Fortune 500 Firms in 1955 vs. 2011; 87% Are Gone

Great post by mark Perry of "Carpe Diem."

"What do the companies in these three groups have in common?

Group A. American Motors, Studebaker, Detroit Steel, Maytag and National Sugar Refining.

Group B. Boeing, Campbell Soup, Deere, IBM and Whirlpool.

Group C. Cisco, eBay, McDonald's, Microsoft and Yahoo.

All the companies in Group A were in the Fortune 500 in 1955, but not in 2011.

All the companies in Group B were in the Fortune 500 in both 1955 and 2011.

All the companies in Group C were in the Fortune 500 in 2011, but not 1955.

Comparing the Fortune 500 companies in 1955 and 2011, there are only 67 companies that appear in both lists. In other words, only 13.4% of the Fortune 500 companies in 1955 were still on the list 56 years later in 2011, and almost 87% of the companies have either gone bankrupt, merged, gone private, or still exist but have fallen from the top Fortune 500 companies (ranked by gross revenue). Most of the companies on the list in 1955 are unrecognizable, forgotten companies today. That's a lot of churning and creative destruction, and it's probably safe to say that many of today's Fortune 500 companies will be replaced by new companies in new industries over the next 56 years.

Update: Here's a related article from Steve Denning in Forbes, featuring some insights from Steve Jobs about what causes great companies to decline (power gradually shifts from engineers and designers to the sales staff) and how the life expectancy of firms in the Fortune 500 and S&P500 has been declining over time."

Convenient, Consumer-Driven Health Care on the Rise: Retail Clinic Use Jumps 10X in Two Years

Great post by Mark Perry of "Carpe Diem."

"Fierce Healthcare -- "With retail clinics increasing ten-fold, more health systems and hospitals are capitalizing on the trend and getting in on the retail movement. Between 2007 and 2009, retail medical clinics at pharmacies and other retail settings have risen from a monthly tally of 0.6 visits per 1,000 enrollees in January 2007, to 6.5 visits per 1,000 enrollees in December 2009, according to a new study by RAND Corporation, published in the American Journal of Managed Care (study abstract here).

Surprisingly, the availability of primary care physicians didn't affect use of retail clinics. The strongest predictor was proximity.

"It appears that those with a higher income place more value on their time, and will use clinics for convenience if they have a simple health issue such as a sore throat or earache," senior study author Dr. Ateev Mehrotra, investigator at RAND and the University of Pittsburgh, said in a RAND press release.

This week's announcement that Emory Healthcare, Georgia's largest hospital system is partnering with CVS MinuteClinic may demonstrate a broader trend of traditional hospital systems aligning with convenient clinics. Earlier this year, Mayo Clinic announced it moved into the Mall of America in what it calls the "Create Your Mayo Clinic Health Experience" center, a 2,500-square-foot space of high-tech interaction. And Walmart recently declared it wanted to be the nation's biggest primary care provider with its entrance into the retail care market."

MP: At the same time that the pending implementation of Obamacare threatens a government takeover of health care and medicine in America that will stifle competition and raise prices, the market continues to offer many new, innovative, alternative solutions to health care that are competitive, affordable and convenient. The ten-fold increase in the use of retail health clinics in just two years demonstrates that consumers appreciate the market-based, consumer-driven convenience of affordable, no-wait service at retail health clinics, and they'll be pretty disappointed if that changes to long-wait, inconvenient health care under Obamacare."

We’ve Had Enough Government ‘Stimulation’

Great post by Tad DeHaven of Cato.

"After three years and $4 trillion in combined deficit spending, unemployment remains stubbornly high and the economy sluggish. That people are still asking what the government can do to stimulate the economy is mind-boggling.

That the Keynesian-inspired deficit spending binge did create jobs isn’t in question. The real question is whether it created any net jobs after all the negative effects of the spending and debt are taken into account. How many private-sector jobs were lost or not created in the first place because of the resources diverted to the government for its job creation? How many jobs are being lost or not created because of increased uncertainty in the business community over future tax increases and other detrimental government policies?

Don’t expect the disciples of interventionist government to attempt an answer to those questions any time soon. It has simply become gospel in some quarters that massive deficit spending is necessary to get the economy back on its feet.

The idea that government spending can “make up for” a slow-down in private economic activity has already been discredited by the historical record—including the Great Depression and Japan’s recent “lost decade.”

Our own history offers evidence that reducing the government’s footprint on the private sector is the better way to get the economy going.

Take for example, the “Not-So-Great Depression” of 1920-21. Cato Institute scholar Jim Powell notes that President Warren G. Harding inherited from his predecessor Woodrow Wilson “a post-World War I depression that was almost as severe, from peak to trough, as the Great Contraction from 1929 to 1933 that FDR would later inherit.” Instead of resorting to deficit spending to “stimulate” the economy, taxes and government spending were cut. The economy took off.

Similarly, fears at the end of World War II that demobilization would result in double-digit unemployment when the troops returned home were unrealized. Instead, spending was dramatically reduced, economic controls were lifted, and the returning troops were successfully reintegrated into the economy.

