Economic Growth – Page 19 – artdiamondblog.com

Mitt Romney on Innovation and Creative Destruction

Source of book image: http://mittromneycentral.com/uploads/No-Apology1.jpg

(p. 108) Innovation and Creative Destruction

The key to increasing national prosperity is to promote good ideas and create the conditions that can lead them to be fully exploited–in existing businesses as well as new ones. Government is generally not the source of new ideas, although innovations from NASA and the military have provided frequent exceptions. Nor is government where innovation is commercially developed. But government policies do, in fact, have a major impact on the implementation of innovative ideas. The degree to which a nation makes itself productive, and thus how prosperous its citizens become, is determined in large measure by whether government adopts policies that stimulate innovation or that stifle it.
The government policy that has the greatest effect on innovation is simply whether or not the government will allow it. It’s sad but true: Government can and often does purposefully prevent innovation and the resulting improvement in productivity. Recall my hypothetical example of a society in which half the farming jobs were lost due to innovation in the use of a plow? Some nations accept and encourage such “creative destruction,” recognizing that in the long run it leads to greater productivity and wealth for its citizens. But other nations succumb to the objections of those in danger of becoming unemployed and prevent innovation that may reduce short-term employment.
Two centuries ago, more than three-quarters of our workforce actually did labor on farms. Over the succeeding decades, innovations like irrigation, fertilizer, and tractors were welcomed, and eventually large farming corporations were allowed to prosper, despite protests from family farmers and the often heart-wrenching dislocations that accompanied consolidation of farmlands. The result was the disappearance of millions of agricultural jobs and the large-scale migration of Americans from rural regions to our cities. Once there, they provided the labor that powered America’s new industrial age. And at the same time, because farming innovation and productivity were allowed to flourish, America became the leader in agriculture education, research, and industry. Innovations from these sources have enabled us to produce sufficient food to feed not only our growing population but other parts of the world as well.

Source:
Romney, Mitt. No Apology: The Case for American Greatness. New York: St. Martin’s Press, 2010.
(Note: bold in original.)

Romney Right that Culture Matters for Economic Success

Source of book image: http://photo.goodreads.com/books/1172699090l/209176.jpg

In the piece quoted below, and in much of the TV media coverage, the story is spun as being that Romney offended the Palestinians. But that is not the story. The story is that Romney courageously highlighted an important, but politically incorrect, truth—culture, generally, does matter for economic performance; and Israeli culture, specifically, has encouraged economic growth.
Romney referred to an important book by the distinguished economic historian David Landes. Last school year, one of the students in my Economics of Technology seminar gave a presentation on a related Landes book. That presentation can be viewed at: http://www.amazon.com/review/R2GLBAMFCS5PXH/ref=cm_cr_pr_perm?ie=UTF8&ASIN=0521094186&linkCode=&nodeID=&tag=
I recently read another relevant book, Start-Up Nation, that directly supports Romney’s specific claim, by making the case that Israeli culture is especially congenial to entrepreneurial initiative and success.

(p. A1) JERUSALEM — Mitt Romney offended Palestinian leaders on Monday by suggesting that cultural differences explain why the Israelis are so much more economically successful than Palestinians, thrusting himself again into a volatile issue while on his high-profile overseas trip.
. . .
In the speech, Mr. Romney mentioned books that had influenced his thinking about nations — particularly “The Wealth and Poverty of Nations,” by David S. Landes, which, he said, argues that culture is the defining factor in determining the success of a society.
“Culture makes all the (p. A14) difference,” Mr. Romney said. “And as I come here and I look out over this city and consider the accomplishments of the people of this nation, I recognize the power of at least culture and a few other things.”
He added, “As you come here and you see the G.D.P. per capita, for instance, in Israel, which is about $21,000, and compare that with the G.D.P. per capita just across the areas managed by the Palestinian Authority, which is more like $10,000 per capita, you notice such a dramatically stark difference in economic vitality. And that is also between other countries that are near or next to each other. Chile and Ecuador, Mexico and the United States.”
The remarks, which vastly understated the disparities between the societies, drew a swift rejoinder from Palestinian leaders.

