Government – Page 119 – artdiamondblog.com

“Free to Choose” Turns Estonia into “Boomtown”

Source of book image: http://search.barnesandnoble.com/booksearch/imageviewer.asp?ean=9780156334600

If, like Mr. Laar, you are only going to read one book in economics, Milton Friedman’s Free to Choose, is not too bad a choice:

(p. A23) Philippe Benoit du Rey is not one of those gloomy Frenchmen who frets about the threat to Gallic civilization from McDonald’s and Microsoft. He thinks international competition is good for his countrymen. He’s confident France will flourish in a global economy — eventually.

But for now, he has left the Loire Valley for Tallinn, the capital of Estonia and the economic model for New Europe. It’s a boomtown with a beautifully preserved medieval quarter along with new skyscrapers, gleaming malls and sprawling housing developments: Prague meets Houston, except that Houston’s economy is cool by comparison.

Economists call Estonia the Baltic tiger, the sequel to the Celtic tiger as Europe’s success story, and its policies are more radical than Ireland’s. On this year’s State of World Liberty Index, a ranking of countries by their economic and political freedom, Estonia is in first place, just ahead of Ireland and seven places ahead of the U.S. (North Korea comes in last at 159th.)

It transformed itself from an isolated, impoverished part of the Soviet Union thanks to a former prime minister, Mart Laar, a history teacher who took office not long after Estonia was liberated. He was 32 years old and had read just one book on economics: ”Free to Choose,” by Milton Friedman, which he liked especially because he knew Friedman was despised by the Soviets.

Laar was politically naïve enough to put the theories into practice. Instead of worrying about winning trade wars, he unilaterally disarmed by abolishing almost all tariffs. He welcomed foreign investors and privatized most government functions (with the help of a privatization czar who had formerly been the manager of the Swedish pop group Abba). He drastically cut taxes on businesses and individuals, instituting a simple flat income tax of 26 percent.

For the full commentary, see:

JOHN TIERNEY. "New Europe’s Boomtown." The New York Times (Tues., September 5, 2006): A23.

Wal-Mart Really Does Benefit Consumers by Lowering Prices

Scholarly studies show Wal-Mart’s price reductions to be sizable. Economist Emek Basker of the University of Missouri found long-term reductions of 7 to 13 percent on items such as toothpaste, shampoo and detergent. Other companies are forced to reduce their prices. On food, Wal-Mart produces consumer savings that average 20 percent, estimate Jerry Hausman of the Massachusetts Institute of Technology and Ephraim Leibtag of the Agriculture Department.

All told, these cuts have significantly raised living standards. How much is unclear. A study by the economic consulting firm Global Insight found that from 1985 to 2004, Wal-Mart’s expansion lowered the consumer price index by a cumulative 3.1 percent from what it would have been. That produced savings of $263 billion in 2004, equal to $2,329 for each U.S. household. Because Wal-Mart financed this study, its results have been criticized as too high. But even if price savings are only half as much ($132 billion and $1,165 per household), they’d dwarf the benefits of all but the biggest government programs.

For the full commentary, see:

Robert J. Samuelson. "Wal-Mart as Red Herring." The Washington Post (Wednesday, August 30, 2006): A19.

Daley Shows Chicago is Still the “City of the Outstuck Neck”

I think it was the poet Gwendolyn Brooks who once described Chicago as the "city of the out-stuck neck." Chicago’s current Mayor Daley did himself and the city proud recently when he had the guts to stick his neck out by vetoing the proposed Chicago minimum wage. He deserves a salute from Chicago’s consumers and poor. Democrat Daley is the mayor of the out-stuck neck.

Chicago Mayor Richard M. Daley used the first veto of his 17-year tenure to reject a living-wage ordinance aimed at forcing big retailers to pay wages of $10 an hour and health benefits equivalent to $3 an hour by 2010.

The veto is important to Wal-Mart Stores Inc., which plans to open its first store in Chicago late this month in the economically depressed 37th ward.

. . .

In vetoing the ordinance, Mayor Daley cited a potential loss of jobs. In recent weeks, several big retailers had written to his office to oppose the ordinance. "I understand and share a desire to ensure that everyone who works in the city of Chicago earns a decent wage," the mayor wrote to the aldermen yesterday. "But I do not believe that this ordinance, well intentioned as it may be, would achieve that end. Rather, I believe that it would drive jobs and business from our city."

For the full story, see:

KRIS HUDSON. "Chicago’s Daley Vetoes Bill Aimed At Big Retailers." Wall Street Journal (Thurs., September 12, 2006): A4.

