“The Value Conferred on Mankind by the Unknown Inventor of the Plough”

Who will attempt to calculate the value conferred on mankind by the unknown inventor of the plough?

Say, Jean-Baptiste. A Treatise on Political Economy. Philadelphia: Lippincott, Grambo & Co., 1855; translator C. R. Prinsep, ed. Clement C. Biddle. Fourth-fifth edition.
First published: 1803, in French.
The quotation is from BOOK I, CHAPTER VI “Of Operations Alike Common To All Branches of Industry.”
Full text is posted at: http://www.econlib.org/library/Say/sayT.html
(Note: Say is one of the earliest economists to recognize the importance of entrepreneurs. Today he is best known for his Say’s Law. He lived from 1767-1832.)

Michael Crichton’s Scariest Story


Michael Crichton speaking on environmentalism at the Fairmont Hotel on September 15, 2003. Source of photo: Bill Adams’ posting at http://www.pbase.com/bill_adams/image/21439440

The papers announced yesterday (11/6/08) that Michael Crichton had died of cancer a couple of days earlier (11/4/08).
I had mixed feelings about his stories. On the one hand, they seemed mainly to stir up unrealistic fears about technology, which I see as mainly a benefit to humanity. On the other hand, they often involved intelligent heroes who struggled against danger, and won (or at least partly won).
Crichton’s best story may have been one of his last, State of Fear. In that book, he took on the environmental movement, and showed in a powerful appendix, how some scientists and scientific institutions have failed us, by creating fear that is not grounded in the free exchange of ideas and evidence.
Crichton did not have to take on this issue—it earned him vituperative enemies, and probably lost him some readers. But in the end, he too was an intelligent hero who struggled against danger—the danger of politically correct closed minds.
Michael Crichton, Rest in Peace.

P.S.: Crichton had some scientific credentials. Here are a couple of interesting facts about his life:

(p. A27) At Harvard, after a professor criticized his writing style, the younger Mr. Crichton changed his major from English to anthropology and graduated summa cum laude in 1964. He then spent a year teaching anthropology on a fellowship at Cambridge University. In 1966 he entered Harvard Medical School and began writing on the side to help pay tuition.
. . .
In 1969, after earning his medical degree, Mr. Crichton moved to the La Jolla section of San Diego and spent a year as a postdoctoral fellow at the Salk Institute for Biological Studies. Already inclining toward a writing career, he tilted decisively with “The Andromeda Strain,” a medical thriller about a group of scientists racing against time to stop the spread of a lethal organism from outer space code-named Andromeda.

For the full obituary, see:
WILLIAM GRIMES. “Michael Crichton, Author of Thrillers, Dies at 66.” The New York Times (Thurs., November 5, 2008): A27.
(Note: ellipsis added.)

CrichtonMichaelHarvard2002.jpg Michael Crichton during an April 11, 2002 lecture at the Harvard Medical School (from which he graduated). Source of photo: http://www.hno.harvard.edu/gazette/2002/04.18/11-crichton.html

Chatwani Vies for “Worst Timing Ever Award”

ChatwaniAmit.jpg “Amit Chatwani, writer of Leveragedsellout.com and a book, “Damn It Feels Good to Be a Banker.”” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A28) Happy hour in the financial district has its own taxonomy. The other night amid the several sidewalk tables on Stone Street, Amit Chatwani, the 26-year-old behind the satirical Wall Street blog Leveragedsellout.com, broke down the scene within seconds of his arrival.

The young woman carrying a canvas “deal bag” with the Goldman Sachs logo was most likely a bank associate, he surmised. The younger-looking man reading the so-counterintuitive-it’s-intuitive business book “The Black Swan” was an analyst with big-picture dreams. And the rest of the tables were filled with tech-support and human-resources staff, he figured.
“They have to be back-office, because it’s too early for bankers to be out,” Mr. Chatwani said. “They could be traders, I suppose. Or compliance and risk management, which is basically middle-office that’s treated as back-office.”
But Mr. Chatwani would be the first to admit that his assessments of the culture of Wall Street are not, at the moment, holding their value. His book, written under the name Leveraged Sell-Out and entitled “Damn It Feels Good to Be a Banker,” was published by Hyperion in August, giving it a fair claim to some kind of Worst Timing Ever Award.

