Author: Art Diamond

Lean Supply Chains Fail to Scale Quickly

(p. A1) American factories are running short of parts.
Suppliers of everything from engines to electronic components aren’t keeping up with a boom in U.S. manufacturing, which has lifted demand in markets such as energy, mining and construction. As a result, some manufacturers are idling production lines and digesting higher costs.
. . .
(p. A4) Years spent making supply chains as lean and efficient as possible are hurting big customers now as demand climbs, industry consultants said.
“Suppliers have not been willing to jump on adding capacity because they’ve been burned badly before,” said Shiv Shivaraman, a managing director at consultant AlixPartners LLC who advises auto and machinery makers on supply chains and production processes. “You will see many people limping for a while.”
Some companies are stockpiling parts to head off future challenges, potentially exacerbating the supply pressures.
“We built some inventory last quarter because we had seen the lead times extend and we are trying protect our customers,” said Andrew Silvernail, CEO of Idex Corp. , a maker of pumps, valves and meters that is based in Lake Forest, Ill.

For the full story, see:
Doug Cameron and Austen Hufford. “Parts Makers’ Shortages Tap Brakes on Industrial Boom.” The Wall Street Journal (Saturday, Aug. 11, 2018): A1 & A4.
(Note: ellipsis added.)
(Note: the online version of the story has the date Aug. 10, 2018, and has the title “Parts Shortages Crimp U.S. Factories.”)

Jason Potts Offers Advance Praise for Openness to Creative Destruction

What explains innovative dynamism? Art Diamond has written a fantastic book exploring how strong property rights, not innovation systems, should be the basis of modern innovation policy. He has done a great job in setting out the case for a classical liberal approach to innovation and technology policy, and carefully counters many of the common arguments supporting interventionist policy models. The book is full of lucid and compelling case studies and will be popular among innovation scholars and policy-makers.

Jason Potts, Professor of Economics, Royal Melbourne Institute of Technology (RMIT), Director of Blockchain Innovation Hub at RMIT. Author of The New Evolutionary Economics, and other works.

Potts’s advance praise is for:
Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, forthcoming June 2019.

Rising Sea Not Due to Global Warming

(p. A17) It is generally thought that sea-level rise accelerates mainly by thermal expansion of sea water, the so-called steric component. But by studying a very short time interval, it is possible to sidestep most of the complications, like “isostatic adjustment” of the shoreline (as continents rise after the overlying ice has melted) and “subsidence” of the shoreline (as ground water and minerals are extracted).
I chose to assess the sea-level trend from 1915-45, when a genuine, independently confirmed warming of approximately 0.5 degree Celsius occurred. I note particularly that sea-level rise is not affected by the warming; it continues at the same rate, 1.8 millimeters a year, according to a 1990 review by Andrew S. Trupin and John Wahr. I therefore conclude–contrary to the general wisdom–that the temperature of sea water has no direct effect on sea-level rise. That means neither does the atmospheric content of carbon dioxide.
This conclusion is worth highlighting: It shows that sea-level rise does not depend on the use of fossil fuels. The evidence should allay fear that the release of additional CO2 will increase sea-level rise.
But there is also good data showing sea levels are in fact rising at a constant rate. The trend has been measured by a network of tidal gauges, many of which have been collecting data for over a century.
The cause of the trend is a puzzle. Physics demands that water expand as its temperature increases. But to keep the rate of rise constant, as observed, expansion of sea water evidently must be offset by something else. What could that be? I conclude that it must be ice accumulation, through evaporation of ocean water, and subsequent precipitation turning into ice. Evidence suggests that accumulation of ice on the Antarctic continent has been offsetting the steric effect for at least several centuries.

For the full commentary, see:
Fred Singer. “The Sea Is Rising, but Not Because of Climate Change; There is nothing we can do about it, except to build dikes and sea walls a little bit higher.” The Wall Street Journal (Wednesday, May 16, 2018): A17.
(Note: the online version of the commentary has the date May 15, 2018.)

Bezos Richer than Rockefeller in Real Wealth

(p. A2) With a fortune exceeding $150 billion, Amazon founder Jeff Bezos was recently declared the richest person in modern history.
But is he?
The answer depends on how you account for the wealth of past contenders for the title.
There are at least five ways to do that, and each provides a different result, according to Samuel H. Williamson, an economist and president of the website Measuring Worth.
Real wealth, the most familiar yardstick, accounts for the relative purchasing power of a particular sum by adjusting it for inflation based on the Consumer Price Index.
Using that measure, the fortune of John D. Rockefeller, America’s first billionaire and Mr. Bezos’ stiffest competition among latter day aristocrats, would equal only $24 billion today.
Working in reverse, Mr. Bezos’ fortune would amount to about $6.5 billion in 1916, when Rockefeller’s riches first hit the $1 billion mark.

For the full commentary, see:
Jo Craven McGinty. “THE NUMBERS; Bezos vs. Rockefeller, a Rich History Lesson.” The Wall Street Journal (Saturday, Aug. 11, 2018): A2.
(Note: the online version of the commentary has the date Aug. 10, 2018, and has the title “THE NUMBERS; Is Jeff Bezos Really the Richest of Them All?”)

