"In Defense Of Prosperous Inequality"

Financial equality or wealth creation? What would you prefer our economic leaders optimize for? (TechCrunch):

There is an important role for the government to provide safety nets and job training, but indirectly blaming innovators isn’t a productive message.

But, financial equality has never been, and will never be, a goal of the Internet economy. The goal is wealth creation. For those who can now access world-class professors and medical treatment anywhere in the world, Silicon Valley has lived up to its promise.

What is sometimes depressing is that I know there is not an insignificant number of people who believe we should optimize our societies for financial equality.

Heh

"Where are you from?" (YouTube)

Cash, Development and Dependence

The results are impressive (Berkeley) and as interpreted by Matthew Yglesias (Slate via Chris Blattman):

The research comes from a 2008 initiative in Uganda’s very poor northern sections. The government announced plans to give roughly a year’s worth of average income (about $382) to young people aged 18-34. Youths applied for the grants in small groups (to simplify administration) and were asked to provide a statement about how they would invest the money in a trade. But the money was explicitly unconditional—parceled out as lump sums with no compliance monitoring. [...]

The government selected 535 groups—a total of about 12,000 people—for the experiment. Of the 535 groups, about one-half were randomly selected to actually get the money, and the rest were denied. Blattman, Fiala, and Martinez then surveyed 2,675 youths from both the treatment and the control group before dispersal of money, two years after dispersal of money, and four years after dispersal of money. The results show that the one-off lump-sum transfer had substantial long-term benefits for those who got the cash. As promised, the people who received the cash “invest[ed] most of the grant in skills and business assets,” ending up “65 percent more likely to practice a skilled trade, mainly small-scale industry and services such as carpentry, metalworking, tailoring, or hairstyling.” Consequently, recipients of cash grants acquired much larger stocks of business capital and thus earn more money—a lot more money. Compared to the control group, the treatment group saw a 49 percent earnings boost after two years and a 41 percent boost after four.

Yglesias may be a bit overenthusiastic to conclude that "the message is that taking a huge bite out of global poverty may be easier than most people realize. Poor people just need more money." He/Blattman hypothesize that at least some of the poverty is as a result of the lack of access to "affordable" capital. There is however research that suggests that even "unaffordable" capital has significant long term benefits (WSJ).

This being said, there's a large body of evidence that microfinance doesn't/can't help the poorest of the poor (Google). That borrowers of microfinance are one step up the very large and deep "bottom" in the scale of poverty. So this may help to answer the question of what interventions may work in helping the poorest (though the research Yglesias cites doesn't specifically address this point). Further, I think it's important to note that these were one time payments versus ongoing pay outs which I think is an important distinction (as there's also evidence that entitlement programs are detrimental to poverty reduction in the developed world (Heritage)).

On the other hand, I think the research on minimum income, like the study in India, deserves a closer look. Even so, it's exciting to see the idea of cash giving gaining traction (Forbes via Chris Blattman).

Update: Blattman qualifies some of the new optimism and expands on his views on cash transfer programs (ChrisBlattman)

Update #2: Blattman rounds up some of the new research on education, cash grants and entrepreneurship in development (ChrisBlattman)

Update #3: When every argument begins with “is it better than cash?” (AidThoughts via Chris Blattman)

Update #4: (Oct. 25) from Chris Blattman - "What happens when $1000 of manna falls onto your mobile phone? The GiveDirectly study of unconditional cash to poor farmers in Kenya is out."

The True Size of Africa

I think it's fair to say that most people don't understand the physical size and scale of Africa (Isomorphismes via Beata/Chris Blattman)

An Apt Observation

Richard Epstein at Hoover (via Instapundit): "The IRS is embroiled in scandal but Congress is more concerned with the entirely legal tax transactions of a profitable American company."

Irony: "Capitalist Fantasy Tops China Box Office, Spurs Debate"

On so many levels... From WSJ's China Blog:

“American Dreams in China,” a comedy about business partnership and success, is now the weekly champion of China’s box office, beating Hollywood blockbusters “Iron Man 3” and “The Croods.” While some among the Chinese audience are cheering for the entrepreneurial spirit the movie endorses, others say skeptically that it equates success with wealth and fame.

Strawmen, Development and Markets

Particularly relevant given the recent tragedy in Bangladesh, ASI's latest takedown of the book 23 Things They Don't Tell You About Capitalism (Amazon) attacks the idea that it's capitalists who have claimed that the poor in developing countries "are not entrepreneurial":

Chang's claim is that we all get browbeaten into believing that poor countries are poor because the people there are not entrepreneurial. He does on to point out, quite rightly, that this is an absurd thing to believe. The poor everywhere are vastly more entrepreneurial than us bourgeois middle class types: they have to be in order to survive. This is as true of poor people in rich countries as it is in poor too. The ducking and diving that goes on to make a life on benefits more pleasant is entrepreneurialism in a raw form. All of which is why no one at all does go around claiming that the poverty of some countries is based upon a lack of that raw entrepreneurialism making that claim something of a strawman.

Chang is also quite right in pointing out that the reason why this greater extent of entrepreneurialism amongst the poverty stricken doesn't then go on to create great wealth is not because of some deficiency in the people themselves. Nor in their ability to do that ducking and diving. The lack is in the institutions in that society that allow the microbusiness to flower into the larger one. This is indeed quite true.

