Making a Profit Selling Solid Houses to Citizens of New Orleans

EverhouseNewOrleans.jpg

“The Everhouse.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A9) Tomorrow, tens of thousands of people who lost their homes in Hurricane Katrina and are still living in federally owned trailers will be forced to find a new place to live. After nearly three years, the federal government’s temporary housing is coming to an end.

These folks are not going to have an easy time of it, because affordable housing in the Gulf Coast region is scarce. The problem has persisted despite billions in government aid – and the efforts of large private developers – because of a shortage of skilled laborers and sky-high insurance rates.

Yet now there is hope, in the person of John Sawyer. Not only does this 64-year-old Bostonian believe he can build houses people can afford to buy and insure; he says they will withstand the next big storm. And, by the way, he intends to makes a tidy profit.
. . .
The dwellings will arrive in the form of kits that can be assembled in as little as 14 days. With walls of reinforced concrete, there isn’t much wood, and so mold won’t pose a major problem if the houses are ever flooded. They can “take a bath” as the locals say. Everhouses also cost $68 a square foot, less than half the going rate for affordable housing in New Orleans.

The upshot of the house’s durability and cost is that it’s easy to insure.

For the full commentary, see:
JAKE HALPERN. “A Market Solution to Hurricane Risk.” The Wall Street Journal (Sat., May 31, 2008): A9.
(Note: ellipsis added.)

McCraw on Communist Versus Capitalist Imperialism

From McCraw’s summary of an article entitled “The Function of Entrepreneurs and the Interest of the Worker” that Schumpeter published in 1927 in a labor magazine :

(p. 384) By the end of the war, every nation in Eastern Europe and most in Central Europe had fallen under the control of the Soviets. They stripped industrial machinery, works of art, gold, and other movable assets from many of those countries and shipped them all to Russia. The total amount stolen equaled in value the aid to Western Europe under the American-sponsored Marshall Plan, the largest foreign aid program in history.

Source:
McCraw, Thomas K. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Cambridge, Mass.: Belknap Press, 2007.

Worst Hard Time

WorstHardTimeBK.jpg

Source of book image: http://www.bookswim.com/images_books/large/The_Worst_Hard_Time_The_Untold_Story_of_Those_Who_Survived_the_Great_American_Dust_Bowl-119185970830588.jpg

Timothy Egan’s book presents an engrossing picture of what life was like in a particular time and place in U.S. history. The time is the 1920s and 1930s, and the place is the lower “high” plains, mainly of Oklahoma and Texas. Egan is a master of telling us meaningful stories about the goals and struggles of particular people, so that we care when the land blows away from them, and they suffer.
You will need, however, to look elsewhere for a deep understanding of the causes of what happened. Egan mainly aims at describing, not explaining. And when he explains, he mainly rounds up the usual suspects one would expect a New York Times reporter to round up (e.g., Herbert Hoover).
(For deeper and more illuminating explanations of what was going on during the worst of the period, you’d do better by consulting Amity Shlaes’s The Forgotten Man.)

References to books mentioned above:
Egan, Timothy. The Worst Hard Time: The Untold Story of Those Who Survived the Great American Dust Bowl. Boston: Houghton Mifflin, 2006.
Shlaes, Amity. The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007.

Musings on the Financial Crisis and the Paulson Plan

A few people have asked me for my views on the current financial turmoil. Below, is an email that I sent this morning (10/1/08) to my brother Eric.

