Capitalist Enclave Celebrates Diversity

Barkeep Jae Hyuk Lee in Dublin.  Source of photo:  online version of NYT article cited below.

 

Ireland is a capitalist enclave, in a Europe infused with high taxes, heavy government regulation, and the welfare state.  Captitalism is sometimes portrayed as inhumane, but it is under capitalism that diversity and tolerance thrive:

Like traditional Dublin pubs, bars catering to immigrants operate according to an Irish barman’s basic principles: drinks served promptly, customers treated with respect and, when the occasion calls for it, readiness to listen to the troubles of the day.

Since members of many other ethnic groups — from Asia, Africa and Eastern Europe — have also opened businesses in the area, Mr. Lee’s short, gritty stretch of Parnell Street feels like a bewildering experiment in diversity. This part of Ireland’s capital is a microcosmic study of how global migration trends can transform a formerly homogeneous city.

One of Mr. Lee’s neighbors displays an array of dangling hair extensions for African women; another sells sausages and bags of pretzels imported from Poland, in three or four different flavors.

The Ice Bar itself has been decorated by an eclectic imagination: Chinese drinking poems are painted on one wall and deer skulls are mounted on another. The patrons are a jumble of students and artsy types, Asian and European, and music fans drawn by Mr. Lee’s policy of letting local D.J.’s and Spanish bands take over the sound system.

Mr. Lee likes the "good balance" and says his customers, in an unspoken gesture of good will, drink each other’s national beers. "We are curious about another culture," he said. "I’m Korean; I want to have a pint of Guinness instead of Korean beer." And Irish patrons tend to order bottles of Asian brews like Tsingtao from China and Chang from Thailand.

. . .

"Life is quite short, and I wanted to have a look all over the world," he said. "That was my plan. But I realized I quite like this place."

 

For the full story, see:

BRIAN LAVERY.  "DUBLIN JOURNAL; Now, the Barkeeps May Come From the Ends of the Earth."  The New York Times (Tues., May 16, 2006):  A4.

 

 DublinThaiDrinkingPoem.jpg "his customers, in an unspoken gesture of good will, drink each other’s national beers."  Source of caption, and photo: online version of NYT article cited above.

Mugabe’s Hyperinflation: More on Why Africa is Poor

 

(p. A1)  HARARE, Zimbabwe, April 25 — How bad is inflation in Zimbabwe?  Well, consider this:  at a supermarket near the center of this tatterdemalion capital, toilet paper costs $417.

No, not per roll.  Four hundred seventeen Zimbabwean dollars is the value of a single two-ply sheet.  A roll costs $145,750 — in American currency, about 69 cents.

The price of toilet paper, like everything else here, soars almost daily, spawning jokes about an impending better use for Zimbabwe’s $500 bill, now the smallest in circulation.

But what is happening is no laughing matter.  For untold numbers of Zimbabweans, toilet paper — and bread, margarine, meat, even the once ubiquitous morning cup of tea — have become unimaginable luxuries.  All are casualties of the hyperinflation that is roaring toward 1,000 percent a year, a rate usually seen only in war zones.

. . .

(p. A11)  Those with spare cash put it not in banks, which pay a paltry 4 to 10 percent annual interest on savings, but in gilt-edged investments like bags of corn meal and sugar, guaranteed not to lose their value.

”There’s a surrealism here that’s hard to get across to people,” Mike Davies, the chairman of a civic-watchdog group called the Combined Harare Residents Association, said in an interview.  ”If you need something and have cash, you buy it.  If you have cash you spend it today, because tomorrow it’s going to be worth 5 percent less.

”Normal horizons don’t exist here.  People live hand to mouth.”

. . .

. . . , Mr.  Mugabe’s government has printed trillions of new Zimbabwean dollars to keep ministries functioning and to shield the salaries of key supporters — and potential enemies — against further erosion.  Supplemental spending proposed early in April would increase the 2006 spending limits approved last November by fully 40 percent, and more such emergency spending measures are all but certain before the year ends.

. . .

Hyperinflation is a cradle-to-grave experience here.  The government recently announced that the price of childbirth, now $7 million, would rise 463 percent by October.  Funeral costs are to double over the same period.