For the full story, see:
ASHLEY PARKER and RICHARD A. OPPEL Jr. “Romney Trip Raises Sparks at a 2nd Stop.” The New York Times (Tues., July 31, 2012): A1 & A14.
(Note: ellipsis added.)
(Note: the online version of the story has the date July 30, 2012.)

The Landes book discussed by Romney is:
Landes, David S. The Wealth and Poverty of Nations. New York: W.W. Norton & Company, 1998.

The book on Israeli entrepreneurship, that I mention in my comments, is:
Senor, Dan, and Saul Singer. Start-Up Nation: The Story of Israel’s Economic Miracle. hb ed. New York: Twelve, 2009.

Our Cups Will Runneth Over If We Choose Entrepreneurship, Imagination, Will and Optimism

Source of book image: http://www.abundancethebook.com/wp-content/uploads/2012/01/cover-NYTimes-3d-500.jpg?139d23

(p. 18) in Silicon Valley, where the locals tend to be too busy starting companies to wallow in gloom, Peter Diamandis has stood out as one of the more striking optimists. Several years ago, Diamandis founded the X Prize Foundation, which rewards entrepreneurs with cash for achieving difficult goals, like putting a reusable spaceship into flight on a limited budget. More recently he helped start Singularity University, an academic program that convenes several weeks a year in the Valley and educates business leaders about the “disruptive” — i.e., phenomenally innovative — technological changes Diamandis is anticipating. To be sure, Diamandis is both very bright (he studied molecular biology and aerospace engineering at M.I.T. before getting an M.D. at Harvard) and well informed. Moreover, he’s not the kind of optimist who will merely see the glass as half full. He’ll give you dozens of reasons, some highly technical, why it’s half full. Then he’ll explain that your cognitive biases are tricking you into seeing the glass of water in a negative light, and cart out the research of acclaimed psychologists like Daniel Kahneman to prove his point. Finally he may suggest you stop fretting: new technologies will soon fill the glass up anyway. Indeed, they are likely to overfill it.
. . .
(p. 19) Throughout the book Diamandis . . . offers small groups of driven entrepreneurs as a kind of Leatherman solution to the world’s problems. It’s true that plenty of insurgents are doing impressive things out there — Elon Musk’s Tesla Motors, which helped jump-start the world’s electric car industry, is a good example.
. . .
. . . , there’s a significant idea embedded within “Abundance”: We should remain aware, as writers like Jared Diamond have likewise told us, that societies can choose their own future, and thus their own fate. In that spirit Diamandis and Kotler put forth a range of possible goals we may achieve if we have the imagination and the will. A little optimism wouldn’t hurt, either.

For the full review, see:
JON GERTNER. “Plenty to Go Around.” The New York Times Book Review (Sun., April 1, 2012): 18 & 19.
(Note: ellipses added.)
(Note: the online version of the review has the date March 30, 2012.)

The book under review is:
Diamandis, Peter H., and Steven Kotler. Abundance: The Future Is Better Than You Think. New York: Free Press, 2012.

Obama’s World Bank President Opposes Growth, Profits and Globalization

President Obama’s pick for World Bank President, Dr. Jim Yong Kim, is scheduled to take office on July 1, 2012.

(p. A8) Dr. Kim has drawn fire recently for comments in a book he co-edited in 2000, “Dying for Growth.” In a piece he co-authored for it, Dr. Kim co-wrote that “the quest for growth in GDP and corporate profits has in fact worsened the lives of millions of women and men.”
. . .
. . . an economist who has become one of Dr. Kim’s leading critics, New York University’s William Easterly, said the World Bank nominee offered an “amateur” approach to economics through an “antiglobalization point of view” that is critical of corporations.
“His critique was much more radical, that the system itself was responsible for creating poverty,” Mr. Easterly said.

