Economic Thinking

Global Cities and Economic Development

2011-02-28T18:00:00.000-08:00

Notes on Global Cities, Geography, and Economic Development Gregory Rehmke, February 22, 2011

The Houston World Affairs Council invited me to give talks to Houston area teachers on Global Cities. In my notes below I discuss Paul Romer's proposal for charter cities, and the historical role of cities in economic development.

I have further notes and links to handouts, websites, and videos here: http://www.economicthinking.org/chartercities/

First Session: Cities and Economic Development
1. Edward Glaesner in Triumph of the City outlines the advantages cities offer both in the developed and devel- oping worlds. He argues is is better in China, India, and Africa to be poor in the city than among the rural poor.
2. Paul Romer argues that Charter Cities could be devel- oped on vacant land to allow rule of law institutions that encourage investment, create jobs, and improve options. Economic prosperity from technology and rules. Doug- las North and Mancur Olsen on institutions.
3. Hernando de Soto in Globalization at the Crossroads notes that Western Europe and America experienced similar migrations to cities over the last two centuries, and these migrations “broke the back of The Old Order” bringing legal reforms and economic growth.
Law develops from everyday local commerce, and and governments that ignore these “natural” laws, try instead to force often top-down regulations on societies.
4. What are the advantages of density? Specialization, concentration of knowledge, increased scope of trade, reduced transportation costs for workers, goods, and services, more choices for consumers, and for employ- ers, workers and entrepreneurs. Plus environmental benefits as increase agricultural productivity means less farmland.
5. Long-delayed economic growth finally arriving in some of the booming cities of Africa and Latin America.

Second Session: Cities Modern, Ancient, Medieval
1. Basic economics, division of labor, specialization, and the scope of trade. The central role of rivers and ports for low transportation costs.
2. The geography of development in the ancient world. Greek colonies as the competitive Charter Cities of the ancient world. Greek institutions favored commerce.
Transportation and trading networks are essential to economic development. Expanding the scope of trade over inexpensive sea and river routes encouraged ex- panded production through the division of labor, spe- cialization, investment, and knowledge flows.
3. "Trans-national" monasteries through the Middle Ages (which weren't so "Dark" after the 8th Century). At its height, 37,000 Benedictine monasteries and: "Every
Benedictine monastery was an agricultural college for the whole region in which it was located." 742 Cister- cian Monasteries transferring factory and agricultural knowledge technology across western Europe. Trade around and between monasteries, along rivers and ports.
4. The geography of development in the Medieval world. Italian city states and the Hanseatic League as similar to
Charter Cities. Novgorod the Great vs. Moscow.
European cities of the Hanseatic League gained char- ters to protecte their commerce from local princes, al- lowing self-rule, and contract and property law.
5. Amsterdam became a global city through religious tolerance, open trade, investment, and migration.
6. Some Medieval cities survived the Middle ages. (Rick Steves "Little Europe": Andorra, Liechtenstein, Monaco, San Marino.) The recent success of Estonia, Slovakia, Montenegro.
7. New city-states from regional conflicts from the fall of the USSR, might succeed (and might not): Albania, Moldova, Georgia, Crimea.

Notes on basic economics of development
1. The basics of economics: from scarcity to providing food, clothing, and shelter.
2. Most were farmers, so advances came from agricultural productivity. Steady improvements in standards of liv- ing, decade by decade over centuries.
3. Economics as a coordination problem. Usually econom- ics begins with a discussion of scarcity: not enough goods and services available to satisfy all wants. Good and services are scarce and the people who produce them want value in exchange. Trade increases wealth.
3. The natural instability of commerce and manufacturing. Open market push prices down and wages up, but profits out... Two examples: the imaginary box and the NYT coffee article, new equipment from William Sonoma,
4. Economic History is similar to Development Econom- ics. Which cities and countries prosper, and why?
5. Students tend to study the history of states, but eco- nomic progress follows more the history of cities. Jane Jacobs in Cities and the Wealth of Nations, claims cities are the sources of wealth and states act more as parasites.
6. Grotius: Rulers traditionally obtained their legitimacy through their commitment to enforcing the law--law be- ing coeval with society itself... Rulers didn’t create law.

Gregory Rehmke • grehmke@gmail.com

Reflections on watching George C. Scott in Dicken's “A Christmas Carol”

2009-04-25T05:01:00.000-07:00

(Revised and expanded version of earlier 2007 and 2004 post. The 2004 post was quoted in December 17 Toronto Star article "The Politics of Ebenezer Scrooge": www.thestar.com/Ideas/article/158007)

Family, Work, Community
Did Ebenezer Scrooge Dream a Better Life for Himself?
Reflections on watching George C. Scott in Dicken's “A Christmas Carol”
by Gregory Rehmke

Consider Charles Dicken's Ebenezer Scrooge, as brought to life by George C. Scott in the television movie from the 1990s. George C. Scott plays Scrooge as a competent businessman who finds both Christmas and philanthropy a waste of time and money. His eyes are opened through a series of nightmarish dreams. The book and various movie versions are offered today as indictments of greed and business, as well as celebrations of the joys of family, Christmas, and giving to those less fortunate.

Viewers can look at this classic story through a pro-market lenses and see different lessons than do the majority who misunderstand capitalism and the role of markets and prices. And we can write our own last chapter to the story that lets Scrooge live a happier life without compromising his business principles.

I would argue that a better, though less dramatic, interpretation of the story is simply that people—especially successful businesspeople—can get too wrapped up in their work, and lose touch with the rest of their lives. Engagement in civil society brings many unexpected and hard-to-quantify pleasures. Philanthropy can be satisfying to the giver as well as helpful to the receiver. And even the most anti-business take on "A Christmas Carol" still must admit it is Scrooge's private philanthropy, not the state, that in the end helps the poor.

The story begins with Scrooge successful in business but having let his personal and social world fade. He long ago let his love relationship drift away and deep down regrets it. After a difficult childhood, he gradually gained a kind of comfort in solitude and emotional isolation. As is usual in novels and movies, nothing positive is said or implied about his work. No glimmer of understanding that he must be providing a valuable service in order to stay in business and make profits. But we can agree that focused businessmen like Scrooge can lose track of their family and social lives and find themselves years later wealthy but alone.

Second, the story features an interesting, if subtle, attack on government welfare. Scrooge is asked to donate to a relief fund. He answers that he pays taxes for just such purposes. Why don't the homeless go to existing poor houses or to prisons he asks? The private-relief fund-raisers ask him if he has ever seen the government relief houses. Scrooge answers no, he hasn't. He is responding reasonably and so are they. (Should we expect a socially-responsible Scrooge of today to donate to innovative private charities, or to agitate for repair of failing government welfare programs?)

Tax-supported relief houses give the emotionally-distant Scrooge an excuse not to take personal responsibility for the poor. He has already paid, he claims, through his taxes. He uses government-funded welfare agencies as an excuse to avoid supporting private relief agencies. With no state-run poor houses in England, he might still have said: "Bah, Humbug!" and been tempted to “free-ride” on donations of others. That is, he might free-ride (an economics term) by relying on others to donate to help beggars. Scrooge would benefit from beggar-free streets without spending a dime on donations (he is greedy in the story, after all).

Few of us enjoy seeing and dealing with homeless people begging on the street. Scrooge could well have been drawn into private relief just to keep beggars out of his way. Still a selfish motive, but one that would require helping others in order to help himself. He could have invested in enterprises that create job-expanding opportunities that help the unfortunate or unwise to get back on their feet. Consider too that Scrooge's current business, speculation, could very well be helping the poor more effectively that any charity he might choose to support (more on this possibility below).

Had Scrooge invested in a job-training firm, for example, he could carry business cards promoting his job-training services to helpfully put in the cups of beggars. In this way he could have helped the needy and profited as an investor in training-services at the same time (perhaps naming his enterprise Scrooge Phoenix University). Many for-profit as well as nonprofit organizations today provide job-training services and generate income through job-placement. The poor learn skills and pay a portion of their later salaries back to the job-training/job-placement organizations.

My great-great-grandfather, Dr. Thomas Guthrie helped start the Ragged Schools for Children in Scotland and England. He went to the Scrooges of his day (the 1840s) and convinced them to contribute. There were 192 Ragged Schools in operation at its peak with 20,000 destitute children attending each year. An estimated 300,000 attended overall, from 1840s to 1880s. The English government apparently saw the Ragged Schools as unwanted competition to their poor houses and new government-funded schools, and they drove the Ragged Schools out of business. (Students apparently preferred the industry-training they received as part of their education at the Ragged Schools. The UK government went so far as to sue to force students out of Ragged Schools and into government schools. Glimpse this fascinating story here: www.infed.org/walking/wa-shaft.htm)

Because Scrooge feels he has already discharged his obligation to help the poor (thanks to state-mandated poor-house welfare), he loses touch with that part of the world. He doesn't bother looking into the management and operation of poor houses because their tax-funding insulates them from private reform. And he knows he wouldn't be allowed to withhold his taxes if he found them badly managed.

Had he been able to choose among private alternatives he would have had an incentive to investigate how his money was used. He doesn't do much investigation after being saved, in the George C. Scott version. He just gives a big donation to the private relief effort he refused the day before. But even so, he will surely take an acute interest in that private relief project after donating a huge sum to it. He would be angered as well as embarrassed if the relief effort he supported turned out to be ill-managed or a fraud.

Scrooge, thanks to tax-funded poor houses, is less likely to be drawn into civil society philanthropies that might have opened up his life (and he might have been less in need of spiritual shock-therapy).

His very skeptical eye would be a valuable service for private charities, as he seems to understand that good intentions matter less than good results. He would probably be a better trustee of a private charity than his "do-gooder" nephew, for example.

George C. Scott's Scrooge notes with disapproval his nephew's offer to overpay Cratchit's son. Scrooge understands that overpaying for a young person's first job can have negative consequences. It breaks the connection between a person's productivity and their pay. It confuses charity with wages in the mind of both the employee and employer.

The intricate dance toward “just” or market wages not only pits each worker against others willing to take on a job, it pits each employer against all others willing to pay higher wages. When employers get greedy and try to hold wages below the marginal earnings each worker brings the firm, other employers have a profit opportunity, if they can hire that worker away.

Smaller earnings from each of twenty or a hundred workers can add up to far more than large earnings from five. Henry Ford earned far less profit per car sold than did Henry Royce. But in the end, he did okay.

The push for profits in the labor market leads employers to a bidding war that narrows the gap between what workers earn for firms and what they are paid. Competition for workers is endlessly frustrating for employers who hire and train new employees only to find them lured away by better offers. The core source of Bob Cratchit’s low pay is likely his limited responsibility and productivity at the firm of Scrooge and Marley. In fairness to Mr. Cratchit, it may not be his fault that Scrooge has been holding on too tight and not delegated enough. Marley may have offered Scrooge more opportunities to learn and share responsibilities at the firm than Scrooge had so far given Cratchit. Either could be blamed, but it seems reasonable to find fault with the side most capable of changing the situation: the boss.

Seeing the Ghost of Famine future  

Some are visited by the ghosts of terrible futures that never happen, but might have. Imagine Ebenezer Scrooge dreaming of a terrible famine would soon strike. Perhaps nightmare tariffs on imported grain coupled with bad harvests in England drive corn prices beyond the reach of the poor and spread famine across the land. Famines in Scrooge’s time were not rare and he would have lived through one in his youth. The Europe-wide famine of 1816/17 followed poor harvests across Europe and the general destruction of the Napoleonic Wars. Crop yields in Western Europe fell 75 per cent triggering wide-spread famine and death.

For a businessman like Scrooge, such a vision might lead to careful (and costly) review of weather news across Europe as harvests approached. News of potentially bad harvests would be a reasons for taking a major investment position. Early on in the movie George C. Scott’s Scrooge visits the city grain exchange to do some business. He holds out for a higher price for corn in his warehouse, and is accused of hurting the poor through his greed. But is holding out for higher prices really hurting the poor? Yes and no.

His “hoarding” or speculating on grain does raise the price today. But it also has the consequence of pushing prices down in the future. Scrooge has seen a vision of scarcer grain in and higher prices the future (otherwise he would sell at today’s prices). He is raising the price of grain for the poor (and everyone else) today, in exchange for lowering the price in the future. If his vision proves true, he will have performed a service for society by pushing all to conserve now a resource that will be more scarce in the future.

The businessmen in the movie claim Scrooge is raising grain prices for the poor today by holding back. These less visionary businessmen may lack the weather information Scrooge could have gathered. Or they may just wish to buy Scrooge's corn at lower prices either to help the poor today or to help themselves. How can we know they would pass these lower prices on to consumers? Perhaps they would just pocket gains from below-market prices themselves. In any case, I will argue that raising prices now can in fact help the poor. (How is that for a Scrooge-like claim!)

Speculators like Scrooge are time-shifters. Whether or not inspired by ghostly visions, they trade goods through time. Scrooge fills his warehouse with corn then turns the dial on a time-machine to transport them to the future. It is an expensive and risky enterprise. Who knows what the future will bring? Such businessmen make informed guesses, they speculate about the future. If they are right, their fourth-dimension transportation system earns profits, even after paying rent on warehouse space and interest on money tied-up over time. If they guess wrong they lose their investment. And after too many wrong guesses, both Scrooge and Cratchit would be looking for new work.

Across Europe, in old city-centers, you can often find the grain exchange building. Here sellers and buyers of grain would gather each day to buy, sell, and speculate. Farmers are just one part of working agricultural markets. Weather and harvests are hard to predict. Grain can be stored for some time, though at a cost. Grain prices embody the collective guesses of hundred or thousands of people about what the future will bring for the supply and demand of grain. Prices change each day as news of hundreds or thousands of events small and large filter into the buyers, sellers, and speculators on the grain exchange.

Steam powered ships opened vast lands in American and Argentina to supply grain the Europe. And steam-powered railroads allowed Ukraine to be a bread-basket to the world. Transportation costs dropped gradually, then rapidly through the 1800s. Low-priced grain from the America's "flooded" Europe with less-expensive grain, leading European landlords, the landed Aristocracy, to lobby Parliament for tariffs on imported grain. The landed Aristocracy of the time favored "fair trade" not free trade. Lower grain prices led to lower rents on their farmland. Struggling workers who benefited from lower food prices had less opportunity to explain the benefits of lower food prices whilst playing whist at the club.

Scrooge was neither a landed aristocrat born with a silver spoon, nor a farmer, nor a manufacturer. How did Scrooge happen to have the corn in his warehouse in the first place? Economists argue he is performing a service by warehousing corn and releasing it when demand is strong. In the movie he is presented as being greedy and pushing prices higher, thus hurting the poor. But by aiming to make profits speculating on corn, his early purchase pushes prices slightly up and encourages conservation now. By speculating in corn he is a visionary. He guesses that in the near future, current plentiful corn supplies will turn scarce. Those lulled by relatively low corn prices to use it casually today would regret it later--but by then it would be too late. Only by taking action before the shortage can some of today’s relative plenty be set aside for tomorrow.

