Archive for the ‘Economics’ Category

Nature’s Metropolis

April 17, 2011 Leave a comment

I explained three weeks ago how political developments in Wisconsin led me to download and start reading William Cronon‘s 1992 study Nature’s Metropolis: Chicago and the Great West. As I mentioned then, Paul Krugman wrote a post at the end of January in which he spoke of rereading the book, adding that

everyone with any interest in economics should read [Cronon’s] account of the rise of the Chicago Board of Trade. Railroads changed everything. It wasn’t just the fact that stuff could be shipped further, faster, cheaper; the railroad also led to the replacement of concrete with abstract forms of ownership (the farmer owned a receipt for a bushel of grain, not a particular sack), standard-setting, futures markets, and on and on.

I almost bought Cronon’s book at the time. With his appearance in the news last month as a victim of the McCarthy-style tactics of Wisconsin’s Republican party, I delayed no longer. Four days ago, I finished it.

Reading the book was a thrilling experience. It is the most astonishing blend of history, geography, economics, and ecology that I can imagine. You will surely realize that I don’t exactly read a lot of history, geography, economics, or ecology. Perhaps my assessment shouldn’t carry a lot of weight. But let me say this. Find the book, read Part II, and tell me if you disagree.

The book has three parts. The first introduces some of the book’s themes, with a focus on how water, then rails, gave Chicago its central role in the economy of the west over the nineteenth century. Just a few miles up the Chicago River, one reaches a high point whose other side drains into the Illinois River and on into the Mississippi. Thus, Chicago lies virtually at the divide between waterways that take you, in one direction, via the lakes and the Erie Canal, to New York City (or via the lakes to the St. Lawrence, Montreal, and beyond to the Atlantic), and in the other direction, via rivers, to St. Louis, New Orleans, and the Gulf. No sooner did Chicago begin to benefit from this prime location than railways changed everything. But yet again — and Cronon takes pains to point out that this was not inevitable — Chicago found itself in the key location between railways that supplied and brought goods from the great west and railways that sent the west’s produce to the major cities of the east while shipping the east’s manufactured goods back west.

Part II, building on this, is the heart of the book, and a must-read. Titled Nature to Market, it has three chapters: Pricing the Future: Grain, The Wealth of Nature: Lumber, and Annihilating Space: Meat. Each is a gem. I can think of no better microeconomics primer, as we watch capitalism take root and transform the western regions of the country along with the way of life of its population and the land itself. Prairie makes way for farming, the white pine of the north woods makes way to fence the prairie and house its inhabitants, and plains buffalo make way for cattle range land. People’s lives improve, but at a cost, which Cronon always keeps in our field of view.

Part III zooms out a bit, with a broader look at what has been gained and lost. It contains yet another gem, the chapter The Busy Hive, in which we watch Montgomery Ward become a retail force much like Wal-Mart or Costco today. But really, the entire book is a gem.

Categories: Books, Economics, History

Are You Comfortable?

August 23, 2010 Leave a comment

Once again, I’ve sat too long on a topic I meant to write about. Maybe I’ll give it a shot before the issues fade completely from my mind. The starting point was James Surowiecki’s economics column in the August 16 issue of the New Yorker, dated a week ago but now two weeks old. In the context of Congressional discussions on whether to extend the Bush tax cuts that are set to expire at the end of the year, he asks,

who counts as rich? The Obama Administration’s answer is that you’re rich if you make more than two hundred thousand dollars a year as an individual or two hundred and fifty thousand dollars a year as a household, and therefore you should have your taxes raised. Conservatives suggest that this threshold is far too low, and argue that Obama would be taxing mostly small-business owners, or the people a Fox News host has referred to as “the so-called rich,” rather than fat plutocrats. You might think this isn’t really much of a debate. An annual income of two hundred and fifty thousand dollars puts you in the top three per cent of American households, and is more than four times the national median. You’re rich, and a small tax increase isn’t going to rock your world.

Surowiecki goes on to note that “from surveys of how Americans describe themselves, most of the privileged don’t feel all that privileged.” He then reviews why this might be the case, with reasons ranging from the high cost of housing in certain parts of the country to the fact that those earning “a few hundred thousand dollars a year have done much worse than people at the very top of the ladder.”

Surowiecki proceeds to explore this last point in more detail. He observes, for instance, that “People in the ninety-fifth to the ninety-ninth percentiles of income have represented a fairly constant share of the national income for twenty-five years now. But in that period the top one per cent has seen its share of national income double … So at the same time that the rich have been pulling away from the middle class, the very rich have been pulling away from the pretty rich, and the very, very rich have been pulling away from the very rich. … there’s a yawning chasm between the professional and the plutocratic classes.”