2008: "Why Washington Hates Wall Street"

I don't think I've ever seen the rivalry explained so succinctly - though perhaps the most depressing part of this is that despite how the financial crisis was created in Washington through incentives structured badly, it's Wall Street got the blame (Slate via Instapundit):

“Isn’t this exciting?” Rep. Ed Markey enthused to me on Oct. 19, 1987 (“Black Monday”). A young congressional correspondent for Newsweek with nary a stock or bond to my name, even I was taken aback by Markey’s undisguised pleasure. When you stop and think about it, though, it makes perfect sense. Modern Washington owes its very existence to the 1929 crash, which occasioned a vast expansion of the federal government under President Franklin D. Roosevelt. A legacy of the increase in federal power during that era, largely undiminished during a 28-year electoral backlash against big government, is that Washington became Wall Street’s principal rival when it came to running the world. Which wielded more power—the financial markets or the government? Uncle Sam had the world’s largest military, but Wall Street had all that goddamned money. The mansions in Greenwich, Conn.; the trophy wives; the private jets—by comparison, the people who wielded power in Washington—including most presidents—were petits bourgeois. Even libertarian conservatives resent, on a personal level, the Wall Street swells whose interests they fight for daily. There aren’t a lot of millionaires working at the Cato Institute [...]

Let me put it in terms a smart financial journalist like Brauchli can readily understand. On Wall Street, financial crisis destroys jobs. Here in Washington, it creates them. The rest is just details.

The problem with high US taxes isn't Ireland

Because of Apple's testimony before US Congress last week, it's been made a bit of a whipping boy for the tax planning those like Apple have done (Reuters). The argument can easily be made that it's not only in the best interest of Ireland to keep its taxes low, but that anyone who is interested in seeing economies like Ireland develop, should support them (ASI):

The reason is that thing called tax incidence. Companies don't pay corporation tax: it's some combination of the shareholders and the workers who do. This is not a point in argument: the only argument is about what the portions are, not the fact that the burden falls upon these two groups. We also know what it is that influences which group: it's how large the economy is in relation to the world economy and how open it is to capital movement. The smaller and more mobile, the more the workers get it in the neck.

The mechanism is simple enough. It's pretty much straight from Adam Smith in fact. There's an average rate of return to capital: a jurisdiction that taxes that return to capital will have a return lower than that global average. So, some domestic capital will flow out seeking the higher foreign returns, some foreign capital will not flow in for the lower domestic ones. There's thus less capital employed in the economy. Adding capital to labour is what drives up the productivity of labour: the average wages in a country are determined by the average productivity in that economy. So, tax companies, get less capital employed, wages are lower than they otherwise would be. The workers are bearing part of the burden.

As I say, the smaller the economy and the more open it is then the more of that burden is upon the workers. And in a wonderful result back in 1980 Joe Stiglitz showed that the burden upon the workers can actually be more than 100%. That is, the workers lose more in wages than the government gets in tax.

Update: The Tax Foundation 1 – New York Times 0 (Dan Mitchell)

"Correlation vs causation in a single graph"

Ha - Chris Blattman, (via Instapundit):

One perspective on what the Bo Xilai scandal means for China

Well, yes (NPR) - interview with author Wenguang Huang, on NPR:

We try to point out the fact that the China model, which is development without democratic reforms, is not sustainable. Even the senior leaders in China right now, they start to recognize that. Look at this Bo Xilai scandal, because of this lack of transparency in the succession process. And then there is all kinds of political conspiracies, persecutions and murders. In order to get ahead, people have to do this. In other words, we feel like, if China does not introduce political reforms, and does not introduce open, fair elections in China, there will be more political earthquakes.

Bangladesh workers need more, not less free markets

In the aftermath of the collapse at Rana Plaza in Bangladesh, where the death toll has now risen to 1129 (Business Standard), there have been many to scapegoat "unchecked capitalism" (Hopeforthesold). The reality is somewhat different (Reason) - in fact, the opposite:

Much as in Britain after the Enclosures, urban migration swells the ranks of workers, allowing employers to take advantage of them. Since Bangladesh does not have a free-market economy, starting a business is mired in regulatory red tape — and worse, such as “intellectual property” law — that benefit the elite while stifling the chance for poor individuals to find alternatives to factory work. (The owner of the Savar factory, Mohammed Sohel Rana, got rich in a system where, the Guardian writes, “politics and business are closely connected, corruption is rife, and the gap between rich and poor continues to grow.”) Moreover, until the factory collapse, garment workers could not organize without employer permission.

Crony capitalism deprives Bangladeshis of property rights, freedom of exchange, and therefore work options. The people need neither the corporatist status quo nor Western condescension. They need radical land reform and freed markets.

What is even worse is that those like Hopeforthesold are seemingly advocating that Westerners turn their backs on Bangladesh substituting trade for unsustainable aid.

Money buys happiness?

Apparently (TSP). Another hypothesis? Those who recognize that happiness is found within and take responsibility for their own happiness tend to also be wealthier:

Looking at comparisons among countries and within countries, [Betsey Stevenson and Justin Wolfers] find that when it comes to happiness, you can never be too rich.


Stevenson and Wolfers also find no “satiation point,” some amount where happiness levels off despite increases in income. They provide US data from a 2007 Gallup survey:


The data are pretty convincing. Even as you go from rich to very rich, the proportion of “very satisfied” keeps increasing. (Sample size in the stratosphere might be a problem: only 8 individuals reported annual incomes over $500,000;100% of them, though, were “very happy.”)

Does Hollywood hate the future?

I wonder how much this has to do with ideology. A recent TechCrunch post looks at Hollywood's futuristic portrayal of technology which is overwhelmingly distopian:

The Matrix, Avatar, Prometheus, now I’m just looking over films I own that fit the mold. All are either dystopian or a net-negative for technology. The most positive one I can find is Contact, which still has plenty of negative technological elements (and this is a film based on a book written by perhaps the quintessential science/technology optimist, Carl Sagan).

Where is the It’s a Wonderful Life set in 2150? Are a few scenes from Back to the Future Part II really the best we got?

Again, I think the answer is that we already live in a technological utopia of sorts. No, the world isn’t perfect, but the recent advances in technology have given us so much. And people go to the movies to escape reality. It’s just too bad that science fiction films have essentially become horror movies.

Are traders and speculators to blame for increasing poverty?

