Category: Books

Italian Traditional Family Stunts Individual Enterprise

(p. 15) Hooper’s book, both sweeping in scope and generous with detail, makes persuasive arguments for how geography, history and tradition have shaped Italy and its citizens, for better and sometimes for worse. Roman Catholicism, for example, has indelibly conditioned Italian society, even as the Vatican’s restrictions are widely ignored. Catholicism’s great allowance for human frailty has translated into a great propensity for forgiveness, as evinced in the Italian justice system, but also resistance to the notion of accountability. It’s a word, Hooper adds, that has no counterpart in the Italian language.
. . .
There’s . . . mammismo, the propensity of young Italians to remain too closely tied to the maternal apron strings. But while “the traditional family has been at the root of much of what Italy has achieved,” Hooper writes, dependence on the family can infantilize, and lack of individual enterprise has held the country back. Indeed, various sections of Hooper’s book return to Italy’s economic decline and its underlying causes.
He notes that the paperwork and formalities of Italy’s cumbersome bureaucracy rob the average Italian of 20 days a year. And he wonders what other country could ever have had a Minister for Simplification to deal with its plethora of often conflicting laws and regulations.
Circumventing some of that bureaucracy partly answers another common question: Why is Italy so prone to corruption? After all, Italians are masters at sidestepping regulations, or, as the saying goes, “Fatta la legge, trovato l’inganno” (“Make the law, then find a way around it”). It’s no wonder foreign investment in Italy is so low.

For the full review, see:
LISABETTA POVOLEDO. “Under the Italian Sun.” The New York Times Book Review (Sun., March 1, 2015): 15.
(Note: ellipses added; italics in original.)
(Note: the online version of the review has the date FEB. 27, 2015, and has the title “‘The Italians,’ by John Hooper.”)

The book under review is:
Hooper, John. The Italians. New York: Viking, 2015.

In Hamilton’s Financial System the “Cogs and Wheels Meshed Perfectly Together”

(p. 302) Much later, Daniel Webster rhapsodized about Hamilton’s report as follows: “The fabled birth of Minerva from the brain of Jove was hardly more sudden or more perfect than the financial system of the United States as it burst forth from the conception of Alexander Hamilton.” This was the long view of history and of many contemporaries, but detractors were immediately vocal. They were befuddled by the complexity of Hamilton’s plan and its array of options for creditors. Opponents sensed that he was moving too fast, on too many fronts, for them to grasp all his intentions. He had devised his economic machinery so cunningly that its cogs and wheels meshed perfectly together. One could not tamper with the parts without destroying the whole. Hamilton later said of this ingenious structure, “Credit is an entire thing. Every part of it has the nicest sympathy with every other part. Wound one limb and the whole tree shrinks and decays.”

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.
(Note: italics in original.)

Federal Government Main Cause of 2008 Financial Crisis

(p. A11) How much did the federal government contribute to the financial crisis? The question is quantitative, and the answer requires the kind of number crunching and careful thinking than cannot fit into an op-ed or television interview. Peter J. Wallison ‘s “Hidden in Plain Sight,” is the book that answers the question most meticulously of any written since 2008.
At this point, seven years on, most readers of this newspaper will recognize that the federal government’s role has been to force American taxpayers to subsidize trillions of dollars of risky lending. But each reader of Mr. Wallison’s book will come away a bit embarrassed at having neglected or forgot about one or more of Washington’s many contributions to the financial crisis.
. . .
In my opinion, a financial crisis is not only a likely consequence of implicit subsidies for risky lending but a necessary one because that is when implicit guarantees ultimately become real-life bailouts and trigger the taxpayer payments necessary to fund Washington’s longstanding lending goals. Mr. Wallison gives taxpayers the inside story of how housing policy was like a siphon hidden inside their wallets–and why it hurt so much.

For the full review, see:
CASEY B. MULLIGAN. “BOOKSHELF; Capitol Hill Pickpockets; Risky loans made by Fannie and Freddie were the biggest factor that led to the financial crisis–and the direct result of federal policy.” The Wall Street Journal (Weds., Feb. 25, 2015): A11.
(Note: ellipsis added.)
(Note: the online version of the review has the date Feb. 24, 2015.)

The book under review is:
Wallison, Peter J. Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again. New York: Encounter Books, 2015.

“He Used the Rich for a Purpose that Was Greater than Their Riches”

(p. 299) Hamilton’s interest was not in enriching creditors or cultivating the privileged class so much as in insuring the government’s stability and survival. Walter Lippmann later said of Hamilton, “He used the rich for a purpose that was greater than their riches.”

