artdiamondblog.com – Page 447 – Art Diamond's web log

Even Krugman Worries that China Faces “Economic Crisis”

China’s economy is often touted as an exemplar of the success of government stimulus policies at promoting economic growth. So it is worth noting when a Nobel-Prize-winning international economist and advocate of government stimulus policies worries that in China:

(p. A25) . . . the bubble is bursting — and there are real reasons to fear financial and economic crisis.
. . .
I’ve been reluctant to weigh in on the Chinese situation, in part because it’s so hard to know what’s really happening. All economic statistics are best seen as a peculiarly boring form of science fiction, but China’s numbers are more fictional than most. I’d turn to real China experts for guidance, but no two experts seem to be telling the same story.

Still, even the official data are troubling — and recent news is sufficiently dramatic to ring alarm bells.
. . .
Real estate investment has roughly doubled as a share of G.D.P. since 2000, accounting directly for more than half of the overall rise in investment. And surely much of the rest of the increase was from firms expanding to sell to the burgeoning construction industry.
Do we actually know that real estate was a bubble? It exhibited all the signs: not just rising prices, but also the kind of speculative fever all too familiar from our own experiences just a few years back — think coastal Florida.
. . .
For what it’s worth, statements about economic policy from Chinese officials don’t strike me as being especially clear-headed. In particular, the way China has been lashing out at foreigners — among other things, imposing a punitive tariff on imports of U.S.-made autos that will do nothing to help its economy but will help poison trade relations — does not sound like a mature government that knows what it’s doing.
And anecdotal evidence suggests that while China’s government may not be constrained by rule of law, it is constrained by pervasive corruption, which means that what actually happens at the local level may bear little resemblance to what is ordered in Beijing.

For the full commentary, see:
PAUL KRUGMAN. “Will China Break?” The New York Times (Mon., December 19, 2011): A25.
(Note: ellipses added.)
(Note: the online version of the story is dated December 18, 2011.)

Pixar as a Case Study on Innovative Entrepreneurship

Source of book image: http://murraylibrary.org/2011/09/the-pixar-touch-the-making-of-a-company/

Toy Story and Finding Nemo are among my all-time-favorite animated movies. How Pixar developed the technology and the story-telling sense, to make these movies is an enjoyable and edifying read.
Along the way, I learned something about entrepreneurship, creative destruction, and the economics of technology. In the next couple of months I occasionally will quote passages that are memorable examples of broader points or that raise thought-provoking questions about how innovation happens.

Book discussed:
Price, David A. The Pixar Touch: The Making of a Company. New York: Alfred A. Knopf, 2008.

Jobless Rate Appears Lower as Aging Population Leaves Labor Force

(p. A4) As more baby boomers leave the job market, the participation rate should continue to decline–a group of economists at the Federal Reserve projected in 2006 that it would fall to 62.5% by 2015. While that suggests the economy won’t need to create as many jobs to bring down the unemployment rate, said Barclays Capital economist Dean Maki, the downside is that it won’t have as large a work force to power it along and pay for the needs of an aging population.
“If you have a greater fraction of the population not working, that will make it harder to pay for costs that will be ballooning,” he said.

For the full story, see:
JUSTIN LAHART. “Aging Population Eases Jobless Rate.” The Wall Street Journal (Sat., November 5, 2011): A4.

Creative Destruction Helps Us Be Well

WSJ review quoted and cited below.

Dr. Eric Topol’s credible and thought-provoking comments on the over-use of stents appeared in entries in this blog in August 2006 and in December 2006.

