Railroad Regulation Helped Kill Passenger Service

(p. 1179) By 1970, passenger service was a not only losing money, but had deteriorated to such an extent that it was no more the elegant transportation mode as it once was. No more were the Hollywood stars long distance rail passengers. No more movies like “North by Northwest,” which featured the New York Central’s Twentieth Century Limited service from New York to Chicago. The book highlights the factors causing the decline of private rail passenger service and the creation of AMTRAK. The authors cite ICC regulation, the growth in alternative modes, which were heavily subsidized, the mix of freight and passenger service on the same lines, and public policy, which favored the airline industry.
. . .
One public policy that government got right is deregulation. This started with the 3R Act, then the 4R Act and then the Staggers Rail Act of 1980, which had a massive impact on the industry. Deregulation culminated in the ICC Elimination Act, in which the ICC was replaced by the Surface Transportation Board–or STB–with substantially diminished regulatory power. Gallamore worked in government when much of this legislation was passed and gives a firsthand account of the debates that took place in Congressional (p. 1180) hearings and the discussions in and out of government on the merits of deregulation.
In the concluding chapter of the over 500-page book, entitled “Decline and Renaissance of American Railroads in the Twentieth Century” the authors provide a summary of the history of the railroads and the lessons for public policy in the future. This chapter is such a great summary, that the reader may be best off starting with it, before reading the book. But don’t forget the afterword, which provides the authors’ recommendations for future U.S. policies for the railroads. It is a very insightful chapter.
. . .
American Railroads should be on the reading list of economists interested in transportation and logistics, economic historians, government officials, and rail fans who would like to know more about the history of the railroads in the twentieth century, and are interested in understanding the economics of the industry and the problems of government regulation. Gallamore and Meyer, at the end of the book, sum up why it should be read:

This book’s authors love railroads because they have a great history, fascinating operations, intriguing technology and untold opportunity for the future, but we also love them because no other enterprises illustrate elegant economic principles quite so well (p. 435).

For the full review, see:
Pagano, Anthony M. “American Railroads: Decline and Renaissance in the Twentieth Century.” Journal of Economic Literature 52, no. 4 (Dec. 2014): 1178-80.
(Note: ellipses added.)

The book under review is:
Gallamore, Robert E., and John R. Meyer. American Railroads: Decline and Renaissance in the Twentieth Century. Cambridge, MA: Harvard University Press, 2014.

Heckman Thinks that Economists Who Are Only Economists May Be Dangerous

The Journal of Political Economy, edited by the University of Chicago economics department, is one of the three or four most prestigious journals in the economics profession. For the last 20 years or so (if memory serves) the back cover of each issue has had a funny quote or interesting or unusual anecdote, related to some aspect of economics.
I was surprised to see that the quote from the October 2014 issue as “suggested by James J. Heckman.” Heckman is a Nobel-Prize-winner who is known mainly for developing new econometric techniques in the area of labor economics. When I was a graduate student at Chicago, his graduate students tended to be among those who were most oriented to formalism and technique. So I was surprised to see that he had suggested the following quote from neo-Austrian economist and fellow Nobel-Prize-winner F.A. Hayek:

(p. 463) But nobody can be a great economist who is only an economist—and I am even tempted to add that the economist who is only an economist is likely to become a nuisance if not a positive danger.

Source:
Hayek, F. A. “The Dilemma of Specialization.” In The State of the Social Sciences, edited by Leonard D. White. Chicago: University of Chicago Press, 1956.
(Note: I do not have the book, and cannot find the page range of Hayek’s article in the book.)

