Economics – Page 157 – artdiamondblog.com

Electric Mitsubishis and Nissans May Leapfrog Hybrid Toyotas

(p. B6) Both Nissan and Mitsubishi have their own reasons for rushing out an all-electric car. Having invested little in hybrids, they hope to leapfrog straight to the next technology.
. . .
“You don’t see many competing technologies survive in a key market for very long,” said Mr. Shimizu, the Keio University professor.
And more often than not in the history of innovation, a change in the dominant technology means a change in the market leader.
“Electric cars are a disruptive technology, and Toyota knows that,” Mr. Shimizu said. “I wouldn’t say Toyota is killing the electric vehicle. Perhaps Toyota is scared.”

For the full story, see:
HIROKO TABUCHI. “The Electric Slide.” The New York Times (Thursday, August 20, 2009): B1 & B6.
(Note: The online version of the article had the title: “Toyota, Hybrid Innovator, Holds Back in Race to Go Electric.”)
(Note: ellipsis added.)

Four Month Wait for Blood Test in Brits’ Government Health Care

(p. 6) Founded in 1948 during the grim postwar era, the National Health Service is essential to Britain’s identity. But Britons grouse about it, almost as a national sport. Among their complaints: it rations treatment; it forces people to wait for care; it favors the young over the old; its dental service is rudimentary at best; its hospitals are crawling with drug-resistant superbugs.

All these things are true, sometimes, up to a point.
. . .
Told my husband needed a sophisticated blood test from a particular doctor, I telephoned her office, only to be told there was a four-month wait.
“But I’m a private patient,” I said.
“Then we can see you tomorrow,” the secretary said.
And so it went. When it came time for my husband to undergo physical rehabilitation, I went to look at the facility offered by the N.H.S. The treatment was first rate, I was told, but the building was dismal: grim, dusty, hot, understaffed, housing 8 to 10 elderly men per ward. The food was inedible. The place reeked of desperation and despair.
Then I toured the other option, a private rehabilitation hospital with air-conditioned rooms, private bathrooms and cable televisions, a state-of-the-art gym, passably tasty food and cheery nurses who made a cup of cocoa for my husband every night before bed.

For the full commentary, see:
SARAH LYALL. “An Expat Goes for a Checkup.” The New York Times, Week in Review Section (Sun., August 8, 2009): 1 & 6.
(Note: the online title is “Health Care in Britain: Expat Goes for a Checkup.”)
(Note: ellipsis added.)

Clunker-Like Subsidies May Mainly Affect Timing of Purchases

(p. A6) The next program to test the effect of government funds comes this fall. Consumers who buy high-efficiency appliances such as refrigerators, washing machines and dishwasher can receive rebates of up to $200 on certain products; no trade-ins would be required. The $300 million program was included in the $787 billion stimulus law.

As with the clunkers program, it’s unclear whether the rebate program will offer anything more than a short-term economic boost.
“The people who will most like likely respond to this are the people who need appliances, and they were probably going to buy appliances anyway,” said Erik Hurst, an economist at the University of Chicago’s Booth School of Business. “If all you’ve done is move that from tomorrow to today, then the economy is going to lag even more tomorrow.”

For the full story, see:
SUDEEP REDDY. “Dealers Get More Time to File for Clunker Rebates.” The Wall Street Journal (Weds., AUGUST 25, 2009): A6.

Economists “Mistook Beauty, Clad in Impressive-Looking Mathematics, for Truth”

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

Nobel Prize winner Paul Krugman is no friend of the free market, and more importantly, his manner of dealing with opponents is a long way from gracious civility.
But he is not always completely wrong:

(p. 36) Few economists saw our current crisis coming, . . .
. . .
(p. 37) As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.

For the full commentary, see:
PAUL KRUGMAN. “How Did Economists Get It So Wrong?.” The New York Times, Magazine Section (Sun., September 2, 2009): 36-43.
(Note: ellipses added.)

The economist on the left is probably intended to resemble Keynes, but he also bears some resemblance to Hayek. Source of caricatures: online version of the NYT article quoted and cited above.

“Axel Springer Has Dared to Compete with Itself”

The European newspaper publisher Axel Springer, discussed in the story quoted below, appears to be following the advice of Christensen and Raynor in their book The Innovator’s Solution. In that book, they suggest that incumbent firms need to be willing to set up units that compete with their older business models, if they hope to survive the introduction of disruptive innovations.