Therefore, the focus of policymakers in Washington should be on fostering long-term economic growth instead of futilely trying to jump-start the economy with costly short-term government spending sprees. In order to reignite economic growth and job creation, the federal government should enact dramatic cuts in government spending, eliminate burdensome regulations, and scuttle restrictions on foreign trade.

The budgetary reality is that policymakers today have no choice but to drastically reduce spending if we are to head off the looming fiscal train wreck. Stimulus proponents generally recognize that our fiscal path is unsustainable, but they argue that the current debt binge is nonetheless critical to an economic recovery.

There’s no more evidence for this belief than there is for the existence of the tooth fairy.

Not only has Washington’s profligacy left us worse off, our children now face the prospect of reduced living standards and crushing debt."

John Taylor Did Not Omit Variables, Showing That Tax Rebates Did Not Help The Economy

See Omitted Facts in a Speech on Omitted Variables

"Christina Romer gave a speech at Hamilton College earlier this month which criticizes my findings that recent temporary tax rebates had little or no effect on aggregate consumption. Romer claims that in analyzing this “relationship between two variables” I did not consider the impact of third variables “influencing both of them.”

Romer’s claim is wrong. In fact, in my paper which Romer cites (first presented on January 4, 2009 at the AEA meetings and published in the American Economic Review), I explicitly state that one must take account of other variables. Here is a quote from that paper: “policy evaluation requires going beyond graphs and testing for the impact of the rebates on aggregate consumption using more formal regression techniques….an advantage of using regressions is that one can include other factors that affect consumption.” In that investigation, which focused on the 2001 and 2008 rebates, I used monthly data and included in the regressions monthly data on oil prices, which rose dramatically in the first half of 2008 and which would be expected to reduce consumption around the time of the rebates. Indeed, oil prices had a highly significant coefficient in the regressions, and yet I found no significant effect of the rebates as shown in Table 2 of the paper. In another paper published in the Journal of Economic Literature, (discussed in the blogosphere here and here) I used quarterly data to investigate the 2001 and 2008 stimulus packages and also the 2009 stimulus. With quarterly data, I also included a household net worth variable from the Fed’s flow of funds accounts, along with the quarterly average of oil prices. The net worth variable had a significant effect, and yet I still found no statistically significant impact of the temporary payments as shown in Table 1 of the JEL paper.

In sum, my research does consider the impact of third variables, contrary to what Romer claimed. And the results I reported are robust to adding such variables, contrary to what Romer conjectured."

Gary Becker On The Occupiers

See The Occupy Wall Street Movement-Becker.

"Will the “Occupy” movement develop into a significant political force? I am doubtful: the movement is already losing supporters in most places where it has been active. Cold weather will accelerate the decline. The movement is losing ground not because the issues it raises are unimportant, but rather because the great majority of Americans and those in other countries with Occupy groups do not sympathize with most of the people doing the occupying.

We discussed the unemployment situation in the US last week, and reform of banks in several previous posts, so I concentrate my comments on the inequality issues raised by occupiers. American inequality in the distribution of incomes, and inequality in many other Western nations, has grown a lot since the late 1970s. This growth can be separated into the growth in earnings inequality across education and other skill classes, and the growth in income at the very top of the income distribution. I start with the inequality by skill since that is what most closely affects the vast majority of people.

Many of the Occupy Wall Street participants are college students- it is easy to miss classes at most colleges for a few days and even much longer- and other young persons who had gone to college. They have complained about the ”high” unemployment of college-educated persons, and also about the burden of college loans. Yet the large increase in earnings inequality during past 30 years has mainly taken the form of a growth in the earnings of college graduates and that of others with high levels of skills relative to earnings of high school dropouts, high school graduates, and others with lower skills. Although unemployment grows for all education groups grow during recessions, it has not grown any faster during the Great Recession for college-educated persons than for persons without college, and is still much lower for the college educated. For example, in October of 2011 the unemployment rate for college graduates was under 5% compared to an unemployment rate of almost 14% for high school dropouts.

Nor are the complaints by occupiers about the burden of student loans much better founded for the great majority of graduates. The typical rate of return to a college graduate, especially those with post-graduate degrees, has risen greatly since the late 1970s, certainly high enough to support even sizable student loans with interest payments that are heavily subsidized by the federal government. The real ones with a gripe are high school dropouts who not only have high unemployment rates, but also low real earnings that may have fallen for dropouts during past 30 years, poorer health than others, bad marital prospects, and weak access to home ownership and other consumer luxuries.

The Occupy Movement and everyone else worried about earnings inequality should be emphasizing the need to find ways to encourage more high school dropouts and high school graduates to get the required background and study habits so that they can, and want to, continue on for a college education. A daunting task, but a necessary one in order to respond in an effective way to the anatomy of the large growth in earnings inequality.