(Note: I can’t find the exact source of the out-stuck neck quote, but one reference on the web is: http://starbulletin.com/97/05/22/sports/fitzgerald.html )

Case for Wind Power is “Absolute Baloney”

I once heard a top MidAmerican Energy executive express considerable, articulate, scepticism about the economics of wind power. (Wind power is unreliable, so that electric companies still must stand ready to provide the electricity by other means.) If wind power made economic sense, you wouldn’t need subsidies to promote it—profit maximizing power companies would pursue it on their own. MidAmerican now invests in wind power, not because it has become an efficient energy source, but because wasteful government subsidies, make wind power profitable for MidAmerican.

Glen Schleede, a retired power company executive, has nothing to lose by speaking the truth:

(p. 1B) The turbines do bother some folks, including Glenn R. Schleede, a retired power company executive from Round Hill, Va., who said the wind power industry puts out "absolute baloney" to justify its existence.

"I’m tired of subsidizing Warren Buffett companies," Schleede said, referring to federal tax subsidies that go to MidAmerican Energy Holdings Co., a division of Omaha-based Berkshire Hathaway Inc. that is headed by Buffett. Those are MidAmerican’s turbines in the fields around Schaller.

Schleede’s criticisms, mostly in academic-style papers he writes, concentrate on the economics of wind power and what he called "false claims about how this is good for an energy system."

"In fact, these things, because they’re intermittent and volatile and unpredictable, they don’t really add a lot of capacity to an electric grid," he said. "When you see these things advertised, they talk about how many megawatts of capacity, the number of homes served and all that garbage.

"I would maintain that they don’t serve any homes."

For the full story, see:

Jordon, Steve. "Harvesting Wind;Farmers like payout, but critics of wind power point to costs." Omaha World-Herald (Sunday September 3, 2006): 1D-2D.

Added Evidence for Weidenbaum’s ‘Birth Dearth’

Source of book image: http://www.aei.org/books/bookID.497,filter.all/book_detail.asp

Ben Wattenberg had already been predicting a world population decline for years, when he published The Birth Dearth in 1987. Back then, scepticism was widespread. Governments and philanthropists spent billions promoting birth control to restrain population growth. Many were still convinced of the wisdom of Isaac Ehrlich, darling of the environmentalist enemies of economic growth, who had predicted disaster in his Population Bomb.

(Note that the plausibility of many environmentalist disaster scenerios is based on the assumption of continuous population growth.)

The current decline in birth rates is not a total puzzle. Nobel-prize winner Gary Becker long-ago claimed that quality of children is what economists call a ‘normal’ good, which means that families invest more in quality as their incomes rise. As families invest more in quality, they invest less in quantity.

Whatever the reasons, the evidence continues to accumulate that Wattenberg was right:

After a long decline, birthrates in European countries have reached a historic low, as potential parents increasingly opt for few or no children. European women, better educated and integrated into the labor market than ever before, say there is no time for motherhood and that children are too expensive anyway.

The result is a continent of lopsided societies where the number of elderly increasingly exceeds the number of young — a demographic pattern that is straining pension plans and depleting the work force in many countries.

For the full story, see:

ELISABETH ROSENTHAL. "European Union’s Plunging Birthrates Spread Eastward." The New York Times (Mon., September 4, 2006): A3.

Source of graphic: online version of the NYT article cited above.

Salt Lake Mayor Violates “Ridiculous” Zoning Law

Salt Lake City Mayor Rocky Anderson, whose "xeriscape" yard violates a Salt Lake City zoning ordinance. Source of photo: scan from a paper copy of the NYT article cited below.

SALT LAKE CITY, Aug. 21 — Covered as it is by red bark and dotted with ornamental grasses and purple sage shrubs, the front yard of Salt Lake City’s mayor stands out in contrast against the other, uniformly green lawns on the tree-lined street.

Not only is Mayor Rocky Anderson’s yard distinctive, though. It is also illegal, one of hundreds of drought-friendly yards and gardens here that are in violation of zoning ordinances.

In light of a five-year drought that meteorologists say ended last year, Mr. Anderson is one of a growing number of homeowners in desert cities across the West who have traded in their manicured lawns and colorful flower beds for ground cover and gardens that require little water.

In Salt Lake City, though, all front yards must be completely covered with flat green grass, which needs to be watered often to keep it from turning brown and strawlike. Although the zoning ordinance is rarely enforced, some Salt Lake City leaders — including the mayor — want to bring the letter of law in line with current landscaping trends.

“I think the zoning ordinance is ridiculous,’’ Mr. Anderson said. “It clearly needs to be changed.”

For the full story, see:

MELISSA SANFORD. "Salt Lake City Moving Toward Less Thirsty Lawns." The New York Times (Fri., August 25, 2006): A12.

Planners Attack Cul-de-Sacs

A cul-de-sac in Eagan, Minnesota. Source of photo: the online version of the NYT article cited below.

