AARON MCKENZIE

Departures 2013: Bobby "Blue" Bland

noreply@blogger.com (Aaron) — Mon, 09 Dec 2013 23:14:00 +0000

Bobby [Bland] zeroed in on the concussive sound of larger souls meeting larger cages. It is a vocal ejaculation, equally visceral and ethereal, both more and less than human. It is a common punctuation in African-American sermons – perhaps because American blacks have encountered that larger cage more often than most, and have soared.

Bobby Bland, like many blues musicians, takes from the church to give to the blues. For him, the love throat becomes an encounter with the sexual and the spiritual, the nexus between what is and what can be. From the tiny roost of Rosemark, Tennessee, he ascended the heights of blues mastery and stardom, conquering, with the help of mentors, all the bars his wings encountered. The love throat sings this ascension, but there is another, more pragmatic reason that he stayed with it: The strange sound drove the ladies wild. And where the wild ladies go, so too go the men. Bobby “Blue” Bland brings us all along.

That is Robert Gordon, writing in Martin Scorsese Presents The Blues: A Musical Journey (2011). Bland died in June 2013 at the age of 83.

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I'll Drink to That: Today is the 80th Anniversary of the End of Prohibition

noreply@blogger.com (Aaron) — Fri, 06 Dec 2013 01:14:00 +0000

Repeal Day is a holiday worth celebrating. Fortunately, it's also among the easiest and most enjoyable to celebrate. All you have to do is head down to your local bar or liquor store and buy yourself a nice, stiff drink.

December 4, 2013, marks the 80th anniversary of the end of Prohibition, which made criminals out of millions of Americans who simply wished to enjoy an adult beverage. Between the years of 1920, when the 18th Amendment to the U.S. Constitution took effect, and 1933, when the 21st Amendment repealed the 18th, Americans were forbidden to sell, transport, or manufacture "intoxicating" beverages.

Like so many other misguided movements, the push for Prohibition succeeded by uniting the hopes and fears of some strange political bedfellows. Xenophobic, anti-immigration groups disliked the Germans who dominated the American beer industry and whom the United States was fighting in World War I. Southern racists lobbied for Prohibition, mostly as a way to keep liquor out of the hands of black people. The women's suffrage movement was greatly helped by the support of the Ku Klux Klan, which supported women's right to vote because the Klan figured women would vote for Prohibition. Additionally, the American Temperance Society felt that Americans' heroic consumption of alcohol was debasing the nation's moral fabric.

Someone should have warned these folks to be careful what they wished for. America was no stranger to crime in the decades before Prohibition, but the ban on alcohol spawned a whole new brand of criminal.

In the early 1920s, an enterprising young fellow named Al Capone moved from New York to Chicago to take advantage of new opportunities in alcohol smuggling, eventually earning a reputation as America's most feared crime boss. Men like Meyer Lansky, Bugsy Siegel, and Mickey Cohen also made their names in the bootlegging trade. America's prohibition of alcohol, far from transforming the nation into a bastion of moral purity, produced a new breed of monster.

Prohibition, however, did not end because politicians and voters suddenly woke up to its perverse effects. In 1933, with the nation in the early midst of the Great Depression, the U.S. government found itself desperate for tax revenue and, realizing that Prohibition had not actually prevented Americans from buying and consuming alcohol, ratified the 21st Amendment and slapped a tax on adult beverages. Of course, the government did not repeal the income tax that made Prohibition possible in the first place.

With the benefit of hindsight, most people now scoff at the idea that the government ever thought it could banish booze from the national gullet. That Prohibition made a mockery of the legal regime is also uncontroversial. And yet, few of these same people ever pause to consider the ways in which other, enduring prohibitions have precisely the same effects as that ill-conceived ban on liquor.

In addition to alcohol, organized crime has long profited from gambling, drug, and prostitution operations. Nowadays, drug cartels – which thrive by moving their product into the American market – have turned parts of Mexico into a war zone. Sex workers are routinely exploited, beaten, and even killed without legal recourse, simply because theirs is a forbidden profession. Government edicts against the peaceful wagering of money turn millions into criminals, even if they simply wish to bet on Sunday's NFL game or get together with their friends for a friendly poker match. All of these consensual activities continue even if the face of state bans, but by pushing them underground, governments have handed them over to some unsavory characters.

So take a moment this evening to toast the end of Prohibition, but also ask yourself: has anyone really learned its lessons?

Embedded Video: In honor of Repeal Day – Tom T. Hall, "I Like Beer"

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In a Crisis, Companies Must Serve, While Governments Can Command

noreply@blogger.com (Aaron) — Thu, 05 Dec 2013 00:21:00 +0000

“You never want a serious crisis to go to waste,” Rahm Emanuel told a conference of chief executives in the wake of the 2008 global financial meltdown, soon after he was appointed as President Obama’s chief of staff. “This crisis provides the opportunity for us to do things that you could not do before.” Soon afterward, the Obama administration convinced a once-reluctant Congress to pass the president’s $787 billion stimulus plan. Congress also passed Obama’s health care reform law, reworked consumer protection laws, and approved dozens of other statutes, from expanding children’s health insurance to giving women new opportunities to sue over wage discrimination. It was one of the biggest policy overhauls since the Great Society and the New Deal, and it happened because, in the aftermath of a financial catastrophe, lawmakers saw opportunity.

That is from chapter six of Charles Duhigg's The Power of Habit, in which he discusses the importance of crises in giving leaders the opportunity to transform troubled organizations into effective ones.

As his primary examples, Duhigg highlights the cases of Rhode Island Hospital and the London Underground Authority. In each, various groups sought to protect their turf – their department’s privilege, their spot in the hierarchy – even when doing so courted disaster for their customers. At Rhode Island Hospital, this resulted in a wave of malpractice incidents (e.g. removing the wrong section of a patient’s skull in preparation for brain surgery) and nearly cost the hospital its license. In the London Underground, a culture of “not stepping on other departments’ toes” resulted in the fatal King’s Cross fire of 1987, in which 31 people lost their lives. Only when faced with such internal crises did the leadership manage to reform the ways in which these organizations operated.

Duhigg's book is packed with fun insights, but he weakens chapter six by failing to note the important difference between a crisis within a single commercial firm and those at the political level. In a private company, a crisis forces leaders to find better ways to attract and serve customers who are free to go elsewhere. In the face of political crises, by contrast, men like Rahm Emanuel too often reach for "solutions" that allow them to impose their preferences on society, a group that, for all practical purposes, cannot go elsewhere.

Consider, for example, the case of former Alcoa CEO Paul O'Neill, whom Duhigg discusses at length in chapter four. O'Neill realized that the status quo would eventually doom Alcoa and he set about using workplace safety as the key to change. Ultimately, O'Neill's drive paid off and Alcoa became profitable beyond anyone's expectations. This profitability, it should be noted, occurred because Alcoa became better at serving its customers.

Political-economic crises, on the other hand, often pave the way for destructive reforms, such as much of the New Deal legislation of the 1930s or the wage and price controls imposed to combat stagflation in the early 1970s. Unlike the reforms at Alcoa – which made workers, consumers, and shareholders better off – the types of "reforms" implemented in times of political crises too often move in the opposite direction, making one group (usually politically-connected insiders) better off a the expense of society at large. In the worst case, the very policies that created a political crisis can leave open the door for demagogues such as Adolph Hitler in 1930s Germany.

Sometimes, of course, political crises lead to beneficial reforms. A war can dislodge a troublesome government (Mancur Olson famously cites post-World War II Japan and Germany). An economic or financial crisis can show that existing arrangements between government and business are unsustainable (e.g. in South Korea following the 1997-98 financial crisis). A scandal like Watergate might finally catalyze public outrage at political excesses. Or, as this video shows, a natural disaster (in this case, Hurricane Katrina) might finally spur needed reforms for a local school system:

Embedded Video – "Katrina's Silver Lining: The School Choice Revolution"

There is, however, no law which dictates that a political crisis must yield sound policy responses. Indeed, all too often, crises allow politicians to stir up public panics and give them cover to "do something." Panic, however, seldom spawns good public policy. And so, did that $787 billion stimulus bill stave off another Great Depression, or did it simply line the pockets of well-connected interest groups, perhaps even slowing the economic recovery? Was this legislation a sober response to a crisis, or simply political cover for long-desired programs? How can we know?

In a private company, a crisis gives the firm's leadership added incentive to do the "right thing," that is, to become more efficient, to reassess the company's mission, all in an effort to better serve customers. If the firm fails to do this – that is, if it fails to respond appropriately to a crisis – it goes out of business. That's quite an informative outcome.

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Departures 2013: J.J. Cale

noreply@blogger.com (Aaron) — Mon, 02 Dec 2013 17:57:00 +0000

Other than perhaps the early Allman Brothers, no one has better, or more effortlessly, blended rock, country, blues, and jazz music than J.J. Cale. Credited with creating the so-called "Tulsa Sound," Cale somehow managed to alter the rock music landscape while remaining largely unknown to the very people who went wild when his songs were performed by the likes of Eric Clapton and Lynyrd Skynyrd.

From a 2009 LA Times profile of Cale:

His albums, starting with "Naturally" in 1971, offer a unique hybrid of blues, folk and jazz, marked by relaxed grooves and Cale's fluid guitar and laconic vocals. His early use of drum machines and his unconventional mixes lend a distinctive and timeless quality to his work and set him apart from the pack of Americana roots-music purists.

