Economics – Page 198 – artdiamondblog.com

Paperwork is 31% of U.S. Health Care Costs

. . . , a large part of America’s health care spending goes into paperwork. A 2003 study in The New England Journal of Medicine estimated that administrative costs took 31 cents out of every dollar the United States spent on health care, compared with only 17 cents in Canada.

For the full commentary, see:

PAUL KRUGMAN. "The Medical Money Pit." The New York Times (Friday, April 15, 2005): A19.

Canada may beat the U.S. in this dimension of health care, but they lose in many other important dimensions–for example the wait time to receive ‘elective’ surgeries. And anyway, isn’t 17 percent still too high?

Free Market Philanthropy

Charles Koch. Source of image: online version of WSJ article cited below.

Mr. Koch’s latest crusade to spread the ideas of liberty has been his sponsorship of a twice-yearly conference that gathers together many of the most successful American entrepreneurs, from T. Boone Pickens to former Circuit City CEO Rick Sharp. The objective is to encourage these captains of industry to help fund free-market groups devoted to protecting the fragile infrastructure of liberty. That task seems especially critical given that so many of the global superrich, like George Soros and Warren Buffett, finance institutions that undermine the very system of capitalism that made their success possible. Isn’t this just the usual rich liberal guilt, I ask. "No," he says, "I think they simply haven’t been sufficiently exposed to the ideas of liberty."

For the full commentary, see:

STEPHEN MOORE. "THE WEEKEND INTERVIEW with Charles Koch; Private Enterprise." The Wall Street Journal (Sat., May 6, 2006): A8.

“Everybody wants to be like Bill Gates”

Vietnamese university students hoping to see Bill Gates. Source of image: http://www.nytimes.com/2006/04/27/world/asia/27vietnam.html?ex=1303790400&en=255d4d4996b1a9a6&ei=5088&partner=rssnyt&emc=rss

HANOI, Vietnam, April 26 — It was Lenin’s birthday. The most important Communist Party meeting in five years was under way. And the star of the show was the world’s most famous capitalist, Bill Gates.

The president, the prime minister and the deputy prime minister all excused themselves from the party meeting on Saturday to have their pictures taken with Mr. Gates, who has more star power in Vietnam than any of them.

When people heard he was in town, hundreds climbed trees and pushed through police lines to get a glimpse of him. He was the subject of the lead article in the next day’s newspapers.

This is where Vietnam stands today, moving cautiously toward a new version of communism while the people and their leaders lunge eagerly for the brass ring of capitalist development.

"That was very symbolic," said Le Dang Doanh, an official in the Ministry of Planning, speaking of the reception for Mr. Gates. "It is a very clear sign of the new mood of society and the people. Everybody wants to be like Bill Gates."

For the full story, see:

SETH MYDANS. "Communist Vietnam Lunges for Capitalism’s Brass Ring." The New York Times (Thurs., April 27, 2006): A3.

Note: the version of the article above corrects an error in the print version that had misidentified the day of Lenin’s birth, and Gates visit as a Sunday (it was a Saturday).

Spontaneous Order in Cockroaches

Even cockroaches manage to make collective decisions that, seemingly by magic, produce an outcome that benefits everyone (except the people whose kitchens they are in). When roaches decide where to move in, they must balance crowding against protection against predators. The goal: pack enough roaches into a shelter to provide strength in numbers, but not so much that dangerous crowding results.

When scientists put roaches into a dish containing identical shelters, they thought the roaches would fill one shelter and then use others for spillover. But the gregarious bugs defied expectations.

When more than half the bugs could fit into one shelter, they divided into two equal groups: For instance, when 50 had a choice of three shelters, each with a capacity of 40, 25 cockroaches gathered in one, 25 in another, and none in the third, biologist José Halloy of the Free University of Brussels and colleagues reported last month in Proceedings of the National Academy of Sciences.

Dividing up evenly, he says, "spreads benefits and risks among all individuals," rather than having 40 bugs safe and happy while the 10 for whom there was no room at the inn suffer. But when each of three shelters could hold 70, all 50 cockroaches packed into one. Each outcome was optimal, producing the greatest safety in numbers without crowding.

