artdiamondblog.com – Page 609 – Art Diamond's web log

Level 3 Hangs On

The fiber optic network of Level 3, originally founded in Omaha, Nebraska. Source of map: online version of the WSJ article cited below.

Ex ante, Level 3 seemed to have a plausible business model. When they laid fiber optics, they left room to install more, when demand, or a change in technology, made that profitable. But demand did not rise as expected; and technologists elsewhere found clever ways to cram more bandwidth into existing fiber optics. So, alas for many in Omaha, ex post, the results are in the graph below.

Fiber-optic network operator Level 3 Communications Inc., a high-flyer during the telecommunications bubble, almost went bankrupt after the sector burst in 2000.

Now, it is back, with a stock price that has almost doubled in the past year and bond prices that have risen about 20%.

Behind the gains: Explosive growth in video viewing over the Internet, which requires high-speed networks of the sort Level 3 offers. At the same time, a hearty appetite by investors for risky debt has enabled the company to put itself on firmer footing by refinancing its debt at lower rates. There also are good reasons to believe that Level 3 might be an acquisition candidate, though many feel such speculation is overblown.

But there are reasons to be wary: The company remains saddled with debt, it is in a business that still has excess capacity, and it has reported a quarterly profit just once in its more than 20-year history. With the stock and bonds at lofty levels, it could be that any future possible good news already is priced in.

For the full story, see:

LI YUAN and GREGORY ZUCKERMAN. "HEARD ON THE STREET; Level 3 Regains Luster Amid Web-Video Boom." The Wall Street Journal (Thurs., December 21, 2006): C1 & C4.

(Note: the above version is the online version, and differs some from the print version, though not in substance, as far as I noticed.)

Level 3 stock prices. Source of graphic: online version of the WSJ article cited below.

Poor Mexicans Hurt by Higher Corn Prices Caused by Ethanol Production

In Mexico City, protesters complain about the high price of tortillas and other corn-based food staples. Source of photo: online version of the NYT article cited below.

Support for the free market is very fragile in places like Mexico. Calderón won a close election, and is, by all accounts, an advocate for the free market. So it is sad that United States government subsides for ethanol result in pain in Mexico that makes it harder for Calderon to effectively move Mexico toward the free market, and a better life for the Mexican people.

So do we blame Bush for coming out for ethanol in his State of the Union address on Tuesday (1/23/07)? Well maybe Bush can only afford to fight the political trends on one or two issues. And he has seen the war against terrorism as the big issue of our time. On that he is right.

So while we can see why political survival may force Bush into support of ethanol, and Calderón into support for price controls on tortillas, we still need to identify policies that are inefficient and wrong.

Subsidies on ethanol, and price controls on corn, are inefficient. And inefficiency means that the economy produces less, and grows more slowly, and lives are lived less well.

MEXICO CITY, Jan. 18 — Facing public outrage over the soaring price of tortillas, President Felipe Calderón abandoned his free-trade principles on Thursday and forced producers to sign an agreement fixing prices for corn products.

Skyrocketing prices for corn on the world market have pushed up the price of the humble tortilla, the mainstay of the Mexican diet, by nearly a third in the past three weeks, to 35 cents a pound in Mexico City and even higher in other parts of the country.

Half of the country’s 107 million people live on $4 a day or less, and many of them survive largely on tortillas and beans. The price increases have riled the public to such an extent that it has created a political storm that threatens to swamp Mr. Calderón’s fresh presidency.

This month, the president, who took office in December, was booed and heckled at events around the country over food prices. Mexican lawmakers called on him to impose price controls, while leftist opposition leaders suggested that he was protecting giant corn companies.

. . .

There is a continuing debate here about what caused the price of tortillas to shoot up so quickly. Some economists blame the increased demand for corn from ethanol plants in the United States, and it is true corn prices in the States last week reached their highest point in a decade, the United States Agriculture Department said. At the same time, the cost of white corn has risen about 13 percent here over the past year, Mexican government figures show.

