Free Markets – Page 40 – artdiamondblog.com

Government Corn Subsidies Are Inefficient

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

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

For the full story, see:

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

Russians Try to Steal Rocker’s Vacuum Tube Factory

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

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

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

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

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

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

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

. . .

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

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

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

For the full story, see:

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

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

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

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

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

Raising Minimum Wage Destroys Job Opportunities

. . . , Ted Kennedy, argues that the minimum wage should be increased because it’s difficult to raise a family with the only breadwinner making the current minimum. It’s a popular claim, but it is flawed, for three reasons.

First, a study by economist David A. Macpherson of Florida State University and Craig Garthwaite of the Employment Policies Institute suggests that only 20% of the workers who would have been directly affected by an earlier $1 increase in California’s minimum wage were supporting a family on a single minimum-wage income. The other 80% were teenagers or adult children living with their parents, adults living alone or dual earners in a married couple.
Second, as economists David Neumark of the Public Policy Institute of California and William Wascher of the Federal Reserve Board show, increases in minimum wages actually redistribute income among poor families by giving wage increases to some and putting others out of work. They estimate that the federal minimum-wage increase of 1996 and 1997 increased the proportion of poor families by one half to one percentage point.
Third, consider the long run. Mr. Neumark and Olena Nizalova have found that even people in their late 20s worked less and earned less the longer they were exposed to a high minimum wage, presumably because the minimum wage destroyed job opportunities early in their work life.

For the full commentary, see:

David R. Henderson. "Rule of Law; Minimum Wage, Minimum Sense." Wall Street Journal (Sat., Feb 25, 2006): A11.

Toffler Fear of Future Changes to “worry that the future will arrive too late”

Source of book image: http://www.randomhouse.com/catalog/display.pperl?isbn=9780307265555

The titular wealth they speak of comes from substituting "ever-more-refined knowledge for the traditional factors of industrial production — land, labor and capital." The United States is producing more stuff than ever with fewer workers. The Tofflers write that only 20 percent of the work force is now in the manufacturing sector, while some 56 percent (and growing) is engaged in what they call "knowledge work" — managerial, financial, sales-related, clerical and professional tasks. Even activities like agriculture have gone high-tech, through biotechnology and increasingly sophisticated use of global-positioning satellites to customize irrigation and fertilization down to the individual acre. Knowledge-based wealth, they argue, is revolutionary not just because it gets more output from fewer inputs. Unlike such physical resources as oil, knowledge can be shared by an infinite number of people, and its value and benefits are generally increased by wider circulation. (A network, after all, is only as powerful as the number of participants.) Just as important, the Third Wave wealth system "demassifies production, markets and society," creating space for unending experimentation, innovation and individuation.

. . .

Despite visionary passages about nanotechnology (the manipulation of objects at the atomic level) and potential moon-based helium energy, "Revolutionary Wealth" is less interesting for its specifics (most of which will be familiar to readers of publications like Wired, The Economist and Red Herring) than for its evidence of how far we’ve come since the 70’s, when politics, economics and culture all seemed as played out as Richard Nixon’s denials of criminality. In "Future Shock," the Tofflers warned that many people "will find it increasingly painful to keep up with the incessant demand for change that characterizes our time. For them, the future will have arrived too soon." These days, from Baghdad to Bangalore to Boston, it seems more likely that people worry that the future will arrive too late. That’s no small change, and it’s one on which the Tofflers have been shining a light for years.

For the full review, see:

NICK GILLESPIE. "The Future Is Now." The New York Times Book Review, Section 7 (Sun., May 14, 2006): 9.

The full reference to the Toffler book is:

Toffler, Alvin, and Heidi Toffler. Revolutionary Wealth. Alfred A. Knopf, 2006.

Middle Class Living Standards Have Risen

(p. C1) ONE of the most influential political books of the last few years has been ”What’s the Matter With Kansas?” by Thomas Frank. Published during the 2004 campaign, it neatly captured the Republicans’ success in using social issues to attract blue-collar Kansans who don’t really benefit from Republican economic policies.

”All they have to show for their Republican loyalty,” Mr. Frank writes, ”are lower wages, more dangerous jobs, dirtier air, a new overlord class that comports itself like King Farouk,” and a culture in ”moral free fall.”

The book was a New York Times best seller for 35 weeks.

But close inspection uncovers a big problem with Mr. Frank’s economic analysis. Wages haven’t been falling in Kansas. Up and down the economic spectrum, they have been higher in the last few years than they were at any point in the 1980’s or 90’s, according to inflation-adjusted numbers from the Economic Policy Institute. The median Kansas worker made $13.43 an hour in 2004, 11 percent more than in 1979, which might help explain why many people don’t vote on bread-and-butter issues anymore.