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

Railroad Regulation Helped Kill Passenger Service

(p. 1179) By 1970, passenger service was a not only losing money, but had deteriorated to such an extent that it was no more the elegant transportation mode as it once was. No more were the Hollywood stars long distance rail passengers. No more movies like “North by Northwest,” which featured the New York Central’s Twentieth Century Limited service from New York to Chicago. The book highlights the factors causing the decline of private rail passenger service and the creation of AMTRAK. The authors cite ICC regulation, the growth in alternative modes, which were heavily subsidized, the mix of freight and passenger service on the same lines, and public policy, which favored the airline industry.
. . .
One public policy that government got right is deregulation. This started with the 3R Act, then the 4R Act and then the Staggers Rail Act of 1980, which had a massive impact on the industry. Deregulation culminated in the ICC Elimination Act, in which the ICC was replaced by the Surface Transportation Board–or STB–with substantially diminished regulatory power. Gallamore worked in government when much of this legislation was passed and gives a firsthand account of the debates that took place in Congressional (p. 1180) hearings and the discussions in and out of government on the merits of deregulation.
In the concluding chapter of the over 500-page book, entitled “Decline and Renaissance of American Railroads in the Twentieth Century” the authors provide a summary of the history of the railroads and the lessons for public policy in the future. This chapter is such a great summary, that the reader may be best off starting with it, before reading the book. But don’t forget the afterword, which provides the authors’ recommendations for future U.S. policies for the railroads. It is a very insightful chapter.
. . .
American Railroads should be on the reading list of economists interested in transportation and logistics, economic historians, government officials, and rail fans who would like to know more about the history of the railroads in the twentieth century, and are interested in understanding the economics of the industry and the problems of government regulation. Gallamore and Meyer, at the end of the book, sum up why it should be read:

This book’s authors love railroads because they have a great history, fascinating operations, intriguing technology and untold opportunity for the future, but we also love them because no other enterprises illustrate elegant economic principles quite so well (p. 435).

For the full review, see:
Pagano, Anthony M. “American Railroads: Decline and Renaissance in the Twentieth Century.” Journal of Economic Literature 52, no. 4 (Dec. 2014): 1178-80.
(Note: ellipses added.)

The book under review is:
Gallamore, Robert E., and John R. Meyer. American Railroads: Decline and Renaissance in the Twentieth Century. Cambridge, MA: Harvard University Press, 2014.

Hamilton Thought “Contracts Formed the Basis of Public and Private Morality”

(p. 297) Hamilton argued that the security of liberty and property were inseparable and that governments should honor their debts because contracts formed the basis of public and private morality: “States, like individuals, who observe their engagements are respected and trusted, while the reverse is the fate of those who pursue an opposite conduct.” The proper handling of government debt would permit America to borrow at affordable interest rates and would also act as a tonic to the economy. Used as loan collateral, government bonds could function as money–and it was the scarcity of money, Hamilton observed, that had crippled the economy and resulted in severe deflation in the value of land. America was a young country rich in opportunity. It lacked only liquid capital, and government debt could supply that gaping deficiency.
The secret of managing government debt was to fund it properly by setting aside revenues at regular intervals to service interest and pay off principal. Hamilton refuted charges that his funding scheme would feed speculation. Quite the contrary: if investors knew for sure that government bonds would be paid off, the prices would not fluctuate wildly, depriving speculators of opportunities to exploit. What mattered was that people trusted the government to make good on repayment: “In nothing are appearances of greater moment than in whatever regards credit. Opinion is the soul of it and this is affected by appearances as well as realities.” Hamilton intuited that public relations and confidence building were to be the special burdens of every future treasury secretary.

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

Is There “a Fortune to Be Made” in Selling to the Poor?

(p. B1) For years, multinational companies had little interest in lower-end consumers, figuring no money was to be made. Now, they are increasingly attractive to all types of industries, from consumer product makers to technology businesses. Google just announced plans to sell a stripped-down, cheaper version of its Android phone in India.
A decade ago, C. K. Prahalad, a University of Michigan business professor, in his book “The Fortune at the Bottom of the Pyramid,” detailed the potential, contending that such households were every bit as discriminating and aspirational as their counterparts at the other end of the income spectrum.
Mr. Prahalad, now dead, estimated there were four billion such consumers in a market worth $13 trillion. “People were saying, ‘There’s a fortune to be made. Let’s go,’ ” said Mark B. Milstein, director of the Cen-(p. B6)ter for Sustainable Global Enterprise at Cornell University.
But many of the first efforts failed. “There was not much thinking about what those consumers needed or wanted or how they might be different from consumers with more disposable income,” Mr. Milstein said.

For the full story, see:
STEPHANIE STROM. “Billions of Buyers.” The New York Times (Thurs., Sept. 18, 2014): B1 & B6.
(Note: the online version of the story has the date SEPT. 17, 2014, and has the title “Multinational Companies Court Lower-Income Consumers.”)