. . .

The spike in corn prices has hurt small storefront tortilla makers, a hallmark of the Mexican street. José Solano, a 27-year-old tortilla maker in Mexico City, said he had lost about 40 percent of his business since early January, when he was forced to start raising his prices.

“People are still buying tortillas, but many of them buy less,” he said. “Look, we can’t give our product away because we need a profit, and if they raise the cost of corn, there’s no other way.”

The crisis has hit hardest for the poorest Mexicans, who may spend more than a quarter of their daily salaries on tortillas.

“This really affects my budget, the expenses of my family, because I cannot tell my kids to eat less,” said Ruth Soria, a 37-year-old housewife, who was buying four pounds of tortillas for her six children on Thursday. “This is something that they must control well. The tortilla is something basic for us. What the government did today is the least they could do.”

JAMES C. McKINLEY, Jr. "Cost of Corn Soars, Forcing Mexico to Set Price Limits." The New York Times (Fri., January 19, 2007): A11.

Calderón on right shakes the hand (and picks the pocket?) of Roberto González, who is the head of Gruma, one of Mexico’s large tortilla and corn flour distributors. Source of photo: online version of the NYT article cited below.

The Poignant Nobility of Katalimata

Source of book image: the web site cited below.

Years ago I saw a program on the History Channel that has stuck in my mind. (But, alas, I do not remember the title.) Near the end, I think, they discussed an ancient horde of invaders that created a dark age in the Mediterranean region. An on-sight scholar discussed a tiny cliff-side settlement that a family of natives had retreated to, to defend what little they had.

Attacking the tiny enclave would have been difficult. It was a long way up a treacherous and visible trail. But for the same reasons, living there would have been difficult too.

How human these unknown ancients were who defended their family and property; how poignantly noble.

When I watched the program, I jotted down a single word, the name of the site: Katalimata.

In doing a web search, I encountered the book (a monograph in the Aegean series), whose image appears above. I’m guessing that the book discusses the site I saw in the program, since the book description says that its author participated in digs at Katalimata.

The reference to the book is:

Nowicki, Krzysztof. "Defensible Sites in Crete C.1200 – 800 B.C." Aegaeum Vol. 21, 2000.

For more information on the book, see:

http://www.ulg.ac.be/archgrec/aegaeum21.html

The Case for Clutter

Cartoon clutter by Edward Koren. Source of cartoon: online version of the NYT article cited below.

(p. D1) But contrarian voices can be heard in the wilderness. An anti-anticlutter movement is afoot, one that says yes to mess and urges you to embrace your disorder. Studies are piling up that show that messy desks are the vivid signatures of people with creative, limber minds (who reap higher salaries than those with neat ”office landscapes”) and that messy closet owners are probably better parents and nicer and cooler than their tidier counterparts. It’s a movement that confirms what you have known, deep down, all along: really neat people are not avatars of the good life; they are humorless and inflexible prigs, and have way too much time on their hands.

. . .

(p. D6) Mr. Freedman is co-author, with Eric Abrahamson, of ”A Perfect Mess: The Hidden Benefits of Disorder,” out in two weeks from Little, Brown & Company. The book is a meandering, engaging tour of beneficial mess and the systems and individuals reaping those benefits, . . .

For the full story, see:

PENELOPE GREEN. "Saying Yes to Mess." The New York Times (Thurs., December 21, 2006): D1 & D6.

(Note: the ellipses are added.)

The reference to the new book:

Abrahamson, Eric, and David H. Freedman. A Perfect Mess: The Hidden Benefits of Disorder–How Crammed Closets, Cluttered Offices, and on-the-Fly Planning Make the World a Better Place. New York: Little, Brown & Company, 2007.

Don Springer won his company’s contest for having the worst clutter. Source of photo: online version of the NYT article cited above.

Warm Winter Benefits Poor

THE recent warm weather in the Northeast might not have been great for makers of winter coats, but the economy and markets could be poised for a small fillip.

