November 2005 – Page 2 – artdiamondblog.com

It’s Hard to Be Consistent

After Alfred Kahn succeeded in leading the effort to deregulate the airline industry, he apparently received some complaints about some of the results of deregulation:

When Senator Barry Goldwater, the 1964 Republican presidential candidate and author of the bestselling Conscience of a Conservative, wrote him to complain about unpleasant conditions aboard now-packed flights, Kahn replied that this was the inevitable consequence of breaking up a “cartel-like regime.” He added, “When you have further doubts about the efficiency of a free market system, please do not hesitate to convey them to me. I also warmly recommend some earlier speeches and writings of one Senator Barry Goldwater.” (p. 382)

Yergin, Daniel, and Joseph Stanislaw. The Commanding Heights: The Battle for the World Economy. New York: Simon & Schuster, 1998.
The results of the free market combine the preferences and actions of all of the participants in the market. So even the most fervent advocate of the process, will inevitably find some of the results distasteful or unpleasant. But the advocate should try to be consistent for two reasons. Primarily, because the free market embodies free choice, and free choice is morally good. Secondarily, because the free market produces more good results than any other process.

Incentives Matter

Traffic congestion on 7th Avenue near Times Square. Source of photo: online version of the NYT article quoted and cited below, downloaded at: http://www.nytimes.com/2005/11/11/nyregion/11traffic.html

(p. A23) It is an idea that has been successful in London, and is now being whispered in the ears of City Hall officials after months of behind-the-scenes work by the Partnership for New York City, the city’s major business association: congestion pricing.

The idea is to charge drivers for entering the most heavily trafficked parts of Manhattan at the busiest times of the day. By creating a financial incentive to carpool or use mass transit, congestion pricing could smooth the flow of traffic, reduce delays, improve air quality and raise the speed of crawling buses.

Source:

SEWELL CHAN. “Driving Around in Busy Manhattan? You Pay, Under Idea to Relieve Car Congestion.” The New York Times (Friday, November 11, 2005): A23.

In Millard, Parents Can Choose Montessori; In OPS, They Cannot

[p. 1B] The district contends that taking over dozens of suburban schools and thousands of students would minimize the impact of the option program and give OPS a better chance at integration.
But if OPS succeeds, it also could undermine the ability parents now have to choose the school that fits best for their children.
That’s important to Art Diamond, who lives within the OPS district but sends his 11-year-old daughter, Jenny, to Millard’s Montclair Elementary [p. 3B] because of its Montessori program.
“It seems to me the main issue is who is offering the best educational program,” Diamond said. “If they (OPS) had offered a Montessori program, we would have stayed in OPS.”
. . .
As Mackiel sees it, that departure causes problems for the Omaha district by altering its racial and economic makeup. But parents of option students don’t view their decisions through the same lens.
“It frustrates me when I hear OPS saying people live in Millard to get away from diversity,” said Diamond, the OPS resident whose daughter attends a Montessori program in Millard.
“I believe strongly in diversity, but I also believe strongly in Montessori.”

MICHAELA SAUNDERS and PAUL GOODSELL. “OPS Has No Option But to Let Whites Go.” The Omaha
World-Herald (Sunday, November 13, 2005): 1B & 3B.
Jenny is actually currently a sixth grader in Millard’s Montessori program at Central Middle School. But Ms. Saunders was mainly asking me questions about our original decision to option into the Montclair Elementary Montessori program. So maybe I was unclear that Jenny had moved on to the next stage of the Millard Montessori program. In any event, the story was essentially accurate in capturing the main point of my comments: we chose Millard because, unlike OPS, MIllard has the entrepreneurial initiative to offer the Montessori educational program.

Peter Drucker Saw the Importance of Creative Destruction

1999 photo of Drucker from NYT online article cited below.

Peter F. Drucker, the political economist and author, whose view that big business and nonprofit enterprises were the defining innovation of the 20th century led him to pioneering social and management theories, died yesterday at his home in Claremont, Calif. He was 95.

For the full obituary, see:
BARNABY J. FEDER. “Peter F. Drucker, a Pioneer in Social and Management Theory, Is Dead at 95.” The New York Times ( November 12, 2005) online version dowloaded from http://www.nytimes.com/2005/11/12/business/12drucker.html?pagewanted=1

Peter Drucker is sometimes given credit for helping keep the ideas of Schumpeter alive, and helping spur their revival in the 1980s. See Drucker’s article:
Drucker, Peter F. “Modern Prophets: Schumpeter or Keynes?” Reprinted as Ch. 12 in The Frontiers of Management. New York: Penguin Putnam, Inc., 1986, pp. 104-115 (originally published as: “Schumpeter and Keynes.” Forbes (May 23, 1983): 124-128).

Rioting Caused by Economy Closed to Creative Destruction

Source of photo: WSJ online version of article quoted and cited below.

The French rioters face very high unemployment. French restrictions on the labor market, and the economy more generally, cause the high unemployment. For example, the French make it hard for firms to fire employees, so as a result, firms are more reluctant to hire workers in the first place, resulting in higher unemployment. Although they do not know it, the rioters are rioting because France is closed to creative destruction. The following commentary is on point:

(p. A16) Like other Americans, immigrants often dramatically improve their quality of life and economic prospects by moving out to less dense, faster growing areas. They can also take advantage of more business-friendly government. Perhaps the most extreme case is Houston, a low-cost, low-tax haven where immigrant entrepreneurship has exploded in recent decades. Much of this has taken place in the city itself. Looser regulations and a lack of zoning lower land and rental costs, providing opportunities to build businesses and acquire property.

It is almost inconceivable to see such flowerings of ethnic entrepreneurship in Continental Europe. Economic and regulatory policy plays a central role in stifling enterprise. Heavy-handed central planning tends to make property markets expensive and difficult to penetrate. Add to this an overall regulatory regime that makes it hard for small business to start or expand, and you have a recipe for economic stagnation and social turmoil. What would help France most now would be to stimulate economic growth and lessen onerous regulation. Most critically, this would also open up entrepreneurial and employment opportunity for those now suffering more of a nightmare of closed options than anything resembling a European dream.

For the full commentary, see:
Joel Kotkin. “Our Immigrants, Their Immigrants.” The Wall Street Journal (November 8, 2005): A16.

Gradualism Doomed to Failure

Perhaps these observations are relevant to the claim by what I call the “left Schumpeterians” (e.g., Tom Friedman) that a substantial labor safety net is necessary for creative destruction to work.

(p. 271) In Warsaw, from 1978 onward, he had directed what became known as “the Balcerowicz group,” a long-running study group that was devoted to analyzing the “problems” of socialism and the question of how to reform the Polish economy. It focused on such basic questions as property rights, the proper role of the state in the economy, inflation, and what was increasingly becoming the true hallmark of socialism-shortages. All of this convinced Balcerowicz that “gradualism” was doomed to failure. Unless enough changes were combined and applied rapidly, the necessary “critical mass” would not be reached. Unlike many economists, he also dabbled in social psychology. He was particularly impressed by the theory of cognitive dissonance. As Balcerowicz summed up its significance for economic reform: “People are more likely to change their attitudes and their behavior if they are faced with radical changes in their environment, which they consider irreversible, than if those changes are only gradual.”

Source:
Yergin, Daniel, and Joseph Stanislaw. The Commanding Heights: The Battle Between Government and the Marketplace that is Remaking the Modern World.. New York: Simon & Schuster, 1998.