August 2008 – Page 3 – artdiamondblog.com

Soros Warns Against Too Much Creative Destruction

Investor George Soros as the boy who cried “wolf” one time too often. Source of Soros caricature: online version of the WSJ article quoted and cited below.

I have mixed feelings about George Soros. He likes Karl Popper, and I like Karl Popper. He donated a bunch of money to help worthy scholars in Eastern Europe, and financed a conference in Romania on private philanthropy, at which I gave a presentation.
On the other hand, he has also given a bunch of money to politicians who oppose economic freedom. And I think the high level of government regulation he favors would greatly reduce innovation.

(p. B2) WSJ: Are you getting recognition from heavyweights in academia or policy making?
Mr. Soros: It has certainly not penetrated academia, and not policy makers either. There was an article in The Wall Street Journal about people doing research on bubbles at Princeton, so I’m going to meet with one of them. I wish I could engage in a discussion with [the Federal Reserve]. I’m waiting for a phone call. I’m [meeting with] Alan Greenspan.
WSJ: But you are quite critical of Greenspan.
Mr. Soros: Greenspan is one of the great manipulators of financial markets. I mean it in a good way. He managed [in 2001] to forestall a more serious recession. He kept interest rates [low] too long. And he did not heed the warnings that lending standards were being lowered, that deceptive practices were being used. He was too much of a market fundamentalist. He believed that if you leave it to markets, everything will be all right. That’s initially self-reinforcing, but eventually self-defeating.
WSJ: Greenspan argues that the benefits of innovation are worth the occasional bubble.
Mr. Soros: This is, of course, [Joseph] Schumpeter’s creative destruction idea. However … going overboard in generating change is not necessarily a good thing. Financial innovation may not be an unmixed blessing because it really prevents proper regulation.
If you look at the 19th century, you had creative destruction going on, one financial crisis after another. But each time you had a crisis, you had an examination of what went wrong, and you put in some instrument or some institution to prevent it from happening.
I’m not advocating … central planning because that’s worse than markets. But the regulators need to learn from the mistakes that they have made. I think it’s pretty clear that you’ve got to accept responsibility for moderating asset bubbles. … That involves regulating credit as well as [interest rates].

For the full story, see:
GREG IP. “Soros, the Man Who Cries Wolf, Now Is Warning of a ‘Superbubble’.” The Wall Street Journal (Sat., June 21, 2008): B1-B2.
(Note: brackets and ellipses in original.)
(Note: I am grateful to Jamie McDonald for calling this article to my attention.)

“We Educate Them and Then Tell them to Go Home”

(p. C3) The United States may be synonymous with the high-tech revolution, but it is in danger of losing its high-tech edge, according to Cybercities 2008, a report released Tuesday by AeA, a technology industry trade association.
Because the federal government does not issue a sufficient number of green cards or work visas to talented foreign students studying here, there are a “tremendous number of unfilled jobs,” said Christopher Hansen, AeA’s chief executive.
“We educate them and then tell them to go home. This is absurd,” said Mr. Hansen, whose group has lobbied to increase the number of visas for foreign technology industry workers.

For the full story, see:
ERIC A. TAUB. “U.S. High Tech Said to Slip.” The New York Times (Weds., June 25, 2008): C3.

Blacklisting of Voight Urged in Display of Liberal Hollywood McCarthyism

Source of the images: screen captures from the CNN report cited below.

With self-righteous indignation, the left often accuses the right of “McCarthyism.”
But many on the left are happy to limit free speech when what is spoken is not to their liking.
Jon Voight’s column in the Washington Times has ignited a firestorm, and caused at least one Hollywood insider to openly advocate blacklisting Voight from the movie business. The CNN story cited and linked below, gives some of the details.
Unfortunately, this is not an isolated example.
On our campuses, free speech is often violated if the speaker speaks what is not politically correct. For many examples, see some of the cases discussed on the web site of the Foundation for Individual Rights in Education.
Another example is from my own personal experience as a young scholar many decades ago. I had applied to three or four top PhD programs in philosophy and was initially rejected from every one of them, even though I had a nearly perfect GPA, and very high test scores.
I was especially surprised by the rejection from Chicago, because an Associate Dean had visited the Wabash campus the year before and talked with me about applying to Chicago. He had looked at my record and said, ‘with your record, if you score X, or above on the GREs, it is almost certain that you will be accepted.’ (I don’t remember the exact number he said.) Well I scored above X, but was rejected. So I wrote to the Associate Dean, saying I was disappointed and asking if he had any insight about the rejection. He told me that he was dumbfounded and that he would look into it.
Awhile later, I received a letter reversing the decision of the University of Chicago Department of Philosophy. I never learned all the details, but apparently the Dean of Humanities had over-ruled the Department of Philosophy. (This is fairly unusual in academics, and though I do not remember her name, I salute that Dean for taking a stand.)
Years later, the episode came up in a conversation with a member of the philosophy faculty. He said that he had been on the admissions committee the year that I had applied, and that I had been rejected because I had mentioned Ayn Rand in my essay about how I had become interested in philosophy.

