journal (Tuesday, June 1, 2021): A16.

(Note: the online version of the letter to the editor has the date May 31, 2021, and has the same title as the print version.)

Men Are More Likely to Risk Their Lives for Others

(p. A15) “T” does what all superb popular science must do: It entertains as it educates.

. . .

Ultimately, “T” is a vigorous defense of the scientific method itself. Ms. Hooven summarizes: “Multiple independent sources of evidence can combine to strongly support a hypothesis, whether it’s about the cause of a rattle in your car, why your soufflé has collapsed, or why someone blocked you on Twitter. It’s just like that in science.”

. . .

. . . she’s emphatic that high T levels do not lead inexorably to rape and murder; mountains of data disprove this fallacy. She also gives testosterone its due: Men are far more likely “to put their lives on the line for others, and are massively overrepresented in the most dangerous occupations.” She lauds the men who protected her while she conducted fieldwork in the jungles; heroism, for her, thrives at the molecular level.

For the full review, see:

Hamilton Cain. “The Hormone of the Hour.” The Wall Street Journal (Tuesday, July 13, 2021): A15.

(Note: ellipses added.)

(Note: the online version of the review has the date July 12, 2021, and has the title “‘T’ Review: Hormone of the Hour.”)

The book under review is:

Hooven, Carole. T: The Story of Testosterone, the Hormone That Dominates and Divides Us. New York: Henry Holt and Co., 2021.

Firms That Discriminate Earn Lower Profits

(p. B1) Economists at the University of California, Berkeley, and the University of Chicago this week unveiled a vast discrimination audit of some of the largest U.S. companies. Starting in late 2019, they sent 83,000 fake job applications for entry-level positions at 108 companies — most of them in the top 100 of the Fortune 500 list, and (p. B6) some of their subsidiaries.

. . .

(p. B6) In the study, applicants’ characteristics — like age, sexual orientation, or work and school experience — varied at random. Names, however, were chosen purposefully to ensure applications came in pairs: one with a more distinctive white name — Jake or Molly, say — and the other with a similar background but a more distinctive Black name, like DeShawn or Imani.

. . . : On average, applications from candidates with a “Black name” get fewer callbacks than similar applications bearing a “white name.”

. . .

All told, for every 1,000 applications received, the researchers found, white candidates got about 250 responses, compared with about 230 for Black candidates. But among one-fifth of companies, the average gap grew to 50 callbacks. Even allowing that some patterns of discrimination could be random, rather than the result of racism, they concluded that 23 companies from their selection were “very likely to be engaged in systemic discrimination against Black applicants.”

. . .

“Discriminatory behavior is clustered in particular firms,” the researchers wrote. “The identity of many of these firms can be deduced with high confidence.”

The researchers also identified some overall patterns. For starters, discriminating companies tend to be less profitable, a finding consistent with the proposition by Gary Becker, who first studied discrimination in the workplace in the 1950s, that it is costly for firms to discriminate against productive workers.

For the full story, see:

Eduardo Porter. “Study Shows Which Firms Discriminate.” The New York Times (Friday, July 30, 2021): B1 & B6.

(Note: ellipses added.)

(Note: the online version of the story has the date July 29, 2021, and has the title “Who Discriminates in Hiring? A New Study Can Tell.”)

The economic study summarized in the passages quoted above is:

Kline, Patrick M., Evan K Rose, and Christopher R Walters. “Systemic Discrimination among Large U.S. Employers.” National Bureau of Economic Research Working Paper #29053, Aug. 2021.

“Unemployment Rises Like a Rocket and Falls Like a Feather”

(p. B7) Robert Hall, an economics professor at Stanford University, says the job matching process has progressed in two stages. Last year, millions of people were called back to their jobs from temporary layoffs and the unemployment rate descended quickly from 14.8% to 6.7%. This year, the progress has slowed markedly; the jobless rate fell from 6.3% in January [2021] to 5.9% in June.