. . .

Putting agriculture aside, there are other potentially important macroeconomic effects, said Michael Greenstone, a professor of environmental economics at the Massachusetts Institute of Technology. “The basic idea is that extremes of temperatures, really hot and really cold, are dangerous for human health,” he said. “To the extent that the recent warm weather on the East Coast moved us from cold days to more moderate days, that’s likely to reduce mortality rates. Having more people around is obviously good for consumption and economic activity.”

. . .

The temporary warm weather does have very real benefits for poor families.

A warm winter can relax their financial constraints by requiring less spending on heating, said Steven J. Haider, an associate professor of economics at Michigan State University.

“They often are making very tough decisions, whether those decisions are paying bills, child care, clothes or food during a particular month,” he said. “If there is a cold-weather shock, and their heating bill goes up in a particular month, there are poor people who struggle.”

Professor Haider and three colleagues researched the effect of weather on poor families’ budgets and found that there were substantial effects from extreme temperatures.

“For the short-run effects that we’re seeing this year, the answer is, yes, the poor families are feeling a little less constrained,” he said. “I’m sure the families have other important uses for that money.”

Indeed, lower demand for heating oil in the United States, along with rising inventories for other refined petroleum products, has helped to push crude oil prices down— a boon for the rest of the world, too.

For the full commentary, see:

DANIEL ALTMAN. "ECONOMIC VIEW; A Tepid Winter Warms Some Wallets." The New York Times, Section 3 (Sun., January 14, 2007): 4.

(Note: ellipses added.)

International Trade Helps Poor African Cotton Farmer

Left photo shows Dennis Okelo in the grocery store that he opened with savings from growing cotton, and selling it to Dunavant. Right photo shows a Dunavant cotton gin in Zambia. Source of photos: online version of the NYT article cited below.

(p. 1) WHERE is he?” the old woman asks. “Where is he?”

Finding Dennis Okelo used to be easy. The old woman — and most other people in a village outside of Lira, the provincial capital of northern Uganda — went directly to Mr. Okelo’s fields. He was always in one of his “gardens,” with his slacks rolled up above his calves and a short hoe close by. Or he was seated outside of his mud-brick house under a banana tree.

Then cotton growing revived in Uganda, and Dunavant Enterprises came to town about five years ago, paying cash on delivery. After three seasons of growing cotton for Dunavant, the world’s largest privately owned cotton broker and one of the biggest family-owned agribusinesses in the United States, Mr. Okelo, who owns less than three acres and has two wives and a passel of children, had saved $300, about double his annual earnings before Dunavant started buying his cotton.

Last summer, Mr. Okelo opened a grocery store, which is where the old woman finally found him: smiling, standing behind the wooden plank that serves as his service counter in a shop the size of a utility shed. The grocery, one of two in the village, carries dried foods, cooking oil, matches, cosmetics, batteries and candy.

“Before Dunavant, no one came to help us,” says Mr. Okelo, 40, who has farmed a variety of crops in these parts for about 20 years.

. . .

(p. 7) IN his small shop, Mr. Okelo knows nothing of global developments in the cotton trade even though he is a direct beneficiary of them. He started farming during the lean years in Uganda, after the ouster of the country’s notorious dictator, Idi Amin, when the cultivation of cotton lagged so badly that production nearly ceased and farmers treated the crop like a weed.

A few years ago, as Uganda’s production began to revive, Dunavant’s trainers taught Mr. Okelo to grow cotton in straight rows and to use a string to measure precisely the distance between rows, to maximize plantings. Mr. Okelo’s new methods are basic, but in a part of Africa where farmers work the land chiefly with a hoe — and tractors, fertilizer and pesticides are rarities — even basic improvements can lead to large gains in production.

“Cotton is the crop that gives farmers the best money,” Mr. Okelo said. “I want Dunavant to be even closer to me.”