Yet no leader assigns lodging. Roaches just check out shelters, with later arrivals deciding that a crowd signifies "this is the place to be." Overcrowding means "find somewhere else." A group decision that perfectly balances protection and crowding emerges from dozens of such individual decisions.

For the full story, see:

Begley, Sharon. "Buffalo Seek Consensus and Other Tales of How Animals Decide Things." The Wall Street Journal (Fri., April 14, 2006): A11.

Kenyan Lawmakers Nearly Double Their Mercedes Mileage Allowances: More on Why Africa is Poor

The relatively modest vehicle of Francis Ole Kaparo, the speaker of Kenya’s National Assembly, contrasts with other Kenyan lawmakers’ "Mercedeses, Land Rovers and other typically sleek rides." Source of photo: the online version of the NYT article cited below.

NAIROBI, Kenya, May 21 — It has been a trying year in Kenya, one of the worst in decades, as a severe drought killed off crops and cattle and left millions with empty stomachs and uncertain futures.

In such suffering, members of Parliament have been roused to action as seldom before, finding common ground on an issue so pressing that they threatened to stonewall the budget until it was addressed: another big increase in their compensation.

The move last month to reward themselves in a time of crisis infuriated Kenyan voters, most of whom eke out a living on a fraction of what their elected officials earn. It also reinforced the notion that this was a political drought, one that owed its origins as much to mismanagement in a country that should be able to feed itself as to the vagaries of nature.

. . .

. . . , some say legislators have lost touch with the poor districts they represent. Per capita income is about $463 a year, which nobody here would expect a lawmaker to survive on. Minimum wage is $924 a year, still far too little, in most Kenyans’ view, for someone taking care of the nation’s business.

But the base compensation that legislators earn is about $81,000 a year, tax free, plus a variety of allowances and perks, which can effectively double their take-home pay. That means those public servants earn more than most Kenyan corporate executives and outstrip the salaries of many of their counterparts in the developed world.

"They are behaving like we are rich and as if there’s no famine and poverty in the country," Maina Kiai, the chairman of the Kenya National Commission of Human Rights, complained recently to the newspaper The Daily Nation. "They want to make as much money as they can."

The latest increase, which cost the country $2.78 million, nearly doubled the mileage allowances that lawmakers receive for their Mercedeses, Land Rovers and other typically sleek rides.

For the full story, see:

MARC LACEY. "Nairobi Journal; Crisis Swirls in Kenya, and Politicians Reward Themselves." The New York Times (Mon., May 22, 2006):

Hunter-Gatherers Prefer Civilization

Source of photo: online version of NYT article cited below.

(p. A13) The newly arrived Nukak do not provide much detail about why they left. They just say that "the Green Nukak," a possible reference to Marxist guerrillas, who wear camouflage, told them to leave.

"The Green Nukak said we could not keep walking in the jungle, or else there would be problems," explained Va-di, another Nukak man, whose words were translated from Nukak by Belisario. "The Green Nukak told us to go where it is safe."

. . .

In Aguabonita, the scene on a recent day was full of commotion and laughter. Naked children tugged at the shirts of two foreign journalists, offering big smiles and hugs. The men quickly welcomed the visitors into a makeshift shelter, where they laughed at some of the questions and, it seemed, wholly innocently at their own odd predicament.

Are they sad? "No!" cried a Nukak named Pia-pe, to howls of laughter. In fact, the Nukak said they could not be happier. Used to long marches in search of food, they are amazed that strangers would bring them sustenance — free.

What do they like most? "Pots, pants, shoes, caps," said Mau-ro, a young man who went to a shelter to speak to two visitors.

Ma-be added, "Rice, sugar, oil, flour." Others said they loved skillets. Also high on the list were eggs and onions, matches and soap and certain other of life’s necessities.

"I like the women very much," Pia-pe said, to raucous laughs.

One young Nukak mother, Bachanede, breast-feeding her infant as she talked, said she was happy just to stay still. "When you walk in the jungle," she said, "your feet hurt a lot."

