Cambridge Ignorant of Schumpeter

 

  The house in Cambridge, Mass. where Schumpeter lived for many years.  Source of photo:  F.M. "Mike" Scherer, posted with his permission.

 

On his way from his home to his Harvard Office, Mike Scherer walks near the homes in which Joseph Schumpeter lived over 50 years ago.

Scherer reports that the streets of Cambridge are replete with historical markers documenting the significance in intellectual history of various houses and locales.

Across the street from the impressive house in which Schumpeter lived for over 15 years, for instance, there is a sign indicating where the poet T.S. Elliot had lived for a year during a sabbatical.

But there is no sign in front of either of the homes in which Joseph Schumpeter lived (or in front of the home in which Nobel-prize-winner Wassily Leontief lived).

Scherer thinks the lesson is that economists should be more humble.  I think that the lesson is that the citizens and officials of Cambridge should be less ignorant.

 

The above account is partly from my memory of Scherer’s oral remarks in June at George Mason at the Summer Institute for the Preservation of the History of Economics.  Here is a briefer version he sent me in an email dated 12/20/2006:

Since moving back to Harvard, I often walk to my home in West Cambridge. The shortest route is via Ash Street, right by Schumpeter’s first own home in Cambridge. The neighborhood is full of houses with historical plaques, but I looked in vain for Schumpy’s. However, across the street is a house in which T. S. Eliot lived for two years. It has a plaque! That’s a profound statement on the relative value of what we academics do.

 

    From top to bottom, for the four photos at the bottom of the entry:  The first is of the house in which Schumpeter lived for many years.  The second is of a house where Schumpeter lived for a short time.  The third is of the street signs at the corner near one of Schumpeter’s houses.  The fourth is one of the many plaques that Cambridge installs to honor those who the Cambridge community deems worthy of honor.  All of the photos above were taken on or about May 27, 2007 by F.M. "Mike" Scherer, who kindly gave them to me and gave me permission to post them.

 

Europeans Have More Leisure, But Not More Happiness

 

Perhaps the commentary excerpted below goes a bit too far.  I do not believe that paid work is necessary for happiness.  But I do think that a life mainly of leisure can wear thin.  A few months ago I heard Deirdre McCloskey say that we need "projects" to keep us moving forward.  I think that is right, and the best work involves challenging, meaningful projects.

 

By almost every measure, Europeans do work less and relax more than Americans. According to data from the Organization for Economic Co-operation and Development, Americans work 25% more hours each year than the Norwegians or the Dutch. The average retirement age for European men is 60.5, and it’s even lower for European women. Our vacations are pathetically short by comparison: The average U.S. worker takes 16 days of vacation each year, less than half that typically taken by the Germans (35 days), the French (37 days) or the Italians (42 days).

. . .

For most Americans, work is a rock-solid source of life happiness. Happy people work more hours each week than unhappy people, and work more in their free time as well. Even more tellingly, people with more hours per day to relax outside their jobs are not any happier than those who have less non-work time. In short, the idea that our heavy workloads are lowering our happiness is twaddle.

. . .

This may be one reason why Americans tend to score better than Europeans on most happiness surveys. For example, according to the 2002 International Social Survey Programme across 35 countries, 56% of Americans are "completely happy" or "very happy" with their lives, versus 44% of Danes (often cited in surveys as the happiest Europeans), 35% of the French and 31% of Germans. Those sweet five-week vacations and 35-hour workweeks don’t seem to be stimulating all that much félicité. A good old-fashioned 50-hour week might be a better option.

 

For the full commentary, see: 

ARTHUR C. BROOKS.  "Happy for the Work."  The Wall Street Journal  (Weds., June 20, 2007):  A16. 

(Note:  ellipses added.)

 

Astronauts (and the Rest of Us) Would Benefit from More Unscripted Time

 

Noctilucent clouds.  Source of photo:  http://apod.nasa.gov/apod/image/9907/noctilucent_pp.jpg

 

The excerpt below is from a WSJ summary of an article from the  June 2007 issue of Seed.

