November 2007 – Page 3 – artdiamondblog.com

Texas Shows Tort Reform Works

"Dr. Donald W. Patrick, executive director of the Texas Medical Board, with applications for medical licenses sent to it." Source of caption and photo: online version of the NYT article quoted, and cited, below.

HOUSTON, Oct. 4 — In Texas, it can be a long wait for a doctor: up to six months.

That is not for an appointment. That is the time it can take the Texas Medical Board to process applications to practice.

Four years after Texas voters approved a constitutional amendment limiting awards in medical malpractice lawsuits, doctors are responding as supporters predicted, arriving from all parts of the country to swell the ranks of specialists at Texas hospitals and bring professional health care to some long-underserved rural areas.

The influx, raising the state’s abysmally low ranking in physicians per capita, has flooded the medical board’s offices in Austin with applications for licenses, close to 2,500 at last count.

“It was hard to believe at first; we thought it was a spike,” said Dr. Donald W. Patrick, executive director of the medical board and a neurosurgeon and lawyer. But Dr. Patrick said the trend — licenses up 18 percent since 2003, when the damage caps were enacted — has held, with an even sharper jump of 30 percent in the last fiscal year, compared with the year before.

“Doctors are coming to Texas because they sense a friendlier malpractice climate,” he said.

For the full story, see:

RALPH BLUMENTHAL. "After Texas Caps Malpractice Awards, Doctors Rush to Practice There." The New York Times (Fri., October 5, 2007): A21.

Buying the Prius as an Advertisement of One’s Political Correctness

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

(p. A1) A riddle: Why has the Toyota Prius enjoyed such success, with sales of more than 400,000 in the United States, when most other hybrid models struggle to find buyers?

One answer may be that buyers of the Prius want everyone to know they are driving a hybrid.

The Prius, after all, was built from the ground up as a hybrid, and is sold only as a hybrid. By contrast, the main way to tell that a Honda Civic, Ford Escape or Saturn Vue is a hybrid version is a small badge on the trunk or side panel.

The Prius has become, in a sense, the four-wheel equivalent of those popular rubber “issue bracelets” in yellow and other colors — it shows the world that its owner cares.

In fact, more than half of the Prius buyers surveyed this spring by CNW Marketing Research of Bandon, Ore., said the main reason they purchased their car was that “it makes a statement about me.”

Only a third of Prius owners cited that reason just three years ago, according to CNW, which tracks consumer buying trends.

“I really want people to know that I care about the environment,” said Joy Feasley of Philadelphia, owner of a green 2006 Prius. “I like that people stop and ask me how I like my car.”

For the full story, see:

MICHELINE MAYNARD. "Say ‘Hybrid’ and Many People Will Hear ‘Prius’." The New York Times (Weds, July 4, 2007): A1 & A11.

Peter Darnell describes himself as a "granola-crunching liberal." He and his wife Karen (right) own a Prius. Source of quote and photo: online version of the NYT article cited above.

“Merchant Generator” Leads Nuclear Renaissance

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

(p. B1) In a move that could mark the beginning of a nuclear-power revival, a New Jersey-based energy company today plans to submit an application to build and operate two new reactors. The request, the first submitted to the Nuclear Regulatory Commission in 31 years, comes from an unlikely source: NRG Energy Inc., a company that has never before built a nuclear plant.

The application — for a two-reactor addition to the company’s existing South Texas nuclear station — could offer the first full test of the nuclear agency’s new licensing process, which has been under development since the 1980s. The new process allows companies to submit a single application for a construction permit and conditional operating license, eliminating the risk that a firm could build a plant but not be allowed to run it.

. . .

(p. B2) . . . , the industry has regained momentum, partly because other forms of power generation have continued to show significant flaws. Coal-fired plants undermine efforts to combat global warming. Many natural-gas-fired plants rely on a fuel with volatile prices. And renewable energy mostly comes from intermittent forces like wind, rain and sunlight.

This first application comes from a somewhat unlikely source; NRG is a so-called "merchant generator," a company that makes electricity and sells it on the open market. NRG has never built a nuclear plant, and because it doesn’t own a utility, has no ratepayers to whom it could bill the estimated $5.5 billion to $6 billion expense.

"We’re like the uncola," says David Crane, NRG chief executive in Princeton, N.J.

. . .

So far, it appears merchant generators think Texas provides the most promising market. Deregulation in that state has resulted in a sharp run up in wholesale power prices since 2004. A recent decision by Dallas-based TXU to abandon efforts to build eight coal-fired plants could result in shrinking electricity reserves in the coming years, creating an environment receptive to operators looking to bring large units online and sell such units’ full output.