(p. B4) PARIS — As the death toll in the American newspaper industry mounted this month, the German publisher Axel Springer, which owns Bild, the biggest newspaper in Europe, reported the highest profit in its 62-year history.
. . .
Axel Springer generates 14 percent of its revenue online, more than most American newspapers, even though the markets in which it operates — primarily Germany and Eastern Europe — are less digitally developed than the United States.
One reason, Mr. Döpfner said, is that Axel Springer has dared to compete with itself. Instead of trying to protect existing publications, it acquired or created new ones, some of which distribute the same content to different audiences.
At one newsroom in Berlin, for example, journalists produce content for six publications: the national newspaper Die Welt, its Sunday edition and a tabloid version aimed at younger readers; a local paper called Berliner Morgenpost, and two Web sites.

For the full story, see:
ERIC PFANNER. “European Newspapers Find Creative Ways to Thrive in the Internet Age.” The New York Times (Mon., March 29, 2009): B4.
(Note: ellipsis added.)

The Christensen and Raynor book mentioned above, is:
Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

Let Venture Capitalists Invest Their Own Money in Entrepreneurs

(p. A17) Venture-capital funds deal solely with privately purchased equity securities in start-up companies, which are not traded in public markets. They have as their limited partners only people who meet the S.E.C.’s definition of a “qualified client” (meaning they possess a substantial amount of money to invest). These investors, who typically allocate a small percentage of their portfolios to venture capital, are familiar with risk, but it is long-term risk, stretching out 7 to 10 years. They put their faith not in publicly traded securities but in entrepreneurs, emerging technologies and new markets.

Because their business is contained within the ecosystem of limited partners, venture-capital funds and the companies in which they invest absorb all the risk: there can be no domino effect in the world financial system.
. . .
It would be a shame to impose any new limits now, when venture capital is the asset class that can best help build and nurture the companies that bring about growth and job creation. The figures are compelling. In 2008, venture-backed companies that went public in previous years accounted for 12.1 million jobs and $2.9 trillion in revenues for the United States Treasury.
The names of companies financed by venture capital are legendary: Cisco, Google, Facebook, Apple, Federal Express, Staples, Yahoo, Amazon, Genentech and on and on. The privately purchased equity securities that helped start these companies supported new technological and scientific ideas, all of which led to new jobs.

For the full commentary, see:
ALAN PATRICOF and ERIC DINALLO. “Stopping Start-Ups.” The New York Times (Mon., August 31, 2009): A17.
(Note: ellipsis added.)

Government Regulations Stifle Creative Venture Capital

(p. A9) This is a good time to recall that the venture-capital industry was born as a reaction to New Deal regulations that stifled capital and prolonged the Depression. The country’s first venture-capital firm (other than family-run funds) was American Research and Development, planned in the 1930s and launched after World War II in Boston.

Its leader was longtime Harvard Business School professor Georges Doriot, who is the subject of a fascinating recent biography, “Creative Capital,” by Spencer Ante. Mr. Ante, a BusinessWeek editor, tells me that as he researched the topic “one of the most surprising things I learned was how concerned financiers and industrialists had become about the riskless economy in direct response to the New Deal. Even in the 1930s, people understood that small business was the lifeblood of the economy.”
American Research and Development backed early-stage companies deemed too risky by banks and investment trusts at the time. The firm was an early investor in Digital Equipment Corp., the Boston-area company that revolutionized computing.
Despite financial success, the history of the firm is a reminder that our regulatory system, by its nature focused on avoiding risk, has a hard time dealing with investment firms whose mission is to take risks. Doriot was a well-known name in commerce and academia from the 1940s through the 1970s. He was the first French graduate of Harvard Business School, a founder of the INSEAD business school and a leading adviser to the U.S. military.
But even as a pillar of Boston’s commercial and academic worlds, Doriot had many run-ins with federal regulators. Over the years, regulators dictated compensation for the American Research and Development staff, tried to force disclosure of the performance of its early-stage companies, and second-guessed how it tracked the valuations of its investments.
The Securities and Exchange Commission hounded the company so often that Doriot once wrote a three-page memo saying, “ARD has more knowledge of what is right and wrong than the average person at the SEC.” He was prudent enough not to send it. He did mail another memo to the SEC enforcement office in Boston, in 1965: “I rather resent, after 20 years of experience, to have two men come here, spend two days, and tell us that we do not know what we are doing.”
. . .
No venture capital firm has asked to be bailed out, and none are too big to fail. As hard as it is for regulators to understand, the nature of venture capital is such that it should not even aspire to be a low-risk enterprise

For the full commentary, see:

L. GORDON CROVITZ. “No Such Thing as Riskless Venture Capital; New regulations could retard the innovation our economy needs.” The Wall Street Journal (Weds., AUGUST 9, 2009): A19.
(Note: ellipsis added.)

