Free Markets – Page 31 – artdiamondblog.com

Toy Boats, Johnny Astro, and the Free Market

Screen capture from eBay’s "Toy Boat" ad.

A few years ago, eBay created a wonderful ad in which a young boy is at the beach playing with his toy boat. His mother tells him that it’s time to go; he leaves the beach forgetting his boat; the boat washes out to sea and sinks in a huge storm. A fisherman hauls up the boat in his fishing net. He brushes it off and puts it up for sale on eBay. The next scene is of a 20-something young man looking stunned at a computer screen, with a picture in the background of himself as a boy with the toy boat. On his PC screen is the eBay page with the boat for sale.

The point is how wonderful free markets can be when they help consumers find and obtain what consumers desperately want.

Of course this is just an ad. But it rings true. See the story excerpted below:

My husband, for example, still hankers for a certain flying toy he played with as a child.

For years, I have heard stories about this lost talisman of youth, an almost mythical toy that had an inflated balloon that could be launched into the air and propelled through a room by a whirring fan.

But my husband could never remember its name — until the other day.

“I FOUND IT! I FINALLY FOUND IT!” he wrote in an instant message that popped up on my computer.

. . .

“IT’S CALLED THE JOHNNY ASTRO.”

Johnny Astro. With a name like that, a name that evokes rocket ships, moon walks and the glory of the technological future hurtling our way, you can see why such a toy would linger in the memory of a boy who grew up in the 1960s.

“GET ME ONE FOR MY BIRTHDAY,” he typed. “PLEASE.”

How could I refuse?

. . .

I turned to eBay. A set was for sale with seven bidders so far, with a high bid of $76. An hour before the auction closed, I placed a bid authorizing eBay to go as high as $207 on my behalf. (I calculated I would get the set for a much lower price, however, given Ms. Grant’s price range.)

In the last minutes of the auction, the number of bids climbed to 21. But in the end I got the set — for $204.49.

My husband acted shocked.

“You paid how much?” he asked.

“You said you wanted it for your birthday,” I said.

He thought about it for a minute.

“If I got two,” he said, “we could fly them together and exchange balloons in the air.”

For the full story, see:

MICHELLE SLATALLA. "ONLINE SHOPPER; A Toy That Sends Grown Men Into Orbit." The New York Times (Thurs., January 25, 2007): E6.

The link for the Toy Boat ad is: http://www.thepowerofallofus.com/flash.html (click "TV Spots" and then "Toy Boat")

Drawing of Johnny Astro toy. Source of drawing: online version of the NYT article cited above.

Milton Friedman’s School Vouchers Pass Utah Senate

I received an email mailing yesterday (2/9/07) from Robert Fanger, who is the Communications Director of the Milton and Rose Friedman Foundation. He wrote: "By a vote of 19 to 10, the Utah Senate passed the universal school voucher bill this afternoon."

On Wednesday, the Wall Street Journal ran an editorial on the issue that is excerpted below:

Proving that the best reforms often pass by the slimmest of margins, Utah’s house voted 38-37 late last week to create a state-wide voucher program that will allow students to escape failing public schools.

Union opponents can be expected to mount a furious assault in the state senate, and then head to court. But the senate is likely to pass the reform supported by GOP Governor Jon Huntsman Jr., so Utah may soon become the first state with a universal school choice plan. It would offer students who attend private K-12 schools from $500 to $3,000 in tuition reimbursement based on family income.

Meanwhile, South Carolina could be next. Legislation is now being drafted to allow nearly 200,000 poor students to opt out of failing public schools by giving them up to $4,500 a year to spend on private school tuition. Middle class parents would be eligible for a $1,000 tax credit.

Reference for editorial:

"Choice Advances." The Wall Street Journal (Weds., February 7, 2007): A14.