For the full story, see:

G. PASCAL ZACHARY. Out of Africa: Cotton and Cash." The New York Times, Section 3 (Sun., January 14, 2007): 1 & 7.

(Note: ellipses added.)

William B. Dunavant, Jr. Source of photo: online version of the NYT article cited above.

Reagan’s Resolve

In this anecdote from the Bosch book, Reagan’s son Ron (who has often been critical of his father) tells of an expedition with his father to collect flagstone for eventual use in building a patio:

(p. 140, footnote 11) We went out to retrieve a lot of these big heavy stones and load them into a little trailer that would be then hauled behind this ancient old original Jeep. I mean this was just like the proto-Jeep that he still had, because he’d never throw anything away. And so we’d, you know, spend a few hours hauling these big heavy rocks and we’d load them into the little trailer. It’s now piled high. It must weigh tons. Climb back into the Jeep and head up this slope that’s steep. I mean this is steep. And on one side you’ve got a sheer drop to the Santa Ynez Valley, you know, 2,000 feet below, and on the other side a gully full of rocks. And we’re hauling this huge mass of sandstone behind us. Now this Jeep, this poor thing, it’s…it’s not going to make it. And about three-quarters of the way up this steep hill, it starts to give out. And it’s mmm-mmm-mmm, and it becomes apparent that we’re not going to crest the hill. And now we’re actually going backwards. We’re not hauling the rocks, the rocks are hauling us. And I’m ready to get out. Not him. He’s—handling it. He’s going to back this thing down, by God. And he does…and we make it down…the rocks haul us back down the hill, but we manage to stay on the road. Now I’m thinking, well, OK, so now we’re going to turn around and go some other way, because there’s no way we’re going up, we’re not going to try that again. Oh no, no, we’re going to go up that hill. You know, by God, we’re going up that hill. I…it must have taken us three or four tries, of getting almost up the hill and being hauled back down, and each time I’m thinking OK, you know, which way do I jump. He’s cool as a cucumber. Didn’t bother him at all.

Source:

Bosch, Adriana. Reagan: An American Story. TV Books Inc., 1998.

(Note: ellipses in original.)

Barney Frank on Schumpeter’s “Great Concept”

Barney Frank. Source of photo: http://www.house.gov/frank/welcome.html

Policy-makers are often enthused by the innovation unleashed by Schumpeter’s process of creative destruction, but draw back out of fear of the destruction of jobs. In the passage below, Barney Frank expresses that fear.

I think that there are answers to the fear. More and better jobs are created, than destroyed; workers can invest in general skills that do not depreciate, and retool the specific skills that do depreciate; and conscientious workers suffer from lack of recognition and upward mobility, when creative destruction is stiffled. The pain is less than usually thought, and the gain is greater.

One of the consequences of this separation between economic growth and the well-being of the great majority of citizens is that an increasing number of citizens don’t care about economic growth. Not surprising. Not only do they not benefit, but in many cases they get the short-term disruptive effects.

I mean, there was a great concept from Joseph Schumpeter of creative destruction in which, as the old economic order is destroyed, resources are freed up for the new order.

Well, increasingly, we have people who see the destruction in their own lives, but don’t see that they’re going to be part of the new creation.

Source:

Transcript of remarks delivered at the National Press Club on "Wages" by Democratic Representative Barney Frank of Massachusetts, on January 3, 2007.

Increase in Minimum Wage, Decreases Employment Among Low-Skill Workers

Basic price theory seems to imply that raising the minimum wage, will result in greater unemployment. Almost all economists accepted this conclusion until several years ago, when some empirical results seemed to challenge it. Now there is active debate.

Here is the abstract of a relevant, just-published, article in the leading journal in the field of labor economics:

We infer the employment response to a minimum wage change by calibrating a model of employment for the restaurant industry. Whereas perfect competition implies that employment falls and prices rise after a minimum wage increase, the monopsony model potentially implies the opposite. We show that estimated price responses are consistent with the competitive model. We place fairly tight bounds on the employment response, with the most plausible parameter values suggesting that a 10% increase in the minimum wage lowers low-skill employment by 2%-4% and total restaurant employment by 1%-3%.

