Category: Economics

Mitch Daniels Views Higher Education as a “Racket” (Health Care Too)

(p. A11) Mr. Daniels, 69, is the most innovative university president in America.
. . .
Mr. Daniels kicks off our conversation with a morality tale: “I’ll speak to an audience of businesspeople and say: Here’s the racket that you should have gone into. You’re selling something, a college diploma, that’s deemed a necessity. And you have total pricing power.” Better than that: “When you raise your prices, you not only don’t lose customers, you may actually attract new ones.”
For lack of objective measures, “people associate the sticker price with quality: ‘If school A costs more than B, I guess it’s a better school.’ ” A third-party payer, the government, funds it all, so that “the customer–that is, the student and the family–feels insulated against the cost. A perfect formula for complacency.” The parallels with health care, he observes, are “smack on.”

For the full interview, see:
Tunku Varadarajan, interviewer. “THE WEEKEND INTERVIEW: College Bloat Meets ‘The Blade’.” The Wall Street Journal (Saturday, Dec. 15, 2018): A11.
(Note: ellipsis added.)
(Note: the online version of the interview has the date Dec. 14, 2018.)

James Gwartney Offers Advance Praise for Openness to Creative Destruction

Discovery, innovation, and dynamic change are vastly underappreciated by both economists and the general public. Professor Diamond explains how discovery and development of new products and lower cost production methods of the past 250 years have transformed our lives and promoted human progress beyond even the dreams of our ancestors. Further, these dynamic improvements are continuing today at an even more rapid rate. This book brings the what, why, and how of human progress alive, and it does so in an understandable and entertaining manner. It is a must read for both the scholar and interested layperson.

James Gwartney, Professor of Economics, Florida State University. Co-author of Economics: Private and Public Choice, Economic Freedom of the World, and other works.

Gwartney’s advance praise is for:
Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, forthcoming June 2019.

Idyllic Golden-Age Hunter-Gatherers

(p. A8) Before he was killed by an isolated tribe on a remote Indian Ocean island, John Allen Chau, a young American on a self-propelled mission to spread Christianity, revealed two things: that he was willing to die, and that he was scared.
. . .
He tried to give gifts. A boy shot an arrow at him. He expressed fear, fatalism, frustration and some humor.
The people Mr. Chau chose for his mission are among the most impenetrable communities in the world, known for their intense hostility to outsiders. They have killed or tried to kill many outsiders who attempted to step on their rugged island 700 miles off India’s mainland, where they are one of the last undiluted hunter and gatherer societies.
. . .
Mr. Chau was trying to accomplish the impossible. The people on North Sentinel have not accepted anyone outside their society. Anthropologists, filmmakers and government officials have tried to approach them. Just about all have been driven back by bows and arrows.
. . .
The fishermen said he had told them to give the letter to a friend, in case he did not come back.
In one passage, he asked God if North Sentinel was “Satan’s last stronghold.” In another: “What makes them become this defensive and hostile?”
“It’s weird — actually no, it’s natural: I’m scared,” Mr. Chau wrote. “There, I said it. Also frustrated and uncertain — is it worth me going a foot to meet them?”
He added, “I don’t want to die!”
Still, he went back.
On the afternoon of Nov. 16, the fishermen told police officers, Mr. Chau reassured them that he would be fine staying on the island overnight and that the fishermen could go. They motored out, leaving Mr. Chau alone for the first time.
When they passed by the island the next morning, they saw the islanders dragging his body on the beach with a rope.
No one knows what exactly happened. Police officials said the islanders most likely killed him with bows and arrows.
Mr. Chau’s body is still on the island, but several police officers said they were worried about retrieving it, lest the same thing happen to them.

For the full story, see:
Jeffrey Gettleman, Hari Kumar and Kai Schultz. “American’s Last Letter Before Being Killed by Tribe on a Remote Indian Island.” The New York Times (Saturday, Nov. 24, 2018): A8.
(Note: ellipses added.)
(Note: the online version of the story has the date Nov. 23, 2018, and has the title “A Man’s Last Letter Before Being Killed on a Forbidden Island.”)

Humans Turn Raw Data into Fuel for A.I.

