The authors argue that conventional economics does an inadequate job of explaining growth as it is too focussed on maximising “static efficiency”. In this framework the level of technology is taken for granted and we try to grow the economic pie by reducing market failures and eliminating inefficient regulations in pursuit of the ideal of perfectly competitive markets. The authors instead advocate an Economics 2.0 which promotes “dynamic efficiency”. This requires an economic environment that is conducive to innovation and adaptive to the unforeseeable changes that developments in technology will produce. Firms should be free to enter and exit markets and those that cannot keep pace with innovation should be allowed to fail to free up resources.

The highlights of the book are undoubtedly the interviews with great economists who offer insights into the nature of economic growth and innovation. Take William Lewis on why multinationals cannot always compete against far less productive domestic rivals in developing countries:

Our interview with [hypermarket chain] Carrefour in Russia was really a watershed, because Carrefour said, “Well, we know all about Russia. We can handle most of the problems in Russia. We don’t have trouble with red tape and bureaucracy. We can handle bribes. We know all about bribes. We can even handle any threat to our physical security. We’ve been in tough situations and we can make our people feel secure. What we can’t handle is not making money. And you can’t make money in Russia.”

[...]

We found that Carrefour’s competitors were doing a number of things that Carrefour could not, or would not, do in their business practices. Imports were flooding into Russia and many of the local domestic producers were selling smuggled goods, on which they had not paid import tariffs, and counterfeit goods. McKinsey did a study of the vodka industry in Russia and found that 40 percent of the vodka sold in Russia was not made by the company whose label appeared on the bottle – so much for the value of the brand. And then we looked at taxes. Taxes have to be collected on the final sales price, what the customer pays at the cash register. Carrefour, as with virtually all multinationals, pays its taxes because they cannot afford to do otherwise. And it was not just the profit taxes; it was, in fact, other taxes that made the difference. The sales tax, the value-added tax, the employment tax – all of these would be rolled into what the consumer would pay Carrefour for any given goods or services. When you added all that up and compared it with what their competitors were doing – competitors who by and large were not paying these taxes – Carrefour could not make money.

[...]

But then you might say: the rich countries today have high taxes and big government. Why doesn’t that matter? The reason it doesn’t matter today is that everybody is formal. [...] The no-man’s-land that the poor countries have gotten into now is having gone to big governments before they can afford it, before informality has been phased out or driven out by high-productivity operations so that they can have both big government and informality.

The authors’ own insights are also interesting with discussions about the nature of entrepreneurship and a useful analogy of the intangible assets being the software layer of the economy and the physical capital the hardware. However I would have liked more from the authors themselves as I felt their arguments always fell short of delivering a truly new viewpoint. What role is there for antitrust in promoting dynamic efficiency? Many of the interviewees consider this important yet the authors only briefly mention that competition regulation is often too slow or captured by incumbent firms. The section on intellectual property, which I fear will become a roadblock to dynamic efficiency, seemed unambitious: just stating the standard arguments for and against IP.

From Poverty to Prosperity is a fascinating read filled with insights from Schumpeterian thought, new institutional economics and economic history. Highly recommended.

The day after President Barack Obama urged the flu-worried masses to stay calm, Vice President Joe Biden went off the rails, saying he has urged family members to avoid airplanes and subways.

Biden, whose high-profile misstatements littered the campaign trail last year, told NBC’s “Today” show Thursday that he’d tell family members to avoid traveling in “confined spaces.”

“It’s not just going to Mexico. If you’re any place in a confined aircraft and one person sneezes, it goes all the way through the aircraft,” he told Matt Lauer. “That’s me. I would not be, at this point, if they had another way of transportation, suggesting they ride the subway.”

Biden’s statement sent federal officials into damage-control mode. Biden’s staff, along with Homeland Security Secretary Janet Napolitano and Obama press secretary Robert Gibbs, said he meant only people who are sick should avoid traveling on planes and trains.

I love how Napolitano and Biden’s staff defend him by claiming he really only meant sick people (or was it travel to Mexico?) when that clearly wasn’t what he was saying. I guess you can’t admit your boss is a dope.

L.E.A.P.’s loan ranger rides into Washington.

First they came for the punctuation…

Free speech win for Texas interior designers. Reason.tv recently assessed the dangers of unlicensed interior designers and noted that US states with strict regulation and licensing laws had more complaints about interior design companies than less regulated states.

The dream gig for every sad clown?

I can only report that The End of Poverty, narrated throughout by Martin Sheen, puts Ayn Rand back on the map as an accurate and indeed insightful cultural commentator. If you were to take the most overdone and most caricatured cocktail-party scenes from Atlas Shrugged, if you were to put the content of Rand’s “whiners” on the screen, mixed in with at least halfway competent production values, you would get something resembling The End of Poverty. If you ever thought that Rand’s nemeses were pure caricature, this film will show you that they are not (if the stalking presence of Naomi Klein has not already done so). If you are looking to benchmark this judgment, consider this: I would not say anything similar even about the movies of Michael Moore.

In this movie, the causes of poverty are oppression and oppression alone. There is no recognition that poverty is the natural or default state of mankind and that a special set of conditions must come together for wealth to be produced. There is no discussion of what this formula for wealth might be. There is no recognition that the wealth of the West lies upon any foundations other than those of theft, exploitation and the oppression of literal or virtual colonies.

Reducing the length of the yellow signal by one second also causes between 125 and 225% more accidents.

So why are cities like Billings, Montana ignoring the evidence and doing the exact opposite of what would improve road safety?

HT: Jacob Grier

HT: Alex Tabarrok

Sales of Ayn Rand’s “Atlas Shrugged” have almost tripled over the first seven weeks of this year compared with sales for the same period in 2008. This continues a strong trend after bookstore sales reached an all-time annual high in 2008 of about 200,000 copies sold.

A good sign considering there’s never been a more relevant time to read Ayn Rand’s magnum opus.

WHEREAS, Clyde Tombaugh, discoverer of the planet Pluto, was born on a farm near the Illinois community of Streator; and
WHEREAS, Dr. Tombaugh served as a researcher at the prestigious Lowell Observatory in Flagstaff, Arizona; and
WHEREAS, Dr. Tombaugh first detected the presence of Pluto in 1930; and
WHEREAS, Dr. Tombaugh is so far the only Illinoisan and only American to ever discover a planet; and
WHEREAS, For more than 75 years, Pluto was considered the ninth planet of the Solar System; and
WHEREAS, A spacecraft called New Horizons was launched in January 2006 to explore Pluto in the year 2015; and
WHEREAS, Pluto has three moons: Charon, Nix and Hydra; and
WHEREAS, Pluto’s average orbit is more than three billion miles from the sun; and
WHEREAS, Pluto was unfairly downgraded to a “dwarf” planet in a vote in which only 4 percent of the International Astronomical Union’s 10,000 scientists participated; and
WHEREAS, Many respected astronomers believe Pluto’s full planetary status should be restored; therefore, be it
RESOLVED, BY THE SENATE OF THE NINETY-SIXTH GENERAL ASSEMBLY OF THE STATE OF ILLINOIS, that as Pluto passes overhead through Illinois’ night skies, that it be reestablished with full planetary status, and that March 13, 2009 be declared “Pluto Day” in the State of Illinois in honor of the date its discovery was announced in 1930.

HT: symmetry breaking