artdiamondblog.com – Page 546 – Art Diamond's web log

Entrepreneurs, Investors, and Consumers Will Delay Decisions If Government Policies Are Uncertain

(p. A15) . . . , the new administration needs to be clearer on its long-run goals and policies. Mr. Obama deserves time to lay out his longer-term agenda, but he must reassure those who would put capital at risk that we are not headed toward a European-style social welfare state. Will he push for financial reform with better intelligence, the centerpiece being that any firm that is or could quickly become too big to fail must be subject to real-time capital adequacy and risk disclosure and monitoring? Or will he just push for more punitive regulation?

Mr. Obama has pledged to go through the budget and shut down ineffective programs, but how much shorter is his list than mine or yours? Is he capable of a “Nixon goes to China” on Social Security, as President Bill Clinton once hoped to do? Or will he push for tax reform and simplification with a broader base and lower rates?
One thing is certain: Investors, workers and employers need to have a sense of where tax, spending and regulatory policy are headed, or they will postpone decisions and further weaken the economy.

For the full commentary, see:
MICHAEL BOSKIN. “OPINION; Investors Want Clarity Before They Take Risks.” The Wall Street Journal (Fri., JANUARY 23, 2009): A15.
(Note: ellipsis added.)

Inventors Move from Declining Industries to New, Expanding Industries

Petra Moser’s comments (see below) about inventors applying similar ideas to different industries seem complementary to Burke’s emphasis on the importance of serendipitous “connections.” An inventor exposing herself to many industries’ problems and products, would be more likely to see additional applications for inventions originally developed for another industry.

(p. 3) By some logic, there is no earthly reason why bicycles should still exist.

They are a quaint, 19th-century invention, originally designed to get someone from point A to point B. Today there are much faster, far less labor-intensive modes of transportation. And yet hopeful children still beg for them for Christmas, healthful adults still ride them to work, and daring teenagers still vault them down courthouse steps. The bicycle industry has faced its share of disruptive technologies, and it has repeatedly risen from the ashes.
. . .
“Much of the history of the ‘American system of manufacturing’ is the story of inventors moving from a declining industry to a new expanding industry,” says Petra Moser, an economic historian at Stanford who studies innovation. “Inventors take their skills with them.”
Gun makers learned to make revolvers with interchangeable parts in the mid-19th century, Ms. Moser says. Then those companies (and some former employees, striking out on their own) applied those techniques to sewing machines when demand for guns slackened. Later, sewing machine manufacturers began making woodworking machinery, bicycles, cars and finally trucks.
. . .
Meanwhile, we’ve already seen some of the “destruction” half of Joseph Schumpeter’s famous “creative destruction” paradigm, with many newspapers cutting staff and other production costs. Unfortunately for newspapers, historians say, the survivors in previous industries facing major technological challenges were usually individual companies that adapted, rather than an entire industry. So a bigger shakeout may yet come.
But perhaps the destruction will lead to more creativity. Perhaps the people we now know as journalists — or, for that matter, autoworkers — will find ways to innovate elsewhere, just as, over a century ago, gun makers laid down their weapons and broke out the needle and thread. That is, after all, the American creative legacy: making innovation seem as easy as, well, riding a bike.

For the full commentary, see:
CATHERINE RAMPELL. “Ideas & Trends; How Industries Survive Change. If They Do.” The New York Times, Week in Review Section (Sun., November 15, 2008): 3.
(Note: ellipses added.)

Older Technologies Sometimes Regain the Lead Over Newer Ones

(p. R8) Innovation occurs almost constantly at the level of design and components, absorbing companies’ attention as they look for ways to best their competitors. Platform innovations are less frequent. But when they do occur, they have the potential to transform markets, not just give an edge to one competitor.

One great danger to companies is to be so immersed in design and component innovation that they miss out on a platform innovation. For example, while Sony Corp. focused in the 1990s on improving its CRT television sets, a market it dominated, rival Samsung Electronics Co. invested heavily in flat-screen LCD TVs. As the market for LCD TVs grew, Sony fell behind its rivals and ended up entering into a joint venture with Samsung to build liquid-crystal displays.