Mr. Hall and Marianna Kudlyak at the Federal Reserve Bank of San Francisco studied the past 10 recoveries and concluded that U.S. job recoveries have a common pattern. In normal times, they find, “unemployment rises like a rocket and falls like a feather.”

“The easy stuff has been accomplished,” Mr. Hall said in an interview. The rest of the job recovery, he concluded, is going to take some time.

For the full story, see:

Jon Hilsenrath and Sarah Chaney Cambon. “The Mismatch That Is Hammering Job Prospects.” The Wall Street Journal (Saturday, July 10, 2021): B1 & B6-B7.

(Note: bracketed year added.)

(Note: the online version of the story has the date July 9, 2021, and has the title “Why Aren’t Millions of Unemployed Americans Finding Jobs?”)

Anderson Led NCR to Disrupt Its Own Cash Register Technology

I believe that Clayton Christensen (with Raynor) in The Innovator’s Solution, used the NCR transition from mechanical cash registers to electronic cash registers as an example of creative destruction that was NOT an example of his disruptive innovation. Alternatively, should this be considered a rare case where a firm succeeds in disrupting itself, especially rare because it was not implemented by the firm founders? (The usual case of rare self-disruption is HP disrupting its laser printer by developing the ink jet printer.)

(p. A9) The same self-belief that kept Mr. Anderson alive as a POW gave him confidence he could save NCR.

“The most important message I try to get across to our managers all over the world is that we are in trouble but we will overcome it,” he told Business Week, which reported that he had the “stance and mien of a middleweight boxer.”

Founded in 1884, NCR was comfortably entrenched as a dominant supplier of mechanical cash registers and machines used in accounting and banking. It underestimated the speed at which microelectronics and computers would wipe out its legacy product line. By the early 1970s, NCR was losing sales to more nimble rivals.

A factory complex covering 55 acres in Dayton made hundreds of exceedingly complicated machines rapidly becoming obsolete. Mr. Anderson found that NCR was using about 130,000 different parts, including more than 9,000 types and sizes of screws. For 1972, his first year as president, NCR took a $70 million charge, largely to write down the value of parts and inventory and replace outdated production equipment.

Mr. Anderson slashed the payroll and invested in new products, including automated teller machines and computers. Profitability recovered, and NCR reported record revenue of $4.07 billion for 1984, the year he retired as chairman.

For the full obituary, see:

James R. Hagerty. “Former POW Revived National Cash Register.” The Wall Street Journal (Saturday, July 10, 20211): A9.

(Note: the online version of the obituary has the date July 6, 2021, and has the title “Former Prisoner of War Saved NCR From Obsolescence.”)

The Christensen co-authored book mentioned above is:

Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

AI Algorithms Use Massive Data to Do “Narrow Tasks”

(p. B2) A funny thing happens among engineers and researchers who build artificial intelligence once they attain a deep level of expertise in their field. Some of them—especially those who understand what actual, biological intelligences are capable of—conclude that there’s nothing “intelligent” about AI at all.

. . .

. . . the muddle that the term AI creates fuels a tech-industry drive to claim that every system involving the least bit of machine learning qualifies as AI, and is therefore potentially revolutionary. Calling these piles of complicated math with narrow and limited utility “intelligent” also contributes to wild claims that our “AI” will soon reach human-level intelligence. These claims can spur big rounds of investment and mislead the public and policy makers who must decide how to prepare national economies for new innovations.

. . .

The tendency for CEOs and researchers alike to say that their system “understands” a given input—whether it’s gigabytes of text, images or audio—or that it can “think” about those inputs, or that it has any intention at all, are examples of what Drew McDermott, a computer scientist at Yale, once called “wishful mnemonics.” That he coined this phrase in 1976 makes it no less applicable to the present day.

“I think AI is somewhat of a misnomer,” says Daron Acemoglu, an economist at Massachusetts Institute of Technology whose research on AI’s economic impacts requires a precise definition of the term. What we now call AI doesn’t fulfill the early dreams of the field’s founders—either to create a system that can reason as a person does, or to create tools that can augment our abilities. “Instead, it uses massive amounts of data to turn very, very narrow tasks into prediction problems,” he says.