Despite making excellent scapegoats for bad public policy, debunking the myth that speculators harm the poor (ASI):

On the one hand the most limited version of Doane's thesis—that speculation increases prices—is undeniable. When speculators buy into the market, they raise the price then. But the overall case makes little economic sense. If speculators' influence is big enough to boost prices when they buy in, it is big enough to cut prices when they sell out. That is, speculators both add to, and take away from, prices.

A speculator makes money by buying in times of relative plenty, when prices are low, and selling in time of relative scarcity. For helping society ration effectively—making sure the differing scarceness of a good is reflected in its price, thereby improving individual decision-making—the firms earn a return. If a speculator, by contrast, buys in at the top of the market, reducing supply when it is most needed, and sells at the bottom, when it is least needed (relatively) they lose money. This is how the profit and loss system, in a good institutional structure, encourages and rewards socially-minded behaviour. And speculation should smooth volatility in markets. A jump in price will encourage sales from speculators, bringing the price back down. A dip in price will encourage speculators to buy, bring the price back up. This result dates back to a 1953 paper from Milton Friedman, which is hard to find online, despite being cited 2411 times according to google scholar.

An Ode to the Genius of the Humble Shipping Container

From the Economist:

In a set of 22 industrialised countries containerisation explains a 320% rise in bilateral trade over the first five years after adoption and 790% over 20 years. By comparison, a bilateral free-trade agreement raises trade by 45% over 20 years and GATT membership adds 285%.

To tackle the sticky question of what is causing what, the authors check whether their variables can predict trade flows in years before container shipping is actually adopted. (If the fact that a country eventually adopts containers predicts growth in its trade in years before that adoption actually occurred, that would be evidence that the “container” jump in trade was actually down to some other pre-existing trend.) But they do not, the authors say, providing strong evidence that containerisation caused the estimated surge in trade.

Dying baby saved by 3D Printer

If the promise of 3D printing wasn't something you were already excited about, a pretty cool story of how scientists used a 3D printer to save a baby (CNN via Instapundit):

Green, who has been practicing for two decades, and a UM colleague, biomedical engineer Scott Hollister, had been working for years toward a clinical trial to test the splint in children with pulmonary issues when they got a phone call from a physician in Ohio who was aware of their research. “He said, ‘I’ve got a child who needs (a splint) now,’ ” referring to Kaiba, said Green. “He said that this child is not going to live unless something is done.”[…]

What followed in Kaiba’s case was a painstaking process of creating the splint on the printer in layers. Information about each layer is transmitted from the computer to a laser beam, which melts the PCL into a 3-D structure. “We can put together a complete copy of a body part on the 3-D printer within a day,” Green said. “So we can make something very specific for a patient very quickly.” Green then took the splint, measuring just a few centimeters long and 8 millimeters wide, and surgically attached it to Kaiba’s collapsed bronchus. It was only moments before he saw the results. “When the stitches were put in, we started seeing the lung inflate and deflate,” Green said. “It was so fabulous. There were people in the operating room cheering.”

Inside Google Labs

Cool beans (Businessweek):

As the polymath engineers and scientists who work there are fond of saying, Google X is the search giant’s factory for moonshots, those million-to-one scientific bets that require generous amounts of capital, massive leaps of faith, and a willingness to break things. Google X (the official spelling is Google [x]) is home to the self-driving car initiative and the Internet-connected eyeglasses, Google Glass, among other improbable projects.[...]

Teller has turned his sky’s-the-limit thinking into Google X’s most visible export. Last March he spoke at the South By Southwest Interactive conference in Austin, Tex., telling a packed auditorium, “The world is not limited by IQ. We are all limited by bravery and creativity.” Last year, with longtime Google executive Megan Smith, he co-founded the company’s annual, invitation-only conference, Solve for X, a two-and-a-half-day gathering of a hundred or so big thinkers. At the recent session in February at CordeValle, a golf resort south of San Jose, speakers covered topics such as inflatable robots, eye examinations that can detect the early onset of Alzheimer’s disease, and nuclear fusion reactors. “There is really only one guarantee and that is if we don’t try, nothing is going to happen,” said Charles Chase, a senior program manager for Lockheed Martin’s (LMT) advanced development program, Skunk Works, who gave the fusion talk.

What makes a Risk-Taker?

Many counter the idea of entrepreneurship saying that they're risk adverse - and other than the fact that I think "traditional" jobs, if there is such a thing anymore, can be just as risky, here's some interesting research. "Often cautious people become Daredevils in the right context" (WSJ):

You might not think of yourself as a risk-taker. Think again. Recent studies using new experimental tools are upending the old belief that a person's appetite for risk is mostly inborn and unchanging. In fact, the reasons people take crazy gambles are far more complex. People who are cautious in some contexts may embrace risk in others, depending on factors such as their familiarity with the setting and their emotions at the time. The findings are exploding old stereotypes—that women are innately more cautious than men, for example, or that teenagers are inevitably risk-seekers.

"It has been surprising to learn what a wide variety of reasons people have for risk-taking," says Elke Weber, a professor of international business at Columbia University and a leading researcher on risk. Understanding the roots of risk-taking can guide people in making better decisions, she says. Some long to advance in their careers or have new adventures but overestimate the hazards. Others race quickly and without thinking into dangerous risks.

Quote of the Day: What Startups are Like

Ben Silbermann (birch.co via SwissMiss):

People say doing a startup is like a marathon. It’s actually a roadtrip at night with no headlights. You think you’re going to Toledo but you’re actually going to Miami and you might not have enough gas so you might need to buy gas from someone who might take you out if you aren’t driving well.

The rise of robots and the fall of jobs?

Maybe (Forbes), maybe not (NYT). If history is any guide, I'm going to err on the side of optimism.

