Category: Economics

Bill Gates on Xerox’s Inventions and Mistakes

(p. C3) Not long after I first met Warren Buffett back in 1991, I asked him to recommend his favorite book about business. He didn’t miss a beat: “It’s ‘Business Adventures,’ by John Brooks, ” he said. “I’ll send you my copy.” I was intrigued: I had never heard of “Business Adventures” or John Brooks.
Today, more than two decades after Warren lent it to me–and more than four decades after it was first published–“Business Adventures” remains the best business book I’ve ever read. John Brooks is still my favorite business writer. (And Warren, if you’re reading this, I still have your copy.)
. . .
One of Brooks’s most instructive stories is “Xerox Xerox Xerox Xerox.” (The headline alone belongs in the Journalism Hall of Fame.) The example of Xerox is one that everyone in the tech industry should study. Starting in the early ’70s, Xerox funded a huge amount of R&D that wasn’t directly related to copiers, including research that led to Ethernet networks and the first graphical user interface (the look you know today as Windows or OS X).
But because Xerox executives didn’t think these ideas fit their core business, they chose not to turn them into marketable products. Others stepped in and went to market with products based on the research that Xerox had done. Both Apple and Microsoft, for example, drew on Xerox’s work on graphical user interfaces.
I know I’m not alone in seeing this decision as a mistake on Xerox’s part. I was certainly determined to avoid it at Microsoft. I pushed hard to make sure that we kept thinking big about the opportunities created by our research in areas like computer vision and speech recognition. Many other journalists have written about Xerox, but Brooks’s article tells an important part of the company’s early story. He shows how it was built on original, outside-the-box thinking, which makes it all the more surprising that as Xerox matured, it would miss out on unconventional ideas developed by its own researchers. (To download a free e-book of “Xerox Xerox Xerox Xerox,” go to GatesNotes.com.)

For the full review, see:
BILL GATES. “My Favorite Business Book.” The Wall Street Journal (Sat., July 12, 2014): C3.
(Note: ellipsis added.)
(Note: the last quoted sentence is in the location, and has the wording, of the printer version, not the online version.)
(Note: the online version of the review has the date July 11, 2014, and has the title “Bill Gates’s Favorite Business Book.”)

The book being reviewed is:
Brooks, John. Business Adventures: Twelve Classic Tales from the World of Wall Street. pb ed. New York: Open Road Integrated Media, Inc., 2014.

Structural Reforms Needed to Increase Innovation

(p. A13) . . . , a lack of “demand” is no longer the problem.
. . .
Where, instead, are the problems? John Taylor, Stanford’s Nick Bloom and Chicago Booth’s Steve Davis see the uncertainty induced by seat-of-the-pants policy at fault. Who wants to hire, lend or invest when the next stroke of the presidential pen or Justice Department witch hunt can undo all the hard work? Ed Prescott emphasizes large distorting taxes and intrusive regulations. The University of Chicago’s Casey Mulligan deconstructs the unintended disincentives of social programs. And so forth. These problems did not cause the recession. But they are worse now, and they can impede recovery and retard growth.
These views are a lot less sexy than a unicausal “demand,” fixable by simple, magic-bullet policies. They require us to do the hard work of fixing the things we all agree need fixing: our tax code, our cronyist regulatory state, our welter of anticompetitive and anti-innovative protections, education, immigration, social program disincentives, and so on. They require “structural reform,” not “stimulus,” in policy lingo.

For the commentary, see:
JOHN H. COCHRANE. “OPINION; The Failure of Macroeconomics; When models don’t yield the spending policies they want, some Keynesians abandon models–but not the spending.” The Wall Street Journal (Thur., July 3, 2014): A13.
(Note: ellipses added.)
(Note: the online version of the commentary has the date July 2, 2014.)

“Malthus Was Wrong”

(p. 20) The biggest problem with Malthusiasm, as Mayhew addresses at length, is that Malthus was wrong. He thought England was nearing the limits of its ability to provide for its growing population. But as that population continued to grow in the 19th century, the country proved more than able to feed itself by increasing agricultural productivity and importing food that it could easily pay for with its industrial wealth. And toward the end of the century, birthrates began falling and population growth slowed.
. . .
There is evidence enough in this book for a pretty withering attack on Malthusianism, if not on Malthus. Mayhew, however, prefers the role of calm and evenhanded guide. At the end he’s even hinting that today’s Malthusian prophets of environmental doom are on to something. They may be: Just because Malthus was wrong about nature’s limits in 1798 doesn’t prove we won’t ever hit those limits. Past performance is no guarantee of future results. Still, you’d think it would put more of a damper on people’s Malthusiasm.

For the full review, see:
JUSTIN FOX. “Head Count.” The New York Times Book Review (Sun., Aug. 3, 2014): 20.
(Note: ellipsis added.)
(Note: the online version of the review has the date Aug. 1, 2014. )

The book being reviewed is:
Mayhew, Robert J. Malthus: The Life and Legacies of an Untimely Prophet. Cambridge, MA: Belknap Press, 2014.