Chinese Communists Crush Innovative Entrepreneurs by Banning Open Internet

(p. A1) BEIJING — Jing Yuechen, the founder of an Internet start-up here in the Chinese capital, has no interest in overthrowing the Communist Party. But these days she finds herself cursing the nation’s smothering cyberpolice as she tries — and fails — to browse photo-sharing websites like Flickr and struggles to stay in touch with the Facebook friends she has made during trips to France, India and Singapore.
Gmail has become almost impossible to use here, and in recent weeks the authorities have gummed up Astrill, the software Ms. Jing and countless others depended on to circumvent the Internet restrictions that Western security analysts refer to as the Great Firewall.
By interfering with Astrill and several other popular virtual private networks, or V.P.N.s, the government has complicated the lives of Chinese astronomers seeking the latest scientific data from abroad, graphic designers shopping for clip art on Shutterstock and students submitting online applications to American universities.
If it was legal to protest and throw rotten eggs on the street, I’d definitely be up for that,” Ms. Jing, 25, said.
China has long had some of the world’s most onerous Internet restrictions. But until now, the authorities had effectively tolerated the proliferation of V.P.N.s as a lifeline for millions of people, from archaeologists to foreign investors, who rely heavily on less-fettered access to the Internet.
But earlier this week, after a number of V.P.N. companies, including StrongVPN and Golden Frog, complained that the Chi-(p. A6)nese government had disrupted their services with unprecedented sophistication, a senior official for the first time acknowledged its hand in the attacks and implicitly promised more of the same.
The move to disable some of the most widely used V.P.N.s has provoked a torrent of outrage among video artists, entrepreneurs and professors who complain that in its quest for so-called cybersovereignty — Beijing’s euphemism for online filtering — the Communist Party is stifling the innovation and productivity needed to revive the Chinese economy at a time of slowing growth.
“I need to stay tuned into the rest of the world,” said Henry Yang, 25, the international news editor of a state-owned media company who uses Facebook to follow American broadcasters. “I feel like we’re like frogs being slowly boiled in a pot.”
. . .
The vast majority of Chinese Internet users, especially those not fluent in English and other foreign languages, have little interest in vaulting the digital firewall. But those who require access to an unfiltered Internet are the very people Beijing has been counting on to transform the nation’s low-end manufacturing economy into one fueled by entrepreneurial innovation.
. . .
Avery Goldstein, a professor of contemporary Chinese studies at the University of Pennsylvania, said the growing online constraints would not only dissuade expatriates from relocating here, but could also compel ambitious young Chinese studying abroad to look elsewhere for jobs.
“If they aren’t able to get the information to do their jobs, the best of the best might simply decide not to go home,” he said.
For those who have already returned to China and who crave membership in an increasingly globalized world, the prospect of making do with a circumscribed Internet is dispiriting. Coupled with the unrelenting air pollution and the crackdown on political dissent, a number of Chinese said the blocking of V.P.N.s could push them over the edge.
“It’s as if we’re shutting down half our brains,” said Chin-Chin Wu, an artist who spent almost a decade in Paris and who promotes her work online. “I think that the day that information from the outside world becomes completely inaccessible in China, a lot of people will choose to leave.”

For the full story, see:
ANDREW JACOBS. “China Further Tightens Grip on the Internet.” The New York Times (Fri., JAN. 30, 2015): A1 & A12.
(Note: ellipses added.)
(Note: the online version of the story has the date JAN. 29, 2015.)

Hamilton Thought “Contracts Formed the Basis of Public and Private Morality”

(p. 297) Hamilton argued that the security of liberty and property were inseparable and that governments should honor their debts because contracts formed the basis of public and private morality: “States, like individuals, who observe their engagements are respected and trusted, while the reverse is the fate of those who pursue an opposite conduct.” The proper handling of government debt would permit America to borrow at affordable interest rates and would also act as a tonic to the economy. Used as loan collateral, government bonds could function as money–and it was the scarcity of money, Hamilton observed, that had crippled the economy and resulted in severe deflation in the value of land. America was a young country rich in opportunity. It lacked only liquid capital, and government debt could supply that gaping deficiency.
The secret of managing government debt was to fund it properly by setting aside revenues at regular intervals to service interest and pay off principal. Hamilton refuted charges that his funding scheme would feed speculation. Quite the contrary: if investors knew for sure that government bonds would be paid off, the prices would not fluctuate wildly, depriving speculators of opportunities to exploit. What mattered was that people trusted the government to make good on repayment: “In nothing are appearances of greater moment than in whatever regards credit. Opinion is the soul of it and this is affected by appearances as well as realities.” Hamilton intuited that public relations and confidence building were to be the special burdens of every future treasury secretary.

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

Is There “a Fortune to Be Made” in Selling to the Poor?

