Economics – Page 172 – artdiamondblog.com

Good Jobs and Bad Jobs

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

Labor is usually viewed as a victim of the process of creative destruction, because some old jobs are destroyed when a new technology replaces an old one. But part of the process is the creation of new jobs, and on average, the new jobs are created have better characteristics than the old jobs that are destroyed.
The article quoted below, discusses some of the characteristics that make a job better or worse.

(p. D2) Nineteen years ago, Jennifer Courter set out on a career path that has since provided her with a steady stream of lucrative, low-stress jobs. Now, her occupation — mathematician — has landed at the top spot on a new study ranking the best and worst jobs in the U.S.

“It’s a lot more than just some boring subject that everybody has to take in school,” says Ms. Courter, a research mathematician at mental images Inc., a maker of 3D-visualization software in San Francisco. “It’s the science of problem-solving.”
The study, released Tuesday from CareerCast.com, a new job site, evaluates 200 professions to determine the best and worst according to five criteria inherent to every job: environment, income, employment outlook, physical demands and stress. (CareerCast.com is published by Adicio Inc., in which Wall Street Journal owner News Corp. holds a minority stake.)
The findings were compiled by Les Krantz, author of “Jobs Rated Almanac,” and are based on data from the U.S. Bureau of Labor Statistics and the Census Bureau, as well as studies from trade associations and Mr. Krantz’s own expertise.
According to the study, mathematicians fared best in part because they typically work in favorable conditions — indoors and in places free of toxic fumes or noise — unlike those toward the bottom of the list like sewage-plant operator, painter and bricklayer. They also aren’t expected to do any heavy lifting, crawling or crouching — attributes associated with occupations such as firefighter, auto mechanic and plumber.

For the full story, see:
SARAH E. NEEDLEMAN. “Doing the Math to Find the Good Jobs; Mathematicians Land Top Spot in New Ranking of Best and Worst Occupations in the U.S.” The Wall Street Journal (Tues., Jan. 6, 2008): D2.

For the ranking of 200 jobs, and the components that went into the ranking, see:
http://www.careercast.com/jobs/content/JobsRated_Top200Jobs

French Entrepreneur Fourneau Was Against Law, But Used It

The existence and details of patent laws can matter for creating incentives for invention and innovation. The patent laws in Germany and France in the 1930s reduced the incentives for inventing new drugs.

(p. 141) German chemical patents were often small masterpieces of mumbo jumbo. It was a market necessity. Patents in Germany were issued to protect processes used to make a new chemical, not, as in America, the new chemical itself; German law protected the means, not the end. . . .
. . .
(p. 166) Fourneau decided that if the French were going to compete, the nation’s scientists would either have to discover their own new drugs and get them into production before the Germans could or find ways to make French versions of German compounds before the Germans had earned back their research and production costs—in other words, get French versions of new German drugs into the market before the Germans could lower their prices. French patent laws, like those in Germany, did not protect the final product. “I was always against the French law and I thought it was shocking that one could not patent one’s invention,” Fourneau said, “but the law was what it was, and there was no reasons not to use it.”

Source:
Hager, Thomas. The Demon under the Microscope: From Battlefield Hospitals to Nazi Labs, One Doctor’s Heroic Search for the World’s First Miracle Drug. New York: Three Rivers Press, 2007.
(Note: ellipses added.)

Kantrowitz Failed at Fusion for Lack of Funding

“Arthur Kantrowitz, the “father” of laser propulsion, with a cone-shaped model in 1989, first suggested the use of ground based lasers to launch vehicles into orbit.” Source of the caption and photo: the online version of the somewhat different December 9th version of the obituary at http://www.nytimes.com/2008/12/09/science/09kantrowitz.html?scp=1&sq=Kantrowitz&st=cse

