artdiamondblog.com – Page 606 – Art Diamond's web log

Toy Boats, Johnny Astro, and the Free Market

Screen capture from eBay’s "Toy Boat" ad.

A few years ago, eBay created a wonderful ad in which a young boy is at the beach playing with his toy boat. His mother tells him that it’s time to go; he leaves the beach forgetting his boat; the boat washes out to sea and sinks in a huge storm. A fisherman hauls up the boat in his fishing net. He brushes it off and puts it up for sale on eBay. The next scene is of a 20-something young man looking stunned at a computer screen, with a picture in the background of himself as a boy with the toy boat. On his PC screen is the eBay page with the boat for sale.

The point is how wonderful free markets can be when they help consumers find and obtain what consumers desperately want.

Of course this is just an ad. But it rings true. See the story excerpted below:

My husband, for example, still hankers for a certain flying toy he played with as a child.

For years, I have heard stories about this lost talisman of youth, an almost mythical toy that had an inflated balloon that could be launched into the air and propelled through a room by a whirring fan.

But my husband could never remember its name — until the other day.

“I FOUND IT! I FINALLY FOUND IT!” he wrote in an instant message that popped up on my computer.

. . .

“IT’S CALLED THE JOHNNY ASTRO.”

Johnny Astro. With a name like that, a name that evokes rocket ships, moon walks and the glory of the technological future hurtling our way, you can see why such a toy would linger in the memory of a boy who grew up in the 1960s.

“GET ME ONE FOR MY BIRTHDAY,” he typed. “PLEASE.”

How could I refuse?

. . .

I turned to eBay. A set was for sale with seven bidders so far, with a high bid of $76. An hour before the auction closed, I placed a bid authorizing eBay to go as high as $207 on my behalf. (I calculated I would get the set for a much lower price, however, given Ms. Grant’s price range.)

In the last minutes of the auction, the number of bids climbed to 21. But in the end I got the set — for $204.49.

My husband acted shocked.

“You paid how much?” he asked.

“You said you wanted it for your birthday,” I said.

He thought about it for a minute.

“If I got two,” he said, “we could fly them together and exchange balloons in the air.”

For the full story, see:

MICHELLE SLATALLA. "ONLINE SHOPPER; A Toy That Sends Grown Men Into Orbit." The New York Times (Thurs., January 25, 2007): E6.

The link for the Toy Boat ad is: http://www.thepowerofallofus.com/flash.html (click "TV Spots" and then "Toy Boat")

Drawing of Johnny Astro toy. Source of drawing: online version of the NYT article cited above.

Milton Friedman’s School Vouchers Pass Utah Senate

I received an email mailing yesterday (2/9/07) from Robert Fanger, who is the Communications Director of the Milton and Rose Friedman Foundation. He wrote: "By a vote of 19 to 10, the Utah Senate passed the universal school voucher bill this afternoon."

On Wednesday, the Wall Street Journal ran an editorial on the issue that is excerpted below:

Proving that the best reforms often pass by the slimmest of margins, Utah’s house voted 38-37 late last week to create a state-wide voucher program that will allow students to escape failing public schools.

Union opponents can be expected to mount a furious assault in the state senate, and then head to court. But the senate is likely to pass the reform supported by GOP Governor Jon Huntsman Jr., so Utah may soon become the first state with a universal school choice plan. It would offer students who attend private K-12 schools from $500 to $3,000 in tuition reimbursement based on family income.

Meanwhile, South Carolina could be next. Legislation is now being drafted to allow nearly 200,000 poor students to opt out of failing public schools by giving them up to $4,500 a year to spend on private school tuition. Middle class parents would be eligible for a $1,000 tax credit.

Reference for editorial:

"Choice Advances." The Wall Street Journal (Weds., February 7, 2007): A14.

Real-Time Pricing Results in More Efficient Electricity Generation

Real-time electricity meters in a building in Central Park West behind resident Peter Funk, Jr. Source of photo: online version of the NYT article cited below.