Government Protects Us from Unlicensed Eight Year Old Lemonade Entrepreneur

Daniela Earnest at her lemonade stand (left) and in court (right). Source of photo: http://3.bp.blogspot.com/_GGAmzDRA_BY/SnvDbYoMpzI/AAAAAAAAHEg/W1BI2XK8DH4/s400/daniela%2Bearnest.jpg

(p. 5A) THE FRESNO BEE

TULARE, Calif. — Eight-year- old Daniela Earnest made lemonade out of lemons in more ways than one last week.

Hoping to raise money for a family trip to Disneyland, the Tulare girl opened a lemonade stand Monday. But she didn’t have a business license, so the city shut it down that day.
. . .

Tulare officials said they could not recall ever shutting down a lemonade stand before, though such action is not uncommon. Authorities across the nation have done it.
. . .
Daniela found the situation “pretty weird” but said it hadn’t soured her on reopening the lemonade stand.

For the full story, see:
The Fresno Bee. “City puts squeeze on pint-size purveyor of lemonade.” Omaha World-Herald (Sun., Aug. 9, 2009): 5A.
(Note: ellipses added.)

“Churchillian Steadfastness” Versus “Sullen Paralysis and Futile Efforts”

(p. A15) . . . beyond amelioration and providing the judicial (or in the case of the FDIC, quasi-judicial) procedures for reorganization, there is little more that the government can do to accelerate the unwinding and renewal necessary to put the economy back on an even keel.

The process involves a sequence of negotiations and experiments that cannot be truncated by throwing in more resources. As Frederick Brooks wrote in his celebrated book on software development, “The Mythical Man-Month: Essays on Software Engineering”: “When a task cannot be partitioned because of sequential constraints, the application of more effort has no effect on the schedule. The bearing of a child takes nine months, no matter how many women are assigned.” “Brooks’s Law” suggests that increasing the size of software teams may delay development.
The wide variety of problems and circumstances in an economic downturn precludes the effective use of a single solution. And the federal government doesn’t have the capacity to determine adjustments on a case-by-case basis. The late Nobel Laureate Friedrich Hayek taught that the “man on the spot” with the appropriate local knowledge was much more capable of making good investment decisions than a central planner.
. . .
Suppose that, when the financial crisis broke two years ago, our leaders had shown a Churchillian steadfastness and allowed the normal realignment to play out under a predictable judicial and regulatory regime. The prices of stocks, bank debt and houses would still have crumbled and unemployment risen. Although recovery wouldn’t have been immediate, we’d at least have progress, instead of a sullen paralysis and futile efforts to turn the clock back.
More loans would have been renegotiated and foreclosed properties auctioned off. The FDIC would already be engaged in finding a good home for the loans and deposits of a megabank or two. That agency, now operating with about one-third the staff it had in the 1980s, could also have used some of the bailout money that helped pay for bonuses at AIG and its counterparties to recruit, train and retain more employees.
Best of all, more entrepreneurs and innovators, who capitalize on the opportunities to be found in the midst of turmoil, could have been building the foundations of a prosperous future.

For the full commentary, see:
Amar Bhidé. “You Can’t Rush a Recovery; While small business struggles, Goldman Sachs was protected from its AIG mistakes.” The Wall Street Journal (Thurs., APRIL 9, 2009): A15.
(Note: ellipsis added.)

Empathetic Judges Are Unjust to Bastiat’s “Unseen”

(p. A15) . . . , a compassionate judge would tend to base his or her decisions on sympathy for the unfortunate; an empathetic judge on how the people directly affected by the decision would think and feel. What could be wrong with that?

Frederic Bastiat answered that question in his famous 1850 essay, “What is Seen and What is Not Seen.” There the economist and member of the French parliament pointed out that law “produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.” Bastiat further noted that “[t]here is only one difference between a bad economist and a good one: The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”
This observation is just as true for judges as it is for economists. As important as compassion and empathy are, one can have these feelings only for people that exist and that one knows about — that is, for those who are “seen.”
One can have compassion for workers who lose their jobs when a plant closes. They can be seen. One cannot have compassion for unknown persons in other industries who do not receive job offers when a compassionate government subsidizes an unprofitable plant. The potential employees not hired are unseen.

For the full commentary, see:
JOHN HASNAS. “The ‘Unseen’ Deserve Empathy, Too.” The Wall Street Journal (Fri., MAY 29, 2009): A15.
(Note: ellipsis added.)