The article reference is:

Aaronson, Daniel, and Eric French. "Product Market Evidence on the Employment Effects of the Minimum Wage." Journal of Labor Economics 25, no. 1 (Jan. 2007): 167-200.

At Screen Actors Guild, Communists Threatened to Disfigure His Face

Source of book image: http://www.shopaim.org/assets/images/large/458i.jpg

There are better books on Reagan. But Bosch’s book has a few illuminating anecdotes. Here is one:

(p. 63) Reagan first learned about Communists and their intentions as a member of a Hollywood union, the Screen Actors Guild (SAG). He had been introduced to the Screen actors Guild by his wife Jane Wyman and had quickly risen to become a member of the Guild’s board. As a SAG Board member, and later as its president, he mediated a dispute between two rival unions. One of the unions, the Conference of Studio Unions (CSU), was led by a suspected Communist, Herb Sorrell.

. . .

(p. 64) Sorrell and Reagan went head to head. When Reagan crossed a picket line outside Warner Brothers, Sorrell called for a boycott of his movies. Reagan was called a fascist. An anonymous phone caller threatened to disfigure his face so he could never act again. He began to carry a gun and accepted police protection. He became an informant for the FBI

"These were eye-opening years for me," he later wrote. "Now I knew form first-hand experience how Communists used lies, deceit, violence, or any other tactic that suited them to advance the cause of Soviet expansionism."

Source:

Bosch, Adriana. Reagan: An American Story. TV Books Inc., 1998.

Becker on Friedman

Source of graphic: http://www.ideachannel.com/Friedman.htm

David Levy has noted in an email that at the reception to preview the new Friedman documentary, Gary Becker gave a great presentation on Milton Friedman, and it was a great shame that no one recorded it. I feel especially guilty, because I had thought of recording it, and had even brought a small camera that would have (badly) done the job. But the room was dark and crowded, and by the time the talk started, I was in conversation a long way from where Becker started speaking.

Levy suggests that maybe those of us who were there, should record our memories of what Becker said. I like that idea, and will record mine here.

Becker started out by saying to Bob Chitester that he wasn’t sure that the documentary did justice to Friedman. (Chitester was the producer, I think, of the original Free to Choose series, and a moving force behind the new Friedman documentary, to be first shown on PBS on January 29th, 2007.)

Becker mentioned that Friedman was a missionary. He would talk economics to anyone–if a taxi driver made a mistaken comment about economics, Friedman would set him straight.

Becker mentioned that while Friedman liked to argue about ideas, he never saw him be mean to anyone.

Becker mentioned that a friend of his taking Friedman’s price theory class (I think Becker may have said the friend was Gregory Chow?) asked Becker how he could keep asking questions in Becker’s class, when Friedman would keep showing the ways in which Becker was mistaken.

Becker mentioned that he talked to Friedman a few days before his death, and that they even talked a little economics.

Becker emphasized that Friedman had been both a great economist, and had made an enormous difference in the world, in particular in making the world more free.

Some background: Becker spoke about Friedman at two sessions at the Allied Social Sciences Association meetings in Chicago in early January. One was in the afternoon (about 2:30 PM?) of January 5, 2007, and also included Robert Lucas, and Tom Sargent. I missed that session because I wanted to attend a session featuring the research program of Robert Fogel on longevity. The second session, at 6:00 – 7:30 PM on Sat., January 6, 2007 was at a reception sponsored by the University of Chicago to preview the new documentary on Friedman. I attended this reception through Becker’s presentation, but did not stay for the documentary preview. My friend Luis Locay attended both sessions, and told me that some, but not all, of the stories Becker told were similar in both sessions. Locay also mentioned that Becker appeared to get more choked-up at the session on January 5, 2007.