Category: Economics

Musk’s Slow Hunch May Be Undone by Smaller Satellites

(p. B3) SpaceX ‘s long-delayed Falcon Heavy rocket, slated for its maiden flight on Tuesday [February 6, 2018], faces uncertain commercial prospects and lacks a clear role in efforts to send U.S. astronauts back to the moon or deeper into the solar system.
The company conceived the rocket at the beginning of the decade, when SpaceX was an underdog fighting to increase its share of launches and needed a beefed-up alternative to a fleet of underpowered boosters. But after spending some $1 billion and grappling with five years of delays and huge technical challenges related to reliably harnessing power from 27 engines, the company is contending with significantly eroded commercial demand for such a potent heavy-lift booster.
The primary reason for the weakened demand is that both national security and corporate satellites continue to get smaller and lighter. So now, even if it performs as advertised, the Falcon Heavy might be Elon Musk’s biggest contrarian bet since he founded SpaceX over 15 years ago.

For the full story, see:
Andy Pasztor. “SpaceX Launch to Test Contrarian Bet.” The Wall Street Journal (Monday, Feb. 5, 2018): B3.
(Note: bracketed date added.)
(Note: the online version of the story has a date of Feb. 4, 2018, and has the title “New Falcon Heavy Rocket Represents a Major Bet for SpaceX.”)

Free Trade Increases Economic Growth

(p. 3) When President Trump imposed tariffs on imported solar panels and washing machines, I was reminded of a line from George Orwell: “We have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men.”
. . . , my subject is economics, and to most people in my field, the benefits of an unfettered system of world trade are obvious.
. . .
. . . , economists have emphasized how trade affects productivity. In a model pioneered by my Harvard colleague Marc Melitz, when a nation opens up to international trade, the most productive firms expand their markets, while the least productive are forced out by increased competition. As resources move from the least to the most productive firms, overall productivity rises.
. . .
A skeptic might say that all this is just theory. Where’s the evidence?
One approach to answering this question is to examine whether countries that are open to trade enjoy greater prosperity. In a 1995 paper, the economists Jeffrey D. Sachs and Andrew Warner studied a large sample of nations and found that open economies grew significantly faster than closed ones.
. . .
Trade restrictions often accompany other government policies that interfere with markets. Perhaps these other policies, rather than trade restrictions, impede growth.
To address this problem, a third approach to measuring the effects of trade, proposed by the economists Jeffrey A. Frankel of Harvard and David C. Romer of the University of California, Berkeley, focuses on geography. Some countries trade less because of geographic disadvantages.
For example, New Zealand is disadvantaged compared with Belgium because it is farther from other populous countries. Similarly, landlocked nations are disadvantaged compared with nations with their own seaports. Because these geographic characteristics are correlated with trade, but arguably uncorrelated with other determinants of prosperity, they can be used to separate the impact of trade on national income from other confounding factors.
After analyzing the data, Mr. Frankel and Mr. Romer concluded that “a rise of one percentage point in the ratio of trade to G.D.P. increases income per person by at least one-half percent.”

For the full commentary, see:
N. GREGORY MANKIW. ”Economic View; Reviewing the Tenets of Free Trade.” The New York Times, SundayBusiness Section (Sun., February 18, 2018): 3.
(Note: ellipses added.)
(Note: the online version of the commentary has the date FEB. 16, 2018, and has the title ”Economic View; Why Economists Are Worried About International Trade.”)

The Melitz article mentioned above, is:
Melitz, Marc. “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity.” Econometrica 71, no. 6 (Nov. 2003): 1695-1725.

The Sachs and Warner article mentioned above, is:
Sachs, Jeffrey D., and Andrew Warner. “Economic Reform and the Process of Global Integration ” Brookings Papers on Economic Activity 26, no. 1 (1995 ): 1-95.

The Frankel and Romer article mentioned above, is:
Frankel, Jeffrey A., and David H. Romer. “Does Trade Cause Growth?” American Economic Review 89, no. 3 (June 1999): 379-99.

Politicians Build Costly Megaprojects to Burnish Their Legacy

(p. 14) Petroski, a professor of both engineering and history at Duke and the author of such books as “The Pencil” and “The Evolution of Useful Things,” brings an eye for the little things: what kinds of guardrails are best, how roads can be made safer through better signage, which paving materials last longest. One of his key lessons is that small thinking can be a virtue, because the history of infrastructure is a series of experimental and incremental improvements.
Local governments tried endless variations of asphalt and concrete before developing paving surfaces that didn’t produce excess dust or deteriorate quickly under rain and snow. They gradually built longer bridges, learning from earlier designs that worked, and that didn’t. They tried out different paint colors for lane markings, finding the ones that drivers could see best.
This little-things perspective is needed at a time when America’s infrastructure agenda is simultaneously characterized by grandiose ambitions and limited budgets. Money is tight, and infrastructure needs are going unaddressed. At the same time, despite funding limitations, politicians have a tendency to fall in love with novel, pathbreaking, expensive projects that frequently go astray, resulting in arguments against spending more on infrastructure.
. . .
Politicians aren’t drawn to megaprojects just because they believe the initial rosy cost projections and therefore underestimate the risk of complications. They also see an opportunity to build their legacy: It’s more fun to say “I built that bridge” than “I retrofitted that bridge.”

