Free Markets – Page 38 – artdiamondblog.com

Eleven-Year-Old Crippled for Life by Mao Supporters

Source of book image: http://www.holtzbrinckpublishers.com/henryholt/Search/SearchBookDisplayLarge.asp?BookKey=1524294

(p. B29) This improbable journey, from Maoist orthodoxy to the entrepreneurial quasicapitalism officially described as “socialism with Chinese characteristics,” is the main theme of “Chinese Lessons,” but Mr. Pomfret, a reporter for The Washington Post, gives his tale a twist. He tells it not only through his own experiences as a student and journalist but through the life stories of five university classmates, who suffered through the Cultural Revolution as children, found inspiration and hope in the growing democracy movement and lived to see a China that neither they nor their parents could have imagined. . . .

All the lives Mr. Pomfret explores are extraordinary, and each sheds its own light on recent Chinese history. Perhaps the most endearing of his characters is Guan Yongxing, better known as Little Guan, who as an 11-year-old suffered social ostracism after accidentally using a piece of paper with “Long Live Chairman Mao!” on it to wipe herself in the bathroom.

After classmates threw her to the ground, no doctor would treat her dislocated shoulder, leaving her crippled for life. Her father’s job as a schoolteacher made the Guan family a prime target for abuse, and Little Guan, rather than endure ridicule and torment at school, picked cotton and sprayed fertilizer on the fields, her back constantly burned by chemicals leaking from the tank on her back. Tough, determined and highly intelligent, she survives and eventually prospers in the new China.

. . .

Zhou Lianchun, called Book Idiot Zhou by a contemptuous Communist Party official, meted out insults and torture as part of a Red Guard brigade. “I did what I was told and, being 11, I liked it,” he tells Mr. Pomfret.

. . .

More even than sex, students want just a little bit of the good life that seems to be in reach as China’s rulers relax their economic policies. To get it they master a strange kind of doublethink, pledging allegiance to the party and Communist ideals while scheming to start a business.

Book Idiot Zhou, a history teacher by day, jumps into a business partnership to process urine for the pharmaceutical industry. “Several days a week, he taught Marxism, Leninism and Maoist thought and railed against the exploitation of the capitalist class,” Mr. Pomfret writes. “The rest of the time he spent as a budding entrepreneur, employing dozens at rock-bottom wages, working the system to enrich himself, his partners and his family.”

. . .

His classmates have done well. But their lives, and the China described in “Chinese Lessons,” bear a heavy load of suppressed grief, terrible compromises and boundless cynicism. At a new drive-in called the Happy Auto Movie Palace, Mr. Pomfret notices something strange about the concrete slabs underneath his feet. They show the marks of tank treads. The drive-in owner bought them after the government repaved Tiananmen Square.

This strikes Mr. Pomfret as bizarre, but not the owner. “It was a good deal,” he says.

For the full review, see:

WILLIAM GRIMES. "Books of The Times; Twisting Along China’s Sharp Curves." The New York Times (Fri., August 4, 2006): B29.
(Note: ellipses added.)

French Slow Innovation By Violating Apple’s Intellectual Property Rights

THE French take pride in their revolutions, which are usually hard to miss — mass uprisings, heads rolling and such. So, with the scent of tear gas in the air this past month from the giant protests against a youth labor law, it was easy to overlook the French National Assembly’s approval of a bill that would require Apple Computer to crack open the software codes of its iTunes music store and let the files work on players other than the iPod. While seemingly minor, the move is actually rather startling and has left many experts wondering (as ever): What has possessed the French?

. . .

If the French gave away the codes, Apple would lose much of its rationale for improving iTunes. Right now, after the royalty payment to the label (around 65 cents) and the processing fee to the credit card company (as high as 23 cents), not to mention other costs, Apple’s margin on 99-cent music is thin. Yet it continues to add free features to iTunes because it helps sell iPods.

Opening the codes threatens that link. Apple would need to pay for iTunes features with profits from iTunes itself. Prices would rise. Innovation would slow.

Even worse, sharing the codes could make it easier for hackers to unravel Apple’s FairPlay software. Without strong copy protection, labels would not supply as much new music.