For the full story, see:

REBECCA SMITH. "Nuclear Energy’s Second Act? Bid to Build Two New Reactors In Texas May Mark Resurgence; NRC Gears Up for Many More." The Wall Street Journal (Tues., September 25, 2007): B1 & B2.

(Note: ellipses added.)

Entrepreneur Venter Advances Toward Useful Control of Cells

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

Scientists at the institute directed by J. Craig Venter, a pioneer in sequencing the human genome, are reporting that they have successfully transplanted the genome of one species of bacteria into another, an achievement they see as a major step toward creating synthetic forms of life.

Other scientists who did not participate in the research praised the achievement, published yesterday on the Web site of the journal Science. But some expressed skepticism that it was as significant as Dr. Venter said.

His goal is to make cells that might take carbon dioxide out of the atmosphere and produce methane, used as a feedstock for other fuels. Such an achievement might reduce dependency on fossil fuels and strike a blow at global warming.

“We look forward to having the first fuels from synthetic biology certainly within the decade and possibly in half that time,” he said.

Richard Ebright, a molecular biologist at Rutgers University, said the transplantation technique, which leads to the transferred genome’s taking over the host cell, was “a landmark accomplishment.”

“It represents the complete reprogramming of an organism using only a chemical entity,” Dr. Ebright said.

Leroy Hood, a pioneer of the closely related field of systems biology, said Dr. Venter’s report was “a really marvelous kind of technical feat” but just one of a long series of steps required before synthetic chromosomes could be put to use in living cells.

For the full story, see:

NICHOLAS WADE. "Pursuing Synthetic Life, Scientists Transplant Genome of Bacteria." The New York Times (Fri., June 29, 2007): A1 & A18.

J. Craig Venter. Source of photo: online version of the NYT article quoted and cited above.

Process Innovations Are Neglected, But Important

In discussing the process of creative destruction, Schumpeter mentioned both product and process innovations. By far the greater attention has been given to product innovations. But maybe process innovations deserve more attention than they have received:

Snazzy products are the stuff of legends, romanticized by “early adopters” and skewered by neo-Luddites. Yet while these products bring glory to companies, novel processes are often more important in keeping the cash registers ringing.

. . .

Consider the question of Google’s greatest business secret. Is it the algorithms behind its search tools? Or is it the way it organizes vast clusters of computers around the globe to answer queries so quickly? Perhaps predictably, Google won’t disclose the number of computers deployed in its vast information network (though outsiders speculate that the network has at least 450,000 computers).

I believe that the physical network is Google’s “secret sauce,” its premier competitive advantage. While a brilliant lone wolf can conceive of a dazzling algorithm, only a superwealthy and well-managed organization can run what is arguably the most valuable computer network on the planet. Without the computer network, Google is nothing.

Eric E. Schmidt, Google’s chief executive, appears to agree. Last year he declared, “We believe we get tremendous competitive advantage by essentially building our own infrastructures.”

Process innovations like Google’s computer network are often invisible to the public, and impossible to duplicate by rivals. Yet successful companies realize that maintaining competitive advantage depends heavily on sustaining process innovations.

For the full commentary, see:

G. PASCAL ZACHARY. "PING; The Unsung Heroes Who Move Products Forward." The New York Times, SundayBusiness Section (Sun., September 30, 2007): 3.

(Note: ellipsis added.)

Study Finds Much Smaller Increase in Income Volatility than Hacker Claims

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

WASHINGTON — Weighing in on an intensifying debate on income insecurity, three economists — including two from the Federal Reserve — have found that American families today are more likely to experience big drops in their income than three decades ago.

Their analysis, however, finds far less volatility in family income than some recent studies.

The authors of the new study, Douglas Elmendorf of the Brookings Institution and senior Fed economists Karen Dynan and Daniel Sichel, caution against interpreting their findings as evidence that families face more risk of hardship than before. They note that financial innovation has given Americans more ways to maintain their spending when their incomes fall. (Read the full study.)

The study found that the volatility of household income rose 23% between the early 1970s and early 2000s. While small changes in family income are no more frequent, large changes in income — more than 50% — are.

The probability that a family will experience a decline in annual income of 50% or more, compared with their average income in the previous three years, rose to 1.8% in 1995 from 0.6% in 1973. After 1995, the probability dipped, and has risen back to 1.7%.

"The increase in volatility we document is not trivial," Mr. Elmendorf said in an interview. "Our work is quite consistent with being concerned about the level and increase in volatility of household income."