For the full review, see:
JOSH BARRO. “Getting There.” The New York Times Book Review (Sunday, March 20, 2016): 14.
(Note: ellipsis added.)
(Note: the online version of the review has the date MARCH 18, 2016, and has the title “‘The Road Taken,’ by Henry Petroski.”)

The Petroski book under review, is:
Petroski, Henry. The Road Taken: The History and Future of America’s Infrastructure. New York: Bloomsbury USA, 2016.

The Only Duty of a Firm “Is to Produce Profits”

(p. B1) On Tuesday [January 16, 2018], the chief executives of the world’s largest public companies will be receiving a letter from one of the most influential investors in the world. And what it says is likely to cause a firestorm in the corner offices of companies everywhere and a debate over social responsibility that stretches from Wall Street to Washington.
Laurence D. Fink, founder and chief executive of the investment firm BlackRock, is going to inform business leaders that their companies need to do more than make profits — they need to contribute to society as well if they want to receive the support of BlackRock.
. . .
(p. B3) Companies often talk about contributing to society — sometimes breathlessly — but it is typically written off as a marketing gimmick aimed at raising profits or appeasing regulators.
Mr. Fink’s declaration is different because his constituency in this case is the business community itself. It pits him, to some degree, against many of the companies that he’s invested in, which hold the view that their only duty is to produce profits for their shareholders, an argument long espoused by economists like Milton Friedman.
“What does it mean to say that ‘business’ has responsibilities? Only people can have responsibilities,” Friedman wrote, almost rhetorically, back in 1970 in this very newspaper. “Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”

For the full commentary, see:
Sorkin, Andrew Ross. ”DEALBOOK; A Demand For Change Backed Up By $6 Trillion.” The New York Times (Tues., JAN. 16, 2018): B1 & B3.
(Note: ellipsis, and bracketed date, added.)
(Note: the online version of the commentary has the date JAN. 15, 2018, and has the title ”DEALBOOK; BlackRock’s Message: Contribute to Society, or Risk Losing Our Support.”)

The Milton Friedman classic article mentioned above by Sorkin, is:
Friedman, Milton. “The Social Responsibility of Business Is to Increase Its Profits.” The New York Times Magazine (Sun., Sept. 13, 1970): 32-33, 122, 124 & 126.

Clarence Darrow Did Not Always Defend Working People

(p. 12) Kersten frames Darrow’s penchant for representing murderers and other criminals, for instance, as the only way he could underwrite his political work. And he doesn’t even mention some of Darrow’s more unseemly efforts, like the case of the good ship Eastland, when labor’s beloved lawyer mounted a defense of the steamboat’s chief engineer, whose negligence had been a cause of the drowning deaths of 844 working people out for a day of fun on the Chicago River.
Farrell has no such compunctions. He agrees that Darrow had core principles. “He was Jefferson’s heir,” he says, “his time’s foremost champion of personal liberty,” raging against the concentration of wealth and power that had accompanied the nation’s industrialization. But Darrow also thought of the law as blood sport. He shamelessly seduced juries with his common man routine — the rumpled suits and suspenders, the gentle country drawl — and his extraordinary closing statements, which he packed with philosophy, poetry and cheap emotions meant to make men cry. Those were the benign manipulations, Farrell argues. In some of his biggest cases Darrow bought the testimony he needed. And when he was apparently caught in the act in 1911, he hired as his counsel the most ruthless criminal lawyer he could find — a flashy-dressing, hard-drinking, anti-union conservative — because there was no point in confusing means and ends.
A similarly callous streak ran through Darrow’s personal life. He divorced his first wife because she wasn’t sophisticated enough; married his second because she doted on him; then took a mistress 21 years his junior. He cheated on his law partners too, handing them work he didn’t want to do and pocketing fees they were supposed to share. And for all his radicalism, Darrow loved a big payday: according to Farrell, he took on Leopold and Loeb, two sons of privilege, primarily because their parents offered him a $65,000 retainer.