Predictors of Technological Doom Have “All Been Wrong”

GrowingAndDecliningJobsGraph2014.jpgSource of graph: online version of the NYT article quoted and cited below.

(p. 4) JUST over 50 years ago, the cover of Life magazine breathlessly declared the “point of no return for everybody.” Above that stark warning, a smaller headline proclaimed, “Automation’s really here; jobs go scarce.”
As events unfolded, it was Life that was nearing the point of no return — the magazine suspended weekly publication in 1972. For the rest of America, jobs boomed; in the following decade, 21 million Americans were added to the employment rolls.
Throughout history, aspiring Cassandras have regularly proclaimed that new waves of technological innovation would render huge numbers of workers idle, leading to all manner of economic, social and political disruption.
As early as 1589, Queen Elizabeth I refused a patent on a knitting machine for fear it would put “my poor subjects” out of work.
In the 1930s, the great John Maynard Keynes predicted widespread job losses “due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.”
So far, of course, they’ve all been wrong. But that has not prevented a cascade of shrill new proclamations that — notwithstanding centuries of history — “this time is different”: . . .

For the full commentary, see:
Steven Rattner. “Fear Not the Coming of the Robots.” The New York Times, SundayReview Section (Sun., JUNE 22, 2014): 4.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date June 21, 2014.)

“The Metric System Can Be Our Operating System Without Being Our Interface”

(p. C6) The outcome was perhaps foreshadowed, as Mr. Marciano points out, when President Ford, using a customary unit, noted that American industries were “miles ahead” when it came to adopting the metric system.
Mr. Marciano tells his story more or less without editorializing, until the end. Surveying the centuries of fights over measurement, he finishes on a rather intriguing point: Standardization no longer matters that much.
. . .
. . . , with the computerization of life, we don’t have to worry about converting from one measurement to another; our software does this for us. We can still speak in pounds or feet, even if everything in the world of manufacturing and technology is really, at bottom, done in the metric system. In the evocative terminology of Mr. Marciano, “the metric system can be our operating system without being our interface.”

For the full review, see:
SAMUEL ARBESMAN. “Liters and Followers; Gerald Ford once proudly declared the country was ‘miles ahead’ in converting to the metric system.” The Wall Street Journal (Sat., Aug. 2, 2014): C6.
(Note: ellipses added.)
(Note: the online version of the review has the date Aug. 1, 2014, and has the title “Book Review: ‘Whatever Happened to the Metric System?’ by John Bemelmans Marciano; Gerald Ford once proudly declared the country was ‘miles ahead’ in converting to the metric system.” )

The book being reviewed is:
Marciano, John Bemelmans. Whatever Happened to the Metric System?: How America Kept Its Feet. New York: Bloomsbury USA, 2014.

“A Few Really Good Artisanal Cheese Shops Is No Substitute for a Strong School System”

(p. 836) Moretti’s writing on the “creative class” takes issue with policies associated with Richard Florida, who has exerted a considerable influence on local policymakers worldwide. Moretti uses the example of Berlin, which is a cool place full of creative types but still isn’t much of an economic powerhouse, to make the case against Florida’s recommendations.
. . .
A problem exists if city governments start thinking that their main job is to be hip rather than competent. Having a few really good artisanal cheese shops is no substitute for a strong school system. Local leaders would do well to remember that an externality-creating skilled resident is as likely to be a forty-two-year-old mother who works in (p. 837) a lab as a twenty-five-year-old looking for a good time. The forty-two-year-old’s tastes in local amenities are likely to be quite different from those of the twenty-five-year-old. If Moretti’s caution against creative class policies achieves that end, then it will have done something quite positive.

For the full review, see:
Glaeser, Edward. “A Review of Enrico Moretti’s the New Geography of Jobs.” Journal of Economic Literature 51, no. 3 (Sept. 2013): 825-37.
(Note: ellipsis added.)

The book under review is:
Moretti, Enrico. The New Geography of Jobs. New York: Houghton Mifflin Harcourt Publishing Co., 2012.

Big Increase in Costs of Adhering to Moore’s Law

(p. 219) Harald Bauer, Jan Veira, and Florian Weig consider “Moore’s Law: Repeal or Renewal?” “Moore’s law states that the number of transistors on integrated circuits doubles every two years, and for the past four decades it has set the pace for progress in the semiconductor industry. . . . Adherence to Moore’s law has led to continuously falling semiconductor prices. Per-bit prices of dynamic random-access memory chips, for example, have fallen by as much as 30 to 35 percent a year for several decades. . . . Some estimates ascribe up to 40 percent of the global productivity growth achieved during the last two decades to the expansion of information and communication technologies made possible by semiconductor performance and cost improvements.” But this continued technological progress comes at an ever-higher price. “A McKinsey analysis shows that moving from 32nm (p. 220) to 22nm nodes on 300-millimeter (mm) wafers causes typical fabrication costs to grow by roughly 40 percent. It also boosts the costs associated with process development by about 45 percent and with chip design by up to 50 percent. These dramatic increases will lead to process-development costs that exceed $1 billion for nodes below 20nm. In addition, the state-of-the art fabs needed to produce them will likely cost $10 billion or more. As a result, the number of companies capable of financing next-generation nodes and fabs will likely dwindle.” McKinsey Global Institute, December 2013, http://www.mckinsey.com/insights/high_tech_telecoms_internet/moores_law_repeal_or_renewal.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 28, no. 2 (Spring 2014): 213-20.
(Note: ellipses in original.)