(p. A15) “The U.S. government has been preoccupied with health care ‘reform,’ but this refers to improving access and insurance coverage and has little or nothing to do with innovation,” even though, as Dr. Topol notes, adopting new approaches would improve care and lower costs. . . .
. . .
“The Creative Destruction of Medicine”–an allusion to economist Joseph Schumpeter’s description of “creative destruction” as an engine of business innovation–is a venture capitalist’s delight, describing dozens of medical technologies that show great promise. The book also provides colorful anecdotes about Dr. Topol’s own sampling of these products, as both a doctor and stand-in patient.
. . .
. . . , full adoption of the new tools will require the Food and Drug Administration to alter the way it evaluates products. The FDA, he says, should allow the testing of drugs on patients who are selected for their prospect of deriving a benefit. Right now, the FDA usually requires drugs to be tested in a scattershot fashion on large populations. With drugs being tested on cancer patients, he notes, the “FDA insists on a body count to be able to quantify how much and how long the new drug improves survival”–even though diagnostic markers can sometimes reveal in advance which patients are unlikely to gain a benefit.
Dr. Topol worries that doctors will resist technologies that empower patients because the tools will also diminish the doctors’ gatekeeper role. The American Medical Association, for example, battled firms that provide genetic information directly to patients. “This arrangement ultimately appears untenable,” the author writes, “and eventually there will need to be full democratization of DNA for medicine to be transformed.”

For the full review, see:
SCOTT GOTTLIEB. “BOOKSHELF; Digital Doctoring; It’s hard to fake sleep to avoid your spouse’s bedtime chatter when a ‘Zeo clock’ is displaying your real-time brain waves.” The Wall Street Journal (Fri., February 3, 2012): A15.
(Note: ellipses added.)
(Note: the online version of the review has the title “BOOKSHELF; Digital Doctoring; The digital revolution can spur unprecedented advances in the medical sciences, argues Eric Topol in “The Creative Destruction of Medicine”.”)

The book under review is:
Topol, Eric. The Creative Destruction of Medicine: How the Digital Revolution Will Create Better Health Care. New York: Basic Books, 2012.

Euro Haiku

Welfare states’ debt due
Ratings downgrades, states default
Euro muddles through

Arthur Diamond

The haiku above was my entry in response to the haiku challenge in the Kauffman Foundation’s First Quarter 2012 survey “of top economics bloggers.” The haiku challenge was: “The euro is troubled, so what is its fate in 2012 and/or what should policymakers do?”

The results of the Q1 2012 survey can be found at: http://www.kauffman.org/uploadedFiles/econ_bloggers_outlook_q1_2012.pdf

Stem Cell Therapy for Dry Macular Degeneration

“Dr. Steven Schwartz, a retina specialist at the University of California, Los Angeles, conducted the trial with two patients.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B7) LOS ANGELES — A treatment for eye diseases that is derived from human embryonic stem cells might have improved the vision of two patients, bolstering the beleaguered field, researchers reported Monday.
The report, published online in the medical journal The Lancet, is the first to describe the effect on patients of a therapy involving human embryonic stem cells.
. . ..
Both patients, who were legally blind, said in interviews that they had gains in eyesight that were meaningful for them. One said she could see colors better and was able to thread a needle and sew on a button for the first time in years. The other said she was able to navigate a shopping mall by herself.
. . .
. . . , researchers at Advanced Cell Technology turned embryonic stem cells into retinal pigment epithelial cells. Deterioration of these retinal cells can lead to damage to the macula, the central part of the retina, and to loss of the straight-ahead vision necessary to recognize faces, watch television or read.
Some 50,000 of the cells were implanted last July under the retinas in one eye of each woman in operations that took about 30 minutes.
One woman, Sue Freeman, who is in her 70s, suffered from the dry form of age-related macular degeneration, a leading cause of severe vision loss in the elderly.

For the full story, see:
ANDREW POLLACK. “Stem Cell Treatment for Eye Diseases Shows Promise.” The New York Times (Thurs., January 26, 2012): B7.
(Note: ellipses added.)
(Note: the online version of the article was dated January 25, 2012.)

“Sue Freeman said her vision improved in a meaningful way after the treatment, which used embryonic stem cells.” Source of caption and photo: online version of the NYT article quoted and cited above.