For the full commentary, see:

Austan Goolsbee. "ECONOMIC SCENE; In iTunes War, France Has Met the Enemy. Perhaps It Is France." The New York Times (Thurs., April 27, 2006): C3.

Over-regulating Lenders is a Recipe for Stagnation

MICROFINANCE is based on a simple idea: banks, finance companies, and charities lend small sums — often no more than a few hundred dollars — to poor third world entrepreneurs. The loan recipients open businesses like tailoring shops or small grocery stores, thereby bolstering local economies.

But does microfinance, in fact, help the poor?

To help answer this question, I visited Hyderabad, India, in June. . . .

. . .

My visit suggested that microfinance is working, but it is often more corporate, more commercial and under more attack than I had expected.

. . .

Near Hyderabad, in the state of Andhra Pradesh, political opposition to microfinance has begun. State officials have fed negative stories to the media. They charge that microfinance debts have driven some people to ruin or perhaps suicide. They call Spandana’s programs “coercive” and “barbaric.” They question whether the “community pressure” behind repayment is sometimes too severe.

The motives behind this campaign are twofold. The state is not a neutral umpire but rather has its own “self-help group” banking model, which lends at the micro level. Spandana and some of the other private microfinance groups are unwelcome competition. More generally, opposition to money lending has been frequent in the history of both India and the West. Not every loan will have a positive outcome, and it is easy to focus on the victims. Not all Indians have accepted the future of their country as an open commercial society with winners and losers.

. . .

The Indian political authorities must decide whether they will allow new businesses to spread, even when commercialization leads to some disappointments or competes with a state interest. The stipulation that no one can be harmed by progress is a sure recipe for stagnation.

For the full commentary, see:

Tyler Cowen. "ECONOMIC SCENE; Microloans May Work, but There Is Dispute in India Over Who Will Make Them." The New York Times (Thurs., August 10, 2006): C4.

More and Better Jobs Gained by ‘Insourcing’ than are Lost to ‘Outsourcing’

N. Gregory Mankiw, former chair of W.’s Council of Economic Advisors. The media, most Democrats, and some Republicans, skewered Mankiw in 2004 for simply and clearly stating the truth about outsourcing. Source of photo: online version of the NYT article cited below.

In December 2005, the McKinsey Global Institute predicted that 1.4 million jobs would be outsourced overseas from 2004 to 2008, or about 280,000 a year. That’s a drop in the bucket. In July, there were 135.35 million payroll jobs in the United States, according to the Bureau of Labor Statistics. Thanks to the forces of creative destruction, more jobs are created and lost in a few months than will be outsourced in a year. Diana Farrell, director of the McKinsey Global Institute, notes that in May 2005 alone, 4.7 million Americans started new jobs with new employers.

What’s more, the threat of outsourcing varies widely by industry. Lots of services require face-to-face interaction for people to do their jobs. That is particularly true for the biggest sectors, retail and health care. As a result, according to a McKinsey study, only 3 percent of retail jobs and 8 percent of health care jobs can possibly be outsourced. By contrast, McKinsey found that nearly half the jobs in packaged software and information technology services could be done offshore. But those sectors account for only about 2 percent of total employment. The upshot: “Only 11 percent of all U.S. services job could theoretically be performed offshore,” Ms. Farrell says.

Economists have also found that jobs or sectors susceptible to outsourcing aren’t disappearing. Quite the opposite. Last fall, J. Bradford Jensen, deputy director at the International Institute of Economics, based in Washington, and Lori G. Kletzer, professor of economics at the University of California, Santa Cruz, documented the degree to which various service sectors and jobs were “tradable,” ranging from computer and mathematical occupations (100 percent) to food preparation (4 percent).

Not surprisingly, Mr. Jensen and Professor Kletzer found that in recent years there has been greater job insecurity in the tradable job categories. But they also concluded that jobs in those industries paid higher wages, and that tradable industries had grown faster than nontradable industries. “That could mean that this is our competitive advantage,” Mr. Jensen says. “In other words, what the U.S. does well is the highly skilled, higher-paid jobs within those tradable services.”