For the full review, see:
SUDEEP REDDY. “WORLD NEWS; Criticism Over U.S.’s World Bank Pick Swells.” The Wall Street Journal (Mon., April 9, 2012): A8.
(Note: ellipses added.)
(Note: online version of the article is dated April 8, 2012.)

William Easterly’s wonderful and courageous book is:
Easterly, William. The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics. Cambridge, MA: The MIT Press, 2002 [1st ed. 2001].

Michael Milken Provided “Access to Capital for Growing Companies”

(p. 163) Although [high yield] . . . bonds eventually became known as a favored tool for leveraged–buyout specialists in the 1980s, Mike’s original goal was different. He wanted to provide access to capital for growing companies that needed financing to expand and create jobs. Most of these companies lacked the investment grade” bond ratings required before the big financial institutions would back them. Mike knew that non-investment-grade (a k a “junk”) companies create virtually all new jobs, and he believed that helping these companies grow strengthened the American economy and created good jobs for American workers.
It was by studying credit history at Berkeley in the 1960s that Mike developed his first great insight. He found that while there could be significant risk in any one high-yield bond, a carefully constructed portfolio of these assets produced a consistently better return over the long run than supposedly “safe” investment-grade debt. This was proved during the two decades of the 1970s and ’80s when returns on high-yield bonds topped all other asset classes. Mike saw a great opportunity when he realized that the perception of default risk far exceeded the reality. In fact, these bonds had a surprisingly low-risk profile when adjusted for the potential returns.
After twenty years of superior gains, the high-yield bond market finally fell in 1990. Actually, it didn’t fall–it was pushed by unwise government regulation that forced institutions to sell their bonds. The dip only lasted a year, however, with the market roaring back 46 percent in 1991.
Mike’s competitors–Goldman Sachs, Morgan Stanley, and Credit Suisse First Boston, the old oligopolies of the syndication (p. 164) business–labeled them “junk bonds” to disparage Mike’s brainchild. He was not a member of their white-shoe club and they were not going to take his act lying down.

Source:
Wyly, Sam. 1,000 Dollars and an Idea: Entrepreneur to Billionaire. New York: Newmarket Press, 2008.
(Note: bracketed words and ellipsis added.)

Tax Hikes Punish Hard Work and Reduce Incentives to Invest

(p. A15) The supply-sider has a different view from both the Keynesian and the budget balancer. Fundamentally, supply-side advocates focus on the harmful effects of tax increases. Raising tax rates hurts the economy directly because tax hikes reduce incentives to invest and because they punish hard work. As such, tax increases slow growth. But budget cuts work in the right direction by making lower tax revenues sustainable. If spending exceeds revenues, then the government must borrow and this commits future governments to raising taxes in order to service the debt.
. . .
On the tax side, there is strong evidence that supports the supply-siders. Christina Romer, President Obama’s first chairwoman of the President’s Council of Economic Advisers, and David Romer document the strong unfavorable effect of increasing tax rates on economic growth (American Economic Review, 2010). They report that an increase in taxes of 1% of gross domestic product lowers GDP by almost 3%. The evidence on government spending also suggests that high spending means lower growth.
For example, Swedish economists Andreas Bergh and Magnus Henrekson (Journal of Economic Surveys 2011) survey a large literature and conclude that an increase in government size by 10 percentage points of GDP is associated with a half to one percentage point lower annual growth rate.

For the full commentary, see:
EDWARD P. LAZEAR. “OPINION; Three Views of the ‘Fiscal Cliff’; It’s the tax increases we have to fear. Spending cuts won’t hurt the economy.” The Wall Street Journal (Mon., May 21, 2012): A15.
(Note: ellipsis added.)
(Note: the online version of the commentary is dated May 20, 2012 and has the title “OPINION; Edward Lazear: Three Views of the ‘Fiscal Cliff’; It’s the tax increases we have to fear. Spending cuts won’t hurt the economy.”)