That said, "I don’t think our results support the view that the world is dramatically more adverse for households," he added.

. . .

Yet research into the assumption that income volatility has increased has reached differing conclusions. Yale University political scientist and author Jacob Hacker, in a 2006 book titled "The Great Risk Shift," documents a fivefold increase in household-income volatility between the early 1970s and early 1990s. Mr. Hacker, who described himself as "thunderstruck" by the result, has written widely and testified to Congress on the subject. He couldn’t be reached for comment.

By contrast, the Congressional Budget Office, using a different set of data, found that earnings volatility for individuals — as opposed to households — has changed little since the early 1980s.

But the authors argue that bigger swings in income need not force households to slash their spending. They cite preliminary findings from other research they have conducted that show financial innovation, such as easier borrowing against the value of a home, has helped to insulate family spending patterns from fluctuations in income.

For the full story, see:

GREG IP. "Incomes Suffer More Volatility Amid Heightening Risks, Families Find Ways to Cushion Blows." The Wall Street Journal (Fri., June 22, 2007): A4.

(Note: ellipsis added.)

New Nuclear Design Reduces Already-Low Risks, and Increases Efficiency

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

(p. C1) WASHINGTON, Sept. 24 — In a bid to take the lead in the race to revive the nuclear power industry, an energy company will ask the federal Nuclear Regulatory Commission on Tuesday for permission to build two reactors in Texas.

It is the first time since the 1970s and the accident at Three Mile Island that an American power company has sought permission to start work on a new reactor to add to the existing array of operable reactors, which now number 104.

. . .

(p. C11) NRG is planning to build the Advanced Boiling Water Reactor, which represents a relatively low-risk choice in an industry where few American companies have current experience with building a plant. . . .

. . .

The new design has several innovations that are aimed at sharply reducing the risk of meltdown, a risk that is described by the industry and by regulators as very low in any case. Other innovations are supposed to reduce the time and cost of construction.

MATTHEW L. WALD. "Approval Is Sought For Reactors." The New York Times (Tues., September 25, 2007): C1 & C11.

(Note: ellipses added.)

Not All World Views Can Be Accommodated

1935 photos of painted Caduveo women from Claude Lévi-Strauss Structural Anthropology. Source of photos: online version of the NYT article cited below.

I remember in a philosophy class back in the 1970s, the philosopher Stephen Toulmin mentioning that he had once attended a conference with the famed anthropologist Claude Lévi-Strauss. For a long while Lévi-Strauss sat in silence. Finally he stirred himself to speak, and Toulmin wondered what wisdom the great man would pronounce.

His comment was something like: "It is hot in here. Will someone open a window?"

News of the death of the philosopher Richard Rorty on June 8 came as I was reading about a small Brazilian tribe that the French anthropologist Claude Lévi-Strauss studied in the 1930s. A strange accident, a haphazard juxtaposition — but for a moment this pragmatist philosopher and a fading tribal culture glanced against each other, revealing something unusual about the contemporary scene.

. . .

For Mr. Rorty, the importance of democracy is that it creates a liberal society in which rival truth claims can compete and accommodate each other. His pragmatism was postmodern, tolerant to a fault, its moral and progressive conclusions never appealing to a higher authority.

. . .

The Caduveo founding myth recounts that, lacking other gifts at the moment of creation, the tribe was given the divine right to exploit and dominate others.

. . .

But there was also something else about this tribe that drew Mr. Lévi-Strauss’s attention: “It was a society remarkably adverse to feelings that we consider as being natural.” Its members disliked having children. Abortion and infanticide were so common that the only way the tribe itself could continue was by adoption, and adoption — more properly called abduction — was traditionally implemented through warfare. The tribal disdain for nature extended into its active denigration of hair, agriculture, childbirth and even, perhaps, representational art.

. . .

In reasoning one’s way into pragmatism, in minimizing the importance of natural constraints and in dismissing the notion of some larger truth, the tendency is to assume that as different as we all are, we are at least prepared to accommodate ourselves to one another. But this is not something the Caduveo would necessarily have gone along with. Mr. Rorty’s outline of what he called “the utopian possibilities of the future” doesn’t leave much room for the kind of threat the Caduveo might pose, let alone other threats, still active in the world.

One tendency of pragmatism might be to so focus on the ways in which one’s own worldview is flawed that trauma is more readily attributed to internal failure than to external challenges. In one of his last interviews Mr. Rorty recalled the events of 9/11: “When I heard the news about the twin towers, my first thought was: ‘Oh, God. Bush will use this the way Hitler used the Reichstag fire.’ ”

If that really was his first thought, it reflects a certain amount of reluctance to comprehend forces lying beyond the boundaries of his familiar world, an inability fully to imagine what confrontations over truth might look like, possibly even a resistance to stepping outside of one’s skin or mental habits.

