June 2007 – Page 2 – artdiamondblog.com

Chichen Itza May Have Lasted Longer than Other Mayan City-States Because of Its Free Trade

The guide told us that this area of pillars at Chichen Itza, in the Yucatan of Mexico, is thought to have been a market area. (Photo taken by me on April 8, 2007, at the excursion to Chichen Itza arranged for the Association of Private Enterprise Education.)

Usually we think of the Catholic Church’s great damage to knowledge being its persecution of Galileo and attempted suppression of heliocentricism. But the suppression quickly failed and nothing permanent was lost.

A greater harm to knowledge may have been done when, in the name of the inquisition, countless Mayan manuscripts were burned by the Spanish conquistadors.

Evidence was destroyed that likely would have helped us understand how the Mayan society worked.

For example, we were told on our visit to Chichen Itza that one hypothesis has it that Chichen Itza lasted 300 years longer than all other Mayan city-states because it was the only city-state dominated by cosmopolitan merchant and entrepreneur culture–an hypothesis that I find highly congenial.

Unfortunately, much of the evidence that might have confirmed, elaborated, or refuted this hypothesis, was destroyed forever.

The Importance of Entrepreneurial Innovation

The U.S. in the midst of the most entrepreneurial era in its history, with more than 500,000 Americans involved in launching their own companies each year and an estimated 10% to 15% of all working adults engaged in some kind of entrepreneurial activity. And among these entrepreneurs, it is the innovators who matter most.

Their enterprises are the ones which create the jobs and industries of the future — as they have lifted the economy’s productivity in the past. The automobile, the airplane, the telephone, air conditioning, the personal computer and its software, and Internet search engines — all were launched by innovative entrepreneurs rather than large companies.

For the full commentary, see:

ROBERT E. LITAN. "Innovators Matter Most." The Wall Street Journal (Sat., February 24, 2007): A8.

Mexican Federal Taxi “Charters” Increase Taxi Prices

A non-federally-chartered taxi leaves the Cancun Hilton, headed for the Cancun airport, charging $23. An identical, but federally-chartered cab, making the reverse trip, charges $40. (Photo by Art Diamond.)

When we arrived at the Cancun airport we faced a chaotic environment where many Mexicans were yelling at us to buy taxi tickets. After buying a ticket for $40, someone escorted us to a crowded, chaotic place to wait for a cab. We waited and waited in the noise and the heat. At some point, my daughter Jenny commented, "These people need to get organized."

Yes, Jenny they sure do! And you might think that what they need in order to get organized, is for the government to come in to organize them.

But it turns out that the government has already come in. Only federally charged taxis are allowed to take passengers from the airport to the hotel zone. The price is fixed at $40. On the other hand, any taxi may take passengers back to the airport, from the hotel zone. The base price for a return trip was $23 . (I added a $2 tip out of sympathy for the cabbie not driving a federally anointed cab.)

So, yes, these people need to get organized, and the best way to do that is to get their government out of their way, so that they can organize themselves through the free market.

Note: relevant guide book passage: "[Returning to the airport] the rate will be much less for the trip from the airport. (Only federally chartered taxis may take fared from the airport, but any taxi may bring passengers to the airport.)" (p. 78)

Note: italics in original; bracketed phrase added.

Source:

Baird, David, and Lynne Bairstow. Frommer’s Cancun, Cozumel & the Yucatan 2007. Hoboken, NJ: Wiley Publishing, Inc., 2006.

Nordhaus Critiques Stern’s Case for Environmental Disaster

My only major disagreement with the commentary below, is that I have much more confidence that, given free market institutions, our descendants will have the incentives, energy, and ingenuity, to solve the problems that they will face.

The Stern Review’s most influential critic has probably been William Nordhaus, a 65-year-old Yale professor who is as mainstream as economists come. Jeffrey D. Sachs, the anti-poverty advocate, calls Mr. Nordhaus “about the most reasonable man I know.”