(p. B1) For years, multinational companies had little interest in lower-end consumers, figuring no money was to be made. Now, they are increasingly attractive to all types of industries, from consumer product makers to technology businesses. Google just announced plans to sell a stripped-down, cheaper version of its Android phone in India.
A decade ago, C. K. Prahalad, a University of Michigan business professor, in his book “The Fortune at the Bottom of the Pyramid,” detailed the potential, contending that such households were every bit as discriminating and aspirational as their counterparts at the other end of the income spectrum.
Mr. Prahalad, now dead, estimated there were four billion such consumers in a market worth $13 trillion. “People were saying, ‘There’s a fortune to be made. Let’s go,’ ” said Mark B. Milstein, director of the Cen-(p. B6)ter for Sustainable Global Enterprise at Cornell University.
But many of the first efforts failed. “There was not much thinking about what those consumers needed or wanted or how they might be different from consumers with more disposable income,” Mr. Milstein said.

For the full story, see:
STEPHANIE STROM. “Billions of Buyers.” The New York Times (Thurs., Sept. 18, 2014): B1 & B6.
(Note: the online version of the story has the date SEPT. 17, 2014, and has the title “Multinational Companies Court Lower-Income Consumers.”)

The book highlighted in the passage quoted is:
Prahalad, C. K. Fortune at the Bottom of the Pyramid Eradicating Poverty through Profits. Revised ed. Philadelphia, PA: Wharton School Publishing, 2009.

Brin: Regulatory Burden Discourages Health Entrepreneurs

(p. A13) Earlier this month, at a private conference for the CEOs of his portfolio companies, venture capitalist Vinod Khosla interviewed Google co-founders Sergey Brin and Larry Page, asking them if the company might jump into health care. “It’s just a painful business to be in,” Mr. Brin replied, later noting that “the regulatory burden in the U.S. is so high that I think it would dissuade a lot of entrepreneurs.”
Mr. Brin is right. As a neurosurgeon-scientist and entrepreneur who co-founded a bioelectronic medicine company that deploys implantable technology to supplant drugs, I wish he were wrong.
. . .
. . . entrepreneurs should be allowed to carve out their own turf and let patients choose their own level of risk.
Consider the case of Goran Ostovich, a burly, 47-year-old truck driver from Mostar, Bosnia. Mr. Ostovich has suffered from long-standing rheumatoid arthritis and needed near-permanent bed rest. With his hands and wrists swollen and aching, he could no longer hold on to a wheel or even play with his small children. He tried a variety of medications. None worked.
When I met Goran at his doctor’s office in 2012, however, he didn’t seem at all afflicted with the disease. That’s because, one year earlier, he had been offered the opportunity to be the first participant in a clinical trial of a new therapy based on my invention. He received a bioelectronic implant and rapidly improved.
. . .
Since news of this clinical trial’s success became public, people from all over the U.S. stricken with rheumatoid arthritis have emailed, called and sent letters pressing for their shot at potentially effective–but not yet FDA-approved–treatments.
. . .
Some patients are very willing to take a calculated risk, . . .

For the full commentary, see:
KEVIN J. TRACEY. “Let Patients Decide How Much Risk They’ll Take; Take a tip from Sergey Brin: The health-care regulatory burden stops entrepreneurs from getting into the game.” The Wall Street Journal (Mon., July 28, 2014): A13.
(Note: ellipses added.)
(Note: the online version of the commentary has the date July 27, 2014, and has the title “Let Patients Decide How Much Risk They’ll Take; Take a tip from Sergey Brin: The health-care regulatory burden stops entrepreneurs from getting into the game.”)

