Visit to Xiamen and Yun Shui Yao, Fujian, China

March 30 through April 3 we traveled to Xiamen,  an island city in Fujian Province and to Yun Shui Yao, a rural village also in Fujian.

Click here for photo album.

Three Cheers for Good Government: Not Small Government

All the Republican Candidates rail against BIG government.  Obama and company blast away at Big business.  There is a grain of truth in both arguments. However, the claim of neither side is credible in part because neither party admits any merit to the other's charge.  Furthermore, neither party has a record of following up on its promises.

Is big government the problem or is it inefficient government? Government that has been captured by interest groups, lobbyists and big business?  The founding fathers were alert to the dangers of tyranny and invented the system of checks and balances at the heart of the Constitution.  But they could not have imagined the huge limited liability corporations that arose in the 19th century and have continued to expand their global reach.  Although they do not have the power to imprison or tax, these companies have the potential to cause suffering as surely as despotic governments.  If Republicans are so concerned about abuse of power by big government, why aren't they also concerned about abuses by the business sector?  Instead they propose to massively roll back regulation.  They, with help from their masters in the finance industry, have successfully fought implementation of Public Law 111-203 Dodd-Frank Wall Street Reform and Consumer Protection Act.

Of course, the biggest threat to the social order comes when government acts in collusion with big business to promote crony capitalism rather than free market capitalism.  On January 17, 1961 in his Farewell Address to the Nation President Eisenhower warned of the threat to liberty from the "military industrial complex."  Today he might opt for the "financial, prison, military industrial, legislative complex."

Writers' Week

In the last week I have had three different and interesting encounters with writers.

On Tuesday March 20 Hong Kong International School, a K-12 institution where my wife is an administrator, hosted the novelist Chang-Rae Lee for a day or two as a visiting artist.  I was lucky to be able to attend a talk he gave to a group of parents, faculty and high school students.  Lee came to the USA from Korea in 1968 at age 3.  He has published four award-winning novels and directs the creative writing program at Princeton.

As one might expect from such a thoroughbred author, he spoke from a finely prepared script talking about his family life, his education, his decision to abandon a nascent career in finance for his real love, writing.  His talk included a recitation of a long, vivid and moving passage from his first novel Native Speaker.  Lee acquitted himself well in a long Q&A session but it is clear that he is most comfortable with the well polished written form rather than improv.  He had lots of helpful remarks for the aspiring writers in the audience, but is was clear that by writer he mean one composing fiction.  His response to my question about whether he had anything to offer writers of non-fiction was superficial.  You can learn more about Chang-Rae Lee here and here.

The day after meeting Lee I caught up with the ghost of John Updike in the form of a rebroadcast of two interviews by Terry Gross on her NPR Fresh Air program.  Updike died in 2009.  The program was to mark his 80th birthday on March 18.  Listening to this grandmaster in the last years of his life reflect on such a long career was a bright counterpoint to the rising star.  You can listen to the Fresh Air interviews here. 

Finally, on Sunday the New York Times Magazine carried "Why Talk Therapy Is on the Wane and Writing Workshops Are on the Rise". I have had a few friends who worked through their mid-life crises by taking sabbaticals from mainstream careers to enroll in creative writing programs. So far all who have taken this cure have eventually returned to the dark side. However, one of them is still undergoing treatment. I'm rooting for him to stay the course.

(ps-For readers who think I was either an engineering or accounting major: Nope--English and my second choice was physics.)

Sunday (Tuesday) in the Park (at Home) with George (Russ)

Every Tuesday for the last fours years or so I have downloaded Russ Roberts's EconTalk podcast and spent an entertaining hour or more listening to his interview of an interesting character--often, but not always, a fellow economist. Last week (March 6) was typical: an 87 minute talk with Columbia University Professor Charles Calomiris about banks' capital structures, the effect of leverage on risk and the role of financial regulation. While the audio was downloading I made a quick detour to Cafe Hayek, the blog that Roberts shares with his colleague Don Boudreaux. There I stumbled across a video of Russ giving a talk at Southern Methodist University's (SMU) Cox School of Business in Dallas. Since I was the executive-in-residence at Cox 2005-2007 I couldn't resist watching his performance. Between the SMU video and the EconTalk podcast I spent a good part of Tuesday with Roberts.