No one can really see into the future and know what corn, oil, or copper prices will be next week, next month, or next year. No one can know the future, but professional speculators invest time and resources to make educated guesses. When they are wrong, they lose their own money, but when correct they make money by better coordinating consumer behavior through time. The warning from a Ghost of Famines Future alerts speculators to act today. Consumers angry now at rising prices benefit in the future when Scrooge’s warehoused corn is released, easing the shortage and stabilizing or lowering the future’s higher prices. Scrooge profits by coordinating consumption through time.

Yet, interestingly, his actions also generate incentives that can eat away at his potential earnings. By warehousing corn and pushing prices higher now, he not only signals conservation by consumers, but also new production. Higher than expected prices signal farmers to work to expand output, to bring new land into production. These behavior changes caused now by Scrooge’s purchases and warehouse will take time to bear fruit. So when the future shortage and perhaps famine arrives some farmers will have expanded production without ever having seen a ghost themselves. Scrooge’s vision and visionary action, signal invisibly through higher prices today that high or higher prices are expected in the future.

Such “excess” grain production does not help Scrooge profit, in fact it will lower his potential gains as the expanded harvests come to market. Still, Scrooge could not expect to feed all of London from his warehouse. He will profit enough and his speculating will have spurred production. And the ghost of possible famine will fade away in the face of both grain sources. All this happens invisibly through changing prices, trusted contracts, and private property. (And not only happens invisibly, but stays invisible for 160 years!)

Back to Cratchit, Wage Rates, & Responsibility 

Many have been written of the economics of A Christmas Carol. But some I think hit a sour note by attacking Cratchit as incompetent and painting the early Scrooge as a hero. We have the luxury of writing our own postscript to the story, one where Scrooge gains some friends, socializes some, and continues to run his business profitably. In our free-market postscript, Scrooge can take an active interest both in supporting well-run and effective charities, and in agitating for government to shut down poorly-run poor houses.

After his conversion, Scrooge gives Cratchit a raise, doubling his salary. Does that mean he was just exploiting him earlier? Or that Cratchit was not particularly competent? No, I think the raise can be seen as a very reasonable decision, part of Scrooge's change of heart, that he wishes to give Cratchit more responsibility at the firm. Scrooge met his own mortality in his dreams that night. He dreamed himself standing before his own grave. Mortality creeps up quietly on all of us, perhaps especially on busy and successful businessmen. With no board of directors to push for a "succession plan" for the firm of Scrooge & Marley, he had avoided the issue.

Scrooge likely didn't pay more earlier because he hadn't given Cratchit enough responsibility to enable him to be worth more. With Scrooge’s change of heart, higher pay would go hand in hand with higher productivity from Cratchit, which would follow from additional responsibilities. Scrooge will need to free up time, after all, for board meetings at the various nonprofits he will be asked to join--word of unexpected large donations gets around fast in the nonprofit community.

Consider too that giving Cratchit more responsibility and more knowledge of the business could dramatically raise Cratchit's income earning ability for the firm. Scrooge might make even higher profits from a better-paid Cratchit.

It could be claimed that Cratchit is incompetent, but nothing indicates bad work habits in the movie, apart perhaps from showing up late to work one day--but that could be blamed on the overlarge and unexpected turkey Scrooge himself donated the day before. The audience, unfortunately, sees only the seemingly arbitrary nature of pay. Bosses can apparently double someone's pay if only spirits scare them half to death in nightmares (something politicians and labor unions have tried to do ever since).

So I recommend George C. Scott’s A Christmas Carol to my young nieces and nephew. They will enjoy it as will other young people (though perhaps not as much as the Mr. Magoo’s cartoon version). Still the hard part is keeping them attentive for the thirty-minute economics lecture following.

Gregory Rehmke (grehmke@economicthinking.org) is a writer and economic educator based in Seattle. He directs Economic Thinking, a program of the nonprofit E Pluribus Unum Films. More information at www.EconomicThinking.org.

Less government, better coping

2007-07-09T10:37:00.000-07:00

[comment on Daily Speculations post on various potential crises in China]

“The Chinese government is struggling to cope…” Newspapers regularly report that governments or federal agencies working hard to deal with the crisis-of-the-week. We have a impending water shortage in China this week. Last week the headlines were of massive floods in China. This suggests an opportunity to improve infrastructure (though western environmentalists still oppose new dams).

When water is owned and has prices less will be wasted. If Chinese farms cannot compete without “free” water, they will shift to different crops. When farms pay more for water they economize and innovate, and some on the margins go out of business. Chinese farmers, starved of capital for generations, need far fewer workers as they gain access to modern farm machinery and methods. Workers naturally migration to village and city factories. ”Social upheaval” is more the consequence of Chinese government intervention in capital markets, restricting investment in some areas and subsidizing it in others. Chinese economic growth of 10% is celebrated, yet a free China would grow faster with less pollution and resource waste. Michael Cox offers this analogy. One man struggles to clear a path through the jungle. With a machete he can move ahead much faster (up to 10%, say). But when those behind him find the trail, they can go much, much faster. China found the capitalist trail and would have run along it much faster without the remnants of communist bureaucracies "struggling to cope."

An online source reports the U.S. imported 150,000 tons of apple juice concentrate from China in 2006. That takes a lot of water to grow. U.S. customers won’t notice slightly higher prices from less Chinese apple juice, though U.S. orchardists would. Ending water subsidies for apple production in China could benefit many, while harming some in the short term. Higher pork prices hurt the poor but encourage efficient pig farmers to expand, and to clean up their operations to better avoid disease. Will “social upheaval” follow higher pork prices, or just more fish for dinner?

John Quincy Adams' July 4 Speech

2007-07-04T08:35:00.001-07:00

Each July 4th the Declaration of Independence would be read aloud in the capital as part of a July 4th celebration. John Quincy Adam’s July 4th, 1821 speech is memorable. I have long seen quotes of his brief mention of foreign policy. But the rest of the speech is excellent as well. It is often described online as a speech to Congress, but Congress was not in session during the July heat in Washington DC. You can see the full pamphlet online here.

An address,
delivered at the request of the committee of arrangements
for celebrating the anniversary of Independence,
at the City of Washington on the
Fourth of July 1821
upon the occasion of reading
The Declaration of Independence

Adams, John Quincy

Fellow Citizens, UNTIL within a few days before that which we have again assembled to commemorate, our fathers, the people of this Union, had constituted a portion of the British nation; a nation, renowned in arts and arms, who, from a small Island in the Atlantic ocean, had extended their dominion over considerable parts of every quarter of the globe. Governed themselves by a race of kings, whose title to sovereignty had originally been founded on conquest, spell-bound, for a succession of ages, under that portentous system of despotism and of superstition which, in the name of the meek and humble Jesus, had been spread over the christian world, the history of this nation had, for a period of seven hundred years, from the days of the conquest till our own, exhibited a conflict almost continued, between the oppressions of power and the claims of right. In the theories of the crown and the mitre, man had no rights. Neither the body nor the soul of the individual was his own. From the impenetrable gloom of this intellectual darkness, and the deep degradation of this servitude, the British nation had partially emerged. The [Page 4] martyrs of religious freedom had consumed to ashes at the stake; the champions of temporal liberty had bowed their heads upon the scaffold; and the spirits of many a bloody day had left their earthly vesture upon the field of battle, and soared to plead the cause of liberty before the throne of heaven. Through long ages of civil war the people of Britain had extorted from their tyrants, not acknowledgments, but grants of right. With this concession they had been content to stop in the progress of human improvement. They received their freedom, as a donation from their sovereigns. They appealed for their privileges to a sign manual and a seal. They held their title to liberty, like their title to lands, from the bounty of a man, and in their moral and political chronology, the great charter of Runnimead was the beginning of the world.

From the earliest ages of their recorded history, the inhabitants of the British islands have been distinguished for their intelligence and their spirit. How much of these two qualities, the fountains of all amelioration in the condition of men, was stifled by these two principles of subserviency to ecclesiastical usurpation, and of holding rights as the donations of kings, this is not the occasion to inquire. Of their tendency to palsy the vigor, and enervate the faculties of man, all philosophical reasoning, and all actual experience concur in testimony. These principles, however, were not peculiar to the people of Britain. They were the delusions of all Europe, still the most enlightened and most improvable portion of the earth. The temporal chain [5] was riveted upon the people of Britain, by the conquest. Their spiritual fetters were forged by subtilty working upon superstition. Baneful as the effect of these principles was, they could not forever extinguish the light of reason in the human mind. The discovery of the mariner's compass was soon followed by an extension of commercial intercourse between nations the most distant, and which, without that light beaming in darkness, to guide the path of man over the boundless waste of waters, could never have been known to each other; the invention of printing, and the composition of gunpowder, which revolutionized at once the art and science of war and the relations of peace; the revelation of India to Vasco de Gama, and the disclosure to Columbus of the American hemisphere; all resulted from the incompressible energies of the human intellect, bound and crippled as it was by the double cords of ecclesiastical imposture and political oppression. To these powerful agents in the progressive improvement of our species, Britain can lay no claim. For them the children of men are indebted to Italy, to Germany, to Portugal, and to Spain. All these improvements, however, consisted in successful researches into the properties and modifications of external nature. The religious reformation was an improvement in the science of mind; an improvement in the intercourse of man with his Creator, and in his acquaintance with himself. It was an advance in the knowledge of his duties and his rights. It was a step in the progress of man, in comparison with which the [6] magnet and gunpowder, the wonders of either India, nay the printing press itself, were but as the paces of a pigmy to the stride of a giant. If to this step of human advancement Germany likewise lays claim in the person of Martin Luther, or in the earlier, but ineffectual martyrdom of John Huss, England may point to her Wickliffe as a yet more primitive vindicator of the same righteous cause, and may insist on the glory of having contributed her share to the improvement of the moral condition of man.

The corruptions and usurpations of the church were the immediate objects of these reformers; but at the foundation of all their exertions there was a single plain and almost self-evident principle-that man has a right to the exercise of his own reason. It was this principle which the sophistry and rapacity of the church had obscured and obliterated, and which the intestine divisions of that same church itself first restored. The triumph of reason was the result of inquiry and discussion. Centuries of desolating wars have succeeded, and oceans of human blood have flowed, for the final establishment of this principle; but it was from the darkness of the cloister that the first spark was emitted, and from the arches of a university that it first kindled into day. From the discussion of religious rights and duties, the transition to that of the political and civil relations of men with one another was natural and unavoidable; in both, the reformers were met by the weapons of temporal power. At the same glance of reason, the tiara would have fallen from the brow of [7] priesthood, and the despotic sceptre would have departed from the hand of royalty, but for the sword, by which they were protected; that sword which, like the flaming sword of the Cherubims, turned every way to debar access to the tree of life.

The double contest against the oppressors of church and state was too appalling for the vigor, or too comprehensive for the faculties of the reformers of the European continent. In Britain alone was it undertaken, and in Britain but partially succeeded.

It was in the midst of that fermentation of the human intellect, which brought right and power in direct and deadly conflict with each other, that the rival crowns of the two portions of the British Island were united on the same head. It was then, that, released from the fetters of ecclesiastical domination, the minds of men began to investigate the foundations of civil government. But the mass of the nation surveyed the fabric of their Institutions as it existed in fact. It had been founded in conquest; it had been cemented in servitude; and so broken and moulded had been the minds of this brave and intelligent people to their actual condition, that instead of solving civil society into its first elements in search of their rights, they looked back only to conquest as the origin of their liberties, and claimed their rights but as donations from their kings. This faltering assertion of freedom is not chargeable indeed upon the whole nation. There were spirits capable of tracing civil government to its first foundation in the moral and physical nature of man: but conquest and servitude [8] were so mingled up in every particle of the social existence of the nation, that they had become vitally necessary to them, as a portion of the fluid, itself destructive of life, is indispensably blended with the atmosphere in which we live.

Fellow citizens, it was in the heat of this war of moral elements, which brought one Stuart to the block, and hurled another from his throne, that our forefathers sought refuge from its fury, in the then wilderness of this Western World. They were willing exiles from a country dearer to them than life. But they were the exiles of liberty and of conscience: dearer to them even than their country. They came too, with charters from their kings; for even in removing to another hemisphere, they "cast longing, lingering looks behind," and were anxiously desirous of retaining ties of connexion with their country, which, in the solemn compact of a charter, they hoped by the corresponding links of allegiance and protection to preserve. But to their sense of right, the charter was only the ligament between f them, their country, and their king. Transported to a new world, they had relations with one another, and relations with the aboriginal inhabitants of the country to which they came; for which no royal charter could provide. The first settlers of the Plymouth colony, at the eve of landing from their ship, therefore, bound themselves together by a written covenant; and immediately after landing, purchased from the Indian natives the right of settlement upon the soil. [9]

Thus was a social compact formed upon the elementary principles of civil society, in which conquest and servitude had no part. The slough of brutal force was entirely cast off; all was voluntary; all was unbiased consent; all was the agreement of soul with soul.

Other colonies were successively founded, and other charters granted, until in the compass of a century and a half, thirteen distinct British provinces peopled the Atlantic shores of the North American continent with two millions of freemen; possessing by their charters the rights of British subjects, and nurtured by their position and education, in the more comprehensive and original doctrines of human rights. From their infancy they had been treated by the parent state with neglect, harshness and injustice. Their charters had often been disregarded and violated; their commerce restricted and shackled ; their interest wantonly or spitefully sacrificed ; so that the hand of the parent had been scarcely ever felt, but in the alternate application of whips and scorpions.

When in spite of all these persecutions, by the natural vigor of their constitution, they were just attaining the maturity of political manhood, a British parliament, in contempt of the clearest maxims of natural equity, in defiance of the fundamental principle upon which British freedom itself had been cemented with British blood; on the naked, unblushing allegation of absolute and un- controllable power, undertook by their act to levy, without representation and without consent, taxes upon the [10] people of America for the benefit of the people of Britain. This enormous project of public robbery was no sooner made known, than it excited, throughout the colonies, one general burst of indignant resistance. It was abandoned, reasserted and resumed, until fleets and armies were transported, to record in the characters of fire, famine, and desolation, the transatlantic wisdom of British legislation, and the tender mercies of British consanguinity.

Fellow citizens, I am speaking of days long past. Ever faithful to the sentiment proclaimed in the paper [the Declaration of Independence], which I am about to present once more to your memory of the past and to your forecast of the future, you will hold the people of Britain as you hold the rest of mankind,¬–Enemies in war–in peace, Friends. The conflict for independence is now itself but a record of history. The resentments of that age may be buried in oblivion. The stoutest hearts, which then supported the tug of war, are cold under the clod of the valley. My purpose is to rekindle no angry passion from its embers: but this annual solemn perusal of the instrument, which proclaimed to the world the causes of your existence as a nation, is not without its just and useful purpose.

