Category: Business and Society

Next Monday will be the sixtieth anniversary of Luigi Einaudi’s inauguration as Italian President. Einaudi (1874-1961) was a distinguished economist and defender of classical liberalism. In the immediate period following World War II, he was governor of the Bank of Italy and finance minister. Many credit his policy of low taxes and dismantling tariffs with having laid the foundation for Italy’s “miracolo economico” of the 1950s and 1960s.

However, while his role as president between 1948-55 is still remembered, his legacy of economic freedom as a key to Italian post-war development has largely been forgotten. In a recent article, the Milanese financial newspaper Il Sole 24 Ore lamented that currently there is no political force in the country which feels inspired by Einaudi’s actions and insights.

The center-right led by Silvio Berlusconi which won the recent general elections in April cannot be considered a catalyst for market reforms. Its new economy minister Giulio Tremonti has expressed hostility to free trade and blames most of the world’s economic problems on an ideology he calls “marketism”. At the same time, the Northern League, Berlusconi’s junior coalition partner, is impossible to categorize in terms of its economic policy. It demands decentralization and reducing the role of the Italian state but also advocates protectionism.

Neither can Einaudi’s heirs be found on the Italian center-left. The recently founded Democratic Party (PD) has its origins in communism. One can appreciate its transformation towards more moderate positions and a certain openness to economic liberalization. However, the transition is not complete and cannot be compared to the process initiated by Tony Blair in the UK Labour Party in the 1990s.

It is regrettable that nobody wishes to emulate Einaudi’s achievements. These go beyond the technical mastery and application of market economics. Einaudi’s understanding of freedom also led him to insights of more wide-ranging importance for Italian society. He believed that an excess of state power tends to make citizens more lazy in the way they live their lives and think of their responsibility towards others. This attitude leads them to tolerate the social ills around them. They view the poor state of public services as inevitable and accept corruption and rent-seeking as unchangeable phenomena.

Now, that so many people in Italy worry about the economic situation of the country and feel alienated from the political institutions and their lack of accountability, one might think that the time is ripe to return to Einaudi’s lessons.

The story of the Deutsche Bank building following the NYC 9/11 attacks is a study in bureaucratic incompetence…but more importantly it’s an ongoing experience in human tragedy and loss.

There’s a great deal to sort out. This piece, “The tombstone at Ground Zero,” does a good job introducing the issues.

The article begins with an introduction into the fire at the building site in August of last year:

…Thick black smoke was pouring out of the shell of what used to be the Deutsche Bank building. The structure had been badly damaged in the terrorist attack when portions of the collapsing south tower dug a 15-story gash and propelled toxic dust into it. Six years later the bank building was finally being taken down.

The fire quickly spread to 13 floors. The 100 firefighters inside the building couldn’t douse the flames because, as would become clear later, the basement standpipe that should have supplied water to the floors above had been disconnected. The scene was chaotic. Firefighters couldn’t see through the dense smoke and found their retreat blocked by a mazelike series of plywood walls and polyethylene sheeting that made it nearly impossible to locate exits. Panic was audible in the voices on the firefighters’ radios.

Eventually some 275 firemen used ropes to hoist hoses up the scaffolding on the building and tamed the seven-alarm conflagration around 10:30 that night, seven hours after the blaze began. But the struggle to extinguish the flames had cost two lives. Firefighters Robert Beddia, 53, and Joseph Graffagnino, 33, were found lying on the 14th floor near a hose line and pronounced dead at a local hospital. The cause: smoke inhalation.

Here’s a picture of the building when it was on fire:

Photo provided by Rev. Benjamin Spalink of City Fellowship Church.

Blog author: mvandermaas
Wednesday, April 30, 2008
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Continuing with my posts highlighting just how wonderful things will be here in the United States when the government finally does its job and takes over the healthcare sector of the economy, I’d like to bring your attention once again to the fabulous success story that is the Canadian health care system:

Last year, the Canadian government issued a series of reports to address the outcry over long wait times for critical tests, procedures and surgeries. Over a two year period:
• Wait times for knee replacements dropped from 440 to 307 days.
• Wait times for hip replacements dropped from 351 to 257 days.
• Wait times for cataract surgeries dropped from 311 to 183 days.
• Wait times for MRIs dropped from 120 to 105 days.
• Wait times for CT scans dropped from 81 to 62 days.
• Wait times for bypass surgeries dropped from 49 to 48 days.

Sure, you might have to wait a couple of months for that lifesaving bypass surgery. But remember: it’s free!

Blog author: jballor
Monday, April 28, 2008
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One sector of the American public that hasn’t missed out on the government’s purpose for the economic stimulus package is the advertising and marketing industry. Savvy marketers are targeting sales and special offers to the federal rebate checks, which start to go out today.

One sector of the economy especially banking on how people will spend their stimulus rebates is the automobile industry. Here, for instance, is a local car dealer’s ad specifically targeted to the stimulus package:


I’ve seen another major car ad that is currently running nationwide featuring the advice of an economist to a young car buyer. The young buyer is presumably saving a great deal of money on the new car through a special cash back incentive or zero-percent financing or some such other offer. What should the buyer do with all the money he’s saving? Go out and buy something else?

No, says the wise economist. Save it or pay off credit card debt. Of course, the economist doesn’t give the really solid advice, which would be to forgo buying a new car in the first place and taking on all that new debt. Dave Ramsey, a guru of financial stewardship, consistently exposes the lie that financing the purchase of a new car, no matter what the incentives, is a good use of money. As Dave notes, it’s no coincidence that the financing arms of automobile manufacturers are generally among the more profitable aspects of the business.