The video was enlightening as it was the first time I had seen the professor in action and the first time I had encountered him as a soloist rather than in a duet. Roberts teaches economics with stories rather than using arcane mathematics and charts. That makes him much more engaging than the average econ prof. As I watched him pace the stage I thought how much his approach was similar to the ministers that preach in the churches surrounding the SMU campus. Roberts's sermon was about the superiority of the emergent order of a free market economy compared to one where decisions are made by committees or regulatory agencies. He ridiculed the 40 members of L'Académie française who are charged with protecting the purity of the French language. But his real target was politicians. In his talk he derided politicos from both parties although on the podcasts he leans more heavily on Democrats. It was all very entertaining.

But worrisome, too. There was absolutely no hint that emergent free market economies might fail to efficiently deliver certain kinds of goods and services (e.g. public goods, natural monopolies, externalities). There was no consideration that free people might intentionally trade off some of the efficiency of a free market in favor of other values. Although there was brief mention of regulatory capture, there was really no worry about the power that huge global corporations now exercise both directly and through business associations and front organizations. There was prolonged derision for politicians but no serious suggestions as to how the nation's governance could be reformed.

In other forums Roberts has admitted that he does not consider economics a social science. For him libertarian economics is an ideology--one that he promotes with the skill and enthusiasm of an accomplished preacher-man.  Like most good preachers he has some large blind spots and he is very selective about the evidence he brings to his arguments.  Knowing that, I continue to listen to him because one can learn from great preachers even if not subscribing to their creed. But I worry about our college freshman and sophomores who get their first taste of economics from such a smooth talker.  And I worry about the mostly gray heads in the SMU audience who left with all of their preexisting assumptions confirmed.

Abolish the Corporate Income Tax--what do you think??

I have heard a lot of pleas to abolish the corporate income tax over the last forty years. Most of them are premised on the burden of double taxation of corporate earnings: once when earned by the business and a second time when they are distributed as dividends to shareholders.  Supposedly this double whammy reduces investment and ...(you can fill in the blank). That argument has never carried much weight with me because many companies don't pay much or any dividends.  Furthermore, much of the dividend stream is paid to pension funds and other recipients that further defer or entirely avoid the second round of tax.


My problem with the corporate income tax is the strong incentive it gives to debt finance rather than shareholder equity.  What would happen if we abolish the 35% Federal tax on company profit but tax dividend income and capital gains on shares sales as regular income in the hands of the recipients?  Dividends paid to foreigners would be subject to a withholding tax. This change would put a lot of corporate treasurers, accountants and attorneys out of work.  Ditto for auditors, bankers and financial advisers.  In the short term there would be a spike in the unemployment rate.  But all of those people are very clever and would quickly find jobs during real work.


WHAT DO YOU THINK?


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Highly recommended film: Margin Call starring Zachary Quinto, Stanley Tucci and Kevin Spacey--a fictionalized account of the fall of Lehman Brothers.

Crash Course in Monetary Policy: You will be tested

OK, I'm weird.  I think this discussion between Scott Sumner of Bentley University and Russ Roberts of George Mason University is fascinating.  To quote the blurb on the web site "Sumner argues that monetary policy has been too tight and helped create the [current economic] crisis. He disputes the relevance of the so-called liquidity trap and argues that aggressive monetary policy is both possible and desirable. The conversation closes with a discussion of what we have learned and failed to learn during the crisis."


If you are a glutton for punishment you can take a look at Sumner's blog The Money Illusion.

Straight Talk--Passionate but Grounded

The quality of public discourse in this political season is shocking--but you knew that already.  The Rs are speeding toward the right edge of the flat earth they believe in.  The two Republican candidates that have the most well thought out and consistent platforms, Ron Paul and Rick Santorum, are also the most extreme.  At least you know where they stand and they have spent some time doing their homework.  Some of Santorum's ideas about social programs to strengthen the family are down right progressive.

The Democrats are laying low and enjoying the artillery duel among the Republicans but haven't brought anything new or interesting to the discussion.  The conservative wing of the Republican Party has successfully shifted the location of the whole political discussion so far that even Democratic policy positions fall to the right of 1970s Ripon Society Republicans.

So it was truly refreshing to discover a December 5 lecture by Jeff Sachs on the London School of Economics web site.  Sachs summarizes the ideas in his most recent book The Price of Civilization: Reawakening American Virtue and Prosperity.  In his long and very high-profile career in economics and public policy Sachs has had little to say about US domestic affairs until now.  Even if you are not a fan of Sach's earlier proposals about economic development and foreign aid you will find this talk well done and thought provoking.