He was the first speaker after lunch, and, of course, he had some very nice things to say about Sir Nicholas. The report “was presented here very eloquently by a distinguished scholar,” Mr. Nordhaus said. But then came the juicy stuff: the Stern Review “commits cruel and unusual punishment on the English language,” Mr. Nordhaus said, and the British government’s opinion on climate change is no more infallible than was its prewar view about weapons of mass destruction in Iraq.

This was fairly tame compared with the comments of another Yale economist, Robert O. Mendelsohn. “I was awestruck,” he said, comparing Sir Nicholas to “The Wizard of Oz.” But “my job is to be Toto,” he added, in the same good-humored tone Mr. Nordhaus used. “Is it in fact The Wizard of Oz, or is it nothing at all?”

The two professors raised some questions about the science in the Stern Review. Mr. Nordhaus wondered if carbon emissions and temperatures would rise as quickly as the report suggests, and Mr. Mendelsohn predicted that people would learn to adapt to climate change, reducing its ultimate cost.

But their main objection revolved around something called the discount rate. The Stern Review assumed that a dollar of economic damage prevented a century from now (adjusted for inflation) is roughly as valuable as a dollar spent reducing emissions today. In effect, the report argues for spending the money to cut emissions because future generations have as much claim on resources as current generations. “I’ve still not heard a decent ethical argument” for believing otherwise, Sir Nicholas said at the debate.

I’m guessing that your instinct is to agree with him. Mine certainly was. The problem is that none of us actually behave this way. If we really thought that our great-grandchild deserved our money as much as we do, we would never go out to dinner again. Instead, we would invest the $50 we would have spent on dinner, confident that it would grow over time and become perhaps $1,000 for our great-grandchild to put toward health care, education or a supercomputer. Any of that is preferable to our measly dinner.

But a dollar today truly is more valuable than a dollar a century from now. For one thing, your great-grandchild will almost certainly be richer than you are and won’t need your money as much as you do. So spending a dollar on carbon reduction today to avoid a dollar’s worth of economic damage in 2107 doesn’t make sense. We would be better off putting the money toward something likely to have a higher return than alternative energy, like education.

Technically, then, Sir Nicholas’s opponents win the debate. But in practical terms, their argument has a weak link. They are assuming that the economic gains from, say, education will make future generations rich enough to make up for any damage caused by climate change. Sea walls will be able to protect cities; technology can allow crops to grow in new ways; better medicines can stop the spread of disease.

For the full commentary, see:

DAVID LEONHARDT. "Economix; A Battle Over the Costs of Global Warming." The New York Times (Weds., February 21, 2007): C1 & C5.

Most Subprime Mortgages are Paid, and Allow the Poor to Own Homes

A study conducted by Kristopher Gerardi and Paul S. Willen from the Federal Reserve Bank of Boston and Harvey S. Rosen of Princeton, Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market (National Bureau of Economic Research Working Paper 12967), shows that the three decades from 1970 to 2000 witnessed an incredible flowering of new types of home loans. These innovations mainly served to give people power to make their own decisions about housing, and they ended up being quite sensible with their newfound access to capital.

These economists followed thousands of people over their lives and examined the evidence for whether mortgage markets have become more efficient over time. Lost in the current discussion about borrowers’ income levels in the subprime market is the fact that someone with a low income now but who stands to earn much more in the future would, in a perfect market, be able to borrow from a bank to buy a house. That is how economists view the efficiency of a capital market: people’s decisions unrestricted by the amount of money they have right now.

And this study shows that measured this way, the mortgage market has become more perfect, not more irresponsible. People tend to make good decisions about their own economic prospects. As Professor Rosen said in an interview, ”Our findings suggest that people make sensible housing decisions in that the size of house they buy today relates to their future income, not just their current income and that the innovations in mortgages over 30 years gave many people the opportunity to own a home that they would not have otherwise had, just because they didn’t have enough assets in the bank at the moment they needed the house.”

Of course, basing loans on future earnings expectations is riskier than lending money to prime borrowers at 30-year fixed interest rates. That is why interest rates are higher for subprime borrowers and for big mortgages that require little money down. Sometimes the risks flop. Sometimes people even have to sell their properties because they cannot make the numbers work.