There is evidence that within sectors, lower-paying jobs are being outsourced while the more skilled ones are being kept here. In a 2005 study, Catherine L. Mann, senior fellow at the Institute for International Economics, found that from 1999 to 2003, when outsourcing was picking up pace, the United States lost 125,000 programming jobs but added 425,000 jobs for higher-skilled software engineers and analysts.

For the full commentary, see:

DANIEL GROSS. "Economic View; Why ‘Outsourcing’ May Lose Its Power as a Scare Word." The New York Times, Section 3 (Sun., August 13, 2006): 5.

25% Increase in Oil by 2015

Source of graphic: online version of the WSJ article cited below.

Despite fears of "running out" of oil, Cambridge Energy Research Associates’ new analysis of oil-industry activity points to a considerable growth in the capacity to produce oil in the years ahead. Based upon our field-by-field examination of current activity and of 360 new projects that are either underway or very likely, we see capacity growing from its current 89 mbd to 110 mbd by 2015, a 25% increase. A substantial part of this growth reflects the advance of technology, i.e., the rapid growth in "non-traditional" hydrocarbons, such as from very deep offshore waters, Canadian oil sands, and liquids made from natural gas. (We are not counting in this increase the additional supplement that will come from ethanol and other fuels made from plants.)

There are important qualifications, however. First, this is physical capacity to produce, not actual flows, which, as we have seen over the last year, can be disrupted by everything from natural disasters to government decision, to conflict and geopolitical discord. Second, while prices are going up rapidly, so are costs; and shortages of equipment and people can slow things down. Third, greater scale and technical complexity can generate delays. Still, a 25% increase in physical capacity by 2015 is a reasonable expectation, based upon today’s evidence, and that would go a long way to meeting the growing demand from China, India and other motorizing countries.

Admittedly, it may be hard to conceive of this kind of increase when oil prices are climbing the wall of worry, when each new disruption reverberates around the world, when Iranian politicians threaten $100 or $250 oil in the event of sanctions, and when so many geopolitical trends seem so adverse. All this underlines the fact that while the challenges below ground are extensive, the looming uncertainties — and risks — remain above ground.

For the full commentary, see:

Daniel Yergin. "Crisis in the Pipeline." The Wall Street Journal (Weds., August 9, 2006): A10.

Static Assumptions Undermine Economic Policy Analysis

Over 50 years ago, Schumpeter emphasized that static models of capitalism miss what is most important in capitalism. Yet static analysis still dominates most policy discussions. But there is hope:

(p. A14) A bit of background: Most official analysis of tax policy is based on what economists call "static assumptions." While many microeconomic behavioral responses are included, the future path of macroeconomic variables such as the capital stock and GNP are assumed to stay the same, regardless of tax policy. This approach is not realistic, but it has been the tradition in tax analysis mainly because it is simple and convenient.

In his 2007 budget, President Bush directed the Treasury staff to develop a dynamic analysis of tax policy, and we are now reaping the fruits of those efforts. The staff uses a model that does not consider the short-run effects of tax policy on the business cycle, but instead focuses on its longer run effects on economic growth through the incentives to work, save and invest, and to allocate capital among competing uses.

For the full story, see:

ROBERT CARROLL and N. GREGORY MANKIW. "Dynamic Analysis." The Wall Street Journal (Weds., July 26, 2006): A14.

Entrepreneur Found Creative Way to Save Thousands of Babies

(p. 1) The babies were lined up under heaters and they breathed filtered air. Few of them weighed more than three pounds. They shared the Boardwalk there on Coney Island with Violetta the Armless Legless Wonder, Princess WeeWee, Ajax the Sword-Swallower and all the rest. From 1903 until the early 1940’s, premature infants in incubators were part of the carnival.

It cost a quarter to see the babies, and people came again and again, to coo and to gasp and say look how small, look how small. There were twins, even, George and Norma Johnson, born the day before Independence Day in 1937. They had four and a half pounds between them, appearing in the world a month too soon because Dorothy Johnson stepped off a curb wrong and went into labor.

All those quarters bought a big house at Sea Gate for Dr. Martin A. Couney, the man who put the Coney Island babies on display. He died broken and forgotten in 1950 at 80 years old. The doctor was shunned as an unseemly showman in his time, even as he was credited with popularizing incubators and saving thousands of babies. History did not know what to do; he was inspired and single-minded, distasteful and heroic, ultimately confounding.

