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AMERICAN.COM

The Journal of the American Enterprise Institute

The American Scene

From the July/August 2007 Issue

When CEOs Buy Big Homes, Clogged U.S. Ports, and more...

When CEOs Buy Big Homes, Stock Prices Lag 

If a CEO sells company stock to buy a home, shareholders should pay attention: he may be revealing doubt about the company’s future. Researchers Crocker Liu of the W. P. Carey School of Business at Arizona State University and David Yermack of the Stern School of Business at NYU scoured online databases of real estate transactions, seeking public information about the primary residences of S&P 500 CEOs. They found 488 of these homes, and compared the timing, size, and financing of the transactions with the performance of the companies. They published their findings online. 

Companies whose CEOs do not sell company stock to finance homes outperform those whose CEOs do sell company stock—even if the total amount sold is a small fraction of the CEO’s position in the company. And those companies whose CEOs buy the largest homes tend to underperform their peers, no matter how the home was financed.

 

Psychologists from Outer Space

 

alienThe Fermi Paradox, named for physicist Enrico Fermi, is this: if the universe is as vast as scientists imagine, it ought to contain many varieties of intelligent life. Why, Fermi wondered, if smart aliens are out there, haven’t we heard from them yet?

“Speculation about extraterrestrial intelligence is a mirror in the sky. When we think about our intelligent alien counterparts up there—and wonder what it is they are doing that keeps them from coming down here—we usually end up learning more about ourselves than we do about the aliens. 

“During the coldest part of the Cold War, the Fermi Paradox was solemnly put forward as a cautionary tale: [civilizations that] reach a certain level of sophistication blow themselves up in atomic warfare. 

“In the 1980s, when environmental concerns crept onto the scene, the favored explanation was, predictably, that advanced alien civilizations despoiled their own planets and polluted themselves into extinction. 

“More recently, psychologists have speculated that the aliens entertain themselves to death, so enmeshed in a consumer, virtual-reality culture that they never bother to look for other intelligences or explore the cosmos. 

“I wouldn’t be surprised if breathless scientists soon report that aliens become too obese to be launched into space.” 

— Jacob Foster, remarks to the Oxford Canning Club

Illustration by Simon Spilsbury

 

 

FINDINGS: Can Germs Outrace Lawyers?

 

“Germs have evolved to exploit our new weakness. Public authorities are ponderous and slow; the new germs are nimble and fast. Drug regulators are paralyzed by the knowledge that error is politically lethal; the new germs make genetic error—constant mutation—the key to their survival. The new germs don’t have to be smarter than our scientists, just faster than our lawyers.” 

—Peter Huber, City Journal


 

 

Clogged U.S. Ports: New Form of Protectionism

 

A shortage of cargo-handling capacity could limit the economic benefit of moving manufacturing operations to China, argues a new study by George Stalk Jr. and Kevin Waddell of the Boston Consulting Group. Over the next few years, China plans to build nearly 100 new berths on its east coast to load container ships with its growing factory output. But no more than five new berths are slated to be built on the west coast of North America, where much of the cargo is headed. Congestion at the most conveniently located ports is prompting shippers to switch to longer routes, a shift that slows the supply chain and increases the amount of time goods must be held as inventory. 

Port congestion acts as a non-tariff barrier to the offshoring of North American manufacturing jobs. U.S. protectionists, the authors conclude, may have more success supporting the environmentalists who campaign against port expansion than they do with outright arguments for new trade barriers—to much the same effect.

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