. . .

And do not forget that the vast majority of even subprime borrowers have been making their payments. Indeed, fewer than 15 percent of borrowers in this most risky group have even been delinquent on a payment, much less defaulted.

When contemplating ways to prevent excessive mortgages for the 13 percent of subprime borrowers whose loans go sour, regulators must be careful that they do not wreck the ability of the other 87 percent to obtain mortgages.

For the full commentary, see:

AUSTAN GOOLSBEE. "ECONOMIC SCENE; ‘Irresponsible’ Mortgages Have Opened Doors to Many of the Excluded." The New York Times (Thurs., March 29, 2007): C3.

(Note: ellipses added.)

Blinder on Free Trade

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

For awhile, during the Clinton administration, many Democratic economists, such as Alan Blinder, seemed to solidly support free trade as an engine for economic growth. But now several Democratic economists, such as Blinder as described in the excerpt below, seem to be returning to the usual Democratic protectionist policies.

If the goal is economic progress and growth, such policies remain ill-advised, no matter how effective they are at helping Democrats to win elections. To whit: Ed Leamer provides the arguments and evidence against worries about outsourcing in his long, but excellent, review of Thomas Friedman’s hand-wringing in The World is Flat. (See way below for the reference.)

(p. A14) Mr. Blinder’s job-loss estimates in particular are electrifying Democratic candidates searching for ways to address angst about trade. "Alan, because of his stature, provided a degree of legitimacy to what many of us had come to feel anecdotally — that the anxiety over outsourcing and offshoring was a far larger phenomenon than traditional economic analysis was showing," says Gene Sperling, an adviser to President Clinton and, now, to Hillary Clinton. Her rival, Barack Obama, spent an hour with Mr. Blinder earlier in this year.

Mr. Blinder’s answer is not protectionism, a word he utters with the contempt that Cold Warriors reserved for communism. Rather, Mr. Blinder still believes the principle British economist David Ricardo introduced 200 years ago: Nations prosper by focusing on things they do best — their "comparative advantage" — and trading with other nations with different strengths. He accepts the economic logic that U.S. trade with large low-wage countries like India and China will make all of them richer — eventually. He acknowledges that trade can create jobs in the U.S. and bolster productivity growth.

But he says the harm done when some lose jobs and others get them will be far more painful and disruptive than trade advocates acknowledge. He wants government to do far more for displaced workers than the few months of retraining it offers today. He thinks the U.S. education system must be revamped so it prepares workers for jobs that can’t easily go overseas, and is contemplating changes to the tax code that would reward companies that produce jobs that stay in the U.S.

His critique puts Mr. Blinder in a minority among economists, most of whom emphasize the enormous gains from trade. "He’s dead wrong," says Columbia University economist Jagdish Bhagwati, who will debate Mr. Blinder at Harvard in May over his assertions about the magnitude of job losses from trade. Mr. Bhagwati says that in highly skilled fields such as medicine, law and accounting, "If we do a real balance sheet, I have no doubt we’re creating far more jobs than we’re losing."

. . .

He was silent when his former Princeton student, N. Gregory Mankiw, then chairman of President Bush’s Council of Economic Advisers, unleashed a political firestorm by reciting standard theory but appearing indifferent to pain caused to those whose jobs go overseas. "Does it matter from an economic standpoint whether items produced abroad come on planes and ships or over fiber optic cables?" Mr. Mankiw said at a February 2004 briefing. "Well, no, the economics is basically the same….More things are tradable than…in the past, and that’s a good thing."

Mr. Blinder says he agreed with Mr. Mankiw’s point that the economics of trade are the same however imports are delivered. But he’d begun to wonder if the technology that allowed English-speaking workers in India to do the jobs of American workers at lower wages was "a good thing" for many Americans. At a Princeton dinner, a Wall Street executive told Mr. Blinder how pleased her company was with the securities analysts it had hired in India. From New York Times’ columnist Thomas Friedman’s 2005 book, "The World is Flat," he found anecdotes about competition to U.S. workers "in walks of life I didn’t know about."