In rural areas, said one official of a foreign-based charity who declined to be named, fearing consequences from the government, even the barest funeral costs at least $6 million, or about $28.50 — well beyond most families’ means.  The dead are buried in open fields at night, she said.  Recently, she watched one family dismantle their home’s cupboard to construct a makeshift coffin.

”I’ll never forget that,” she said.  ”The incredible sadness of it all.”

Critics say that Zimbabwe’s rulers are oblivious to such suffering — last year, Mr. Mugabe completed his own 25-bedroom mansion in a gated suburb north of town, close by the mansions of top ministers and military allies.

 

For the full story, see:

MICHAEL WINES.  "Zimbabwe’s Prices Rise 900%, Turning Staples Into Luxuries." The New York Times  (Tues., May 2, 2006):  A1 & A11.

Omit the Footnotes?

When I was a graduate student at Chicago, Milton Friedman was rumored to have given a presentation on how to write a doctoral dissertation in which he said something like: 

Take everything nonessential, and move it into footnotes.  Then collect all the footnotes into an appendix.  Finally, delete the appendix.

My memory is that Deirdra McCloskey, in her wonderful advice on how to write economics clearly, also advises against footnotes.  I at least attribute this advice to McCloskey (and Friedman) when I pass it on to students.

But sometimes, when I write an article, a misguided referee, or editor, insists that I omit some stuff that I think is really good.  When that happens, sometimes, if I feel strongly, I sneak some of that material back into the paper in footnotes.  Maybe no one will ever read it, but I feel better that it is still there.

And every once in awhile, it may turn out that the footnotes are what matter most: 

It was typical of Schumpeter’s love for theory that he rejected Marshall’s view that the reader could skip the footnotes and appendixes.  If time were short, Schumpeter advised, read them and skip the text!  (p. 7; italics in original.)

In this case, though, I suspect that Marshall was right, and Schumpeter wrong.

 

Source:

Samuelson, Paul. "Compete as an Economic Theorist." In Schumpeterian Economics, edited by Helmut Frisch, New York: Praeger Publishers, 1981, pp. 1-27.

 

Current Cost of Gas Needed to Drive a Mile, Is Not High, by Historical Standards

GasCosts.jpg 

Source of graphic:  p. C1 of NYT article cited below.

 

(p. C1) The price of gasoline is hovering around $3 a gallon, and politicians are falling over each other to pander to voters’ gas fears.  In a recent Gallup Poll, 70 percent of people said they favored price controls, a relic of Richard Nixon’s day.

But it’s time to take a deep breath and consider a radical fact: gas still isn’t all that expensive.  I’m not just talking about the disparity between prices here and in Europe, where gas taxes are much higher.  What really matters to people is the cost of the gas that is needed to drive a mile, a function of both the price of oil and the fuel efficiency of cars.

By this measure, gas for the average American now costs about what it did throughout the 1960’s and early 70’s and much less than in the early 80’s.  The 1990’s, in other words, were the big exception.

 

For the full commentary, see:

David Leonhardt.  "The High Costs of Cheap Gas and Vice Versa."  The New York Times  (Weds., May 10, 2006):  C1 & C11.

Will Google Leapfrog Microsoft?

 

Microsoft co-founder Bill Gates and Google CEO Eric Schmidt.  Source of photo:  online version of NYT article quoted and cited below.

 

The Microsoft-Google rivalry is shaping up as a titanic corporate clash for the ages.

It may not turn out that way.  Markets and corporate fortunes routinely defy prediction.  But it sure looks as if the two companies are on a collision course, as the realms of desktop computing and Internet services and software overlap more and more.

Microsoft, of course, is the reigning powerhouse of computing and Google is the muscular Internet challenger.  On each side, the battalions are arrayed: executives, engineers, marketers, lawyers and lobbyists. The spending and competition are escalating daily.  For each, it seems, the other passes what Andrew S. Grove, a founder and former chairman of Intel, calls the "silver bullet test" of strategic competition.  "If you had one bullet, who would you shoot with it?"