It is not by the yearly reiteration of the wrongs endured by your fathers, to evoke from the sepulchre of time the shades of departed tyranny; it is not to draw from their dread abode the frailties of an unfortunate monarch, who now sleeps with his fathers, and the sufferings of whose latter days may have atoned at [11] the bar of divine, mercy, for the sins which the accusing angel will read from this scroll to his charge; it is not to exult in the great moral triumph by which the Supreme Governor of the world crowned the cause of your country with success. No; the purpose for which you listen with renewed and never languishing delight to the reading of this paper, is of a purer and more exalted cast. It is sullied with no vindictive recollection. It is degraded by no rankling resentment. It is inflated with no vain and idle exultation of victory. The Declaration of Independence, in its primary purport, was merely an occasional state-paper. It was a solemn exposition to the world, of the causes which had compelled the people of a small portion of the British empire, to cast off the allegiance and renounce the protection of the British king: and to dissolve their social connexion with the British people. In the annals of the human race, the separation of one people into two, is an event of no uncommon occurrence. The successful resistance of a people against oppression, to the downfall of the tyrant and of tyranny itself, is the lesson of many an age, and of almost every clime. It lives in the venerable records of Holy Writ. It beams in the brightest pages of profane history. The names of Pharaoh and Moses, of Tarquin and Junius Brutus, of Geisler and Tell, of Christiern and Gustavus Vasa, of Philip of Austria and William of Orange, stand in long array through the vista of time, like the Spirit of Evil and the Spirit of Good, in embattled opposition to each other, from the mouldering ages of antiquity, to the recent memory of [12] our fathers, and from the burning plains of Palestine, to the polar frost of Scandinavia.

For the independence of North America, there were ample and sufficient causes in the laws of moral and physical nature. The tie of colonial subjection is compatible with the essential purposes of civil government, only when the condition of the subordinate state is from its weakness incompetent to its own protection. Is the greatest moral purpose of civil government, the administration of justice? And if justice has been truly defined, the constant and perpetual will of securing to every one his right, how absurd and impracticable is that form of polity, in which the dispenser of justice is in one quarter of the globe, and he to whom justice is to be dispensed is in another; where "moons revolve and oceans roll between the order and its execution;" where time and space must be annihilated to secure to every one his right. The tie of colonial subjection may suit the relations between a great naval power, and the settlers of a small and remote Island in the incipient stages of society: but was it possible for British intelligence to imagine, or British sense of justice to desire, that through the boundless ages of time, the swarming myriads of freemen, who were to civilize the wilderness and fill with human life the solitudes of this immense continent, should receive the mandates of their earthly destinies from a council chamber at St. James's, or bow forever in submission to the omnipotence of St. Stephen's Chapel? Are the essential purposes of civil government, to administer to the wants, and to fortify [13] the infirmities of solitary man? To unite the sinews of numberless arms, and combine the councils of multitudes of minds, for the promotion of the well-being of all? The first moral element then of this composition is sympathy between the members of which it consists; the second is sympathy between the giver and the receiver of the law. The sympathies of men begin with the relations of domestic life. They are rooted in the natural relations of husband and wife, of parent and child, of brother and sister; thence they spread through the social and moral propinquites of neighbor and friend, to the broader and more complicated relations of countryman and fellow-citizen; terminating only with the circumference of the globe which we inhabit, in the co-extensive charities incident to the common nature of man. To each of these relations, different degrees of sympathy are allotted by the ordinances of nature. The sympathies of domestic life are not more sacred and obligatory, but closer and more powerful, than those of neighborhood and friendship. The tie which binds us to our country is not more holy in the sight of God, but it is more deeply seated in our nature, more tender and endearing, than that common link which merely connects us with our fellow-mortal, man. It is a common government that constitutes our country. But in THAT association, all the sympathies of domestic life and kindred blood, all the moral ligatures of friendship and of neighbourhood, are combined with that instinctive and mysterious connection between man and physical nature, [14] which binds the first perceptions of childhood in a chain of sympathy with the last gasp of expiring age, to the spot of our nativity, and the natural objects by which it is surrounded. These sympathies belong and are indispensable to the relations ordained by nature between the individual and his country. They dwell in the memory and are indelible in the hearts of the first settlers of a distant colony. These are the feelings under which the children of Israel "sat down by the rivers of Babylon, and wept when they remembered Zion." These are the sympathies under which they "hung their harps upon the willows," and instead of songs of mirth, exclaimed, "If I forget thee, O Jerusalem, let my right hand forget her cunning." But these sympathies can never exist for a country, which we have never seen. They are transferred in the hearts of succeeding generations, from the country of human institution, to the country of their birth; from the land of which they have only heard, to the land where their eyes first opened to the day. The ties of neighbourhood are broken up, those of friendship can never be formed, with an intervening ocean; and the natural ties of domestic life, the all-subduing sympathies of love, the indissoluble bonds of marriage, the heart-riveted kindliness of consanguinity, gradually wither and perish in the lapse of a few generations. All the elements, which form the basis of that sympathy between the individual and his country, are dissolved.

Long before the Declaration of Independence, the great mass of the people of America and of the people [15] of Britain had become total strangers to each other. The people of America were known to the people of Britain only by the transactions of trade; by shipments of lumber and flax-seed, indigo and tobacco. They were known to the government only by half a dozen colonial agents, humble, and often spurned suitors at the feet of power, and by royal governors, minions of patron- age, sent from the footstool of a throne beyond the seas, to rule a people of whom they knew nothing; as if an inhabitant of the moon should descend to give laws to the dwellers upon earth. Here and there, a man of letters and a statesman, conversant with all history, knew something of the colonies, as he knew something of Cochin China and Japan. Yet even the prime minister of England, urging upon his omnipotent parliament laws for grinding the colonies to submission, could talk, without amazing or diverting his hearers, of the island of Virginia: even Edmund Burke, a man of more ethereal mind, apologizing to the people of Bristol, for the offence of sympathizing with the distresses of our country, ravaged by the fire and sword of Britons, asked indulgence for his feelings on the score of general humanity, and expressly declared that the Americans were a nation utter strangers to him, and among whom he was not sure of having a single acquaintance. The sympathies therefore most essential to the communion of country were, between the British and American people, extinct. Those most indispensable to the just relation between sovereign and subject, had never existed and could not exist between the British govern-[16]ment and the American people. The connexion was unnatural; and it was in the moral order no less than in the positive decrees of Providence, that it should be dissolved.

Yet, fellow-citizens, these are not the causes of the separation assigned in the paper which I am about to read. The connexion between different portions of the same people and between a people and their government, is a connexion of duties as well as of rights. In the long conflict of twelve years which had preceded and led to the Declaration of Independence, our fathers had been not less faithful to their duties, than tenacious of their rights. Their resistance had not been rebellion. It was not a restive and ungovernable spirit of ambition, bursting from the bonds of colonial subjection; it was the deep and wounded sense of successive wrongs, upon which complaint had been only answered by aggravation, and petition repelled with contumely, which had driven them to their last stand upon the adamantine rock of human rights.

It was then fifteen months after the blood of Lexington and Bunker's hill, after Charlestown and Falmouth, fired by British hands, were but heaps of ashes, after the ear of the adder had been turned to two successive supplications to the throne; after two successive appeals to the people of Britain, as friends, countrymen, and brethren, to which no responsive voice of sympathetic tenderness had been returned,–

"Nought but the noise of drums and timbrels loud, Their children's cries unheard that passed through fire To the grim idol :¬–”

[17] Then it was that the thirteen United Colonies of North America, by their delegates in Congress assembled, exercising the first act of sovereignty by a right ever inherent in the people, but never to be resorted to, save at the awful crisis when civil society is solved into its first elements, declared themselves free and independent states; and two days afterwards, in justification of that act, issued this

UNANIMOUS DECLARATION OF THE THIRTEEN UNITED STATES OF AMERICA. …

[J.Q. Adams reads the full text of the Declaration of Independence, then continues with his speech. Full pamphlet is online here.]

It is not, let me repeat, fellow-citizens, it is not the long enumeration of intolerable wrongs concentrated in this declaration; it is not the melancholy catalogue of alternate oppression and entreaty, of reciprocated indignity and remonstrance, upon which, in the celebration of this anniversary, your memory delights to dwell. Nor is it yet that the justice of your cause was vindicated by the God of battles; that in a conflict of seven years, the history of the war by which you maintained that declaration, became the history of the civilized, world; that the unanimous voice of enlightened Europe [22] and the verdict of an after age have sanctioned your assumption of sovereign power, and that the name of your Washington is enrolled upon the records of time, first in the glorious line of heroic virtue. It is not that the monarch himself, who had been your oppressor, was compelled to recognise you as a sovereign and independent people, and that the nation, whose feelings of fraternity for you had slumbered in the lap of pride, was awakened in the arms of humiliation to your equal and no longer contested rights. The primary purpose of this declaration, the proclamation to the world of the causes of our revolution, is "with the years beyond the flood." It is of no more interest to us than the chastity of Lucretia, or the apple on the head of the child of Tell. Little less than forty years have revolved since the struggle for independence was closed; another generation has arisen; and in the assembly of nations our republic is already a matron of mature age. The cause of your independence is no longer upon trial. The final sentence upon it has long since been passed upon earth and ratified in heaven.
The interest, which in this paper has survived the occasion upon which it was issued; the interest which is of every age and every clime; the interest which quickens with the lapse of years, spreads as it grows old, and brightens as it recedes, is in the principles which it proclaims. It was the first solemn declaration by a nation of the only legitimate foundation of civil government. It was the corner stone of a new fabric, destined to cover the surface of the globe. It demol[23]ished at a stroke the lawfulness of all governments founded upon conquest. It swept away all the rubbish of accumulated centuries of servitude. It announced in practical form to the world the transcendent truth of the unalienable sovereignty of the people. It proved that the social compact was no figment of the imagination; but a real, solid, and sacred bond of the social union. From the day of this declaration, the people of North America were no longer the fragment of a distant empire, imploring justice and mercy from an inexorable master in another hemisphere. They were no longer children appealing in vain to the sympathies of a heartless mother; no longer subjects leaning upon the shattered col-umns of royal promises, and invoking the faith of parchment to secure their rights. They were a na-tion, asserting as of right, and maintaining by war, its own existence. A nation was born in a day.
"How many ages hence
Shall this their lofty scene be acted o'er In states unborn, and accents yet unknown?"
It will be acted o'er, fellow-citizens, but it can never be repeated. It stands, and must forever stand alone, a beacon on the summit of the moun-tain, to which all the inhabitants of the earth may turn their eyes for a genial and saving light, till time shall be lost in eternity, and this globe itself dissolve, nor leave a wreck behind. It stands forever, a light of admonition to the rulers of men; a light of salvation and redemption to the oppressed. So long as this planet shall be inhabit-[24]ed by human beings, so long as man shall be of social nature, so long as government shall be necessary to the great moral purposes of society, and so long as it shall be abused to the purposes of oppression, so long shall this declaration hold out to the sovereign and to the subject the extent and the bounda-ries of their respective rights and duties; founded in the laws of nature and of nature's God. Five and forty years have passed away since this Declaration was issued by our fathers; and here are we, fellow-citizens, assembled in the full enjoyment of its fruits, to bless the Author of our being for the bounties of his providence, in casting our lot in this favored land; to remember with effusions of gratitude the sages who put forth, and the heroes who bled for the establishment of this Declaration; and, by the communion of soul in the reperusal and hearing of this instrument, to renew the genuine Holy Alliance of its principles, to recognize them as eternal truths, and to pledge ourselves and bind our posterity to a faithful and undeviating adherence to them.
Fellow-citizens, our fathers have been faithful to them before us. When the little band of their Dele- gates, "with a firm reliance on the protection of Divine Providence, for the support of this declaration, mutually pledged to each other their lives, their fortunes, and their sacred honor," from every dwelling, street, and square of your populous cities, it was re-echoed with shouts of joy and gratulation! and if the silent language of the heart could have been heard, every hill upon the surface of this continent which had been [25] trodden by the foot of civilized man, every valley in which the toil of your fathers had opened a paradise upon the wild, would have rung, with one accordant voice, louder than the thunders, sweeter than the harmonies of the heavens, with the solemn and responsive words, "We swear."
The pledge has been redeemed. Through six years of devastating but heroic war, through nearly forty years of more heroic peace, the principles of this declaration have been supported by the toils, by the vigils, by the blood of your fathers and of yourselves. The conflict of war had begun with fearful odds of apparent human power on the side of the oppressor. He wielded at will the collective force of the mightiest nation in Europe. He with more than poetic truth asserted the dominion of the waves. The power, to whose unjust usurpation your fathers hurled the gauntlet of defiance, baffled and vanquished by them, has even since, stripped of all the energies of this continent, been found adequate to give the law to its own quarter of the globe, and to mould the destinies of the European world. It was with a sling and a stone, that your fathers went forth to encounter the massive vigor of this Goliath. They slung the heaven-directed stone, and
"With heaviest sound, the giant monster fell."
Amid the shouts of victory your cause soon found friends and allies in the rivals of your enemies. France recognized your independence as existing in fact, and made common cause with you for its support. Spain [26] and the Netherlands, without adopting your principles, successively flung their weight into your scale. …
[The rest of page 26, page 27, part of 28 omitted.]
The Declaration of Independence pronounced the irrevocable decree of political separation, between the United States and their people on the one part, and the British king, government, and nation on the other. It proclaimed the first principles on which civil government is founded, and derived from them the justification before earth and heaven of this act of sovereignty. But it left the people of this union, collective and individual, without organized government. In contemplating this state of things, one of the profoundest of British statesmen, in an ecstacy of astonishment exclaimed, "Anarchy is found tolerable!' But there was no anarchy. From the day of the Declaration, the people of the North American union, and of its constituent states, were associated bodies of civilized men and christians, in a state of nature, but not of anarchy. They were bound by the laws of God, which they all, and by the laws of the gospel, which they nearly all, acknowledged as the rules of their conduct. They [29] were bound by the principles which they themselves had proclaimed in the declaration. They were bound by all those tender and endearing sympathies, the absence of which, in the British government and nation, towards them, was the primary cause of the distressing conflict in which they had been precipitated by the headlong rashness and unfeeling insolence of their oppressors. They were bound by all the beneficent laws and institutions, which their forefathers had brought with them from their mother country, not as servitudes but as rights. They were bound by habits of hardy industry, by frugal and hospitable manners, by the general sentiments of social equality, by pure and virtuous morals; and lastly they were bound by the grappling-hooks of common suffering under the scourge of oppression. Where then, among such a people, were the materials for anarchy! Had there been among them no other law, they would have been a law unto themselves.
They had before them in their new position, besides the maintenance of the independence which they had declared, three great objects to attain; the first, to cement and prepare for perpetuity their common union and that of their posterity; the second, to erect and organize civil and municipal governments in their respective states: and the third, to form connexions of friendship and of commerce with foreign nations. For all these objects, the same Congress which issued the Declaration, and at the same time with it, had provided. They recommended to the several states to form civil [30] governments for themselves; with guarded and cautious deliberation they matured a confederation for the whole Union; and they prepared treaties of commerce, to be offered to the principal maritime nations of the world. All these objects were in a great degree accomplished amid the din of arms, and while every quarter of our country was ransacked by the fury of invasion. The states organized their governments, all in republican forms, all on the principles of the Declaration. The confederation was unanimously accepted by the thirteen states: and treaties of commerce were concluded with France and the Netherlands, in which, for the first time, the same just and magnanimous principles, consigned in the Declaration of Independence, were, so far as they could be applicable to the intercourse between nation and nation, solemnly recognized. When experience had proved that the confederation was not adequate to the national purposes of the country, the people of the United States, without tumult, without violence, by their delegates all chosen upon principles of equal right, formed a more per-fect union, by the establishment of the federal constitution. This has already passed the ordeal of one human generation. In all the changes of men and of parties through which it has passed, it has been administered on the same fundamental principles. Our manners, our habits, our feelings, are all republican; and if our principles had been, when first proclaimed, doubtful to the ear of reason or the sense of humanity, they would have been reconciled to our understanding and endeared to our [31] hearts by their practical operation. In the progress of forty years since the acknowledgment of our Independence, we have gone through many modifications of internal government, and through all the vicissitudes of peace and war, with other mighty nations. But never, never for a moment have the great principles, consecrated by the Declaration of this day, been renounced or abandoned.
And now, friends and countrymen, if the wise and learned philosophers of the older world, the first observers of mutation and aberration, the discoverers of maddening ether and invisible planets, the inventors of Congreve rockets and shrapnel shells, should find their hearts disposed to inquire, what has America done for the benefit of mankind? let our answer be this–America, with the same voice which spoke herself into existence as a nation, proclaimed to mankind the inextinguishable rights of human nature, and the only lawful foundations of government. America, in the assembly of nations, since her admission among them, has invariably, though often fruitlessly, held forth to them the hand of honest friendship, of equal freedom, of generous reciprocity. She has uniformly spoken among them, though often to heedless and often to disdainful ears, the language of equal liberty, equal justice, and equal rights. She has, in the lapse of nearly half a century, without a single exception, respected the independence of other nations, while asserting and maintaining her own. She has abstained from interference in the concerns of others, even when the conflict has been for principles to which [32] she clings, as to the last vital drop that visits the heart. She has seen that probably for centuries to come, all the contests of that Aceldama, the European World, will be contests between inveterate power, and emerging right. Wherever the standard of freedom and independence has been or shall be unfurled, there will her heart, her benedictions and her prayers be. But she goes not abroad in search of monsters to destroy. She is the well-wisher to the freedom and independence of all. She is the champion and vindicator only of her own. She will recommend the general cause, by the countenance of her voice, and the benignant sympathy of her example. She well knows that by once enlisting under other banners than her own, were they even the banners of foreign independence, she would involve herself, beyond the power of extrication, in all the wars of interest and intrigue, of individual avarice, envy, and ambition, which assume the colors and usurp the standard of freedom. The fundamental maxims of her policy would insensibly change from liberty to force. The frontlet upon her brows would no longer beam with the ineffable splendor of freedom and independence; but in its stead would soon be substituted an imperial diadem, flashing in false and tarnished lustre the murky radiance of dominion and power. She might become the dictatress of the world: she would be no longer the ruler of her own spirit.
Stand forth, ye champions of Britannia, ruler of the waves! Stand forth, ye chivalrous knights of chartered liberties and the rotten borough! Enter the lists, ye [33], boasters of inventive genius! ye mighty masters of the palette and the brush! ye improvers upon the sculpture of the Elgin marbles! ye spawners of fustian romance and lascivious lyrics! Come, and inquire what has America done for the benefit of mankind! In the half century which has elapsed since the declaration of American independence, what have you done for the benefit of mankind? When Themistocles was sar-castically asked by some great musical genius of his age whether he knew how to play upon the lute, he answered, No! but he knew how to make a great city of a small one. We shall not contend with you for the prize of music, painting, or sculpture. We shall not disturb the ecstatic trances of your chemists, nor call from the heavens the ardent gaze of your astronomers. We will not ask you who was the last president of your Royal Academy. We will not inquire by whose mechanical combinations it was, that your steamboats stem the currents of your rivers, and vanquish the opposition of the winds themselves upon your seas. We will not name the inventor of the cotton-gin, for we fear that you would ask us the meaning of the word, and pronounce it a provincial barbarism. We will not name to you him, whose graver defies the imitation of forgery, and saves the labor of your executioner, by taking from your greatest geniuses of robbery the power of committing the crime. He is now among yourselves; and since your philosophers have permitted him to prove to them the compressibility of water, you may perhaps claim him for your own. Would you [34] soar to fame upon a rocket, or burst into glory from a shell? We shall leave you to inquire of your naval heroes their opinion of the steam-battery and the torpedo. It is not by the contrivance of agents of destruction, that America wishes to commend her inventive genius to the admiration or the gratitude of after times; nor is it even by the detection of the secrets or the composition of new modifications of physical nature.
"Excudent alii spirantia mollius aera."
Nor even is her purpose the glory of Roman ambition; nor “tu regere imperio populosa” her memento to her sons. Her glory is not dominion, but liberty. Her march is the march of mind. She has a spear and a shield; but the motto upon her shield is Freedom, Independence, Peace. This has been her declaration: this has been, as far as her necessary intercourse with the rest of mankind would permit, her practice.
My countrymen, fellow-citizens, and friends; could that Spirit, which dictated the Declaration we have this day read, that Spirit, which “prefers before all temples the upright heart and pure,” at this moment descend from his habitation in the skies, and within this hall, in language audible to mortal ears, address each one of us, here assembled, our beloved country, Britannia ruler of the waves, and every individual among the sceptred lords of humankind; his words would be,
“Go thou and do likewise!”

