Posted by Marc Hodak on December 15, 2007 under History | 
You will hardly find anything about F. Joseph Giessler in or out of the blogosphere, so I’ll provide this landing point on Google.
Joe grew up in northeastern Ohio, I believe it was on a farm near Akron, during the Depression and war. He went to Case University (now Case Western Reserve) to study engineering, where he graduated at the very top of his class. There he met his wife, JoAnne. After a stint in the military, they settled in Dayton, near her family and the Wright-Patterson air base that would directly or indirectly employ his considerable engineering talents for most of his working life.
The first time I met Joe was in 1986, at a lunch in Philadelphia that his daughter had somewhat anxiously arranged for me to meet her parents. We got along well from the start. Joe and JoAnne became wonderful in-laws and grandparents to our children. Although their daughter and I split when the kids were still infants, I continued to get cards or presents from her parents every birthday and Christmas to this day. On one of my birthdays when I happened to be in Cincinnati on business, they drove down from Dayton to take me out to dinner. We always appreciated our time together. Even after being forced to retire due to rapidly deteriorating vision, Joe never lost his optimism and willingness to explore new things. He even took up ballroom dancing.
The fact that my older son is now studying to become a ‘third-generation’ engineer derives from a lineage through me from Joe, and likely reflects a greater respect for the latter. I always had a unique regard for Joe in a similar way that I do for engineers in general. Most other disciplines–literature, philosophy, economics–invariably devolve into myriad conceptions of what mankind could be, resulting in a normative push on society toward some distant ideal. Engineers solve problems. They pull society up one measured step at a time. That’s what Joe was like–in his work, with his family, and with everyone else privileged to gain his friendship. The world is several steps improved by him.
Joe passed away at age 75 last week. Even in his brief, but vicious illness, he retained that uniquely Midwestern mixture of sobriety and humor, while clearly and courageously communicating his sense that his love for his family, at least, was undying.
Posted by Marc Hodak on December 13, 2007 under History |
Anna Mary Robertson was born on a small farm in rural New York in September of 1860. As soon as she was able to work, she hired herself out to help older couples in their homes. At the ripe age of 27, she married a farmer named Thomas Moses. They moved south, settling in Virginia on a 600 acre farm doing mostly dairy chores.
“Here our ten children were born, and there I left five little graves in that beautiful Shenandoah valley, coming (back) to New York state Dec. 15, 1905, with our five children to educate and put on their own footing.”
They bought a dairy farm, and raised their family. Twenty-two years later, with the oldest children having since struck out on their own, her husband died, and their youngest son and his wife took over the farm.
“Leaving me unoccupied, I had to do something, so took up painting pictures in worsted, then in oil…”
Anna Mary was 76 when she began to paint. By the time she passed away on this day in 1961, at the age of 101, she was one of America’s most famous artists, known around the world as Grandma Moses.
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Posted by Marc Hodak on December 12, 2007 under Regulation without regulators |
One of my alert students, after a discussion of informal (e.g., market-based) regulation versus formal (e.g., government) regulation in class last night provided this video by leftist animator Mark Fiore:
If I were of Fiore’s ilk, I would probably object that animators should not be allowed to produce socio-political commentary without a basic education in political science and economics, using this video as an example of how dangerous that would be.
Alas, since I believe in freedom, all I can do is shake my head that people might actually believe that problems with meat or toys or mine safety are actually the result of too little government regulation.
In fact, despite voluminous government regulations that actually exist in nearly all markets, the most potent regulations remain the informal type. To understand the depth and power of informal regulation, one can begin by looking at the incentives of the players involved. Why would a regulator in Washington have more of an interest in Mattel’s product safety than Mattel’s managers or investors? How did Mattel’s shareholders or managers come out ahead after this summer’s string of recalls? It’s hard to imagine that anyone has a greater interest in not harming Mattel’s customers than Mattel itself, especially for a large company where any scandal in even the smallest area of their business affects their brand across all their businesses.
Then, one must consider the responsiveness to particular scandals. In a CNN article about the third of Mattel’s recalls, they included the government’s reaction in the middle of the article, and the market’s reaction at the very end. It’s kind of a Rorschach test of one’s view of the world to select which statement gives you the most comfort:
“The CPSC has its own investigations currently underway to make sure products on shelves are meeting US safety standards,” said (Julie) Vallese (CPSC Director of Information)
Wal-Mart has also hired independent laboratories to carry out 200 tests a day, focusing first on toys made for children up to the age of three, it said.