The Tasmanian Technological Regress: “Slow Strangulation of the Mind”

(p. 78) The most striking case of technological regress is Tasmania. Isolated on an island at the end of the world, a population of less than 5,000 hunter-gatherers divided into nine tribes did not just stagnate, or fail to progress. They fell steadily and gradually back into a simpler toolkit and lifestyle, purely because they lacked the numbers to sustain their existing technology. Human beings reached Tasmania at least 35,000 years ago while it was still connected to Australia. It remained connected – on and off – until about 10,000 years ago, when the rising seas filled the Bass Strait. Thereafter the Tasmanians were isolated. By the time Europeans first encountered Tasmanian natives, they found them not only to lack many of the skills and tools of their mainland cousins, but to lack many technologies that their own ancestors had once possessed. They had no bone tools of any kind, such as needles and awls, no cold-weather clothing, no fish hooks, no hafted tools, no barbed spears, no fish traps, no spear throwers, no boomerangs. A few of these had been invented on the mainland after the Tasmanians had been isolated from it – the boomerang, for instance – but most had been made and used by the very first Tasmanians. Steadily and inexorably, so the archaeological history tells, these tools and tricks were abandoned. Bone tools, for example, grew simpler and simpler until they were dropped altogether about 3,800 years ago. Without bone tools it became impossible to sew skins into clothes, so even in the bitter winter, the Tasmanians went nearly naked but for seal-fat grease smeared on their skin and wallaby pelts over their shoulders. The first Tasmanians caught and ate plenty of fish, but by the time of Western contact they not only ate no fish (p. 79) and had eaten none for 3,000 years, but they were disgusted to be offered it (though they happily ate shellfish).
The story is not quite that simple, because the Tasmanians did invent a few new things during their isolation. Around 4,000 years ago they came up with a horribly unreliable form of canoe-raft, made of bundles of rushes and either paddled by men or pushed by swimming women (!), which enabled them to reach offshore islets to harvest birds and seals. The raft would become waterlogged and disintegrate or sink after a few hours, so it was no good for re-establishing contact with the mainland. As far as innovation goes, it was so unsatisfactory that it almost counts as an exception to prove the rule. The women also learnt to dive up to twelve feet below the water to prise clams off the rocks with wooden wedges and to grab lobsters. This was dangerous and exhausting work, which they were very skilled at: the men did not take part. So it was not that there was no innovation; it was that regress overwhelmed progress.
The archaeologist who first described the Tasmanian regress, Rhys Jones, called it a case of the ‘slow strangulation of the mind’, which perhaps understandably enraged some of his academic colleagues. There was nothing wrong with individual Tasmanian brains; there was something wrong with their collective brains. Isolation – self-sufficiency – caused the shrivelling of their technology. Earlier I wrote that division of labour was made possible by technology. But it is more interesting than that. Technology was made possible by division of labour: market exchange calls forth innovation.

Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.

Reagan: “I Wasn’t a Great Communicator, but I Communicated Great Things”

Today (2/6/2012) is Ronald Reagan’s 101st birthday.

(p. A15) Jim Baker, his first and great chief of staff, and his friend, remembered the other day the atmosphere of merriness around Reagan, the constant flow of humor.

But there was often a genial blackness to it, a mordant edge. In a classic Reagan joke, a man says sympathetically to his friend, “I’m so sorry your wife ran away with the gardener.” The guy answers, “It’s OK, I was going to fire him anyway.” Or: As winter began, the young teacher sought to impart to her third-graders the importance of dressing warmly. She told the heart-rending story of her little brother, a fun-loving boy who went out with his sled and stayed out too long, caught a cold, then pneumonia, and days later died. There was dead silence in the schoolroom as they took it in. She knew she’d gotten through. Then a voice came from the back: “Where’s the sled?”
The biggest misunderstanding about Reagan’s political life is that he was inevitable. He was not. He had to fight for every inch, he had to make it happen.
. . .
He didn’t see himself as “the great communicator.” It was so famous a moniker that he could do nothing but graciously accept the compliment, but he well understood it was bestowed in part by foes and in part to undercut the seriousness of his philosophy: “It’s not what he says, it’s how he says it.” He answered in his farewell address: “I never thought it was my style or the words I used that made a difference: it was the content. I wasn’t a great communicator, but I communicated great things.” It wasn’t his eloquence people supported, it was his stands–opposition to the too-big state, to its intrusions and demands, to Soviet communism. Voters weren’t charmed, they were convinced.

For the full commentary, see:
PEGGY NOONAN. “Ronald Reagan at 100; Being a good man helped him become a great one.” The Wall Street Journal (Sat., February 5, 2011): A15.
(Note: ellipsis added.)

