The Economist: How important is it to make things?

As they point out - when it comes to growth and economics, not very:

As the weak recovery continues, various experts continue to linger on the importance of manufacturing to growth in output and employment. America's economy will work again, many argue, when its workers are once again engaged in the critical task of making things. I continue to struggle to understand this focus. Think of the kinds of tasks that make a product possible: the people who identify a market opportunity and come up with a concept, the people who produce a workable product design, the people who design a production method and supply chain, the people who find supplies and labour at prices and qualities consistent with profitable production, the people who manage the logistics of bringing inputs together, the people who actually assemble the inputs, the people who manage the logistics of delivering the goods to markets, the people who actually sell the goods to customers, and the people who track these processes and add up the numbers to make sure things are working as planned. Why is the assembly step obviously the most important to economic activity?

Manufacturing enthusiasts often cite the benefits of manufacturing's high compensation levels for middle-skilled work, but this is a mistaken idea. In the tradable sector, high wages are possible only when there are high levels of value creation. That corresponds to high skill levels or capital intensities, both of which limit the extent to which high-wage manufacturing jobs will be responsible for mass employment. Low-skill jobs in tradable sectors will tend to flow to places with very low labour costs. Of course, America can employ lots of people in non-tradable, middle-skill manufacturing jobs: things like home-building, on-site prepared food manufacture, and the production of shortened hair. Yet employment in construction, restaurant, and personal service jobs doesn't satisfy manufacturing enthusiasts, despite the ample market appetite for such workers.

Geldof: From Live Aid to ... Private Equity Capitalist?

And in so doing, doing a heck of a lot more good?  This seems promising (ReutersAfrica):

Bob Geldof, the former Boomtown Rats singer and Live Aid front man, said a private equity fund he agreed to front last year to invest in Africa was nearing its first close, having raised nearly $200 million.

Geldof helped organise the 1985 Live Aid concert, which reached an estimated 1.5 billion people and did much to raise the profile of those suffering from poverty, starvation and disease in Africa.

Geldof said the private equity fund, called 8 Miles, which represents the shortest distance between Europe and North Africa, had attracted increasing attention because of what he called an existential fiscal crisis in the euro zone.

"It's all about globalisation. Without Africa, this whole game stops," Geldof told delegates at a Julius Baer investor conference in Zurich, focusing on growth. "Last month, of the 10 fastest-growing economies in the world, six were African."

Private equity funds often close to new investors as they deploy the money already gathered, because holding on to large amounts of idle cash while they choose their investments can create a drag on performance.

Crime and Poverty

A reminder that poverty isn't an excuse for crime - and that when we do so, we debase the vast majority of those who attempt to build better lives for themselves and their families and who some pejoratively dismiss as poor as if it's a chronic and hopeless condition. via City-Journal:

But the notion that unemployment causes crime runs into some obvious difficulties. For one thing, the 1960s, a period of rising crime, had essentially the same unemployment rate as the late 1990s and early 2000s, a period when crime fell. Further, during the Great Depression, when unemployment hit 25 percent, the crime rate in many cities went down. (True, national crime statistics weren’t very useful back in the 1930s, but studies of local police records and individual citizens by scholars such as Glen Elder have generally found reduced crime, too.) Among the explanations offered for this puzzle is that unemployment and poverty were so common during the Great Depression that families became closer, devoted themselves to mutual support, and kept young people, who might be more inclined to criminal behavior, under constant adult supervision. These days, because many families are weaker and children are more independent, we would not see the same effect, so certain criminologists continue to suggest that a 1 percent increase in the unemployment rate should produce as much as a 2 percent increase in property-crime rates.

Yet when the recent recession struck, that didn’t happen. As the national unemployment rate doubled from around 5 percent to nearly 10 percent, the property-crime rate, far from spiking, fell significantly. For 2009, the FBI reported an 8 percent drop in the nationwide robbery rate and a 17 percent reduction in the auto-theft rate from the previous year. Big-city reports show the same thing. Between 2008 and 2010, New York City experienced a 4 percent decline in the robbery rate and a 10 percent fall in the burglary rate. Boston, Chicago, and Los Angeles witnessed similar declines. The FBI’s latest numbers, for 2010, show that the national crime rate fell again.