I don’t know what got us to the point where most people seem to believe that any failure in the marketplace is the product of market failure, correctable by government regulation. Somehow, people leave school with the premise that businessmen are indifferent to harming their customers, that the leaders of the largest businesses are the most remote and indifferent, that their reputations have no value to them, and that only government officials have the unerring care, foresight, and capabilities to to actually protect consumers.
Posted by Marc Hodak on December 10, 2007 under Executive compensation |
…but I somehow doubt that the Congress wouldn’t just end up gumming it up for all of us.
The House of Representatives Committee on Oversight and Government Reform just published a document on executive pay that claims that “corporate consultants can have a financial conflict of interest if they provide both executive compensation advice and other services to the same company.” The committee is considering additional disclosure rules to remedy this problem.
Henry Waxman, the congressman who requested this report, is apparently concerned that compensation consultants and corporate executives are conspiring to disregard their professional responsibilities to each other and the shareholders. This seems like a reasonable concern, if you consider the board of directors nominally overseeing this transaction as lazy or corrupt. In that case, more disclosure about the arrangements between consultants and management would make sense, if you consider the investors to be alert enough to do something positive about it. As it turns out, all of these assumptions are highly debatable. Investors with competent directors don’t need additional disclosure; investors with incompetent directors can’t be helped by it.
Congressman Waxman should know a thing or two about conflicts of interest, and how much difference disclosure really makes. Waxman gets the lions share of his campaign funding from unions. He has 93% rating from the AFL-CIO based on how he voted on issues of concern to union leaders. Do those facts suggest a conflict of interest? And how many of the citizens in West Hollywood, Santa Monica and Beverly Hills, that hotbed of the working class that Waxman represents, know those particulars? All of it is out there, if you know where to look. The fact is that the link between Waxman’s congressional cash flow and his congressional work won’t penetrate the sunglasses of his constituents any more than the details of corporate HR policy will be taken in by shareholders, despite mounds of disclosure already available to them.
Some problems are simply not big enough for the ham-handed machinery of Congress to fix. Some problems cannot be fixed even by unconflicted lawmakers, and most problems are made worse by their attempts to fix them.
Posted by Marc Hodak on December 9, 2007 under Revealed preference |
…as if a reasonable person needed any.
From Cato Unbound.
Posted by Marc Hodak on December 7, 2007 under Scandal |
Let’s say your boss walked into your office and asks you to backdate a letter so that a decision looks like it was made earlier than it really was. You don’t feel perfectly comfortable with this, but you say, “OK.” If you had stopped in your busy day to think about this particular act, and realized that neither you nor your boss would be personally enriched by it, and that the company and its shareholders may very well benefit from it, you’d probably wouldn’t think it’s such a big deal. You wouldn’t think that you’d end up with a criminal conviction leading to up to 20 years in jail. But that’s what basically happened to Stephanie Jensen.
Here is the prosecutorial logic. When someone says “OK” to her boss’s improper request, that’s conspiracy. 10 years. When one signs a letter that is ultimately used to misstate accounting results, even if you have no control over the accounting or understanding of the intricate rules involved, that’s fraud. 10 years. Normally, criminal fraud requires that someone personally benefit from their deceit, but in securities law, any impact on disclosed financial results can be presumed to lead investors astray to their detriment.
Jensen is only lucky that she’s not facing the full fury of post-Enron sentencing madness. The political appetite to punish what most sane people would consider marginal behavior became completely unhinged during the Enron/WorldCom scandal. Here is a taste of the unchecked attitude toward the sketchiest business behavior by Senator Leahy, Chairman of the Senate Judiciary Committee in 2002:
Today’s report includes a tough new crime of securities fraud, which will cover any scheme or artifice to defraud investors. Working with Chairman Sensenbrenner, we were able to retain the provision as I wrote it with a higher 25 year maximum jail term. That will cause scam artists to think twice. (Their emphasis)
Taken to the extreme, that means saying “OK” to your boss’s request to do something you may not quite understand is illegal, and may not actually harm anybody. Now, even the most self-righteous, ambitious prosecutor would be unlikely to actually pursue a low-level employee on something as simple as an “OK.” But the prosecutor would have this tool as leverage against this employee in getting their cooperation.
One could only wish that congresspersons were held to anywhere near the same criminal standards. Unfortunately, the media promotes the political vanity that lawmaking is a noble exercise in power free from conspiracies, while business is a messy financial affair where conspiracies abound.