The book highlighted in the passage quoted is:
Prahalad, C. K. Fortune at the Bottom of the Pyramid Eradicating Poverty through Profits. Revised ed. Philadelphia, PA: Wharton School Publishing, 2009.

Rich Slaveholders “Posed as Plucky Populists”

(p. 267) As Hamilton tangled with Lansing, neither knew that Virginia had on June 25 become the tenth state to ratify the Constitution. Like their New York counterparts, antifederalists there posed as plucky populists, even though their ranks included many rich slaveholders. Patrick Henry, the leading antifederalist, warned delegates who supported the Constitution, “They’ll free your niggers.” George Washington noted the hypocrisy of the many slaveholding antifederalists: “It is a little strange that the men of large property in the South should be more afraid that the Constitution will produce an aristocracy or a monarchy than the genuine, democratical people of the East.”

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

Most of Benefits of Minimum Wage Increases Do Not Go to the Poor

(p. A11) A higher minimum wage raises wages of low-wage workers, and even though most evidence points to job losses from higher minimum wages, the evidence doesn’t point to widespread employment declines. Thus, consistent with a recent Congressional Budget Office report, many more low-wage workers will get a raise than will lose their jobs. But that argument is about low-wage workers, not low-income families. Minimum wages are ineffective at helping poor families because such a small share of the benefits flow to them.
One might think that low-wage workers and low-income families are the same. But data from the U.S. Census Bureau show that there is only a weak relationship between being a low-wage worker and being poor, for three reasons.
First, many low-wage workers are in higher-income families–workers who are not the primary breadwinners and often contribute a small share of their family’s income. Second, some workers in poor families earn higher wages but don’t work enough hours. And third, about half of poor families have no workers, in which case a higher minimum wage does no good. This is simple descriptive evidence and is not disputed by economists.
A historical perspective is instructive. Assembling Census Bureau data over nearly seven decades, Richard Burkhauser and Joseph Sabia have shown that in 1939, just after the federal minimum wage was established, 85% of low-wage workers (those earning less than one-half the private-sector wage) were in poor families. Such a high percentage implies that, in that year, the new minimum wage targeted poor families well. However, as the public safety net expanded, family structure changed and more people in families began working, this percentage fell sharply over time–to around 17% by the early 2000s.
In contrast, as of the early 2000s 34% of low-wage workers were in families that were far from poor, with incomes more than three times the poverty line. In other words, for every poor minimum-wage worker who might directly benefit from the minimum wage, two workers in families with incomes more than three times the poverty line would benefit.

For the full commentary, see:
DAVID NEUMARK. “Who Really Gets the Minimum Wage; Obama’s $10.10 target would steer only 18% of the benefits to poor families; 29% would go to families with incomes three times the poverty level.” The New York Times (Mon., July 7, 2014): A11.
(Note: the online version of the commentary has the date July 6, 2014.)

For more of Neumark on minimum wages, see:
Neumark, David, and William L. Wascher. Minimum Wages. Cambridge, MA: The MIT Press, 2008.

Few Founding Fathers Toiled Harder Against Slavery than Hamilton

(p. 211) The magnitude of southern slavery was to have far-reaching repercussions in Hamilton’s career. The most damning and hypocritical critiques of his allegedly aristocratic economic system emanated from the most aristocratic southern slaveholders, who deflected attention from their own nefarious deeds by posing as populist champions and assailing the northern financial and mercantile interests aligned with Hamilton. As will be seen, the national consensus that the slavery issue should be tabled to preserve the union meant that the southern plantation economy was effectively ruled off-limits to political discussion, while Hamilton’s system, by default, underwent the most searching scrutiny.
Few, if any, other founding fathers opposed slavery more consistently or toiled (p. 212) harder to eradicate it than Hamilton–a fact that belies the historical stereotype that he cared only for the rich and privileged.
. . .
(p. 213) The issue surged to the fore with the peace treaty that ended the Revolution. At the prompting of Henry Laurens, article 7 placed a ban on the British “carrying away any Negroes or other property” after the war. This nebulous phrase was construed by slaveholders to mean that the British should return runaway slaves who had defected to the British lines or else pay compensation. The British, in turn, claimed that the former slaves had been freed when they crossed behind British lines. Conceding that Britain may have violated article 7 on technical grounds, Hamilton nevertheless refused to stand up for the slaveholders and invoked a higher moral authority:

In the interpretation of treaties, things odious or immoral are not to be presumed. The abandonment of negroes, who had been induced to quit their masters on the faith of official proclamations, promising them liberty, to fall again under the yoke of their masters and into slavery is as odious and immoral a thing as can be conceived. It is odious not only as it imposes an act of perfidy on one of the contracting parties, but as it tends to bring back to servitude men once made free.

This fierce defender of private property–this man for whom contracts were to be sacred covenants–expressly denied the sanctity of any agreement that stripped people of their freedom.

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.
(Note: italics in original.)