How a Chavista Uses Her Chávez T-Shirt

(p. A1) CARACAS, Venezuela — Mary Noriega heard there would be chicken.
She hated being herded “like cattle,” she said, standing for hours in a line of more than 1,500 people hoping to buy food, as soldiers with side arms checked identification cards to make sure no one tried to buy basic items more than once or twice a week.
But Ms. Noriega, a laboratory assistant with three children, said she had no choice, ticking off the inventory in her depleted refrigerator: coffee and corn flour. Things had gotten so bad, she said, that she had begun bartering with neighbors to put food on the table.
“We always knew that this year would start badly, but I think this is super bad,” Ms. Noriega said.
Venezuelans have put up with shortages and long lines for years. But as the price of oil, the country’s main export, has plunged, the situation has grown so dire that the government has sent troops to patrol huge lines snaking for blocks. Some states have barred people from waiting outside stores overnight, and government officials are posted near entrances, ready to arrest shoppers who cheat the rationing system.
. . .
One of the nation’s most prestigious public hospitals shut down its heart surgery unit for weeks (p. A12) because of shortages of medical supplies. Some drugs have been out of stock for months, and at least one clinic performed heart operations only by smuggling in a vital drug from the United States. Diapers are so coveted that some shoppers carry the birth certificates of their children in case stores demand them.
. . .
The shortages and inflation present another round of political challenges for President Nicolás Maduro, who has vowed to continue the Socialist-inspired revolution begun by his predecessor, the charismatic leftist Hugo Chávez.
“I’ve always been a Chavista,” said Ms. Noriega, using a term for a loyal Chávez supporter. But “the other day, I found a Chávez T-shirt I’d kept, and I threw it on the ground and stamped on it, and then I used it to clean the floor. I was so angry. I don’t know if this is his fault or not, but he died and left us here, and things have been going from bad to worse.”

For the full commentary, see:
WILLIAM NEUMAN. “Oil Cash Waning, Venezuelan Shelves Lie Bare.” The New York Times (Fri., JAN. 30, 2015): A1 & A12.
(Note: ellipses added.)
(Note: the online version of the commentary has the date JAN. 29, 2015.)

Rich Slaveholders “Posed as Plucky Populists”

(p. 267) As Hamilton tangled with Lansing, neither knew that Virginia had on June 25 become the tenth state to ratify the Constitution. Like their New York counterparts, antifederalists there posed as plucky populists, even though their ranks included many rich slaveholders. Patrick Henry, the leading antifederalist, warned delegates who supported the Constitution, “They’ll free your niggers.” George Washington noted the hypocrisy of the many slaveholding antifederalists: “It is a little strange that the men of large property in the South should be more afraid that the Constitution will produce an aristocracy or a monarchy than the genuine, democratical people of the East.”

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

Most of Benefits of Minimum Wage Increases Do Not Go to the Poor

(p. A11) A higher minimum wage raises wages of low-wage workers, and even though most evidence points to job losses from higher minimum wages, the evidence doesn’t point to widespread employment declines. Thus, consistent with a recent Congressional Budget Office report, many more low-wage workers will get a raise than will lose their jobs. But that argument is about low-wage workers, not low-income families. Minimum wages are ineffective at helping poor families because such a small share of the benefits flow to them.
One might think that low-wage workers and low-income families are the same. But data from the U.S. Census Bureau show that there is only a weak relationship between being a low-wage worker and being poor, for three reasons.
First, many low-wage workers are in higher-income families–workers who are not the primary breadwinners and often contribute a small share of their family’s income. Second, some workers in poor families earn higher wages but don’t work enough hours. And third, about half of poor families have no workers, in which case a higher minimum wage does no good. This is simple descriptive evidence and is not disputed by economists.
A historical perspective is instructive. Assembling Census Bureau data over nearly seven decades, Richard Burkhauser and Joseph Sabia have shown that in 1939, just after the federal minimum wage was established, 85% of low-wage workers (those earning less than one-half the private-sector wage) were in poor families. Such a high percentage implies that, in that year, the new minimum wage targeted poor families well. However, as the public safety net expanded, family structure changed and more people in families began working, this percentage fell sharply over time–to around 17% by the early 2000s.
In contrast, as of the early 2000s 34% of low-wage workers were in families that were far from poor, with incomes more than three times the poverty line. In other words, for every poor minimum-wage worker who might directly benefit from the minimum wage, two workers in families with incomes more than three times the poverty line would benefit.

For the full commentary, see:
DAVID NEUMARK. “Who Really Gets the Minimum Wage; Obama’s $10.10 target would steer only 18% of the benefits to poor families; 29% would go to families with incomes three times the poverty level.” The New York Times (Mon., July 7, 2014): A11.
(Note: the online version of the commentary has the date July 6, 2014.)