For some of the details of the Voight story, see:
Wynter, Kareen. “Bloggers Fire Back at Voight.” CNN Feature, broadcast on CNN, and posted on CNN.com on 8/8/08. Downloaded on 8/8/08 from: http://www.cnn.com/video/?iref=videoglobal
(Note: the clip runs 2 minutes and 27 seconds.)

Voight’s op-ed piece ran in the Washington Times on July 28, 2008 under the title “My Concerns for America” and can be viewed at: http://www.washingtontimes.com/news/2008/jul/28/voight/

McCain “Shows a Lack of Understanding of the Insights of Joseph Schumpeter”

I agree with the Karl Rove’s analysis below, that John McCain does not exhibit much understanding of Schumpeter’s process of creative destruction. On the other hand, I have seen no evidence that Barack Obama has any such understanding either. (Nor have I seen any evidence that Rove’s former boss, George W. Bush, has any such understanding, for that matter.)
And, in general, I am still of the belief that, overall, between the two of them, McCain will put fewer obstacles in the path of innovation than will Obama.

(p. A13) This past Thursday, Mr. McCain came close to advocating a form of industrial policy, saying, “I’m very angry, frankly, at the oil companies not only because of the obscene profits they’ve made, but their failure to invest in alternate energy.”
But oil and gas companies report that they have invested heavily in alternative energy. Out of the $46 billion spent researching alternative energy in North America from 2000 to 2005, $12 billion came from oil and gas companies, making the industry one of the nation’s largest backers of wind and solar power, biofuels, lithium-ion batteries and fuel-cell technology.
Such investments, however, are not as important as money spent on technologies that help find and extract more oil. Because oil companies invested in innovation and technology, they are now tapping reserves that were formerly thought to be unrecoverable. Maybe we are all better off when oil companies invest in what they know, not what they don’t.
And do we really want the government deciding how profits should be invested? If so, should Microsoft be forced to invest in Linux-based software or McDonald’s in weight-loss research?
Mr. McCain’s angry statement shows a lack of understanding of the insights of Joseph Schumpeter, the 20th century economist who explained that capitalism is inherently unstable because a “perennial gale of creative destruction” is brought on by entrepreneurs who create new goods, markets and processes. The entrepreneur is “the pivot on which everything turns,” Schumpeter argued, and “proceeds by competitively destroying old businesses.”
Most dramatic change comes from new businesses, not old ones. Buggy whip makers did not create the auto industry. Railroads didn’t create the airplane. Even when established industries help create new ones, old-line firms are often not as nimble as new ones. IBM helped give rise to personal computers, but didn’t see the importance of software and ceded that part of the business to young upstarts who founded Microsoft.
So why should Mr. McCain expect oil and gas companies to lead the way in developing alternative energy? As with past technological change, new enterprises will likely be the drivers of alternative energy innovation.

For the full story, see:
KARL ROVE. “Obama and McCain Spout Economic Nonsense.” The Wall Street Journal (Thurs., June 19, 2008): A13.
(Note: I thank John Pagin and Dagny Diamond for alerting me to Rove’s discussion of Schumpeter.)

Ordinary People Have Prospered in Recent Decades

Source of image: http://mjperry.blogspot.com/2008/02/blog-post_2174.html

Stephen Moore is right when he calls Drew Carey’s “Living Large” video “wonderful.”
It would be even more wonderful, if it gave a bit more emphasis, a la Schumpeter, to the positive effects of new products, in addition to its emphasis on declining prices of already existing products.