How the Microsoft-Google confrontation plays out could shape the future of competition in computing and how people use information technology.

Do the pitched corporate battles of the past shed any light on how this one might turn out?

Business historians and management experts say the experience in two of the defining industries of the 20th century, mass-market retailing and automobiles, may well be instructive.  The winners certainly scored higher in the generic virtues of business management:  innovation, execution and leadership.

But perhaps even more significant, those who came out on top, judging from history, had two more specific attributes.  They were the companies, according to business historians, that proved able to adapt to change instead of being prisoners of past success.  And in their glory days, these corporate champions were magnets for the best and brightest people.

 

For the full story, see:

STEVE LOHR.  "And in This Corner . . . Microsoft and Google Grapple for Supremacy as Stakes Escalate."  The New York Times  (Weds., May 10, 2006):  C1 & C14.

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

Static Versus Dynamic Pictures

Schumpeter distinguished the static picture of capitalism in the textbook model, with the dynamic reality captured in the process of creative destruction.   Apparently Ronald Reagan also understood that a dynamic view is better than a static snapshot.   Michael Deaver recounts:

(p. 75) . . . I told him that I noticed his aversion to sitting for photo shoots.  He looked at me surprised.  "That’s funny, in all these years, nobody’s ever noticed that."   I asked him to elaborate.  "Well, you can never recover from a still shot."

Reagan was most comfortable with moving film, he went on to say.  He truly believed the television camera was a friend, a device that would separate the real from the phony.  Still cameras could always be used to make a candidate look like a fool.  When he explained this to me in the (p. 76) late 1960s, he said, "You know how I sometimes touch my nose before I make a point?  Well, a still shot would show me picking my nose, while a live shot would show me making my point."

 

Source:

Deaver, Michael K.   A Different Drummer:   My Thirty Years with Ronald Reagan.  Reprint ed.  Harper Paperbacks, 2003.

 

Successful Mutual Fund Expert Claims Capitalism is Revitalized by Creative Destruction

SAN FRANCISCO — One morning in November 2003, 15 Dodge & Cox senior managers gathered in a conference room here to decide an issue brewing for years: Was it time to close the flagship Dodge & Cox Stock Fund to new investors?

For months, senior managers had stood in the hallways and gathered in glass-paned offices, questioning what long had been a point of pride in the mutual-fund world: huge sums of money pouring in for investment.  It became "a water-cooler kind of issue," recalls Kenneth Olivier, the firm’s president.

. . .

Dodge also faces some other issues:  In December, longtime Chief Investment Officer John Gunn became chief executive, and a new president and executive vice president were named.  Another CEO switch could occur when Mr. Gunn turns 65 in 2008.  That would be a relatively large amount of turnover for a firm that has had only five CEOs in its history.

. . .

. . . , Mr. Gunn often speaks at mutual-fund forums and investor conferences.  The ruffled-hair Mr. Gunn resembles a college professor, wearing gray pants with yellow pinstripes, a light orange shirt and a yellow tie with zebras one recent day.  His feet on a chair, he quoted 20th century Austrian economist Joseph Schumpeter when talking about media stocks, noting "capitalism is revitalized by waves of creative destruction."  Ancient Asian artifacts, like a pink stone statue from a 14th-century tomb, adorn the office.

As for the flagship fund’s future, Mr. Pohl said as he and Mr. Gunn sat at a conference-room table,  "the fact that we have outperformed" since closing to new investors, "I think is proof" that the decision was made at the right time.

"So far," Mr. Gunn added, half-jokingly.

 

For the full story, see:

DIYA GULLAPALLI.   "When Mutual Funds Don’t Want Your Cash Dodge & Cox Says No To Many New Customers; Angst at the Water Cooler."   The Wall Street Journal  (Mon., May 1, 2006):   R1 & R?.

(Note: ellipses added.)

 

 

Source of graphic:  online version of WSJ article cited above.

Charles Koch Participates in Schumpeter’s Process of Creative Destruction

 

KochClharles.gif Charles Koch.  Source of image:  online version of WSJ article cited below.