Hi Eric,
I’m with Abby in the ‘stewing’ department. I’m way conflicted.
On the one hand I believe that the least government is usually the best. On the other hand, I’ve read a couple of books recently about the Great Depression, and I’d rather keep that title in the “history” folder than in the “personal experience” folder.
I’m mad about the irresponsible home loans taken on by irresponsible consumers, and encouraged by irresponsible, and sometimes dishonest, mortgage pushers, and government and quasi-governmental agencies (aka Fannie Mae and Freddie Mac).
I’m also mad at investment bankers who created totally nontransparent securities based on these mortgages, garnering huge bonuses for themselves, without creating any value for consumers.
And I’m most mad that the fallout from this will almost certainly result in more government, and more taxes, that will reduce innovation, economic progress, and freedom.
In the long-run, I think we need to get the government out of the business of encouraging, and selling mortgage loans. And investment banks need to change the incentive structure for their high flyers, to make surer that they’re rewarding good judgment, rather than rewarding opacity and unjustified risk-taking.
But the short-run gives me trouble. I have no sympathy for the investment banks. They deserve to go down.
The problem is the claim that the investment banks are an integral part of the financial infrastructure of the country. If that is true, then letting them totally fail, will take down many firms and taxpayers, who had no responsibility for the problems.
One crucial question is whether in fact, letting the investment banks fail would result in systemic collapse of the financial infrastructure. And I do not know the answer. This is a difficult question, outside my area of specialization.
But in the Great Depression, something sort of like that happened. And historians/economists have blamed Mellon/Hoover for adopting a position something akin to what the rebel house Republicans are adopting.
I have never met Ben Bernanke, and have never read any of his articles. But my impression is that he is a conscientious, serious scholar, who is generally friendly to free markets, and whose main research focus was the economics of the Great Depression. So when he looks worried, and says that something major needs to be done, I give that credibility.
I don’t like growing the government in this way. But if we don’t act, and if the collapse comes, then the proposed growth in government in the Paulson proposal will look petty ante, compared to what will follow.
I believe the government should provide national defense, police and courts. On infrastructure I’ve always been conflicted. I think a lot of infrastructure can be usefully privatized, and when it can, I favor it (although when I’m talking to Mom, I try not to mention my admiration for Mitch Daniels ;).
On the other hand I usually don’t lose much sleep about government infrastructure like the Omaha streets and FDIC insurance.
It’s a stretch, but maybe you can kind of think of what they are proposing as an emergency extension of infrastructure?
I didn’t mean to write a long message. But I couldn’t think of a good short one.
Cheers,
Art

Confused and Fed Up With Contradictory “Green Noise”

GreenNoiseDrawing.jpg Source of drawing: online version of the NYT article quoted and cited below.

Maybe the point of much of the urgent, contradictory eco-crusades, is not so much to save the earth as to make us feel guilty about consuming, as a way to undermine the human progress that comes from capitalism?

(p. 1) DESPITE the expense and the occasional back strain, Mary Burnham, a public relations consultant in San Francisco, felt good about the decision she made a few years ago to buy milk — organic, of course — only in heavy, reusable glass bottles. For the sake of the environment, she dutifully lugged them back and forth from the grocery store every week. Cutting out disposable paper cartons, she reasoned, meant saving trees and reducing waste.

Or not. A friend, also a committed environmentalist, recently started questioning her good deed. “His argument was that paper cartons are compostable and lightweight and use less energy and water than the heavy bottles, which must be transported back to a plant to be cleaned and reused,” she said. “I have no idea which is better, or how to find out.”
Ms. Burnham, 35, recycles religiously, orders weekly from a community-supported farm, buys eco-friendly cleaning products and carries groceries in a canvas bag. But she admits to information overload on the environment — from friends, advice columns, news media, even government-issued reports. Much of the advice is conflicting.
“To say that you are confused and a little fed up with the often contradictory messages out there on how to live lightly on the earth is definitely not cool,” she said in an e-mail message. “But, heck, I’ll come out and say it. I’m a little overwhelmed.”
She is, in other words, a victim of “green noise” — static caused by urgent, sometimes vexing or even contradictory information played at too high a volume for too long.
. . .
(p. 8) . . . , as Mr. Hawken said, “even people inside the movement have the same feeling — burnout.”

For the full story, see:

ALEX WILLIAMS. “That Buzz in Your Ear May Be Green Noise.” The New York Times, SundayStyles Section (Sun., June 15, 2008): 1 & 8.
(Note: ellipses added.)