Larry Ribstein makes another excellent case for the fact that Jensen merely lost the criminal backdating lottery.
Posted by Marc Hodak on December 6, 2007 under Unintended consequences |
Let’s say one wanted to create a set of incentives for our best and brightest who want to go into medicine to strongly prefer medically superfluous areas like penile inserts, nose jobs, and hair removal while shunning areas like oncology, cardiology, and neurosurgery. How would one approach such a task? Apparently by doing what Europe and Japan do, and what most American politicians advocate doing here–socialized medicine.
In a study of doctors in Japan, Harvard’s Mark Ramsmeyer studied the effects of Japanese health care policy on how prospective doctors choose to invest in their talents.
The Japanese national health insurance provides universal coverage. Necessarily, this entails a subsidy that dramatically raises the demand for medical services. In the face of the increased demand, the government suppresses costs by suppressing prices.
Ramsmeyer figures that this policy will lead to certain economic consequences on investment decisions by doctors in their training and specilization.
Crucially, the national health insurance does not cover services – like elective cosmetic surgery – deemed medically superfluous. Facing price caps in the covered sector but competitive prices in these superfluous sectors, the most talented doctors should tend to shift into the superfluous sectors and there to invest heavily in their expertise.
So, he looked at all the cosmetic surgeons and an equal number from a random sample of other types of medical specialties to see if he could identify where the greatest investment in skills was taking place.
Cosmetic surgeons earn higher incomes than other doctors; are more likely to have attended a national (generally more selective) medical school; are more likely to have served on the faculty of a medical school; and are more likely to be board-certified.
His conclusions are sobering, if not surprising:
The point is not that Japanese cosmetic surgeons earn a premium not available here. The point is that by operating beyond the scope of the universal health insurance, they can profitably do what few other Japanese physicians can cost-effectively do: invest in field-specific training. In most medical fields, the price controls preclude a physician from earning a large enough return to his training to make any serious specialization worthwhile. In cosmetic surgery, however, those controls do not apply. Like their peers here, Japanese physicians respond to the price signals by specializing, training, and certifying their expertise.
Is that the kind of society we want for us? As the author notes, we’ve already moved part way in that direction. Our cosmetic surgeons already earn a premium here. They’re working in a field that politicians ignore. Other areas, unfortunately, appear to be too important to be left to the market.
HT: Larry Ribstein
Posted by Marc Hodak on November 30, 2007 under Invisible trade-offs |
I think this picture presents a pretty compelling case for why spreading a little more civilization would be a good idea–for someone else to try.
These images will be impossible for the Muslim Council of Britain to overcome no matter what they say. The Sudanese ambassador is whistling in the wind by calling this affair a tempest in a teacup. Politicized Islam, however ugly, is not too different, of course, from politicized Christianity, except for a few centuries of civilization.
Posted by Marc Hodak on November 25, 2007 under History |
On this day in 1867, Alfred Nobel patented dynamite–a stable compound of nitroglycerine and silica that could be remotely detonated with a blasting cap. We could now literally move mountains.
Thirty years later, Nobel’s will was executed with a 31 million kronor (about $5 million at the time) endowment for the prizes for which he is now best remembered. Whether or not he created a “Peace” prize out of a sense of guilt, as some historians contend, I highly doubt. But there is no doubt that his invention made both large-scale construction and large-scale killing much easier, and he was acutely aware of the implications of the latter for his legacy.
If Nobel’s impact on the world is considered by some (not me) ambiguous, the value of his Peace prize is (at least, I think) far more so. Here is an excellent primer on what it takes to win one.
Posted by Marc Hodak on November 22, 2007 under History |
The first Thanksgiving story, as they teach it in school:
Our national holiday really stems from the feast held in the autumn of 1621 by the Pilgrims and the Wampanoag to celebrate the colony’s first successful harvest.
The Pilgrims would not have survived at Plimouth without the help of the native Wampanoag people and their leader Massasoit. So it was fitting that they joined the Pilgrim’s feast. Massasoit sent several men to hunt deer as a gift to the English for their feast.
And this entry from Wikipedia:
The early settlers of Plymouth Colony in Massachusetts were particularly grateful to Squanto, the Native American and former British slave who taught them how to both catch eel and grow corn and also served as their native interpreter. Without Squanto’s assistance, the settlers might not have survived in the New World.
This story sounds so nice, full of cooperation, success, and good food.
Here’s the Thanksgiving story you might have missed:
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