"In my humble opinion, he is one of the most important artists in the history of rock, quietly representing the greatest asset his country has ever had," Clapton wrote of Cale in his 2007 autobiography.

"The effortlessness, that restraint and underplaying, under-singing -- it was just very powerful," says Beck, part of a younger generation of musicians who have taken a shine to Cale. "The power of doing less and holding back in a song, I've taken a lot of influence from that."

J.J. Cale died in July 2013 at the age of 74.

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Amazon's Drones and Tyler Cowen's Non-Average Future

noreply@blogger.com (Aaron) — Mon, 02 Dec 2013 05:19:00 +0000

Embedded Video: Amazon drones to deliver packages within thirty minutes.

I just today got my hands on a copy of Tyler Cowen's latest book, Average is Over. As it happens, I also watched the above video today. I haven't yet read Average is Over, but from this EconTalk episode, I gather that Cowen foresees a future in which technology, including robots, increasingly complements human labor. The humans that excel at working with these robots will command higher wages than those folks who work less effectively with said 'bots. A quick scan of Average is Over turns up this passage:

The technology of intelligent machines may conjure up science fiction visions of rebellious robots or computers that feel and maybe fall in love or proclaim themselves to be gods. The reality of the progress on the ground is based on an integration of capabilities rather than on any one thing that might be described as “artificial intelligence.” What is happening is an increase in the ability of machines to substitute for intelligent human labor, whether we wish to call those machines “AI,” “software,” “smart phones,” “superior hardware and storage,” “better integrated systems,” or any combination of the above. This is the wave that will lift you or that will dump you.

The fellows over at UPS, FedEx, and the USPS must be watching that Amazon video with furrowed brows.

Before you lapse into Luddite panic, though, listen to Cowen's reassurances that life – i.e. real living standards – will continue to improve for most people. Here he is with AEI's James Pethokoukis on a recent Ricochet podcast.

James Pethokoukis: So the top end sort of the income bracket will be people who can deal with machines. And then, you’ll have machines — from robots to software taking all sort of those – taking the middle-income group of jobs. And then the lower skill jobs, that’s your other 85 percent of the carbon-based life form population. But those jobs don’t sound really like the kind of jobs I’d want my kids to have.

Tyler Cowen: Well, keep in mind, those people – a lot of them will have very happy lives. They’re going to get a lot of free things, for instance, will enjoy a lot of trickle down benefits of tech. There’ll be much more free material on the Internet. So you could think of that as say 85-80 percent of the population living like today’s poor. A better picture of that is to think of high human capital bohemians who don’t necessarily have great jobs, but do interesting things. They do take some financial risk. I’m not saying this is going to work out well for everyone.

Think of some parts of Brooklyn, but it’s not as if we’re simply having most of the United States look like some kind of ghetto.

And our norms for status will change also. I think that’s very important. So what appears to be a menial service sector job, a lot of those jobs are quite fun. They’re more fun than the old manufacturing jobs we used to have, which were also very dangerous and physically exhausting. Those jobs will be very mixed in quality. Again, I don’t want to present a Pollyannaish view, but the notion that somehow everyone is simply flipping burgers at McDonald’s is not what is going to be. Some people will teach chess to the children of rich people. Other people, you know, will be tutors. Those can be very challenging, very interesting jobs.

[snip]

The labor force participation rate will continue to fall. I don’t think unemployment as we measure it necessarily will be higher. It may in some transitional sense, but not in the long run. People will find jobs again. In part, it depends how we run our welfare state. Whether people who have falling incomes, do we pay them to work or do we pay them not to work? Right now, we do a mix of both. In general, I prefer to pay people to work. But that’s up to us, you know, how many of those people will just cash in and not really pursue jobs.

As I haven't yet read Cowen's book, I remain agnostic on his central thesis. Watching drones deliver Amazon packages, however, is certainly reason to take it seriously.

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DeLorean Redux: The Fisker Karma

noreply@blogger.com (Aaron) — Sun, 01 Dec 2013 18:11:00 +0000

The details are all too familiar: a world-class car designer convinces a government that he can build The Car of the Future, receives millions of dollars in taxpayer money, and then watches as the company goes kaput.

Such is the tale of Henrik Fisker, the man behind Aston Martin's DB9, V8 Vantage, and BMW's Z8. In 2004, Fisker struck out on his own with plans to build the world's first hybrid luxury car. The Fisker Karma debuted in 2008 and production commenced in 2011. The $103,000 Karma quickly became the badge of greener-than-thou cool for celebrities like Justin Bieber, Ashton Kutcher, and Al Gore.

And then the fun stopped. In early 2012, a Karma broke down during check-in for a Consumer Reports road test, before the magazine's writers could even fire it up. The batteries in the Fisker were recalled, which led to the bankruptcy of battery maker A123 Systems. And then more than a dozen Fisker Karmas caught fire and exploded in a New Jersey Port in late 2012 following Hurricane Sandy. This had become Job's car company.

Last week, Fisker Automotive, filed for chapter 11 bankruptcy protection. The filing allows Fisker to reorganize rather than face the liquidation entailed in a chapter 7 bankruptcy filing. Hybrid Tech Holdings, LLC, led by Richard Li (son of Hong Kong's richest man), recently won a $25 million U.S. government auction and will take over operations of Fisker. American taxpayers, meanwhile are still out $139 million of the $192 million funneled to Fisker by the U.S. Department of Energy.

Embedded Video: the Henrik Fisker and the 2012 Karma on "Jay Leno's Garage"

The tale of Henrik Fisker and his doomed motorcar enterprise has a familiar ring to it, as well it should. This is, after all, largely a retread (pardon the pun) of the John DeLorean story. DeLorean was General Motor's engineering wunderkind, the man who took Detroit into the muscle car era with the GTO and the Firebird, and who took over as head of the Chevrolet division while in his early forties.

Like Fisker, however, DeLorean had dreams of seeing his own name on a car, specifically a safe supercar for the budget-conscious driver. What emerged from his imagination was the DMC-12, a gull-winged coupe with stainless steel body panels and powered by a Peugot-Volvo engine that brought the car from zero to sixty miles per hour in a leisurely eleven seconds.

To build the DMC-12, DeLorean persuaded the government of Northern Ireland to subsidize his production operations in Belfast, where decades of religious strife, described in that quaint Irish way as "The Troubles," had for years scared off investors.

Delays plagued DeLorean operations from the beginning of factory construction in 1978, and while car production was scheduled to begin in 1979 the first DMC-12 didn't roll out the door until 1981.

The DMC-12 proved to be the wrong car at the wrong time. Plagued by quality problems and lackluster performance, it went on sale just as Federal Reserve Chairman Paul Volcker was ramping up his fight against inflation in the United States by raising the federal funds rate to 20% in June 1981. Few would-be buyers had the stomach for a car loan in such an environment.

Even with generous subsidies from the Northern Ireland and UK governments, DeLorean found himself in constant search of cash to keep his troubled car company afloat. Eventually, desperate for any kind of funding, he agreed to assist in a cocaine smuggling and money laundering scheme, a plan which turned out to be an FBI sting.

DeLorean was eventually acquitted of all charges when a jury decided that the government had entrapped him, but it was too late to save his company. The DeLorean Motor Company went into receivership in February 1982 and was closed for good later that year after producing 9,000 cars in 21 months. In total, UK taxpayers were left on the hook for roughly £80 million.

Embedded Video: "DeLorean," a 1981 documentary by D.A. Pennebaker (of "Don't Look Back" fame). The film was shot during DMC's heyday but is filled with ominous signs of future troubles.

The demise of the DeLorean Motor Company should have been a cautionary tale for the aspiring venture capitalists within the Department of Energy who were so eager to gamble with other people's money. Wasn't the scandal-ridden DMC-12 lesson enough that government bureaucrats simply aren't great at outsmarting private capital markets? Evidently not.

Fisker execs, perhaps anticipating allegations of cronyism, argued that federal aid would help draw in private capital. Clever, no?

"Sure enough," writes Charles Lane, "private money started flowing in to Fisker by the tens of millions. Apparently, investors liked the idea of a firm that enjoyed access to cheap government funding.

"All told, Fisker attracted $1.1 billion in private investment, the vast majority of which took place after it got the DOE loan."

Thus, not only does corporate welfare, such as the "loans" given to DeLorean and Fisker, require government to forcibly take money from one group (taxpayers) and give it to politically-connected insiders, such aid then further distorts markets by signaling that such firms are healthier than they actually are, leading to what economists call a "misallocation of capital." Apparently, every generation needs a DeLorean or a Fisker to teach this lesson, because history is obviously failing to do so.

Perhaps the biggest concern, then, is that some Hollywood director will repurpose a Karma as a time machine, thus salvaging the car's reputation among future generations rather than keeping it in its proper historical place as yet one more example of a crony capitalist boondoggle.

Further Viewing:

Embedded Video: A 2007 BBC documentary, which tells the story of how DMC "crashed and burned amidst a flurry of cocaine, bankruptcy and fraud."