Schumpeter Claimed Entrepreneurial Gains Result in New Jobs

From McCraw’s summary of an article entitled “The Function of Entrepreneurs and the Interest of the Worker” that Schumpeter published in 1927 in a labor magazine :

(p. 178) Schumpeter’s key point here is one he hammered home many times: it is the insatiable pursuit of success, and of the towering premium it pays, that drives entrepreneurs and their investors to put so much of their time, effort, and money into some new project whose future is completely uncertain. High entrepreneurial returns are essential to generate gains not only for individuals but also for society, through the creation of new jobs.

Source:
McCraw, Thomas K. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Cambridge, Mass.: Belknap Press, 2007.

Innovation Can Occur Even in Ancient Technologies

GlassMaking.jpg

“Making glass has long been energy-intensive, but soaring energy prices provide a strong incentive for that to change.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 4) Glassmaking is a based on old, stable technologies that require lots of materials and energy. The basic furnace, which melts sand into glass at extremely high temperatures, hasn’t undergone a fundamental change since the 1850s. Furnace designers have long contented themselves with small improvements, such as using pure oxygen to improve energy efficiency.
Today, glassmaking faces a technological upheaval that offers a reminder that “it is a mistake to assume that older technologies are less dynamic than new ones,” says David Edgerton, a historian at Imperial College in London and the author of “The Shock of the Old,” a history of the evolution of pre-electronic technologies in the 20th century.
. . .
Mr. Greenman sees a new willingness to innovate among glassmakers who, until recently, usually shunned technological advances because savings in materials and energy didn’t justify the costs of introducing new designs and processes.
“Many innovations were, frankly, thwarted by cost,” says C. Philip Ross, a consultant in Laguna Niguel, Calif., who has studied technological options for the industry. “There’s a lot of upside in revisiting old, discarded ideas.”
Glassmakers are searching for both small and large advances on three fronts: designing more efficient furnaces; creating much stronger glass; and using heat better.
. . .
The potential revolution in glass-making suggests a new model for innovation: Creators go back to the future, spending almost as much time retrieving once-discarded inventions as they do creating new ones.

For the full story, see:
G. PASCAL ZACHARY. “Ping; Starting to Think Outside the Jar.” The New York Times, SundayBusiness Section (Sun., June 15, 2008): 4.
(Note: ellipses added.)

EPA Mandates that Texas Keep Digging Ethanol Hole

ReeveEthanolPlant.jpg “At the Reeve plant near Garden City, Kan., grain is made into ethanol, and the byproducts are fed to cattle in the adjacent feedlot.” Source of caption and photo: online version of the NYT article quoted and cited below.

Unfortunately, the EPA rejected Gov. Paley’s request, discussed in the article quoted below:

(p. C1) The ethanol industry, until recently a golden child that got favorable treatment from Washington, is facing a critical decision on its future.

Gov. Rick Perry of Texas is asking the Environmental Protection Agency to temporarily waive regulations requiring the oil industry to blend ever-increasing amounts of ethanol into gasoline. A decision is expected in the next few weeks.
Mr. Perry says the billions of bushels of corn being used to produce all that mandated ethanol would be better suited as livestock feed than as fuel.
Feed prices have soared in the last two years as fuel has begun competing with food for cropland.
“When you find yourself in a hole, you have to quit digging,” Mr. Perry said in an interview. “And we are in a hole.”
His request for an emergency waiver cutting the ethanol mandate to 4.5 billion gallons, from the 9 billion gallons required this year and the 10.5 billion required in 2009, is backed by a coalition of food, livestock and environmental groups.
Farmers and ethanol and other biofuel producers are lobbying to keep the existing mandates.

For the full story, see:
DAVID STREITFELD. “Uprising Against the Ethanol Mandate.” The New York Times (Weds., July 23, 2008): C1 & C5.

Rent Control as a Form of “Hatred of the Bourgeois”

New York City is one of the few remaining cities that has rent control laws (aka “rent stabilization”). Economists view such laws as a version of price ceilings, and they generally argue that such laws reduce the incentives to build and maintain housing.
Libertarian philosophers would add that the laws also violate fundamental rights of property.