Hope for Film Version of Atlas Shrugged

Rand, Ruddy, Wallace, and Jolie. Source of photos: http://ustimes.us/ayn_rand_no_longer_has_script_approval.htm

(p. 9) BACK in the 1970s Albert S. Ruddy, the producer of ”The Godfather,” first approached Ayn Rand to make a movie of her novel ”Atlas Shrugged.” But Rand, who had fled the Soviet Union and gone on to inspire capitalists and egoists everywhere, worried aloud, apparently in all seriousness, that the Soviets might try to take over Paramount to block the project.

”I told her, ‘The Russians aren’t that desperate to wreck your book,’ ” Mr. Ruddy recalled in a recent interview.

Rand’s paranoia, as Mr. Ruddy remembers it, seems laughable. But perhaps it was merely misplaced. For so many people have tried and failed to turn the book she considered her masterpiece into a movie that it could easily strike a suspicious person as evidence of a nefarious collectivist conspiracy. Or at least of Hollywood’s mediocrity.

Of course Rand herself had a hand in blocking some of those attempts before she died in 1982. Her heirs in the Objectivist school of thought helped sink some others. And plans for at least a couple of television mini-series fell to the vicissitudes of network politics and media mergers.

But Rand’s grand polemical novel keeps selling, and her admirers in Hollywood keep trying, and the latest effort involves a lineup of heavy hitters, starting with Angelina Jolie. Randall Wallace, who wrote ”Braveheart” and ”We Were Soldiers,” is working on compressing the nearly 1,200-page book into a conventional two-hour screenplay. Howard and Karen Baldwin, the husband-and-wife producers of ”Ray,” are overseeing the project, and Lions Gate Entertainment is footing the bill.

Whether Ms. Jolie, who has called herself something of a Rand fan, will bring the novel’s heroine, Dagny Taggart, to life on screen, or merely wind up on a list with other actresses who sought or were sought for the role — including Barbara Stanwyck, Faye Dunaway, Raquel Welch, Farrah Fawcett and Sharon Stone — remains to be seen. Until now, at least, no one in Hollywood has figured out a formula that promises both to sell popcorn and to do justice to the original text, let alone to the philosophy that it hammers home endlessly, at times in lengthy speeches. (The final one is 60 pages long.)

But Mr. Baldwin said he believed that Mr. Wallace and the rest of their team were up to the task. ”We all believe in the book, and will be true to the book,” he said.

For the full story, see:

KIMBERLY BROWN. "FILM; Ayn Rand No Longer Has Script Approval." The New York Times, Section 2 (Sun., January 14, 2007): 9 & 14.

A 1957 photo of Rand in New York. Source of photo: http://www.iht.com/articles/2007/01/11/news/atlas.php

To Help Poor: “Allow Entrepreneurs to Flourish”

Of the three "views" discussed in Wessel’s original commentary, the following excerpt just includes the one that I share:

With the billions of dollars they are spending, Bill Gates, Warren Buffett, Bill Clinton and Bono are likely to make progress in their quest to prevent treatable diseases from killing millions of people. Nearly all of these people live or will live in poor countries.

That worries economist Simon Johnson. He doesn’t doubt the moral imperative to fight disease. Still, he wonders: "Do we really know how to help the poor people — the increasing number of poor people? Do we really know how to help them out of poverty?"

Such questions haunt academics, governments, international institutions and global do-gooders. They are impressed with China’s rapid modernization, though puzzled that it has done so well without following standard precepts. They are disappointed and puzzled that Latin America nations haven’t done better, especially because so many did take the advice of the experts. They are depressed and puzzled by the continued widespread misery in Africa.

With intellectual humility, Mr. Johnson, a professor at Massachusetts Institute of Technology’s Sloan School of Management, faced a roomful of peers at the annual meeting of the American Economics Association last weekend and said, "Public health had the germ theory of disease. Economics has made great progress, but it’s still waiting for its ‘germ theory of disease.’" That probably overstates the challenges remaining to public-health warriors — avian flu, AIDS/HIV, malaria and all — but not the shortcomings of economic understanding of what poor countries should do to achieve sustained growth.

. . .