Mr. Blinder began to muse about this in public. At a Council on Foreign Relations forum in January 2005 he called "offshoring," or the exporting of U.S. jobs, "the big issue for the next generation of Americans." Eight months later on Capitol Hill, he warned that "tens of millions of additional American workers will start to experience an element of job insecurity that has heretofore been reserved for manufacturing workers."

At the urging of former Clinton Treasury Secretary Robert Rubin, Mr. Blinder wrote an essay, "Offshoring: The Next Industrial Revolution?" published last year in Foreign Affairs. "The old assumption that if you cannot put it in a box, you cannot trade it is hopelessly obsolete," he wrote. "The cheap and easy flow of information around the globe…will require vast and unsettling adjustments in the way Americans and residents of other developed countries work, live and educate their children." (Read that full article.)

. . .

Diana Farrell, head of the McKinsey Global Institute, a pro-globalization think-tank arm of the consulting firm that has done its own analysis of vulnerable jobs, calls Mr. Blinder "an alarmist" and frets about the impact he is having on politicians, particularly the Democrats who see resistance to free trade as a political winner. She insists many jobs that could go overseas won’t actually go.

Ms. Farrell says Mr. Blinder’s work doesn’t take into account the realities of business which make exporting of some jobs impractical or which create offsetting gains elsewhere in the U.S. economy. He counters he is looking further into the future than McKinsey — 10 or 20 years instead of five — and expects more technological change than the consultants do "even without the Buck Rogers stuff."

For the full story, see:

DAVID WESSEL and BOB DAVIS. "JOB PROSPECTS; Pain From Free Trade Spurs Second Thoughts; Mr. Blinder’s Shift Spotlights Warnings Of Deeper Downside." The Wall Street Journal (Weds., March 28, 2007): A1 & A14.

(Note: ellipses added.)

For Leamer’s wonderful riff on why we need not worry about outsourcing, see:

Leamer, Edward E. "A Flat World, a Level Playing Field, a Small World after All, or None of the Above? A Review of Thomas L. Friedman’s the World Is Flat." Journal of Economic Literature 45, no. 1 (March 2007): 83-126.

Alan S. Blinder. Source of photo: online version of the WSJ article cited above.

Entrepreneur Bets on Nuclear Power Revival

Entrepreneur Kyle Kimmerle at one of his 600 uranium claims. Source of photo: online version of the NYT article quoted and cited below.

Kyle Kimmerle is an entrepreneur, risking his own money. If he guesses right, he will make himself rich, by helping provide the fuel needed for generating electricity for us.

(p. C1) . . . Prices for processed uranium ore, also called U308, or yellowcake, are rising rapidly. Yellowcake is trading at $90 a pound, nearing the record high, adjusted for inflation, of about $120 in the mid-1970s. The price (p. C4) has more than doubled in the last six months alone. As recently as late 2002, it was below $10.

A string of natural disasters, notably flooding of large mines in Canada and Australia, has set off the most recent spike. Hedge funds and other institutional investors, who began buying up uranium in late 2004 to exploit the volatility in this relatively small market, have accelerated the price rally.

But the more fundamental causes of the uninterrupted ascendance of prices since 2003 can be traced to inventory constraints among power companies and a drying up of the excess supply of uranium from old Soviet-era nuclear weapons that was converted to use in power plants. Add in to those factors the expected surge in demand from China, India, Russia and a few other countries for new nuclear power plants to fuel their growing economies.

“I’d call it lucky timing,” said David Miller, a Wyoming legislator and president of the Strathmore Mineral Corporation, a uranium development firm. “Three relatively independent factors — dwindling supplies of inventory, low overall production from the handful of uranium miners that survived the 25-year drought and rising concerns about global warming — all have coincided to drive the current uranium price higher by more than 1,000 percent since 2001.”

. . .

. . . “We won’t build a new plant knowing there’s nowhere to put the used fuel,” Mr. Malone of Exelon said. “We won’t build one without community support, and we won’t build until market conditions are in place where it makes sense.”