The men still go into the jungle, searching for monkeys, a delicacy the Nukak cannot seem to live without. Monkeys are grilled, dismembered and boiled, then eaten piece by piece. The women still spend their time carefully weaving intricate wristbands and hammocks, using threads from palm leaves.

All live in shelters now, enjoy constant medical attention and, on weekends, stroll into town to take in the sights. "Nukak life is hard in the jungle," Dr. Maldonado said. "You wake up thinking about food and you go hunt, you go search for nuts. So when they see us they think their food problems are over."

That is not to say the Nukak do not have plans.

Ma-be explained that the idea is to grow plantains and yucca and take the crops to town. "We can exchange it for money," he said, "and exchange the money for other things." But first they need to learn how to cultivate crops. The Nukak say they would like their children to go to school. They also say they do not want to lose traditions, like hunting or speaking their language. "We do want to join the white family," Pia-pe said, speaking of Colombian society, "but we do not want to forget words of the Nukak."

For the full story, see:

JUAN FORERO. "Leaving the Wild, and Rather Liking the Change." The New York Times (Thurs., May 11, 2006): A1 & A13.

(Note: ellipsis added.)

Capitalist Enclave Celebrates Diversity

Barkeep Jae Hyuk Lee in Dublin. Source of photo: online version of NYT article cited below.

Ireland is a capitalist enclave, in a Europe infused with high taxes, heavy government regulation, and the welfare state. Captitalism is sometimes portrayed as inhumane, but it is under capitalism that diversity and tolerance thrive:

Like traditional Dublin pubs, bars catering to immigrants operate according to an Irish barman’s basic principles: drinks served promptly, customers treated with respect and, when the occasion calls for it, readiness to listen to the troubles of the day.

Since members of many other ethnic groups — from Asia, Africa and Eastern Europe — have also opened businesses in the area, Mr. Lee’s short, gritty stretch of Parnell Street feels like a bewildering experiment in diversity. This part of Ireland’s capital is a microcosmic study of how global migration trends can transform a formerly homogeneous city.

One of Mr. Lee’s neighbors displays an array of dangling hair extensions for African women; another sells sausages and bags of pretzels imported from Poland, in three or four different flavors.

The Ice Bar itself has been decorated by an eclectic imagination: Chinese drinking poems are painted on one wall and deer skulls are mounted on another. The patrons are a jumble of students and artsy types, Asian and European, and music fans drawn by Mr. Lee’s policy of letting local D.J.’s and Spanish bands take over the sound system.

Mr. Lee likes the "good balance" and says his customers, in an unspoken gesture of good will, drink each other’s national beers. "We are curious about another culture," he said. "I’m Korean; I want to have a pint of Guinness instead of Korean beer." And Irish patrons tend to order bottles of Asian brews like Tsingtao from China and Chang from Thailand.

. . .

"Life is quite short, and I wanted to have a look all over the world," he said. "That was my plan. But I realized I quite like this place."

For the full story, see:

BRIAN LAVERY. "DUBLIN JOURNAL; Now, the Barkeeps May Come From the Ends of the Earth." The New York Times (Tues., May 16, 2006): A4.

"his customers, in an unspoken gesture of good will, drink each other’s national beers." Source of caption, and photo: online version of NYT article cited above.

Omit the Footnotes?

When I was a graduate student at Chicago, Milton Friedman was rumored to have given a presentation on how to write a doctoral dissertation in which he said something like:

Take everything nonessential, and move it into footnotes. Then collect all the footnotes into an appendix. Finally, delete the appendix.

My memory is that Deirdra McCloskey, in her wonderful advice on how to write economics clearly, also advises against footnotes. I at least attribute this advice to McCloskey (and Friedman) when I pass it on to students.

But sometimes, when I write an article, a misguided referee, or editor, insists that I omit some stuff that I think is really good. When that happens, sometimes, if I feel strongly, I sneak some of that material back into the paper in footnotes. Maybe no one will ever read it, but I feel better that it is still there.