A third view is that earlier economists focused on the wrong thing. Mr. Johnson, among others, argues that what really matters is having solid political, legal and economic institutions — courts, central banks, honest bureaucrats, private-property rights — that allow entrepreneurs to flourish. Imposing what seem to be sound economic policies on corrupt, incompetent or myopic governments is doomed. Building strong institutions is a necessary prerequisite. In this camp, there is a running side argument about which comes first: the institutions or the educated people who create them. Was the Constitution key to U.S. success, or was it Jefferson, Madison and Hamilton?

For the full commentary, see:

DAVID WESSEL. "CAPITAL; Why Economists Are Still Grasping For Cure to Global Poverty." The Wall Streeet Journal (Thurs., January 11, 2007): A7.

Americans Believe “Individuals Are Responsible for their Own Success”

David Brooks. Source of photo: online version of the NYT commentary cited below.

David Brooks wrote some useful reflections on some of the work of sociologist Seymour Martin Lipsett, who died on New Year’s Eve at the end of 2006:

Lipset was relentlessly empirical, and rested his conclusions on data as well as history and philosophy. He found that Americans have for centuries embraced individualistic, meritocratic, antistatist values, even at times when income inequality was greater than it is today.

Large majorities of Americans have always believed that individuals are responsible for their own success, Lipset reported, while people in other countries are much more likely to point to forces beyond individual control. Sixty-five percent of Americans believe hard work is the key to success; only 12 percent think luck plays a major role.

In his “American Exceptionalism” (1996), Lipset pointed out that 78 percent of Americans endorse the view that “the strength of this country today is mostly based on the success of American business.” Fewer than a third of all Americans believe the state has a responsibility to reduce income disparities, compared with 82 percent of Italians. Over 70 percent of Americans believe “individuals should take more responsibility for providing for themselves” whereas most Japanese believe “the state should take more responsibility to ensure everyone is provided for.”

America, he concluded, is an outlier, an exceptional nation.

For the full commentary, see:

DAVID BROOKS. "The American Way of Equality." The New York Times, Section 4 (Sun., January 14, 2007): 12.

Increase in Minimum Wage Hurts Poor

The strong bipartisan support for increasing the federal minimum wage to $7.25 an hour from the current $5.15 — a 40% increase — is a sad example of how interest-group politics and the public’s ignorance of economics can combine to give us laws that manage to be both inefficient and inegalitarian.

An increase in the minimum wage raises the costs of fast foods and other goods produced with large inputs of unskilled labor. Producers adjust both by substituting capital inputs and/or high-skilled labor for minimum-wage workers and, because the substitutes are more costly (otherwise the substitutions would have been made already), by raising prices. The higher prices reduce the producers’ output and thus their demand for labor. The adjustments to the hike in the minimum wage are inefficient because they are motivated not by a higher real cost of low-skilled labor but by a government-mandated increase in the price of that labor. That increase has the same misallocative effect as monopoly pricing.

Although some workers benefit — those who were paid the old minimum wage but are worth the new, higher one to the employers — others are pushed into unemployment, the underground economy or crime. The losers are therefore likely to lose more than the gainers gain; they are also likely to be poorer people. And poor families are disproportionately hurt by the rise in the price of fast foods and other goods produced with low-skilled labor because these families spend a relatively large fraction of their incomes on such goods. And many, maybe most, of the gainers from a higher minimum wage are not poor. Most minimum-wage workers are part time, and for the majority their minimum-wage income supplements an income derived from other sources. Examples are retirees living on Social Security or private pensions who want to get out of the house part of the day and earn pin money, stay-at-home spouses who want to supplement their spouse’s earnings, and teenagers working after school. An increase in the minimum wage will thus provide a windfall to many workers who are not poor.

Some economists deny that a minimum wage reduces employment, though most disagree. And because most increases in the minimum wage have been slight, their effects are difficult to disentangle from other factors that affect employment. But a 40% increase would be too large to have no employment effect; about a tenth of the work force makes less than $7.25 an hour. Even defenders of minimum-wage laws must believe that beyond some point a higher minimum would cause unemployment. Otherwise why don’t they propose $10, or $15, or an even higher figure?