But that is not holding back Kyle Kimmerle, owner of the Kimmerle Funeral Home in Moab. Mr. Kimmerle, 30, spent summers during his childhood camping and working at several of his father’s mines in the area. In his spare time he has amassed more than 600 uranium claims throughout the once-productive Colorado Plateau.

“My guess is that next year my name won’t be on the sign of this funeral home anymore and I’ll be out at the mines,” he said.

He recently struck a deal with a company to lease 111 of his claims for development. The company, new to uranium mining, has pledged $500,000 a year for five years to improve the properties. Mr. Kimmerle will receive annual payments plus royalties for any uranium mined from the area.

For the full story, see:

SUSAN MORAN and ANNE RAUP. "A Rush for Uranium; Mines in the West Reopen as Ore Prices Reach Highs of the 1970s." The New York Times (Weds., March 28, 2007): C1 & C4.

(Note: ellipses added.)

Yellowcake, which is processed uranium, is in the third jar from the left of the top photo. The photo below it is of old equipment at a dormant uranium mine. Source of the photos and the graphic: online version of the NYT article quoted and cited above.

A Public Choice Theory of the Absence of Evidence of the Exodus of the Israelites

The excavation of a fort from roughly the time and place of the biblical exodus of the Israelites from Egypt. Source of photo: the online version of the NYT article cited below.

The economic theory of public choice is often viewed as having begun with Buchanan and Tullock’s The Calculus of Consent. The theory seeks to explain the behavior of government, and government officials, as arising from the same self-interested motives as are used by economists to explain the behavior of free markets, firms, and consumers.

It didn’t look like much — some ancient buried walls of a military fort and a few pieces of volcanic lava. The archaeologist, Dr. Zahi Hawass, often promotes mummies and tombs and pharaonic antiquities that command international attention and high ticket prices. But this bleak landscape, broken only by electric pylons, excited him because it provided physical evidence of stories told in hieroglyphics. It was proof of accounts from antiquity.

That prompted a reporter to ask about the Exodus, and if the new evidence was linked in any way to the story of Passover. The archaeological discoveries roughly coincided with the timing of the Israelites’ biblical flight from Egypt and the 40 years of wandering the desert in search of the Promised Land.

“Really, it’s a myth,” Dr. Hawass said of the story of the Exodus, as he stood at the foot of a wall built during what is called the New Kingdom.

. . .

Recently, diggers found evidence of lava from a volcano in the Mediterranean Sea that erupted in 1500 B.C. and is believed to have killed 35,000 people and wiped out villages in Egypt, Palestine and the Arabian Peninsula, officials here said. The same diggers found evidence of a military fort with four rectangular towers, now considered the oldest fort on the Horus military road.

But nothing was showing up that might help prove the Old Testament story of Moses and the Israelites fleeing Egypt, or wandering in the desert. Dr. Hawass said he was not surprised, given the lack of archaeological evidence to date. But even scientists can find room to hold on to beliefs.

Dr. Mohamed Abdel-Maqsoud, the head of the excavation, seemed to sense that such a conclusion might disappoint some. People always have doubts until something is discovered to confirm it, he noted.

Then he offered another theory, one that he said he drew from modern Egypt.

“A pharaoh drowned and a whole army was killed,” he said recounting the portion of the story that holds that God parted the Red Sea to allow the Israelites to escape, then closed the waters on the pursuing army.

“This is a crisis for Egypt, and Egyptians do not document their crises.”

For the full story, see:

MICHAEL SLACKMAN. "North Sinai Journal Did the Red Sea Part? No Evidence, Archaeologists Say." The New York Times (Tues., April 3, 2007): A4.

(Note: ellipsis added.)

A female skelaton buried near the fort (above). Source of photo: the online version of the NYT article cited above.

54 Year-Old Auto Worker Writes Three Novels After Taking Voluntary Buyout

Source of graphic: online version of the NYT article cited below.

(p. 1) TALK to Kenneth Doolittle about General Motors, where he once supervised a team of assembly line workers, and he readily speaks with pride about his job and the self-esteem it provided. “I loved all of it — the people, the work,” he says. “I was in a position finally where people listened to me when I spoke. I wasn’t just a Joe-Nobody. I contributed.”