For the full review, see:
KEVIN BOYLE. “Equal Opportunity Defender.” The New York Times Book Review (Sunday, July 10, 2011): 12.
(Note: the online version of the review has the date JULY 8, 2011, and has the title “Clarence Darrow, Equal Opportunity Defender.”)

The books under review, are:
Farrell, John A. Clarence Darrow: Attorney for the Damned. New York: Doubleday, 2011.
Kersten, Andrew E. Clarence Darrow: American Iconoclast. New York: Hill and Wang, 2011.

Musk Poured PayPal Money into SpaceX and Tesla

(p. A15) Mr. Musk’s first success was X.com, an email payment company. It merged with Peter Thiel’s Confinity to form PayPal–and avoid competition. They had the market to themselves for a long time because fraud, especially from Eastern Europe, was so rampant on early internet payment platforms. They solved the fraud problem and enjoyed an uncontested market, eventually selling for $1.5 billion to eBay .
Then Mr. Musk headed further into the future. He took the nine-figure payout from PayPal and pushed ahead with SpaceX, Tesla and Solar City. Literally his last $20 million went to Tesla in 2008. “I was tapped out. I had to borrow money for rent after that,” he later recalled.
. . .
[Google’s Larry] Page reportedly once told a venture capitalist, “You know, if I were to get hit by a bus today, I should leave all of it to Elon Musk.” He later explained to Charlie Rose he liked Mr. Musk’s idea of going to Mars “to back up humanity.” Good luck with that. But then again, I would love to see them try.

For the full commentary, see:
Andy Kessler. ”Elon Musk’s Uncontested 3-Pointers; What does the Tesla and SpaceX founder have in common with Stephen Curry?” The Wall Street Journal (Mon., Feb. 26, 2018): A15.
(Note: ellipsis, and bracketed words, added.)
(Note: the online version of the commentary has the date Feb. 25, 2018.)

Stronger Labor Market May Increase Productivity

(p. B3) . . . the provocative conclusion of new research from the McKinsey Global Institute, the in-house think tank of the consulting giant, . . . suggests we should change how we think about the advancements that make society richer over time. It implies that as the economy returns to full employment, an outburst of faster growth in productivity — and hence economic growth — is a real possibility.
. . .
For years, McKinsey researchers have tried to understand what drives productivity growth from the ground up. They’ve studied how innovations that enable a company to make more goods and services per hour of labor spread across the economy.
The latest wrinkle is that the researchers now believe that productivity growth depends not just on the supply side of the economy — what companies produce and what technologies they use to do it — but also significantly on the demand side. That is to say, productivity advancements don’t happen in a vacuum just because technology is available. They also happen because companies need to increase production to match demand for their goods, and a shortage, either of workers or of materials, forces them to think creatively about how to do so.
. . .
. . . consider how this dynamic might apply in the restaurant industry (or retail, or tourism).
The basic technology for self-serve kiosks has been around for years. But when the unemployment rate was at its post-crisis highs, employers could have their pick of good workers at relatively low prices. Now, with the jobless rate at 4.1 percent, good workers are harder to find. And, perhaps unsurprisingly, companies have been more open to installing technology that may have a significant upfront cost and require reworking how a restaurant is organized, but allow more sales without hiring more workers.

For the full commentary, see:
Neil Irwin. “Why Researchers Believe a Productivity Boom Is Now a Real Possibility.” The New York Times (Thursday, Feb. 22, 2018): B3.
(Note: ellipses added.)
(Note: the online version of the commentary has a date of Feb. 21, 2018, and has the title “The Economy Is Getting Hotter. Is a Productivity Boom Next?”)

The McKinsey report discussed above, is:
Remes, Jaana, James Manyika, Jacques Bughin, Jonathan Woetzel, Jan Mischke, and Mekala Krishnan. “Solving the Productivity Puzzle.” Report McKinsey Global Institute, Feb. 2018.

Sri Lanka Encourages Poachers to Kill Elephants

In my micro principles class each semester, I recount the argument in a text by Baumol and Blinder, that if governments want to save elephants, they would not crush or burn their ivory, they would supply it to the market, reducing the price, and hence reducing the incentives for poachers to kill elephants.

(p. A4) COLOMBO, Sri Lanka — A group of saffron-robed monks chanted as officials crushed more than 300 elephant tusks in a seaside ceremony on Tuesday [January 26, 2016], as the new government of President Maithripala Sirisena sought to differentiate itself from its predecessor by sending a powerful message of intolerance for elephant poaching.
. . .
The ceremonial crushing of the 359 tusks began with two minutes of silence, after which the group of Buddhist monks chanted prayers for a “rebirth without suffering” for the elephants killed. In a show of religious solidarity, Hindu, Christian and Muslim leaders joined the monks in their prayers.
After the ceremony, the crushed ivory was transported to a factory in Puttalam, a district in the island’s northwest, for incineration, government officials said.