“New York Needs to Embrace Entrepreneurs, Not Repel Them”

(p. A15) For centuries New York has evolved. With its deep port, the city dominated U.S. trade through the late 1800s. But that wasn’t enough to employ the swarms of immigrants coming through Ellis Island. So the city transformed, creating higher-paying jobs. By 1910 some 40% of all New York workers were employed in manufacturing–the garment industry, sugar refining, publishing and even bread making. My grandfather was in the millinery business. Manufacturing lasted even through the 1960s. I remember seeing shirts made in the Empire State Building. Total employment in the city peaked in 1969.
As post-World War II technology drove transportation costs down, manufacturing moved to the suburbs (and eventually Asia). Most large American cities stagnated. But New York transformed itself again, this time into a service economy with high-paying jobs in finance, media, fashion, law, accounting and health care. It also remained home to the most important stock market in the world. Today well over 90% of New York employment is in services, according to the New York state government.
But the city has arrived at a nasty inflection point again. New York risks becoming another Detroit. New York needs to embrace entrepreneurs, not repel them.

For the full commentary, see:
Andy Kessler. “Can New York Reinvent Itself Again? It risks becoming another Detroit if it keeps repelling entrepreneurs.” The Wall Street Journal (Monday, Sept. 11, 2017): A15.
(Note: the online version of the commentary has the date Sept. 10, 2017.)

Rage at Malfunction Led to Invention

(p. B15) A business contemporary of Raymond A. Kroc, who built the McDonald’s chain into the industry leader, Mr. Edgerton started Burger King with $12,000 after managing Howard Johnson’s restaurants in Miami and Orlando, Fla.
. . .
In a 1998 memoir, “The Burger King: Jim McLamore and the Building of an Empire,” Mr. McLamore described Mr. Edgerton as a creative conceptual thinker but also as someone who “never focused very much on details, particularly those concerning financial matters.”
Early on, Mr. Edgerton estimated that profits were running at an eye-popping 28 percent of sales. But the “books” he was looking at turned out to be an assortment of papers stuffed into a peach basket showing that Insta Burger had actually lost money in its first few months.
It was hard for the partners at first. “We were losing our butts,” Mr. Edgerton said in a 2014 interview for this obituary. Paying himself $50 a week, he added, “We starved together.”
A major problem was the frequent breakdowns of the Rube Goldberg-like Insta broiler they had inherited. One day, Mr. McLamore wrote, “the machine began to malfunction just at the moment Dave was standing in front of it,” and the grinding of its metal parts sent him into a rage.
By Mr. McLamore’s account, Mr. Edgerton “reached into his toolbox and grabbed a hatchet” and sank it into the stainless steel mechanism, destroying it. He then shouted, red-faced, “I can build a better machine than this pile of junk!”
Three weeks later, Mr. Edgerton and a mechanic who ran a machine shop had produced a continuous-chain broiler, which would set a standard for all Burger King broilers and become a model for equipment in the industry.
. . .
The business took off, and by 1967 it had more than 400 units in about 20 states, particularly in the East and California, as well as in a few other countries. Its success drew an offer from the Pillsbury Company to buy Burger King.
“I really didn’t want to sell out,” Mr. Edgerton said, but he went along because he had found Mr. McLamore to be “a golfer first and foremost” who wanted more time to indulge his passion and who had no real need to keep working, being married to a woman of wealth.
. . .
He complained that the company, which had a series of jolting ups and downs over subsequent decades, let its menu get too big, and that its plethora of chief executives — “bookkeepers,” he called them — had rarely had experience in the restaurant business.
Asked in the 2014 interview if he regretted walking away from an industry on the verge of a boom that could have made him a billionaire, he pondered the question for a moment and then said, “That’s hindsight.”

For the full obituary, see:
Robert D. Hershey Jr. “David Edgerton, 90, a Burger King Founder Who Sold His Stake for a Bargain, Dies.” The New York Times (Tuesday, April 17, 2018): B15.
(Note: ellipses, and bracketed year, added.)
(Note: the online version of the obituary has the date April 16, 2018, and has the title “David Edgerton, a Founder of Burger King, Is Dead at 90.”)

The memoir mentioned above, is:
McLamore, James W. The Burger King: Jim McLamore and the Building of an Empire. New York: McGraw-Hill, 1997.