(p. B13) Arthur R. Kantrowitz, a physicist and engineer whose research on the behavior of superhot gases and fluid dynamics led to nose cones for rockets, heart-assist pumps and the idea of nuclear fusion in magnetic bottles, among many other things, died in Manhattan on Nov. 29. He was 95.
. . .
After receiving bachelor’s and master’s degrees in physics from Columbia in 1936, he went to work for the National Advisory Committee for Aeronautics, or NACA, the precursor to NASA, at Langley Field in Virginia. It was there, in 1938, that he and Eastman N. Jacobs, his boss, did an experiment that might have changed the world, had they succeeded.
The idea was to harness the energy source that powers the sun, the thermonuclear fusion of hydrogen into helium, by heating hydrogen with radio waves while squeezing the gas with a magnetic field. At the time, nobody had tried to produce a fusion reaction; the Manhattan Project and other attempts to create nuclear fission were still in their infancy.
Knowing that their superiors would disapprove of anything as outlandish as atomic energy, they labeled their machine the Diffusion Inhibitor, and worked on it only at night. The experiment failed, and before the experimenters could figure out why, their director found out about the project and canceled it. Physicists unaware of the Langley experiment later reinvented the idea of thermonuclear fusion in a magnetic bottle, and they are still trying to make it work.
”It was a heartbreaking experience,” Dr. Kantrowitz recalled. ”I had just built a whole future around this; I wanted to make it a career.”

For the full obituary, see:

DENNIS OVERBYE. “Arthur R. Kantrowitz, 95, Is Dead; Physicist Who Helped Space Program.” The New York Times (Weds., December 10, 2008): B13.
(Note: ellipsis added.)

In Geology, Economic Growth Caused Scientific Progress

(p. 130) . . . , the major problem inhibiting England’s industrial development was the state of the roads. So the introduction of waterborne transportation on the new canals triggered massive economic expansion because these waterways transported coal (and other raw materials) much faster and cheaper than by packhorse or wagon. In 1793 a surveyor called William Smith was taking the first measurements in preparation for a canal that was to be built in the English county of Somerset, when he noticed something odd. (p. 131) Certain types of rock seemed to lie in levels that reappeared, from time to time, as the rock layer dipped below the surface and then re-emerged across a stretch of countryside. During a journey to the north of England (to collect more information about canal-construction techniques), Smith saw this phenomenon happening everywhere. There were obviously regular layers of rock beneath the surface which were revealed as strata where a cliff face of a valley cut into them. In 1796 Smith discovered that the same strata always had the same fossils embedded in them. In 1815, after ten years of work, he compiled all that he had learned about stratification in the first proper colored geological map, showing twenty-one sedimentary layers. Smith’s map galvanized the world of fossil-hunting.

Source:
Burke, James. The Pinball Effect: How Renaissance Water Gardens Made the Carburetor Possible – and Other Journeys. Boston: Back Bay Books, 1997.
(Note: ellipsis added.)

Government Pressure Led Fannie Mae and Freddie Mac to Increase Their Subprime Loans

“Former heads of Fannie Mae and Freddie Mac testified in the House Tuesday: left to right, Richard Syron, Daniel Mudd, Leland Brendsel and Franklin Raines.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. B3) Fannie Mae and Freddie Mac engaged in “an orgy of junk mortgage development” that turned the two mortgage-finance giants into vast repositories of subprime and similarly risky loans, a former Fannie executive testified on Tuesday.
. . .
And in March 2006, Enrico Dallavecchia, Fannie Mae’s chief risk officer, wrote to Mr. Mudd to say, “Dan, I have a serious problem with the control process around subprime limits.”
Despite the concerns, Fannie Mae further increased its purchases of subprime loans, according to a January 2007 internal presentation.
Freddie Mac’s senior executives ignored similar warnings. Donald J. Bisenius, a senior vice president, wrote in April 2004 to a colleague that “we did no-doc lending before, took inordinate losses and generated significant fraud cases.”
“I’m not sure what makes us think we’re so much smarter this time around,” he wrote.
Housing analysts say that the former heads of Fannie Mae and Freddie Mac increased their nonprime business because they felt pressure from the government and advocacy groups to meet goals for affordable housing as well as pressure to compete with Wall Street.

For the full story, see:
LYNNLEY BROWNING. “Ex-Executive Faults Fannie and Freddie for Nonprime Loans.” The New York Times (Weds., December 10, 2008): B3.
(Note: ellipsis added.)

Mackerel Money: “If a Dog Eats It, It’s Dog Food”

Mackerel on left; Larry Levine on right. Source of photo and image: online version of the WSJ article quoted and cited below.

In discussing the nature of money, my Wabash College economics professor, Ben Rogge, used to say “if a dog eats it, it’s dog food.” (The moral being that, if people use it as money, it’s money.)
There are many examples of unusual money: large stones, cigarettes, and now mackerel (see the article quoted below).
P.S. In an earlier entry, I worried that Rupert Murdoch would kill the WSJ‘s quirky trademark front-page article. Score one for Rupert’s ability to change his mind for the better, when it matters.