Building Pre-Fab Homes

Not sure what I love about production lines but here's a cool vid of how far building homes has come (and still makes up only a fraction of the market) - from Core77:

My buddy Julian works in construction, and for his first week on the job he and his crew were building two-story Motel 6's in New Jersey in the middle of a blizzard. Since he was the new guy, they threw him up on the roof alone with a shovel (and a lone rope tied around his waste as a safety measure) to clear the snow that was stacking up on the half-finished parts of the structure. It was an 8-hour day with nonstop snow. I asked him if that was his worst day on the job. "No," he laughed. "Just my first one."

While pre-fab construction is a merely neat idea for architects, designers and consumers, it must be amazing for the actual construction workers. Putting things together is still hard labor, but imagine being able to do it all indoors, in short-sleeved shirts, in a climate-controlled environment with perfect lighting and an actual plumbed bathroom

Probably.

Mark Steyn: "The West has incentivized non-productivity on an industrial scale." (NationalReview via Instapundit). While it is the wealth from markets that have allowed governments to prolong unsustainable policies, government largesse seems to have finally exceeded the ability for markets to pay. Read the whole thing.

In Defense of Price Gouging

A look at how government restrictions over pricing result in unintended consequences.  The defense (Washington Examiner):

Disaster pricing often yields more widespread allocation of scarce resources. So everybody has something, and it's less likely someone's sitting on water or batteries they don't need.

Think of those families doubling up in hotel rooms during the hurricane. Those hotels only would double their prices if they thought they could still fill every room. So, if families weren't feeling pressured to share a room, where would the later-arriving families have stayed? In their car during the hurricane?

Greedy exploitation is a different thing. If I run the only store in a town and decide to hike the price for water on a group just because they look thirsty -- even though I'm in no danger of running out -- that's exploitation. But if I'm dealing with a stock that's going to run out, there's nothing wrong with pricing goods so that each good goes to whoever wants it most, rather than whoever can get to it first.

Obviously, we should take care of the poor, as a matter of charity. We all have a duty to take care of the needy, and the class of people fitting into that circumstance expands during a hurricane or other crisis.

But objections to "price gouging" often unhelpfully blend the duty to charity with the dynamics of the market.

If a store owner wants to give discounts or freebies to the poor, that's great. And if he wants to double the price of something he's about to run out of, that should be okay, too.

The Canadian Government's Guide to the United States

While a lot of us joke that what makes us Canadian is a near universal belief that "we're not American", this presumably unintentionally hilarious guide put out by the Canadian Foreign Affairs Department helps to guide us on how best to interact with Americans so as not to make them feel uncomfortable (via Carson):

In the US, much like in Canada, the personal bubble seems to range between 2 to 3 feet with closer allowances for louder places (such as a night-club or sporting event). In this context, you will usually get closer to allow yourself to be heard and then back away while reaffirming what you just said with the corresponding facial expression.

In a more intimate setting, the space bubble will decrease. In general, you don’t want to be "in someone’s face". 

Eye contact is good as long as it is not confrontational (don’t stare). It usually denotes interest and understanding. It is good to nod your head in agreement occasionally to show you are engaged in the conversation. 

As in Canada, people are not very tactile at first encounter. There is of course the customary handshake when you meet (right hand only, not too strong), and when you leave. In a social setting, when you don’t know people very well, a smile and wave will usually do. If you really hit it off with someone, you may graduate to the hug and kiss on both cheeks. This is not the norm in a business setting. 

In business, you will always want to a firm handshake; look the person in the eye while doing so. If someone shakes your hand without letting go, you can apply slight pressure with your other hand to their shaking arm’s elbow, holding the elbow lightly. This seems to work as a subtle cue to "let go".

Hayek on Keynes

via AdamSmith.org - a look back for a bit of historical perspective and ideological rigidity that is now ascribed to Keynes but perhaps should not be:

A Four Minute History of Economics

With gems such as these: "1866... Labour's share of income is rising. Karl Marx's own income puts him in the top 2% of British households. 1867 - Das Kapital goes to press without Karl Marx ever visiting a factory." via Greg Mankiw.