(p. B1) Some of the most critical work in advancing China’s technology goals takes place in a former cement factory in the middle of the country’s heartland, far from the aspiring Silicon Valleys of Beijing and Shenzhen. An idled concrete mixer still stands in the middle of the courtyard. Boxes of melamine dinnerware are stacked in a warehouse next door.
Inside, Hou Xiameng runs a company that helps artificial intelligence make sense of the world. Two dozen young people go through photos and videos, labeling just about everything they see. That’s a car. That’s a traffic light. That’s bread, that’s milk, that’s chocolate. That’s what it looks like when a person walks.
“I used to think the machines are geniuses,” Ms. Hou, 24, said. “Now I know we’re the reason for their genius.”
In China, long the world’s factory floor, a new generation of low-wage workers is assembling the foundations of the future. Start-ups in smaller, cheaper cities have sprung up to apply labels to China’s huge trove of images and surveillance footage. If China is the Saudi Arabia of data, as one expert says, these businesses are the refineries, turning raw data into the fuel that can power China’s A.I. ambitions.

For the full story, see:
Li Yuan. “THE NEW NEW WORLD; Doing Time on the A.I. Assembly Line.”) The New York Times (Monday, Nov. 26 2018): B1 & B3.
(Note: the online version of the story has the date Nov. 25, 2018, and has the title “THE NEW NEW WORLD; How Cheap Labor Drives China’s A.I. Ambitions.”)

Obsessive Compulsive Disorder Can Enhance Memory

(p. C1) Sharon remembers the first day it happened, in 1952. She was 5 years old and blindfolded while her friends ran around her, laughing, trying not to be caught in a game of blindman’s bluff. But when she whipped off the scarf, panic set in. The house, the street, even the mountains were in the wrong place. She was totally disoriented.
. . .
She eventually learned she had an unusual condition called developmental topographical disorientation disorder, or DTD.
. . .
(p. C2) Not all brain disorders are as detrimental as DTD. Bob, a TV producer from Los Angeles, remembers every day of his life as if it happened yesterday. His perfect memory is a gift, he says: “I don’t have to mourn people after they’ve passed away because my memory of them is so clear.”
The condition was discovered by James McGaugh at the University of California, Irvine, in 2001, after he received a peculiar email from a woman named Jill. “Since I was 11 I have had this unbelievable ability to recall my past,” she said. “When I see a date…I go back to that day and remember where I was, what I was doing, what day it fell on and on and on.”
. . .
A decade later, Dr. McGaugh had a group of around 50 people with HSAM. By scanning their brains while they carried out memory tasks, he discovered that they had an enlarged caudate nucleus and putamen–two areas implicated in obsessive compulsive disorder. Dr. McGaugh concluded that their extraordinary powers of memory are rooted not in their ability to form memories, but in an unconscious rehearsal of their past. They accidentally strengthen their memories by habitually recalling and reflecting upon them–“a unique form of OCD,” he says.

For the full essay, see:
Helen Thomson. “‘Lessons From STRANGE BRAINS.” The Wall Street Journal (Saturday, June 30, 2018): C1-C2.
(Note: ellipses between quoted passages, added; ellipsis internal to a paragraph, in original.)
(Note: the online version of the essay has the date June 29, 2018, and has the title “Strange Stories of Extraordinary Brains–and What We Can Learn From Them.”)

Thomson’s essay is closely related to her book:
Thomson, Helen. Unthinkable: An Extraordinary Journey through the World’s Strangest Brains. New York: Ecco, 2018.

Chinese Entrepreneurs Anxious Over Growing Government Control of Private Enterprise