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The "Hee Haw" Hangover

noreply@blogger.com (Aaron) — Wed, 27 Nov 2013 05:26:00 +0000

What would rock and country music of the late 20th century have sounded like in the absence of Buck Owens? If Owens is remembered at all today outside of hardcore country circles, it is as that goofy-looking fellow in a nudie suit from reruns of Hee Haw. Yet, as George H. Lewis wrote in his "In Memorium: Buck Owens, 1929-2006":

[Buck Owens's] music, as nationally popular as it became, also became a conduit through which this Central California sensibility found its way into the work of artists as diverse as the Byrds (Hillman and Gram Parsons and, through Parsons, into the ‘‘country’’ sound of the Rolling Stones during their Sticky Fingers/Exile on Main Street period), the Grateful Dead (whose Jerry Garcia once said ‘‘we’re on the far edge of that Bakersfield sound’’), Merle Haggard (a co-founder of the Bakersfield sound—who played bass in Buck’s band for a time, and later married Buck’s ex-wife Bonnie), Dwight Yoakam, who had a 1988 hit dueting with Buck on ‘‘The Streets of Bakersfield’’, and various alt country acts, from Uncle Tupelo to the Gourds (and even, in San Francisco (where else?) a short-lived group called Buck Naked and the Bare Bottom Boys). Buck even discovered Loretta Lynn and was the first to put her on television during a short stint he served as host of a television show in Tacoma, Washington, and he also advised Garth Brooks to do as he did—buy up the masters of his recordings from his record company and thus have, from then on, total control of the release and distribution of his own music.

Ironically, of all the instinctively right decisions this musical outsider made in creating and crafting his body of work, Buck's decision to move into mainstream television in 1969 with Roy Clark, co-hosting a variety show for CBS, severely undercut his image as a serious musical artist. Unlike Johnny Cash, who used the medium to reinvent himself as an American artist of truth and integrity (’’The Man in Black’’), Buck Owens allowed Hee Haw, with its mix of corn-pone humor and demeaning and stereotypical hillbilly images of rural life and people, to claim him as one of its own. Although the show had a hugely successful run, including over 20 years of first-run syndication, Buck Owens’s music fell from the charts across rural and urban America. He was never able to reclaim his rightful legacy as an innovative stylistic musical pioneer (although he realized a good deal of money from investments he made from his Hee Haw money).

George Will, writing in 2002, agrees:

The life that drove many people down Steinbeck's road to California was hard, and so was the life Owens led chasing stardom. After touring hard – sometimes 300 nights a year –Owens got off the road in 1980. And he spent too many years associated with the instant kitsch of the television program Hee Haw. As a result, too few fans of country music appreciate how much his Bakersfield sound helped give that music a steely integrity and propel it to the point that Owens could play a much-praised concert in President Johnsons White House in 1968.

...as do Eileen Sisk and Jimmy Dean:

The weekly national television exposure of Hee Haw would forever change the public’s perception of Buck Owens. To the television viewers of the era, and those of later generations, Buck would no longer be known as the number one country artist of the 1960s; he would be seen instead as a silly bumpkin in backward overalls. Many people feel the show eroded Buck’s standing as a stellar musician and pioneering artist and contributed to the demise of his music career. “People were oblivious to country music and how it was done and why it was done and so on and so forth, and my contention always was if left alone, country music is a rather prestigious product and will stand on its own. own,” said Buck’s contemporary, Jimmy Dean. “You don’t have to gussy it up, you don’t have to corn it down, just let it be what it will be.” However, the “corning down” of country music is exactly what happened with the advent of Hee Haw.

Johnny Cash, even in death, continues to be a larger-than-life figure in American music. Merle Haggard has enjoyed renewed success as a musical elder statesman. Willie Nelson remains universally beloved. As good a nose as Buck Owens had for business, however, his decision to do Hee Haw appears to have torpedoed his wider musical legacy. This a shame, as the Buckeroos's music – with its "surging freight-train rhythm with a rock edge" – is as raw, energetic, and as downright good as it gets.

Embedded Spotify playlist: Buck Owens
(click here to listen if playlist doesn't appear in your email or RSS reader)

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Trade, Not Aid, Brings Prosperity

noreply@blogger.com (Aaron) — Wed, 27 Nov 2013 00:10:00 +0000

In a recent Korea Times op-ed, my friend and former KDI colleague Shomi Kim writes:

Korea in 2009 became the 24th member state of the Development Assistance Committee (DAC) in the Organization for Economic Cooperation and Development, making it the first former aid recipient to join the “advanced nations’ assistance club.” Since then Korea’s official development aid (ODA) to gross national income has been increasing rapidly backed by data showing that among DAC member countries, her contribution has witnessed the highest increase.

This trend leads to an obvious question. Does this reflect the growth of Korean people’s interest in international development issues? Not in real terms. There is a considerable gap between the government’s contribution and the level of public awareness and engagement on this matter.

Another friend and former colleague, Casey Lartigue, brought Ms. Kim's piece to my attention. Casey writes:

Well, that is not my obvious question. Instead, my obvious questions:
Was foreign aid a good thing for Korea? Based on what I have read in the past, Korea's economy didn't start to grow until its economy was opened. So if countries want to follow Korea's lead, then getting off foreign aid would seem to be important and a better model.

Does giving foreign aid really help those countries that are recipients of Korea's aid today?

Instead of aid, could it be that trade would be better for those recipients?

Between 1946 and 1961, South Korea received roughly $5 billion (in current dollars) of direct grants from the United States, which accounted for the bulk of aid money flowing into the country at the time. Considering that South Korea's GNP in 1953 was only $2 billion, this was a terrific sum of money. As Nicholas Eberstadt points out, "this aid roughly matched South Korea's imports from abroad over the entire fifteen-year period; it distinctly exceeded the country's total allocation for domestic investment during those years."

Did this aid have a positive influence on South Korea? Lacking a counterfactual – i.e. what would have happened in South Korea absent this aid? – this is a tricky question to answer. These grants likely permitted the survival of a young South Korean state, staving off internal collapse and, after 1953, another attack by North Korea. From this angle, South Korea fits with what economist Peter Leeson calls the "benign dollars" opinion of foreign aid, which takes an optimistic view of the aid money transferred from wealthy to poor nations, while simultaneously acknowledging that a reform-minded government in the recipient country is a necessary prerequisite for this assistance to have a positive impact.

Of course, even as US aid money provided a cushion for 1950s South Korea, it also gave then-President Syngman Rhee cover for many policies that almost certainly retarded economic development (such as a regime of import substitution and an overvalued Korean currency that discouraged participation in international markets) and funded the legendary corruption of Rhee's administration. This brings us to Leeson's "destructive dollars" view of foreign aid.

The central problem, in the eyes of the “destructive dollars” scholars, is that countries most in need of aid money are generally the least able to effectively use it. This is because long-term aid recipients tend to be characterized by weak institutional checks on arbitrary exercises of government power (which invites rampant corruption) and uneven protection of private property, all of which ultimately results in decreased rates of economic growth and stunted institutional development.

As critics of foreign aid are wont to point out, there tends to be a nasty relationship between aid and governance. That is, the failure to enact policies conducive to institutional and economic development yields precisely the types of conditions – namely, poverty and instability – that make aid appear necessary, and yet these aid resources have the potential to further insulate political leaders from the consequences of their policy actions. Indeed, Stephen Knack observes that aid dependence has a track record of “encouraging rent-seeking and corruption, fomenting conflict over aid funds, siphoning scarce talent from the bureaucracy, and alleviating pressures to reform inefficient policies and institutions.”

In other words, as P.J. O'Rourke puts it, you can't get rid of poverty simply by giving people money.

At all events, South Korea did not grow rich because of foreign aid. Beginning in February 1960 – shortly before protests sent Rhee scrambling into exile – the South Korean government commenced a series of currency devaluations that brought the value of the won into closer alignment with its true market value. As KDI's Jungho Yoo has pointed out, these devaluations set the stage for the breathtaking export explosion that propelled the Korean economy to prosperity.

Eberstadt notes that South Korea's rapid economic growth may have had an unexpected connection to foreign aid, in that the Eisenhower administration had become "expressly displeased by what it saw as the Korean government's unhealthy dependance on and unseemly interest in U.S. aid." Perhaps the Korean government, sensing that the aid pipeline could soon run dry, found themselves with more incentive to rationalize the value of their currency and, later, to pursue an outward-oriented economic policy.

Ultimately, the precise effects of foreign aid in South Korea will never be known to everyone's satisfaction, though we all certainly have our favorite ex post story on the subject.

Returning to the present day, Ms. Kim worries that South Koreans are not sufficiently interested in matters of international development, either because the schools are failing in their mission or because the media is too bogged down in the thick of thin things. As a result, the South Korean government goes around the world handing out a lot of its citizens money, even as those citizens remain unaware of how – much less how well – this money is being used.

That the average South Korean isn't much interested in the goings on at the World Bank, the IMF, or the ADB, however, does not mean that they are not engaged with the global community. Consider the following graph, which shows that international trade accounts for more than half of South Korea's annual GDP.

International imports and exports in goods and services

As percentage of GDP, 2010 or latest available year (OECD)

Who is South Korea's largest trading partner? That's right: China, where more people have moved out of poverty in the past 30 years than anywhere else on the planet. This mass escape from poverty in China has taken place not with the help of foreign aid but as a result of the Chinese people's increased ability to trade and invest in global markets (ditto for India, by the way).

Our average South Korean need not take an explicit “interest in international development issues” in order to actually bring about an improvement in the material well-being of her counterpart in the developing world. When a Samsung engineer cooperates with his colleague in India, or when an SK executive finalizes an agreement to build a new road in Africa, they are contributing to international development, even if this is not their goal. That their efforts are not funneled through the World Bank, the ADB, or the DAC, makes them no less effective (indeed, they're probably more effective).