City planners think they know how other people should live their lives, and the planners believe that they have the right to impose their "knowledge" on others. I believe that there are pros and cons to living in a subdivision with cul-de-sacs, and on balance, I don’t like them. But I understand why others might decide differently, and I think they have a right to use their own money to buy into the kind of neighborhood they prefer.

The New York Times ran an interesting article that focused on the debate on cul-de-sacs in Northfield, Minnesota:

. . . here and in other areas across the country, this staple of suburban development is drawing criticism from a growing number of planners and government officials, who say it should become an endangered species.

Highly popular after World War II, the cul-de-sac is essentially a dead-end residential street, often but not always ending with a large circular patch of pavement allowing vehicles to turn around. The form was initially embraced as something that promoted security, neighborliness and efficient transportation.

Homeowners found that the cul-de-sac limited traffic, creating a sense of privacy, while encouraging ties among neighbors, who could hardly avoid one another. Developers liked the cul-de-sac because it made it possible to build on land unsuited to a grid street pattern and because home buyers were willing to pay a premium to live on one.

. . .

Don Mitchell, professor of geography at the Maxwell School of Citizenship and Public Affairs at Syracuse University, grew up on a cul-de-sac in Moraga, Calif., and has seen both sides of the debate. “It’s a quiet street that all us kids could play on without too much fear of traffic,” he said. “And there was pretty good surveillance by our parents when we were out in the street.”

But those advantages can also be disadvantages. “They’re quite insular,” he said. “They tend to almost induce a circle-the-wagons sort of atmosphere, so anybody becomes a stranger who’s on the street. They don’t often act like public streets. We always knew when there was someone who wasn’t a regular on our street, and yet they had every right to be there.”

. . .

Although planners may be turning away from cul-de-sacs, people who actually live on them are willing to fight for them.

For the full story, see:

CARLA BARANAUCKAS. "NATIONAL PERSPECTIVES; Why Some Towns Place Roadblocks on Cul-de-Sacs." The New York Time, Section 8 (Sun., August 27, 2006): 20.

A cul-de-sac in Eagan, Minnesota. Source of photo: the online version of the NYT article cited above.

Obama Says Africa Needs Less, and Better, Government: More on Why Africa is Poor

Senator Obama in Kenya. For the source of the photo, see: http://www.nytimes.com/2006/08/26/world/africa/26obama.html

NAIROBI, Kenya, Aug. 28 — Barack Obama strode into a packed auditorium in Nairobi on Monday and attacked an issue that notoriously bedevils Kenyan society: corruption.

He urged people to reject “the insulting idea that corruption is somehow part of Kenyan culture” and “to stand up and speak out against injustices.”

. . .

During his speech on Monday, he laid out a tough prescription for Africa’s ills, calling for government cutbacks, more openness and less ethnic politics.

Kenya is one of the more developed countries in sub-Saharan Africa and one of the closest to the West, but it is consistently ranked by international organizations as one of the most corrupt. Mr. Obama said this corroded its ability to attract investment, fight terrorism and provide security for its own people.

Most of all, he told Kenyans to stop complaining about the injustices of the colonial past and to accept responsibility. “It’s more than just history and outside influence that explain why Kenya is lagging behind,” he said.

He ended by telling the crowd, “I want you all to know that as your ally, your friend and your brother, I will be there in every way I can.”

Many in the audience left in high spirits.

“He’s inspiring,” said Miriam Musonye, a literature professor. “He really seems to believe what he says.”

For the full story, see:

JEFFREY GETTLEMAN. "Obama Urges Kenyans to Get Tough on Corruption." The New York Times (Tues., August 29, 2006): A10.

Feds Slowed DSL by Forcing “Open Access”

Here is the background. From the earliest days of broadband service, controversy raged over whether the physical networks used to transport data should be allowed to control content. Thus open access rules, which forced telcos to allow broadband company rivals to use their networks at regulated rates. Cable TV systems, meanwhile, also provided Internet connections via cable modems, but without any obligation to share their facilities. If an independent Internet Service Provider (ISP) like Covad or Earthlink wanted to connect customers via Comcast’s lines, they could negotiate a deal but had no legal club — as they did under open access.

There was a vigorous campaign to mandate open access on cable similar to DSL; regulators under both Presidents Clinton and Bush refused. The inevitable litigation ensued; but the Supreme Court set the matter to rest in FCC v. Brand X (2005). Its 6-3 decision upheld the FCC’s classification of cable broadband as an "information service," placing it beyond the scope of common carrier regulation.