Surowiecki concludes that the tax system should reflect this chasm, with the super-rich paying higher rates than the very rich. He concludes that doctors, lawyers, accountants — what one might call (and Matt Miller does call) the “lower upper class” — inhabit a different world from the ultra-rich and should inhabit a different tax bracket as well.

In a commentary at CNN, John Avlon made much the same point two weeks ago, perhaps influenced by Surowiecki’s article, though he doesn’t refer to it. Avlon writes,

There is another issue . . . beyond the increasing gap between rich and poor in the United States.
It is the gap between the “super rich” — who really do have more money than they know what to do with — and what might be called the “working wealthy,” who are taxed as though they’re rich enough to able to give away half their money.

These are individuals whose household income might bring them into the top tax bracket of $250,000 a year but who, with two parents working, might still find themselves struggling to stay in the stability of the upper-middle class in the expensive urban areas where they often work.
Much of the anger about the scheduled sunset of the Bush tax cuts for the increase in top-bracket taxes comes from this productive group of Americans.

The super rich are looking for charitable donations to deduct from their taxes each year, while the working wealthy are still trying to pay all their bills. But they are taxed at the same rate as the private jet set (what a few years ago might been called the Bernie Madoff crowd).

Avlon concludes with mention of “the growing gaps in our society, not just between the rich and poor, but between the super rich, the working wealthy and the forgotten middle class.”

At the Atlantic, Derek Thompson replied to Avlon’s piece, granting that “it can be challenging to put two kids through private school and pay a mortgage on $250,000 a year in an expensive urban area,” but disagreeing “that those families’ experience should guide our tax policy.” He ends up drawing the same conclusion as Surowiecki:

Avalon’s [sic] piece strikes me as an argument for more income brackets. If we acknowledge the country is getting ever more stratified between the wealthy, the super-wealthy and the sweet-lord-they-must-use-their-money-as-napkins wealthy, why not build an attic on top of income tax system to catch extra money at higher rates?

Thompson also takes exception to Avlon’s description of the struggling earners of $250,000 as upper middle class: “I know it’s polite to say we’re all middle class until our yearly income adds a seventh digit, but really. If the 95th percentile is the middle class, does that make the median income earner upper-lower class? Or is America’s middle class more like the stuffing in a three-story Oreo?”

Thompson has a link to a very useful document from Tax Policy Center, from which we can see that about .4% of the population earns over $1 million, whereas another .7% are in the $500,000 to a million range and 3.9% are in the $200,000 to $500,000 range.

Can someone really make $250,000 and be middle class? A week ago, at Andrew Sullivan’s blog site, The Daily Dish, Sullivan’s assistant Patrick Appel quoted from Thompson’s post and then addressed this question. (Sullivan is on vacation and his staff members are running the show.) Appel posits, “families tend to socialize with families who make a little more and a little less than they do. A family earning $250,000 a year likely has a number of friends that make around that amount. They probably also know a number of families making $300,000 to $400,000 a year and number of families making $100,000 to $200,000 a year. Even if an American is in the 95th percentile nationally, they are likely to feel middle-class in relation to peers.” A debate ensued among readers, which you can follow by going over to The Daily Dish.

The notion that we’re all middle class was impressed upon me very early through a joke my father used to tell. It’s a familiar joke, one that could perhaps work in any culture, but one that has come to be identified with American Jewish culture. Indeed, if one does a search on the joke, one finds that it is variously attributed to Henny Youngman, or told with instructions that the punchline should be spoken with a Yiddish accent, or written with Yiddish-accented words (“vell” for “well”) thrown in. Underlying the joke is the notion that one needs a euphemism for being wealthy, it being somehow unseemly for someone to actually admit to being rich. The particular euphemism used in the joke (and so, the euphemism I learned as a child) is that of “being comfortable.”

As for the joke, well, it goes something like this. A man (a Jewish man in some tellings, or more explicitly, a Mr. Cohen) is walking across the street when he is hit by a car. The driver (or perhaps a passing policeman) rushes out to the man, who is lying on the street, puts his sweater under the man’s head, and asks, “Are you comfortable?” The man replies, “Eh. I make a living.”

That’s my understanding of the issues. And yes, I make a living.