(p. A1) When Larry Levine helped prepare divorce papers for a client a few years ago, he got paid in mackerel. Once the case ended, he says, “I had a stack of macks.”

Mr. Levine and his client were prisoners in California’s Lompoc Federal Correctional Complex. Like other federal inmates around the country, they found a can of mackerel — the “mack” in prison lingo — was the standard currency.
“It’s the coin of the realm,” says Mark Bailey, who paid Mr. Levine in fish. Mr. Bailey was serving a two-year tax-fraud sentence in connection with a chain of strip clubs he owned. Mr. Levine was serving a nine-year term for drug dealing. Mr. Levine says he used his macks to get his beard trimmed, his clothes pressed and his shoes shined by other prisoners. “A haircut is two macks,” he says, as an expected tip for inmates who work in the prison barber shop.
There’s been a mackerel economy in federal prisons since about 2004, former inmates and some prison consultants say. That’s when federal prisons prohibited smoking and, by default, the cigarette pack, which was the earlier gold standard.
Prisoners need a proxy for the dollar because they’re not allowed to possess cash. Money they get from prison jobs (which pay a maximum of 40 cents an hour, according to the Federal Bureau of Prisons) or family members goes into commissary accounts that let them buy things such as food and toiletries. After (p. A16) the smokes disappeared, inmates turned to other items on the commissary menu to use as currency.
. . .
Mr. Muntz says he sold more than $1 million of mackerel for federal prison commissaries last year. It accounted for about half his commissary sales, he says, outstripping the canned tuna, crab, chicken and oysters he offers.
Unlike those more expensive delicacies, former prisoners say, the mack is a good stand-in for the greenback because each can (or pouch) costs about $1 and few — other than weight-lifters craving protein — want to eat it.
So inmates stash macks in lockers provided by the prison and use them to buy goods, including illicit ones such as stolen food and home-brewed “prison hooch,” as well as services, such as shoeshines and cell cleaning.
The Bureau of Prisons views any bartering among prisoners as fishy. “We are aware that inmates attempt to trade amongst themselves items that are purchased from the commissary,” says bureau spokeswoman Felicia Ponce in an email. She says guards respond by limiting the amount of goods prisoners can stockpile. Those who are caught bartering can end up in the “Special Housing Unit” — an isolation area also known as the “hole” — and could lose credit they get for good behavior.

For the full story, see:
JUSTIN SCHECK. “Mackerel Economics in Prison Leads to Appreciation for Oily Fillets; Packs of Fish Catch On as Currency, Former Inmates Say; Officials Carp.” The Wall Street Journal (Thurs., OCTOBER 2, 2008): A1 & A16.
(Note: ellipsis added.)

The classic article on cigarette money, is:
Radford, R.A. “The Economic Organization of a P.O.W. Camp.” Economica, New Series 12, no. 48 (Nov. 1945): 189-201.

Economist Arrested for Speaking the Truth

Detained Latvian economist Dmitrijs Smirnovs. Source of image: online version of the WSJ article quoted and cited below.

(p. A1) RIGA, Latvia — Hammered by economic woe, this former Soviet republic recently took a novel step to contain the crisis. Its counterespionage agency busted an economist for being too downbeat.

“All I did was say what everyone knows,” says Dmitrijs Smirnovs, a 32-year-old university lecturer detained by Latvia’s Security Police. The force is responsible for hunting down spies, terrorists and other threats to this Baltic nation of 2.3 million people and 26 banks.
Now free after two days of questioning, Mr. Smirnovs hasn’t been charged. But he is still under investigation for bad-mouthing the stability of Latvia’s banks and the national currency, the lat. Investigators suspect him of spreading “untruthful information.” They’ve ordered him not to leave the country and seized his computer.
Finance is a highly touchy subject in Latvia, one that the state tries, with unusual zeal, to shield from loose tongues. It is a criminal offense here to spread “untrue data or information” about the country’s financial system. Undermining it is outlawed as subversion.
So, when the global financial system began to buckle this autumn, Latvia’s Security Police mobilized to combat destabilizing chatter about banks and exchange rates. Agents directed their attention to Inter-(p. A19)net chat rooms, newspaper articles, cellphone text messages and even rock concerts. A popular musician was taken in for questioning after he cracked a joke about unstable Latvian banks at a performance.
Just one problem: Much of the speculative buzz now turns out to ring true.
. . .
In Latvia’s Soviet past, officials routinely blamed their problems on saboteurs or other scapegoats. “This is part of our political culture,” says Sergei Kruks, a media-studies lecturer. “If the state doesn’t have a solution, it has to find someone to blame.”