For the full story, see:
ERIC KONIGSBERG. “Attn, Satirist of the Spoiled of Wall Street: Bad Timing, Dude.” The New York Times (Thurs., October 16, 2008): A28.

The reference for The Black Swan book mentioned above, is:
Taleb, Nassim Nicholas. The Black Swan: The Impact of the Highly Improbable. New York: Random House, 2007.

A marvelous review of The Black Swan, is:
Diamond, Arthur M., Jr. “Review of The Black Swan: The Impact of the Highly Improbable.” Journal of Scientific Exploration 22, no. 3 (Fall 2008): 419-22.

Boris Yeltsin’s “Laissez-Faire Populism”


Source of book image: online version of the NYT review quoted and cited below.

(p. E1) Yeltsin’s grievance against the Communists began before he was born, in an all-too-common history of family heartbreak that Mr. Colton pieces together with a good deal of original reporting. The Yeltsins were dispossessed for the bourgeois crime of having built a farm, mill and blacksmithing business. Yeltsin’s grandfather died a broken man. His father was charged with the catch-all crime of “anti-Soviet agitation and propaganda” for grousing at his job on a construction site, and sent to a forced-labor camp for three years.

When Yeltsin joined the Communist Party, it was not out of devotion to the professed ideals but because a party card was a requirement for promotion to chief engineer in the construction industry. And when he moved into the hierarchy, he was already a man who chafed at party orthodoxy. No radical, he “nibbled at the edges of what was admissible,” Mr. Colton writes, pushing for market prices in the local farm bazaars, encouraging entrepreneurial initiative in the workplace, complaining that the top-down system smothered self-reliance.

For the full review, see:
BILL KELLER. “Books of The Times; The Making of Yeltsin, His Boldness and Flaws.” The New York Times (Weds., May 7, 2008): E1.

(p. 222) For Yeltsin’s contemporaries, deliverance from Marxist scripture and Soviet srtuctures took many forms. For him, it was an ease with the market and recoil against the overbearing state. Mikhail Fridman, who became one of Russia’s first billionaires as a banker and oilman, makes the point well:

Yeltsin as an individual who had inner freedom . . . instinctively moved toward the market as the end. That is because . . . as my namesake Milton Friedman says, “Capitalism is freedom.” . . . [Yeltsin thought] it was necessary to give people freedom and they would make out well. How exactly to do that he did not know. [But he did know] that it was necessary to free people from control: We were squeezing them dry. He thought that if we let them go they could move heaven and earth. . . . This is the level on which he thought about it. . . . He took a dim view of all these [Soviet] controls. [He felt that] the controllers had long since believed in nothing.

. . .
(p. 525) Stewart, working as a photojournalist, taped Yeltsin’s remarks on August 24, 1990, in Dolinsk. She calls them “laissez-faire populism.”

Colton, Timothy J. Yeltsin: A Life. New York: Basic Books, 2008.
(Note: ellipses and bracked words in Fridman (sic) quote were made by Colton; other ellipses were added by me.)
(Note: the quote from p. 525 is from endnote number 38.)

When the Ship Is Sinking, Schumpeter Suggests: “Rush to the Pumps”

Wabash economics professor Ben Rogge’s best lecture focused on a question made famous by Schumpeter: “Can Capitalism Survive?” In some ways, Ben’s message was a pessimistic one.
But near the end of his lecture, Rogge included the following quote from Schumpeter’s Capitalism, Socialism and Democracy:

(p. xi) This leads to the charge of “defeatism.” I deny entirely that this term is applicable to a piece of analysis. Defeatism denotes a certain psychic state that has meaning only in relation to action. Facts in themselves and inference from them can never be defeatist or the opposite whatever that might be. The report that a given ship is sinking is not defeatist. Only the spirit in which this report is received can be defeatist: The crew can sit down and drink. But it can also rush to the pumps.

Source of quote:
Schumpeter, Joseph A. Capitalism, Socialism and Democracy. 3rd ed. New York: Harper and Row, 1950.

Reference to Rogge’s collection of essays that includes the title essay mentioned above:
Rogge, Benjamin A. Can Capitalism Survive? Indianapolis: Liberty Fund, Inc., 1979.