Talk to Mr. Doolittle a little longer and he gradually describes why he decided to take a buyout from G.M. — joining more than 80,000 Big Three employees in the largest exodus of workers from a single American industry in decades.

. . .

The exodus that Mr. Doolittle is joining is voluntary. Some have changed their minds. More than 3,000 workers who signed up over the last year to leave Ford and G.M. subsequently decided to stay. These are, after all, the highest-paying blue-collar jobs left in America. Even so, workers are departing from the auto industry en masse, escaping — as they put it in interviews — increasingly difficult working conditions at companies they fear will desert them.

. . .

(p. 9) When G.M. decided to close his plant in 2005, Mr. Doolittle’s seniority gave him every right to transfer to a much newer factory right next door, where G.M. is building a popular Cadillac sedan and is likely to do so for as long as Mr. Doolittle might have wanted a job. But he balked because of the change in stature that would accompany the switch.

Since his departure last year, he has struggled to occupy his time. Divorced, with four grown children, he divides his days between an apartment in Lansing and a trailer parked on a small lakefront plot that he owns north of the city. He has typed out on a laptop three novels “about my life experience.” And to make up some of his lost income — his $36,000 pension is 60 percent of his old pay — he works 20 hours a week, at $10 an hour, doing maintenance at Sears stores.

“That is just enough to keep me from watching Jerry Springer every day,” he said. “I don’t want to sit in front of a TV; I’m too young for that.”

. . .

Across America, more than 30 million people have been forced out of jobs since the early 1980s, the Bureau of Labor Statistics reports, and regaining lost incomes has not been easy. Nearly 50 million new jobs have been created over that same period, according to the bureau, so there are always new opportunities but more often than not at lower pay. Among those who have lost work, only a third held new jobs two years later that paid as well as those that were lost, according to the bureau’s surveys of displaced workers. Another third of those displaced were in jobs that paid, on average, 15 to 20 percent less than their previous employment — while the final third had dropped out of the labor force entirely.

The Census Bureau reported a jump in net migration out of Michigan last year: some 42,300 people left, up from 29,700 in 2005. That was far and away the largest outflow from the state since 1984, during the Rust Belt crisis, census data show. . . .

. . .

The exodus is reminiscent of the Dust Bowl migration from the prairie states in the 1930s, when unemployed farmers gave up and trekked west to California. The Dust Bowl migration, on its face, was much more brutal — the number of displaced Okies, as they were called, was far greater than the current number of departing auto workers, and there were not corporate and public subsidies at the time to soften the hardship.

“The Okies did not know whether they would get to their destination before they starved to death,” said Daniel Luria, an economist at the Michigan Manufacturing Technology Center. “The labor market prospects for the auto workers are not good, but they have assets. They are not in danger of immediately falling into poverty.”

For the full story, see:

UCHITELLE, LOUIS . "The End of the Line as They Know It." The New York Times, Section 3 (Sun., April 1, 2007): 1, 9, & 10.

(Note: ellipses added.)

Novelist Kenneth Doolittle. Source of photo: screen capture from online version of the NYT article cited above.

The Safety Net in Europe and the United States

Source of graphic: online version of the NYT article cited below.

FROM issues of crime and punishment to the proper domain of the spiritual and temporal powers, Americans and Europeans have long cast a skeptical eye at one another across the Atlantic.

Perhaps nowhere has the gaze been more jaundiced than in the area of work. From the perspective of Western Europe, American employers have a relatively free hand to hire and fire, coupled with meager and short-lived unemployment benefits. America’s deregulated labor markets seem to provide hardly any safety net when it comes to economic dislocations of workers.

Americans, by contrast, have found it hard to resist a touch of schadenfreude at the joblessness stoked by European governments’ intervention in labor markets, with rules on everything from wages to layoffs, on top of generous unemployment benefits.

For the full commentary, see:

EDUARDO PORTER. "Economic View; A Bridge Over the Atlantic, in Labor Policy." The New York Times, Section 3 (Sun., April 1, 2007): 5.