iPhone Crashes the Regulated Industry Party

2007-07-03T08:12:00.000-07:00

It is great the way industry leaders sometimes charge into different but related industries. The free-wheeling computer industry doesn’t suffer from the dense regulations and Congressional lobbies that blanket the phone, cable, and cell phone industries.

Verizon, the leading wireless firm, has its roots as a heavily-regulated Baby Bell (Bell Atlantic). It is a pain to deal with (at least it has been for me). Having “the most reliable” cellular network, neither Verizon nor any other major cell phone company allowed their phones and users to switch calls to free wifi networks when available.

Apple enters the cell phone business with a phone that automatically switches to wifi. Apple’s iPhone is partnered with the weakest cellular network, which, being in last place, was willing to cede more control to Apple. Instead of standing in a cell phone store giving your address to a Verizon employee, iPhone buyers activate their cell phones at home using iTunes. That saves somebody money, and allows Apple to sell the iPhone online from their own company store (though with a four-week wait for now).

Just as the most innovative electric cars will likely come from outside the established auto industry, the most innovative cell phone comes from outside the cell phone industry.

The Apple TV device is a similar push to compete with the endlessly irritating services of local cable monopolies.

It is interesting that Apple’s latest ventures are into long-regulated cable and wireless sectors. Apple’s close integration of hardware and software gives them an advantage entering such fields. Hewlett-Packard, Samsung, Sony and Dell lack the software expertise, just a Microsoft lacks hardware and design expertise to match Apple.

What felled Apple and Jobs the first time around, according to Jobs and others, was that they got a bit complacent and greedy. They had great products and high-margins with early Macintosh computers. But they kept their prices too high for too long. Anyone serious about a personal computer in those days, it was believed, should be willing to pay $3,500 and above.

Microsoft developed (and licensed) many of the best Mac features and offered their Windows operating system cheap to dozens of personal computer companies.

Greg Rehmke

Corruption and Old Age

2007-03-20T08:37:00.000-07:00

Episode 3 of Friedman's Free to Choose focuses on freedom and prosperity and much of it is set in Eastern Europe. The episodes are online here:

http://www.ideachannel.tv/

In episode 3, at 14 minutes in, there are segments on informal emerging small businesses in Central Europe under communism. A private Hungarian construction company is trying to expand, but can't get permits and needs foreign currency. They have to purchase it on the black market (shown in the video) in order to expand. Later are shown informal clothing companies in Budapest where workers earn three times average wages making clothes sold by street vendors.

In Sebastian Mallaby book "The World's Banker"Chapter 7 is "The Cancer of Corruption." Mallaby argues that corruption was a topic World Bank officials did not discuss publicly. It was only durring Wolfensohn's erratic tenure that the World Bank lurched into corruption issues and began churning out studies of corruption. Corruption became was made an issue (in a speech he gave to bank officials, p 176).

The chapter then has a discussion on Indonesia, on how rapidly it grew (following World Bank advice says or implies the author, which is misleading at least...) An anecdote on p. 180:

Wolfenshon, Suharto and China's vice-premier Zhu Rongji are having tea during break in big summit: Suharto was talking to Zhu, and he summoned Wolfensohn over; and then he broached the subject of corruption: "The latest corruption rankings produced by... Transparency International were most upsetting Suharto declared, for they rated Indonesia as less corrupt than China; he had been happier with the previous year's results, which had recognized his own country as the more energetic embezzler. Zhu looked visibly annoyed, but Suharto carried on. "Don't you think we should tell the president of the World Bank about corruption in this part of the world?"... Then Suharto looked at Wolfensohn. "You know, what you regard as corruption in your part of the world, we regard as family values."

Interesting that Suharto, like Saddam, led administrations that early on were considered efficient and less corrupt than those around them. It was as they got old and their families expanded, skimming more money from a wider range of projects, that corruption began to bite. It was when Suharto's wife ("Madam Tien Percent") became ill in early 1990s that, according the the author, "the children ran amok, and the time when the ruling family would rake off only 10 percent soon became a pleasant memory." p.178 (I highly recommend, by the way, a video clip from the movie Dick Tracy, when all the mob bosses get together to discuss the grand plan for the city. The lead bad guy describes his vision that every time anyone buys anything in the city, the mob will collect 10 percent. After he finishes his grand gangster plan, it is only a barely above-average sales tax.)

So a benefit of democracy would be to kick out Presidents as they get old and naturally corrupt, beguiled by fawning associates, children, and grandchildren. Interestingly, this is much the same benefit of stock ownership for family-run firms whose founders age and whose children often prove less competent and entrepreneurial. Only outside ownership allows ousting of the founder, who left to his own preferences would ride the firm to bankruptcy or the grave, which ever comes first.

As Lord Acton noted: "power corrupts..."

First make sure govt. does no (environmental) harm

2007-02-24T07:58:00.000-08:00

Leonard Reed, Ben Rogge, and Ed Opitz of the Foundation for Economic Education had much experience with energetic libertarians who attended FEE seminars. Libertarians were often frustrated that those around them seemed unable to grasp free-market ideas. Libertarians wanted to promote liberty in the worst way, the joke goes, and that is exactly what they did.

Reed, Rogge, and Opitz argued that the best libertarians could do is to present society with one improved person (themselves). People should focus on improving their own understanding and they could expect in time that others would turn to them for advice and opinions. Of course for many this was bitter medicine. It is so much easier to blame others for being thick-headed. I remember reading Hawthorne's short story "The Great Stone Face" and that has always inspired me.

As for gas taxes, I was impressed with John Tierney's NYT column suggesting a revenue-neutral gas tax that would kick in as prices fell (say one penny for every two penny drop). Such a tax could be called an emission tax, energy-securty tax, or misguided overseas intervention tax, or whatever. I think Tierney also proposed current gas taxes be reduced as gas prices went "too high." I don't remember the details. At least for those roads that can't easily be privatized, or fitted with congestion-pricing tolls, gas fees should cover all expenses. General taxpayers should no more be taxes for roads than they should for ports, trains, or airports.

I am working on a study recommending that California, instead of elaborate subsidies for alternative energy and coersive mandates for emissions reductions (forcing firms to retire 10% of their off-road vehicles each year)... that instead of these interventions, California should consider removing current penalties for those who wish to purchase and use new, more efficient, and lower-emission vehicles.

Anyone in California wishing to purchase a new technology car, truck, or off-road vehicle must pay the state of California an 8.5% or so penalty (a sales tax). Why not just remove this tax for those purchasing newer, cleaner, safer, less-polluting technology? Or one could propose a more complicated system where emissions-reduction credits counted against sales taxes.

And contractors (as well as car buyers) would sell their used vehicles to downstream users who would sell or retire their even older, more polluting, vehicles. The net benefit from deploying new lower-emission engines is huge, but California penalizes such purchases.

My proposal is that governments first reduce the harms caused by current policies, before rushing forward with new interventions.

Greg

Big Screen Monitors for Apple's iTV

2007-01-23T12:35:00.000-08:00

I finally had a chance this week to plug my Mac Powerbook into my father's new LCD 1080i HDTV. I had ordered a $30 DVI-to- HDMI video cable online (to avoid the $100 price tag for one at Circuit City) and when it arrived I tried it with my brother-in-law's Plasma HDTV. The result was not too impressive (too smeary and unstable). On my father's LCD HDTV, however, the results were amazing. His new TV is also a huge computer screen with near-perfect pictures. I played an iPhoto slide show (though no music through the HDMI cable. I needed separate audio cable for that.). And I was ready to launch into a Keynote (Mac's PowerPoint) economics presentation until significant audience resistance arose.

Still, all these thousands of HDTV entering homes are also external monitors for Apple computer to bring into their iLife network (iMovie, iPhoto, iDVD, iEtc.). The popular tech news media continues to think of Apple as an iPod and iTunes company, the real story will be Apple's effective marriage of iLife (and iTV) with HDTVs.

I videotaped my nieces' basketball game yesterday (at least when they were on the court). In a few minutes (about 20 minutes over playing time) that game can become a DVD with nice transitions between scenes. Or I can post it online so my sister and father can play it on their computers. My father would just sputter if I suggested he download it to watch on his computer. But if he could click a few buttons and play it on his 37" HDTV, well that could work. The video and pictures could download to the hard drives of any Mac computer or soon to Apple's new iTV. Jobs announced iTV in September (http://www.roughlydrafted.com/RD/Home/21133BEF-61B4-40C1-A976-5C1360E60694.html) and we will learn more in the Big Show (Jobs' MacWorld keynote on Jan. 9th).

I would argue that the big iTV value is not storing or watching movies. We have DVD players for that and Hi-Def. movies require a lot of bandwidth and hard drive space. Do we need or want better technology for watching more movies? I think instead, the fact that hundreds of thousands are purchasing 42" computer screens for their living room (that they think of as TVs) opens the door for families to vastly expand their home entertainment options. The can play slideshows with music of beautiful pictures from around the world, from their vacations, from Google Earth, from rainforests, mountains, anywhere. Instead of a 42" dark screen hogging a living room wall when the TV is off, great pictures can be featured that change every minute, hour, or day.

Most people may not now have a collection of high quality pictures organized with transitions to show with music on their new HDTVs. But they have digital cameras and soon they (or their children) may have Apple computers and skills to assemble personal family entertainment. So rather than watching Hollywood families live their lives, we can spend at least some watching our own, and creating our own living-room windows on the world.

Of course I have no idea if all this will push Apple stock prices up still further, or whether the outlandishly high expectations of Apple fanatics (like me) have already push Apple stock too high. Still, I can't help but think the iPod was only the beginning, and only for the kids and young people. Older adults spend more time in front of their TVs, and much more time complaining about the horrendous content delivered from Hollywood and even from NFL, NBA, corporate fruit bowls, etc. Maybe they would rather watch pictures and video from their kids and grandkids basketball games than overproduced NBA and rampages?

Did Ebenezer Scrooge Dream a Better Life for Himself?