Innovation’s Messy Paths
Another mistake to avoid is to assume that all technologies follow a standard progression.
The conventional wisdom is that the performance of any technology is initially low, then improves rapidly after some breakthrough, and ultimately levels out in maturity. A new technology’s performance supposedly starts below that of the established technology, surpasses it after the breakthrough is achieved, and then remains superior until the next big thing comes along. Literature on the subject has encouraged managers to embrace a new technology once it begins to show rapid improvement, and to abandon the old technology because it is destined to become obsolete.
However, our analysis of several markets shows that technological evolution is much messier than this simple pattern. For instance, new technologies sometimes enter the market with better performance than the existing technology, only to fall behind at some point before later regaining the lead. That’s the case in the market for external lighting. When gas-discharge lighting, which is used in fluorescent tubes, was introduced around 1930, it was brighter per watt than the existing arc-discharge lighting, which is used in many street lamps, and it maintained that superiority for some 40 years, until improvements in arc-discharge lighting made it the brightest per watt again. Then, in 1980, gas discharge made its biggest jump in performance so far, again surpassing arc discharge in brightness per watt. Both technologies have gone through several long periods of stagnation followed by sharp improvements in performance.
When one technology is growing rapidly, it’s easy to get caught up in the hype and overinvest in it. However, the unpredictability and impermanence that we found in this and other markets suggests that companies should consider investing in, or at least monitoring, a portfolio of technologies, so they aren’t blindsided by a sudden improvement in one or another.
Consider the competition between ink-jet and laser technology in the printer market. When the two technologies were introduced in the mid-1980s, laser was far superior to ink-jet in resolution. Ink-jet quickly caught up, but didn’t surpass laser’s resolution. Then, in the mid-1990s, laser again took a significant lead. But ink-jet surpassed laser in resolution in 1997 and has maintained that edge. All the while, printer maker Hewlett-Packard Co. continued to sell both ink-jet and laser printers, putting itself in the best position to succeed in a shifting market

For the full story, see:
GERARD J. TELLIS and ASHISH SOOD. “Innovation; How to Back the Right Technology; When trying to decide where to place their bets, companies often make three fundamental mistakes.” Wall Street Journal (Mon., DECEMBER 14, 2008): R8.

Taxpayers Pay $91 Million for Surplus Milk Powder

“Millions of pounds of government-owned milk powder stored in a warehouse in Fowler, Calif.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B1) FOWLER, Calif. — The long economic boom, fueled by easy credit that allowed people to spend money they did not have, led to a huge oversupply of cars, houses and shopping malls, as recent months have made clear. Now, add one more item to the list: an oversupply of cows.
And it turns out that shutting down the milk supply is not as easy as closing an automobile assembly line.
As a breakneck expansion in the global dairy industry turns to bust, Roger Van Groningen must deal with the consequences. In a warehouse that his company runs here, 8 to 20 trucks pull up every day to unload milk powder. Bags of the stuff — surplus that nobody will buy, at least not at a price the dairy industry regards as acceptable — are unloaded and stacked into towering rows that nearly fill the warehouse.
Mr. Van Groningen’s company does not own the surplus milk powder, but merely stores it for the new owners: the taxpayers of the United States. To date, the government has agreed to buy about $91 million worth of milk powder.
. . .
(p. B5) Government price supports provide a price floor for agricultural products as a way of keeping farmers afloat during hard times and ensuring an adequate food supply.
The Agriculture Department has committed to buying 111.6 million pounds of milk powder at 80 cents a pound, for roughly $91 million, which includes some handling fees. . . .
. . .
. . . the agency has not decided what to do with the cache of milk powder in California.
Some critics of farm subsidies argue that price support programs are antiquated and allow farmers to continue producing even when the economics make no sense, as taxpayers will always buy up the excess production.
“They don’t want to downsize or respond to the market signal. They want to keep producing,” said Kenneth Cook, president of the Environmental Working Group, a Washington research organization that has long been critical of the government’s farm policy. “Once you get in a jam like this, it becomes our collective problem.”