A number of countries, including France, have conducted such experiments; the ratio of the minimum wage to the average wage is much higher in these countries than in the U.S. Economists Guy Laroque and Bernard Salanie find that the high minimum wage in France explains a significant part of the low employment rate of married women. Mr. Salanie has argued that the minimum wage also contributes to the dismal employment prospects of young persons in France, including Muslim youths, an estimated 40% of whom are unemployed.

For the full commentary, see:

GARY S. BECKER and RICHARD A. POSNER. "How to Make the Poor Poorer." The Wall Street Journal (Fri., January 26, 2007): A11.

International Trade Helps Poor African Cotton Farmer

Left photo shows Dennis Okelo in the grocery store that he opened with savings from growing cotton, and selling it to Dunavant. Right photo shows a Dunavant cotton gin in Zambia. Source of photos: online version of the NYT article cited below.

(p. 1) WHERE is he?” the old woman asks. “Where is he?”

Finding Dennis Okelo used to be easy. The old woman — and most other people in a village outside of Lira, the provincial capital of northern Uganda — went directly to Mr. Okelo’s fields. He was always in one of his “gardens,” with his slacks rolled up above his calves and a short hoe close by. Or he was seated outside of his mud-brick house under a banana tree.

Then cotton growing revived in Uganda, and Dunavant Enterprises came to town about five years ago, paying cash on delivery. After three seasons of growing cotton for Dunavant, the world’s largest privately owned cotton broker and one of the biggest family-owned agribusinesses in the United States, Mr. Okelo, who owns less than three acres and has two wives and a passel of children, had saved $300, about double his annual earnings before Dunavant started buying his cotton.

Last summer, Mr. Okelo opened a grocery store, which is where the old woman finally found him: smiling, standing behind the wooden plank that serves as his service counter in a shop the size of a utility shed. The grocery, one of two in the village, carries dried foods, cooking oil, matches, cosmetics, batteries and candy.

“Before Dunavant, no one came to help us,” says Mr. Okelo, 40, who has farmed a variety of crops in these parts for about 20 years.

. . .

(p. 7) IN his small shop, Mr. Okelo knows nothing of global developments in the cotton trade even though he is a direct beneficiary of them. He started farming during the lean years in Uganda, after the ouster of the country’s notorious dictator, Idi Amin, when the cultivation of cotton lagged so badly that production nearly ceased and farmers treated the crop like a weed.

A few years ago, as Uganda’s production began to revive, Dunavant’s trainers taught Mr. Okelo to grow cotton in straight rows and to use a string to measure precisely the distance between rows, to maximize plantings. Mr. Okelo’s new methods are basic, but in a part of Africa where farmers work the land chiefly with a hoe — and tractors, fertilizer and pesticides are rarities — even basic improvements can lead to large gains in production.

“Cotton is the crop that gives farmers the best money,” Mr. Okelo said. “I want Dunavant to be even closer to me.”

For the full story, see:

G. PASCAL ZACHARY. Out of Africa: Cotton and Cash." The New York Times, Section 3 (Sun., January 14, 2007): 1 & 7.

(Note: ellipses added.)

William B. Dunavant, Jr. Source of photo: online version of the NYT article cited above.

Becker on Friedman

Source of graphic: http://www.ideachannel.com/Friedman.htm

David Levy has noted in an email that at the reception to preview the new Friedman documentary, Gary Becker gave a great presentation on Milton Friedman, and it was a great shame that no one recorded it. I feel especially guilty, because I had thought of recording it, and had even brought a small camera that would have (badly) done the job. But the room was dark and crowded, and by the time the talk started, I was in conversation a long way from where Becker started speaking.

Levy suggests that maybe those of us who were there, should record our memories of what Becker said. I like that idea, and will record mine here.

Becker started out by saying to Bob Chitester that he wasn’t sure that the documentary did justice to Friedman. (Chitester was the producer, I think, of the original Free to Choose series, and a moving force behind the new Friedman documentary, to be first shown on PBS on January 29th, 2007.)