As so often happens in economic discussions, this all leads us back to Adam Smith and what are perhaps his most famous lines:

Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.

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Economic Growth: A Matter of Life and Death

noreply@blogger.com (Aaron) — Mon, 25 Nov 2013 14:13:00 +0000

Photo: Caritas/ CAFOD, November 2013

From the time it made landfall on the Philippine island of Samar earlier this month supertyphoon Haiyan laid waste to some of the poorest regions of a poor nation. At present, the death toll is more than 5,200 and counting, with some estimating that the number of fatalities could rise as high as 10,000.

In Haiyan's aftermath, plenty of observers have tried to use the storm as a teaching tool to illustrate the effects of climate change. Writing in the Los Angeles Times, David Horsey uses Haiyan as an opportunity to scold American "climate change deniers" who, "for reasons of religion, greed or plain stupidity" refuse to see this storm as the sign of impending doom that it is.

Similarly, at The Diplomat, Mong Palatino writes:

Haiyan proved once more that the Philippines are extremely vulnerable to the harsh impact of climate change. But it also exposed the sorry state of the country’s infrastructure, chaotic land zoning system, pre-modern weather facilities, unreliable communication facilities, and inadequate disaster preparedness programs.

Palatino here stumbles across the most important lesson from Haiyan's destruction: whether or not climate change is causing more powerful storms, only economic growth can provide the resources needed to protect people from such danger. Unfortunately for most Filipinos, decades of anti-growth public policy has left the nation especially vulnerable to natural disasters.

In 1960, the Philippines was a slightly richer country than South Korea. Today, according to the IMF, South Korea's per capita GDP is roughly $32,000, as compared to $4,400 for the Philippines. Like the Philippines, annual typhoons hammer South Korea. In 2003, for example, supertyphoon Maemi killed 117 people in South Korea, left 25,000 people homeless, and caused US$5 billion in damage – a disaster by any measure. As destructive as Maemi was, however, it was not nearly as bad as it would have been in a country as poor as South Korea in 1960 or in the Philippines of today. Thanks to their relative prosperity, South Koreans can afford stronger buildings, better flood control, more sophisticated advance warning systems, and perhaps most useful of all, insurance.

Over the past fifty years, the people of South Korea have transformed their country from an economic basket case into one of the world's wealthiest nations. During this time, the South Korean government, depending on your view, either greatly assisted in this transformation or at least didn't succeed in preventing it. In the Philippines, by contrast, the government and its cronies have managed to keep a nation of 100 million people, with ample natural resources, beautiful tourist attractions, and in close proximity to several of the world's largest markets in a state of enduring poverty. By some estimates, in fact, approximately a quarter of all Filipinos live below the poverty line.

It can be easy to take for granted the fruits of economic growth, the many products, services, and comforts that make our daily lives easier and more pleasant. Few people, however, really ever pause to consider the importance of annual GDP growth figures. Indeed, economists often find themselves under fire for their obsessive focus on economic growth.

"Why can't we just say that what we have is good enough?" goes one common refrain. "Why do we always have to be better and have more?"

The Filipinos whose lives have recently been upended – or ended – by Haiyan are presently in the best position answer such questions. They now understand the importance of economic growth, if only intuitively, precisely because of they haven't experienced enough of it in recent decades to prepare themselves for storms like Haiyan.

The disaster in the Philippines brings to mind the telling contrast between Haiti and Japan. In January 2010, a 7.0 magnitude quake hit Haiti, killing an estimated 316,000 people. In March 2011, an 8.9 magnitude earthquake hit Japan, trigger a tsunami and resulting in roughly 16,000 deaths. How was Japan able to endure a larger quake with fewer casualties? That's right: because, through economic growth, Japan has achieved a level of material prosperity that allows its citizens, companies, and government to invest in the safety features necessary to limit the loss of life from such calamities. Haiti, meanwhile, can at present only dream of the kind of early earthquake warning system and quake-resistant buildings that the Japanese consider a necessity for life on the Pacific Rim.

Just as Haiti and Japan (and Chile and California) rest atop active earthquake zones, the Philippines and South Korea sit along one of Asia's most active typhoon belts, thus guaranteeing that the nations will be regularly socked by powerful storms. Given that Filipinos and Koreans can't pick up and move their country to more placid climes, they're left to adapt and prepare. Investment in stronger buildings, effective warning systems, and better erosion and flood control, however, all require resources beyond the level of subsistence. Only sustained economic growth, fueled by liberal regimes of trade and investment, can throw off the sort of surplus required to achieve this level of preparation.

Perhaps climate change is increasing the frequency of powerful storms (skepticism on this claim is in order). If so, economic growth is more important than ever.

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The Effects of Teen Employment

noreply@blogger.com (Aaron) — Sun, 17 Nov 2013 22:59:00 +0000

My wife is a PhD student and her primary research interest these days is the effects of teenage employment on kids' academic development. In a recent round of number-crunching, she found that when kids from middle- and upper-income families work more than about five hours per week, they experience decreased school performance (as measured by math scores) and college enrollment. For kids from low-income homes, however, just about any work experience appears to have a positive influence in their life. Why this difference?

To tackle that question in a roundabout way, let's consider the story of Travis, a young man who features prominently in chapter five of The Power of Habit. Travis grew up in a poor home with drug-addicted parents, dropped out of high school at 16, and for years was so volatile and irresponsible that he couldn't keep a job. Life wasn't looking too good for Travis.

Eventually, however, Travis was hired at Starbuck's, a company with a well-developed training program that helps baristas deal with testy customers who haven't yet had their morning caffeine. This training program helped Travis learn to control his anger and provide the sort of service customers expect when paying $4.00 for a cup of coffee. Travis now manages two Starbuck's stores and is responsible for more than $2 million in annual revenue.

Economists often talk about "human capital," a capacious term used to describe an individual's education, abilities, health, personality traits and more. In essence, "human capital" explains why every worker is different and not merely an interchangeable cog. Among the many challenges facing children of low-income families is a lack of opportunity to develop their human capital. Perhaps their home life is chaotic, with parents who don't emphasize the importance of education and self-improvement. Chances are their local public school is no gem, either. Where does this leave kids like Travis when – or if – they graduate from high school?

By contrast, children from middle- and upper-income families are more likely to come from homes where the parents model habits, goals, and virtues that they expect the children to emulate. These children then attend quality schools, where they are challenged with high expectations. These kids are then likely to enter the workforce with the sort of qualities – diligence, persistence, self-control – that employers like to see in entry-level workers.

This, I think, helps to explain my wife's findings. The things that kids from poor backgrounds are learning on the job – punctuality, responsibility, cooperation – are lessons that their counterparts on the better side of the tracks learn at home and at school. Adrian E. Tschoegl of the Wharton School has even suggested that entry-level jobs in America (e.g at McDonald's) serve as a substitute for mandatory military service by teaching workers the importance of "hierarchy, line and staff, manuals and standard operating procedures, attention to detail, neatness and cleanliness standards, and the like." This work experience, then, seems to fill an important gap for kids like Travis.

Youth employment, however, is increasingly a thing of the past. Drawing on data from The Wall Street Journal, Doug French writes:

Back in 2000, 34 percent of boys in their mid-teens worked, while 29 percent of senior men were employed, the Wall Street Journal reports. In 2010, fewer than 15 percent of 16 to 17 year old boys were employed, while 34 percent of men aged 60 to 69 were holding down a job.

It’s the same for females. Just a decade ago 35 percent of girls aged 16 and 17 were working, now it’s less than 17 percent.

In big cities like New York, L.A., Chicago and D.C. the situation is worse; only one in ten teens is working.

Why is this? I can think of a few possible explanations.

Among the children of middle- and upper-income families, the parents may see working as having too large an opportunity cost in the form of schooling and other extracurricular activities (music, sports, etc.). These parents are clearly not adherents to the idea that one should never let schooling interfere with education, or at least, they see the former as the primary source of the latter. For kids from poor households, perhaps there's less of an academic trade-off involved in working.

The minimum wage probably plays a role in teenagers' declining workforce participation, too. Most sixteen year-olds aren't very useful, and are thus unlikely to be worth the prevailing minimum wage. There also tends to a lot of restrictions on hiring workers under the age of eighteen that limit when, where, and how much they can work. If you're an employer, why not just hire an adult who can do what you need and is worth the minimum wage rather than a overpriced, over-regulated kid?

So is it a problem that fewer teenagers are working today than in the past? The answer may depend which teenager we're discussing, but I'm inclined to think that Jeffrey Tucker is on to something when he writes:

We are not born into this world of plenty understanding that there is a direct relationship between what we do and what the consequences are. Quite the opposite: the very definition of immaturity is failing to take responsibility (as our mothers always said). Well, how do we learn about this connection between our actions and the results? There is no better place than the workplace or commerce generally. We work, we see the results, and we are paid. This is direct. It is beautiful. It emblazons on the brain the relationship between actions and results.

School doesn't always teach us this, and besides, the "action" in school is pretty limited. It is about studying, which too often means mimicking what the assigned authority says. In real work, you have to be creative. You exercise volitional control over your body and what it does and you see the results. And the results are not abstractions like As, Bs, and Cs, but very material: dollars and cents that can be used to acquire anything. And this reward comes from using the whole of yourself in a productive activity.

