October 2010 – Page 3 – artdiamondblog.com

Obamacare Is Increasing Health Costs

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

(p. A7) The health-care overhaul enacted last spring won’t significantly change national health spending over the next decade compared with projections before the law was passed, according to government figures released Thursday.

The report by federal number-crunchers casts fresh doubt on Democrats’ argument that the health-care law would curb the sharp increase in costs over the long term, the second setback this week for one of the party’s biggest legislative achievements.
The Wall Street Journal reported Wednesday that insurance companies have proposed rate increases ranging from 1% to 9% nationwide that they attribute specifically to new health-law coverage mandates.

For the full story, see:
JANET ADAMY. “Health Outlays Still Seen Rising .” The Wall Street Journal (Thurs., SEPTEMBER 9, 2010): A7.
(Note: the online version of the graph has the date SEPTEMBER 8, 2010.)

Frank Sliney Defends His Lexus and His Big House

(p. D8) Frank Sliney, 75, former marine and chief executive of the 25-year-old Franmar Chemical (motto: “solutions from soybeans”), in Bloomington, Ill., which originally manufactured nontoxic soy-based cleaning products for industrial workers and has now expanded into green cleaning products for home use, replies: “My house is 4,800 square feet. I’m a rich guy. We lived in a little apartment, I worked for 20-plus years building this company. I drive a Lexus 460. I worked like hell all my life and paid my bills and never was on public aid.”

But isn’t your house too big for two people?
“Right,” he answered. “Why don’t we go out and bring in a family of 12 and adopt them? There are those who would prefer to plow golf courses under because of the water and chemicals they use. There’s no end to it. On a daily basis, I do more to save the earth than 10 people — I replace 32 tanker cars of mineral spirit with one tanker of soy. The soy will biodegrade in 28 days, the mineral spirits will go on a long time.”

Oops, Sorry, We Appear to Have Put
Mr. Sliney in the Wrong Section

“People who say, ‘We could grow our own fuel?’ that is really silly,” Mr. Sliney continues. “Call the American Soy Bean Board — you know how many gallons of fuel they’ll tell you you can get out of an acre of land? Three or four gallons per bushel per year. How many gallons of gasoline do we use in a day? Twenty-two million.”

Make That the Wrong Story

Mr. Sliney: “You know what I think? If you wake up in the morning and your biggest concern is trash cans or what kind of window sprays you’re using, you are having it good. There are people who wake up and their biggest concern is getting fed.”

For the full story, see:
JOYCE WADLER. “Green Guilt.” The New York Times (Thurs., September 30, 2010): D1 & D8.
(Note: the online version of the article is dated September 29, 2010 and has the title “Green, but Still Feeling Guilty.”)
(Note: sub-heads in original and bolded in original.)

Ayaan Hirsi Ali Risks Her Life to Speak Freely about Islam

Ayaan Hirsi Ali. Source of photo: online version of the NYT article quoted and cited below.

(p. 14) As a Somali native who was raised as a Muslim and grew up to become one of the most outspoken critics of Islam, you fled to Amsterdam and served in the Dutch Parliament before fleeing again, to America. What kind of security do you have here? ”
I don’t go from A to B without being escorted by people who are armed. But please, let’s not talk about my security.

In your new book, “Nomad: From Islam to America,” you urge American Christians to try to talk to American Muslims about the limitations of their faith.
We who don’t want radical Islam to spread must compete with the agents of radical Islam. I want to see what would happen if Christians, feminists and Enlightenment thinkers were to start proselytizing in the Muslim community.
That could be dangerous for the proselytizers. .
It may be, but in the United States we have a police force and the rule of law; we can’t just say something is dangerous and abstain from competing in the marketplace of ideas.

For the full interview, see:
DEBORAH SOLOMON. “Questions for Ayaan Hirsi Ali; The Feminist.” The New York Times, Magazine Section (Sun., May 23, 2010): 14.
(Note: bold in original versions, to indicate questions by Deborah Solomon.)
(Note: the online version of the article is dated May 21, 2010.)

Budgetless California Legislature Votes to Create “Motorcycle Awareness Month”

(p. A1) SACRAMENTO, Calif.–On the brink of insolvency, California may have to pay its bills with IOUs soon. A budget was due three months ago, and the legislature hasn’t passed one.

The lawmakers can, however, point to a list of other achievements this year. Awaiting Gov. Arnold Schwarzenegger’s signature, for example, is a bill that would bar the state from filming cows in New Zealand. It’s the fruit of five committee votes and eight legislative analyses.
California lawmakers also voted to form a lobster commission. They created “Motorcycle Awareness Month,” not to mention a “Cuss Free Week.”