Steve Jobs: America's Greatest Failure?

A bit of a reminder of why I've been a bit of an America-phile (NationalReview):

Steve Jobs’s announcement that he is stepping down as CEO of Apple is not surprising. He’s a very sick man; and running the world’s largest market-cap technology firm can’t be easy for someone with pancreatic cancer and who-knows-what other ailments.

Lots of digital ink will be spilled about Jobs in the coming days, most of it focusing on his truly marvelous successes.

It’s better to focus on his failures.

Jobs failed better than anyone else in Silicon Valley, maybe better than anyone in corporate America. By that I mean Jobs did what only the greatest entrepreneurs can do: learn from their failures. I don’t mean learn from their mistakes. I mean learn from their abject, humiliating, bonehead, epic fails.

Everyone today thinks of Jobs as the genius who gave us the iPod, MacBooks, the iTunes store, the iPhone, the iPad, and so on. Yes, he transformed personal computing and multimedia. But let’s not forget what else Jobs did.  

The genius of the US isn't so much that it celebrates its successes, but rather it does not shame and perhaps in part, celebrates its failures. In so doing, encourages more attempts. Read the whole thing.

Heh. Too true.

Some truths should be self evident...

Here's Marco Rubio, junior Senator from Florida speaking at the Reagan Library. While I can't say I understand or agree with his stance on some social issues, here are two comments from the speech that stood out (via NationalReview):

• "The free enterprise system has lifted more people out of poverty than all the government anti-poverty programs combined"
• “Poverty does not create our social problems; our social problems create our poverty."

The Predictable “Catastrophe” of the Dodd-Frank Conflict Mineral Provision

David Aronson in the New York Times via Freakonomics:

Unfortunately, the Dodd-Frank law has had unintended and devastating consequences, as I saw firsthand on a trip to eastern Congo this summer. The law has brought about a de facto embargo on the minerals mined in the region, including tin, tungsten and the tantalum that is essential for making cellphones.

The smelting companies that used to buy from eastern Congo have stopped. No one wants to be tarred with financing African warlords — especially the glamorous high-tech firms like Apple and Intel that are often the ultimate buyers of these minerals. It’s easier to sidestep Congo than to sort out the complexities of Congolese politics — especially when minerals are readily available from other, safer countries.

For locals, however, the law has been a catastrophe. In South Kivu Province, I heard from scores of artisanal miners and small-scale purchasers, who used to make a few dollars a day digging ore out of mountainsides with hand tools. Paltry as it may seem, this income was a lifeline for people in a region that was devastated by 32 years of misrule under the kleptocracy of Mobutu Sese Seko (when the country was known as Zaire) and that is now just beginning to emerge from over a decade of brutal war and internal strife.

As Daniel Hamermesh @ Freakonomics notes, "Brownback’s provision has harmed precisely those it was designed to protect, the small-scale miners in the Congo, but it has certainly lowered the price faced by Chinese processors for these inputs. Law of unintended, but what should have been perfectly expected, consequences."

More on Aid and Haiti

Felix Salmon who I find somewhat inconsistent in his views of the role of state versus that of markets, writes a pretty damning overview of aid and Haiti in the aftermath of the earthquake (Reuters):

What happens when you drop billions of dollars onto a country like Haiti? Immediately after the earthquake happened, in January 2010, I said that “one of the lessons we’ve learned from trying to rebuild failed states elsewhere in the world is that throwing money at the issue is very likely to backfire”. But that’s exactly what we did — with predictable results.

I’d urge you to read Janet Reitman’s full 12,000-word Rolling Stone article on what an enormous amount of foreign aid has done for Haiti; it’s a wonderful piece of journalism, albeit a very depressing one.

The first thing to note is that most of the money given to Haiti hasn’t even started to be spent yet: a whopping $11 billion was pledged by donor countries and financial institutions in the wake of the earthquake, but if you take the US as a good example, it’s so far managed to spend just $184 million of the $1.14 billion allocated to the country. Even the Red Cross is barely halfway into its $479 million fund — all of which has been earmarked for Haiti, and none of which can be spent elsewhere, no matter how much better it might be put to use in some other context. 