Deregulation Can Revive 3% Economic Growth

(p. A17) Growth deniers are declaring that America’s economy has lost its ability to grow at 3% above inflation. If that’s the case, maybe we should go back to where we lost 3% growth and retrace our steps until we find it. For only with 3% or higher growth does America experience measurable progress in poverty reduction, strong job creation and income growth. If 3% growth is irretrievably lost, so is the American Dream.
Did America actually experience 3% real growth to start with? Yes. In the postwar era, the U.S. averaged 3.4% annual growth from 1948 through 2008. We averaged 3% growth for half of the George W. Bush presidency (2003-06). From 2009-12, the Obama administration, the Congressional Budget Office and the Federal Reserve all thought they saw 3% growth just around the corner. If the possibility of 3% growth is gone forever, it hasn’t been gone very long.
. . .
While Obama apologists like to claim that labor-productivity and labor-supply factors preclude 3% growth, most of the growth constraints we face today are directly attributable to Mr. Obama’s policies.
. . .
A tidal wave of new rules and regulations across health care, financial services, energy and manufacturing forced companies to spend billions on new capital and labor that served government and not consumers. Banks hired compliance officers rather than loan officers. Energy companies spent billions on environmental compliance costs, and none of it produced energy more cheaply or abundantly. Health-insurance premiums skyrocketed but with no additional benefit to the vast majority of covered workers.
In a world of higher costs, productivity plummeted. Productivity measures the production of things the market values that flow from the employment of labor and capital. Try listing the Obama-era regulatory requirements that generated the employment of labor and capital in ways that actually produced something you buy.
. . .
Bad policies–not bad luck or a loss of God’s favor–have driven down labor productivity and the labor supply. We can change those policies.
. . .
With 3% growth, the American dream is achievable and virtually anybody willing to work hard can live it. Let 3% growth die and a lot of what we love most about our country will die with it.

For the full commentary, see:
Phil Gramm and Michael Solon. “Finding America’s Lost 3% Growth; If the country can’t grow like it once did, then the American Dream really is irretrievably lost.” The Wall Street Journal (Monday, Sept. 11, 2017): A17.
(Note: ellipses added.)
(Note: the online version of the commentary has the date Sept. 10, 2017.)

Barcelona Fines 136-Year-Old Basilica for Lack of Building Permit

(p. A4) The Sagrada Familia basilica in Barcelona has worldwide fame as an architectural treasure, the dreamlike masterpiece of the Catalan architect Antoni Gaudí, which draws millions of visitors a year though it is still under construction, 136 years after work began.
What it has not had for more than a century, according to the city, is a valid building permit.
The Sagrada Familia basilica has agreed to pay city authorities 36 million euros, or about $41 million, over 10 years to settle the dispute over the legality of the work and help pay for transportation improvements around the basilica.
. . .
The Sagrada Familia’s board had denied any wrongdoing, saying that it had a building permit — one issued in 1885 by Sant Martí de Provençals, which was an independent town at the time. Barcelona officials contend that after Sant Martí was absorbed into the city several years later, the construction required a Barcelona permit; the board says that for more than a century, no one asked for any such thing.

For the full story, see:
Raphael Minder. “A Barcelona Gem, And a Scofflaw?” The New York Times (Saturday, Oct. 20, 2018): A4.
(Note: ellipsis added.)
(Note: the online version of the story has the date Oct. 19, 2018, and has the title “Sagrada Familia, a Barcelona Masterpiece, and Scofflaw?”)

Mirrlees Found that a Flat Tax Would Encourage the Wealthy to Earn More, and Pay More Taxes

(p. B15) James A. Mirrlees, who taught himself calculus as a teenager, became a college professor when he was 32 and received a Nobel award for solving one of government’s greatest economic challenges — how to get taxpayers to pony up their fair share — died on Aug. 29 [2018] at his home in Cambridge, England.
. . .
Professor Mirrlees suggested that too many progressive taxes imposed at the highest income levels could discourage the wealthy from earning even more, reducing the revenue available to pay for government services and assist lower-income households.
He concluded as early as 1970 in the journal The Review of Economic Studies and in subsequent studies with Peter Diamond, an economist and fellow Nobel laureate at the Massachusetts Institute of Technology, that “the income tax is a much less effective tool for reducing inequalities than has often been thought” and that an “approximately linear” — or flattened — tax schedule would be more desirable.
“I must confess that I had expected the rigorous analysis of income-taxation in the utilitarian manner to provide an argument for high tax rates,” Professor Mirrlees wrote. “It has not done so.”
Politically, he was regarded as a social democrat, but his economic model became a rationale, embraced by many conservatives, for flattening tax rates — leading him to reconcile the two positions by saying that his heart was on the left, but that his head was on the right.
. . .
His research on “Optimum Income Taxation,” dating from the late 1960s, was peppered with arcane equations and graphs, but he maintained that much of economics is “in a way quite simple.”
“It is simple to be wrong as well as to be right,” he added, “and it is none too easy to distinguish between the two.”

For the full obituary, see:

Sam Roberts. “‘James Mirrlees, Who Earned a Nobel By Solving a Tax Riddle, Is Dead at 82.” The New York Times (Thursday, Sept. 6, 2018): B15.
(Note: ellipses, and bracketed year, added.)
(Note: the online version of the obituary has the date Sept. 4, 2018, and has the title “‘James Mirrlees, Whose Tax Model Earned a Nobel, Dies at 82.”)

Stephen Moore Offers Advance Praise for Openness to Creative Destruction

An invaluable reminder that all human progress derives from innovation, entrepreneurship and inventiveness. Wealth creation depends on creative destruction.

Stephen Moore, economist at the Heritage Foundation, economics commentator on CNN. Co-author of It’s Getting Better All the Time, and other works.

Moore’s advance praise is for:
Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, forthcoming June 2019.