The Abuse of Power

FateOfAfricaBK.jpg
From a review of a promising book:

Most African countries have been atrociously governed in the past half-century. A lack of institutional checks has allowed an array of incompetent strongmen to rule as they pleased until the money ran out, at which point northern donors often tossed them an extra bundle of cash.
. . .
Kwame Nkrumah, for example, is widely revered. The founding father of independent Ghana, he was also an eloquent advocate of a united Africa. Africans tend to recall him as a man of great personal integrity who strove mightily to drag his country into the industrial age. Mr. Meredith lays out the facts. Nkrumah paid for his grand (and uniformly loss-making) industrial projects by squeezing money out of Ghana’s poorest citizens, the peasants, and by borrowing recklessly. He was utterly clueless about money. When his finance minister told him in 1963 that the national reserves were less than $1.4 million, he “sat in silence for fifteen minutes, then broke down and wept.”
He not only wrecked the Ghanaian economy; he also snuffed out such political freedoms as the country had enjoyed at independence. He had a law passed in 1958 allowing him to jail anyone suspected of subversive intentions. Twelve parliamentarians objected, on the ground that such a power was sure to be abused. Eleven of them were jailed, which rather proved their point.

ROBERT GUEST. “So Badly Misled.” The Wall Street Journal (Weds., August 31, 2005): D10. (A review of: Meredith, Martin. The Fate of Africa. PublicAffairs, 2005.)

Editorial Wisdom on High Gas Prices

The market rules
. . . higher prices have a beneficial side. They encourage an increase in supply. They also encourage alternatives. And they encourage convervation, teaching users to operate more efficiently.
. . . However unpleasant the workings of the market may be in the short term, no system has been devised that constitutes an improvement.

From the unsigned, lead editorial in: Omaha World-Herald (Mon., Aug. 29, 2005): 6B.
See also, the KETV report posted March 4, 2005: ConsumerWatch: High Gas Prices Can Be Good; Economist Says Prices Aren’t As High As ’80s When Adjusted For Inflation

Incentives Matter: Piracy Will End Big-Event Films


KingKongPiracy.gif Source of image: the online version of the The New York Times article quoted and cited below.
Peter Jackson was the director of the financially risky “Lord of the Rings” film trilogy, and is currently directing a remake of “King Kong.” Property rights protection is primarily a moral issue. But it also has economic consequences. Property rights permit those who take risks to make money, which provides an incentive for them and others to take risks in the future. It also makes it more likely that large amounts of capital will be in the hands of those who have shown they know how to use it.

(p. 1) “Piracy has the very real potential of tipping movies into becoming an unprofitable industry, especially big-event films. If that happens, they will stop being made,” said Mr. Jackson in an e-mail message from New Zealand, where he is putting the final touches on his version of “King Kong.” “No studio is going to finance a film if the point is reached where their possible profit margin goes straight into criminals’ pockets.”

For the full story, see:
O’Brien, Timothy L. “King Kong vs. the Pirates of the Multiplex.” The New York Times, Section 3 (Sunday, Aug. 28, 2005): p. 1 & 7.

Infinite Jobs to Be Done

Marc Andreesen was the cofounder of Netscape.

“If you believe human wants and needs are infinite,” said Andreeseen (sic), “then there are infinite industries to be created, infinite businesses to be started, and infinite jobs to be done, and the only limiting factor is human imagination. The world is flattening and rising at the same time. And I think the evidence is overwhelmingly clear: If you look over the sweep of history, every time we had more trade, more communications, we had a big upswing in economic activity and standard of living.” (p. 231)

Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux, 2005.

The Sheer Openness of American Society

While these are the core secrets of America’s sauce, there are others that need to be preserved and nurtured. Sometimes you have to talk to outsiders to appreciate them, such as Indian-born Vivek Paul of Wipro. “I would add three to your list,” he said to me. “One is the sheer openness of American society.” We Americans often forget what an incredibly open, say-anything-do-anything-start-anything-go-bankrupt-and-start-anything-again society the United States is. There is no place like it in the world, and our openness is a huge asset and attraction to foreigners, many of whom come from countries where the sky is not the limit.
Another, said Paul, is the “quality of American intellectual property protection,” which further enhances and encourages people to come up with new ideas.
. . .
The United States also has among the most flexible labor laws in the world. The easier it is to fire someone in a dying industry, the easier it is to hire someone in a rising industry that no one knew would exist five years earlier.

Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux, 2005, p. 246.

No Known Upper Bound for Economic Growth

Given the limited state of our knowledge of the process of technological change, we have no way to estimate what the upper bound on the feasible rate of growth for an economy might be. If economists had tried to make a judgment at the end of the 19th century, they would have been correct to argue that there was no historical precedent that could justify the possibility of an increase in the trend rate of growth of income per capita to 1.8% per year. Yet this increase is what we achieved in the 20th century. (p. 226)

Romer, Paul M. “Should the Government Subsidize Supply or Demand in the Market for Scientists and Engineers?” In Innovation Policy and the Economy, vol. 1, Cambridge, MA: MIT Press, 2001, pp. 221-252.

Private vs Public City Planning

Both private and public developers make judgments about the future market for their projects. When private developers’ judgments turn out to be wrong, they lose their money. When public developers’ judgments turn out to be wrong, they lose your money.

The Omaha By Design plan adopted by the City of Omaha envisions 72nd and Dodge framed with eight 10-story buildings and other taller structures stretching to a large residential complex at 76th Street. The drawings don’t resemble Bourn’s strip malls.
Wilke said he has seen the plan.
“That kind of visionary thinking is fun to engage in, but I don’t think it’s market-based,” he said. Another developer might see that as possible, he said, and Bourn Partners likes to do that kind of high-density, mixed-use development, but the company doesn’t see this part of the Omaha market as ready for that yet.
“We think the suburban scale is still what the market wants in that area,” Wilke said. (p. 2D)

DEBORAH SHANAHAN. Market drives projects around 72nd and Dodge.” Omaha World-Herald (Tuesday, August 9, 2005): 1D-2D.

Business at the city-owned Hilton Omaha is expected next year to fall $2 million short of generating the cash needed to cover its costs.

When the city built the hotel, predictions assumed that hotel revenues – not tax dollars – would be sufficient to pay it off.

C. DAVID KOTOK. City expects its Hilton to come up shy. Omaha World-Herald (Tuesday, August 9, 2005) online edition.