Now, an 11 percent raise over the course of a generation — which is similar to the national increase — is (p. C10) not especially impressive. It’s certainly smaller than the increase workers received in the 25 years leading up to 1979, and for the last few years, wages have not risen at all. But they did rise during the 1990’s boom, and pretending otherwise does not jibe with most people’s experiences.

More to the point, some other improvements have accelerated recently. In just the last 15 years, the murder rate has been cut almost in half. Many big cities are far more vibrant places than they used to be. About 33 percent of young adults get a bachelor’s degree these days, up from 25 percent in the early 1990’s. The gap between men’s and women’s pay reached its lowest ever last year. The divorce rate has stopped rising.

Many luxuries of earlier generations — owning a three-bedroom house, flying across the country, calling relatives who live overseas — are staples of middle-class life. If all this doesn’t add up to a rise in living standards, I’m not sure what the phrase means.

For the full commentary, see:

DAVID LEONHARDT. "This Glass Is Half Full, Probably More." The New York Times (Wednesday, May 24, 2006): C1 & C10.

An Unintended Use of Shipping Containers

Source of top image: online version of NYT article cited below. Source of bottom image: http://www.2odessa.com/wiki/index.php?title=Seventh-Kilometer_Bazaar

SEVENTH-KILOMETER MARKET, Ukraine, May 16 – Most of the shops here on the airport road outside Odessa are neither buildings nor stalls. They are shipping containers, stacked two high in rows long enough to be called streets, though these are little more than overcrowded alleys.

From their steel gates spills a consumer abundance of inexpensive clothes, shoes and toys, kitchenware, hardware and software, cosmetics, sporting goods and various sundries — virtually everything, in short, in a part of the world that not long ago was used to getting by with virtually nothing.

. . .

”They were growing wheat here when I came,” said Aleksandr Sedov, who once programmed computers for the Soviet space program and now sells, mostly, suspenders and women’s blouses. ”Now this place is called the field of wonders.”

It was also a dump and a garbage incinerator — paved over and torn down, respectively — when the last Soviet city fathers of Odessa expelled the pioneers in a previously unknown free market from the city, banishing them to a 10-acre spot seven kilometers, or about four miles, from the city’s limits, hence the name. That was in 1989, as the Soviet Union itself was unraveling, and what has since emerged is Europe’s most extraordinary and, some say, largest market.

For the full story, see:

Steven Lee Myers. "Seventh-Kilometer Market Journal: From Soviet-Era Flea Market to a Giant Makeshift Mall." The New York Times (Fri., May 19, 2006): A4.

Free Market Wealth Funds Archaeology

Upper left is retired banker Leon Reinhart. Lower right is Bill Saturno, who’s archeology dig is being funded by Reinhart. Source of photos: online version of WSJ article cited below.

(p. P1) NORTHERN GUATEMALA — Aboard a small helicopter crossing a seemingly endless rainforest, Leon Reinhart is describing our destination, the San Bartolo archaeological site. "We are uncovering the oldest-known Maya murals and the oldest writing anyone has ever found in the Americas," he says.

Mr. Reinhart isn’t an archaeologist. He isn’t an academic. He is a retired banker.

In providing funding for the excavation at San Bartolo, Mr. Reinhart is one of a growing number of bankers, entrepreneurs and philanthropists who are playing a crucial role in archaeology. They are providing millions of dollars to study and preserve the relics of ancient civilizations from Latin America to Italy and Turkey, giving life to projects that would otherwise die.

. . .

(p. P4) Among the other members of the new generation of benefactors is Charles Williams II, himself an archaeologist. He directed the enormous excavation project in Corinth and has supported projects in Sicily and at Gordia in Turkey, where Alexander cut the Gordian knot. Through his foundation, David Packard, son of the Hewlett-Packard founder, financed the work at Zeugma in southwest Turkey that rescued a large number of mosaics just before they were submerged by a new dam. And a foundation created by Artemis Joukowsky, the former chancellor of Brown University, is funding conservation work at the Great Temple of Petra in Jordan.

Mr. Reinhart learned about San Bartolo thanks to the efforts of an investment banker, Lewis S. Ranieri, who pioneered the mortgage-securities market at Salomon Brothers in the 1980s and now is chairman of CA, the information-technology concern formerly known as Computer Associates. Mr. Ranieri created the Foundation for the Advancement of Mesoamerican Studies, or Famsi, devoted to archaeology.