For the full story, see:
STU WOO. “There’s No Budget, but California Is All Over the Foreign-Cow Issue; As Deficit Looms, Lawmakers Promulgate ‘Cuss Free Week,’ Defend the State Rock.” The Wall Street Journal (Tues., SEPTEMBER 28, 2010): A1 & A18.

Creative Destruction Book Is Useful for Documenting Dynamism of U.S. Firms

Source of book image: http://www.innovation-creative.com/IMAGES/Livres_innovation_2/Foster_&_Kaplan/Foster_&_Kaplan-(US).jpg

The first couple of chapters of Creative Destruction are useful at providing some statistics on the degree of dynamism in U.S. companies over the past century or so.
In the rest of the book the authors present some interesting examples and refer to some useful research, but too often fall into the too-quick and too-easy management fad-advice mode—and Christensen and Raynor make a sound point in claiming that Foster and Kaplan sometimes oversell their main point.
Still there is some thought-provoking material here and there. I will be quoting a couple of the neater insights in the next couple of weeks.

Book discussed:
Foster, Richard N., and Sarah Kaplan. Creative Destruction: Why Companies That Are Built to Last Underperform the Market—and How to Successfully Transform Them. New York: Currency Books, 2001.

China’s Continued Growth Requires Reliance on Private Enterprise

(p. A21) No country in the modern world has managed persistent economic growth without considerable reliance on private enterprise and decentralized private markets. All centrally planned economies failed to achieve sustained development, including the Soviet Union before its collapse, China before market reforms began in the late 1970s, and Cuba since Castro’s revolution in the late 1950s.

China’s private sector has led its dominance in textiles, electronics, and other consumer and producer goods. It’s followed the model of the “Asian Tigers”–Hong Kong, Singapore, South Korea and Taiwan–and relied heavily on exports produced with cheap labor. In the process, China has accumulated enormous reserves, as Taiwan, Japan and other rapidly growing Asian economies did in past decades.
Poorer countries like China need not get everything “right” to grow rapidly through exports to richer countries. They need only have some strong sectors that use world markets to fuel overall growth. Japan’s rapid growth from the 1960s-1980s was led by a highly efficient manufacturing sector. Yet at the same time Japan also had a large and inefficient service sector, and an agricultural sector that was riddled with subsidies and inefficient incentives.
Similarly, China’s economy still has a glut of state-owned enterprises (SOEs) with excessive employment and low productivity. Their importance has fallen over time, but Chinese economists estimate that they still control about half of nonagricultural GDP. One crucial example is the state-controlled financial sector that makes cheap loans to other large, inefficient and unprofitable state enterprises. China’s economy also suffers from extensive price controls, restrictions on migration, and many other structural barriers to efficient growth.

For the full commentary, see:

GARY S. BECKER. “China’s Next Leap Forward; The jump from middle-income to rich status is much harder to achieve than the ascent from poverty. But there are plenty of reasons to believe China’s growth prospects remain strong.” The Wall Street Journal (Weds., SEPTEMBER 29, 2010): A21.

Cuban Communists to Fire Half a Million Workers, But Will Allow Them to Become Piñata Salesmen

“A Cuban State worker (center) sweeps the streets in Havana.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A1) Cuba will lay off more than half a million state workers and try to create hundreds of thousands of private-sector jobs, a dramatic attempt by the hemisphere’s only Communist country to shift its nearly bankrupt economy toward a more market-oriented system.

The mass layoffs will take place between now and the end of March, according to a statement issued Monday by the Cuban Workers Federation, the island nation’s only official labor union. Workers will be encouraged to find jobs in Cuba’s tiny private sector instead.
“Our state can’t keep maintaining…bloated payrolls,” the union’s statement said. More than 85% of Cuba’s 5.5 million workers are employed by the state.
. . .
(p. A15) Cubans who decide to go into business for themselves will find a series of obstacles, including very high taxes, lack of access to credit and foreign exchange, bans on advertising, limits on the number of people they can hire, and a litany of small-print government regulations, experts say.
Cuba’s government has a list of 124 “authorized” activities for people who want to employ themselves. Among them: Toy repairman, music teacher, piñata salesman and carpenter. Carpenters are allowed only to “repair existing furniture or make new furniture upon the direct request of a customer.” They cannot make “furniture to sell to the general public.”

For the full story, see:
José de Córdoba and Nicholas Casey. “Cuba Unveils Huge Layoffs in Tilt Toward Free Market.” The Wall Street Journal (Tues., SEPTEMBER 14, 2010): A1 & A15.
(Note: ellipsis added between paragraphs; ellipsis internal to paragraph was in original.)
(Note: the online version of the article has the title “Cuba to Cut State Jobs in Tilt Toward Free Market.”)

