Tech Advances, Are Not Always Advances in All Respects

Advances in technology are not uniform along all dimensions.  The new technology is often better overall, but may actually represent steps backward along some dimensions.  For example I used to use a word-processor called "Wordmarc" that permitted me to go to a page by simply typing in  the page number of the page, which I still wish I could do with large documents in Microsoft Word.  And the first email system we used in the college, from Wordperfect, I think, allowed you to retrieve an email, if you had second thoughts about it, before it was opened by the intended recipient. 

Here are a couple of more examples:

 

(p. A8)  In the age of film, when the button was pressed, the picture was captured in an instant. In the vast majority of digital cameras, there’s a delay that can last as long as two seconds.

To some users, it’s another example of how advanced-technology products often lack important virtues of their predecessors.  Cellphones often crackle with static that Ma Bell eliminated in rotary phones many years ago; computer printers need endless adjusting before they can print an address on an envelope — a task that typewriters took in stride.

"I think we’ve really gone backwards on these technologies," complains Marcia Gregg, a mother of two from Boston who has a digital camera but still fondly recalls her Pentax from the 1980s that "was instantaneous and made a really cool sound" when its motor drive was running.

 

For the full article, see: 

WILLIAM M. BULKELEY.  "Why Digital Cameras Often Shoot the Pony But Get Only the Tail The Answer Is ‘Shutter Lag,’ The Bane of Shutterbugs; Photo Ops Become Oops."  The Wall Street Journal  (Fri., May 26, 2006):  A1 & A8. 

Becoming Rich by “playing the tuba on the day it rained gold”

MungerCharlie2.jpg Charlie Munger. Sourge of image: online version of the NYT article cited below.

 

CHARLES T. MUNGER, Warren E. Buffett’s partner and one of the smarter thinkers on the planet, had few kind words for money managers at the recent annual meeting of his company, Wesco Financial.  

"I regard the amount of brainpower going into money management as a national scandal," he said. He later recalled a story told when he was a child in Texas: "When some idiot would get rich, they’d say, ‘Well, old Charlie was out in the field playing the big brass tuba on the day it rained gold.’ A lot of people have become rich lately who were playing the tuba on the day it rained gold."

Lately, though, it has been raining lead on the tuba players.

 

For the full commentary, see:

JENNY ANDERSON. "Insider; Hey, You Have a Problem Paying Alpha Fees and Getting Beta Returns?" The New York Times (Fri., May 26, 2006): C7.

Prices Can Be Lower When Few Firms in Industry

TabarrokAlex.jpg   Alex Tabarrok.  Source of image:  http://www.gmu.edu/centers/publicchoice/faculty.html

 

Price gouging can work only if firms have monopoly power — so if gouging is the explanation for higher premiums, we would expect to see higher premiums in states with less competition. My student, Amanda Agan, and I tested this hypothesis in a study released two days ago by the Manhattan Institute. Contrary to the gouging hypothesis, we found that a 10% increase in industry concentration reduces premiums by $2,200. The result makes sense if we remember that, to increase market share, firms don’t raise prices but rather lower them. Wal-Mart has grown into the nation’s dominant retailer by lowering prices, not raising them.

 

For the full commentary, see: 

ALEX TABARROK. "Rule of Law; Price Gouging Is Bad Medicine." The Wall Street Journal (Sat., May 20, 2006):  A9.

 

We Should Reward Those Who Take Risks to Produce What We Need

On the Democratic and Republican-in-Name-Only side, we have the idea of "windfall profits taxes" on energy companies. These would presumably mandate a desirable level of corporate profits in one sector on which we depend. (And how long do you think it would apply to only one industry?) If profits exceeded that level, they would be taxed.

As far as I can tell, there is no plan to give a rebate to the companies if their profits have fallen below that desired level.

In other words, the plan is to send this message to energy-company investors, including retirees and pension funds: "Yes, we are in a situation of oil and gas shortage. Yes, we want you to risk billions of dollars exploring for and producing and refining oil and processing gas. But if you succeed for any reason, and even if no price-fixing is found, we will punish you for it."

This is what I would call confusion. You usually get more of something by rewarding people for doing it or producing it, not by punishing them for doing it or producing it.

Yes, the human instinct of envy demands that we get some licks in against people who are doing well, even if we are doing only slightly less well ourselves. But economies built on the politics of envy are rarely successful. Ask the Cambodians or the Chinese or the Russians before they went capitalist.

 

For the full commentary, see:

BEN STEIN.  "Everybody’s Business; A Quick Course in the Economics of Confusion."  The New York Times  (Sun., May 28, 2006):

“My Merit Is My Caste; What Is Yours?”

NEW DELHI, May 22 — The problem of caste prejudice here is as ancient as the Hindu texts. The efforts to redress it date from the formation of modern India nearly 59 years ago. Today — as India enjoys awesome rates of economic progress and confronts the challenge of spreading the benefits to its needy majority — the nation faces a polarizing totem of public policy: a government plan to extend college admission quotas to certain "backward" castes.

Affirmative action is in some ways an even more emotional issue in India than in the United States. In recent weeks, a proposal to extend quotas for admission to some of the country’s flagship, federally financed universities has caused fresh turmoil.

Protests — particularly by medical students who say merit should be the only basis for admission to India’s intensely competitive medical schools — have spread across the country and, here in the capital, hobbled public health services. Advocates and opponents of the measure have exchanged often ugly rants.

. . .

Medical students have been particularly outraged because the plan would further restrict the limited number of seats. Medical education in India begins with a five-year undergraduate program, and the proposal could affect students’ chances of completing their training.

The central lawn of the All India Institute of Medical Sciences, the pre-eminent public hospital, was occupied Friday by medical students on the fifth day of a strike that began last week and continued on Monday. "My merit is my caste. What is yours?" read one T-shirt.