 

Many other scientific discoveries have come from astronauts puzzling over strange sights around them. Most of what is known about so-called noctilucent clouds — thin, beautiful wisps that hover at the edge of the Earth’s atmosphere — comes from 30 years of astronauts sketching and trying to photograph them in their spare time. The strength of a certain type of cosmic ray was first recognized in 1969 when Buzz Aldrin asked fellow astronauts if they, like him, were seeing occasional streaks of light when their eyes were closed.

Such discoveries off the beaten path of the National Aeronautic and Space Administration’s research agenda prompt the question attributed to an Apollo program geologist: "If human beings can do much better science than robots, why does NASA make its astronauts do science like robots?"

 

For the full summary, see: 

"Informed Reader; SCIENCE; Why Astronauts Need Down Time in Space."  The Wall Street Journal (Weds., May 9, 2007):  B15.

 

The U.S. has Exceled at Turning Information Technology into Greater Productivity

 

To explain the experience in the United States, one would have to believe that Americans have some better way of translating the new technology into productivity than other countries. And that is precisely what Professor Van Reenen’s research suggests.

His paper ”Americans Do I.T. Better: U.S. Multinationals and the Productivity Miracle,” (with Nick Bloom of Stanford University and Raffaella Sadun of the London School of Economics) looked at the experience of companies in Britain that were taken over by multinational companies with headquarters in other countries. They wanted to know if there was any evidence that the American genius with information technology transfers to locations outside the United States. If American companies turn computers into productivity better than anyone else, can businesses in Britain do the same when they are taken over by Americans?

And in the huge service sectors — financial services, retail trade, wholesale trade — they found compelling evidence of exactly that. American takeovers caused a tremendous productivity advantage over a non-American alternative.

When Americans take over a business in Britain, the business becomes significantly better at translating technology spending into productivity than a comparable business taken over by someone else. It is as if the invisible hand of the American marketplace were somehow passing along a secret handshake to these firms.

. . .

But there is a chance that the 1990s represent a fundamental shift in the global economy. Perhaps the greater amount of uncertainty and churn in the world economy in the 1990s is the new norm. Perhaps the 21st century will continually favor those who adjust best to changes. As Professor Van Reenen put it, ”If the world has become one in which everyone is trying to hit a moving target, it certainly helps to be the best at changing one’s aim.”

But that is, of course, the paradox of the American position. We hate experiencing major adjustments and industry transformations that force people to look for new jobs. That experience has made many skeptical about the future of the United States in the world economy. Yet the evidence seems to show that for all our dissatisfaction, we are the most flexible economy around and may be best poised to take advantage of the coming changes on a global scale precisely because we are so good at adjusting. 

 

For the full commentary, see: 

AUSTAN GOOLSBEE. "ECONOMIC SCENE; How the U.S. Has Kept the Productivity Playing Field Tilted to Its Advantage."  The New York Times  (Thurs., June 21, 2007)  C3.

(Note:  ellipsis added.)

(Note:  I thank Aaron Brown for calling the above article to my attention.)

 

The End of “the Road to Socialism”

 

     The frenetic pace of productive work at a Chavez socialist farm cooperative in Santa Barbara, Venezuela.  Souce of photo:  online version of the NYT article quoted and cited below. 

 

(p. A1)  Mr. Chávez’s supporters have formed thousands of state-financed cooperatives to wrest farms and cattle ranches from private owners.  Landowners say compensation is hard to obtain.  Local officials describe the land seizures as paving stones on “the road to socialism.”

. . .

(p. A10)  But while some of the newly settled farming communities are euphoric, landowners are jittery.  Economists say the land reform may have the opposite effect of what Mr. Chavez intends, and make the country more dependent on imported food than before.

The uncertainties and disruptions of the land seizures have led to lower investment by some farmers.  Production of some foods has been relatively flat, adding to shortages of items like sugar, economists say.  