If Atomically Precise Printing is too Sci-Fi for you... There's Always 3D Printing

An interview with 3D Systems' CEO, Avi Reichentel on the emergence of 3D printing (Reason.com):

Alibaba's billionaire founder Jack Ma on the Gates Pledge

From the WSJ (via Instapundit):

This idea of giving your money out was not created by Gates and Buffett. It was created by the Communist Party in the 1950s!"

while it's a bit sensationalist of a quote, I can't say I disagree with the thought. I've never been comfortable with the term "giving back". It's giving. Period. It's noble and good but Gates and Buffett will have done far more in building their wealth than giving it away.

"The Jobs Crisis: Bigger Than You Think"

A somewhat bleak view of jobs... but if history is any guide this just moves us further into more jobs that can't be automated, that require creativity and thought (WalterRussellMead via Instapundit):

Essentially, the problem is this: automation and IT are moving routine processing, whether what’s being processed is information or matter, out of the realm of human work and into the realm of machines. Factory floors are increasingly automated places where fewer and fewer human beings are needed to transform raw materials into finished products; clerical work and many forms of mass employment in business, government and management are also increasingly performed more economically by computers than by trained human beings.

The transformation is only beginning to kick in. Self driving cars and trucks may reduce the need for human beings in the transportation and freight industries. Information processing is beginning to change the nature of the legal profession and even as law school applications fall by almost 50 percent there is much more change to come. Computer assisted diagnosis is making itself felt in health care. MOOCs are likely to change the way much of higher ed works.

It is impossible to say now how far and how fast this process will move, but more and more Americans are experiencing the kind of upheaval that blue collar workers in manufacturing began to experience in the last generation and white collar workers and journalists have felt more recently. We are seeing the greatest wave of economic transition since the mechanization of agriculture reduced the percentage of the labor force engaged in farming from more than half the American labor force in 1890 to less than two percent today.

The old engines of job growth, especially in manufacturing, aren’t working, and the competition for good jobs keeps getting tighter. With the entry of billions of Asians and others beyond the old industrial economies of North America, Europe and Japan into the modern economy, the competition is global. And if low wage workers can’t do the job cheaper than you, computers and, increasingly, robots mean that you can still lose your job.

Regulatory Capture and the American "Affordable Care Act"

There are few better examples of "regulatory capture" illustrating how larger incumbents will use regulation to shut out competitors, as the US "Affordable Care Act" (better known as Obamacare). This is, of course, to say nothing of the irony that the Act is supposed to break the cost curve on healthcare (WSJ):

The Affordable Care Act aimed to end a boom in doctor-owned hospitals, a highly profitable niche known for its luxury facilities. Instead, many of the hospitals are wiggling around the federal health-care law's growth caps and even thriving.[...]

The curbs are expected to get fresh attention this week. On Tuesday, about 50 physician owners, represented by the Physician Hospitals of America lobby, plan to descend on Congress. Republican Rep. Sam Johnson of Texas, whose state has about 90 doctor-owned hospitals, expects to introduce a bill to loosen limits on expansions that weren't ready before 2011.[...]
The doctor-owned hospitals seeking to loosen hospital-expansion limits have some favorable statistics to cite as they go into battle: new Medicare measurements showing that doctor-owned hospitals represent about half of the top 100 facilities whose performance will merit bonus Medicare reimbursements because of their cost efficiency and patient satisfaction.

But any effort to undo the expansion limits faces an uphill battle with Democrats, because the restrictions were a deal-breaker for hospitals when the White House sought their support for the law in 2009, industry lobbyists say.

So despite being described in even the Wall Street Journal as being "luxury facilities", these facilities are being highlighted by Medicare for being more cost efficient and having more satisfied patients than their competitors.

It seems insane that any government would attempt to limit what amounts to real cost savings and an improvement in service for patients. A possible clue as to why?

But according to the American Hospital Directory, a private firm that provides data about some 6,000 U.S. hospitals, many physician-owned hospitals have enjoyed 20% to 35% profit margins in recent years. U.S. community hospitals' profits hovered around 7% in 2010, according to the American Hospital Association, an industry trade group.

In 2011, the first year of the law's restrictions, more than half of the 30 largest doctor-owned hospitals showed operating margins that either matched or surpassed their 2010 figures, and some had operating margins of more than 40%. Only a handful showed drops of more than a few percentage points that year, according to American Hospital Directory data.

Robert Kocher, a former National Economic Council health adviser who helped get the provision into the federal health-care law, said he was disappointed such facilities had found ways to grow. "It was not how we saw this playing out, but they are resourceful," he said.

Greater homeownership leads to higher unemployment?

It makes sense... given that those at the periphery of being able to afford housing should potentially be most mobile in their careers. It's also potentially yet another unintended consequence of government policy that encourages homeownership by making it cheaper than it should be (WSJ):

Dartmouth College’s David Blanchflower (best known for being the Bank of England member who first pressed for interest rate cuts after the onset of the financial crisis) and Andrew Oswald of the University of Warwick find that a doubling of the rate of home ownership in any U.S. state is followed in the longer run by more than a doubling of the unemployment rate.

The authors stress that they are not arguing that the owners themselves are disproportionately unemployed. They suggest that lower levels of labor mobility, greater commuting times and fewer new businesses all combine to hurt the labor market.

Related: Declining American mobility an ongoing mystery (Slate via Instapundit)

Update: "Homeownership Reduces Your Chances Of Becoming An Entrepreneur, Report Says" (HuffingtonPost):

The study's authors write that homeowners "typically have to overinvest in housing" at the expense of entrepreneurship. This is particularly true for homeowners with a mortgage.

The study found that homeownership reduces "genuine entrepreneurship" in particular: that is, entrepreneurship that is in professional work or involves hiring other employees. That is an important point to distinguish, since the vast majority of U.S. businesses have no employees, according to the Census. Among those 21 million nonemployer businesses, millions of people have been forced to do odd jobs since they cannot find work.

Many U.S. government policies, including the mortgage tax deduction, create incentives to buy a home. Homeownership advocates argue that the incentives are good for everyone because homeowners are more invested in their communities.