2006-12-22T10:49:00.000-08:00

(Revised and expanded version of 2004 post, recently quote from in December 17 Toronto Star article "The Politics of Ebenezer Scrooge": www.thestar.com/Ideas/article/158007)

Family, Work, Community
Did Ebenezer Scrooge Dream a Better Life for Himself?
Reflections on watching George C. Scott in Dicken's “A Christmas Carol”
by Gregory Rehmke

Consider Charles Dicken's Ebenezer Scrooge, as brought to life by George C. Scott in the television movie from the 1990s. George C. Scott plays Scrooge as a competent businessman who finds both Christmas and philanthropy a waste of time and money. His eyes are opened through a series of nightmarish dreams. The book and various movie versions are offered today as indictments of greed and business, as well as celebrations of the joys of family, Christmas, and giving to those less fortunate.

Viewers can look at this classic story through a pro-market lenses and see different lessons than do the majority who misunderstand capitalism and the role of markets and prices. And we can write our own last chapter to the story that lets Scrooge live a happier life without compromising his business principles.

I would argue that a better, though less dramatic, interpretation of the story is simply that people—especially successful businesspeople—can get too wrapped up in their work, and lose touch with the rest of their lives. Engagement in civil society brings many unexpected and hard-to-quantify pleasures. Philanthropy can be satisfying to the giver as well as helpful to the receiver. And even the most anti-business take on "A Christmas Carol" still must admit it is Scrooge's private philanthropy, not the state, that in the end helps the poor.

The story begins with Scrooge successful in business but having let his personal and social world fade. He long ago let his love relationship drift away and deep down regrets it. After a difficult childhood, he gradually gained a kind of comfort in solitude and emotional isolation. As is usual in novels and movies, nothing positive is said or implied about his work. No glimmer of understanding that he must be providing a valuable service in order to stay in business and make profits. But we can agree that focused businessmen like Scrooge can lose track of their family and social lives and find themselves years later wealthy but alone.

Second, the story features an interesting, if subtle, attack on government welfare. Scrooge is asked to donate to a relief fund. He answers that he pays taxes for just such purposes. Why don't the homeless go to existing poor houses or to prisons he asks? The private-relief fund-raisers ask him if he has ever seen the government relief houses. Scrooge answers no, he hasn't. He is responding reasonably and so are they. (Should we expect a socially-responsible Scrooge of today to donate to innovative private charities, or to agitate for repair of failing government welfare programs?)

Tax-supported relief houses give the emotionally-distant Scrooge an excuse not to take personal responsibility for the poor. He has already paid, he claims, through his taxes. He uses government-funded welfare agencies as an excuse to avoid supporting private relief agencies. With no state-run poor houses in England, he might still have said: "Bah, Humbug!" and been tempted to “free-ride” on donations of others. That is, he might free-ride (an economics term) by relying on others to donate to help beggars. Scrooge would benefit from beggar-free streets without spending a dime on donations (he is greedy in the story, after all).

Few of us enjoy seeing and dealing with homeless people begging on the street. Scrooge could well have been drawn into private relief just to keep beggars out of his way. Still a selfish motive, but one that would require helping others in order to help himself. He could have invested in enterprises that create job-expanding opportunities that help the unfortunate or unwise to get back on their feet. Consider too that Scrooge's current business, speculation, could very well be helping the poor more effectively that any charity he might choose to support (more on this possibility below).

Had Scrooge invested in a job-training firm, for example, he could carry business cards promoting his job-training services to helpfully put in the cups of beggars. In this way he could have helped the needy and profited as an investor in training-services at the same time (perhaps naming his enterprise Scrooge Phoenix University). Many for-profit as well as nonprofit organizations today provide job-training services and generate income through job-placement. The poor learn skills and pay a portion of their later salaries back to the job-training/job-placement organizations.

My great-great-grandfather, Dr. Thomas Guthrie helped start the Ragged Schools for Children in Scotland and England. He went to the Scrooges of his day (the 1840s) and convinced them to contribute. There were 192 Ragged Schools in operation at its peak with 20,000 destitute children attending each year. An estimated 300,000 attended overall, from 1840s to 1880s. The English government apparently saw the Ragged Schools as unwanted competition to their poor houses and new government-funded schools, and they drove the Ragged Schools out of business. (Students apparently preferred the industry-training they received as part of their education at the Ragged Schools. The UK government went so far as to sue to force students out of Ragged Schools and into government schools. Glimpse this fascinating story here: www.infed.org/walking/wa-shaft.htm)

Because Scrooge feels he has already discharged his obligation to help the poor (thanks to state-mandated poor-house welfare), he loses touch with that part of the world. He doesn't bother looking into the management and operation of poor houses because their tax-funding insulates them from private reform. And he knows he wouldn't be allowed to withhold his taxes if he found them badly managed.

Had he been able to choose among private alternatives he would have had an incentive to investigate how his money was used. He doesn't do much investigation after being saved, in the George C. Scott version. He just gives a big donation to the private relief effort he refused the day before. But even so, he will surely take an acute interest in that private relief project after donating a huge sum to it. He would be angered as well as embarrassed if the relief effort he supported turned out to be ill-managed or a fraud.

Scrooge, thanks to tax-funded poor houses, is less likely to be drawn into civil society philanthropies that might have opened up his life (and he might have been less in need of spiritual shock-therapy).

His very skeptical eye would be a valuable service for private charities, as he seems to understand that good intentions matter less than good results. He would probably be a better trustee of a private charity than his "do-gooder" nephew, for example.

George C. Scott's Scrooge notes with disapproval his nephew's offer to overpay Cratchit's son. Scrooge understands that overpaying for a young person's first job can have negative consequences. It breaks the connection between a person's productivity and their pay. It confuses charity with wages in the mind of both the employee and employer.

The intricate dance toward “just” or market wages not only pits each worker against others willing to take on a job, it pits each employer against all others willing to pay higher wages. When employers get greedy and try to hold wages below the marginal earnings each worker brings the firm, other employers have a profit opportunity, if they can hire that worker away.

Migration Magic: New High-Tech Firms

2006-11-29T06:17:00.000-08:00

Highly recommended is study on immigrant-founded companies in the U.S. titled "American Made" by the National Venture Capital Association (http://www.nvca.org/). Study in Acrobat is here: http://www.nvca.org/pdf/AmericanMade_study.pdf

The Venture Capital study is about firms that, naturally, require a lot of capital, like launching innovative high-tech enterprises. But there are tens of thousands of small low-capital firms that can be launched from personal and family savings. I suspect immigrants are over-represented among these firms as well. The VC study notes that legal immigrants were 5% of U.S. population in 1980, 6.7% in 1990, and 8.7% today. A significant jump, especially considering that U.S. population itself increased from 226 million in 1980 to 300 million today.

So now we find 40% of venture-backed publicly-traded firms were founded by immigrants, and they employ some 220,000 people in the U.S. From 8 firms prior to 1980 to 88 today.

Free to Choose is Free to Watch on Google

2006-11-29T06:14:00.000-08:00

The great Free to Choose series is available to watch via Google:

http://video.google.com/videoplay?docid=-4303061419031514770&q=milton+friedman&amp;hl=en

It is nearly TV quality. It is a bit blurry, but is an older video.

It is great, great, great. This series was shown on Public TV (PBS) in the early 1980s, I think. It was approved in response to a left-wing PBS series on economics by John Kenneth Galbraith.

The first Free to Choose segment is a lot about immigration to Hong Kong and earlier to New York City (when the video was made the U.S. had much tighter immigration restrictions).

This series, along with the speeches by Ronald Reagan, were the first opportunities for most Americans to hear anything substantive about free-market ideas since they mostly went out of fashion after World War II. Friedman has a column in Time or Newsweek (the two major weekly newsmagazines of the era).

The Classical Economists Never Thought of Crumbling Jupiter

2006-01-22T23:17:00.000-08:00

[comments on a FLOWIdealism post]

Adam Smith outlined a vast range of concepts in Wealth of Nations. Though a brilliant work, not everything stood the test of time. The Classical economists saw the world as limited by a fixed amount of land. But natural resources turn out to be neither natural nor limited. Innovation and entrepreneurship turns swamp land into rice fields, deserts into vast cropland, and factory buildings in Chicago into hydroponic tomato factories. Here in Seattle we love the hot-house tomatoes grown in greenhouses up north in Vancouver BC.

Land and natural resources are not fixed. They become infinite as new technologies allow us to reach new spaces. Ed Regis in "Great Mambo Chicken and the Transhuman Condition," (a fun book on technology and "science slightly over the edge") describes one scientist's plan to transform Jupiter into a thin sphere rotating around and surrounding the sun, thus providing a lot of land and capturing the 99.99999% of the sun's energy now lost to space. Another scientist in Regis's book suggested a septillion people could live comfortable on man-made islands spread across the oceans.

These are crazy ideas with today’s technology, but not much crazier than suggesting 100 years ago that millions could live comfortably in the California, Arizona, and Nevada deserts.

In a free economy, interest rates will drop, or rise, depending upon the interplay between the supply of savings for investment and the demand for investment funds by folks with plans.

Higher labor rates don’t increase disposable income for workers unless productivity rises with wages. That is, high labor rates without productivity increases lead to unemployment or destruction of value. The supply of labor and demand for labor influence wages paid, of course, but in the end, it is labor productivity that sets the limits for what can be paid to workers.

When employers make high profits from the spread between wages paid and worker productivity, those profits attract competition to the industry. Unless market regulations prevent new firms from being established and hiring workers, wages will rise with productivity.

Adam Smith was right on target though in pointing out over and over that it is the manufacturers and merchants who lobby for restraints on trade and for regulations on competition. New competition tends to chase away their profits as it lowered prices to consumers and raised wages to workers.

Market regulation has historically been the servant of established industry, not the protector of workers or consumers.

(Well, I hope this combination of outlandish and simple observations can be seen in the spirit offered. Technology, innovation, and entrepreneurship broke the constraints of classical economics, so many of the observations and arguments of Adam Smith, David Ricardo, and Karl Marx, no longer apply.)

--Greg Rehmke, www.EconomicThinking.org

-------

On Sun, 22 Jan 2006 13:24:19 -0600, Richard Relph wrote:
> Do you think an unregulated economy would lead to a labor
> shortage or a capital shortage?

An unregulated market is likely to lead to labor and land shortages. Adam Smith pointed out these things back in 1776. He noted how capital accumulates, which over times brings down the return on investment. In a free economy real interest rates drop, which leads to drops in the return on other investments since people with money compete for investment opportunities.

Land (i.e., natural resources in general) is fixed. While we may find better ways to use land, it is hard to make more of it. Prosperity thus bids up the price of land. Those who speculate in land make big bucks as the economy grows. Higher labor rates increase the amount that laborers can pay per month, while lower interest rates increase the value of land with respect to the monthly payment rate.

Smith noted this as well, suggesting that a land tax (land, not the improvements thereon), would have minimal effect on the economy other than reducing the unearned windfall of landlords.

Wal-Mart Not Only Undermines Small Towns...

2005-11-28T17:37:00.000-08:00

... it undermines small-town documentaries too. New York Times columnist John Tierney’s investigative reporting on the new anti-Wal-Mart film “Wal-Mart: The High Cost of Low Prices” turns up some interesting contradictions between the documentary-world Wal-Mart and the world the rest of us live in. (Unfortunately, John Tierney’s great article is not free (unless you get your NYT free from your mother, as I do). You have to pay to see it or sign-up for temporary access (and cancel later).

Tierney investigates some of the sad stories in “Wal-Mart: The High Cost of Low Wages.” One such story was H & H Hardware, driven out of business by low Wal-Mart prices, according to the documentary. Except that today a thriving Middlefield Hardware store operates successfully where the mismanaged H & H used to be (mismanaged according to an interviewed customer and the former H & H owner).

And the Amish, shown in the documentary as deeply fearful of the new Wal-Mart descending upon them, are reported by Tierney as quite happy shopping at their new local Wal-Mart, as their horses and carriages are hitched comfortably outside.

Tierney interviews one Amish customer, “I wasn’t too happy about Wal-Mart coming… I didn’t know what it would do to the community.--would it make it more citylike? But I was surprised. It’s kind of nice now. I like shopping here.”

The column ends with another Amish Wal-Mart shopper commenting “Wal-Mart isn’t really a big issue with our people… At first some were upset because they were scared by something new. But now they like being able to get everything here…”

Imagine… the Amish fearful of something new. It’s an interesting post to hitch your documentary to.

(My own rather wordy two-cents on the influence of Wal-Mart is here: Wal-Mart: Seen and Unseen) -- Greg Rehmke

Secret Post-Hurricane Plan Taps Into 1.4 billion Gallon Reservoir

2005-10-30T15:55:00.000-08:00

New York Times articles we’d like to see...

Secret Post-Hurricane Plan Taps Into 1.4 billion Gallon Reservoir
- by Not-New York Times reporter Greg Rehmke

Congressmen and journalists nationwide were upset to be upstaged by a secret oil industry plan to respond to hurricane Katrina (secret only because journalists were unable to comprehend it and report upon it). The oil industry plan drew upon the distributed knowledge and incentives of all Americans with automobiles in tapping into a vast virtual 1.4 billion gallon gasoline reservoir.

The oil industry was unable to predict exactly how much gasoline refining capacity would be knocked out by Katrina, nor how long it would be out. Nor could they predict exactly how much gasoline would be available in regions near Katrina and supplied directly by Katrina-hit refineries. Working through a network of thousands of gasoline-distribution planners, oil industry experts unveiled a complex plan to enlist cooperation not only employees, but also firms they sell gasoline to, and, astonishingly, all their customers.

Customers were asked to individually examine driving patterns and make their own decisions on ways to reduce gasoline purchases. Customers had no way of knowing how easy or hard it would be for their neighbors to conserve scarce gasoline supplies. Somehow, an entire nation of automobile drivers had to arrange their response to Katrina with the also unknown details of just how much refinery supply was knocked out. And they had to somehow continue this coordinated response day-by-day through the entire duration of supply constraints.

Wealthy investor Don Smith (not his real name), on his way Saturday from Pittsburgh to Houston, revealed his part in this nationwide Katrina-response plan: “Not since high school had I bought just $5 or $10 of gas at a gas station.” When asked, Mr. Smith confirmed that he could afford a full tank of gas. But since he expected the price to fall once refineries were repaired, he chose not to fill up. He noted also “I couldn’t easily switch to a smaller car, but I make sure now to accelerate more slowly onto the freeway, and to brake less.” As the crisis passed in the Pittsburgh area, and gasoline prices dropped to $2.19 a gallon (as of October 29), Mr. Smith said he expects to replenish his automobile’s private reservoir the next time he visits an area gas station.

Central to the nationwide response, now seen by most as amazingly successful, was consumers’ ability to tap into their own individual gasoline reservoirs during the supply emergency.

However, since this oil industry response plan involved market concepts and demand-management through price changes, it was unfortunately beyond the comprehension of most legislators and journalists. Legislators responded by calling for a “windfall tax” on profits generated by higher gasoline prices. Interestingly, television news viewership, as well as sales of newspapers and magazines, jumped significantly in response to hurricane Katrina. No word yet whether Congress plans to similarly tax media windfall profits.