“We Will Stay a Laissez-Faire Economy”


“Andrus Ansip, leader of Estonia, an ex-Soviet Republic.” Source of caption and photo: online version of the NYT article quoted and cited below.

An earlier entry suggested that Estonian Prime Minister Andrus Ansip’s support for Steve Forbes’ flat tax, had helped Estonia achieve a high rate of growth.
Apparently there is some sentiment in Estonia to stay the course:

(p. B6) TALLINN, Estonia — For nearly two decades, Estonia embraced capitalism with such gusto that it seemed to be channeling the laissez-faire philosophy of Milton Friedman. From its policies meant to attract foreign investors to its flat tax and freewheeling business culture, it stood out as the former Soviet republic most adept at turning post-Communist chaos into a thriving market economy.
Now Estonians, and some of their Baltic neighbors, are slogging through their first serious economic downturn since liberation from the Soviet grip in the early 1990s.
. . .
Whatever happens, government officials say there will be no betrayal of Friedman’s philosophy. “We will stay a laissez-faire economy,” said Juhan Parts, Estonia’s minister of the economy.
. . .
“I’m an optimist,” said Marje Josing, director of the Estonian Institute for Economic Research. “Fifteen years ago things looked bad, but they managed. A little real-life pressure won’t hurt.”
Indeed, so far the downturn has done little to discourage Estonia’s ambitious entrepreneurs. If anything, it has made them look more avidly elsewhere for growth.
“Estonia may be a small country,” Tarmo Prikk, chief executive of Thulema, an office furniture maker, said with a laugh. “But my ego is bigger.”

For the full story, see:
CARTER DOUGHERTY. “Estonia’s Let-It-Be Economy Is Rattled by Worldwide Distress.” The New York Times (Fri., October 10, 2008): B6.
(Note: ellipses added.)

Obama’s Tax Policies Would Be “a Significant Step Towards” Another “Great Depression”

Lee Ohanian is the co-author of a much-cited article in the highly-ranked Journal of Political Economy on the economics of the Great Depression. Below is a paragraph from his recent analysis of our current situation:

(p. A17) I am particularly concerned about bad policies because significantly higher taxes have been proposed by Barack Obama. His plan would raise the marginal tax rate on the most productive workers more than 10 percentage points — an increase that would bring us near Western European levels. His plan would also raise capital income taxes, taxing capital gains and dividends at 20%, compared to a 15% rate under Sen. John McCain’s plan. A five percentage-point difference might strike you as small, but it is not. I have calculated that a five percentage-point difference in overall capital income taxation over the long haul is equal to a difference in the nation’s capital stock of about 18%. This means a 6% difference in GDP and a 6% difference in the average wage rate. This means that real GDP and the average wage would fall, gradually but persistently declining about 6% after 25 years. That’s not quite a Great Depression, but a significant step towards one.

For the full commentary, see:
LEE E. OHANIAN. “Good Policies Can Save the Economy; Why we need lower tax rates and more skilled immigrants.” The Wall Street Journal (Weds., OCTOBER 8, 2008): A17.

The academic article co-authored by Ohanian is:
Cole, Harold L., and Lee E. Ohanian. “New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis.” Journal of Political Economy 112, no. 4 (August 2004): 779-816.

Obama Plans Big Increases in Many Taxes


Source of table: online version of the WSJ article quoted and cited below.

(p. A13) When it comes to taxes, the difference between Barack Obama and John McCain is arguably as wide as it’s been in a presidential race since Ronald Reagan and Walter Mondale battled in 1984. Sen. Obama is proposing to raise taxes more than any recent candidate, while Sen. McCain wants to cut them substantially.
. . .
In sum, Mr. Obama is proposing to use the tax code to substantially redistribute income — raising tax rates on a minority of taxpayers to finance tax credits and direct income supplements to millions of others. How much revenue his higher rates would raise depends on how much less those high-earners would work, or how much they would change their practices to shelter their income from those higher rates.
By contrast, Mr. McCain is proposing some kind of tax reduction for most Americans who pay taxes. He says he would finance those cuts by reducing the rate of growth in federal spending.

For the full commentary, see:
Brian M. Carney. “The Election Choice: Taxes.” The Wall Street Journal (Sat., OCTOBER 25, 2008): A13.
(Note: ellipsis added.)