This particular piñata model is expected to be a hot seller for the new piñata salesmen. Source of photo: http://cdn.smosh.com/smosh-pit/4/pinata-7.jpg

Country Data on Light Intensity at Night May Be More Accurate than Official GDP

(p. 63) In a new working paper, Vernon Henderson, Adam Storeygard and David Weil of Brown University suggest an alternative source of data: outer space. In particular they track changes in the intensity of artificial light over a country at night, which should increase with incomes. American military weather satellites collect these data every night for the entire world.

It is hard to know exactly how much weight to put on extraterrestrial brightness. Changes in the efficiency of electricity transmission, for example, may cause countries to look brighter from outer space, even if economic activity has not increased much. But errors in its measurement are unlikely to be correlated with errors in the calculation of official GDP, since they arise for different reasons. A weighted average of the growth implied by changes in the intensity of artificial light and official GDP growth rates ought to improve the accuracy of estimates of economic growth. Poor countries in particular may have dodgy GDP numbers but their night-light data are as reliable as anyone else’s.

For the full story, see:
“Measuring growth from outer space; Light relief; Data about light emitted into space may help improve growth estimates.” The Economist (Aug. 6, 2009): 63.

The working paper referenced is:
Henderson, J. Vernon, Adam Storeygard, and David N. Weil. “Measuring Economic Growth from Outer Space.” NBER Working Paper No. 15199, July 2009.

First Castro on “The Simpsons” Repudiated Communism; Now the Real Castro Does the Same

The clip is from the “embed” option of YouTube, and is apparently from The Simpsons episode “The Trouble with Trillions” which Wikipedia says “. . . is the twentieth episode of the ninth season of the animated television series The Simpsons, which originally aired April 5, 1998.”

After viewing the above clip from YouTube, and reading the quote below from the NYT, you may be excused for concluding that the best way to learn what Castro is really thinking is to watch the Simpsons:

(p. A6) Jeffrey Goldberg wrote in his blog for Atlantic magazine that he asked Mr. Castro, . . . , last week if Cuba’s model of Soviet-style Communism was still worth exporting to other countries. “The Cuban model doesn’t even work for us anymore,” Mr. Castro said, according to the report. Mr. Goldberg said that Julia Sweig, a Cuba expert at the Council on Foreign Relations, thought Mr. Castro’s answer was an acknowledgment that the state played too big a role in the economy. The comment appeared to reflect Mr. Castro’s support for the economic reforms instituted by his younger brother, President Raúl Castro.

For the full story, see:
REUTERS. “Cuba: Communist Economic Model Loses a Stalwart Defender.” The New York Times (Thurs., September 9, 2010): A6.
(Note: ellipsis added.)
(Note: the online version of the article has the date September 8, 2010.)

I ran across the Simpson Castro clip on (“The Lede; Blogging the News With Robert Mackey.”)

CFOs Are Bad at Forecasting, and Don’t Realize They Are Bad

(p. 5) . . . , three financial economists — Itzhak Ben-David of Ohio State University and John R. Graham and Campbell R. Harvey of Duke — found that chief financial officers of major American corporations are not very good at forecasting the future. The authors’ investigation used a quarterly survey of C.F.O.’s that Duke has been running since 2001. Among other things, the C.F.O.’s were asked about their expectations for the return of the Standard & Poor’s 500-stock index for the next year — both their best guess and their 80 percent confidence limit. This means that in the example above, there would be a 10 percent chance that the return would be higher than the upper bound, and a 10 percent chance that it would be less than the lower one.

It turns out that C.F.O.’s, as a group, display terrible calibration. The actual market return over the next year fell between their 80 percent confidence limits only a third of the time, so these executives weren’t particularly good at forecasting the stock market. In fact, their predictions were negatively correlated with actual returns. For example, in the survey conducted on Feb. 26, 2009, the C.F.O.’s made their most pessimistic predictions, expecting a market return of just 2.0 percent, with a lower bound of minus 10.2 percent. In fact, the market soared 42.6 percent over the next year.
It may be neither troubling nor surprising that C.F.O.’s can’t accurately predict the stock market’s path. If they could, they’d be running hedge funds and making billions. What is troubling, though, is that as a group, many of these executives apparently don’t realize that they lack forecasting ability. And, just as important, they don’t seem to be aware of how volatile the market can be, even in “normal” times.

For the full commentary, see:
RICHARD H. THALER: “Economic View; Often Wrong, But Never in Doubt.” The New York Times, SundayBusiness Section (Sun., August 22, 2010): 5.
(Note: ellipses added.)
(Note: the online version of the article is dated August 21, 2010 and has the somewhat shorter title “Economic View; The Overconfidence Problem in Forecasting.”)

The Ben-David et al article is:
Ben-David, Itzhak, John R. Graham, and Campbell Harvey. “Managerial Miscalibration.” Fisher College of Business Working Paper No.2010-03-012, July 2010.