(p. W11) A few weeks ago I gave a talk on the state of the economy to a group of college students — almost all Barack Obama enthusiasts — who were griping about how downright awful things are in America today. As they sipped their Starbucks lattes and adjusted their designer sunglasses, they recited their grievances: The country is awash in debt “that we will have to pay off”; the middle class in shrinking; the polar ice caps are melting; and college is too expensive.
I’ve been speaking to groups like this one for more than 20 years, but I have never confronted such universal pessimism from a young audience. Its members acted as if the hardships of modern life are making it nearly impossible for them to get out of bed in the morning. So I conducted a survey of these grim youngsters. How many of you, I asked, own a laptop? A cellphone? An iPod, a DVD player, a flat-screen digital TV? To every question somewhere between two-thirds and all of the hands in the room rose. But they didn’t even get my point. “Well, duh,” one of them scoffed, “who doesn’t have an iPod these days?” I was way too embarrassed to tell them that I, for one, don’t. They thought that living without these products would be like going back to prehistoric times.
They seemed clueless that as recently as the early 1980s only the richest people in the world had cellphones and the quality of these products left much to be desired. Watch a movie from 20 years ago and you will laugh out loud seeing big clunky black machines that weighed as much as a brick, gave crackly service and cost $4,200. Now cellphones are practically free — even disposable. And the cost of making calls has dropped dramatically too.
. . .
There’s a wonderful new video on Reason.tv called “Living Large.” In it, comedian Drew Carey goes to a lake in California where people are relaxing on $80,000 27-foot boats and goofing around on $25,000 jet skis that they have hitched to their $40,000 SUVs. Mr. Carey asks these boat owners what they do for a living. As it turns out, they aren’t hedge-fund managers. One is a gardener, another a truck driver, another an auto mechanic and another a cop.
. . .
After my lecture, one young woman walked up to me on her way out and huffed: “What I favor is a radical redistribution of wealth in America.” I tried to tell her that America’s greatness is a result of our focus on creating wealth, not redistributing it. But it was too late — she was already tuning in to her iPod.

For the full commentary, see:
STEPHEN MOORE. “DE GUSTIBUS; The Bare Necessities: A Generation Tries to Imagine Life Without iPods.” The Wall Street Journal (Fri., March 14, 2008): W11.
(Note: ellipses added.)
The video is:
Carey, Drew. “Living Large: The Middle Class.” reason.tv Posted February 8, 2008.

Obama Top Economist Likes Wal-Mart and Sees Improved Worker Living Standards

(p. C1) Acting quickly after securing his party’s presidential nomination, Barack Obama picked a well-known representative of Bill Clinton’s economic policies as his economic policy director and signaled this week that the major players from the Clinton economics team were now in his camp — starting with Robert E. Rubin.
Senator Obama, Democrat of Illinois, hired Jason Furman, a Harvard-trained economist closely associated with Mr. Rubin, a Wall Street insider who served as President Clinton’s Treasury secretary. Labor union leaders criticized the move, and said that ”Rubinomics” focused too much on corporate America and not enough on workers.
. . .
(p. C4) Mr. Furman, who served for a while as a special economic adviser in the Clinton administration, has taken some controversial positions. He argued in 2005, for example, that Wal-Mart, despite its conflicts with organized labor over pay and health insurance, was a good business model.
More recently, he argued that while the typical worker suffers from inadequate income, that worker’s living standards, broadly measured, are higher today than those of their counterparts 30 years ago — an argument in dispute among economists.
. . .
Until now, Austan Goolsbee, an economist at the University of Chicago, had been Mr. Obama’s chief economic adviser. He remains an unpaid adviser. He said he was not a candidate for Mr. Furman’s full-time job because of his university duties.

For the full story, see:
LOUIS UCHITELLE. “Union Critical of Obama’s Top Economics Aide.” The New York Times (Thurs., June 12, 2008): C1 & C4.
(Note: ellipses added.)

Investment in General Purpose Technologies is Partly a “Leap-of-Faith”

Caricature of Glenn Britt. Source of caricature: online version of the WSJ article quoted and cited below.

(p. B2) WSJ: You invested $550 million in Clearwire Corp., which is building a wireless broadband network. Why?
Mr. Britt: We saw that as a defensive move. The business today is largely about making voice telephone calls, text messaging, and some data.
This venture is about very fast broadband delivery, but the technologies and the products are as yet not fully defined. It’s a bit of a start-up, leap-of-faith kind of thing.
WSJ: What uses could this wireless network be put to?
Mr. Britt: An obvious one is using your laptop in a portable way just as you might today with WiFi hot spots. Another is going to be the PDA, the smallest device you can use to access the Internet. If you have an iPhone you can start seeing what that might look like with a more robust network.
Out in the future, people are talking about machine-to-machine communication, the idea of heart monitors talking to hospitals, your camera automatically uploading photos to Shutterfly or whatever printing service you might use.
WSJ: What about the idea of mobile video delivered to portable devices?
Mr. Britt: I know people talk a lot about mobile video, and I certainly think there is some application for it. But I quite honestly haven’t seen it as a big deal. People do want to get video wherever they are. We already have a robust over-the-air television system which, as it goes digital, will be able to have a mobile component to it. But I don’t know how big the ultimate market is in this country. I’m skeptical.