The Romer and Romer paper mentioned is:
Romer, Christina D., and David H. Romer. “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks.” American Economic Review 100, no. 3 (June 2010): 763-801.

The Bergh and Henrekson paper mentioned is:
Bergh, Andreas, and Magnus Henrekson. “Government Size and Growth: A Survey and Interpretation of the Evidence.” Journal of Economic Surveys 25, no. 5 (Dec. 2011): 872-97.

NGO Workers Are More Concerned with Following Plan than Achieving Mission

Source of book image: http://www.bibliovault.org/thumbs/978-0-8047-7672-1-frontcover.jpg

In the quote below, “NGO” means “Non-Government Organization,” for instance, a philanthropy.

(p. 17) As for the state’s representatives, their authority was what Coburn calls a “useful fiction.” The district governor wielded his connections to Kabul as best he could, but did not possess great influence, in part because — in keeping with the most sophisticated state-building methods — government aid was mainly distributed by locally elected committees. Istalif’s police were seen as hapless at best, predatory at worst; Coburn found that villagers were eager to protect him from a local officer. The French soldiers who periodically showed up in the bazaar had little impact, though their presence did become an excuse for keeping women out of the area. But Coburn observed that “no group was less effective at accumulating influence” than the NGO community. The best development experts accomplished little: their turnover was high, and they frequently bestowed their largess on deserving locals — women, refugees who’d returned from abroad with some education, victims of wartime injuries — who didn’t have the connections or ability to capitalize on their good fortune. NGO workers seemed less concerned with achieving a valuable outcome than with demonstrating to their backers that they had followed a mission plan to the letter.

For the full review, see:
ALEXANDER STAR. “Applied Anthropology.” The New York Times Book Review (Sun., November 20, 2011): 16-17.
(Note: the online version of the commentary is dated November 18, 2011, and has the title “Afghanistan: What the Anthropologists Say.”)

The book being discussed is:
Coburn, Noah. Bazaar Politics: Power and Pottery in an Afghan Market Town. Stanford Studies in Middle Eastern and Islamic Societies and Cultures. Stanford, CA: Stanford University Press, 2011.

“Dematerialization” Means More Goods from Fewer Resources

(p. C4) Economic growth is a form of deflation. If the cost of, say, computing power goes down, then the users of computing power acquire more of it for less–and thus attain a higher standard of living. One thing that makes such deflation possible is dematerialization, the reduction in the quantity of stuff needed to produce a product. An iPhone, for example, weighs 1/100th and costs 1/10th as much as an Osborne Executive computer did in 1982, but it has 150 times the processing speed and 100,000 times the memory.
Dematerialization is occurring with all sorts of products. Banking has shrunk to a handful of electrons moving on a cellphone, as have maps, encyclopedias, cameras, books, card games, music, records and letters–none of which now need to occupy physical space of their own. And it’s happening to food, too. In recent decades, wheat straw has shrunk as grain production has grown, because breeders have persuaded the plant to devote more of its energy to making the thing that we value most. Future dematerialization includes the possibility of synthetic meat–produced in a lab without brains, legs or guts.
Dematerialization is one of the reasons that Peter Diamandis and Steven Kotler give for the future’s being “better than you think” in their new book, “Abundance.”

For the full commentary, see:
MATT RIDLEY. “MIND & MATTER; The Future Is So Bright, it’s Dematerializing.” The Wall Street Journal (Sat., February 25, 2012): C4.

The book mentioned by Ridley is:
Diamandis, Peter H., and Steven Kotler. Abundance: The Future Is Better Than You Think. New York: Free Press, 2012.