. . .

The opponents say set-asides would diminish the quality of India’s best universities and divide students along caste lines.

"Why after 55 years are we still thinking in terms of caste-based reservation?" demanded Poojan Aggarwal, a third-year student at Safdarjung Medical College here. "We should talk now of total meritocracy. We know on this issue none of the political parties will support us."

 

For the full story, see:

SOMINI SENGUPTA. "Quotas to Aid India’s Poor vs. Push for Meritocracy."  The New York Times  (Tues., May 23, 2006):  A3.

(Note: ellipses added.)

Leapfrog Competition in Video Game Machines

  Source of book image: http://www.amazon.com/gp/product/customer-reviews/0385479492/ref=cm_cr_dp_2_1/104-0758544-2447945?%5Fencoding=UTF8&customer-reviews.sort%5Fby=-SubmissionDate&n=283155

 

Co-opetition is a readable book with some plausible discussion of interesting cases.  The central message is that business is not always a zero-sum game (in contrast, say, to competitive sports).  One implication is that the firm’s complementary relationships with other firms, may deserve as much attention as its competitive relationships. 

One qualitfication:  I think the book too much emphasizes game theory as the sine qua non source of the book’s insights.  About the only game theory you really need to understand 99% of the book’s analysis is the concept of the "zero-sum game."

In a couple of places, the book discusses "leapfrog" competiton in the video game industry:

 

(p. 102)   By mid-1995 the price of the 3DO machine was down to $400 (with $150 worth of software thrown in).  Cumulative sales passed half a million.  Progress, surely, but as of early 1996, 3DO’s future remains uncertain. It no longer has the 32-bit game to itself.  Sega is shipping its 32-bit Saturn machine at $400.  Sony has launched its 32-bit PlayStation at $300.  Looking to leapfrog them all is Nintendo, whose 64-bit Ultra machine is due out in April 1996 at a price under $250.  

(p. 114)  Could a challenger hope to breach Nintendo’s virtuous circle?  Not once the circle had got rolling.  Forget about alternatives–TV,  books, sports.  From a kid’s perspective, there were no good alternatives to a video game.  The only real threat came from alternative video game systems.  Here, software was key, as always.  With a huge library of Nintendo titles to choose from, why would anyone buy another machine?  Perhaps a challenger could take successful Nintendo games over to its platform and then offer its own library.  But the exclusivity clause killed that option.  No game could be taken to another platform for a two-year period, by which time the game was passe.  A challenger would have had to start from scratch.  While large profits and shortages normally invite entry, the virtuous circle made competing in Nintendo’s game hopeless.  The only hope was to leapfrog Nintendo with a new technology; that’s what Sega ultimately did, as we’ll see in the Scope chapter.

 

Source: 

Brandenburger, Adam M., and Barry J. Nalebuff.  Co-Opetition;  a Revolution Mindset That Combines Competition and Cooperation; the Game Theory Strategy That’s Changing the Game of Business,  1st ed.  Currency, 1996.

 

 

Doha Tariff Cuts Would Save Global Economy About $100 Billion; France Objects

 

FoodExportsAndTariffs.gif  Source of graphic:  online version of the WSJ article cited below.

 

(p. A1)  The so-called Doha round of talks, which began in 2001, were designed to boost developing nations; among other things, they want lower barriers to their agricultural exports.  France has vowed to veto any deal that doesn’t protect its farmers.  A pivotal missed deadline April 30 has led to predictions the talks could die by summer if countries including France don’t change their stance.

The standoff shows how cultural and emotional factors can combine with politics to stifle free-trade goals that most economists believe would provide a net benefit to the world.  The tariff cuts envisioned by Doha would not only help developing countries sell their minerals and food products, but would also lower barriers to the industrialized world’s exports of goods and services.  The World Bank calculates that Doha would boost the global economy by around $100 billion.

Overall, France itself likely would be a major economic gainer from a global (p. A10) deal.  Though it’s the world’s second-largest agriculture exporter after the U.S., farming accounts for just 2.5% of the French economy.  World-class manufacturing and service companies, such as car maker Renault SA and insurer AXA SA, are larger engines of the French economy.  France could gain more income than it would lose in opening its agricultural markets to budding farm superpowers like Brazil.

Even in agriculture, France can be a formidable competitor, notably in products such as wine and cheese.  Its brand is well-known the world over.  And its farms are increasingly home to capital-intensive agribusiness companies, not just small family producers.  Most of the $11.5 billion in European Union subsidies that France receives each year goes to the largest, most commercially viable farms.

WTO chief Pascal Lamy, a Frenchman, says he doesn’t understand France’s position.  "As an efficient farm producer, the strategy should be to reduce subsidies and prices, because others won’t be able to compete with you," he said in a recent interview.

. . .

The French rural tradition, however, is changing.  Between 1993 and 2004, the number of arable farms fell by nearly a third.  Wide swaths of neglected land are now home to unsightly scrub, and the farms people see as they drive down France’s immaculate highways are often parts of major business enterprises.  Oxfam says as much as 60% of subsidies went to the richest 15% of French farmers in 2004, the latest figures available.

Oxfam believes the EU’s tariffs and farm subsidies, which total over €40 billion annually, are harmful to the world’s poorest countries.  High customs duties keep products from poor nations out of the wealthy EU market.  At the same time, EU farmers overproduction is dumped cheaply abroad, driving down global prices and harming farmers in the developing world.

 

For the full story, see:

SCOTT MILLER.  "Food Fight; French Resistance To Trade Accord Has Cultural Roots; WTO Talks Promise Benefits But Farmers Retain Hold On the Nation’s Stomach; ‘Politicians Are Frightened’."  The Wall Street Journal  (Tues., May 16, 2006):  A1 & A10.