Study Finds Lack of Control at Office Is Deadly for Men

(p. C12) . . . Israeli scientists found that the factor most closely linked to health was the support of co-workers: Less-kind colleagues were associated with a higher risk of dying. While this correlation might not be surprising, the magnitude of the effect is unsettling. According to the data, middle-age workers with little or no “peer social support” in the workplace were 2.4 times more likely to die during the study.
But that wasn’t the only noteworthy finding. The researchers also complicated longstanding ideas about the relationship between the amount of control experienced by employees and their long-term health. Numerous studies have found that the worst kind of workplace stress occurs when people have little say over their day. These employees can’t choose their own projects or even decide which tasks to focus on first. Instead, they must always follow the orders of someone else. They feel like tiny cogs in a vast corporate machine.
Sure enough, this new study found that a lack of control at the office was deadly–but only for men. While male workers consistently fared better when they had some autonomy, female workers actually fared worse. Their risk of mortality was increased when they were put in positions with more control.
While it remains unclear what’s driving this unexpected effect, one possibility is that motherhood transforms control at the office–normally, a stress reducer–into a cause of anxiety. After all, having a modicum of control means that women must constantly navigate the tensions between work and family. Should they stay late at their job? Or go home and help take care of the kids? This choice is so stressful that it appears to increase the risk of death.

For the full summary, see:
JONAH LEHRER. “HEAD CASE; Your Co-Workers Might Be Killing You; Hours don’t affect health much–but unsupportive colleagues do.” The Wall Street Journal (Sat., August 20, 2011): C12.
(Note: ellipsis added.)

The paper referred to in the quote from Lehrer’s summary is:
Shirom, Arie, Sharon Toker, Yasmin Alkaly, Orit Jacobson, and Ran Balicer. “Work-Based Predictors of Mortality: A 20-Year Follow-up of Healthy Employees.” Health Psychology 30, no. 3 (May 2011): 268-75.

BP Oil Spill Does Little Harm to Tuna

“The Gulf of Mexico’s bluefin-tuna population is likely to be cut by less than 4% because of the BP oil spill.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A6) Fears that last year’s BP PLC oil spill would decimate the bluefin tuna that spawn in the Gulf of Mexico haven’t played out, with the population of the prized fish likely to be cut by less than 4%, a federal study has concluded.

The oil from the biggest offshore spill in U.S. history covered about one-fifth of the habitat of the Gulf’s recently hatched tuna, and scientists feared that could hammer the future population of the fish.
An analysis based on two different models by the National Oceanic and Atmospheric Administration, or NOAA, has concluded that the spill “will likely result in less than a 4% reduction in future spawning biomass” of bluefin tuna in the Gulf.
. . .
Russell Miget, an environmental and seafood quality specialist with Texas A&M University who wasn’t associated with the research, said the tuna study squared with other data suggesting that the impact of the spill on marine life was “less than what people were concerned about at the time of the spill.” Still, “fishery science is not an exact science,” he said.

For the full story, see:
GAUTAM NAIK and NATHAN KOPPEL. “Bluefin Tuna Thrive Despite Oil Spill.” The Wall Street Journal (Tues., December 6, 2011): A6.
(Note: ellipsis added.)
(Note: the online version of the article had the title “Bluefin Tuna Endure After Oil Spill.”)

How to Slow Down Creative Destruction

(p. 356) This catallaxy will not go smoothly, or without resistance. Natural and unnatural disasters will still happen. Governments will bail out big corporations and big bureaucracies, hand them special favours such as subsidies or carbon rations and regulate them in such a way as to create barriers to entry, slowing down creative destruction. Chiefs, priests, thieves, financiers, consultants and others will appear on all sides, feeding off the surplus (p. 357) generated by exchange and specialisation, diverting the life-blood of the catallaxy into their own reactionary lives. It happened in the past. Empires bought stability at the price of creating a parasitic court; monotheistic religions bought social cohesion at the price of a parasitic priestly class; nationalism bought power at the expense of a parasitic military; socialism bought equality at the price of a parasitic bureaucracy; capitalism bought efficiency at the price of parasitic financiers.

Source:
Ridley, Matt. The Rational Optimist: How Prosperity Evolves. New York: Harper, 2010.