The article excerpted below gets some of the story right. It should emphasize more that the main benefit from real-time pricing would be that it would reduce the peak load. Generation plants need to be built to handle peak-load. The last generating plants to go on line are the least efficient. if the need for such inefficient, peak-load, plants can be reduced, the costs of generating electricity can be enormously reduced.

There is talk of market competition in the states that have deregulated their electric utility industries. But it should be remembered that even where most deregulated, the result is a long way from a paradigmatic free market. The main point is hinted at in the article below. The ultimate suppliers of electricity to the home remain government-protected monopolies.

If we wanted a truly free market, maybe we should actually allow multple companies to connect to homes, the way we allow multiple television and internet companies to connect their cables to the home. Then some low-cost Wal-Mart of electricty would arise, and blow the stick-in-the-muds away.

(p A1) Ten times last year, Judi Kinch, a geologist, got e-mail messages telling her that the next afternoon any electricity used at her Chicago apartment would be particularly expensive because hot, steamy weather was increasing demand for power.

Each time, she and her husband would turn down the air-conditioners — sometimes shutting one of them off — and let the dinner dishes sit in the washer until prices fell back late at night.

Most people are not aware that electricity prices fluctuate widely throughout the day, let alone exactly how much they pay at the moment they flip a switch. But Ms. Kinch and her husband are among the 1,100 Chicago residents who belong to the Community Energy Cooperative, a pilot project to encourage energy conservation, and this puts them among the rare few who are able to save money by shifting their use of power.

Just as cellphone customers delay personal calls until they become free at night and on weekends, and just as millions of people fly at less popular times because air fares are lower, people who know the price of electricity at any given moment can cut back when prices are high and use more when prices are low. Partici-(p. A14)pants in the Community Energy Cooperative program, for example, can check a Web site that tells them, hour by hour, how much their electricity costs; they get e-mail alerts when the price is set to rise above 20 cents a kilowatt-hour.

If just a fraction of all Americans had this information and could adjust their power use accordingly, the savings would be huge. Consumers would save nearly $23 billion a year if they shifted just 7 percent of their usage during peak periods to less costly times, research at Carnegie Mellon University indicates. That is the equivalent of the entire nation getting a free month of power every year.

. . .

Under either the traditional system of utility regulation, with prices set by government, or in the competitive business now in half the states, companies that generate and distribute power have little or no incentive to supply customers with hourly meters, which can cut into their profits.

Meters that encourage people to reduce demand at peak hours will translate to less need for power plants — particularly ones that are only called into service during streaks of hot or cold weather.

In states where rates are still regulated, utilities earn a virtually guaranteed profit on their generating stations. Even if a power plant runs only one hour a year, the utility earns a healthy return on its cost.

In a competitive market, it is the spikes in demand that cause prices to soar for brief periods. Flattening out the peaks would be disastrous for some power plant owners, which could go bankrupt if the profit they get from peak prices were to ebb significantly.

. . .

The smart metering programs are not new, but their continued rarity speaks in part to the success of power-generating companies in protecting their profit models. Some utilities did install meters in a small number of homes as early as three decades ago, pushed by the environmental movement and a spike in energy prices.

For the full story, see:

DAVID CAY JOHNSTON. "Taking Control Of Electric Bill, Hour by Hour." The New York Times (Mon., January 8, 2007): A1 & A14.

(Note: ellipses added.)

Graph showing the range of variation in hourly electricity rates in different months. Source of graphic: online version of the NYT article cited above.

Plastic Pipes Need Less Labor, So Unions Oppose

Residential plastic pipe. Source of photo: http://www.omaha.com/index.php?u_pg=46

(p. D1) The City of Omaha is considering allowing an alternative to copper pipes in residential plumbing, a move the local builders association says could keep new home prices from rising so fast.

. . .

(p. D2) "Omaha is kind of unique in not allowing plastic. It’s kind of an isolated pocket," said Blas Hernandez, Papillion’s chief building official, who also has worked in the Kansas City, Denver, upstate New York and central Nebraska areas.