Categories: Economics, Humor

Luck, Hard Work, Success

May 3, 2009 Leave a comment


I don’t watch the Fox Business Network, but thanks to a tip from Ezra Klein on his blog, I found myself watching the six-and-a-half-minute clip from last Thursday in which Fox’s Stuart Varney interviews Cornell economist Robert Frank. (Among Frank’s books is a basic economics text written jointly with Ben Bernanke.) I started the clip out of curiosity, not anticipating watching it all. Soon I was transfixed. When you have a few minutes, do yourself a favor and watch. (Click here.) It’s extraordinary.

Who knew one would have to respond to a host who announces that he is insulted to be told that luck is a part of success? Varney turns that general statement into an attack on himself and insists that he succeeded because of his own hard work, talent, and risk taking. He further insists that success will come to anyone who does this. Along the way, he segues into a discussion of high marginal tax rates, asks Frank how much of his money should be taken away (seeming to suggest in passing a total lack of understanding of the notion of a marginal tax rate), and suggests that Frank return to his socialist New York Times and socialist Cornell. I have no idea whether Varney is serious or simply aiming to provoke and entertain. But entertain he certainly does. And Frank gets to observe in passing that Varney is proof that luck is required, since Varney clearly lacks anything else that could have produced such success.

Categories: Culture, Economics, Television

What Service Economy?

March 20, 2009 1 comment


A few weeks ago I wrote about Jeff Madrick’s book The Case for Big Government, published last fall by Princeton University Press. I learned about it in Richard Parker’s New York Review of Books review and ordered it a couple of days later. I got about halfway through the book before getting distracted by other business.

As I anticipated from the review, I’ve enjoyed reading Madrick’s argument that government spending throughout US history has had much to do with the country’s becoming the world’s leading economic power by early in the twentieth century, as it moved from an agricultural to a manufacturing economy. This simply would not have happened without government investment in education and infrastructure, or without government land policies and land giveaways. Well, that’s a simplification of his argument, but part of it. In particular, the claim that government spending interferes with economic growth and initiative, which has come to be taken for granted since Reagan’s presidency, as Milton Friedman’s ideas have moved to the mainstream and dominated conservative-based economic discussion, is simply false, without data to support it.

Madrick also discusses the next stage in our country’s economic evolution, from a manufacturing to a service economy, and as one reads his discussion of this, one need only look at events of the last half year to realize what an illusion that was. You can’t make something out of nothing. Wall Street did for a while. Enron did. Madoff did. But eventually it collapses.

With my two recent trips to Detroit, this has been much on my mind. Michigan (and surrounding states) became the country’s manufacturing center in parallel with the growth of a manufacturing-based economy in the first half of the twentieth century. Now Michigan is an economic mess. Yet, I can’t help thinking that the revitalization of this region and more generally of our industrial base may be an essential component of the country’s economic recovery.

This was on my mind when General Electric’s annual report arrived in the mail yesterday. (Joel owns 10 shares, a Bar Mitzvah present from my brother, which is why we receive GE mailings.) Given GE’s own problems and its announcement three weeks ago that it was cutting dividends from 31 cents a share to 10 cents a share, I decided this morning to see what chairman and CEO Jeffrey Immelt had to say in his opening letter. It’s a long one, about six pages of small print. I still haven’t read it all, but I did come across a passage near the end that prompted this post and that I wish to quote. Here’s what Immelt says:
Read more…

Categories: Business, Economics, History

Electric Car Network

March 20, 2009 Leave a comment


David Pogue, the NYT technology writer, interviewed Better Place chief executive Shai Agassi on the CBS News Sunday Morning last Sunday. Better Place has been much in the news lately for its plans to build an electric car network. You’ve probably read about it — this is the idea that you don’t have to charge your car at home or work and get limited range. Instead you can drive into the electric equivalent of gas stations when you’re on long drives and have the battery swapped for a fresh one. For shorter drives, charging the one in the car overnight or while at work should work fine, but for long drives you do battery swaps. Plus, the company owns the battery, so the price of the car drops. And as battery technology improves, the company drops in better batteries, so you don’t have to worry about having an out-dated battery that doesn’t perform as well as those in new cars.