For the full story, see:
ANDREW HIGGINS. “How to Combat a Banking Crisis: First, Round Up the Pessimists; Latvian Agents Detain a Gloomy Economist; ‘It Is a Form of Deterrence’.” The Wall Street Journal (Mon., DECEMBER 1, 2008): A1 & A19.
(Note: ellipsis added.)

Supporters of Whaling Industry Objected to Light from Gas

In the process of creative destruction, the industry that is being destroyed often seeks to protect itself from the new innovation:

(p. 45) In England, objectors to gaslight argued that it undercut the whaling industry.

Source:
Burke, James. The Pinball Effect: How Renaissance Water Gardens Made the Carburetor Possible – and Other Journeys. Boston: Back Bay Books, 1997.

Taleb Practices What He Preaches, and Does Well

Taleb on left; Spitznagel on right. Source of images: online version of the WSJ article quoted and cited below.

(p. C1) For most of October, it seemed nearly everything that could go wrong with the markets did. But the rout turned into a jackpot for author and investor Nassim Nicholas Taleb.

Mr. Taleb last year published “The Black Swan,” a best-selling book about the impact of extreme events on the world and the financial markets. He also helped start a hedge fund, Universa Investments L.P., which bases many of its strategies on themes in the book, including how to reap big rewards in a sharp market downturn. Like October’s.
Separate funds in Universa’s so-called Black Swan Protection Protocol were up by a range of 65% to 115% in October, according to a person close to the fund. “We’re discovering the fragility of the financial system,” said Mr. Taleb, who says he expects market volatility to continue as more hedge funds run into trouble.
A professor of mathematical finance at New York University, Mr. Taleb believes investors often ignore the risk of extreme moves in the market, especially when times are good and volatility is low, as it was for several years leading up to the current turmoil. “Black swan” alludes to the belief, once widespread, that all swans are white — a notion that was proven false when European explorers discovered black swans in Australia. A black-swan event is something that is highly unexpected.
Assets under management at Universa have neared $2 billion since the fund launched early last year with $300 million under management. While Mr. Taleb frequently consults with Universa’s traders, the Santa Monica, Calif., fund is owned and managed by Mark Spitznagel, who worked for several years in the 1990s as a pit trader on the Chicago Board of Trade.

For the full story, see:
SCOTT PATTERSON. “October Pain Was ‘Black Swan’ Gain.” The Wall Street Journal (Mon., NOVEMBER 3, 2008): C1 & C3.

For my enthusiastic review of the Taleb book, see:

Diamond, Arthur M., Jr. “Review of the Black Swan: The Impact of the Highly Improbable.” Journal of Scientific Exploration 22, no. 3 (Fall 2008): 419-22.

Eastman Was a Self-Financed Entrepreneur

Mark Casson has argued that the more original the entrepreneur’s innovation, the more likely he will need to finance all, or a large part, of it himself. To the extent that this is true, it represents an important argument for allowing the accumulation of wealth (and thereby an argument against substantial personal income, and inheritance, taxes.)
Here is an example, consistent with Casson’s argument, of a self-financed entrepreneur:

(p. 36) The idea of loading film into a camera, snapping the picture and then sending the film to a store to be processed was the brainchild of an American from Rochester, New York, called George Eastman. One day in 1879, at the bank where he had worked since leaving school at the age of fourteen, he didn’t get the promotion he was expecting. So he left and used his savings to set himself up as a “Maker and Dealer in Photographic Supplies.” At this time, picture taking was a messy, cumbersome and expensive business, involving glass-late negatives, buckets of chemicals an monster wooden cameras. When Eastman had finished his experiments with the process, his slogan promised, “You press the button. We do the rest.”

Source:
Burke, James. The Pinball Effect: How Renaissance Water Gardens Made the Carburetor Possible – and Other Journeys. Boston: Back Bay Books, 1997.