When AI researchers say that their algorithms are good at “narrow” tasks, what they mean is that, with enough data, it’s possible to “train” their algorithms to, say, identify a cat. But unlike a human toddler, these algorithms tend not to be very adaptable. For example, if they haven’t seen cats in unusual circumstances—say, swimming—they might not be able to identify them in that context. And training an algorithm to identify cats generally doesn’t also increase its ability to identify any other kind of animal or object. Identifying dogs means more or less starting from scratch.

For the full commentary, see:

Christopher Mims. “AI’s Big Chill.” The Wall Street Journal (Sat., July 31, 2021): B2.

(Note: ellipses added.)

(Note: the online version of the commentary has the date July 30, 2021, and has the title “Artificial Intelligence’s Big Chill.” When you click on the title in the search list internal to the WSJ, you get a different title on the page of the article itself: “Why Artificial Intelligence Isn’t Intelligent.”)

120 Million Added People Face Food Scarcity Due to Covid-19

(p. A1) An estimated 270 million people are expected to face potentially life-threatening food shortages this year — compared to 150 million before the pandemic — according to analysis from the World Food Program, the anti-hunger agency of the United Nations. The number of people on the brink of famine, the most severe phase of a hunger crisis, jumped to 41 million people currently from 34 million last year, the analysis showed.

The World Food Program sounded the alarm further last week in a joint report with the U.N.’s Food and Agriculture Organization, warning that “conflict, the economic repercussions of Covid-19 and the climate crisis are expected to drive higher levels of acute food insecurity in 23 hunger hot spots over the next four months,” mostly in Africa but also Central America, Afghanistan and North Korea.

The situation is particularly bleak in Africa, where new infections have surged. In recent months, aid organizations have raised alarms about Ethiopia — where the number of people affected by famine is higher than anywhere in the world — and (p. A5) southern Madagascar, where hundreds of thousands are nearing famine after an extraordinarily severe drought.

. . .

In South Africa, typically one of the most food-secure nations on the continent, hunger has rippled across the country.

. . .

An estimated three million South Africans lost their jobs and pushed the unemployment rate to 32.6 percent — a record high since the government began collecting quarterly data in 2008.

. . .

In Duncan Village, the sprawling township in Eastern Cape Province, the economic lifelines for tens of thousands of families have been destroyed.

Before the pandemic, the orange-and-teal sea of corrugated metal shacks and concrete houses buzzed every morning as workers boarded minibuses bound for the heart of nearby East London. An industrial hub for car assembly plants, textiles and processed food, the city offered stable jobs and steady incomes.

“We always had enough — we had plenty,” said Anelisa Langeni, 32, sitting at the kitchen table of the two-bedroom home she shared with her father and twin sister in Duncan Village.

For nearly 40 years, her father worked as a machine operator at the Mercedes-Benz plant. By the time he retired, he had saved enough to build two more single family homes on their plot — rental units he hoped would provide some financial stability for his children.

The pandemic upended those plans. Within weeks of the first lockdown, the tenants lost their jobs and could no longer pay rent. When Ms. Langeni was laid off from her waitressing job at a seafood restaurant and her sister lost her job at a popular pizza joint, they leaned on their father’s $120 monthly pension.

Then in July, he collapsed with a cough and fever and died of suspected Covid-19 en route to the hospital.

“I couldn’t breathe when they told me,” Ms. Langeni said. “My father and everything we had, everything, gone.”

For the full story, see:

Christina Goldbaum and Joao Silva. “No Job, No Food: Virus Deepens Global Hunger.” The New York Times (Friday, August 6, 2021): A1 & A5.

(Note: ellipses added.)

(Note: the online version of the story was updated Aug. 6, 2021, and has the title “No Work, No Food: Pandemic Deepens Global Hunger.”)