The Vagueness and Regulatory Discretion of Dodd-Frank Is “a Recipe for Cronyism”

(p. 218) Aaron Steelman has an “Interview” with John Cochrane. On Dodd-Frank: “I think Dodd-Frank repeats the same things we’ve been trying over and over again that have failed, in bigger and bigger ways. . . . The deeper problem is the idea that we just need more regulation–as if regulation is something you pour into a glass like water–not smarter and better designed regulation. Dodd-Frank is pretty bad in that department. It is a long and vague law that spawns a mountain of vague rules, which give regulators huge discretion to tell banks what to do. It’s a recipe for cronyism and for banks to game the system to limit competition.” On how to stop bailing out large financial institutions: “You have to set up the system ahead of time so that you either can’t or won’t need to conduct bailouts. Ideally, both. . . . The worst possible system is one in which everyone thinks bailouts are coming, but the government in fact does not have the legal authority to bail out.” . . . Econ Focus, Federal Reserve Bank of Richmond, Third Quarter 2013, pp. 34-38. https://www.richmondfed
.org/publications/research/econ_focus/2013/q3/pdf/interview.pdf.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 28, no. 1 (Winter 2014): 235-42.
(Note: italics, and first two ellipses, are in original; the last ellipsis is added.)

Political Entrepreneurs Can Find Ways to Overcome Vested Interests

[p. 202] In their recent book, Leighton and López (2013) place special emphasis on political entrepreneurship in making policy reform possible. For new ideas to overcome vested interests, they write (p. 134), it must be the case that “entrepreneurs notice and exploit those loose spots in the structure of ideas, institutions, and incentives.” They provide four case studies of this process: spectrum license auctions, airline deregulation, welfare reform, and housing finance. In their words (p. 178): “[T]he public face of political change may be that of a madman, an intellectual, or an academic scribbler. But whatever form these leaders may take, they are political entrepreneurs–people whose ideas and actions are focused on producing change.” As these authors stress, political entrepreneurship can be socially harmful, as when the pursuit of individual rents comes at the expense of overall inefficiency. But the returns from shifting the political transformation frontier out can be very large as well.
. . .
(p. 206) I owe a special debt to the recent book by Edward López and Wayne Leighton (2012 sic) for stimulating me to put down on paper a number of ideas I had been mulling over for some time.

Source:
Rodrik, Dani. “When Ideas Trump Interests: Preferences, Worldviews, and Policy Innovations.” Journal of Economic Perspectives 28, no. 1 (Winter 2014): 189-208.
(Note: the bracketed page number refers to the Rodrik article; the page number in parentheses refers to the Leighton and López book; ellipsis added; italics, and the bracketed letter, in the original.)

The book Rodrik discusses is:
Leighton, Wayne A., and Edward J. López. Madmen, Intellectuals, and Academic Scribblers: The Economic Engine of Political Change. Stanford, CA: Stanford University Press, 2013.

Process Innovations, Allowed by Deregulation, Creatively Destroyed Railroads

(p. A11) In “American Railroads: Decline and Renaissance in the Twentieth Century,” transportation economists Robert E. Gallamore and John R. Meyer provide a comprehensive account of both the decline and the revival.   . . .    They point to excessive government regulation of railroad rates and services as the catalyst for the industry’s decay.
. . .
. . . deregulation, Mr. Gallamore and Meyer demonstrate, was a process of creative destruction. Conrail was created by the government in 1976 in a risky, last-ditch attempt to rescue Penn Central and other bankrupt Eastern railroads. It was quickly losing $1 million a day, and its plight helped make the case for the major revamp of railroad regulation that came in 1980. A wave of mergers followed, and the new companies slashed routes and employees on the way to profitability. The shrinking of the national rail system helped, too, as freight companies consolidated traffic on a smaller (and therefore cheaper) network. Freight-train crews were cut to two or three people from four or five. Cabooses were replaced by electronic gear at the end of freight trains.

For the full review, see:
DANIEL MACHALABA. “BOOKSHELF; Long Train Runnin’; Track conditions got so bad in the 1970s that stationary freight cars were falling off the rails thanks to rotting crossties.” The Wall Street Journal (Weds., July 9, 2014): A11.
(Note: ellipses added.)
(Note: the online version of the review has the date July 8, 2014, and has the title “BOOKSHELF; Book Review: ‘American Railroads’ by Robert E. Gallamore and John R. Meyer; Track conditions got so bad in the 1970s that stationary freight cars were falling off the rails thanks to rotting crossties.”)

The book under review is:
Gallamore, Robert E., and John R. Meyer. American Railroads: Decline and Renaissance in the Twentieth Century. Cambridge, MA: Harvard University Press, 2014.