Progress on an Eco-engineering Project

Kinda cool (RussGeorge via Freakonomics):

This summer the crew has been aboard ship engaging in what is surely the most substantial ocean restoration project in history. In a large ocean eddy west of Haida Gwaii the project has replenished vital ocean mineral micronutrients, with the expectation and hope it would restore ten thousand square kilometers of ocean pasture to health. Indeed this has occurred and the waters of the Haida eddy have turned from clear blue and sparse of life into a verdant emerald sea lush with the growth of a hundred million tonnes of plankton and the entire food chain it supports. The growth of those tonnes of plankton derives from vast amounts of CO2 now diverted from becoming deadly ocean acid and instead made that same CO2 become ocean life itself. For weeks the men and women, on this village team toiled in stormy overcast weather and fog without a hint of blue sky. In mid-August the skies cleared and revealed the wonder of the mission on which they have laboured. Satellites focused on ocean health that monitor and measure plankton blooms sent back stunning images. Far offshore in these Haida salmon pastures a vast plankton bloom is revealed matching the health and vibrancy of blooms seen in rich coastal waters. The return of such blooms is “the stuff dreams are made of” for all ocean life.

"How the IRS Wrecked your Pension"

When tax shelters, aren't (MeganMcArdle via Instapundit):

Back in the day, long before the stock market boom began, the IRS decided that pension funds were a problem, taxwise. As I understand it, this problem was mostly in small professional practices like doctors and lawyers offices. The doctors and lawyers would employ one or two other people, most of them transient single women who could be expected to leave to get married long before their pension vested. So you’d set up a “pension plan” in which, realistically, you were going to be the beneficiary. Then you’d stuff it full of money, far more than you needed to pay out your pension. It was a pretty nice tax shelter.

So the IRS got very strict about pension overfunding: they didn’t allow it. Or rather, they allowed it, but they wouldn’t let you deduct any payments into an already overfunded plan. Farewell, tax shelter.

This was fine in the 1970s, when the market just sort of lay there like a dying fish, occasionally flopping around, but mostly just gasping for air. However, by the late 1990s, a whole lot of pension plans were overfunded. Which created something of a problem. In popular legend, all these pension fund managers were total idiots who didn’t understand that the market was in a bubble, dammit. Undoubtedly, in some cases, this legend is even true. But in most cases, it wasn’t. The pension consultants and money managers who were responsible for calculating the required contributions were well aware that the rocket-fuelled 1990s price increases were not likely to continue forever. They even understood that prices were likely to fall, leaving the funds not-so-funded. They wanted to keep pouring contributions into the funds in order to protect against the inevitable decline. But the IRS wouldn’t let them.

Diamond Rings from Costco? Who knew...

Now you know... (Businessweek, via Instapundit and yet another reason to like Costco):

The assumed benefit of a Costco ring is that even at $40,000, you’re getting a higher-quality diamond than you’d be able to afford at a more prestigious store. As with any other name-brand product, Tiffany’s reputation (not to mention the classy Audrey Hepburn endorsement) raises the price of its jewelry.

Meanwhile, that Costco diamond might actually be worth more than its price tag. In 2005, Good Morning America appraised both a Tiffany diamond and a Coscto diamond. As it turned out, the $16,600 Tiffany cut was 58 percent more expensive than its $10,500 value, while the $6,600 Costco version was actually 17 percent under its appraised value of $8,000. On the WeddingBee.com blog, several women admitted to having Costco rings and said that when they had them appraised, every single ring was worth more than they paid, sometimes by thousands of dollars.

Tiffany offers more services than Costco. Its expert jewelers teach customers about the different cuts and qualities of diamonds. And once a ring is purchased, it can be returned for cleaning or resizing at any time.

Costco doesn’t resize rings. But it does sell six-pound packages of cheese.

"Schools are obsolete" and the future of learning

If you have any interest whatsoever in education and learning this is a must watch. Inspirational and exciting TED talk by Sugata Mitra on what the future of learning could look like - but even more than that, how education can turned into an equalizing force (TED via FredWilson):

The Bear Case for China

China may not overtake America this century according to Ambrose Evans-Pritchard. Not surprisingly, its biggest obstacle is political (Telegraph):

China's ageing crisis is tracking Japan's tale with a 20-year delay. China can expect to see the same decline in "marginal productivity" that has afflicted every other facing a rise in the old-age dependency ratio.

The authorities can of course keep the game going if they wish with another burst of credit, but risks are rising and the potency of debt is wearing off. The extra output created by each yuan of lending has halved in four years. Mr Li knows the game is turning dangerous.

A 2010 book by People's Army Colonel Liu Mingfu - "China Dream: Great Power Thinking and Strategic Posture in the Post-American Era" - is still selling like hot cakes in China. Yet it already has a dated feel, a throwback to peak hubris. China has everything to play for. With skill and a blast of freedom, it can take its rightful place at the forefront of world affairs. But nothing is foreordained.

How regulation fails (and how not to innovate)

How government wrecked the gas can (LaissezFaireClub via Instapundit)

An ominous regulatory announcement from the EPA came in 2007: “Starting with containers manufactured in 2009… it is expected that the new cans will be built with a simple and inexpensive permeation barrier and new spouts that close automatically.”

The government never said “no vents.” It abolished them de facto with new standards that every state had to adopt by 2009. So for the last three years, you have not been able to buy gas cans that work properly. They are not permitted to have a separate vent. The top has to close automatically. There are other silly things now, too, but the biggest problem is that they do not do well what cans are supposed to do.

And don’t tell me about spillage. It is far more likely to spill when the gas is gurgling out in various uneven ways, when one spout has to both pour and suck in air. That’s when the lawn mower tank becomes suddenly full without warning, when you are shifting the can this way and that just to get the stuff out.