I didn’t see Pogue’s interview of Agassi, but yesterday Pogue had a blog post containing an edited transcript of the interview that, though shorter than the full interview, is longer than what was shown on TV. It’s fascinating. I urge you to read it. The ideas underlying the network, as described partly above, fit together brilliantly. A short excerpt is below, but read the whole transcript.
Read more…

WSJ Sports

March 10, 2009 Leave a comment


When I went through our newspapers this morning, I opened the Wall Street Journal’s fluffy section — Personal Journal — looked at an article on its front page about a feature at that lets you compare the real costs of booking with one airline versus another on a particular route (including baggage fees, food, and so on), then read an article on the back page about the Big East basketball conference’s annual tournament that started tonight at Madison Square Garden. The Big East is the biggest of the major conferences, with 16 teams, and a noteworthy feature of this year’s tournament is that all 16 are invited, not just the top 8 or 12. It was an interesting article, to the extent that reading about the end-of-regular-season, pre-NCAA-tournament conference championships are interesting. But I didn’t think much about the fact that there was such an article. The WSJ has articles on just about any imaginable topic.

Late this afternoon, I looked at the WSJ’s front section, which evidently I had failed to do in my first pass this morning, and I noticed the banner headline on a green background stating “It’s Official – Sports in the Journal D12.” Wow! Sports in the WSJ. I mean, I knew it was due to happen. Ever since Murdoch bought it, it has slowly moved towards a regular paper. And as local papers die (our own Seattle Post-Intelligencer, owned by Hearst Corporation, is likely to die this week), the diversifying WSJ will be better positioned to compete with what are in effect its only national competitors, the NYT and USA Today. But still, a WSJ sports section? I turned immediately to D12 to see what they would be covering. And found an article about the Big East basketball conference’s annual tournament. Somehow I was oblivious this morning to the fact that I was reading the inaugural WSJ sports page. I turned back a page, anticipating that there might be more sports pages, but there weren’t. One page in from the back was the usual Leisure & Arts page. But it did have another sports article, one with a business slant written by Andrew Zimbalist, an economist at Smith, in which the economics of the NCAA basketball tournament is discussed.

The Zimbalist article had no real surprises, but I can’t resist quoting two comments in which Zimbalist can’t quite restrain himself from pointing out, in passing, the absurdity of big-time college sports. First, in a discussion of the finances of major college basketball, he observes:
Read more…

Categories: Economics, Newspapers, Sports

Thomas Friedman, Revisited

March 9, 2009 Leave a comment


A few months ago I wrote a post, Thomas Friedman and Conventional Wisdom, in which I used quotes from Bill McKibben (in his NY Review of Books review of Friedman’s book Hot, Flat, and Crowded: Why We Need a Green Revolution—and How It Can Renew America) and Glenn Greenwald (in a then-new post on his blog) to explain what has long bugged me about Friedman. I can’t resist returning to this subject because yesterday (thanks to a current Greenwald post, on a different subject) I discovered a brilliant appraisal of Friedman and his book by Matt Taibbi that appeared two months ago at New York Press.

Taibbi’s article is more than a little snarky, but in an informative way, and I highly recommend it. I especially recommend its discussion of Friedman’s extrapolation from a graph, with suggestions of other extrapolations one can make with Friedman’s methodology. I’ll end with one typical passage:

Like The World is Flat, a book borne of Friedman’s stirring experience of seeing IBM sign in the distance while golfing in Bangalore, Hot, Flat and Crowded is a book whose great insights come when Friedman golfs (on global warming allowing him more winter golf days: “I will still take advantage of it—but I no longer think of it as something I got for free”), looks at Burger King signs (upon seeing a “nightmarish neon blur” of KFC, BK and McDonald’s signs in Texas, he realizes: “We’re on a fool’s errand”), and reads bumper stickers (the “Osama Loves your SUV” sticker he read turns into the thesis of his “Fill ‘er up with Dictators” chapter). This is Friedman’s life: He flies around the world, eats pricey lunches with other rich people and draws conclusions about the future of humanity by looking out his hotel window and counting the Applebee’s signs.

Friedman frequently uses a rhetorical technique that goes something like this: “I was in Dubai with the general counsel of BP last year, watching 500 Balinese textile workers get on a train, when suddenly I said to myself, ‘We need better headlights for our tri-plane.’” And off he goes. You the reader end up spending so much time wondering what Dubai, BP and all those Balinese workers have to do with the rest of the story that you don’t notice that tri-planes don’t have headlights. And by the time you get all that sorted out, your well-lit tri-plane is flying from chapter to chapter delivering a million geo-green pizzas to a million Noahs on a million Arks. And you give up. There’s so much shit flying around the book’s atmosphere that you don’t notice the only action is Friedman talking to himself.

Categories: Books, Culture, Economics, Politics