The income share of the top 1% in the United States has declined a lot since the onset of the Great Recession, but it is still much higher than it was in the 1970s. Earnings are also an important component of these very high incomes, but these are earnings of top management and executives, including the top earners in banking, and in hedge funds and other managers of money, and including also the top earners in medicine, law, consulting, and some other fields. According to a November 2010 study by Bakija, Cole, and Heim (I am indebted to Steve Kaplan for referring me to this study), more than 60% of the persons in the top 1% of the income distribution in 2005 consisted of (non-finance) executives, managers, and supervisors, medical personnel, lawyers, and non-finance persons doing computing, math, or engineering.

Although, on the whole, I believe that most members of the top 1% provide useful services to society, I share the concern of “occupiers” and Tea Party members about many of the bailouts. The rich bankers and others who took large risks should have taken much larger haircuts. I have also supported from the beginning of the recession higher capital requirements for banks, especially for the large “too big to fail banks” that will be bailed out if they get into financial difficulties.

Nevertheless, the overall earnings inequality has far greater relevance for the vast majority of occupiers and Tea Party supporters than do the earnings of men and women at the very top of the financial sector. The most effective way for the US to reduce overall inequality that will help the largest number of young persons is by finding ways to bring American high school and college graduation rates up to the levels achieved by the other nations, such as South Korea and some European nations, that have replace the US as worldwide leaders in education achievements."

Why John Taylor Is Against Nominal GDP Targeting

See More on Nominal GDP Targeting

"Several people have asked me to comment on nominal GDP targeting, as recently proposed by Scott Sumner, Christina Romer and Paul Krugman. I did research on nominal GDP targeting many years ago and found that such targeting proposals had a number of problems, which I summarized in the paper “What Would Nominal GNP Targeting Do to the Business Cycle?” Carnegie-Rochester Series on Public Policy, 1985. Although much has changed in the past quarter century I find many of the same problems with the recent proposals.

One change is that, in comparison with earlier proposals, the recent proposals tend to focus more on the level of NGDP rather than its growth rate. This removes some of the instability of NGDP growth rate targeting caused by the fact that NGDP growth should be higher than its long run target during the catch up period following a recession. But it introduces another problem: if an inflation shock takes the price level and thus NGDP above the target NGDP path, then the Fed will have to take sharp tightening action which would cause real GDP to fall much more than with inflation targetting and most likely result in abandoning the NGDP target.

A more fundamental problem is that, as I said in 1985, “The actual instrument adjustments necessary to make a nominal GNP rule operational are not usually specified in the various proposals for nominal GNP targeting. This lack of specification makes the policies difficult to evaluate because the instrument adjustments affect the dynamics and thereby the influence of a nominal GNP rule on business-cycle fluctuations.” The same lack of specificity is found in recent proposals. It may be why those who propose the idea have been reluctant to show how it actually would work over a range of empirical models of the economy as I have been urging here. Christina Romer’s article, for instance, leaves the instrument decision completely unspecified, in a do-whatever-it-takes approach. More quantitative easing, promising low rates for longer periods, and depreciating the dollar are all on her list. NGDP targeting may seem like a policy rule, but it does not give much quantitative operational guidance about what the central bank should do with the instruments. It is highly discretionary. Like the wolf dressed up as a sheep, it is discretion in rules clothing.

For this reason, as Amity Shlaes argues in her recent Bloomberg piece, NGDP targeting is not the kind of policy that Milton Friedman would advocate. In Capitalism and Freedom, he argued that this type of targeting procedure is stated in terms of “objectives that the monetary authorities do not have the clear and direct power to achieve by their own actions.” That is why he preferred instrument rules like keeping constant the growth rate of the money supply. It is also why I have preferred instrument rules, either for the money supply, or for the short term interest rate.

Rules for the instruments are what monetary policy needs, not excuses for discretionary actions. I welcome more research looking for better instrument rules which are explicit and operational enough to be evaluated with empirical economic models. Even an historical comparison of different rules would be welcome, and Allan Meltzer's monumental History of the Federal Reserve would be a good foundation to build on. As he summarized in a speech this week, “Economists and central bankers have discussed monetary rules for decades. A common response of those who oppose a rule, or rule-like behavior, is that a central banker’s judgment is better than any rule. The evidence we have disposes of that claim. The longest period of low inflation and relatively stable growth that the Fed has achieved was the 1985-2003 period when it followed a Taylor rule. Discretionary judgments, on the other hand, brought the Great Depression, the Great Inflation, numerous inflations and recessions. The Fed contributed to the current crisis by keeping interest rates too low for too long.”"

Adam Smith: The evils of unrestrained selfishness might be better that the evils of incompetent and corrupt government

See Quotation of the Day… by Don Boudreaux of "Cafe Hayek."

… is from the great Jacob Viner’s classic 1928 article “Adam Smith and Laissez Faire”; here, specifically, from page 142 of the 1966 A.M. Kelley reprint of the 1928 volume Adam Smith: 1776-1926:

Even when Smith was prepared to admit that the system of natural liberty would not serve the public welfare with optimal effectiveness, he did not feel driven necessarily to the conclusion that government intervention was preferable to laissez faire. The evils of unrestrained selfishness might be better that the evils of incompetent and corrupt government.

I add only that nothing removes the restraints on selfishness more readily and surely than does access to government power.