(p. A15) HONG KONG — The comments were couched in careful language, but the warning about China’s direction was clear.
China grew to prosperity in part by embracing market forces, said Wu Jinglian, the 88-year-old dean of pro-market Chinese economists, at a forum last month. Then he turned to the top politician in the room, Liu He, China’s economic czar, and said “unharmonious voices” were now condemning private enterprise.
“The phenomenon,” Mr. Wu said, “is worth noting.”
Mr. Wu gave rare official voice to a growing worry among Chinese entrepreneurs, economists and even some government officials: China may be stepping back from the free-market, pro-business policies that transformed it into the world’s No. 2 economy. For 40 years, China has swung between authoritarian Communist control and a freewheeling capitalism where almost anything could happen — and some see the pendulum swinging back toward the government.
. . .
China’s leadership turned to entrepreneurs in the late 1970s, after the government had led the economy to the brink of collapse. Officials gave them special economic zones where they could open factories with fewer government rules and attract foreign investors. The experiment was an unparalleled success. When extended to the rest of the country, it created a growth machine that helped make China second only to the United States in terms of economic heft.
Today, the private sector contributes nearly two-thirds of the country’s growth and nine-tenths of new jobs, according to the All-China Federation of Industry and Commerce, an official business group. So pressures on private businesses could create serious ripples.
“The private sector is experiencing great difficulties right now,” wrote Mr. Hu, the retired minister, who as the son of a former top Communist Party leader is often a voice for reform in China, in an essay posted online last Thursday. “We should try our best not to replicate the nationalization of private enterprise in the 1950s and the state capitalism.”
. . .
Private entrepreneurs are loath to speak out for fear of attracting official condemnation. But signs of distress aren’t hard to find.
Last month, Chen Shouhong, the founder of an investment research firm, asked a group of executive M.B.A. students — many of whom already owned publicly listed companies — to choose between panic and anxiety to describe how they feel about the economy. An overwhelming majority chose panic, according to a transcript. Mr. Chen declined to be interviewed.
. . .
Xiao Han, an associate law professor in Beijing, cited one of Aesop’s fables, of a man trying and failing to stop a donkey from going over a cliff.
“Before long,” Mr. Xiao said, “we’ll probably find a body of a China donkey under the cliff.”

For the full story, see:
Li Yuan. “China Muscles In on Its Free-Market Prosperity.”The New York Times (Thursday, Oct. 4, 2018): A1 & A12.
(Note: ellipses added.)
(Note: the online version of the story has the date Oct. 3, 2018, and has the title “Private Businesses Built Modern China. Now the Government Is Pushing Back.”)

Robots Help Montoya Fulfill His Father’s Wish for Him to Avoid Manual Labor

(p. A15) SALINAS, Calif. — As a boy, Abel Montoya remembers his father arriving home from the lettuce fields each evening, the picture of exhaustion, mud caked knee-high on his trousers. “Dad wanted me to stay away from manual labor. He was keen for me to stick to the books,” Mr. Montoya said. So he did, and went to college.
Yet Mr. Montoya, a 28-year-old immigrant’s son, recently took a job at a lettuce-packing facility, where it is wet, loud, freezing — and much of the work is physically taxing, even mind-numbing.
Now, though, he can delegate some of the worst work to robots.
Mr. Montoya is among a new generation of farmworkers here at Taylor Farms, one of the world’s largest producers and sellers of fresh-cut vegetables, which recently unveiled a fleet of robots designed to replace humans — one of the agriculture industry’s latest answers to a diminishing supply of immigrant labor.
The smart machines can assemble 60 to 80 salad bags a minute, double the output of a worker.
Enlisting robots made sound economic sense, Taylor Farms officials said, for a company seeking to capitalize on Americans’ insatiable appetite for healthy fare at a time when it cannot recruit enough people to work in the fields or the factory.

For the full story, see:
Miriam Jordan. “Farms Turn to Robots as Labor Pool Shrinks.”The New York Times (Saturday, Nov. 24, 2018): A15.
(Note: the online version of the story has the date Nov. 20, 2018, and has the title “As Immigrant Farmworkers Become More Scarce, Robots Replace Humans.”)

Sam Peltzman Offers Advance Praise for Openness to Creative Destruction

We are told that robots are about to make us superfluous and that the giants of Silicon Valley will swallow the economy. Art Diamond’s “openness to creative destruction” provides a healthy antidote to all this gloom and doom. He gives us the necessary historical perspective: we owe our comfort and even our lives to generations of disruptive innovation. Yet each disruption bred apocalyptic portents like those we hear today. These did not come to pass because of new disruptions down the road. Diamond ably documents this process of “creative destruction” and its enormous historical benefit. He also provides a timely warning against heeding the pessimists of the moment by imposing legal and regulatory shackles on the innovators. “Openness to Creative Destruction” is a most valuable addition to the public discussion of innovation.

Sam Peltzman, Professor Emeritus of Economics, University of Chicago; Director Emeritus of the George J. Stigler Center for the Study of the Economy and the State. Author of Political Participation and Government Regulation, and other works.

Peltzman’s advance praise is for:
Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, forthcoming June 2019.