Notes on numbers: 200 million cars in U.S. with average tank size of 14 gallons (at least my Volkswagon has a 14 gallon tank, which, pre-Katrina, averaged one-half full and post-Katrina averaged one-quarter full). With these numbers, the nationwide private gas-tank reservoir capacity is 2.8 billion gallons. If it averaged one-half full when Katrina hit, there were 1.4 billion gallons available for individual consumers to draw upon. 700 million of these gallons could be used before the average driver's tank hit one-quarter full. I can only speak for myself and wealthy investor Don Smith (not his real name): We both drew our tanks down and kept them down as long as prices stayed up.
-- Greg Rehmke, reporting from Pittsburgh and Seattle

Trickle-Up Economics-Forbes

2005-06-10T05:36:00.000-07:00

Highly recommended short article in June 20th issue of Forbes.

Titled "Trickle-Up Economics" and by David Armstrong Naazneen Karmali. Subtitle:
"How low-tech, low-cost designs are helping the poorest farmers on Earth grow their way out of poverty."

Distorted legal systems and mixed-up governments are key problems in poor countries. But so is the lack of effective application of innovation. Here is great quote from article: "The key is affordable design, Polak says. 'Ninety percent of the people who design things work on the problems of the world's richest 5%,' he says. 'There is a huge need to design things that will create a market for the poorest 4 billion people.'

http://www.forbes.com/business/global/2005/0620/040.html

Trash Technology Progress, Government Style

2005-05-23T20:32:00.000-07:00

When I was young I used to take the trash out to the metal garbage cans by the side of the house. I wasn’t enthusiastic about it and I am sure I complained a lot.

Years later, the local garbage company, a regulated monopoly, introduced new, larger plastic trash containers. But to make it easier for the trash collectors, these had to be rolled to the street. At my mother’s house, this meant to the top of a fairly steep driveway.

Now, many years and technological innovations later, the local garbage company, still a regulated monopoly, has provided new plastic trash, recycling, and yard waste containers. These are designed to be easily emptied by their new garbage trucks. But the new trucks can’t make it down the dead-end road to the top of our driveway.

So when I am nearby on Monday evenings, I am back to taking out the trash again. My mother can’t wheel the nifty new garbage containers up the driveway, up the dead-end road, and out on the street.

It’s not hard for me (or for my uncle, when I am not around), especially on sunny days in the summer. And I sometimes see neighbors I knew in childhood. This Monday, Sheri, my sister’s friend, was over at her mother’s house sorting trash and rolling her garbage cans out to the street. We waved as we each took up long-practiced tasks for our parents. And looking down the street, all our neighborhood trash collection customers had accomplished their weekly chore of sorting trash and wheeling trash containers up or down driveways to the street.

So that’s progress in the world of regulated monopolies. It would be handy if my mother could choose a trash collection company that would collect from containers by the house. Today’s streamlined trash collection technology is great for everyone, except customers, particularly elderly ones. But the new system makes it much easier for the trash company and it’s union workers to quickly and easily collect trash. They have become more productive in part by "convincing" their customer to do an ever-larger share of the trash collection work. This technological progess makes it a bit confusing to figure out who is serving whom.

The next “service” advance is scheduled for 2006 when trash collectors will be empowered to review our trash to determine if it has too much wayward recycling content. If so, they can leave it with a note explaining our error and encouraging further sorting.

If that sounds hard to believe, here’s a report: “Seattle's mandatory recycling law goes into effect with goal of recycling 60% of the city's waste. Seattle was the first city in the nation to begin curbside pickup of recyclables and it is now adding fines in order to motivate its citizens to recycle. Since its recycling rate dipped to 40% from a high of 44% in 1995, well below its target of 60%, Seattle has added the possibility of losing garbage pickup for those who do not recycle. Though the penalties do not start until 2006, the new effort has shown good results so far.” (http://www.newstarget.com/005161.html)

I remember visiting my sister soon after Seattle's curbside recycling started. The city raised prices dramatically for trash collection, thus encouraing customers to fill their recycling containers. I was trying to explain some economic concept to my sister, but she was distracted by one child pulling on her shirt while holding the baby in one arm and trying to peel the paper label off a tin can, after washing it (how can I explain economic concepts with all these distractions!). The cleaned tin cans went into one recycing bin, and the paper in another.

I think back to my youth and imagine sitting around the dinner table as my father reads the above news item on mandatory recycling. I don’t think he would have been afraid of “the possibility of losing garbage pickup.” I think he would have been willing to deliver our trash personally to city hall. But now, decades later, we are conditioned to do more and more to prepare our trash for state-regulated service providers. Perhaps someday we will wrap up our trash and tie a bow around it.

What’s on the horizon for trash collection technology? Perhaps we can see Seattle's trash and recycling future in today’s Japan. Consider a recent New York Times story:

May 12, 2005, Thursday
How Do Japanese Dump Trash? Let Us Count the Myriad Ways
By NORIMITSU ONISHI (NYT) 1353 words
Late Edition - Final , Section A , Page 1 , Column 1

ABSTRACT - Japanese cities increase number of garbage categories in national drive to reduce waste and increase recycling; in Yokohama, which has 10 garbage categories, residents get 27-page booklet on how to sort their trash, with detailed instructions on 518 items; small town of Kamikatsu has 44 garbage categories; in land-scarce Japan, up to 80 percent of garbage is incinerated; country's long-term push to sort and recycle aims to reduce amount of garbage that ends up in incinerators; in United States, 80 percent of garbage ends up in landfills; experts say environmentally friendlier process of sorting and recycling may be more expensive than dumping, but is comparable to cost of incineration. http://query.nytimes.com/gst/abstract.html?res=F30E1EFD3B540C718DDDAC0894DD404482&incamp=archive:search

Another website has the full NYT article. Here are some excerpts with details on the “future-trash” Japanese system:

“Lipstick goes into burnables; lipstick tubes, ‘after the contents have been used up,’ into ‘small metals’ or plastics. Take out your tape measure before tossing a kettle: under 12 inches, it goes into small metals, but over that it goes into bulky refuse.
Socks? If only one, it is burnable; a pair goes into used cloth, though only if the socks ‘are not torn, and the left and right sock match.’ Throw neckties into used cloth, but only after they have been "washed and dried."
‘It was so hard at first,’ said Sumie Uchiki, 65, whose ward began wrestling with the 10 categories last October as part of an early trial. ‘We were just not used to it. I even needed to wear my reading glasses to sort out things correctly.’

So here I am decades later still taking out the trash. And still complaining about it.

Commerce Disruption: Harder to Tell Rich from Poor

2005-05-14T21:50:00.000-07:00

Cheap clothes from China are again making it difficult to distinguish rich from poor in America.

According to a recent AP story: "The Bush administration is re-imposing quotas on three categories of clothing imports from China, responding to complaints from domestic producers that a surge of Chinese imports was threatening thousands of U.S. jobs." The decision was led by the Commerce Department objecting that too much commerce from China was "disrupting the American market." News reports were silent regarding American clothes buyer’s perspective on this "disruption."

Not mentioned in the story were the millions of low- and middle-income Americans who recently purchased this “surge” of stylish shirts and pants from China. These people could clearly have found clothes at similar prices in their local St. Vincent de Paul or perhaps at Ross Dress-for-Less. Or they could have made do with the probably adequate clothing they already own.

Instead, millions rushed to buy new clothes from China, but forgot to call their Congressmen to thank them for the privilege. These newly stylish low- and middle-income Americans also forgot to issue press releases announcing their surprise at finding quality clothes at prices they could afford. They forgot to hold press conferences with free donuts for local reporters. So reporters munched donuts offered at press conferences held by groups like the National Council of Textile Organizations.

Pro-trade donuts were available at the United States Association of Importers of Textiles and Apparel press conference. There Executive Director Laura Jones noted that imports from China declined in March after surging in January and February. According to the AP story Jones said the administration "chose to ignore all the comments filed by U.S. retailers arguing against the action.”

So companies that sell imported clothes are lined up against the textile companies that make fabric and clothes in the United States. Commerce Department officials and concerned politicians in the Bush Administration and Congress evaluate the claims made by these competing interests. Affected companies and their consultants issue press releases on the debate over free trade in clothing.

But is anyone left out of this trade policy dance? Who speaks for or even reports on the benefits to people in China who make the clothes Americans wear? Who speaks for or even reports on the millions more around the world (including in American) who make the goods and services Chinese workers purchase with wages earned making clothes for Americans?

And who speaks for the millions of everyday Americans now more nattily attired? The poor may always be with us, but at least for a few months this year they could dress in comfort and style.

--Greg Rehmke

NYT calls for more aid for Africa

2005-04-27T15:25:00.000-07:00

According to the New York Times lead editorial on April 25, Ghana is the new success story of Africa. Though still terribly poor, Ghana is a role model of stability. And its needs only.... you guessed it: more foreign aid. Tony Blair's "Marshall Plan for Africa" is just the ticket, according to the NYT (by the way, the Marshall Plan was a huge failure in the UK, where it funded socialism, and France, where it funded French colonialism in Vietnam. And Germany thrived only after market reforms. A viewpoint on the topic is here: www.imfsite.org/abolish/betteroff.html. You can find an depth analysis in badly-scanned pdf file here: www.gmu.edu/jbc/Tyler/Marshall_Plan.pdf)

The NYT sees Ghana's small budget as the problem: "Almost half of Ghana's national budget comes from foreign aid; Britain is its largest single-country donor. But the size of the country's budget, a scant $3 billion, supporting some 20 million people, is testament to just how far Ghana still has to go, and just how much more it still needs to climb out of poverty."

The full NYT article is here: http://www.nytimes.com/2005/04/25/opinion/25mon1.html?.

Some questions I have: If $3 billion in annual gov. spending "supports" 20 million people, then that works out to $150 per person. Have I done the math right? The article claims most people in Ghana survive on $300 to $400 a year. Does that include the $150 a year in services the NYT implies they receive from their government?

Is it possible that the "scant" $3,000,000,000 a year in government spending doesn't find its way to everyday Ghanian people as useful services? When economists calculate a country's GDP per capital, do they include government spending? It would be double counting if government funds come from taxes. But if a significant part of government funds come from foreign aid (or from oil income), then this is money collected at least in the name of the people.

If Tony Blair's call to double aid to Africa reaches Ghana, and if today it receives, as the NYT claims, $1.5 billion in aid (one-half of the budget), then foreign aid would reach $3 billions and the government budget would increase to $4.5 billion. Spending for government services per person in Ghana would rise to $225.

I hope people in Ghana ask what they get from their $150 a year share of government spending now. This knowledge would give them some insight into what services to expect from their government following a 50% increase in foreign aid

Link to full NYT editorial: http://www.nytimes.com/2005/04/25/opinion/25mon1.html?

Don't Wrap the Veggies and Don't Hector the Villagers

2005-04-18T14:12:00.000-07:00

Too bad New York Times reporters don't read Forbes.

Contrast a Forbes article (below) about a global corporation bringing to developing countries the know how for producing and the trust for buying quality goods, with a recent NYT article. In "Kenyan Village Serves as Test Case in Fight on Poverty."
[www.nytimes.com/2005/04/04/international/africa/04village.html?] the NYT gives its usual glowing and optimistic report on yet another go at foreign-aid based development.

Jeffrey Sachs' Earth Institute is going to try to teach people in one single Kenyan village how to farm (I hope they like farming...). Then they plan to really ramp-up: "Eventually there will be 10 such test villages, scattered across the world's poorest continent."

How does this new Sachs-inspired project work? The New York Times describes how "hope decended onto" a Kenyan cornfield: "No, no, no, no!" cried Herine Okoth, an agricultural extension worker, as she marched over the freshly tilled land. "Stop!" The extension worker's energetic nos were directed at Patricia Awino Odera "a frail-looking 54-year-old grandmother who had never had a day of schooling in her life [why should this matter? Do people learn proper "hoeing" in school?], had thrown fertilizer in with her corn seeds and spaced her holes too closely, both of which would reduce the harvest she and her children would get."

The farming lesson from Herine Okoth continues: "We agreed that you'd put the fertilizer in first, separate from the maize. It's not so difficult. It's like this. Fertilizer first. Then cover it with some dirt. Then throw in the seeds. Then cover those. It's not hard at all."

I hope the Earth Institute, U.N., World Bank, etc. are up to it. No doubt development experts are now crisscrossing the globe to coordinate planning and funding for teaching more African about hoeing. (Okay, enough sarcasm for now. Maybe in the end some good things will flow from the project.)

Elsewhere in the developing world, Forbes magazine reports on a private-sector effort to improve the quality of goods available to small enterprises. Metro, the fast-growing German firm is expanding worldwide in an effort to increase sales and profits. Metro also provides farmers tips on producing higher-quality goods. Let's see which development project best services people in the developing world. To start with, though, Metro has a track record of success unmatched by foreign-aid funded development projects. Beginning in Poland and Hungary right after the fall of communism, Metro's for-profit operations have expanded to Moldova and other countries in Eastern Europe, and to India, Vietnam and China.

Globalization moves goods and services, capital and people, knowledge and news, around the world. And it brings trust to places where long experience with both communism and corruption limit trust to extended families.

Titled "Don't Wrap the Veggies," Forbes reports on this entrepreneurial German corporation, a Costco-like (members-only, warehouse format) supermarket for the developing world. The firm targets the growing class of entrepreneurs in developing countries. Metro started internationally in Poland and Hungary right after communism collapsed.

The first couple paragraphs of the story tell of creating distribution efficiencies as Metro's Vietnam stores moved to buy directly from farmers. Like McDonalds in the USSR, they had to push knowhow and technology back through the supply chain to get the quality, reliability and prices they wanted. Deeper in the story are great observations on how global corporations like Metro create trust with skeptical buyers.

We laugh at Monty Python's Dead-Parrot sketch. Who in the UK or US would really try to sell a dead parrot (claiming it was just asleep)? I wonder if consumers in Asia would get the joke.

When Metro launched their store in Shanghai they made various trust-oriented mistakes: "We discovered that in China fresh means ‘alive,'" says Körber. Metro installed tanks for snakes, frogs and snails in its Shanghai store." Chinese vendors offer live fish because consumers just don't trust them to promise fish are fresh (as I have learned not to trust that promise in Chinese restaurants run by recent immigrants to the U.S.).

In Metro's new Vietnam store they started with German-style order in the produce section: stacks of neatly wrapped tomatoes: "People started ripping the packages open. They thought we were hiding rotten fruit underneath the pretty pieces on top."

Metro spends a lot of time teaching producers in the developing world how to produce cleaner, higher-quality products. And it thereby saves small entrepreneurs lots of time and money.

"The cash-and-carry format--no credit and serve yourself--works remarkably well in emerging markets with throngs of small enterprises. In Asia the first move off the farm might be to peddle snacks and cigarettes at a kiosk. Likewise someone who has lost a job at a state-owned enterprise in the former Soviet bloc might open a small shop or restaurant. Buying supplies can mean endless trips to traditional markets--complete with flies, dicey fruit and raw meat sitting in the sun--or buying from unscrupulous or unreliable wholesalers."