(p. 25) At its core, the fight involves a law allowing landlords to displace rent-stabilized tenants if the landlords will use the space as their primary residence. The Economakis family has prevailed, thus far, on the principle that the law applies even to a building this large. But the tenants continue to press the notion that given the scope of the proposed home — which calls for seven bathrooms, a gym and a library — the owners are just trying to clear them out so they can sell the building off to become so many market-rate condos.

Mr. Economakis insists his family would never have subjected itself to years of argument — and tens of thousands in legal bills — if they did not want to live there. He acknowledged that it is a lot of space, but said that having the place to themselves is also a matter of privacy. He said that the family long ago offered, as a halfway measure, to let the tenants in the five rear apartments stay, along with a couple on the first floor, and said he would happily sign a promise to turn over the profits to the existing tenants if he sold within 20 years.
“We really believe that, as owners, we have a right to live in the building,” he said.
. . .
Last year, the tenants staged a rally outside the building and some 400 people showed up. Mostly, they lodge their silent protest daily on their doors. Mr. Pultz has his evil eye, while his first-floor neighbor, Laura Zambrano, has one poster giving the dictionary definition of the word hubris and another quoting Flaubert:
“Two things sustain me. Love of literature and hatred of the bourgeois.”

For the full story, see:

MARC SANTORA. “Landlord’s Dream Confronts Rent-Stabilized Lives.” The New York Times, Section 1 (Sun., June 15, 2008): 25.
(Note: ellipsis added.)

Perhaps the most eloquent critique of rent control was penned in the only paper that Chicago Nobel Prize winners Milton Friedman and George Stigler ever wrote together (published as a pamphlet):
Friedman, Milton, and George J. Stigler. “Roofs or Ceilings? The Current Housing Problem.” Irvington-on-Hudson, New York: Foundation for Economic Education, 1946.

“Schumpeter Has Courage”

McCraw quoting the diary of Schumpeter’s former professor, Friedrich von Wieser:

(p. 101) “He is not misled by prevalent sentiment,” the professor wrote in his diary. “Schumpeter has courage, an asset which cannot be over-praised.”

Source:
McCraw, Thomas K. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Cambridge, Mass.: Belknap Press, 2007.

Higher Prices to Operate Cars, Increases Demand for Segways

SegwayPizza.jpg

Using a Segway to deliver pizza. Source of photo: online version of the WSJ article quoted and cited below.

(p. B2) With gasoline prices and global warming on their minds, more Americans are getting out of their cars and riding to work — and riding on the job — on the once-maligned Segway.

Scott Hervey of Yorba Linda, Calif., bought one of the electric scooters on June 7 and has put 150 miles on it commuting to his custodian’s job at Disneyland, about 12 miles away. He had considered buying a Segway for four years, and gasoline prices finally drove him to do it. Now he “glides,” as Segway enthusiasts say, to work. “I like passing gas stations,” says the 54-year-old.
The two-wheeled Segway, a self-balancing vehicle that runs on a rechargeable battery, debuted amid massive hype in 2001. Tech icons like Steve Jobs, Apple Inc.’s chief executive officer, and Amazon.com Inc. CEO Jeff Bezos predicted it would change the way people lived. But critics panned the high-tech scooter for its $5,000 price tag and portrayed it as a toy for geeks and the rich. Some cities banned it from sidewalks because of safety concerns.
Today, the Segway is gaining converts. It plugs into a standard electrical outlet and can get up to 25 miles per charge.
Sales at the scooter’s maker, Segway Inc., have risen to an all-time high, says CEO Jim Norrod. The closely held Manchester, N.H., company doesn’t release detailed numbers. (A September 2006 recall showed the company had sold 23,500 Segways.) But Mr. Norrod says he expects sales this quarter to jump 50% from a year earlier, versus a 25% year-over-year increase in the first quarter.

For the full story, see:
STU WOO. “Segway Glides as Gasoline Jumps; Maligned Scooter Winning New Fans; $5,000 Price Tag.” The Wall Street Journal (Mon., June 16, 2008): B2.