For the full story, see:
VISHESH KUMAR. “BOSS TALK; Cable Boss Airs Growth Plans; Time Warner Cable CEO Sees New Freedoms, Threats After Its Spinoff.” The Wall Street Journal (Mon., June 2, 2008): B1-B2.
(Note: the title of the online version of the article is “BOSS TALK; Grappling With Cable’s Future; Time Warner’s Glenn Britt Sees Freedoms, Threats As Unit Readies for Spinoff.”)

Aleksander Solzhenitsyn, Hero of Freedom, RIP

I heard last night that Aleksander Solzhenitsyn had died late that on that day, August 3, 2008.
Like all of us, he had his flaws. But he had strong moral courage in standing up against the enslavement of the masses by the communist tyranny of the USSR. For that he paid a huge price, partly in the form of the years of forced labor in the prison camps that he carefully documented in his massive The Gulag Archipelago. (I must admit that I never read The Gulag, although I believe my father, to his credit, read every page.)
I remember my mentor Ben Rogge reading The First Circle and highly recommending it to us. The book’s title is based on Dante’s Inferno which describes the nine circles of hell, where each successive circle assigns increasingly horrendous eternal punishments, for those guilty of increasingly terrible sins. In the first circle, good people born before Jesus, are allowed to pursue their interests much as they had on earth. Socrates, Plato and Aristotle, for instance, engage in eternal dialogue.
In Solzhenitsyn’s version, Stalin allows a group of scientists to have better living conditions, and somewhat more freedom than ordinary Soviet citizens, so long as the scientists make progress on projects that enable Stalin to extend his power.
One of the revelations in the book is that those who imposed the tyranny, had motives that were not always evil. One bureaucratic candidate for villainy, for instance, did bad things, in order to protect his family. At the top there is Stalin, but he is portrayed as insane.
The point is one that Rogge often made—people are pretty much the same everywhere. What mainly explains the differences in different societies are different institutions that provide differing incentives and constraints.
It is a fitting tribute to Solzhenitsyn that the first unabridged English translation of The First Circle will soon be published.
I salute Solzhenitsyn for his insights, and even more, for his courage at standing up against an evil system.

Sprouted “Methuselah” Seed Is 2,000 Years Old

“One of a handful of 2,000-year-old seeds (top) from the fortress of Masada in present-day Israel grew into a date palm plant (bottom) called Methuselah in 2005.” Source of caption and photos: online article quoted and cited below.

The oldest-sprouted seed in the world is a 2,000-year-old plant from Jerusalem, a new study confirms.
“Methuselah,” a 4-foot-tall (1.2-meter-tall) ancestor of the modern date palm, is being grown at a protected laboratory in the Israeli capital.
In 2005 the young plant was coaxed out of a seed recovered in 1963 from Masada, a fortress in present-day Israel where Jewish zealots killed themselves to avoid capture by the Romans in A.D. 70.

For the full story, see:

Anne Minard. “”Methuselah” Tree Grew From 2,000-Year-Old Seed.” National Geographic News online (June 12, 2008), downloaded on 6/19/08 from: http://news.nationalgeographic.com/news/2008/06/080612-oldest-tree.html

Paternalistic Doctors With Way Too Much Time on Their Hands

(p. C6) The American Medical Association is hulking mad at Marvel Studios.
Last week, the advocacy arm of the powerful physicians’ group unleashed a tsk-tsk campaign against “The Incredible Hulk,” a Marvel film that opened on Friday and is distributed by Universal Pictures. The complaint was of “gratuitous depictions of smoking.”
In the movie, which drew a PG-13 rating from the Motion Picture Association of America, Gen. Thunderbolt Ross, a bad guy played by William Hurt, is rarely seen without a smoke-spewing cigar. (Presumably, the physicians’ association worries that children who identify with the authoritarian general — who wants to annihilate the Hulk, played by Edward Norton — may be tempted to pick up the habit.)

For the full story, see:
BROOKS BARNES. “Physicians’ Group Furious at Cigars in ‘Hulk’ Movie.” The New York Times (Mon., June 16, 2008): C6.