There’s also the problem of the exploding can. On hot days, the plastic models to which this regulation applies can blow up like balloons. When you release the top, gas flies everywhere, including possibly on a hot engine. Then the trouble really begins. [...]

Soap doesn’t work. Toilets don’t flush. Clothes washers don’t clean. Light bulbs don’t illuminate. Refrigerators break too soon. Paint discolors. Lawnmowers have to be hacked. It’s all caused by idiotic government regulations that are wrecking our lives one consumer product at a time, all in ways we hardly notice.

It’s like the barbarian invasions that wrecked Rome, taking away the gains we’ve made in bettering our lives. It’s the bureaucrats’ way of reminding market producers and consumers who is in charge.

Is Urbanization a Threat to Autocratic Regimes?

Interesting post - with references to China, and China's reluctance to allow for unfettered urbanization (WSJ):

Chinese leaders since Mao Zedong have been wary of letting China’s largest cities reach megacity proportion. The usual reason cited is the fear of turning Beijing, Shanghai and other such cities into Latin American-style slums.

But Ohio State University political scientist Jeremy Wallace says there may be another reason: regime survival. In a study of authoritarian regimes between 1946 and 2004 (pdf), he finds that “regimes with capital cities that dominate the urban landscape fail nearly four years sooner and face 60% greater death rates.”

Specifically, for 237 nondemocratic regimes he studied with densely packed cities, the average duration was 8.6 years and the annual regime “death rate” was 9.2%. The 198 authoritarian regimes with low levels of urban concentration lasted, on average, 12.4 years and had an average annual death rate of 5.6%.

Catastrophic Success

Exciting but frightening possibilities... (Transparency Revolution via Instapundit):

I’m reading K. Eric Drexler’s new book Radical Abundance, which explores the impact of atomically precise manufacturing (APM). Drexler predicts that APM will be with us soon and that it will transform the global economy in ways that can be compared to the industrial revolution of the 18th century or the advent of agriculture some 10,000 years ago. That is to say, he predicts it will be among the biggest shifts that have ever occurred.

Drexler compares the introduction of APM with the digital revolution of the past few decades, asserting that APM will essentially turn the production of physical goods into a form of information technology. Just as digital technologies made it possible to produce unlimited copies of information products (books, recorded movies, music) at essentially zero cost, APM will enable the production of physical goods at a tiny fraction of the cost of producing them today — enabling a world of radical abundance per the book’s title. This transition will not come without problems, however. Imagine the kind of disruption which has occurred in the music business over the past decade and a half applied to manufacturing, agriculture, and energy production. The elimination of infrastructure, businesses, and employment will be staggering. Drexler warns that with the introduction of APM we may face a period of “catastrophic success.”

That’s an interesting turn of phrase. We’re all familiar with the concept of “creative destruction,” wherein a new technology or set of technologies come along and supplant the old order — taking businesses and livelihoods with them, but producing far more opportunity than they eliminated. Catastrophic success, it would seem, is an advanced form of creative destruction.

"We’re '80% Of The Way' To Fake Meat That’s Indistinguishable From The Real Thing"

Cheaper meat, that's presumably healthier for you and that actually tastes like meat. Instead of building technology that makes designs tangibly worse for the sake of arbitrary constraints, this is how innovation is supposed to work (TechCrunch). Prizes like this (PETA) should help.

Steve Blank: Building a Lean Startup

Steve Blank, a professor at Stanford and entrepreneur himself has been one of the principal developers of the Lean Startup movement - a movement that fundamentally changes the static business plan that assumes we know far more about the future and market reactions than we do, and instead focus on the validation of a given business model.

From Wikipedia: "The Lean Startup approach relies on validated learning, scientific experimentation, and iterative product releases to shorten product development cycles, measure progress, and gain valuable customer feedback."

Pretty much invaluable to anyone interested in starting a business, new product or service, I'd highly recommend taking his free online course on Udacity, and reading up on the idea here (HBR) and here (SteveBlank) with the Harvard Business Review now offering free reprints of their May 2013 cover article.

Update: Great infographic of the process (SachaChua)

Canadian Government Explores Social Impact Bonds

There are a number of social problems that don't lend themselves easily to being solved by markets... so the solution that some have proposed? Create artificial markets, bounties and contests to solve them - identifying new solutions and experiments that pay only if they produce the objective outcomes desired. The Canadian government just announced its support for social impact bonds (GlobeandMail via Brian H on FB):

The Conservative government is throwing its support behind social-impact bonds – an experiment that rewards private investors for putting cash toward social causes.

The government on Monday released a list of projects that could be financed in this way, such as programs to build housing for people with disabilities, reduce recidivism among young offenders or encourage more young aboriginals to learn a skilled trade. Ottawa said it will work with interested groups toward launching projects.

The arrangement is not a bond in the traditional sense. An investor pays a group such as a non-profit to deliver a social service and is rewarded with an agreed upon sum from the government if the non-profit achieves a measurable goal. The financial risk falls on the investor. If the goal is not met, no government money is spent and the investor is out of pocket.

This is an idea that's also being explored in the US (NationalPost):

In August, New York Mayor Michael Bloomberg announced the country’s first concrete program, which is aimed at reducing the rate at which young offenders return to crime after their release.

“Currently, nearly 50 percent of adolescents who leave the New York City Department of Correction return within one year,” according to the press release unveiling the plan. “The new program announced today, ABLE, aims to reduce the likelihood of reincarceration by providing education, training and counseling to improve personal responsibility skills, including decision-making and problem-solving.”

Goldman Sachs will finance the plan for four years, which will be operated by MDRC, a non-partisan New York non-profit organization. The loan will be partly guaranteed by a grant from Bloomberg Philanthropies, the mayor’s family foundation. To be judged a success, the program will have to reduce the number of youths returning to jail by 10%, as measured by an independent third party organization. If it works, the city will repay Goldman, plus a profit; if not, the city pays nothing.