Mike Lipke, western regional manager for FlowGuard Gold CPVC pipes, agreed. He said Omaha and Chicago stand out among Midwestern cities for not allowing plastic water pipes.

Several people with long tenure in the building industry said they believe Omaha has lagged in adoption of plastics because the material is less labor-intensive to install and organized labor has fought to protect work for its members.

Stephen Andersen, business manager for the 470-member Omaha Plumbers Local 16, said he doesn’t think it’s necessarily faster to install plastic pipes, and he personally favors copper "because it’s such a good product, a proven product."

. . .

With the housing market slowed and copper prices still high, now may be the time to make affordability the most important consideration, said Paul Frazier, president of the Frazier Co. and a member of the Metro Omaha Builders Association’s board.

"MOBA is fully behind" the proposed change, President Rocky Goodwin said. Frazier represented MOBA in discussions with the Omaha Plumbing Board.

"We’re long overdue for this," Frazier said. "Anything that holds costs down while doing as good or better job is a good thing.

. . .

Lipke, who sells CPVC, said all the model codes and all 50 states approve the use of plastic and plastic has captured two-thirds of the market.

. . .

"People might try it because it’s less money, but they won’t keep using it if it doesn’t work," Lipke said. "It’s a good product, and it certainly shouldn’t be banned the way it is in Omaha."

For the full story, see:

DEBORAH SHANAHAN. "Omaha may lift ban on residential plastic pipe." Omaha World-Herald (Wednesday, January 24, 2007): D1 & D2.

(Note: ellipses added.)

[Joseph Schumpeter was born on February 8, 1883.]

Hope for Film Version of Atlas Shrugged

Rand, Ruddy, Wallace, and Jolie. Source of photos: http://ustimes.us/ayn_rand_no_longer_has_script_approval.htm

(p. 9) BACK in the 1970s Albert S. Ruddy, the producer of ”The Godfather,” first approached Ayn Rand to make a movie of her novel ”Atlas Shrugged.” But Rand, who had fled the Soviet Union and gone on to inspire capitalists and egoists everywhere, worried aloud, apparently in all seriousness, that the Soviets might try to take over Paramount to block the project.

”I told her, ‘The Russians aren’t that desperate to wreck your book,’ ” Mr. Ruddy recalled in a recent interview.

Rand’s paranoia, as Mr. Ruddy remembers it, seems laughable. But perhaps it was merely misplaced. For so many people have tried and failed to turn the book she considered her masterpiece into a movie that it could easily strike a suspicious person as evidence of a nefarious collectivist conspiracy. Or at least of Hollywood’s mediocrity.

Of course Rand herself had a hand in blocking some of those attempts before she died in 1982. Her heirs in the Objectivist school of thought helped sink some others. And plans for at least a couple of television mini-series fell to the vicissitudes of network politics and media mergers.

But Rand’s grand polemical novel keeps selling, and her admirers in Hollywood keep trying, and the latest effort involves a lineup of heavy hitters, starting with Angelina Jolie. Randall Wallace, who wrote ”Braveheart” and ”We Were Soldiers,” is working on compressing the nearly 1,200-page book into a conventional two-hour screenplay. Howard and Karen Baldwin, the husband-and-wife producers of ”Ray,” are overseeing the project, and Lions Gate Entertainment is footing the bill.

Whether Ms. Jolie, who has called herself something of a Rand fan, will bring the novel’s heroine, Dagny Taggart, to life on screen, or merely wind up on a list with other actresses who sought or were sought for the role — including Barbara Stanwyck, Faye Dunaway, Raquel Welch, Farrah Fawcett and Sharon Stone — remains to be seen. Until now, at least, no one in Hollywood has figured out a formula that promises both to sell popcorn and to do justice to the original text, let alone to the philosophy that it hammers home endlessly, at times in lengthy speeches. (The final one is 60 pages long.)

But Mr. Baldwin said he believed that Mr. Wallace and the rest of their team were up to the task. ”We all believe in the book, and will be true to the book,” he said.