 

For the full story, see: 

SIMON ROMERO.  "Clash of Hope and Fear As Venezuela Seizes Land."  The New York Times  (Thurs., May 17, 2007):  A1 & A10.

(Note: ellipsis added.)

 

How to End Poverty

 

To find policies that are likely to alleviate poverty, it is best to look at actual successes and failures. In recent decades, the biggest single accomplishment is the post-1979 (post-Mao) economic growth in China. Xavier Sala-i-Martin ("The World Distribution of Income," Quarterly Journal of Economics, May 2006) finds that the number of persons below a standard poverty line fell in China by about 250 million from 1970 to 2000. This massive poverty reduction occurred despite an increase in the Chinese population of more than 400 million and rising income inequality within China. The second-best story is the economic growth in India, where the poverty count fell by around 140 million people from 1970 to 2000.

Also illuminating is the greatest tragedy for world poverty — the low economic growth in sub-Saharan Africa. In this case, the number of people in poverty rose by around 200 million from 1970 to 2000.

These examples suggest that the key question for poverty alleviation is how to get Africa to grow like China and India. An important clue is that the triumphs in China and India derive mainly from improvements in governance, notably in the opening up to markets and capitalism. Similarly, the African tragedy derives primarily from government failure. Another clue is that foreign aid had nothing to do with the successes and did not prevent the African tragedy.

One reason for this is that foreign aid is typically run through governments and, thereby, tends to promote public sectors that are large, corrupt and unresponsive to market forces.

 

For the full commentary, see: 

ROBERT BARRO.  "COMMENTARY; Bill Gates’s Charitable Vistas." The Wall Street Journal  (Tues., June 19, 2007):  A17.

 

Let There Be Light

 

  One of Mark Bent’s solar flashlights stuck in a wall to illuminate a classroom in Africa.  Source of the photo:   http://bogolight.com/images/success6.jpg

 

What Africa most needs, to grow and prosper, is to eject kleptocratic war-lord governments, and to embrace property rights and the free market.  But in the meantime, maybe handing out some solar powered flashlights can make some modest improvements in how some people live.

The story excerpted below is an example of private, entrepreneur-donor-involved, give-while-you-live philanthropy that holds a greater promise of actually doing some good in the world, than other sorts of philanthropy, or than government foreign aid. 

 

FUGNIDO, Ethiopia — At 10 p.m. in a sweltering refugee camp here in western Ethiopia, a group of foreigners was making its way past thatch-roofed huts when a tall, rail-thin man approached a silver-haired American and took hold of his hands. 

The man, a Sudanese refugee, announced that his wife had just given birth, and the boy would be honored with the visitor’s name. After several awkward translation attempts of “Mark Bent,” it was settled. “Mar,” he said, will grow up hearing stories of his namesake, the man who handed out flashlights powered by the sun.

Since August 2005, when visits to an Eritrean village prompted him to research global access to artificial light, Mr. Bent, 49, a former foreign service officer and Houston oilman, has spent $250,000 to develop and manufacture a solar-powered flashlight.

His invention gives up to seven hours of light on a daily solar recharge and can last nearly three years between replacements of three AA batteries costing 80 cents.

Over the last year, he said, he and corporate benefactors like Exxon Mobil have donated 10,500 flashlights to United Nations refugee camps and African aid charities.

Another 10,000 have been provided through a sales program, and 10,000 more have just arrived in Houston awaiting distribution by his company, SunNight Solar.

“I find it hard sometimes to explain the scope of the problems in these camps with no light,” Mr. Bent said. “If you’re an environmentalist you think about it in terms of discarded batteries and coal and wood burning and kerosene smoke; if you’re a feminist you think of it in terms of security for women and preventing sexual abuse and violence; if you’re an educator you think about it in terms of helping children and adults study at night.”

