Archive for September, 2007|Monthly archive page

National Bureau of Economic Research. 1

I’m just looking over the August NBER digest.  It covers five NBER articles, of which three may be mildly interesting.  The first has the scary title, Public Insurance Expansions Crowd Out Private Health Insurance by Jonathan Gruber and Kosali Simon.  We learn that: For every 100 children who are enrolled in public insurance, 60 children lose private insurance.”  Thank God that George Bush had the courage to stand up to the radicals and threatened to veto an expansion of child health coverage.  Otherwise, they might lose their private insurance.

How to Blunt Competition

In a world with massive overcapacity, firms need to blunt competition.  Here is a case in which one company buys out another, just to eliminate a competitor.

Hansell, Saul. 2007. “Seagate: Missed the IPod but Selling to Lots of Snoops.” New York Times On Line (10


 “In 2006, there was a cutthroat battle for market share set off in part by Seagate’s acquisition of Maxtor.  This year, competition has eased and Seagate’s gross margin has expanded to 24 percent.  “The industry can’t sustain two years of price wars, Mr. Watkins said, referring to rival drive makers.  “People decided to stop losing money.”  When Seagate bought Maxtor in 2005, it kept hardly any of that company’s technology or employees.  The $1.9 billion deal was simply about removing a competitor.  Seagate was No. 1 in the market; then Western Digital followed by Maxtor.  While it kept the Maxtor brand, Seagate makes all its drives in what had been Seagate facilities using Seagate’s technology.  The company figures it lost half of Maxtor’s market share.  But the other half, plus the benefits of reduced competition, make the deal worth while, Mr. Pope said.”

A Tale of Two Unions

California has two very active unions — the Nurses and the Prison Guards — each uses a different form of politics and a different form of “caring.”  The nurses have done heroic work in forcing Governor Arnold to allow for sufficient staffing of hospitals.  They have won significant political victories.


The prison guards have been very successful in calling for more staffing as well — often by forcing the state to lock up more people.  Those who resist passing such laws are charged as soft on crime.  They have also been very successful in blackmailing the state into giving them more money.  Here they go again.

Public Employees for Privatization

The Sacramento Bee reports the giant California Public Employees’ Retirement System is planning to use some of its money to invest in infrastructure, which is, of course, privatized infrastructure.

I wish that I could savor the irony of public employees financing privatization, but I guess I should learn to expect that sort of thing.

Martin Feldstein

Martin Feldstein just resigned as head of the National Bureau of Economic Research a couple of weeks before the release of my new book, The Confiscation of American Prosperity.

I devote a large part of one of my later chapters to exploring the history of the Bureau and the career of Martin Feldstein.

Steve Forbes & Osama bin Laden Join Forces

This is a bit old. I forgot to click on the key to publish it after I composed it just after his recent tape was released.

Osama bin Laden is apparently now appealing to the conservative forces in the United States, calling for a flat tax.

“To conclude,” bin Laden says, “I invite you to embrace Islam.” He goes on to say: “There are no taxes in Islam, but rather there is a limited Zakaat [alms] totaling 2.5 percent.”

What do conspiracy theorists make of this?

Brad DeLong on US Productivity

Brad DeLong made an interesting point about my earlier message here about productivity.

He said that the Chinese (using my earlier example) are making the shoes for five dollars because they have not yet developed brands to market them for themselves. When they do, the US GDP will go down accordingly.


This process seems to be already beginning. The idea behind the expectation of the future success of US intellectual property economy was people in the United States would do the high-value work while leaving the country to others.

I’m reminded of an exchange between Boswell and Samuel Johnson:

“Very little business appeared to be going forward in Lichfield. I found however two strange manufactures for so inland a place, sail-cloth and streamers for ships: and I observed them making some saddle-cloths, and dressing sheep skins: but upon the whole, the busy hand of industry seemed to be quite slackened. “Surely, Sir, (said I,) you are an idle set of people.”

“Sir (said Johnson) “We are a City of Philosophers: we work with our Heads, and make the Boobies of Birmingham work for us with their hands.”

But already, South Korea seems to be making great progress in design work, supposedly the domain of the brilliant people in the United States who honed their minds on the complexities of Paris Hilton and cage fighting.

How long will it be before Chinese brands win a reputation for quality? Some older people may recall when Japanese cars were considered junk.

The Mysterious Productivity Lead of the US Economy

The International Labour Organisation just released a report showing that labor in the United States is the most productive in the world. Four points are relevant here.

First, part of that productivity reflects the fact that workers in the United States spend more time on the job than workers elsewhere. Even so, the output per hour is still the second highest in the world — after Norway.

Second, conventional economics teaches us that wages reflect productivity, yet for more than three decades hourly wages (corrected for inflation) have shown a slight decline, while productivity has soared.

Third, a country can become more productive merely by shutting down some of its less productive operations. In that sense, increasing productivity can be nothing more than an indication of deindustrialization. I don’t think that is the case here, but the ongoing illumination of less productive businesses has been a factor. According to conventional theory, deindustrialization could mean rising wages for the same reason that productivity increases. By eliminating the low salaries, the average of the remaining salaries would be higher — except that the resulting increase in unemployment allows business to drive wages down.

Fourth, productivity can mean something very different from what people might think I was productivity. This statistic is nothing more than the gross domestic product divided by the amount of labor. Consider a fictitious country named Nike. It has a single product — shoes, which it can market throughout the world. This country has four workers: a lawyer to make contracts, a marketer to advertise the product, a shipping clerk, and an accountant. Rather than making shoes by themselves, they contract with a sweatshop in China which sells them shoes for $5 a pair. The country exports 4 million pairs of shoes year for $100 a pair.

A statistical agency would credit each of the four workers with producing a million shoes, representing a net increase in value of $95 each. Nike would certainly be the most productive country in the world. Or would it be?

Patents and Unions, WTF!

Now here is a courageous way for the AFL-CIO to protect jobs — strengthening intellectual property laws.  What do you think?

Hitt, Greg. 2007. “Patent System’s Revamp Hits Wall: Globalization Fears Stall Momentum in Congress.” Wall Street Journal (27 August): p. A 3.

“A bipartisan effort in Congress to overhaul the patent system — a priority for some of the nation’s biggest technology companies — is hitting resistance because of concerns the U.S. might be exposed to greater foreign competition. Patent overhaul appeared to be on a fast track earlier this summer. But plans for a quick vote got derailed last month after the AFL-CIO entered the debate, warning that innovation — and union-backed manufacturing jobs — might be at risk if the changes were adopted. The union has considerable clout in the Democratic Congress and expressed concerns with provisions that would expose patents to expanded challenges and might limit damages for infringement. “At a time when the Chinese government is constantly being challenged to live up to its intellectual-property obligations, we do not want to take actions that may weaken ours,” the AFL-CIO’s legislative director, William Samuel, said in the pointed missive that was circulated on Capitol Hill.