For the full story, see:
ANDREW MARTIN. “Awash in Milk and Headaches; Cows Keep Producing Despite Drop in Demand.” The New York Times (Fri., January 1, 2009): B1 & B5.
(Note: ellipses added.)
(Note: the online version of the article is dated January 1, 2009, and is entitled “As Recession Deepens, So Does Milk Surplus.”)

“Arthur Machado, a dairy farmer in Fresno, Calif., has to keep feeding his herd of more than 300 cows. He plans to sell them and take up a more stable commodity.” Source of caption and photo: online version of the NYT article quoted and cited above.

“The Whole Point of Camp is to Dethrone the Serious”

(p. W1) The 2000 film “Billy Elliot” was a surprise hit. It’s an absorbing drama about personal transformation and the power of art to ennoble the human spirit. “Billy Elliot: The Musical” — the noise is supplied by Sir Elton John — is a depressing spectacle about partisan politics and the ephemeral power of schlock.
. . .
The musical, a campy, anticapitalist confection, is just one of the latest prepackaged exercises in “transgression.” Maybe it’s “Corpus Christi,” Terrence McNally’s play about a gay Jesus Christ. Maybe it’s “The Goat,” Edward Albee’s play celebrating bestiality, or a production (p. W4) of “The Flying Dutchman” in which the heroine sports posters of Che Guevara and Martin Luther King on her bedroom wall. The point about these unpleasant offerings is not how outrageous but how common they are.
. . .
In the film, there was one extended reference to Margaret Thatcher. Mrs. Wilkinson’s middle-class drink-sodden husband (tellingly made “redundant” — that is, laid off) praises the prime minister for showing down the miners. He is hardly a sympathetic figure, but he had a point: If it costs more money to get the coal out of the ground then you make from selling it, why keep the pit open?
If there were truth in advertising, the musical would have been called “Billy Elliot, The Musical, Featuring Margaret Thatcher as the Incarnation of Evil.” She is roundly abused by several characters in the opening scenes, is the object of casual calumny throughout the show, and features in a Christmas children’s song — replete with gigantic scary Thatcher masks and puppets — whose refrain is “Merry Christmas, Maggie Thatcher. We all celebrate today because it’s one day closer to your death.” Nice stuff, eh?
In one sense, “Billy Elliot: The Musical” represents a growth enterprise. Everywhere you turn these days, you are met not only with celebrations of the vulgar but also entertainments that pretend to be brave, challenging “interrogations” of established taste which in fact are simply reflections of established taste. The little sermons about Thatcher and capitalism and bigotry are presented as if they were fresh thoughts designed to disturb the dogmatic slumbers of the audience. In fact, they simply reinforce the left-liberal clichés audiences everywhere internalized decades ago. It’s an odd phenomenon. In theaters and museums across the Western world you find audiences applauding sentiments that, were they translated into the real world, would spell their demise.
Perhaps it’s an instance of what Lenin was talking about when he said that the bourgeoisie was so rotten that it would sell the rope with which it was to be hanged. The matinee I attended was packed to the last emergency exit with a cheery crowd of nice, middle-class folks who cheered and clapped and whistled and bravoed.
. . .
The impressive thing about “Billy Elliot” the film is its dramatic enactment of serious questions. “Billy Elliot: The Musical” spoofs and sentimentalizes those questions, replacing them with a series of political sermons and distracting gymnastic exhibitions. In 1964, Susan Sontag famously said that the “ultimate Camp statement” was “It’s good because it’s awful.” Sontag wrote as an enthusiast for Camp. I have no doubt that she would have emerged happy from “Billy Elliot: The Musical.” “The whole point of Camp,” she wrote, “is to dethrone the serious.”