. . .

(p. 31) He displayed incubators developed by his mentors at the Berlin Exposition of 1896, and though they caught on in Europe, acceptance was slower in the United States.

Using babies from New York hospitals that lacked the facilities to care for them, Dr. Couney mounted a display at Luna Park, a Coney Island amusement park, in 1903, soon adding another at a second Coney Island park, Dreamland.

. . .

At least 8,000 babies passed through the incubators, and the doctor was credited with saving at least 6,500, according to news reports of the time. The Johnson twins made it off the Boardwalk and grew up strong and tall. George Johnson found work, and a sense of freedom, driving trains up and down the coast for the Pennsylvania Railroad. Norma Johnson married a man named Coe. Between the twins there are nine children, 13 grandchildren and one great-grandchild. George and Norma attended Dr. Couney’s induction ceremony yesterday. "My father didn’t have any money, and this doctor says you can use our incubator for free, but you have to put them on display on Coney Island," Mr. Johnson said, sitting next to his sister on the porch at the Sheepshead Bay Yacht Club the other day. "It was us and a lot of other people, too."

The twins will turn 68 the day before Independence Day, old enough to enjoy the seaside air on an idle weekday morning.

Down the Boardwalk, the beach is open. Pretty girls and seagulls play their games. For a few dollars, you can watch a baseball game, shoot paint pellets at a hungry young dude or become a tattooed lady.

The likes of Martin A. Couney nobody has seen in 60 years.

For the full story, see:

MICHAEL BRICK. "And Next to the Bearded Lady, Premature Babies." The New York Times, Section 1 (Sun., June 12, 2005): 1 & 31.

(Note: ellipses added.)

The Johnson twins who were displayed, and whose lives were saved, by Dr. Couney. Source of photo: online version of NYT article cited above.

Five More Hours Per Week of Leisure Time in 2003 Than in 1965

The easiest way to measure leisure is to take survey data on how many hours a week people spend at work and subtract. Since 1965, the number of hours the average American works for pay has not changed much. By this simple measure, then, leisure has also stayed the same.

But are we really working as much as ever?

”All time away from work is not equal,” Erik Hurst, an economist at the Graduate School of Business at the University of Chicago, said in an interview. Some time off is actually just more work.

To put it in economic terms, we spend some time off the job in consumption (watching TV, hanging out with our friends, reading for pleasure) and some in production (cooking dinner, cleaning the house, doing household repairs). Some activities, like sleeping and eating, fall somewhere in between, while others, including child care and gardening, combine pleasure and production.

The difference is not just that we enjoy some activities and dislike others. It is that we could, in theory, pay someone else to do the production for us. A cook or a restaurant can make dinner, but nobody else can play golf or watch TV for you.

. . .

Americans are not, in fact, working as much as they used to. They are just getting paid for more of the work they do. Using several different definitions of leisure, Professor Hurst and Mark A. Aguiar, an economist at the Federal Reserve Bank of Boston, analyzed time-use surveys done from 1965 to 2003. Whether they defined leisure narrowly or broadly, they got a consistent result.

”Leisure time — measured in a variety of ways — has increased significantly between 1965 and 2003,” they write in ”Measuring Trends in Leisure: The Allocation of Time Over Five Decades,” a Boston Fed working paper. . . . Using the most restrictive definition, which includes only ”entertainment/social activities/relaxing” and ”active recreation,” the economists found that leisure had increased 5.1 hours a week, holding demographics like age constant. (Without that control, leisure has grown 4.6 hours.) Assuming a 40-hour work week, that is like adding six weeks of vacation — an enormous increase.

”I was surprised by the magnitude,” Mr. Aguiar said in an interview, though the general trend agrees with earlier research.

For the full commentary, see:

VIRGINIA POSTREL. "ECONOMIC SCENE; The Work You Do When You’re Not at Work." The New York Times (Thursday, February 23, 2006): C3.