Here at Fugnido, at one of six camps housing more than 21,000 refugees 550 miles west of Addis Ababa, the Ethiopian capital, Peter Gatkuoth, a Sudanese refugee, wrote on “the importance of Solor.”

“In case of thief, we open our solor and the thief ran away,” he wrote. “If there is a sick person at night we will took him with the solor to health center.”

A shurta, or guard, who called himself just John, said, “I used the light to scare away wild animals.” Others said lights were hung above school desks for children and adults to study after the day’s work.

 

For the full story, see:

Will Connors and Ralph Blumenthal.  "Letting Africa’s Sun Deliver the Luxury of Light to the Poor."  The New York Times, Section 1  (Sun., May 20, 2007):  8.

(Note:  the title of the article on line was:  "Solar Flashlight Lets Africa’s Sun Deliver the Luxury of Light to the Poorest Villages.")

 

 EthiopiaMap.gif   Source of map:  online version of the NYT article cited above.

 

The Liberal Attack on Free Speech at Antioch

 

THIS is an obituary for a great American institution whose death was announced this week. After 155 years, Antioch College is closing.

. . .

With a grant from the Rockefeller Foundation, the college increased African-American enrollment to 25 percent in 1968, from virtually nil in previous years. The new students were recruited from the inner city. At around the same time, Antioch created coeducational residence halls, with no adult supervision. Sex, drugs and rock ‘n’ roll became the rule, as you might imagine, and there was enormous peer pressure to be involved in all of them. No member of the faculty or administration, and certainly none of the students, could guess what these sudden changes would mean. They were simply embraced in the spirit of the time.

I moved into this sociological petri dish from a well-to-do suburb. Within my first week I twice had guns drawn on me, once in fun and once in a state of drunken for real by a couple of ex-cons whom one of my classmates, in the interest of breaking down class barriers, had invited to live with her.

My roommate began the tortured process of coming out of the closet, first by pursuing women relentlessly and then accepting the truth and allowing himself to be pursued by men. He needed to talk all this out with himself when he came in each morning at 4 a.m., and in the face of his personal crisis, there was little I could do to assert my right to sleep.

. . .

Antioch College became a rump where the most illiberal trends in education became entrenched. Since it is always easier to impose a conformist ethos on a small group than a large one, as the student body dwindled, free expression and freedom of thought were crushed under the weight of ultraliberal orthodoxy. By the 1990s the breadth of challenging ideas a student might encounter at Antioch had narrowed, and the college became a place not for education, but for indoctrination. Everyone was on the same page, a little to the left of The Nation in worldview.

 

For the full commentary, see: 

Michael Goldfarb.  "Where the Arts Were Too Liberal."  The New York Times, Section 4  (Sun., June 17, 2007):  13.

(Note:  ellipses added.)

 

“Total Freedom”

 

   On Monday, May 28th, protesters at the G8 meeting in Hamburg, Germany protested for "Total Freedom" and against globalization.  Source of this version of the banner picture:  http://www.infoshop.org/inews/article.php?story=20070528131819740

 

A photo fairly similar to the one above was run in the print version of the NYT on Tuesday, May 29, 2007, but was not included in the online version.  It appeared by itself, without an attached article.  But, referring to the "Total Freedom" banner, it had the following wonderfully ironic caption:

 

Except, Perhaps, When It Comes to Trade

Thousands of protesters marched against globalization on Monday in Hamburg, Germany, where the Group of Eight industrialized nations will meet next week.  After the largely peaceful rally, some protesters clashed with police and 21 were arrested.  The rest, however, were totally free.

 

Source of the NYT version of the banner picture, and of the caption:

The New York Times  (Tues., May 29, 2007):  A3. 

(Note:  caption title was in bold, and in larger font than the body of the caption, in the original.)

 

Bill Gates Does Not Owe Society Anything

 

Bill Gates is the richest man in the world, helped create a revolutionary computer software company, and earlier this month collected an honorary degree from Harvard University. But he may not understand the vital role wealth creation plays in society.