For the full story, see:

KIMBERLY BROWN. "FILM; Ayn Rand No Longer Has Script Approval." The New York Times, Section 2 (Sun., January 14, 2007): 9 & 14.

A 1957 photo of Rand in New York. Source of photo: http://www.iht.com/articles/2007/01/11/news/atlas.php

“Bitter Cold Grips the Nation”: Evidence for Global Cooling?

Screen capture from the MSN web site whose link is given below.

Several weeks ago, when much of the nation was experiencing above-average temperatures, network reports intoned how the warmth was a sign of global warming. So using consistent reasoning, should they not now intone that the bitter cold is a sign of global cooling?

Note that there is no mention of global warming (or cooling) in the Today Show report mentioned below.

On one of the NBC web sites, the Today Show report was described this way: "Deep freeze Feb. 5: Midwest and Northeast residents hunker down for a deep freeze expected to last most of the week. NBC’s Kevin Tibbles reports."

Here is the link to the report:

http://video.msn.com/v/us/msnbc.htm?f=00&g=0de6ae06-e747-4aaf-9a7e-7e81ef9224f7&p=hotvideo_m_edpicks&t=m5&rf=http://www.msnbc.msn.com/id/16987213/&fg=

Good Intentions Are Not Enough

Another lesson from an intriguing book by Steven Johnson, is that Edwin Chadwick’s good intentions were not enough to beat the cholera epidemic in London. Johnson tells of Chadwick’s two catastrophic illusions:

The first was his belief that, since the mephitic odors of private cesspools posed such a clear and present danger to health, sewage ought instead to be discharged down public drains into the Thames, from which most Londoners took their drinking water. As the great builder Thomas Cubitt remarked: "The Thames is now made a great cesspool instead of each person having one of his own."

The consequences of this well-intentioned blunder were worse even than those of the decision of the Lord Mayor during the Great Plague of 1665-66 to exterminate all the city’s dogs and cats because of the false rumor that they were spreading the plague, thus allowing an exponential increase in the population of the rats who were the real transmitters.

Having contaminated a large part of the population he was trying to protect, Chadwick committed his second mistake, sternly setting his face against the simple explanation that would bring about a cure. To his dying day — which did not come until 1890 — Chadwick remained an unrepentant miasmatist, as proponents of the airborne explanation for cholera were known. So was Florence Nightingale. The Lancet, the leading medical journal, venomously denounced the waterborne theory and its dogged proponent, John Snow.

For the full review, see:

FERDINAND MOUNT. "BOOKS; Lost in a Time of Cholera; How a doctor’s search solved the mystery of an epidemic in Victorian London." The Wall Street Journal (Sat., October 21, 2006): P8.

The reference to the book is:

Johnson, Steven. The Ghost Map: The Story of London’s Most Terrifying Epidemic – and How It Changed Science, Cities, and the Modern World. New York: Riverhead Books, 2006. 299 pages, $26.95

Middendorf “Studied Under Joseph Schumpeter”

Source of book image: http://basicbooks.com/perseus/book_detail.jsp?isbn=0465045731

William Middendorf was important in the Goldwater campaign for president. Here is a brief excerpt from his recent book about the campaign:

(p. 8) . . ., I became a disciple of the Austrian libertarian school of economics, having studied under Joseph Schumpeter (an odd-man-out at Harvard, later named by the Wall Street Journal as the most important economist of the twentieth century) and Ludwig Von Mises (at New York University). Schumpeter and Von Mises saw entrepreneurship as a major driving force in economic development, considered private property—protected by an independent judiciary—essential to the efficient use of resources, and held that government intereference in market processes was usually counterproductive.

The reference to the book is:

Middendorf, J. William, II. Glorious Disaster: Barry Goldwater’s Presidential Campaign and the Origins of the Conservative Movement. New York: Basic Books, 2006.

To Help Poor: “Allow Entrepreneurs to Flourish”

Of the three "views" discussed in Wessel’s original commentary, the following excerpt just includes the one that I share:

With the billions of dollars they are spending, Bill Gates, Warren Buffett, Bill Clinton and Bono are likely to make progress in their quest to prevent treatable diseases from killing millions of people. Nearly all of these people live or will live in poor countries.