It’s no surprise that auto sales are often an economic bellwether, since new car payments are typically one of the easiest things to put off in tough times. These are also precisely the kinds of payments that folks facing credit card debt and dwindling savings accounts should be looking to avoid when spending their stimulus rebate.

Blog author: berndbergmann
Thursday, April 24, 2008
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In the April 24 edition of the Vatican newspaper L’Osservatore Romano, Ettore Gotti Tedeschi focuses on the origins and lessons of the global financial crisis. In a previous article, Gotti Tedeschi argued that the downturn is an opportunity for Italy to reform its economy and cut down on unnecessary public spending.

He now examines what the crisis means for the state of international finance and draws some unusual but noteworthy conclusions. In his view, the principal answer for improving global financial architecture cannot be provided by more government regulation.

Instead, Gotti Tedeschi interprets the crisis as a wake-up call to return to “other rules – older rules which restore the priorities of the banking profession.” These rules of sound economics have been partly eroded by an excessive lowering of interest rates by central banks, inducing other actors to take excessive risks in their financial operations.

The over-stimulation of markets led bankers and business leaders to abandon the path of solid long-term growth in favor of short-term gain: “Too often managers with a poor sense of responsibility have created the illusion of realizing miraculous growth and profitability.” They abandoned the search for “concrete results and above all, long-term sustainability.” His advice is to return “to what is real, responsible and durable.”

He suggests that what is needed is a spiritual refreshment to deepen the understanding of how a successful bank or business is run. This would enable people to resist temporary financial fashions and evaluate real risks and possible gains adequately.

Gotti Tedeschi is in a good position to combine the practical insights of the world of banking with a profound theoretical grasp of business ethics. While he is one of the most well-known bankers in Italy, he has also found the time to write books about the relationship between Christian values and economics.

His advice deserves to be taken seriously. As politicians around the world propose a whole range of new regulation in response to the credit crunch, it must not be forgotten that public authorities provided the markets with cheap money and excessive stimuli. The result was a widely distorted perception of risk and profitability. It would be unfortunate if a period of over-stimulation was followed by a period of over-regulation.

How do we evaluate taxes?

Ahhh, it’s spring! The weather is warming; the trees are blooming; and our minds turn inevitably toward taxes. In addition to filing our 1040’s in time for April 15th, the average worker (over 25 years old) has already lost an additional $2,000 this year to the federal government’s payroll (FICA) taxes on income.

At the state level, the Governor and the legislature just passed property tax reform. People are mildly irritated at the recent 16.7 percent increase in the sales tax rate on April 1st. But they’re looking forward to lower property tax bills in the future.

All of this begs the question: How should we evaluate taxes?

Economists answer this question with three criteria. (more…)

Blog author: jballor
Friday, April 11, 2008
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Late last month I argued that recipients of the federal government’s stimulus package “should use this rebate money as they see fit, since they are the ones most familiar with their own situations and their own needs. Consider giving part of the money to charity or saving, paying off debt or investing.” Now other voices are giving similar advice, recommending saving rather than spending.

Rick Haglund, a Michigan business columnist for the Grand Rapids Press, notes that “Some saving measures can go a little too far, though. I recently heard a personal financial consultant say people can save by no longer buying that cup of coffee and newspaper on the way to work.”

“Give up the coffee, but please, please keep buying the paper. The newspaper business is in a terrible financial state,” he writes. Haglund thinks that newspapers are more important to the country than coffee…a debatable proposition. Coffee, not oil, might well be the lifeblood of American enterprise.

But the economic status of newspaper publishing is in a strange place. I’ve been getting the weekend paper for a year or so, and when I renewed I received a call from the paper just to tell me that I’d be getting the rest of the week for free (a good thing too, or I would have missed Haglund’s column).

It reminded me of getting a postcard in the mail from the government telling me to expect a rebate…no notice necessary, just send the free stuff and the money. I don’t think it cost the Grand Rapids Press millions of dollars to make the phone calls, though (it cost the feds $42 million to mail out those inane little rebate notices).

In any case, it makes more sense for many newspapers to give their issues away to get a boost in circulation numbers than it does to count on the income from subscriptions. I also recently saw one of the narrowest daily newspapers I had ever seen last weekend, part of the trend to cut printing costs. (I can’t complain too much, though, since the Port Huron Times Herald has published more than one of my commentaries. Keep up the good work!)

Of course, some folks, like Betty J. Mazur, are going to do just what the government wants them to do with the money. “I’m going to buy new clothing with my check,” she said. (The piece linked above is in part about how it is necessary to file federal taxes for 2007 in order to get the 2008 rebate. Marketplace discusses that, and also debunks some myths about the rebate, here.)

Oh, and don’t forget to blame conservative theology for the credit crisis. After all, it seems as if adherents to so-called “conservative” theology don’t save as much as they ought.

How any decent sociologist could have this reaction is beyond me: “Keister was surprised that when demographic factors — such as education, age and race — were held as constant, religion still proved to be an influential factor in wealth accumulation” (emphasis added).

Amazing, just amazing. Can you dare admit that religious beliefs really do influence behavior?

Keister says a typical “conservative Protestant” might be a member of the Assemblies of God, Churches of Christ, Nazarene and Pentecostal churches. I guess they’ve forgotten what John Wesley said.