At what age did you have your first steady, paying job? What was it? And what, if anything, did you learn from the work that you wouldn’t have learned at school or at home?

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Tyler Cowen on Korean Food in "An Economist Gets Lunch"

noreply@blogger.com (Aaron) — Sat, 16 Nov 2013 06:03:00 +0000

Writes Tyler Cowen in An Economist Gets Lunch:

...most people don’t like Korean food. They like some Korean food, such as the sugary meats of a bul-gogi with rice or the dumplings, which could come from any number of Asian countries. But they don’t like the stronger Korean tastes. A lot of Korean food hits you in the gut with garlic, red chilies, cabbage, more red chilies, sesame, more garlic, offal, and bizarre seafood stews with stringy octopus, dripping with red chili broth. A lot of the vegetables are pickled and fermented. It’s not smoothed over the way you find with a lot of Chinese, Indian, and Thai food. I think of Korean food as a cuisine unto itself, perhaps more than any other. To add injury to insult, it’s not unusual to visit an under-decorated Korean restaurant and see them charging thirty dollars or more for dishes you have never heard of and don’t feel attracted to. How can they get away with that? Isn’t food supposed to taste good? Isn’t ethnic food supposed to be affordable?

I also love Korean food and the older I get the more interesting I find it. I find new revelations in Korean food more often than in just about any other cuisine. Is there any chance you will love it too?

I don’t know. I’m reluctant to send you down the road of trying because in my heart of hearts I suspect most readers of this book will never really like it. But, if you dare:

First, you will find Korean dishes you’ll like, like the bul-gogi, as I’ve already mentioned. I like bul-gogi too, but I don’t love it. It’s not enough to get me out of the house. If you want further tips, try the seafood pancake, dipped in the proper sauce, and the different forms of bibim bap, namely stone-cooked rice, vegetables, and maybe meat, mixed in a bowl with tangy and sweet hot pepper paste.

I think the way into Korean food is through the vegetables. If you can like the pickled, fermented, and doused in red chilies Korean kimchee cabbage, you can like a lot of the rest of the cuisine too. Also try buying some of their pickled spinach and bean sprouts and whatever else you can find in your local Korean supermarket, like at an H Mart or a Lotte Plaza, both excellent supermarkets for browsing and discovery.

Just keep on eating those Korean vegetables. Sooner or later you’ll either give up or get addicted. If you’re addicted, head to those Korean restaurants. You’ll survive and with some trial and error you’ll feel like you are in heaven.

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Opting Out of Leviathan

noreply@blogger.com (Aaron) — Fri, 15 Nov 2013 04:12:00 +0000

In 1970, the economist A.O. Hirschman published Exit, Voice, and Loyalty, in which he argued that citizens of a dysfunctional or oppressive state have two basic options if they wish to improve their lot. They can leave (exit), or they can try to influence the political system through protest and persuasion (voice).

The United States, with its historical waves of immigration, is a nation of "exiters." As Balaji Srinivasan points out in his recent talk at Y-Combinator's Startup School 2013, most Americans are alive today precisely because their ancestors had the ability to exit regions in which they had no voice. This ability to leave, Srinivasan goes on to argue, is also important because it amplifies voice: when individuals can flee to other political jurisdictions or, in the market, to other products and services, politicians and companies are more likely to get the message that change is necessary.

Trouble is, for much of history, exit required physical relocation and tended to be expensive and disruptive to an extent that many individuals were unwilling to bear. Besides, if you were already in the United States, there were few better options remaining on the earth.

Voice, meanwhile, has always required that a person wade into the political muck, hoping against historical precedent to overcome various Public Choice hurdles and change society to one's liking. This route is especially unpalatable to those of a libertarian bent who, like James Buchanan and Patri Friedman, understand that the great majority of people simply don't share their preference for a life unmolested by the state.

Over the years, these libertarians have tried using their voice on a great many issues, to little effect. In his 1962 book Capitalism and Freedom, for example, Milton Friedman argued that there was no justification for the US Post Office's monopoly on mail delivery. Hell, why even have the Post Office at all? This idea faced resistance aplenty. After all, how would the mail ever get delivered if the Post Office wasn't around to do it?

Somewhere in the 1990s, however, email exploded onto the scene and now it's only a matter of time before the USPS folds. This debate was not ended by voices like Friedman's, but rather by the ability of individuals to simply exit the USPS's monopoly. Moreover, no one has been forced to stop using the USPS's services. If you enjoy slow-motion communication, by all means, keep licking those stamps and traipsing down to the mailbox. The rest of us have better things to do with our time.

Embedded Video: Balaji Srinivasan at Startup School 2013

Recent years have brought a proliferation of this sort of exit opportunity. As Max Borders and Jeffrey Tucker noted in their recent FEE piece, "50 Ways to Leave Leviathan," innovation is providing people with an increasing number of "exit tools," which individuals are using to make end-runs around the barriers that politicians and bureaucrats erect. Rather than struggling to change bad, and very sticky, public policies through the legislative process, entrepreneurs are finding ways to simply make bad policies irrelevant. Borders and Tucker, as their articles title implies, list fifty examples. A few:

Airbnb: This service allows people to rent out their homes for a couple of days. It offers competitive prices compared to hotels and gets around the whole of the regulatory apparatus, zoning control, union monopolies, and other barriers to entry. Of course, in some states, hotel cartels aren’t happy.

Uber: Taxis have their licenses, which drive up fares. It’s a cozy and well-protected cartel. Uber lets you get around this system, finding great rides in clean cars for better fares—all while checking (gasp! unlicensed) chauffeurs with reputation ratings.

Bitcoin: Government ruined money long ago. The market has made an end-to-end crypto currency. It could mean death for the euro, the dollar, and other fiat currencies. The implications are awesome and inspiring.

Perhaps the greatest virtue of exit, and particularly of the kind described by Srinivasan, Borders, and Tucker, is that it does not seek to use the political process to impose a worldview on everyone else.

Governments, true to form, have not sat idly by as individuals get down to customizing their lives. Egged on by the local hotel industry, New York City's government has tried to ban AirBnB and is now demanding that the company turn over the list of its NYC users. The city council in Washington, DC, seeking to appease local taxi drivers, did everything it could to put the kibosh on Uber. Go down the Borders-Tucker list from #1-50 and you'll find a similar story for every product, service, and technology. As Srinivasan notes, however, it's no longer clear that the government can ban something, even if it really wants to do so. Shut down Napster and a whole host of new file-sharing platforms spring up. As Borders and Tucker put it, "the hydra lives."

All of which is great news for the individual. While a wholesale, physical move to a new spot on the globe may still offer the best chances at improvements in freedom (and, hey, maybe seasteading is the wave of the future), individuals are increasingly able to exit on a growing number of margins, often without even stepping outside their front door. Best of all, they don't have to ask for permission to leave.

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The NSA IS the State

noreply@blogger.com (Aaron) — Wed, 13 Nov 2013 17:30:00 +0000

On Facebook, Aaron Ross Powell of the Cato Institute writes: "The thing about these NSA revelations is they’re not an aberration within the state. They’re the state’s very nature exposed."

Within the United States, revelations of NSA mischief have created some unusual bedfellows. Rep. Justin Amash, who supports removing the state from most areas of private life and who seems to understand Powell's point, recently sponsored a narrowly-defeated amendment to defund the NSA's domestic surveillance programs. Voting in favor of this amendment were none other than Rep. James Sensenbrenner, who wrote and introduced the Patriot Act legislation back in 2001, and Maxine Waters, who seldom objects to more government spending on an array of programs.

Sensenbrenner and Waters are right to be uneasy about the NSA's snooping – it's creepy, intrusive, probably unconstitutional, and perhaps even a risk to national security and functioning democracy. But, as Powell points out, while the NSA's capabilities are surprising in their sophistication, they are not outside the realm of normal state activity. Quite simply, if a state is to endure, it must maintain control within its political boundaries and over the citizens therein. This requires information about what said citizens are up to, and more specifically, what they might be doing that could pose a threat to the state and its ability to function.

Until recently, the state's invasions of citizens' privacy were decidedly low-tech. At the airport, the Department of Homeland Security demanded that you reveal your travel plans. The IRS demanded that you disclose every last detail about your income and where you'd invested it. The INS, the EEOC, and ICE demanded to know who you were associating with in the workplace and then decided whether those associations accorded with the state's preferences. If you wanted to travel, work, or hire employees, such disclosures were not, and are not, optional.

Recent advances in technology, however, have increasingly given individuals the ability to skirt certain state controls. For instance, citizens can hide their income and assets (Bitcoin), communicate privately (encrypted email and messaging), and circumvent drug laws (Silk Road, until recently). If you're Maxine Waters, filled with fantasies of trillion-dollar jobs programs, you can't abide folks hiding their money from the state and evading taxes. If you're James Sensenbrenner, until recently an avid Drug Warrior, you can't have citizens making an end-run around the DEA's drug enforcement efforts. Thus, as markets and technology have given individuals improved privacy protection, states have sought to develop tools capable of piercing those shields.

The NSA's surveillance activities, when used to monitor American citizens, are simply a sophisticated version of an IRS audit or a no-knock drug raid - a violation of individual privacy, to be sure, but one that is nonetheless essential for the state's survival*. Humans, however, are a cagey, crafty lot. We may be indiscrete, but we also typically prefer to decide for ourselves when and where and to whom we reveal the personal details of our lives. If an inane regulation makes our lives more difficult, less prosperous, or simply less fun, our instinct is to look for a way, legal or otherwise, around it.