That worries economist Simon Johnson. He doesn’t doubt the moral imperative to fight disease. Still, he wonders: "Do we really know how to help the poor people — the increasing number of poor people? Do we really know how to help them out of poverty?"

Such questions haunt academics, governments, international institutions and global do-gooders. They are impressed with China’s rapid modernization, though puzzled that it has done so well without following standard precepts. They are disappointed and puzzled that Latin America nations haven’t done better, especially because so many did take the advice of the experts. They are depressed and puzzled by the continued widespread misery in Africa.

With intellectual humility, Mr. Johnson, a professor at Massachusetts Institute of Technology’s Sloan School of Management, faced a roomful of peers at the annual meeting of the American Economics Association last weekend and said, "Public health had the germ theory of disease. Economics has made great progress, but it’s still waiting for its ‘germ theory of disease.’" That probably overstates the challenges remaining to public-health warriors — avian flu, AIDS/HIV, malaria and all — but not the shortcomings of economic understanding of what poor countries should do to achieve sustained growth.

. . .

A third view is that earlier economists focused on the wrong thing. Mr. Johnson, among others, argues that what really matters is having solid political, legal and economic institutions — courts, central banks, honest bureaucrats, private-property rights — that allow entrepreneurs to flourish. Imposing what seem to be sound economic policies on corrupt, incompetent or myopic governments is doomed. Building strong institutions is a necessary prerequisite. In this camp, there is a running side argument about which comes first: the institutions or the educated people who create them. Was the Constitution key to U.S. success, or was it Jefferson, Madison and Hamilton?

For the full commentary, see:

DAVID WESSEL. "CAPITAL; Why Economists Are Still Grasping For Cure to Global Poverty." The Wall Streeet Journal (Thurs., January 11, 2007): A7.

Americans Believe “Individuals Are Responsible for their Own Success”

David Brooks. Source of photo: online version of the NYT commentary cited below.

David Brooks wrote some useful reflections on some of the work of sociologist Seymour Martin Lipsett, who died on New Year’s Eve at the end of 2006:

Lipset was relentlessly empirical, and rested his conclusions on data as well as history and philosophy. He found that Americans have for centuries embraced individualistic, meritocratic, antistatist values, even at times when income inequality was greater than it is today.

Large majorities of Americans have always believed that individuals are responsible for their own success, Lipset reported, while people in other countries are much more likely to point to forces beyond individual control. Sixty-five percent of Americans believe hard work is the key to success; only 12 percent think luck plays a major role.

In his “American Exceptionalism” (1996), Lipset pointed out that 78 percent of Americans endorse the view that “the strength of this country today is mostly based on the success of American business.” Fewer than a third of all Americans believe the state has a responsibility to reduce income disparities, compared with 82 percent of Italians. Over 70 percent of Americans believe “individuals should take more responsibility for providing for themselves” whereas most Japanese believe “the state should take more responsibility to ensure everyone is provided for.”

America, he concluded, is an outlier, an exceptional nation.

For the full commentary, see:

DAVID BROOKS. "The American Way of Equality." The New York Times, Section 4 (Sun., January 14, 2007): 12.

The Difference Between Being a University President and Being a Cabinet Officer

At a dinner last week to announce the winner of the business book of the year award, Lawrence H. Summers, the former Treasury secretary, poked fun at his tenure as the president of Harvard. . . .

Specifically, he said he was woefully naïve when he had been first asked to describe the difference between being a university president and being a cabinet officer. ”I guess I didn’t get it right in the answer I gave in my first year or two,” he said, ”because I used to say, ‘Well, in Washington, it’s so political; there’s organized opposition to everything.’ ”

For the full story, see:

JANE L. LEVERE. "OPENERS: SUITS; HARVARD EDUCATION." The New York Times, Section 3 (Sun., October 29, 2006): 2.

(Note: ellipsis added.)