But in this too the Caduveo example may be suggestive. As Mr. Lévi-Strauss points out, neighboring Brazilian tribes were as hierarchical as the Caduveo but lacked the tribe’s sweeping “fanaticism” in rejecting the natural world. They reached differing forms of accommodation with their surroundings. The Caduveo, refusing even to procreate, didn’t have a chance. They survive now as sedentary farmers. Such a fate of denatured inconsequence may eventually be shared by absolutist postmodernism. The Caduveo’s ideas weren’t useful, perhaps. Some weren’t even true.

For the full commentary, see:

EDWARD ROTHSTEIN. "CONNECTIONS; Postmodern Thoughts, Illuminated by the Practices of a Premodern Tribe." The New York Times (Mon., June 18, 2007): B3.

(Note: ellipses added.)

Rorty on left; Lévi-Strauss on right. Source of photos: online version of the NYT article cited above.

Michael Powell Provides Support for the Capture Theory of Regulatory Agencies

The following brief story would seem highly compatible with the "Capture Theory of Regulatory Agencies" that is associated with the names of economist George Stigler, and historian Gabriel Kolko. That theory suggests that regulatory agencies are frequently captured by the industries that they are intended to regulate.

One kind of evidence for the theory is that members of regulatory agency boards often are recruited from the industry, and often return to working for the industry after their terms are over.

The efforts of federal regulators to curtail cronyism on corporate boards have led to some odd outcomes. The case of Michael K. Powell, a new director of Cisco Systems, is a prime example.

Mr. Powell, the former chairman of the Federal Communications Commission, happens to be a son of Colin Powell, the former secretary of state. Cisco happens to have paid the senior Mr. Powell more than $100,000 to deliver two speeches in 2005.

Under guidelines established by the Nasdaq stock market, that connection disqualifies the younger Mr. Powell as an independent director, so he cannot sit on the company’s audit, compensation or governance committees. But by the same definition, Richard M. Kovacevich, the chairman of Wells Fargo, is an independent director of Cisco, even though his company has promised to lend Cisco $120 million.

The difference is that Cisco’s line of credit is deemed too small a part of Wells Fargo’s overall business to present a conflict of interest, while the payments to the senior Mr. Powell exceeded the allowable annual limit of $100,000 to any family member of an independent director.

Source of story:

PATRICK McGEEHAN. "$100,000? Too High. $120 Million? Fine." The New York Times, SundayBusiness Section (Sun., September 30, 2007): 2.

The key Kolko book is:

Kolko, Gabriel. Railroads and Regulation, 1877-1916. W. W. Norton & Company, 1970.

Pulling Teeth Slowly

Source of book image: http://mitpress.mit.edu/images/products/books/0262113023-f30.jpg

Many years ago, I read János Kornai’s The Road to the Free Market, which gave Kornai’s advice on how Eastern Europe could best make the transition from communism to the free market. What I remember most from the book, is his discussion of whether it is more humane for the transition to be quick or gradual. He answers the question by asking another: if you need to have a tooth pulled, is it more humane for it to be pulled quickly or gradually?

(p. B15) . . ., Mr. Kornai’s books and lectures in Europe, North America and Asia established him as one of the leading scholars of socialist economics and an expert on the difficult transitions that many countries face when they move from socialism to a more democratic and capitalist system. . . .

At one point in 1974, under the more relaxed rule of János Kádár, when Hungary was the "most cheerful barrack in the camp," Mr. Kornai and his wife decided to build their own home. Over the course of several months, they personally confronted the corruption, endemic shortages and shoddy construction materials that were so common in Eastern Europe. A year later, on a trip to India, Mr. Kornai was faced by idealistic young Maoists whose concern for the desperately poor reinforced their support for socialism. Mr. Kornai responded to them by arguing, as he puts it here, that "rationing systems that spread misery equally may assuage feelings of injustice for a while, but they will not solve anything."

For the full review, see:

JOSHUA RUBENSTEIN. "BOOKS; Critic Behind the Curtain." The Wall Street Journal (Tues., January 30, 2007): B15.

(Note: ellipses added.)

The book reviewed, is:

János Kornai. By Force of Thought. (MIT Press, 461 pages, $40)

The earlier book by Kornai, that I read and liked, is:

Kornai, Janos. The Road to a Free Economy: Shifting from a Socialist System, the Example of Hungary. New York: W.W. Norton, 1990.