For the full story, see:
DHARISHA BASTIANS and GEETA ANAND. “Sri Lanka Destroys an Illegal Ivory Cache.” The New York Times (Weds., January 27, 2016): A4.
(Note: ellipsis added.)
(Note: the online version of the story has the date JAN. 26, 2016, and has the title “Sri Lanka Destroys Illegal Elephant Tusks.”)

Environmentalists Deprive the Poor of Cool Comfort

(p. A1) DELHI — A thrill goes down Lane 12, C Block, Kamalpur every time another working-class family brings home its first air-conditioner. Switched on for a few hours, usually to cool a room where the whole family sleeps, it transforms life in this suffocating concrete labyrinth where the heat reached 117 degrees in May.
“You wake up totally fresh,” exulted Kaushilya Devi, a housewife, whose husband bought a unit in May. “I wouldn’t say we are middle class,” she said. “But we are closer.”
But 3,700 miles away, in Kigali, Rwanda, negotiators from more than 170 countries gathered this week to complete an accord that would phase out the use of heat-trapping hydrofluorocarbons, or HFCs, worldwide, and with them the cheapest air-conditioners that are just coming within reach of people like Ms. Devi.
. . .
(p. A8) Sandhya Chauhan and her family live in two musty, windowless subterranean rooms, which turn stifling on summer nights, leaving six sweat-soaked adults to fidget, toss and pace until morning. They have lived there for 20 years, unable to find other lodging on the household’s combined earnings of around 30,000 rupees a month, or less than $450.
But it was never as awful as this May, when temperatures crept so high that Ms. Chauhan’s friends speculated that the earth was colliding with the sun. After a doctor warned Mrs. Chauhan that heat exhaustion was affecting their oldest son’s health, her husband bought an air-conditioner on credit. Though they are hardly middle class — “we have never let this thought cross our minds,” Mrs. Chauhan said — the purchase has changed the way they see themselves.
“My children sleep in peace,” she said. “There was a sense of happiness from inside. There was a sense that father has done a great job.”
Among the changes that have come with increasing wealth, Ms. Devi said, is the confidence to spend on the family’s comfort, rather than squirreling every bit of savings away.
“Education is teaching people to take care of themselves,” she said. “Now that we are used to air-conditioners, we will never go back.”

For the full story, see:
ELLEN BARRY and CORAL DAVENPORT. “A Climate Deal Could Push Air-Conditioning Out of India’s Reach.” The New York Times (Thurs., October 13, 2016): A1 & A8.
(Note: ellipsis added.)
(Note: the online version of the story has the date OCT. 12, 2016, and has the title “Emerging Climate Accord Could Push A/C Out of Sweltering India’s Reach.” The online version of the article says that the New York edition had the headline “Accord May Push Air-Conditioning Out of India’s Reach” and appeared on p. A12. In my paper, which is probably the midwest edition, the title was as cited in the main citation above, and appeared on pp. A1 and A8.)

Innovations Make Internal Combustion Engines Much More Efficient

(p. B4) . . . gas- and diesel-powered engines are not done yet. Just as electrified cars — whether hybrids or pure battery-powered models — seem headed for market dominance, Mazda announced a breakthrough in gasoline engines that could make them far more efficient. It is the latest plot twist in a century of improvements for internal combustion engines, a power source pronounced dead many times that has persisted nevertheless.
. . .
Mazda said it had made a big advance in a combustion method commonly known as homogeneous charge compression ignition, which would result in gasoline engines that are 20 to 30 percent more efficient than the company’s best existing engines. Researchers around the world have tried to crack this process for years, but it has never really left the laboratory.
Mazda, which now markets no hybrid vehicles, calls the engine Skyactiv-X and says it is scheduled for a 2019 introduction. In simplest terms, the big difference with the new engine is that under certain running conditions, the gasoline is ignited without the use of spark plugs. Instead, combustion is set off by the extreme heat in the cylinder that results from the piston inside the engine traveling upward and compressing air trapped inside, the same method diesel engines use. The efficiency gains come with the ability to operate using a very lean mixture — very little gas for the amount of air — that a typical spark-ignition engine cannot burn cleanly.

For the full story, see:
NORMAN MAYERSOHN. “Advances Mean Plenty of Life Left for Internal Combustion Engine.” The New York Times (Fri., August 18, 2017): B4.
(Note: ellipses added.)
(Note: the online version of the story has the date AUG. 17, 2017, and has the title “WHEELS; The Internal Combustion Engine Is Not Dead Yet.”)