Becker mentioned that Friedman was a missionary. He would talk economics to anyone–if a taxi driver made a mistaken comment about economics, Friedman would set him straight.

Becker mentioned that while Friedman liked to argue about ideas, he never saw him be mean to anyone.

Becker mentioned that a friend of his taking Friedman’s price theory class (I think Becker may have said the friend was Gregory Chow?) asked Becker how he could keep asking questions in Becker’s class, when Friedman would keep showing the ways in which Becker was mistaken.

Becker mentioned that he talked to Friedman a few days before his death, and that they even talked a little economics.

Becker emphasized that Friedman had been both a great economist, and had made an enormous difference in the world, in particular in making the world more free.

Some background: Becker spoke about Friedman at two sessions at the Allied Social Sciences Association meetings in Chicago in early January. One was in the afternoon (about 2:30 PM?) of January 5, 2007, and also included Robert Lucas, and Tom Sargent. I missed that session because I wanted to attend a session featuring the research program of Robert Fogel on longevity. The second session, at 6:00 – 7:30 PM on Sat., January 6, 2007 was at a reception sponsored by the University of Chicago to preview the new documentary on Friedman. I attended this reception through Becker’s presentation, but did not stay for the documentary preview. My friend Luis Locay attended both sessions, and told me that some, but not all, of the stories Becker told were similar in both sessions. Locay also mentioned that Becker appeared to get more choked-up at the session on January 5, 2007.

The Resilience of Markets

(p. A11) Bystanders pulled an 8-year-old boy from the charred wreckage of a marketplace where the poor come to buy used clothes and household goods. Two of three explosions in the city claimed the lives of at least 17 people, including the boy’s parents.

Vendors said the bombs, which killed seven people, were planted in wooden carts by two strangers who set up shop near the entrance and exit to the market and left just before the explosions. After the initial shock of the explosions, shoppers and vendors resumed haggling over underwear and socks, eating shish kebab and turnips sweetened with date syrup.

"If I would go home, then what would my family eat?" said vendor Jabbar Shnawa, 35, who, after the explosion, sold a compact disc for 500 Iraqi dinars, about 40 cents.

For the full story, see:

Hennessy-Fiske, Molly. "Saddam could be hanged by weekend." St. Louis Post-Dispatch 12/29/2006): A1 & A11.

(Note: article originally appeared in the Los Angeles Times.)

The Mere Threat of “Hillary-Care” Reduced Investment in Drug R&D

CEO of drug company Eli Lilly. Source of image: online version of WSJ artcle cited below.

NEW YORK — Is the future of your health riding on what happens in Washington? Sidney Taurel thinks it might be. The Eli Lilly CEO ticks off a list of former "death sentences" being cured or turned into chronic conditions — "AIDS, leukemia, Hodgkins, hopefully solid tumors within the next few years. The potential for medical research is unlimited. We just need to make sure we don’t interdict it by the wrong policies."

And what might those "wrong policies" be? Anything, it would appear, that reduces the financial incentives for drug companies to invest in research and development. Mr. Taurel points without hesitation to the mere threat of HillaryCare in the early 1990s as an episode that reduced investment in R&D, as drug makers, including his own, redirected money toward the purchase of pharmacy benefit management companies. As another example, he offers the anti-drug industry crusade of Sen. Estes Kefauver in the late 1950s and early ’60s:

"At that point companies started to diversify. We bought Elizabeth Arden, we went into animal health and agricultural chemical products, later on in medical instruments and so forth. All other companies did similar things. And for a while after that we saw fewer new products. When this threat subsided the companies focused again on R&D and we saw a golden era in the ’80s and ’90s with a lot of new products and breakthroughs."

For the full interview, see:

ROBERT L. POLLOCK. "THE WEEKEND INTERVIEW with Sidney Taurel; Of Politics and Pills." The Wall Street Journal (Sat., December 2, 2006): A8.