For more of Neumark on minimum wages, see:
Neumark, David, and William L. Wascher. Minimum Wages. Cambridge, MA: The MIT Press, 2008.

Recovery Slows When Start-Ups Are Taxed to Pay for Bailouts of Failed Firms

Vernon Smith, whose views are quoted below, won the Nobel Prize in economics in 2002.

(p. A11) The rescue of incumbent investors in the government bailout of the largest U.S. banks in the autumn of 2008 has been widely viewed as unfair, as indeed it was in applying different rules to different players. . . .
. . .
The rescue, . . . , had a hidden cost for the economy that is difficult to quantify but can be crippling. New economic activity is hobbled if it is not freed from the burden of sharing its return with investors who bore risks that failed. The demand for new economic activity is enlarged when its return does not have to be shared with former claimants protected from the consequences of their risk-taking. This is the function of bankruptcy in an economic system organized on loss as well as profit principles of motivation.
. . .
Growth in both employment and output depends vitally on new and young companies. Unfortunately, U.S. firms face exceptionally high corporate income-tax rates, the highest in the developed world at 35%, which hobbles growth and investment. Now the Obama administration is going after firms that reincorporate overseas for tax purposes. Last week Treasury Secretary Jack Lew wrote a letter to the chairman of the House Ways and Means Committee urging Congress to “enact legislation immediately . . . to shut down this abuse of our tax system.”
This is precisely the opposite of what U.S. policy makers should be doing. To encourage investment, the U.S. needs to lower its corporate rates by at least 10 percentage points and reduce the incentive to escape the out-of-line and unreasonably high corporate tax rate. Ideally, since young firms generally reinvest their profits in production and jobs, such taxes should fall only on business income after it is paid out to individuals. As long as business income is being reinvested it is growing new income for all.
There are no quick fixes. What we can do is reduce bureaucratic and tax barriers to the emergence and growth of new economic enterprises, which hold the keys to a real economic recovery.

For the full commentary, see:
VERNON L. SMITH. “The Lingering, Hidden Costs of the Bank Bailout; Why is growth so anemic? New economic activity has been discouraged. Here are some ways to change that.” The Wall Street Journal (Thurs., July 24, 2014): A11.
(Note: last ellipsis in original, other ellipses added.)
(Note: the online version of the commentary has the date July 23, 2014.)

“If You Want to Find Something New, Look for Something New!”

(p. D8) Yves Chauvin, who shared the 2005 Nobel Prize in Chemistry for deciphering a “green chemistry” reaction now used to make pharmaceuticals and plastics more efficiently while generating less hazardous waste, died on Tuesday [January 27, 2015] in Tours, France.
. . .
He confessed that he was not a brilliant student, even in chemistry. “I chose chemistry rather by chance,” he wrote, “because I firmly believed (and still do) that you can become passionately involved in your work, whatever it is.”
Mr. Chauvin graduated from the Lyon School of Industrial Chemistry in 1954. Military service and other circumstances prevented him from pursuing a doctoral degree, which he said he regretted. “I had no training in research as such and as a consequence I am in a sense self-taught,” he wrote in his Nobel Prize lecture.
He worked in industry for a few years before quitting, frustrated by an inability to pursue new ideas. “My motto is more, ‘If you want to find something new, look for something new!’ ” Mr. Chauvin wrote. “There is a certain amount of risk in this attitude, as even the slightest failure tends to be resounding, but you are so happy when you succeed that it is worth taking the risk.”
He found the freedom to choose his research when he joined the French Petroleum Institute in 1960, and it led to his breakthrough on metathesis.
“Like all sciences, chemistry is marked by magic moments,” Mr. Chauvin wrote. “For someone fortunate enough to live such a moment, it is an instant of intense emotion: an immense field of investigation suddenly opens up before you.”

For the full obituary, see:

KENNETH CHANG. “Yves Chauvin, Chemist Sharing Nobel Prize, Dies at 84.” The New York Times (Sat., JAN. 31, 2015): D8.

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

(Note: the online version of the obituary has the date JAN. 30, 2015.)