In collecting his degree, Mr. Gates delivered a commencement address that focused not on the information age, the rise of personal computers or the relentless efficiency his software has brought to nearly every industry. Instead, he focused on his own personal philanthropy. His implicit theme was that so far what he has accomplished may have been good for him and Microsoft shareholders, but it has been no great contribution to society. He suggested that with a personal fortune of about $90 billion (including what he has transferred to his foundation) it is time for him to give something back.

I find this perspective hard to understand. By any reasonable calculation Microsoft has been a boon for society and the value of its software greatly exceeds the likely value of Mr. Gates’s philanthropic efforts.

. . .

Ironically, Mr. Gates’s inspiration to "give back" apparently comes from the world’s second richest person, Warren Buffett, who recently promised to donate much of his fortune to the Gates Foundation.

I say ironic because one can make a much better philosophical case for a give-back of Mr. Buffett’s $52 billion than for Mr. Gates’s $90 billion. Mr. Buffett’s money came mostly from being a good stock picker. Whether his fortune is the product of luck or skill, the social benefits are hard to pin down. These benefits have to derive from improving company management practices or investment decisions.

Of course, Mr. Gates is free to do what he wishes with his $90 billion. But I think he is kidding himself if he believes that the efforts of the Gates Foundation are likely to provide society anything like the past and future accomplishments of Microsoft.

 

For the full commentary, see: 

ROBERT BARRO.  "COMMENTARY; Bill Gates’s Charitable Vistas." The Wall Street Journal  (Tues., June 19, 2007):  A17.

(Note:  ellipsis added.)

 

Creating Incentives for Quality Health Care

 

    Source of graphic:  online version of the NYT article quoted and cited above.

 

The experiment described in the article excerpted below sounds promising. Such experiments would be easier, and more common, if health care were not so highly regulated, and if the government did not create such large barriers to entry in the practice of medicine.

 

(p. A1)  What if medical care came with a 90-day warranty? 

That is what a hospital group in central Pennsylvania is trying to learn in an experiment that some experts say is a radically new way to encourage hospitals and doctors to provide high-quality care that can avoid costly mistakes.

The group, Geisinger Health System, has overhauled its approach to surgery. And taking a cue from the makers of television sets, washing machines and consumer products, Geisinger essentially guarantees its workmanship, charging a flat fee that includes 90 days of follow-up treatment.

Even if a patient suffers complications or has to come back to the hospital, Geisinger promises not to send the insurer another bill.

Geisinger is by no means the only hospital system currently rethinking ways to better deliver care that might also reduce costs. But Geisinger’s effort is noteworthy as a distinct departure from the typical medical reimbursement system in this country, under which doctors and hospitals are paid mainly for delivering more care — not necessarily better care. 

. . .

Under the typical system, missing an antibiotic or giving poor instructions when a patient is released from the hospital results in a perverse reward: the chance to bill the patient again if more treatment is necessary. As a result, doctors and hospi-(p. C4)tals have little incentive to ensure they consistently provide the treatments that medical research has shown to produce the best results.

Researchers estimate that roughly half of American patients never get the most basic recommended treatments — like an aspirin after a heart attack, for example, or antibiotics before hip surgery.

The wide variation in treatments can translate to big differences in death rates and surgical complications. In Pennsylvania alone, the mortality rate during a hospital stay for heart surgery varies from zero in the best-performing hospitals to nearly 10 percent at the worst performer, according to the Pennsylvania Health Care Cost Containment Council, a state agency.

 

For the full story, see: 

REED ABELSON.  "In Bid for Better Care, Surgery With a Warranty."  The New York Times  (Thurs., May 17, 2007):  A1 & C4.

 

    Providing a warranty provides the hospital to provide higher quality care, as evidenced, for example, in this nurse counting sponges to make sure that none have been left behind in the patient.  Source of photo:  online version of the NYT article quoted and cited above.