On Famsi’s Web site, Mr. Reinhart read an article about San Bartolo written by Bill Saturno, the young archaeologist who literally stumbled across the ruin in 2001. Entering a tunnel cut by looters, he immediately understood that the paintings were much older than previously discovered Mayan murals with such complicated iconography.

Fascinated by Mr. Saturno’s article, Mr. Reinhart sent him an email. Because the project had received grants from Famsi and the National Geographic Society, Mr. Reinhart assumed it was fully funded; he soon learned that wasn’t the case. Mr. Saturno was borrowing on his personal credit card to keep the work going. Mr. Reinhart agreed to cover most of the needed funds — a sum that has now crossed the $1 million mark. (Among this year’s expenses: $65,000 for stabilizing the murals and $18,700 in food.)

For the full story, see:

G. BRUCE KNECHT. "Culture; The Rich Dig Deep: Archaeology’s New Players; As traditional funds for excavations fall short, wealthy benefactors are bolstering the hunt for antiquities." The Wall Street Journal (Sat., May 13, 2006): P1 & P4.

(Note: ellipses added.)

Co-Founder of Home Depot, Funds Ambitious Georgia Aquarium

Scenes from the Georgia Aquarium. Source of photos: online version of the NYT article cited below.

(p. B1) One of its sensations, . . ., is simply its ambition — look what we have gathered and constructed! The Georgia Aquarium is billed as the world’s largest, and one can’t escape statistics of size and number: over 100,000 fish are displayed in five galleries and 60 habitats in the more than 500,000 square foot building; there is a 6.2 million gallon pool in which 1.8 million pounds of salt and minerals have been dissolved since last October and in which two whale sharks — the world’s largest fish — swim, displaying themselves to visitors through acrylic walls that are two feet thick. A stainless steel "commissary" behind the scenes holds 20,000 pounds of frozen food at minus 20 degrees Fahrenheit.

This aquarium is also somewhat unusual in its origins: it is not created by a municipality, or a society of subscribers like those that founded the earliest public zoos. It is almost completely the creation of a single man, Bernard Marcus, co-founder of the Home Depot, as a "gift" to the people of the city in which his company began. He and his wife, Billi, donated $250 million of the $290 million cost.

. . .

(p. B7) The aquarium has been an overwhelming popular success. Even with admission prices of $22.75 for adults ($17 for children), demand has been so great that the building is often sold out. Tickets come with timed entrances, and 290,000 annual passes, costing almost $60 for adults, were purchased before their sale was stopped in January. A million visitors have come since the opening.

For the full story, see:

EDWARD ROTHSTEIN. "Aquarium Review | The Georgia Aquarium A Hundred Thousand Fish, Behind a Pane 2 Feet Thick." The New York Times (Thurs., March 23, 2006): B1 & B7.

(Note: ellipses added.)

Illegal Immigration Reduces Wages for High School Dropouts by Only 3.6%

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

As Congress debates an overhaul of the nation’s immigration laws, several economists and news media pundits have sounded the alarm, contending that illegal immigrants are causing harm to Americans in the competition for jobs.

Yet a more careful examination of the economic data suggests that the argument is, at the very least, overstated. There is scant evidence that illegal immigrants have caused any significant damage to the wages of American workers.

The number that has been getting the most attention lately was produced by George J. Borjas and Lawrence F. Katz, two Harvard economists, in a paper published last year. They estimated that the wave of illegal Mexican immigrants who arrived from 1980 to 2000 had reduced the wages of high school dropouts in the United States by 8.2 percent. But the economists acknowledge that the number does not consider other economic forces, such as the fact that certain businesses would not exist in the United States without cheap immigrant labor. If it had accounted for such things, immigration’s impact would be likely to look less than half as big.

. . .

. . . , as businesses and other economic agents have adjusted to immigration, they have made changes that have muted much of immigration’s impact on American workers.

For instance, the availability of foreign workers at low wages in the Nebraska poultry industry made companies realize that they had the personnel to expand. So they invested in new equipment, generating jobs that would not otherwise be there. In California’s strawberry patches, illegal immigrants are not competing against native workers; they are competing against pickers in Michoacán, Mexico. If the immigrant pickers did not come north across the border, the strawberries would.

"Immigrants come in and the industries that use this type of labor grow," said David Card, an economist at the University of California, Berkeley. "Taking all into account, the effects of immigration are much, much lower."