A PDF of the NBER draft of the Aguiar and Hurst paper can be found at:

http://faculty.chicagogsb.edu/erik.hurst/research/aguiar_hurst_leisure_nber_submit_final.pdf

Road Opens a Year Early: Contract Included Incentives

With monetary incentives to finish early, Hawkins Construction Company finishes westbound lanes a year ahead of schedule. Source of photo:
http://www.omaha.com/index.php?u_pg=1636&u_sid=2214442&u_rnd=7720251

The long delays, and lack of visible progress in expanding 132nd, near our house, became a running joke—but the wasted travel time was not funny. Similar road construction delays were occuring all over town, to the point where it looked as though the issue might threaten the mayor’s re-election. So he got serious, and in new road contracts, included substantial monetary incentives for finishing the job ontime, and even more incentives to finish it early. The expressway pictured above is one of those built under the new contract. Maybe incentives really do matter?

(p. 1A) An electronic sign above West Dodge lured drivers with a simple message: "Expressway Open."

The real draw was the quicker commute drivers encountered Thursday evening during the first rush hour after the opening of the West Dodge Road Expressway.

After two years of construction, the expressway’s westbound bridge opened to traffic at 10:35 a.m. Thursday, more than a year ahead of schedule.

A steady flow of traffic streamed across the bridge Thursday evening.

"It was wonderful," said commuter Jean Crouchley.

For the full article, see:

MICHAEL O’CONNOR AND RICK RUGGLES. "A Concrete Example of Progress; Motorists Expect Daily Drives to be Quicker with New Route." Omaha World-Herald (Friday, July 28, 2006): 1-2.

(Note: The online version of the article had the title: "Making quick work of commute on Expressway.")

“Capitalism has Not Corrupted Our Souls; It has Improved Them”

Source of book image: http://www.amazon.com/gp/product/0226556638/sr=8-1/qid=1153708722/ref=pd_bbs_1/104-2835260-2878345?ie=UTF8

Deirdre McCloskey’s unfashionable, contrarian and compelling manifesto in favor of what she calls the bourgeois virtues starts with an uncompromising "apology" for how private property, free labor, free trade and prudent calculation are the fount of most ethical good in modern society, not a moral threat to it.

The intelligentsia — in thrall for centuries to religion and now to socialism — has for a long time snobbishly despised the bourgeoisie that practices capitalism. Ms. McCloskey calls such people the "clerisy." Their values and virtues, like those of the proletariat and the aristocracy, are widely admired. But almost nobody admires the bourgeoisie. Yet it was for anti-bourgeois ideologies, she notes, that "the twentieth century paid the butcher’s bill."

As Ms. McCloskey explains: "Anyone who after the twentieth century still thinks that thoroughgoing socialism, nationalism, imperialism, mobilization, central planning, regulation, zoning, price controls, tax policy, labor unions, business cartels, government spending, intrusive policing, adventurism in foreign policy, faith in entangling religion and politics, or most of the other thoroughgoing nineteenth-century proposals for government action are still neat, harmless ideas for improving our lives is not paying attention." By contrast, she argues, "capitalism has not corrupted our souls. It has improved them."

For the full review, see:

MATT RIDLEY. "Capitalism Without Tears; Fashionable thinkers sneer at the free market and its practitioners, but economic liberty may actually be a force for personal goodness." The Wall Street Journal (Sat., July 22, 2006): P10.

(Note: in the passage above, I took the liberty of correcting a misspelling of "Deirdre.")

The full citation to the McCloskey book is:

McCloskey, Deirdre N. The Bourgeois Virtues: Ethics for an Age of Commerce. Chicago: University of Chicago Press, 2006. (616 pages, $32.50)

Current Workplace Revolution Benefits Labor

(p. 8) Would you change places with your grandfather? Would you want to work 11 brutal hours a day… in yesterday’s Bethlehem Steel mill, a Ford Motor Company factory circa 1935? Not me. Nor would I change places with my father … who labored in a whilte-collar sweatshop, at the same company, in the same building, for 41 l-o-n-g years.

A workplace revolution is under way. No sensible person expects to spend a lifetime in a single corporation anymore. Some call this shift the "end of corporate responsibility." I call it … the Beginning of Renewed Individual Responsibility. An extraordinary opportunity to take charge of our own lives.

Source of passage:

Peters, Tom. Re-imagine! London: DK, 2003.

(Note: all of the ellipses in the above passage, appear in the original.)