Without a functional legal system, small businesspeople have little recourse against shady vendors. "Buyer-beware" means buyer be really wary. Global corporations introduce both knowhow and trust to formerly-communist countries. Trust saves time. Reagan's quote was "trust but verify." Good policy for nuclear disarmament, but not for buying fish and veggies. Time spent verifying the quality of each good supplied is time lost to adding value to those goods.

And learning how to provide quality products for international corporations opens the door to international trade: "Farmers gain from the entrée to a wider world that a network like Metro's can provide (unless protectionist politicians block them). Farm-raised Vietnamese catfish and shrimp are now supplying Metro stores worldwide. In India Metro is working with nonprofits to train 14,000 shepherds and 1,000 fishermen in hygiene and chilling techniques, even as it finances repairs to ocean piers for tsunami-stricken fishermen. For Metro, it's not charity so much as quality control. "

Lots of people work full-time telling other people what to do and how to do it. The profit motive creates one set of institutions and incentives for people with wealth and knowledge to give good advice, and for people with less wealth and knowledge to act on that advice. Nonprofit institutions create, unfortunately, a different set of incentives both for giving advice, and for acting on advice.

New York Times reporters and editors seem to prefer nonprofit incentives and development adventures. Forbes reporters and editors seem to prefer for-profit adventures. New York Times readers are encouraged to donate to projects like Jeffrey Sach's Earth Institute. Forbes readers are encouraged to invest in self-sustaining enterprises like Metro, enterprises that find ways to improve productivity in the developing world and at the same time create wealth for stockholders. Results from these for-profit institutions contrast starkly with nonprofit groups like the Earth Institute that manage to consume the wealth of donors while while hectoring poor farmers around the world.

--------

The full article is on the Forbes site (URL below).

http://www.forbes.com/forbes/2005/0418/094_3.html

Greg Rehmke

------------

Nairobi's Plastic Bags are Barking

2005-04-08T07:14:00.000-07:00

Sometime symptoms are confused with the disease that causes them. I would argue that litter is a symptom.

According to an article in the April 7 New York Times (p. A4), scattered plastic bags around Nairobi are a curse caused by grocery bags that are many microns too thin. Everyone from govt. officials, to the U.N. has proposed cures. Below is the URL and quotes from the article:

[www.nytimes.com/2005/04/07/international/africa/07nairobi.html]

NAIROBI JOURNAL: Flower of Africa:
A Curse That's Blowing in the Wind
By MARC LACEY

"... All over Nairobi, and all over Africa, are ugly artificial blooms that mar the landscape and that environmentalists want plucked up and removed.

"These flowers are cheap, thin plastic bags that are tossed to the ground by consumers. This kind of litter has reached a critical mass in Kenya - clogging streams, choking animals and piling up into little mountains of disease.

"These bags are different from the ones that Westerners carry their groceries in from the neighborhood supermarket; the Kenyan bags are so thin they barely hold a few mangoes or a few pounds of corn meal without tearing.

"Their delicate nature makes reuse impossible and leads to their frequent introduction into nature...

"Wangari Maathai, the assistant environmental minister in Kenya and 2004 Nobel Peace Prize winner, says the sacks provide a breeding place for malarial mosquitoes, helping spread one of the continent's major killers.

"I'm not saying don't use plastics at all," Dr. Maathai said recently as she extolled the virtues of more homegrown bags, like those made of sisal or cotton, or the traditional baskets, which were what people used before plastic came along.

"A recent study by the National Environmental Management Authority and the Kenya Institute for Public Policy Research and Analysis estimated that more than 100 million light polythene bags, many of them thinner than 30 microns, are handed out each year in Kenyan supermarkets, which is more than 4,000 tons of the bags every month. The study recommended banning the thin bags, which are believed to make up most of the litter. Other bags, it said, should be taxed to provide a financial incentive for bag manufacturers to come up with more environmentally friendly alternatives.

"The tax could then go to support recycling efforts, which are not common in Africa, says the report, which was financed by the United Nations Environment Program.

"The report notes that there would be some job losses if Kenya outlawed the manufacture of plastic bags, which is a booming industry here that supplies all of East Africa. But it notes that other jobs would probably be created among cotton bag manufacturers. Nairobi's street children and others might also earn some income from picking up plastics if a recycling program was started. ..." (article continues)

-------

Grocery bags are handy. Kenyan bags are, according to the article, thinner than similar bags in the U.S.. Grocery stores could switch to more expensive thicker plastic bags, but of course would have to pass the higher cost on to customers by raising prices. Is that what customers would prefer? If the thin bags break too much (as the article states) why don’t customers purchase their own thicker plastic bags and bring them when they shop?

Of course I am not an expert on litter in Nairobi. I live in Seattle, Washington, USA. We have thicker plastic bags. And some grocery stores offer only much thicker and bulkier (and less strong) paper bags. But we also have a problem with litter here. You can see plastic bags and other trash on many undeveloped properties where owners are absent, and where property is owned by city, county, or national government agencies.

The economist Hernando de Soto argues in his book "The Mystery of Capital" that in many developing countries it is barking dogs that signal property boundaries. Local governments often do a poor job of registering who owns what, but informal systems (like barking dogs) can arise to guide everyday activity.

I wonder if the litter of plastic bags in Nairobi is the barking dog signaling where government for some reason hangs on to property it can’t adequately manage.

The government and the U.N. are ready to tax grocery bags and hire people to pick up plastic bags. What if instead they hired people to assign ownership to littered land. Or maybe the tasks could be combined. One could mix their labor with the land by clearing it of litter and keeping it clear for a year. After a year they would earn clear title and could use the land as they please. Or could sell it off and move on to clear another parcel.

Greg Rehmke
www.EconomicThinking.org

Tsunami Danger...Tomorrow [updated]

2005-01-24T06:52:00.000-08:00

[Great news! It didn't happen. No big "global warming induced" wave. Lives saved but also little attention paid to the "Countdown to global catastrophe" environmentalist report (click link in title above to see article). Hopefully no one working at environmental organizations is considering real-world terrorism to draw media attention to environmental conferences and reports (as the fictional environmental organizations do in Michael Crichton's novel, "The State of Fear.") For a Hollywood portrayal of a similar and far more deadly action by hard-core environmentists, see the very scary Bruce Willis action movie "12 Monkeys."]

[original post below]

Those who have read Michael Crichton's new novel, "The State of Fear," will recognize the tsunami danger this headline, and tomorrow's big climate report, represents: "Countdown to global catastrophe," (The Independent Online, UK).

The story tells of a "high-level" report being issued tomorrow (1/25/05) titled "Meeting the Climate Challenge" from a task force of "senior politicians, business leaders, and academics." The report claims (or at least the news stories about the report claim), the world has only ten years to mend its ways and reduce CO2 emissions. A couple natural disasters today and tomorrow would help focus media attention on this report.

This morning's Drudge Report puts this article link right above the huge "Blizzard Buries Boston" headline and picture (the headline and link moved down at 7 am PST). It could already be too late to stop abrupt climate change! But it's not too late to buy and read and encourage others to read "The State of Fear."

Thinking Outside the Border Box

2005-01-07T22:18:00.000-08:00

The aid dollars pour out to assist those whose lives have been devastated by the tsunami. Millions of dollars will help provide food, clean water, medicine, and soon shelter and rebuilding infrastructure and businesses.

It is expensive to bring all this to those who have suffered from nature's unexpected assault. I wonder if it might be less expensive to invite some of those now suffering without enough food or shelter to share our food and shelter in the developed world. Hundreds of thousands around the world would be willing to share with those unfortunate souls we see on television each evening.

The first offers of shelter would probably come from hundreds of thousands of Indonesians, Thais, Sri Lankans, and Indians who now live in Europe and the Americas. Perhaps the airfare is too expensive for such a mission. But more likely it is the mountains of bureaucratic regulations and inertia that block this particular freedom of association. Tens or hundreds of thousands among those suffering might wish to escape the horror around them and spend weeks or months recuperating in the west.

It is astonishing to have world leaders announce solemnly on the news that they have never in their lives seen such scope and scale of destruction. Then they board their airplanes and helicopters and fly off to comfort and security.

Without some kind of recognition for a freedom of movement, millions around the world are less able to escape bad weather and bad government. According to the UN in 2002, some 22.3 million refugees and “internally displaced people live in 120 countries. These refugees lived encamped around the world, supervised, according to the U.N., by a staff of 5,000.

So now millions more are added to this sad list. People who instead of being “internally displaced,” by conflicts in their countries, have suffered a conflict with nature that “displaced” their entire material world and for many their entire families.

The UN, US, assorted NGOs and militaries can ship tons of emergency aid in, but they could as easily transport thousands out. Past emergencies in Ethiopia, Somalia, and Sudan have been tragic for Africans, but have brought hundreds of thousands to America to recover and return, or to build new lives here (sending millions of decentralized aid dollars to friends and relatives back home). And they send more than dollars back. They send letters, books, emails, and phone calls back to friends and relatives. Their first-hand stories and experiences are America’s best ambassadors to the world.

Occasional injustices are reported back home too, but the vast majority of immigrant experiences in America are positive. Americans born are more sensitive to hardship. We have nothing to compare it to. Those from Africa are puzzled at what most Americans think of as poverty and injustice.

And that is the second great benefit of helping disaster victims first-hand in our homes rather than just through our checkbooks. Effective charity can serve the giver as much or more as the receiver. Americans have so much extra space in our homes, extra food in our kitchens (and extra pounds too).

President Bush has proposed a guest worker program to help deal with current illegal immigration issues. I am not sure what the late economist Julian Simon would say to the Bush plan. He published many articles and books on the economics of immigration. I think he would favor letting more people come to American to work.

I am more confident that Julian would favor allowing thousands among the millions devastated by the tsunami to come to America and to Europe to heal their bodies and minds and to begin the rebuilding of their lives.

There is no reason why, in the twenty-first century, that so many should live in shanty-towns on the seashore, should live on a dollar or two a day, should fish in the open ocean in prehistoric wood sailboats. A few months in America and Europe would open their eyes, as it has for so many millions of earlier visitors and immigrants. Once people experience first-hand what is possible in an open society, they will forever question their lives under repressive customs and governments.

The reform movements in Kenya, Sudan, and other African countries in the 1980s and 1990s were launched by young men and women who returned home after some years in England or America. They saw with their own eyes that they could live free and prosper. That they could start companies and create wealth. For them it seemed inexcusable that these freedoms could not be enjoyed in their homelands. So they returned home to explain, persuade, argue, and if necessary, fight for African versions of free and open societies.

If tens or hundreds of thousands could escape their impoverished countries (and now devastated neighborhoods) for a few months or years, they would bring ideas, associations, and capital back with them and help open their homelands to the modern world.

[comments welcome… this is a first and fast draft.]

Ideas for Reducing Dependence on Foreign Oil

2004-12-17T09:24:00.000-08:00

Homeschool students are debating a resolution calling for reducing dependence on foreign oil. I have spoke to at over a dozen Economic Thinking debate workshops designed to provid an introduction to economic concepts, and to the economics and history of energy policy. Students have asked what I think are the best affirmative cases for this topic. I briefly discuss two below.

Best mainstream case:
The resolution is less than ideal. Free trade benefits both parties whether in food, clothing, coffee or oil. Though in modern open societies we quickly become dependent on others for our food, clothing, coffee and oil, that is not a bad thing. Economists call it comparative advantage. We focus on producing things we are good at producing and purchase from others things they are good at producing. But... the homeschool debate topic was chosen and debaters spend half their time supporting the resolution. Given this, what policies might best support the resolution with the least loss of personal freedom?

One policy idea is a revenue-neutral gas tax (or fee) of 50 cents a gallon. Such a tax would reduce consumption ("dependence ") on foreign oil and encourage conservation and use of more fuel efficient cars in U.S.. But instead of just pouring new dollars into state and federal budgets, I recommend that students propose a revenue-neutral gas tax. State and federal government should keep none of this extra revenue. Instead, my suggestion is for states to eliminate sales taxes on new and used cars that have at least above-average mileage. Government doesn't need to invest billions in new research. Instead higher mileage cars are already on new and used car lots. But to purchase one of these cars most Americans must pay 5% to 8% in sales taxes (taxes vary by state). By raising gas prices 50 cents a gallon and lowering prices on new, more fuel efficient cars, "dependence" on foreign oil is reduced with the least government intrusion. Plus people get to drive safer, quieter, and more comfortable cars. Not a perfect policy but one that uses one government intervention in the economy (a new gas tax) to reduce or eliminate another intervention (sales taxes on new and used cars).

Best more complicated case:
Think positive. Use this resolution to increase personal freedom in America and reduce the role of government. Attack the idea of dependence itself by calling for complete disengagement of the federal government from energy issues. America’s energy problems started when the federal government began intervening in the oil industry (as an example, OPEC was formed in response to U.S. tariffs on foreign oil). The oil crisis of the Carter years was caused by a combination of retail price controls (gas stations couldn’t raise prices when supplies were short), and supply constraints (oil producers in the U.S. could not charge high prices for supplying oil). Ronald Reagan ran for President calling for less socialism in America and for abolishing both the Department of Education and the Department of Energy (Reagan was elected but then shot, and many of his policy initiatives were slowed or blocked altogether). Neither government energy and education agencies nor their assigned tasks are mentioned in the U.S. Constitution, and neither agencies do things that are the proper role of government in a free society.

Just as welfare dependence is caused by government welfare policies, I would argue that energy and oil "dependence" in the political sense is caused by government energy policy. The idea of dependency is the idea that somehow the federal government is responsible to make sure Americans get enough oil from around the world at reasonable prices. Economists have argued, however, that Saudi Arabia needs U.S. dollars far more than the U.S. need Saudi oil. America would adjust to reduced supplies and higher oil prices (as we did earlier in the fall when oil priced jumped to $55 a barrel). Saudi Arabia, however, would collapse quickly without the huge stream of revenue from oil sales. (And, by the way, Islamic terrorists target America because of U.S. policy in the Middle East, which in turn follows government seeing its task as maintaining stability in the "vital" oil-rich Middle East. Government stability policy in the Middle East has contributed to vast instability there.)

Oil is just an energy source. There are many others. Government energy policy, though, has interfered with alternative energy in various ways. Federal energy research and operational grants have pumped billions into misguided alternative energy sources (ethanol, early wind-power, shale oil, fusion, waste-to-energy, etc), and at the same time the federal government regulates these and other energy sources in ways that slow and distort energy research and development. Government should have a very limited role. Federal politicians and bureaucrats have had little success and much failure trying to push technology ahead (for more, see some of the articles at www.EconomicThinking/energy and www.EconomicThinking.org/technology). Ron Bailey’s article on thirty years of failed government efforts to achieve energy independence provides a nice introduction to the recent history: http://www.reason.com/rb/rb072104.shtml

- Greg Rehmke

Wal-Mart Seen and Unseen

2004-12-11T01:13:00.000-08:00

How do we measure a community’s net loss or gain when new stores come to town?

There is no easy way to measure progress, nor to measure decline. From a distance, and over decades or centuries, perhaps it is easier. But now, today, as well look around us, and inside our own lives, how do we come to know, or to feel, that things are getting better, or getting worse? For some, new products, new stores, or new music may seem wonderful advances. For others these same products, stores, and music may feel disruptive and decadent. How can the impressions and emotions experienced across hundreds or thousands in any society be compared?