Massachusetts is seeking proposals on a similar initiative, and a second program intended to provide stable housing for the chronically homeless. Both homelessness and recidivism are high-cost items for government; if the programs succeed, the public savings would be well worth the profit paid to the backers.

Zoning Kills Affordable Housing

As per usual, regulation is used most often to protect well connected, better financed incumbents (Reason via Instapundit):

In Snob Zones, journalist Lisa Prevost describes the heights of entitlement to which property owners ascend when faced with the prospect of new development, especially multi-family dwellings in neighborhoods dominated by single-family homes. Prevost tours New England and finds an aging, declining populace bent on excluding outsiders. In town after town, affluent and working-class alike, residents line up to shout down new development no matter how modest.

In Darien, the need for the proposed project was clear; the town's senior housing center had a long wait list, as did the last condo development built in the area (in 1994). Still, many townsfolk, expecting the project to open the floodgates to more high-density projects in the resolutely low-density burgh, were incensed.

Incumbent homeowners have a powerful weapon for vetoing change: zoning. In Darien and other exclusive zip codes, mandated minimum lot sizes kneecap developers who want to build something other than super-sized homes. In the process, they put entire towns out of reach for all but the wealthy. In hardscrabble Ossippee, New Hampshire, where it's not uncommon for the working poor to live in tents during the summer months to save on rent, the zoning code flatly prohibits new apartment buildings.

The Problem with Copycats

I tend to agree - but it's more than about being a copycat. It's about the "why" of what is being built - what drives you - is a business about doing great things or making money? Everlane CEO Michael Preysman on Copycats: (TechCrunch via Swiss-miss):

The problem with copycats is that honestly, they have no soul. It sounds silly to say that, but when you don’t have soul and you don’t have a reason for why you’re doing the things you’re doing, you’re always one step behind, and you never really connect with the consumer.

Glenn Reynolds: "Where are the Startups?

Troubling... (USAToday) - this is a great companion piece to Peter Thiel's talk:

At any rate, the latest data indicate that start-ups are becoming rarer, not more common. A new report from JPMorgan economist Mike Feroli indicates that employment in start-ups is plunging. New jobs in the economy tend to come from new businesses, but we're getting fewer new businesses. That doesn't bode well.

In fact, it is yet another sign of a United States that is looking more like Europe: A society in which big businesses have cozy relationships with big government, while unemployment remains comparatively high. If you're fortunate enough to have a job at one of those government-connected businesses, GE, for example, your situation is pretty good. If you're a recent college graduate looking for work, your situation is not so great. If you're a low-skilled worker, your situation is dreadful.

Peter Thiel: You are not a Lottery Ticket

Good talk by Peter Thiel at SXSW on "luck" and how it shapes our world view and how any given society's prevailing view of luck changes how we approach and solve problems (UStream via HN) - it's about an hour long:

Video streaming by Ustream
The talk tracks a class lecture he at Stanford in case you'd prefer to read it (BlakeMasters)

Experiment in paying villagers in India an unconditional basic income

Exploring guaranteed minimum income in India (mondediplo via HN):

The idea of giving money to the poor without asking for anything in return startled some. “They told us the men would use the money to get drunk, and the women to buy jewellery and saris,” said Dewala. “But it’s a middle-class prejudice that the poor don’t know how to use money sensibly. The study showed that a regular income allows people to act responsibly. They know their priorities. When something is rare, people measure its value. (Anyway, in tribal villages, people distil their own liquor.) The main advantage is regularity. It makes it possible to organise, save and borrow. The principle is that a small amount of money generates a great deal of energy in a village.”

In the village of Malibadodiya, a few tens of kilometres from Panthbadodyia, Sewa has been helping women for a decade. At a meeting of the women’s savings group, the members mixed freely, though they were from different castes and backgrounds. In a cheerful atmosphere, they discussed collective projects such as the building of a roof for the temple, and public toilets. Dewala joked: “Own up, how many of you have used the money to buy jewellery?” In response, one showed the sewing machine she had saved for over a year to buy, another proudly announced she had nearly finished paying for her family’s television set, and another held up a 300-rupee blanket for the winter, of far better quality than the one it replaced. Everyone laughed as Mangu, related the adventures of a group of women who had gone to a nearby town on a tractor, to demonstrate against the high cost of living, defying warnings from their menfolk and threats from the police.

“Women are no longer afraid. They are becoming independent, managing money, making plans. In several villages, they have forced the landlord to raise their wages,” said Rashmani. She worked in a bidi cigarette factory for 20 years before becoming a Sewa activist, and now works with more 300 villages. Some union representatives lead district communities with as many as 75,000 members. “We want to show that, if a union manages the money, it will be better shared out, and that if you take care of people, you can succeed.” Dewala added: “The key point we want to make is that the presence of a civil society body makes all the difference.”

Government and Basic Research

A friend had this on his Facebook wall leaving me a bit conflicted:

I have had this conversation almost word-for-word with a historian friend before.

I would also respond by saying that we have no clue where curiosity driven research will lead us. A lot of cures and medical breakthroughs (X-Rays, fMRI, penicillin) came from research that seemed esoteric and silly to outsiders.

source: www.smbc-comics.com

What should the role of government be in basic research? On one hand I'm not sure it should be zero, but given limited resources, what's the limit?

I also made the mistake of assuming that business doesn't do basic research because of its intangible benefits and large costs - but that's not quite true (Cato):

When University of Pennsylvania economist Edwin Mansfield studied the 1960-70 behavior of 16 major American oil and chemical companies, he found that all 16 invested in pure science. The more a firm invested in basic science, the more its productivity grew.

Zvi Griliches of Harvard University, in a study of 911 large American companies, discovered that the companies that engaged in basic research consistently outperformed those that neglected it.