The state must therefore continually upgrade its abilities to monitor our activities. If it fails to do this, it courts irrelevance. Information – and especially information about citizens' activities – is ultimately the life-blood of a state, but information in the hands of the state is the anathema of individual privacy. The problem with the bipartisan outrage at NSA surveillance, then, is not that it is misplaced, but rather that the anger fails to go far enough. The NSA is simply one actor within a state, doing what states do.

Further Reading: "Want More Government? Prepare for More Violence"

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* Yes, I understand that drug raids are (supposed to be) undertaken with a search warrant in hand, and that an IRS audit occurs according to a certain set of criteria. These search warrants and audit criteria, however, are not approved by some neutral/disinterested arbitrator, but rather by the state's own officials. This is rather like allowing one football team to choose its own referees for the upcoming game.

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On Profits and People

noreply@blogger.com (Aaron) — Tue, 12 Nov 2013 17:57:00 +0000

Most of us grew up with a view of industry heavily shaped by Karl Marx, Charles Dickens*, and Upton Sinclair. For these writers, factories were “dark satanic mills” (to borrow William Blake’s phrase) where productivity and profit only came at the expense of workers' welfare. If the factory owner is to turn a profit, these men insisted, workers must be endangered, exploited and even enslaved.

And all too often throughout history, bosses have obliged this caricature.

Not long after the release of Oliver Stone’s Wall Street (speaking of caricatures…), a film which solidified the “greed is good” portrait of the 1980s, Paul O’Neill took over as CEO of the Aluminum Company of America. Alcoa, as the company is known, manufactures "everything from the foil that wraps Hershey’s Kisses and the metal in Coca-Cola cans to the bolts that hold satellites together.” Despite its long and successful history, however, Alcoa had become a lumbering behemoth and investors were worried.

At his introductory press conference, O’Neill did little to allay their fears. Instead of the usual bromides about synergies and increased profits, he baffled the assembled stock analysts and financial reporters when he announced that his chief priority would be to improve worker safety. His goal for Alcoa: zero worker injuries.

“Every year, numerous Alcoa workers are injured so badly that they miss a day of work,” said O’Neill. “Our safety record is better than the general American workforce, especially considering that our employees work with metals that are 1500 degrees and machines that can rip a man’s arm off. But it’s not good enough. I intend to make Alcoa the safest company in America.”

In those days before cell phones (well, other than those brick phones in Wall Street), analysts could scarcely get to the nearest bank of pay phones fast enough to issue their "Sell, for chrissakes!" orders on Alcoa stock.

O'Neill, however, knew that when workers get hurt, they are less productive on the job, if they're even able to stay on the job at all. Too often, they miss entire workdays due to injury. Injuries are also bad for morale and disgruntlement is no boon to productivity either. In O’Neill’s vision, by challenging his company to achieve the goal of zero injuries he forced every employee, from the C-suites to the factory floor, to examine every aspect of the production process. As Duhigg describes it in chapter 4 of The Power of Habit:

The key to protecting Alcoa employees, O’Neill believed, was understanding WHY injuries happened in the first place. And to understand WHY injuries happened, you had to study HOW the manufacturing process was going wrong. To understand HOW things were going wrong, you had to bring in people who could educate workers about quality control and the most efficient work processes, so that it would be easier to do everything right, since correct work is also safer work.

In other words, to protect workers, Alcoa needed to become the best, most streamlined aluminum company on earth.

And O'Neill and Alcoa succeeded:

By the time O’Neill retired in 2000, the company’s annual net income was five times larger than before he arrived, and its market capitalization had risen by $27 billion. Someone who invested a million dollars in Alcoa on the day O’Neill was hired would have earned another million dollars in dividends while he headed the company, and the value of their stock would be five times bigger when he left.

What's more, Alcoa achieved these results even as they became among the safest companies in the world:

And at Alcoa, O’Neill’s legacy lives on. Even in his absence, the injury rate has continued to decline. In 2010, 82 percent of Alcoa locations didn’t lose one employee day due to injury, close to an all-time high. On average, workers are more likely to get injured at a software company, animating cartoons for movie studios, or doing taxes as an accountant than handling molten aluminum at Alcoa.

Hell, I slammed my finger in the desk drawer as I was working on this post.

The spin on O'Neill's drive to improve safety has been that he "put people before profits." Alcoa, however, is a publicly-traded company and as its CEO, O'Neill had a fiduciary responsibility to his shareholders. Sure, he didn't take pleasure in worker injuries, but his focus on safety was not the act of an exemplary good samaritan.

"People confused the idea that customers and production were the most important thing with the idea that workers had to put themselves at risk for the greater good of the company," said O'Neill in October 2013. "It was always a stupid idea. But it took a while to get people to believe that it was neither right nor necessary."

Of course, customers and production are the most important thing for any company, as any company that fails to turn a profit will not be long for this world. In the short term, a company may be able to increase its earnings by driving workers to their breaking point and neglecting all safety precautions. Eventually, however, workers get hurt, neglected equipment breaks down, and production slows to a crawl. O'Neill recognized that healthy, productive employees will ultimately yield a healthier bottom line. In other words, he didn't put people before profits, but rather worked with his people in the pursuit of larger profits.

In this sense, Paul O'Neill's vision for Alcoa owes less to Marx, Dickens, and Sinclair than it does to Adam Smith, Ayn Rand, and Milton Friedman. By appealing to his workers' (and their unions') desire for health and safety – in other words, to their self-interest – O'Neill was able to transform Alcoa into a more profitable company as well as a safer place to work, proving that the goals of profit and worker welfare are not mutually exclusive.

Further Reading

• Markets Not Capitalism, edited by Gary Chartier and Charles W. Johnson, is a more sophisticated take on bosses, workers, corporate power, and inequality than anything Marx, Sinclair, or their intellectual descendants can offer. Get it free in PDF format here.

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* In this episode of EconTalk, Nobel Laureate Edmund Phelps argues that Dickens wasn't quite as dreary in his view of industry as he is often portrayed.

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Bootleggers, Baptists, and Korea's Dependence on Internet Explorer

noreply@blogger.com (Aaron) — Tue, 05 Nov 2013 22:30:00 +0000

Embedded Video: Bruce Yandle discusses "Bootleggers and Baptists"

Despite its reputation as a tech-savvy nation, South Korea is stuck in the past - in the internet Dark Ages of the late 1990s, to be more specific. As The Washington Post reports today, and as anyone who's spent any time in the country can bemoan, South Korea remains almost entirely dependent on Microsoft's Internet Explorer browser.

Want to buy a pair of shoes on G-Market? Forget using Chrome. Need to move some money around in your bank accounts? Not happening with Firefox. To do these things, or anything else of a commercial nature, you'll have to leave those browsers and click over to IE. That is, if you can.

...those with Apple computers — for which IE isn’t available — have it harder. Some go to Internet cafes. Some rely on their office desktops. Some dash into hotel business centers. Some hold on to their old computers and boot them up when it’s time to make purchases. Still others depend on a secret weapon called Boot Camp, a software program that allows a Mac to run Windows.

“Just look at this,” one salesman said at an Apple reseller in downtown Seoul, demonstrating on a laptop that he pulled out from behind the help desk.

All it takes to buy a plane ticket on an Apple computer in South Korea, he said, is the $70 special software and a $250 copy of Windows 7.

“No problem,” he said, smiling.

It's not that South Koreans love Internet Explorer, but thanks to a 1999 government mandate, they have little choice but to use it. Fifteen years ago, the Korean government laid out what it thought was a pretty nifty security system for online commerce and the country is still using essentially the same system today. Of course, as any internet user can tell you, systems don't remain nifty for very long in cyberspace. Government regulations, however, tend to be mighty sticky.

In an influential 1983 paper, economist Bruce Yandle laid out his "bootleggers and Baptists" theory of how regulations come into being and how they endure. According the Yandle, the "Baptists" are groups that support a certain policy for high-minded, often quite moral reasons (think: Baptists supporting a ban on alcohol sales). Bootleggers are those who support that same legislation, but for more narrow, commercial interests (obviously, a ban on alcohol sales benefits bootleggers). When these two groups, who may otherwise find little common ground, come together, durable regulation results.

As The WaPo's story notes, government officials who were concerned about online security proposed the current standards back in the late 1990s, believing that a booming online economy would benefit consumers. Conveniently for companies like Samsung, whose computers run Microsoft software, the mandated security software only runs on Windows machines, a blow to Samsung's arch-rival Apple in the Korean market. Baptist, meet bootlegger.

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The People and Languages of Old California

noreply@blogger.com (Aaron) — Mon, 04 Nov 2013 18:15:00 +0000

At the initial moment of European contact in 1492, something approaching one third of all Native Americans living within the present-day boundaries of the continental United States—which is to say, more than three hundred thousand people—are estimated to have been living within the present-day boundaries of California. This claim has been disputed by those who argue for a much larger Native American population for the continental United States, but no matter: the figures, however they compare to the rest of the continent, are still impressive. For centuries, hundreds of thousands of Native Americans had been making their homes, living their lives, in the place now called California. In time, anthropologists would describe this Native American culture according to ethnographic categories based on linguistic distinctions. The Native Americans of California, they tell us, belonged to twenty-two linguistic families. Within these categories were some 135 separate languages.

That, like this, is from Kevin Starr's California: A History.