For the full commentary, see:
ROGER KIMBALL. “Culture; A Clumsy Mix of Art and Politics; Broadway turns subtle themes into simplistic fare in shows like ‘Billy Elliot’.” Wall Street Journal (Sat., DECEMBER 13, 2008): W1 & W4.
(Note: ellipses added.)

Czech Republic’s Sly Cerny Humorously Skewers European Foibles

“David Cerny’s artwork “Entropa” is a symbolic map of Europe depicting stereotypes attributed to the individual member countries.” Source of the caption and photo: online version of the WSJ article quoted and cited below.

(p. A6) . . . , an enormous mosaic installed in the European Council building over the weekend, was meant to symbolize the glory of a unified Europe by reflecting something special about each country in the European Union.

But wait. Here is Bulgaria, represented as a series of crude, hole-in-the-floor toilets. Here is the Netherlands, subsumed by floods, with only a few minarets peeping out from the water. Luxembourg is depicted as a tiny lump of gold marked by a “for sale” sign, while five Lithuanian soldiers are apparently urinating on Russia.
France? On strike.
The 172-square-foot, eight-ton installation, titled “Entropa,” consists of a sort of puzzle formed by the geographical shapes of European countries. It was proudly commissioned by the Czech Republic to mark the start of its six-month presidency of the European Union. But the Czechs made the mistake of hiring the artist David Cerny to put together the project.
Mr. Cerny is notorious for thumbing his nose at the establishment. . . .
. . .
Before the hoax was discovered, the Czech deputy prime minister, Alexandr Vondra, said “Entropa” — whose name alone should perhaps have been a sign that all was not as it seemed — epitomized the motto for the Czech presidency in Europe, “A Europe Without Borders.”
“Sculpture, and art more generally, can speak where words fail,” he said in a statement on Monday. “I am confident in Europe’s open mind and capacity to appreciate such a project.”
But he does not feel that way now.

For the full story, see:

SARAH LYALL. “Art Hoax Unites Europe in Displeasure.” The New York Times (Thurs., January 14, 2009): A6.
(Note: ellipses added.)

Car Bailout Destroys Dynamism of Process of Creative Destruction

(p. A29) Not so long ago, corporate giants with names like PanAm, ITT and Montgomery Ward roamed the earth. They faded and were replaced by new companies with names like Microsoft, Southwest Airlines and Target. The U.S. became famous for this pattern of decay and new growth. Over time, American government built a bigger safety net so workers could survive the vicissitudes of this creative destruction — with unemployment insurance and soon, one hopes, health care security. But the government has generally not interfered in the dynamic process itself, which is the source of the country’s prosperity.

But this, apparently, is about to change. Democrats from Barack Obama to Nancy Pelosi want to grant immortality to General Motors, Chrysler and Ford. They have decided to follow an earlier $25 billion loan with a $50 billion bailout, which would inevitably be followed by more billions later, because if these companies are not permitted to go bankrupt now, they never will be.
This is a different sort of endeavor than the $750 billion bailout of Wall Street. That money was used to save the financial system itself. It was used to save the capital markets on which the process of creative destruction depends.
Granting immortality to Detroit’s Big Three does not enhance creative destruction. It retards it. . . .
. . .
But the larger principle is over the nature of America’s political system. Is this country going to slide into progressive corporatism, a merger of corporate and federal power that will inevitably stifle competition, empower corporate and federal bureaucrats and protect entrenched interests? Or is the U.S. going to stick with its historic model: Helping workers weather the storms of a dynamic economy, but preserving the dynamism that is the core of the country’s success.

For the full commentary, see:
DAVID BROOKS. “Bailout to Nowhere.” The New York Times (Fri., November 18, 2008): A29.
(Note: ellipses added.)

“Atlas Shrugged is a Celebration of the Entrepreneur”

“The art for a 1999 postage stamp.” Source of image: online version of the WSJ article quoted and cited below.