But even the amount of money that has been spent has been harmful in its own way. Haiti has been known as “the Republic of NGOs” for well over a decade now, but the earthquake just turbocharged their presence while devastating everything else, leaving foreign aid the only game in town

More here.

QOTD: On Conspiracy Theories...

Because I have a number of friends who are conspiracy nuts - you know who you are ;). Steve Jobs via Paul Kedrosky:

“When you’re young, you look at television and think, There’s a conspiracy. The networks have conspired to dumb us down. But when you get a little older, you realize that’s not true. The networks are in business to give people exactly what they want. That’s a far more depressing thought. Conspiracy is optimistic! You can shoot the bastards! We can have a revolution! But the networks are really in business to give people what they want. It’s the truth.”

Though I don't really consider it depressing given that what we demand is getting better all the time. Not to mention the vapid, mainstream media continues to lose its grip as gatekeepers of the news and continue to hemorrhage viewers to those who seek more comprehensive sources like the net.

More on "Made in China"

From Fortune:

And despite what you may conclude from shopping at Wal-Mart (WMT) or other large stores -- or hearing big, scary figures about the trade deficit with China -- imports from China make up just a very small portion of our total economy: just 2.5% of gross domestic product in 2010. Overall, products from around the world accounted for only 16% of our GDP last year. "The vast majority of goods and services sold in the United States is produced here," according to FRBSF report authors Galina Hale and Bart Hobijn. The exceptions are furniture and household items, electronic goods, and clothing and shoes. A third of U.S. consumer purchases for clothing and shoes in 2010 carried a "Made in China" label. For furniture, it was one fifth.

Politics & Wealth: Can you get rich without democracy?

Dani Rodrik via theEconomist:

Yes if you are an individual, but probably not if you are an entire country. As the figure below shows, there are very few countries that have developed beyond $5,000 in 2005 PPP dollars without becoming democracies somewhere along the way (unless they are an oil economy).

A Perfect Logo for Government & Innovation

via Beata / Michelle Malkin:

[The propaganda for the launch of the blog and logo for it:]

It made for one fine sound bite. But it hasn’t exactly inspired a bunch of innovation rallies and bake sales. So in the spirit of banging the drum for new ideas and fresh thinking, this blog will track all things innovative, not just in science and technology, but also in how we live, how we learn, how we entertain ourselves.

“Check out the logo. 3 interlocking gears arranged in this fashion will not move in any direction. They are essentially locked in place. Which when you think about it, is a perfect analogy of today’s government!”

Made in China? Apparently not so much...?

From Paul Kedrosky:

Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. In other words, the U.S. content of “Made in China” is about 55%.

Thought of the Day: On Anger

Jeffrey Ellis from TheThinkerBlog:

Anger causes us to lose our empathy, our ability to relate to others and see things from their viewpoint [...] human evil is the result of an erosion or lack of empathy [...] Anger is an emotion that enables humans to be evil.

The "Live Aid" Legacy

Just a reminder that good intentions really aren't enough (from the blog of the same name) and a look back at the disturbing legacy of Live Aid and how it ended up being a step back:

Starving children with flies around their eyes
80% of the British public strongly associate the developing world with doom-laden images of famine, disaster and Western aid. Sixteen years on from Live Aid, these images are still top of mind and maintain a powerful grip on the British psyche.

Victims are seen as less than human
Stereotypes of deprivation and poverty, together with images of Western aid, can lead to an impression that people in the developing world are helpless victims. 74% of the British public believe that these countries “depend on the money and knowledge of the West to progress.”

False sense of superiority and inferiority
The danger of stereotypes of this depth and magnitude is the psychological relationship they create between the developed and the developing world, which revolves around an implicit sense of superiority and inferiority.

Powerful giver and grateful receiver
The Live Aid Legacy defines the roles in our relationship with the developing world. We are powerful, benevolent givers; they are grateful receivers. There is no recognition that we in Britain may have something to gain from the relationship.

Confidence in out-of-date knowledge
Researchers remarked on the respondents’ confidence in such one-dimensional images. British consumers are not hesitating or seeking reassurance for their views. Unconsciously accumulated images of the developing world have led to a certainty on the part of consumers that they have all the facts.