 

I heard Charles Koch speak at the April 2005 Orlando meetings of the Association of Private Enterprise Education.  Part of his speech involved how he has tried to apply in his own business, Schumpeter’s process of creative destruction.  For a long time Koch has been a stalwart defender of the free market in word and deed.

Ideas seem to exhilarate him.  This no doubt explains in part why this professorial CEO delivers "dozens and dozens" of lectures around the country to his employees on these very topics.  But what does any of this have to do with explaining his company’s prodigious profitability?  Well, everything — he believes.  Mr. Koch contends that the key insight of his business career was melding these philosophical insights about the way the wealth-creation process works into a business operating system called "Market Based Management."  This system, which he has trademarked, enables every division of his business empire to operate as a separate, autonomous, profit-maximizing unit.  It is intended to reward employees who think like entrepreneurs.

"Long-term success entails constantly discovering new ways to create value for customers and building new capabilities to capture new opportunities," he instructs.  "In this sense, maintaining a business is, in reality, liquidating a business."  Mr. Koch likens the cycle to Schumpeter’s "creative destruction" — where the old and inefficient are ruthlessly swept away by the new.

 

For the full commentary, see: 

STEPHEN MOORE. "THE WEEKEND INTERVIEW with Charles Koch; Private Enterprise." The Wall Street Journal (Sat., May 6, 2006): A8.

 

If Bush’s spirit breaks “evil will indeed triumph”

Natan Sharansky was a political prisoner for nine years in the Soviet Union.  He is articulate and passionate.  But I am not so sure he is right in almost equating freedom and democracy.

While I was an undergraduate at Wabash College, Ben Rogge arranged for Erik Maria Ritter von Kuehnelt-Leddihn to visit campus for a week.  Kuehnelt-Leddihn was an improbable walras of a man.  On my first encounter with him, I was stunned to hear him arguing that a monarchy embued with noblese oblige would be more likely to defend freedom, than would a democracy.  At first I thought the conclusion was patently absurd.  But over time, I gradually came to believe that although it was probably a false conclusion, it was not an absurd one. 

History, and modern experience, provide us many examples of democracies that severely restrict the freedom of their citizens.  And perhaps, for a time, freedom can thrive under enlightened monarchs, or dictators?

I hope, and still believe, that democracy is the system of government most likely, most of the time, to promote freedom.  If so, then what Bush is trying to do, may eventually leave the world safer, and more free:

 

Critics rail against every step on the new and difficult road on which the United States has embarked.  Yet in pointing out the many pitfalls which have not been avoided and those which still can be, those critics would be wise to remember that the alternative road leads to the continued oppression of hundreds of millions of people and the continued festering of the pathologies that led to 9/11.

Now that President Bush is increasingly alone in pushing for freedom, I can only hope that his dissident spirit will continue to persevere.  For should that spirit break, evil will indeed triumph, and the consequences for our world would be disastrous.

 

For the full commentary, see:

Sharansky, Natan.  "Dissident President."  The Wall Street Journal  (Mon., April 24, 2006):  A15.

Charlie Munger Calls Ethanol “Stupid”

Charlie Munger.  Source of image:   http://daily.stanford.edu/tempo?page=content&id=16135&repository=0001_article#

 

Charlie Munger is the number two executive, next to Warren Buffett, at Berkshire Hathaway.  He is old enough, and successful enough, and gutsy enough, and curmudgeony enough, to call ethanol "stupid" while in the "cornhusker state" for the company’s annual meeting.  (Of course, he wasn’t running for public office, and knew he would soon be flying back to his home in California.)

 

Munger said using ethanol for fuel seems "stupid" to him because it takes more energy to create than it produces as a fuel.  Buffett said there are so many ethanol plants, existing or planned, that he doesn’t see how they can all continue operating profitably.

 

For the full article, see:

STEVE JORDON and JONATHAN WEGNER.  "Berkshire Notes: Clayton’s Excutives Double Up."  Omaha World-Herald  (Sunday, May 7, 2006):  1D.