(p. W11) Many of us who know Rand’s work have noticed that with each passing week, and with each successive bailout plan and economic-stimulus scheme out of Washington, our current politicians are committing the very acts of economic lunacy that “Atlas Shrugged” parodied in 1957, when this 1,000-page novel was first published and became an instant hit.
Rand, who had come to America from Soviet Russia with striking insights into totalitarianism and the destructiveness of socialism, was already a celebrity. The left, naturally, hated her. But as recently as 1991, a survey by the Library of Congress and the Book of the Month Club found that readers rated “Atlas” as the second-most influential book in their lives, behind only the Bible.
For the uninitiated, the moral of the story is simply this: Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.
. . .
Ultimately, “Atlas Shrugged” is a celebration of the entrepreneur, the risk taker and the cultivator of wealth through human intellect. Critics dismissed the novel as simple-minded, and even some of Rand’s political admirers complained that she lacked compassion. Yet one pertinent warning resounds throughout the book: When profits and wealth and creativity are denigrated in society, they start to disappear — leaving everyone the poorer.

For the full commentary, see:
STEPHEN MOORE. “DE GUSTIBUS; ‘Atlas Shrugged’: From Fiction to Fact in 52 Years.” Wall Street Journal (Fri., JANUARY 9, 2009): W11.
(Note: ellipses added.)

Multiplier: Is it 1.5 as Team Obama Hopes; or Zero, as Barro Estimates?

(p. A17) Now we have the extreme demand-side view that the so-called “multiplier” effect of government spending on economic output is greater than one — Team Obama is reportedly using a number around 1.5.

To think about what this means, first assume that the multiplier was 1.0. In this case, an increase by one unit in government purchases and, thereby, in the aggregate demand for goods would lead to an increase by one unit in real gross domestic product (GDP). Thus, the added public goods are essentially free to society. If the government buys another airplane or bridge, the economy’s total output expands by enough to create the airplane or bridge without requiring a cut in anyone’s consumption or investment.

The explanation for this magic is that idle resources — unemployed labor and capital — are put to work to produce the added goods and services.
. . .
What’s the flaw? The theory (a simple Keynesian macroeconomic model) implicitly assumes that the government is better than the private market at marshaling idle resources to produce useful stuff. Unemployed labor and capital can be utilized at essentially zero social cost, but the private market is somehow unable to figure any of this out. In other words, there is something wrong with the price system.

John Maynard Keynes thought that the problem lay with wages and prices that were stuck at excessive levels. But this problem could be readily fixed by expansionary monetary policy, enough of which will mean that wages and prices do not have to fall. So, something deeper must be involved — but economists have not come up with explanations, such as incomplete information, for multipliers above one.
. . .
There are reasons to believe that the war-based multiplier of 0.8 substantially overstates the multiplier that applies to peacetime government purchases. For one thing, people would expect the added wartime outlays to be partly temporary (so that consumer demand would not fall a lot). Second, the use of the military draft in wartime has a direct, coercive effect on total employment. Finally, the U.S. economy was already growing rapidly after 1933 (aside from the 1938 recession), and it is probably unfair to ascribe all of the rapid GDP growth from 1941 to 1945 to the added military outlays. In any event, when I attempted to estimate directly the multiplier associated with peacetime government purchases, I got a number insignificantly different from zero.

For the full commentary, see:
ROBERT J. BARRO. “Government Spending Is No Free Lunch.” Wall Street Journal (Thurs, JANUARY 22, 2009): A17.
(Note: ellipses added.)

Even Dogs “Have a Sense of Fairness”

For the full commentary, see:

Page, Clarence. “Vouchers and Obama Daughters.” Omaha World-Herald (Sat., Nov. 15, 2008): 7B.
(Note: ellipsis added.)

“This series of photos from the National Academy of Sciences shows a dog being asked for its paw and obeying, left. In the second photo, the dog watches its partner in the experiment receive a food reward that it didn’t receive. In the third photo, the dog refuses to give its paw and avoids looking at the experimenter.” Source of caption and photos: online version of the Omaha World-Herald article quoted and cited below.