As Chinese Government Control of Economy Grows, Entrepreneur Jack Ma Joins Communist Party

(p. B3) HONG KONG — Jack Ma, China’s richest man and the guiding force behind its biggest e-commerce company, belongs to an elite club of power brokers, 89 million strong: the Chinese Communist Party.
. . .
The disclosure of Mr. Ma’s membership reflects the thinking that the party controls the economy and society, said Guo Yuhua, a sociology professor at Tsinghua University in Beijing and a critic of the party.
“It’s going backward from the Deng Xiaoping era, when the party advocated the separation of the party and the government,” she said, referring to the party leader who ultimately governed China during its early years of reform in the 1970s and ’80s.
The disclosure also drew attention because Mr. Ma had in the past tried to keep his distance from the government. When asked at public appearances how he managed government relations, he often said, “Fall in love with the government, but don’t get married.”
But as Mr. Xi tightens ideological controls and the power of the state grows, many successful entrepreneurs have made a point of showing their party loyalty.

For the full story, see:
Li Yuan. “In China, Billionaires Sidle Up to the Party.”The New York Times (Wednesday, Nov. 28, 2018): B3.
(Note: ellipsis added.)
(Note: the online version of the story has the date Nov. 27, 2018, and has the title “Jack Ma, China’s Richest Man, Belongs to the Communist Party. Of Course.”)

With High Minimum Wages and Living Costs, S.F. Restaurants Cannot Afford, or Even Find, Servers

(p. D1) SAN FRANCISCO — Souvla, a Greek restaurant with a devoted following, serves spit-fired meat two ways: in a photogenic sandwich, or on a photogenic salad, either available with a glass of Greek wine. The garnishes are thoughtful: pea shoots, harissa-spiked yogurt, mizithra cheese.
The small menu is so appealing and the place itself so charming that you almost forget, as a diner, that you have to do much of the work of dining out yourself. You scout your own table. You fetch and fill your own water glass. And if you’d like another glass of wine, you go back to the counter.
Runners will bring your order to the table, but there are no servers to wait on you here, or at the two other San Francisco locations that Souvla has added — or, increasingly, at other popular restaurants that have opened in the last two years: RT Rotisserie, which is roasting cauliflower a few blocks away; Barzotto, a bistro serving hand-rolled pasta in the Mission district; and Media Noche, a Cuban sandwich spot with eye-catching custom tilework.
Inside these restaurants, it’s evident that the forces making this one of the most expensive cities in America are subtly altering the economics of everything. Commer-(p. D6)cial rents have gone up. Labor costs have soared. And restaurant workers, many of them priced out by the expense of housing, have been moving away.
Restaurateurs who say they can no longer find or afford servers are figuring out how to do without them. And so in this city of staggering wealth, you can eat like a gourmand, with real stemware and ceramic plates. But first you’ll have to go get your own silverware.
. . .
On July 1 [2018], the minimum wage in San Francisco will hit $15 an hour, following incremental raises from $10.74 in 2014. The city also requires employers with at least 20 workers to pay health care costs beyond the mandates of the Affordable Care Act, in addition to paid sick leave and parental leave.
Despite those benefits, many workers say they can’t afford to live here, or to stay in the industry. And partly as a result of those benefits, restaurateurs say they can’t afford the workers who remain. A dishwasher can now make $18 or $19 an hour. And because of California labor laws, even tipped workers like servers earn at least the full minimum wage, unlike their peers in most other states.
Enrico Moretti, an economist at the University of California, Berkeley, estimates that when housing prices rise by 10 percent, the price of local services, including restaurants, rises by about 6 percent. (The median home price in San Francisco has doubled since 2012.)

For the full commentary, see:
Emily Badger. “Hi! You’ll Be Your Server Tonight.” The New York Times (Wednesday, June 27, 2018): D1 & D6.
(Note: ellipsis, and bracketed year, added.)
(Note: the online version of the commentary has the date June 25, 2018, and has the title “THE UPSHOT; San Francisco Restaurants Can’t Afford Waiters. So They’re Putting Diners to Work.”)

The published version of the Moretti paper, mentioned above, is:
Moretti, Enrico. “Real Wage Inequality.” American Economic Journal: Applied Economics 5, no. 1 (Jan. 2013): 65-103.