For a number of years, therefore, DSL service was subject to open access while cable was not. Unsurprisingly, DSL providers were blown away early in the race for market share. By the end of 2002, cable-modem subscribers numbered 11 million and DSL just 6.1 million, according to Leichtman Research.

Then DSL began its deregulatory trek. The first critical reform was a surprise FCC decision in February 2003 to end "line sharing" rules. This dramatically raised the prices which ISPs would have to pay to use phone company facilities to provide retail DSL service, dealing a severe blow to companies like Covad. Echoing conventional wisdom, the New York Times news story forecast a consumer defeat: "High-Speed Service May Cost More."

It hasn’t. Average DSL rates, according to Kagan Research, dropped from $39.51 per month in 2002 to $34.72 in 2003. Telcos also expanded the scope, capacity and quality of advanced networks, even improving its endemic customer relations problems.

Consumers responded. DSL, holding just 35% market share in 2002, pulled even with cable among new subscribers in 2004. Leichtman Research reports that "DSL providers have added more broadband subscribers than cable providers in each of the last six quarters," and that overall, "the first quarter of 2006 was the best ever for both DSL and cable broadband providers." Unleashed from open access, DSL is attracting customers like never before — and the overall growth of broadband subscribers (DSL and cable) is notably higher.

For the full commentary, see:

THOMAS W. HAZLETT. "RULE OF LAW; Broadbandits." Wall Street Journal (Sat., August 12, 2006): A9.

Vinod Gupta: the Democrat’s Ken Lay?

Much has been made of the good will between the Bushes and the late Enron CEO Ken Lay. But not all of those who fall short of sainthood are friends of Republicans. During the Clinton administration, Vinod Gupta slept at the White House. He is a major donor to Democrats, and has been a delegate to the Democratic National Convention. Yet Gretchen Morgenson of the New York Times suggests that Gupta may not be an exemplar of sound management practices:

(p. 1) ANYONE who says that the Midwest is dull and monochromatic has obviously never been to Omaha. The city of Warren E. Buffett, the investing great who has generated huge gains for his shareholders over the years, is also home to Vinod Gupta, the colorful chief executive of infoUSA, who has destroyed enormous value for outside shareholders in recent years. Now that’s diversity.

Unfortunately for the shareholders of infoUSA, a database marketing concern, much of its story is a throwback to the pre-Enron days of cozy boards and entitled executives. Mr. Gupta, who founded infoUSA in 1972 and owns 38 percent of its shares, doesn’t seem to recognize that he is running a public company and needs to look out for his non-Gupta shareholders. His board has done little to help him see the light.

InfoUSA shares hit a 52-week low Friday, closing at $7.98. They are down 27 percent for the period.

Mr. Gupta is, shall we say, a piece of work. He often prevents large shareholders from asking questions on conference calls. He has received compensation that was not earned under the terms of the company’s executive compensation program, according to a lawsuit that Cardinal Value Equity Partners, infoUSA’s largest outside holder, filed against the company. And, the suit alleges, his board has given him free rein to dispense stock options to whomever he likes.

Related-party transactions are also routine at infoUSA. The Cardinal lawsuit contends that infoUSA paid a company owned by Mr. Gupta about $608,000 in 2003 to buy his interest in a skybox at the University of Nebraska’s Memorial Stadium. The university is Mr. Gupta’s alma mater and home of the Cornhuskers football team. In June 2005, the suit says, infoUSA paid $2.2 million for a long-term lease of his yacht. The yacht, named American Princess, is 80 feet long and has an all-female crew, according to a report in The Triton, a monthly publication for boat captains and crews.

Leases on an H2 Hummer, a gold Honda Odys-(p. 8)sey, a Glacier Bay Catamaran, a Mini Cooper, a Lexus 330, a Mercedes SL500 — all used by the Gupta clan — as well as rent on a Gupta family condominium on Maui have also been financed by infoUSA shareholders, the suit said.

Shareholders also paid a company owned by Mr. Gupta’s wife $64,200 for consulting services in 2003 and 2004. Shareholders have also covered the Gupta family’s personal use of a corporate jet — leased by infoUSA from a company owned by the family — to have fun in the sun in Hawaii and the Bahamas. Mr. Gupta apparently wasn’t in a mood to return the favor: during a four-year period ending in 2004, infoUSA paid $13.5 million to Mr. Gupta’s private company for use of the aircraft.

What to make of all of this? The Cardinal lawsuit contends that the carnivalesque spending amounts to unregulated perquisites and evidence of a somnambulant board. Sleepy, perhaps, but always on the move. Some 15 directors have spun through infoUSA’s boardroom door over the last decade; five of them stayed less than a year.

For the full story, see:

Gretchen Morgenson. "That Other Guy From Omaha." The New York Times, Section 3 (Sun., August 27, 2006): 1 & 8.

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