(p. 2A) Ask them to do a trick, and they’ll give it a try. For a reward, they’ll happily keep at it.

But if one dog gets no reward and then sees another dog get a treat for doing the same trick, just try to get the first one to do it again.
Indeed, the animal may turn away and refuse to look at you.
Dogs, like people and monkeys, seem to have a sense of fairness.
. . .
In the experiments described in today’s edition of Proceedings of the National Academy of Sciences, Range and colleagues experimented with dogs that understood the command “paw” to place a paw in the hand of a researcher. It’s the same game as teaching a dog to “shake hands.”
. . .
The dogs sat side by side with an experimenter in front of them. In front of the experimenter was a divided food bowl with pieces of sausage on one side and brown bread on the other.
The dogs were asked to shake hands and could see what reward the other dog received.
When one dog got a reward and the other didn’t, the unrewarded animal stopped playing.

For the full story, see:
Associated Press. “It’s a Dog’s Life Only When Someone Else Gets Treat.” Omaha World-Herald (Tues., Dec. 9, 2008): 2A.
(Note: ellipses added.)

Bernanke Praised FDR’s “Willingness to Be Aggressive and to Experiment”

Bernanke apparently endorsed FDR’s policy volatility. To the contrary, Amity Shlaes has persuasively argued that the policy volatility increased uncertainty, and discouraged entrepreneurial ventures, thereby lengthening and deepening the Great Depression.
Bernanke taking FDR as a mentor, is deeply disturbing. (And I regret an earlier entry in which I placed trust in Bernanke’s judgment.)

(p. A2) While Ben Bernanke was teaching economics at Princeton University in late 1999, he admonished officials in Japan for doing too little to get their country out of its economic funk. Their model, he said, should be Franklin D. Roosevelt.

“Roosevelt’s specific actions were, I think, less important than his willingness to be aggressive and to experiment — in short, to do whatever was necessary to get the country moving again,” Mr. Bernanke said in a paper on Japan’s paralysis.

Nearly a decade later, Mr. Bernanke, now the Federal Reserve chairman, is trying to follow his own advice.
. . .
Mr. Bernanke’s choices could damage several objectives that the Fed holds sacrosanct. Low interest rates and an exploding balance sheet could some day cause inflation. With so much slack in the economy and commodities prices tumbling, that looks like a far-fetched risk today. But the Fed’s novel new lending programs could be difficult to unwind quickly if the economy turns around unexpectedly, potentially leaving the financial system with more stimulus than it needs — along with inflation.
Mr. Reinhart notes that Mr. Bernanke’s approach also could open the Fed to political intrusion, something central bankers have fought for decades to avoid.
The recent debate about an auto-industry bailout was one example of the risk. Earlier this month, Sen. Christopher Dodd wrote to Mr. Bernanke asking if the central bank could help Detroit. Mr. Bernanke politely responded that he wanted to stay out of industrial policy. But after Senate action failed, the Connecticut Democrat raised the prospect of Fed involvement again at a news conference Friday.
“When the Federal Reserve is involved in more markets, more instruments and is seen to have an unlimited balance sheet and flexibility to use that balance sheet, it will be subject to political pressure,” Mr. Reinhart said.
. . .
Then there’s the biggest risk of all: the economy might not turn around. History was kind to Mr. Roosevelt because the economy got moving again on his watch, though of course it didn’t really turn around until the U.S. became enmeshed in a world war. Mr. Bernanke will be a hero if the economy rebounds. But if it doesn’t, the judgment is certain to be much tougher.

For the full commentary, see:

JON HILSENRATH. “THE OUTLOOK; Bernanke’s Fed, Echoing FDR, Pursues Ideas and Action.” Wall Street Journal (Mon., DECEMBER 15, 2008): A2.
(Note: ellipses added.)

Amity Shlaes’ wonderful book, is:
Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.