(Note:  the annual meeting was held on Sat., May 6, 2006)  

Incentives and Constraints Matter, But Sometimes Values Do, Too


 Harvard sociology professor Orlando Patterson.  Source of image:
http://www.iadb.org/idbamerica/index.cfm?thisid=681

 

Cambridge, Mass. – Several recent studies have garnered wide attention for reconfirming the tragic disconnection of millions of black youths from the American mainstream. But they also highlighted another crisis: the failure of social scientists to adequately explain the problem, and their inability to come up with any effective strategy to deal with it.

The main cause for this shortcoming is a deep-seated dogma that has prevailed in social science and policy circles since the mid-1960’s: the rejection of any explanation that invokes a group’s cultural attributes — its distinctive attitudes, values and predispositions, and the resulting behavior of its members — and the relentless preference for relying on structural factors like low incomes, joblessness, poor schools and bad housing.

Harry Holzer, an economist at Georgetown University and a co-author of one of the recent studies, typifies this attitude. Joblessness, he feels, is due to largely weak schooling, a lack of reading and math skills at a time when such skills are increasingly required even for blue-collar jobs, and the poverty of black neighborhoods. Unable to find jobs, he claims, black males turn to illegal activities, especially the drug trade and chronic drug use, and often end up in prison. He also criticizes the practice of withholding child-support payments from the wages of absentee fathers who do find jobs, telling The Times that to these men, such levies ”amount to a tax on earnings.”

His conclusions are shared by scholars like Ronald B. Mincy of Columbia, the author of a study called ”Black Males Left Behind,” and Gary Orfield of Harvard, who asserts that America is ”pumping out boys with no honest alternative.”

This is all standard explanatory fare. And, as usual, it fails to answer the important questions. Why are young black men doing so poorly in school that they lack basic literacy and math skills? These scholars must know that countless studies by educational experts, going all the way back to the landmark report by James Coleman of Johns Hopkins University in 1966, have found that poor schools, per se, do not explain why after 10 years of education a young man remains illiterate.

Nor have studies explained why, if someone cannot get a job, he turns to crime and drug abuse. One does not imply the other. Joblessness is rampant in Latin America and India, but the mass of the populations does not turn to crime.

And why do so many young unemployed black men have children — several of them — which they have no resources or intention to support? And why, finally, do they murder each other at nine times the rate of white youths?

. . .  

So what are some of the cultural factors that explain the sorry state of young black men? They aren’t always obvious. Sociological investigation has found, in fact, that one popular explanation — that black children who do well are derided by fellow blacks for ”acting white” — turns out to be largely false, except for those attending a minority of mixed-race schools.

An anecdote helps explain why: Several years ago, one of my students went back to her high school to find out why it was that almost all the black girls graduated and went to college whereas nearly all the black boys either failed to graduate or did not go on to college. Distressingly, she found that all the black boys knew the consequences of not graduating and going on to college (”We’re not stupid!” they told her indignantly).

So why were they flunking out? Their candid answer was that what sociologists call the ”cool-pose culture” of young black men was simply too gratifying to give up. For these young men, it was almost like a drug, hanging out on the street after school, shopping and dressing sharply, sexual conquests, party drugs, hip-hop music and culture, the fact that almost all the superstar athletes and a great many of the nation’s best entertainers were black.

Not only was living this subculture immensely fulfilling, the boys said, it also brought them a great deal of respect from white youths. This also explains the otherwise puzzling finding by social psychologists that young black men and women tend to have the highest levels of self-esteem of all ethnic groups, and that their self-image is independent of how badly they were doing in school.

I call this the Dionysian trap for young black men. The important thing to note about the subculture that ensnares them is that it is not disconnected from the mainstream culture. To the contrary, it has powerful support from some of America’s largest corporations. Hip-hop, professional basketball and homeboy fashions are as American as cherry pie. Young white Americans are very much into these things, but selectively; they know when it is time to turn off Fifty Cent and get out the SAT prep book.

For young black men, however, that culture is all there is — or so they think. Sadly, their complete engagement in this part of the American cultural mainstream, which they created and which feeds their pride and self-respect, is a major factor in their disconnection from the socioeconomic mainstream.

 

For the full commentary, see:

ORLANDO PATTERSON. "A Poverty of the Mind."  The New York Times, Section 4 (Sunday, March 26, 2006):  13.