June 2006 – Page 2 – artdiamondblog.com

Container Ships Revolutionized Shipment of Goods

Source of book image: http://www.pupress.princeton.edu/titles/8131.html

Virginia Postrel’s periodic column in the New York Times over the past six years, was a beacon of optimism, clarity and fresh insights on how the economy works. The excerpt below is from her last column. Presumably she is moving on to other worthy challenges, but her column in the Times will be missed.

”Low transport costs help make it economically sensible for a factory in China to produce Barbie dolls with Japanese hair, Taiwanese plastics and American colorants, and ship them off to eager girls all over the world,” writes Marc Levinson in the new book ”The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger” (Princeton University Press).

For consumers, this results in lower prices and more variety. ”People now just take it for granted that they have access to an enormous selection of goods from all over the world,” Mr. Levinson said in an interview. That selection, he said, ”was made possible by this technological change.”

. . .

The idea of containerization was simple: to move trailer-size loads of goods seamlessly among trucks, trains and ships, without breaking bulk. But turning that idea into real-life business practice required many additional innovations.

New equipment, from dockside cranes to the containers themselves, had to be developed. Carriers and shippers had to settle on standard container sizes. Ports had to strengthen their wharves, create connections to rail lines and highways, build places to store containers and strike new deals with their unions.

Along the way, even the most foresighted people made mistakes and lost millions. Malcom McLean himself bought fast fuel-guzzling ships right before the 1973 oil crisis and slow, economical ships just as fuel prices turned down. ”Almost everybody who was concerned with containerization in any way at some point got the story wrong,” Mr. Levinson said.

It is a classic tale of trial and error, and of creative destruction.

For the full commentary, see:

Virginia Postrel. "ECONOMIC SCENE; The Container That Changed the World." The New York Times (Thursday, March 23, 2006): C3.

The full reference to Levinson’s book is:

Levinson, Marc. The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger. Princeton University Press, 2006.

“giving individual schools more autonomy”

(p. A1) SAN DIEGO — When San Diego’s school district began overhauling its science-education curriculum five years ago, it wanted to raise the performance of minority, low-income and immigrant students.

But parents in middle- and upper-income areas, where many students were already doing well, rebelled against the new curriculum, and a course called Active Physics in particular. They called it watered-down science, too skimpy on math.

A resistance movement took hold. Some teachers refused to use the new textbooks, which are peppered with cartoons. They gathered up phased-out texts to use on the sly. As controversy over the issue escalated, it played a part in an election in which the majority of the school board was replaced. Now, further curriculum changes are under consideration.

. . .

(p. A11) Mitz Lee, a parent activist at Scripps Ranch High, also a high-achieving school, continued quietly organizing opposition and eventually made it a cornerstone of her 2004 campaign for a seat on the school board.

Opposition to the program remained sharp among some veteran science teachers. Tom Deets, who teaches at Patrick Henry High, argued that freshman who hadn’t passed eighth-grade algebra weren’t ready for physics. Rather than teach the new course, he switched to math until the district offered him an administrative job.

Aiming to keep their hands on alternative teaching materials, an active underground sprang up, with teachers squirreling away old physics textbooks to make sure the district couldn’t collect them. "At one time, I probably had 400 books," says Hal Cox, a retired submarine commander who teaches physics at Hoover High School. "I put them in lockers, everywhere I could find."

The opposition came to a head with the school-board elections of 2004, when three critics of the district’s overall curriculum changes, including those in math and reading, were elected to its five-member school board. The winners included Ms. Lee, who had campaigned for an end to "fuzzy" science and was elected by the widest margin of the new board members. She has lately been pushing for giving individual schools more autonomy on course choice. "I don’t want any more central mandates," Ms. Lee says.

For the full story, see:

ROBERT TOMSHO. "Textbook Battle; Top High Schools Fight New Science As Overly Simple; San Diego’s Physics Overhaul Makes Classes Accessible, Spurs Parental Backlash; Test Scores Barely Budge." The Wall Street Journal (Thurs., April 13, 2006): A1 & A11.

Virginia Senator George Allen has “a libertarian sense”

Virginia Senator George F. Allen. Source of photo: http://en.wikipedia.org/wiki/Image:George_Allen_official_portrait.jpg

Mr. Allen says he has "a libertarian sense." He describes himself as more in sync with Thomas Jefferson and Ronald Reagan than with George Bush. "I’m one who dislikes limits. I don’t like restrictions. I like freedom. I like liberty. Unless you’re harming someone else, you leave people free."

For the full interview, see:

FRED BARNES. "THE WEEKEND INTERVIEW with George Allen; The Virginian." The Wall Street Journal (Sat., April 22, 2006): A8.