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Offbeat Oregon History

noreply@blogger.com (Aaron) — Mon, 04 Nov 2013 01:20:00 +0000

Among my new favorite websites is Offbeat Oregon History. Like any place inhabited by humans, Oregon has an abundantly odd history and Offbeat Oregon chronicles it.

A sampling of the past happenings in The Beaver State:

In 1971, D.B. Cooper hijacked a passenger jet out of the Portland Airport in 1971 and then parachuted into oblivion with $200,000, never to be seen again.

The state's first newspaper was named the "Flumgudgeon Gazette" and was written out longhand by a man named Philosopher Pickett (aka The Curltail Coon).

The Japanese navy had the temerity to attack the Oregon Coast in 1942.

Despite making his name on the dusty streets of Tombstone, Dodge City, and Prescott, Virgil Earp (brother of Wyatt, and played by Sam Elliot in "Tombstone") is, for some reason, buried in Portland's Riverview Cemetery.

And then there is this dark piece of state history:

Black people in Oregon in 1859 were neither slaves nor free; they were simply illegal.

Oregon is the only state that was admitted to the union with a racial exclusion law baked right into its constitution. No African-Americans could legally come to or live in the state — no slaves, no freemen, nobody.

And although the restriction wasn’t actually enforced, it wasn’t removed from the state’s law books until 1926.

As if that weren’t enough, after the Civil War, the state legislature actually rescinded its ratification of the 14th Amendment (equal protection). As for the 15th Amendment (voting rights for blacks), that was left unratified for 90 years — until 1959, on the eve of the state’s Centennial Celebration.

Offbeat Oregon History also has a podcast, so be sure to check out that link at the top of their website.

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Tyler Cowen's Rules for Dining Out

noreply@blogger.com (Aaron) — Sun, 03 Nov 2013 20:29:00 +0000

Video: Tyler Cowen on how to find good eats

Tyler Cowen’s Rules for Dining Out:

Beware the Beautiful, Laughing Women

Get Out of the City and Into the Strip Mall (Corollary: The food truck is your friend.)

Admit What You Don’t Know

Exploit Restaurant Workers

Prefer Vietnamese to Thai (Exception: Eat at Thai restaurants attached to motels. Corollary: Prefer Pakistani to Indian.)

The full article, with explanations for each rule, is here.

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A Most Unsettling Film: The Donner Party

noreply@blogger.com (Aaron) — Sat, 02 Nov 2013 03:52:00 +0000

The Onion AV Club calls The Donner Party, a 1992 PBS documentary by Ric "Brother of Ken" Burns, one of the most unsettling movies of all time. I remember first seeing the film as a middle school student and it certainly unsettled my young psyche for a few days.

This story is simply astonishing, and even more so when you consider that more than half the members of this pioneer group managed to survive their ordeal (thanks, in no small part, to the, um, “food” provided by those who didn’t survive).

The film is available on YouTube - for now. Watch it before it gets taken down.

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The Land That Is California

noreply@blogger.com (Aaron) — Sat, 02 Nov 2013 01:30:00 +0000

Top Row, from left: Laguna Beach; Joshua Tree National Park; Thousand Palms Oasis near Indio. Bottom: Lake Tahoe.

On a clear day, photographed from a satellite, California appears as a serene palette of blue, green, brown, white, and red. This apparent serenity, however, masks a titanic drama occurring beneath the surface, in the clash of the two tectonic plates upon which California rests. California itself resulted from a collision of the North American and Pacific plates. Across a hundred million years, the grinding and regrinding of these plates against each other, their sudden detachments, their thrusts above or below each other--together with the lava flow of volcanoes, the bull-dozing action of glaciers, and, later, the flow of water and the depositing of alluvial soil--created a region almost abstract in its distinct arrangements of mountain, valley, canyon, coastline, plain, and desert. As the California-born philosopher and historian Josiah Royce observed, there is nothing subtle about the landforms and landscapes of California. Everything is scaled in bold and heroic arrangements that are easily understood.

That is from Kevin Starr's California: A History. I'm only into the first chapter of the book and thus have little in the way of substantive comment at this point. The above quote, however, is the perfect summation of this state's topography. Of course, there's never been much subtlety in Californian culture, either.

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Is Slow Growth the New Normal?

noreply@blogger.com (Aaron) — Fri, 01 Nov 2013 21:41:00 +0000

Video: Cato Institute event on the future of economic growth.

Event summary:

The sluggish recovery from the Great Recession raises a troubling question: is this the new normal? Tyler Cowen launched an ongoing debate of that question with The Great Stagnation, in which he argued that the “low-hanging fruit” of growth has already been picked. In a new Cato paper entitled “Why Growth Is Getting Harder,” Brink Lindsey offers an analysis that differs from Cowen’s but shares his conclusion that slow growth will be hard to avoid in the coming years. Martin Baily, one of the world’s leading experts on productivity, is optimistic about the future of innovation but cautions that other factors can hold growth back.

Cowen, commenting on Lindsey's paper, offers a few of his own reasons for both optimism and pessimism where future rates of economic growth are concerned. First, the causes for concern:

Growth Risk: If future rates of economic growth are even slightly higher than Congressional Budget Office predictions, then the U.S. government's budget situation improves dramatically. If, however, growth underperforms CBO projections, that budget situation looks a whole lot worse. In addition, low economic growth can lead to bad public policy, which further stifles growth.

Regulation: Cowen agrees that governments should use their regulatory powers to tackle the financial system and climate change. Regulations have been increasing in these areas, but they've been increasing in number rather than effectiveness. The government is, says Cowen, regulating heavily where it shouldn't, and failing to regulate where it should.

The Peace Bubble: Most economic projections assume that the world will remain in a relatively peaceful state, and perhaps it will. But what happens if all-out conflict erupts in the Middle East, the South China Sea, or in East Asia? The risks here are almost all on the downside. That is, bringing Cuba or North Korea into the world trading system wouldn't greatly boost American or global economic growth, but taking, for example, China or Saudi Arabia out of that system (the "downside risk") would be a hell of a blow to the world's economy.

The Education Slowdown: People are as well-educated as they've ever been, but too many PhDs are teaching yoga and too many MAs are driving taxi cabs. The economy is changing faster than higher education, which leaves wide swaths of the workforce well-educated but ill-prepared.

Climate Change: Unlike Matt Ridley and Bjorn Lomborg, Cowen is pessimistic about climate change. He argues that the costs are uncertain, as is their time of impact, but Cowen sees more downside potential than upside potential on this front.

Energy Prices: The modern growth miracle began with coal in England and, later, with the development of oil products in the 1870s. In The Great Stagnation, Cowen argues that economic growth began to slow in the 1970s, a time which also featured the first large oil crises. Energy may be a small percentage of GDP, but Cowen sees its importance as greater than this number. Cowen maintains his pessimism even in light of the U.S. shale gas boom.

Cowen's sources of (guarded) optimism:

The Global Dimension: Innovation and productivity at the global (rather than national) level is what really matters. Increasingly, countries like China and India will contribute more new ideas, products and services to the global economy. Cowen is skeptical that this will significantly boost growth rates, but he does point out that if you're a genius living in China or India today, your chances of being discovered and having your talents put to a globally valuable use are better than ever before.

Computers as the Next General Purpose Technology: Cowen argues that we may have overrated what computers have done for us so far, but we underestimate their future potential. In essence, computers could do for the future what fossil fuels did in previous centuries - specifically, undergird entire segments of the economy and greatly improve standards of living. This may not improve middle class incomes, says Cowen, but it will drive economic growth.

On this final point, Brink Lindsey channels Cowen and argues that the internet has been better for welfare than for GDP in many ways. The IT sector is the most vibrant sector of the American economy and yet much of what it produces is consumed for free, thereby improving standards of living without necessarily showing up as anyone's income. As a result, progress and welfare may increasingly be divorced from higher GDP numbers.

Further listening:

Cowen discusses Average is Over on Econtalk.
Cowen discusses The Great Stagnation on Econtalk.

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Undefeated: Stern Virtues and the Power of Belief

noreply@blogger.com (Aaron) — Thu, 31 Oct 2013 22:06:00 +0000

“Champions don’t do extraordinary things,” says former NFL coach Tony Dungy in The Power of Habit. “They do ordinary things, but they do them without thinking, too fast for the other team to react. They just follow the habits they’ve learned.”

Dungy should know: he coached the Indianapolis Colts to a Super Bowl victory in 2008. Unlike his coaching contemporaries, Dungy’s strategy never relied on having the thickest playbook or being more clever than the other team. Instead, Dungy focused on getting his players to do the right things, to act and react in the correct manner, without thinking. Good habits had to be instinctual.

While reading the third chapter of The Power of Habit, it occurred to me that Dungy’s words are as much about life as they are about sports. Successful people in all fields are often quite ordinary, in that they are not smarter than average, they weren't typically born into exceptionally privileged circumstances, and their daily routines often appear remarkably dull. Yet these folks wind up on top of their professions.

What gives these high-achievers their edge is that they instinctively adhere to certain “stern virtues:” they are punctual, thrifty, industrious, and they defer gratification. Perhaps most importantly, they understand that, as marketing guru Zig Ziglar puts it, a person can have anything she wants in the world so long as she first helps enough other people get what they want.

A person who grows up in a culture that stresses these virtues will obviously be apt to pick them up for himself by observing and imitating those around him. It’s no coincidence that cultures which spread such qualities tend to be safer, healthier, and more prosperous.