How can we hope to measure a community's net gain or loss when new retail stores displace established stores? Some may be irritated, others impressed, and still others indifferent. In the small suburban town I live in, major drug store chains arrived in the 1990s. Walgreens and Rite-Aid came to town and locally-owned drug stores folded. Net loss or net gain for our town? Without looking into every individual mind, one by one; somehow measuring every customer, employee and ex-employee, how could total progress or regress be determined? And even a total town survey wouldn’t be enough. Townsfolk might feel pleased today but less so tomorrow, as new store features fade. And how revealing are surveys? Do people really feel what they tell us they feel, or does our question somehow alter their answer, making it less real as it rises to the surface? Some may tell us they prefer vanilla ice cream, but then buy chocolate.

Instead, we have a market-process survey every day. You can see the surveyors every day entering each town drug store. They walk down the aisles and either find what they want or don’t. They leave with drugs and household goods or they don’t. And if enough times they come away empty-handed, survey says, they don’t return. If enough don’t buy or don’t return, management is swept away and replaced by another team with another system or vision or products. Human action may give us an imperfect measure of human preferences, but is it any less perfect than surveys trying to measure impressions of “net loss” or “net gain” when new retail outlets come to town?

When The Great Atlantic & Pacific Tea Company’s swept the country in the 1930s with 16,000 "new-fangled" grocery stores, thousands of small “mom and pop” stores went out of business. Consumers benefited from lower prices, wider and more standardized selection, and by finding more goods in one location. Competitors were hurt, and the social fabric nationwide was altered. Restricting A&P stores to protect local firms was even a national high school debate topic. Much was lost in the transition (a transition still in process in Japan, as various regulations have long protected small local retail outlets). But much was gained as well. Consumers voted with their feet and their dollars. Grocery stores bring products from producers to consumers. They serve no higher purpose. Some jobs were lost, others created as new pathways developed. After the transition, consumers saved time and money, and gained access to higher quality and more uniform products.

How could net gain or loss to the communities have been calculated for A&P then, and how could similar changes be calculated for Walgreens or Wal-Mart now? What measurement tools can compare how people feel about change? Some don't care, some like changes a little, others hate them a lot (should we let “utility monsters”, those who feel gains or loss far more intensely that others, rule the day?). Some benefit, some are hurt. We have to trust to people's own sense of their best interest. We let people decide. If don’t like their decisions, we should have no alternative but to try to enlighten them, to help them understand what we take to be their own best interest.

In today’s common debates over Wal-Mart, some claim that wages paid are too low, and that too many can only work part-time without medical benefits. For health care, Wal-Mart's management logic would be similar to the owner of a local latté stand. If labor costs go up significantly when using full-time vs. part-time workers, employers would, on the margin, prefer part-time workers. But there are other benefits to part-time work. Many people have families and are only available part-time. Others are taking college or other training courses. Still others just don't want to spend 40 hours a week working at Wal-Mart.

I don't think the Boeing Company can offer part-time employment without heath-care and other benefits. So they don't offer much part-time work. Many highly-qualified former Boeing employees, who left to raise children, might wish to return for part-time work. They could generally earn more at the firms they had trained for and worked with. And large firms like Boeing would benefit from being able to draw upon a wider part-time workforce. Unless, that is, they are forced to pay union-scale wages and provide full-scale medical benefits. I believe a combination of legislation, regulation, and union rules limit the freedom of Boeing and former Boeing employees to come together voluntarily on mutually agreeable terms for part-time work.

Some claim that Wal-Mart pays some wages too low for employees to afford a comfortable lifestyle or to afford health care. I would note that social security taxes (at 15%) and other taxes take a significant bite out of take-home pay. And health care would be much less expensive if the many layers of state and federal health-care interventions were removed. In the 1920 and 30s, millions of Americans received their health insurance and care from service clubs they belonged to (Masonic lodges, for example). The lodge doctors were the early HMOs for poorer Americans who couldn't afford fee-for-service doctors. But this early health care and insurance for low-income workers didn’t survive aggressive state medical regulations (pushed by fee-for-service doctors and the American Medical Association). (This story is told in David Beito's From Mutual Aid to the Welfare State: Fraternal Societies and Social Services (Chapel Hill: University of North Carolina Press, 2000).)

My point is that private sector options that used to exist for the poor and for those with low-incomes were regulated away, or at least prevented from developing as America prospered. We don't know what options might exist today if Wal-Mart were legally allowed to offer a no-frills (or fewer-frills) health care plan to part-time workers.

If, as some have claimed, Wal-Mart managers are under pressure to fire workers before they qualify for benefits, that is a problem. If true, one would think Wal-Mart employees would find out about it and adjust their behavior accordingly. That is, they would not believe in promised future benefits (or any other promises made by Wal-Mart). This would seem much worse for Wal-Mart employee moral and productivity that any savings from tricking employees out of promised benefits

Wal-Mart started in small communities, and for people living long distances from cities, the nearby Wal-Mart brought the wider choices and lower margins that the rest of us took for granted. Again trade-offs though: consumers benefited, but the small stores that used to sell washing machines and other products in small towns lost their customers (as did Sears as catalog sales dropped. Mail-order was an alternative, before Wal-Mart, to long drives to larger cities and towns).

Central to good economics is French economist Frederic Bastiat’s idea of "the seen and the unseen." One can see harms caused in small towns when Walgreens or Wal-Mart stores arrive with their wider selection and lower prices. Local family-owned shops close, people lose jobs, and Main street shops are boarded up or change hands. But unseen or harder to see are the consumers in small towns who gain more buying power. They can purchase more goods at Walgreens and Wal-Mart than they could before. Further, by paying lower prices for everyday goods, they have more disposable income for other goods and services in their local community (two and three dollar lattés, for example).

Comparison snapshots of small towns across America in 1974, 1984, 1994 and 2004 would reveal not only expanded choices of goods available at Wal-Mart, but also expanded goods and services elsewhere in small towns (of course this is a general claim and many small towns have grown smaller or larger for reasons that don't have to do with Wal-Marts).

The bigger background question we want to ask and have answered is: are people better off or worse off today than ten, twenty or thirty years ago? Are communities really benefiting from the wider choices of retail goods available across America, in towns large and small? (It is worth noting that many of feel worse off. Because, I think, we are ten, twenty, and thirty years older. We aged as waves of progress washing in. Our joints hurt, we need glasses to read, and cheaper goods and gadgets are small compensation for our vanished youth. Maybe we are just getting grumpy and can’t see the local Wal-Mart though the wide-eyed wonder of millions who still live in the deep countryside—rather than just camp or hunt there).

Highly recommend is Michael Cox's book "Myths of Rich and Poor" for comparisons over time of the everyday lives of Americans. Material wealth can't make us happy and may for many even distract us from the truly important things in life. But we should be clear on the evidence that average Americans are materially wealthier today than in earlier decades. Their houses are bigger, cars are safer, and clothes less expensive..

Many of the themes and findings in Cox's books are available in the online Annual Reports of the Federal Reserve Bank of Dallas (http://www.dallasfed.org/fed/annual/). In particular I recommend the 1992 and 1993 Reports. Each begins with a thoughtful essay on economic progress, these first two titled: "The Churn: The Paradox of Progress" and "These are the Good Old Days: A Report on U.S. Living Standards."

So, for Wal-Mart, Walgreens, and the other box stores big and small that dot the American countryside, we are left with a series of trade-offs, the seen and the unseen discussed above.

But even where progress seems clearer, there other issues to consider. A 42 inch plasma television is better than a 25 inch color TV, which in turn is better than an older 20 inch black & white. But a better TV isn’t the same as better content (and maybe better TV technology leads to worse content, since on much better TVs many seem satisfied with vapid stories as long as the scenery is exotic). Bose stereos, iPods and digital CDs can reproduce sound more accurately, but not insure that people choose to listen to quality music. Culture, however measured, can decline even as prosperity increases.

Fearing Wal-Mart won’t revive culture, and it may dampen prosperity. Worse, fearing Wal-Mart distracts us from the many other opportunities we have to try to make the world a better place.

Family, Work, Community: Did Ebenezer Scrooge Dream a Better Life for Himself?

2004-12-09T13:34:00.000-08:00

Family, Work, Community: Did Ebenezer Scrooge Dream a Better Life for Himself?

Reflections on watching George C. Scott in Dicken's "A Christmas Carol"

by Gregory Rehmke

Consider Charles Dicken's Ebenezer Scrooge, as brought to life by George C. Scott in the video from the 1990s. George C. Scott plays Scrooge as a competent businessman who finds both Christmas and philanthropy a waste of time and money. His eyes are opened through a series of nightmarish dreams. The book and various movie versions are offered today as indictments of greed and business, and the joys of family, Christmas, and giving to those less fortunate.

We can look at this classic story through our own pro-market lenses and see more to the story than do the majority who misunderstand capitalism and the role of markets and prices. And we can write our own last chapter to the story that lets Scrooge life a happier life without compromising his business principles.

I would argue that a better, though less dramatic, interpretation of the story is simply that people, especially successful businesspeople, can get too wrapped up in their work, and lose touch with the rest of their lives. Engagement in civil society brings many unexpected and hard to quantify pleasures. And even in the most anti-business take on "A Christmas Carol" it is Scrooge's private philanthropy, not the state, that tries to help the poor.

The story begins with Scrooge successful in business but having let his personal and social world fade. He long ago let his love relationship drift away and deep down regrets it. After a difficult childhood, he gradually gained a kind of comfort in solitude and emotional isolation. As usual in movies, nothing positive is said or implied about his work. No glimmer of understanding that he must be providing a valuable service in order to stay in business and make profits. But we can agree that this can happen. Focused businessmen like Scrooge can lose track of their social life and find themselves years later wealthy but alone.

Second, the story features an interesting, if subtle, attack on government welfare. Scrooge is asked to donate to a relief fund. He answers that he pays taxes for just such purposes. Why don't the homeless go to existing poor houses, or to prisons he asks? The private-relief fund-raisers ask him if he has ever seen the government relief houses. Scrooge answer no. He is being very reasonable and so are they.

If there were no tax-supported relief houses he could not have used them as an excuse to avoid considering privately-support relief institutions. He might still have said "Bah, Humbug," or been tempted to free-ride on donations of others. But he would understand the logic of the free-rider problem and the difficulty it presented.

Few of us enjoy dealing with beggars on the street. Scrooge could well have been drawn into private relief just to keep beggars off the street and out of his way. But to do that he would have had to invest in enterprises that help create jobs or help the unfortunate or unwise to get back on their feet. Or he might have chosen to invest in for-profit firms to provide job training. That way he would have plenty of business cards advertising job-training services to put in the cups of beggars. In this way he could have helped the needy and profited as an investor in such services at the same time. (I suspect such a job-training enterprise wouldn't quite satisfy our desire to see the "Christmas Spirit" displayed in holiday TV specials).

[What my great-great-grandfather, Dr. Thomas Guthrie, did was to help start the Ragged Schools for Children in Scotland and England. He went to the Scrooges of his day (the 1840s) and convinced them to contribute. There were 192 Ragged Schools in operation at its peak with 20,000 destitute students a year attending. An estimated 300,000 attended overall, from 1840s to 1880s. The government ran the Ragged Schools out of business, unfortunatley. Glimpse this fascinating story here: http://www.infed.org/walking/wa-shaft.htm]

Because Scrooge feels he has already discharged his part in dealing with the problem of helping the poor and disadvantaged (thanks to state intervention in philanthropy) he loses touch with that part of the world. He doesn't bother looking into the management and operation of poor houses because he supports them through taxes, and he knows he wouldn't be able to withhold his taxes if he found them badly managed.

Had he been able to choose among private alternatives he would have had an incentive to investigate how his support was used. (He doesn't do much investigation after being saved in the video version however--he just gives a big donation to the private relief effort he refused the day before. But he will surely take an acute interest in that private relief project after donating a huge sum to it. He would be personally embarrassed if the relief effort he supported turned out to be ill-managed or a fraud.

Scrooge, with tax-supported philanthropy, loses the opportunity to be drawn into civil society activities that might have opened up his life (thus he might have been less in need of spiritual shock-therapy). His very skeptical eye would be a service for private charities as he seems to understand that good intentions matter less than good results. I expect he would be a better trustee of a private charity than his "do-gooder" nephew, for example. George C. Scott's Scrooge notes with disapproval his nephew's offer to overpay Cratchit's son. Scrooge appears to understand that overpaying for a young person's first job can have negative consequences. It breaks the connection between a person's productivity and their pay. It confuses charity with wages both in the mind of the employee and employer.

Another observation from the movie: early on, at the exchange, when Scrooge holds out for a higher price for the corn in his warehouse, is he hurting the poor? The businessmen who claim so wish to buy Scrooge's corn at lower prices. Were they really planning to pass on these lower prices to the poor, or just to pocket gains from below market prices themselves? (Needless to say, there is no narrater to explain to the audience that turmoil and shortages would be caused by setting corn prices below market-clearing levels.)

How did Scrooge happen to have the corn in his warehouse in the first place? Economists will know that he is performing a service by warehousing corn and releasing it when demand is strong. But in the movie he is just presented as being greedy and pushing prices higher, thus hurting the poor. Actually he has already helped the poor by puchasing corn early, pushing prices slightly up and encouraging conservation early.

Many articles have been written of the economics of A Christmas Carol. But some I think hit a sour note by attacking Cratchit as incompetent and painting the early Scrooge as a hero. We have the luxury of writing our own last chapter to the story, one where Scrooge gains some friends, socializes some, and continues to run his business profitably. In our free-market final chapter, Scrooge can take an active interest both in supporting well-run and effective charities, and in agitating for government to shut down its poorly-run poor houses.

After his conversion, Scrooge gives Cratchit a raise, doubling his salary. Does that mean he was just exploiting him earlier? Or that Cratchit was not particularly competent? No, I think the raise can be seen as a very reasonable decision, part of Scrooge's change of heart, that he wishes to give Cratchit more responsibility at the firm. Scrooge met his own mortality in his dreams that night. He dreamed himself standing before his own grave. Mortality creeps up quietly on all of us, perhaps especially on busy and successful businessmen. With no board of directors to push Scrooge for a "succession plan" for the firm of Scrooge & Marley, he had avoided the issue.

My point is that he didn't pay Marley more earlier because he hadn't delegated enough responsibility to him to allow him to be worth more. Now he has had a change of heart. The higher pay would go hand in hand with higher productivity from Cratchit that could naturally follow more delegated authority. (It could be that Cratchit is incompetent, but nothing indicates bad work habits in the movie, apart perhaps from showing up late to work one day--but that could be blamed on the overlarge and unexpected turkey Scrooge himself donated the day before.) The audience, unfortunately, sees only the apparently arbitrary nature of pay. Bosses can apparently double someone's pay if only spirits scare the hell out of them in nightmares. Something politicians and labor unions have tried to do ever since.

So, I think it's movie well worth watching... as long as the audience has the time (and the inclination) to be attentive during my 30 minute economics lecture following.

The DVD of A Christmas Carol with George C. Scott is available online and via NetFlix.