Hydrocarbons Exist in Abundance

Source of book image: http://www.amazon.ca/exec/obidos/tg/detail/-/books/0521679796/reviews/702-4209854-6789623

In a useful commentary, Holman Jenkins quotes Exxon CEO Rex Tillerson:

"It is true that the age of ‘easy oil’ is over. What many fail to realize is that it has been over for decades. Our industry constantly operates at the edge of technical possibility, constantly developing and applying new technologies to make those possibilities a reality," he told a group in Washington last week.

Doubters might consult a new book by energy economist Mark Jaccard, entitled "Sustainable Fossil Fuels," winner of Canada’s Donner Prize. He argues that hydrocarbons, in the form of oil, gas and coal, exist in such abundance, the challenge of technology is how to burn them more cleanly, not how to survive without them.

For the full commentary, see:

HOLMAN W. JENKINS, JR. "BUSINESS WORLD; On Gasoline, Voters Get the Politicians They Deserve." The Wall Street Journal (Weds., May 10, 2006): A19.

The full reference to the Jaccard book mentioned by Holman, is:

Jaccard, Mark. Sustainable Fossil Fuels: The Unusual Suspect in the Quest for Clean and Enduring Energy. Cambridge University Press, 2006.

R. Glenn Hubbard Coins a Phrase: “Nondestructive Creation”

In much of the press speculation right before Bush named the replacement for Alan Greenspan as head of the Fed, three names were usually mentioned as frontrunners: Ben Bernanke, Martin Feldstein, and R. Glenn Hubbard. Based on various speeches and writings, I had reason to believe that Feldstein and Hubbard understood and appreciated the importance of Schumpeter’s process of creative detruction. So I hoped that Bush would pick either Feldstein or Hubbard. Alas, I have found no evidence that Bernanke has ever mentioned creative destruction (but maybe I just haven’t dug hard enough).

In the passage below, Hubbard suggests that much job creation, occurs through nondestructive creation, rather than through creative desruction. An interesting claim, that may be true. But I doubt it. Some evidence would be nice.

Much of the current policy discussion of the ups and downs of the labor market harkens back to entrepreneurship as "creative destruction." This conception has fueled policy anxiety over job loss and global competition. But so much of productivity-enhancing entrepreneurship is really about "nondestructive creation," in which new products and ideas generate growth.

There are policy lessons, too, in the observation that it is not simply opportunity (e.g., IT) but the seizing of opportunity (e.g., new types of firms or business practices) that enhances productivity. Competition can promote entrepreneurial innovation in a way that raises productivity growth: Foreign competition has long been a source of productivity-enhancing innovation. In the domestic economy, policy can enhance or limit competition by its stance toward new business formation and employment. The U.S. has enviably low regulatory costs of business formation, while, by contrast, entry restrictions limit business formation in a number of other competitor countries. Labor market policy matters, too: Recent OECD research finds a strong negative correlation between a country’s technology growth-rate and the strength of its employment protection laws.

. . .

Over the past quarter-century, average U.S. labor productivity has risen by two-thirds. This enormous increase in workers’ ability to produce has not come at the expense of jobs. The 40 million new jobs created over the same period reveal the secret of an entrepreneurial economy: Successfully seizing business opportunities can raise living standards and employment. For this reason, entrepreneurship–the motor that drives the labor market–must be a focus of study in business education and policy making.

For the full commentary, see:

R. Glenn Hubbard. "’Nondestructive Creation’." The Wall Street Journal (Wednesday, September 7, 2005): A16.

P.S. Mark Wohar alerted me to an amusing music video, satarizing Hubbard’s possible ambitions to become chair of the Fed. I later saw the video receive publicity on CNBC’s Power Lunch program, where the video’s student-creators at the Columbia Business School were feted. The video may be found at: http://www0.gsb.columbia.edu/everybreath/

An Inconvenient Truth About “An Inconvenient Truth”

Al Gore. Source of photo: http://in.news.yahoo.com/051008/137/60gzj.html

(p. A25) If Al Gore’s new movie weren’t titled ”An Inconvenient Truth,” I wouldn’t have quite so many problems with it.

. . .

Gore shows the obligatory pictures of windmills and other alternative sources of energy. But he ignores nuclear power plants, which don’t spew carbon dioxide and currently produce far more electricity than all ecologically fashionable sources combined.

A few environmentalists, like Patrick Moore, a founder of Greenpeace, have recognized that their movement is making a mistake in continuing to demonize nuclear power. Balanced against the risks of global warming, nukes suddenly look good — or at least deserve to be considered rationally. Gore had a rare chance to reshape the debate, because a documentary about global warming attracts just the sort of person who marches in anti-nuke demonstrations.

Gore could have dared, once he enticed the faithful into the theater, to challenge them with an inconvenient truth or two. But that would have been a different movie.

For the full commentary, see:

JOHN TIERNEY. "Gore Pulls His Punches." The New York Times (Tuesday, May 23, 2006): A25.

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”

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

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):