In a study published last year that compared cities that have lots of less educated immigrants with cities that have very few, Mr. Card found no wage differences that could be attributed to the presence of immigrants.

. . .

When Mr. Borjas and Mr. Katz assumed that businesses reacted to the extra workers with a corresponding increase in investment — as has happened in Nebraska — their estimate of the decline in wages of high school dropouts attributed to illegal immigrants was shaved to 4.8 percent. And they have since downgraded that number, acknowledging that the original analysis used some statistically flimsy data.

Assuming a jump in capital investment, they found that the surge in illegal immigration reduced the wages of high school dropouts by just 3.6 percent.

For the full commentary, see:

EDUARDO PORTER. "ECONOMIC VIEW; Cost of Illegal Immigration May Be Less Than Meets the Eye." The New York Times, Section 3 (Sunday, April 16, 2006): 3.

In China Too, Special Interest Groups Lobby Against Free Markets

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

(p. A1) BEIJING — When Chinese President Hu Jintao visits the U.S. in mid-April, he is sure to field tough questions about Beijing’s trade and economic policies amid a wave of rising protectionism. But he also is grappling with a similar backlash at home.

Amid one of the longest and fastest growth streaks of any modern economy, China is wrestling with concerns from a rising wealth gap to corruption to environmental damage. But the latest uproar has turned on foreigners, targeting the many outside investors that have piled into China and prospered — even while fueling much of the country’s growth.

. . .

(p. A8) In some ways, the 63-year-old Mr. Hu faces a more complex situation than his predecessors, as China becomes more like the U.S., with greater tolerance of dissenting views and organized interest groups. Resistance to some market-oriented changes is mostly driven by special interests such as disenfranchised farmers, private businessmen and ministries trying to hold on to their powers. At the national legislature’s March meeting, lobbying by interest groups picked up markedly.

For the full story, see:

KATHY CHEN. "Amid Tension With U.S., China Faces Protectionist Surge at Home." The Wall Street Journal (Fri., March 31, 2006): A1 & A8.

Precariousness: In France it is Sought and it is Feared

Coombs and VanderHam on the April 3, 2006 extreme ski run, in which they both died. Source of caption information, and of photo: online version of the first NYT article cited below.

Some seem to seek risk:

(p. A1) ”La Grave goes from tranquil to frightening and mad, and it’s so exhilarating to be in those moods,” Mrs. Coombs said in a telephone interview last week. Her husband, she said, ”never found anything more perfect.”

Last month, Mr. Coombs slipped off a cliff and fell 490 feet to his death. He was 48. He was trying to rescue Chad VanderHam, his 31-year-old protégé and skiing partner from the United States. Mr. VanderHam had gone over the same cliff moments earlier. He also died.

Their accident, during a recreational outing, has focused attention on extreme skiing and on this remote destination, high in the Alps about 50 miles east of Grenoble.

For the full story, see:

NATHANIEL VINTON. "Skiing Beyond Safety’s Edge Once Too Often." The New York Times (Wednesday, May 17, 2006): A1 & C23.

Others seem to fear risk:

PARIS, April 8 – Standing amid the chaos of the protests here this week, Omar Sylla, 22, tried to explain why the French are so angry about what seems to many people like such a small thing: the French government’s attempt to loosen labor laws a bit by allowing employers the right to fire young workers without cause during a trial period on the job.

Even after President Jacques Chirac promised to shorten the period to one year from two, the protests continued, and French students and unions have vowed to keep demonstrating until the law is repealed.

”We need less precariousness, not more,” said Mr. Sylla, the son of immigrants from Ivory Coast, who still lives with his parents in a government-subsidized apartment in a working-class suburb of Paris.

Mr. Sylla said he had searched for years for a job before finding work about a month ago as a baggage handler at Charles de Gaulle International Airport. Even then, he said, he only got the job because his sister works at the airport and pulled strings on his behalf.

For the full story, see:

CRAIG S. SMITH. "French Unrest Reflects Old Faith in Quasi-Socialist Ideals." The New York Times, Section 1 (Sunday, April 9, 2006): 8.

Economists have long puzzled at how the same person can both buy insurance and gamble in a casino. The first seems an act of risk-aversion, and the second of risk-seeking. (Milton Friedman, and others, have tried to explain the paradox.)

But I am puzzled by something else. When risks are taken, why are they so often taken in arenas such as rioting in the streets, or extreme skiing, where they achieve no noble purpose? Whatever risks one is going to take, why not take them in the arena of innovation and entrepreneurship, where the potential benefits to the innovator and to human progress, are huge?