But what about kids born into environments which feature what economists refer to as "shorter time horizons," where the focus is on leisure, comfort and self-indulgence today because tomorrow may not come? Is it possible to reorient these kids' perspective from the "now" to the future?

Again, sports intersects life. If you haven't yet seen Undefeated, a 2011 documentary about one man's attempt to resurrect a downtrodden high school football program in North Memphis, Tenn., do yourself a favor and track it down. The film features Bill Courtney, a Memphis businessman who volunteers to coach the varsity football team at Manassas, a high school in one of the roughest neighborhoods in the country and which has never won a football playoff game. Most of the players never had fathers in their lives and all of them have close family members in prison. For most of these young men, jail, the cemetery, and football offer the only obvious pathways out of their neighborhood.

Lacking in positive role models and offering little to those who believe in a better future, such environs do little to encourage those stern virtues discussed above. In Undefeated, we see Bill Courtney trying to bring Tony Dungy's words to the football fields of North Memphis. He preaches punctuality, teamwork, sacrifice, studiousness, and preparation for the future. Throughout the film, it is apparent that he is pushing against every habit these kids have picked up in their young lives.

In chapter three of The Power of Habit, Duhigg lays out "The Golden Rule of Habit Change," which says that to change a habit, it is important to keep the same cues and rewards while inserting a new routine. In nearly every scene of Undefeated, Courtney fights this battle. How do his players respond to academic adversity? Usually by giving up. What do they do when someone makes them angry? Punch the bastard, of course. And perhaps most importantly: these young men clearly have the idea that the good life is not for them, so why should they try to improve their lot? In response to nearly every cue, then, these kids' routines fulfill their own prophecy, yielding the "reward" of being correct once again about their fates.

Courtney describes his mission in this way

The foundation has got to be a solid platform that you can stand on and speak to these kids and say, "This is the way you build yourself. If you build yourself this way and handle yourself this way, you get to play football." And winning will take care of itself because young men of character end up winning in life. And they end up winning in football. Well, when you flip it, and the foundation of what you're doing is football, and you hope all that other stuff follows...Well, then you think football builds character, which it does not. Football reveals character.

Throughout chapter three, Duhigg emphasizes the importance of believing in one's ability to change and improve. Tony Dungy's players needed to believe in their ability to produce good results without always thinking about their actions on the field. Addicts need to believe that they are capable of overcoming their addiction and that their life will be better if they do so. Belief may not be sufficient for change to occur, but it is absolutely necessary according to Duhigg.

Bill Courtney spends his time in Undefeated convincing his players that not only can they win football games but that they can also make their future better than their past - not if they do extraordinary things, and not if extraordinary things happen to them, but if they learn to do the ordinary things without thinking.

Video: Undefeated (official trailer)

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A Parasitic City, In Love With Itself

noreply@blogger.com (Aaron) — Wed, 30 Oct 2013 19:17:00 +0000

Video: Mark Leibovich discusses This Town

[Washington, DC] has also always enjoyed pockets of wealth, usually of the old-money variety: bankers, railroad barons, and aristocrats from other parts of the United States serving in administrations (and in foreign capitals as ambassadors). Being the seat of the federal government, which isn’t moving anywhere, has usually ensured a baseline of economic stability. But in recent years Washington has defied the national economic slump and become the richest metropolitan area in the country. Getting rich has become the great bipartisan ideal: “No Democrats and Republicans in Washington anymore, only millionaires,” goes the maxim. The ultimate Green party. You still hear the term “public service” thrown around, but often with irony and full knowledge that “self-service” is now the real insider play.

That is from This Town: Two Parties and a Funeral-Plus, Plenty of Valet Parking!-in America's Gilded Capital by Mark Leibovich. I first became aware of this book upon seeing Leibovich's interview with Nick Gillespie of Reason.TV. I came away from that conversation expecting This Town to be a scathing indictment of the culture that is Inside the Beltway.

The book, however, did not scathe enough for my tastes. Leibovich is the chief national correspondent for The New York Times Magazine and, while writing his book, he likely reminded himself that he'd have to work and socialize with the folks about whom he was writing. Best to be a bit more gentle than a disinterested observer might be, eh? That said, DC culture still comes off as despicably in love with itself, so perhaps Leibovich succeeded on my terms after all.

This Town reminded me Andrew Ferguson's 2012 Time piece, "Bubble on the Potomac." Where Leibovich's book focuses on personalities, Ferguson emphasizes that it is DC's "parasitic economy" that allows these people to live such swell lives even as the rest of the United States limps through an economic slump:

...these are good times in Washington and the seven counties that surround it. Even as the nation struggles, the capital has prospered, making it a magnet for young hipsters but leaving its residents with only a tentative understanding of how the rest of the country lives. “It’s nice,” goes the old joke about Miami, “because it’s so close to the United States.” Well, Washington is very nice these days.

Conveniently, Ferguson also sat down with Reason.TV to discuss his thoughts on Washington, DC:

Video: Andrew Ferguson discusses DC's "parasitic economy"

Am I the only one who, after listening to Leibovich and Ferguson, can't stop thinking about The Hunger Games?

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Contrivances

noreply@blogger.com (Aaron) — Wed, 30 Oct 2013 00:22:00 +0000

Consider traditional images [in country music]. Say you’re watching a music video of a good ole boy all dressed up in a cowboy hat, boots, and jeans, sitting on the front porch, strumming his guitar and singing one of those heartfelt hillbilly songs. Little about this scene has any basis in reality. Most everything that’s “hillbilly” originated in the 1920s and can be traced to the stage of the Grand Ole Opry in Nashville and most everything that’s “cowboy” originated in the 1930s and can be traced to the Republic Studios in Hollywood. And when that search is done, what you find is not an actual hillbilly or cowboy, but somebody’s fanciful notion of what a hillbilly and cowboy might be. What they might look like, sound like, act like. The setting they might be in. How they might perform. What instruments they might play. Professor Peterson kindly called all this “fabricating authenticity.” I call it “making stuff up.”

“Few working cowboys played guitar or fiddled and sang,” wrote Peterson, “and while a large number of Southerners of the 1920s were musical, most of them were not unlettered, shiftless hillfolk. Rather the singing cowboy and the hillbilly character were deliberately constructed images.”

Contrivances.

That is from He Stopped Loving Her Today: George Jones, Billy Sherrill, and the Pretty-Much Totally True Story of the Making of the Greatest Country Record of All Time, by Jack Isenhour. The book starts from one song, expands its scope to one of the greatest of all American singers, and then manages to cover the entire genre of country music. Impressive.

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Against Bad Environmentalism

noreply@blogger.com (Aaron) — Mon, 28 Oct 2013 16:13:00 +0000

The description of last week's episode of Freakonomics pretty much says it all: "Being green is rarely a black-and-white issue - but that doesn't stop marketers and politicians from pretending it is."

My (Korean) wife recently expressed shock and dismay at how little Americans recycle compared with Koreans. This opinion may be, at least in part, due to her vantage: in Korea, each household sorts its own garbage and recycling and then puts the two quantities out on the curb in separate containers. The appearance is thus that everyone is a faithful little recycler, saving the planet one water bottle at a time.

In the United States, some cities require their citizens to act similarly. Other cities simply collect everything at once and then employ workers to do the sorting at a central facility. And then there are other cities that mandate very little, if any, recycling. As I explained to my wife, in the absence of actual data on recycling, I'm not sure we can say with any certainty whether Koreans recycle more than Americans or vice versa. But let's say for the moment that Koreans do recycle more than Americans. This may not be a good thing.

Recycling is an industrial process which uses resources (and often some very nasty chemicals). If that process does not yield more resources than it consumes, it is a net harm to the cause of conservation. Recycling, however, has become such a sacred idea that most people never stop to consider that it can, in some instances, actually be wasteful. When it is recycling wasteful? Well, remember this rule of thumb the next time you're sorting paper from plastic from aluminum from garbage: if someone will pay you for something, it's a resource. If not, it's trash.

In Korea, elderly folks often make some extra income by collecting discarded cardboard boxes and then selling them to private recycling centers. Styrofoam packing, plastic bags, old water bottles...these sit around on the curb until the municipal recycling collectors come along to take them away at taxpayer expense. Cardboard boxes thus appear to be a resource, while those other items evidently fall into the "trash" category.

Politicians and media outlets spend plenty of time telling us to recycle. Companies are forever boasting about how "green" and "sustainable" they are. Schoolchildren are taught that recycling is a moral obligation. Heaven forbid anyone should skeptically raise a hand of objection in any of these instances. Anyone who dares suggest that recycling is not always "green" - much less that it is a moral imperative - quickly finds uninvited to the parties of polite society.

If your goal is to actually do good for the planet, however, some nuance, knowledge, and critical thinking can be rather helpful. This is not to argue against reducing, reusing, or recycling, but before you do these things, make sure you're, well, actually doing those things in a "sustainable" manner.

And so, returning to that Freakonomics podcast. Listen to it:

And then read/listen to...

...Steven Landsburg on "Why I Am Not An Environmentalist: The Science of Economics Versus the Religion of Ecology," which brings to mind...

...this Econtalk discussion of recycling with Michael Munger, which brings to mind...

..."The Eight Great Myths of Recycling," by PERC's Daniel Benjamin, which brings to mind...

...this episode of Penn & Teller's Bullshit:

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