And every once in awhile, it may turn out that the footnotes are what matter most:

It was typical of Schumpeter’s love for theory that he rejected Marshall’s view that the reader could skip the footnotes and appendixes. If time were short, Schumpeter advised, read them and skip the text! (p. 7; italics in original.)

In this case, though, I suspect that Marshall was right, and Schumpeter wrong.

Source:

Samuelson, Paul. "Compete as an Economic Theorist." In Schumpeterian Economics, edited by Helmut Frisch, New York: Praeger Publishers, 1981, pp. 1-27.

Will Google Leapfrog Microsoft?

Microsoft co-founder Bill Gates and Google CEO Eric Schmidt. Source of photo: online version of NYT article quoted and cited below.

The Microsoft-Google rivalry is shaping up as a titanic corporate clash for the ages.

It may not turn out that way. Markets and corporate fortunes routinely defy prediction. But it sure looks as if the two companies are on a collision course, as the realms of desktop computing and Internet services and software overlap more and more.

Microsoft, of course, is the reigning powerhouse of computing and Google is the muscular Internet challenger. On each side, the battalions are arrayed: executives, engineers, marketers, lawyers and lobbyists. The spending and competition are escalating daily. For each, it seems, the other passes what Andrew S. Grove, a founder and former chairman of Intel, calls the "silver bullet test" of strategic competition. "If you had one bullet, who would you shoot with it?"

How the Microsoft-Google confrontation plays out could shape the future of competition in computing and how people use information technology.

Do the pitched corporate battles of the past shed any light on how this one might turn out?

Business historians and management experts say the experience in two of the defining industries of the 20th century, mass-market retailing and automobiles, may well be instructive. The winners certainly scored higher in the generic virtues of business management: innovation, execution and leadership.

But perhaps even more significant, those who came out on top, judging from history, had two more specific attributes. They were the companies, according to business historians, that proved able to adapt to change instead of being prisoners of past success. And in their glory days, these corporate champions were magnets for the best and brightest people.

For the full story, see:

STEVE LOHR. "And in This Corner . . . Microsoft and Google Grapple for Supremacy as Stakes Escalate." The New York Times (Weds., May 10, 2006): C1 & C14.

Source of graphic: online version of NYT article quoted and cited above.

Successful Mutual Fund Expert Claims Capitalism is Revitalized by Creative Destruction

SAN FRANCISCO — One morning in November 2003, 15 Dodge & Cox senior managers gathered in a conference room here to decide an issue brewing for years: Was it time to close the flagship Dodge & Cox Stock Fund to new investors?

For months, senior managers had stood in the hallways and gathered in glass-paned offices, questioning what long had been a point of pride in the mutual-fund world: huge sums of money pouring in for investment. It became "a water-cooler kind of issue," recalls Kenneth Olivier, the firm’s president.

. . .

Dodge also faces some other issues: In December, longtime Chief Investment Officer John Gunn became chief executive, and a new president and executive vice president were named. Another CEO switch could occur when Mr. Gunn turns 65 in 2008. That would be a relatively large amount of turnover for a firm that has had only five CEOs in its history.

. . .

. . . , Mr. Gunn often speaks at mutual-fund forums and investor conferences. The ruffled-hair Mr. Gunn resembles a college professor, wearing gray pants with yellow pinstripes, a light orange shirt and a yellow tie with zebras one recent day. His feet on a chair, he quoted 20th century Austrian economist Joseph Schumpeter when talking about media stocks, noting "capitalism is revitalized by waves of creative destruction." Ancient Asian artifacts, like a pink stone statue from a 14th-century tomb, adorn the office.

As for the flagship fund’s future, Mr. Pohl said as he and Mr. Gunn sat at a conference-room table, "the fact that we have outperformed" since closing to new investors, "I think is proof" that the decision was made at the right time.

"So far," Mr. Gunn added, half-jokingly.

For the full story, see:

DIYA GULLAPALLI. "When Mutual Funds Don’t Want Your Cash Dodge & Cox Says No To Many New Customers; Angst at the Water Cooler." The Wall Street Journal (Mon., May 1, 2006): R1 & R?.

(Note: ellipses added.)

Source of graphic: online version of WSJ article cited above.