Most of the benefits of a company’s basic science are indeed “captured” by competitors. When Hiroyuki Odagiri and Naoki Murakimi studied the 10 largest Japanese pharmaceutical companies, which collectively enjoyed $13 billion sales in 1981, they found that on average each company had an annual return of 19 percent on its own investment in research and development. But each company obtained the equivalent of a 33 percent annual return on the R&D done by the other nine companies. Each company was, therefore, apparently free riding on the other nine.

But there is no such thing as a free ride in R&D. Only highly skilled research scientists can capture other people’s science. And since the best scientists are those who are actually doing research, to retain their services, companies have to fund them with considerable generosity and considerable freedom.

Thus we see that “capture” is the solution to, not the problem of, the industrial exploitation of pure research. Basic science is so vast, worldwide, and so unpredictable that no individual company can hope to cover its own needs. So companies have to fund scientists’ in-house pure research to retain their services as agents of capture.

There's also another pretty comprehensive argument at the Cobden Centre.

Depending on who you ask, in the case of the Large Hadron Collider that led to the discovery of the Higgs Boson particle, the cost was as much as $14 billion dollars (StackExchange). It's clearly a discovery that few if any private firms could have undertaken on their own - but that also presumes that the funds were spent efficiently.

On the other hand, we've also seen interesting discoveries/innovation as a result of the X-prizes - but these are defined outcomes when some important discoveries, as noted above, have happened by accident (not that this precludes other unintended discoveries from happening). On the privatize everything side of the argument, it's unclear that these discoveries wouldn't have been achieved in the private sector - and if governments weren't involved, maybe they would have happened earlier (or the counter argument might be given the state of intellectual property rights, some patent troll may have sat on these much needed innovations and/or prevented their development - but that's more a call for a rethink of how property rights are rewarded in the first place).

There are a number of private foundations that aim to fund breakthrough research like Peter Thiel's Breakout Labs that gives grants for early-stage scientific research that is too speculative or long-term to interest the for-profit sector (Wikipedia). I also don't think that scientists are immune to waste and the creation of costly bureaucracies. Further, whenever government is a funder, it tends to crowd out other funds - whether it be in competing for researchers or picking favorites. So what's the balance to strike and are governments currently striking that balance?

Update: Is the LHC a worthwhile project? (Debate.org)

Quote of the Day

Samizdata via Instapundit:

If you want to introduce someone to libertarian thinking, encourage them to try this experiment. Spend a few days reading nothing but technology news. Then spend a few days reading nothing but political news. For the first few days they’ll see an exciting world of innovation and creativity where everything is getting better all the time. In the second period they’ll see a miserable world of cynicism and treachery where everything is falling apart. Then ask them to explain the difference.

The "Aid" that Isn't

That could cynically cover a lot of projects that are intended to help the poor I suppose but it requires a special level of cynicism to support US Food Aid which is designed specifically to help well connected, wealth American farmers (TheEconomist via Instapundit):

It is the sad fate of American overseas food aid to occupy a policy “sweet spot”, says Chris Barrett, an expert in the subject at Cornell University. Its budget, the largest of any country’s, is big enough to attract rapacious special interests, but still sufficiently small and complex that its scandalous inefficiencies rarely make headlines.

Scandalous barely covers it. Since America began donating surplus wheat, corn meal, vegetable oil and other farm commodities to the world’s hungry six decades ago, the programme has been captured by an “iron triangle” of farm interests, shippers and voluntary organisations, with plenty of help from Congress. Rules state that most food aid must be bought from American farmers and processed in America. At least half must then be carried on American-flag ships. With competition severely curbed, ocean shipping eats up 16% of the budget for the largest food-aid programme, Food for Peace.

In a related scandal called “monetisation”, involving non-emergency aid (which represents about 30% of Food for Peace), charities and non-governmental outfits receive American produce, sell it on local markets abroad and then use the proceeds for good works. Compared to directly funding projects, “inherently inefficient” monetisation on average wastes 25% of the money sent, according to the Government Accountability Office. And the food supplied often floods fragile markets, hurting local farmers.

The people who supposedly represent us...

I get that there are many in the media - and NBC specifically, who have an ideological bias - but to so blatantly overlook the brutal totalitarian past that May 1 celebrates is bizarre (Wikipedia) especially as they seem to go out of their way to look for bigotry (ESPN). There are few words... (Mediaite):

While covering a May Day rally in Manhattan’s Union Square on Wednesday, NBC New York reporter Ida Siegal was cornered and asked if her network planned to show the communist imagery the protesters were displaying. Hilarity ensued when Siegal immediately became defensive, denying she had seen any communist imagery and asking of the “Hammer-and-Sickle” flags: “What do they represent?”

“You guys are with channel 4 news,” the videographer noted while addressing Siegal and her production team. “Are you guys going to show any of the people with Hammer and Sickle flags?”

“I haven’t seen any of those flags,” Siegal replied amid the din of the ongoing protests activity. “What do they represent?”

"Overnight Success"

The iOS app Mailbox has gone from zero users to over a million and managing over a hundred million emails a day in just over six weeks (Mashable). As a founder points out, this took years - a good and inspirational reminder that success is rarely a sprint, but more of a marathon (TechCrunch):

“Mailbox is really version 2 of Orchestra, a shared to-do list that we put in the app store in the fall of 2011,” Underwood told me. “Inside the company we were in an endless cycle of prototyping and releases that eventually evolved into Mailbox.”

The road to Mailbox, he said, came as the startup realized that the idea of the to-do list was fundamentally broken. Instead of helping users to organize tasks, they inevitably became a nagging reminder of things people hadn’t yet accomplished. “Everybody fills up to-do lists with things to do, and that’s a great moment because you’re getting your life organized,” he said. “The more people use them, the more they get full of stuff that never gets done.”

The Case against Cronies: "Pro Markets" not "Pro Business"

Yep - "It's time for a free-market corporate social responsibility. Conservatives who rail against government hand-outs should also blast companies who seek shelter from Washington" (theAtlantic). And it's been happening (FT, Bloomberg).