Upper Class “Have Lost the Confidence to Preach What They Practice”

Source of book image:
http://4.bp.blogspot.com/-K9jKNHD0vwE/Tzn4yKgEtII/AAAAAAAAC8Q/2wZqk1Hl1V4/s1600/murray-coming-apart.jpg

(p. 9) The problem, Murray argues, is not that members of the new upper class eat French cheese or vote for Barack Obama. It is that they have lost the confidence to preach what they practice, adopting instead a creed of “ecumenical niceness.” They work, marry and raise children, but they refuse to insist that the rest of the country do so, too. “The belief that being a good American involved behaving in certain kinds of ways, and that the nation itself relied upon a certain kind of people in order to succeed, had begun to fade and has not revived,” Murray writes.

For the full review, see:
NICHOLAS CONFESSORE. “Tramps Like Them; Charles Murray Argues that the White Working Class Is No Longer a Virtuous Silent Majority.” The New York Times Book Review (Sun., February 12, 2012): 9.
(Note: the online version of the review has the date February 10, 2012 and has the title “Tramps Like Them; Charles Murray Examines the White Working Class in ‘Coming Apart’.”)

In China the Rich and Creative Prepare to Vote with Their Feet

“Shi Kang, a millionaire writer living in Beijing, started thinking about emigrating after a long road trip last year around the U.S.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. A1) BEIJING–This time last year, Shi Kang considered himself a happy man.

Writing 15 novels had made him a millionaire. He owned a luxury apartment and a new silver Mercedes. He was so content with his carefree life in Beijing that he never even traveled overseas.
Today, a year later, Mr. Shi is considering emigrating to the U.S.–one of a growing number of rich Chinese either contemplating leaving their homeland or already arranging to do it.
. . .
(p. A12) A survey published in November found that 60% of about 960,000 Chinese people with assets over 10 million yuan ($1.6 million) were either thinking about emigrating or taking steps to do so. The U.S. was the top destination, followed by Canada, Singapore and Europe, according to the survey by the state-run Bank of China and Hurun Report, which analyzes trends among China’s wealthy.
. . .
Mr. Su was no dissident, though. Like many of his generation, he turned his attention to getting rich. Today, at 46, Mr. Su runs his own aerospace technology company and estimates his own net worth, including the various properties he owns, at around 80 million yuan, or close to $13 million.
His main reason for leaving, he says, is the business environment. “The government has too much power,” he says. “Regulations here mean that businessmen have to do a lot of illegal things. That gives people a real sense of insecurity.” He said four of his distributors have also applied for investment immigration to Canada.
. . .
“The problem is that government power is too great,” Mr. Su says. “When the economy is going up, they think that everything they are doing is right.” If they don’t change, he worries, “another revolution will come soon.”
. . .
The current migrant wave is different in that they are escaping neither poverty nor political unrest–and many say they are leaving for good. The Hurun survey showed that the average respondent had 60 million yuan in assets and was 42, old enough to remember the 1989 Tiananmen crackdown, but young enough to have learned how to prosper in a market economy.
Deng Jie fits the profile. Twenty-seven years ago, in the fledgling years of China’s market reforms, he began his career in a state-run ceramics factory in Beijing, sharing a cramped dormitory with colleagues and earning 50 yuan a month (about $13 in those days).
Today, at 48, he runs his own chemical pigments business and lives with his wife and daughter in one of the three luxury apartments he owns. In dollar terms, he is a millionaire several times over. His properties alone have appreciated by 800% in a decade.
Yet the hope he felt for his country in the 1980s, he says, has “been doused with bucket after bucket of cold water.” He cited a host of concerns, including rampant corruption among the officials he deals with, and new labor regulations that he says have made his work force too costly and demanding.
“I’m representing a lot of other people like me,” he says. “We used to want to contribute to the nation. But now we just feel so disappointed. China cannot continue like this. It has to change.”

For the full story, see:

JEREMY PAGE. “Plan B for China’s Wealthy: Moving to the U.S., Europe.” The Wall Street Journal (Thurs., FEBRUARY 22, 2012): A1 & A12.
(Note: ellipses added.)

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