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Tag Archives: fiscal policy

White House

How much of the federal budget should be spent on the White House?

Abraham Lincoln would have replied, “Not very much.” Commenting on his wife’s purchases he realized, “It would stink in the nostrils of the American people to have it said that the president of the United States had approved a bill over-running an appropriation of $20,000 for flub dubs for this damned old house, when the soldiers cannot have blankets.”

By contrast, Tony Kushner, screenplay writer for “Lincoln” points out in an NPR interview that by revitalizing a rundown White House, Mary Todd Lincoln demonstrated political acuity. She understood that a presentable presidential residence could elevate respect for the nation.

Described in Jean Harvey Baker’s biography of Mary Lincoln, the first lady was a magnificent wheeler dealer. Faced with a “seedy and dilapidated” White House, she started by selecting a loyal Commissioner of Public Buildings who, by law, oversaw her purchases and then presented the bills to the Treasury.

Unrestrained, she and Commissioner Wood brought new china and rugs and drapes and an army of workmen to the White House. Finding only 10 matching place settings of White House dishes, she bought a 190 piece set of Limoges china for $3195. The invoice described it as “fine porcelain dining service decorated with royal purple and double gilt…with the arms of the United States on each piece.” The new damask rug in the East Room was $2500. A bill for French wallpaper was $6800. And that was just the beginning. A 31 room mansion, the White House got new draperies, rugs, paint, wallpaper. Temporarily, Mary and the President had to move to a state guest room because their bedrooms were in disarray with painters, molders and floor waxers.

Meanwhile, the Senate decided not to confirm the first Commissioner of Public Buildings with whom she had formulated her plans. Their new appointee, Benjamin French, though, was just as cooperative. Working with Mary, he got one Congressman to “bury” a White House decorating expense for $4800 in a budget appropriations bill. Telling his boss, the Secretary of the Interior, that it was always done this way, he was able to “redirect” funding for the Capitol and other buildings to Mary through his $500,000 budget. Consequently, money earmarked for gas lamps on Capital Hill instead went to the White House. So too did kickbacks from the White House gardener who padded his budget with extra roses, and bushes and lettuces that he never received. Even selling secondhand White House furniture and manure from the stables, Mary raised extra funds.

$20,000 was a small part of the White House budget in 1861. Based on estimates from the Economic History Association using the Consumer Price Index, a market basket of goods and services that we use to measure price changes, $20,000 in 1861 would have been close to $500,000 today.

We should mention also that Mary Todd Lincoln was not the only first lady to be criticized for her additions to the White House. As a NY Times journalist reminds us, “…the cost of Nancy Reagan’s china ($210,399) was seen as wildly extravagant (though the china was a private donation and considered a necessity…). The Kennedy White House was too French; the Clintons’, too Arkansas…”

Sources and Resources: If you’ve seen “Lincoln,” you will especially enjoy the Tony Kushner NPR Fresh Air interview. His comments about Mary Todd Lincoln started me wondering about how she changed the White House. That took me to the Jean Baker Harvey biography, Mary Todd Lincoln and a NY Times article on First Ladies that ideally complemented the Lincoln facts. Wondering about the purchasing power of $20,000 in 1861, I went to the economic history service.

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How much should cities plan for the storm of the century?

After every storm of the century, we ask why we didn’t prepare sufficiently.

For Katrina it was better levee protection. And now, for Sandy, I just heard that the PATH–underground trains between NJ and NYC–had 4 foot flood gates (some news articles say 6 foot) from 1992 that just did not work. As a result, 10 million gallons of water flooded the system and created damage that will require at least $300 million to remedy.

On September 12, I posted the following:

Along its 520 mile long coastline, New York’s waters have eased upward at an inch a decade, a rate that some say is accelerating. If so, by 2050, another 2 feet might be added. Although not below sea level, New York is vulnerable. A direct hurricane hit could mean subways flooded for weeks, basements inundated, electricity out, undrinkable water, commuter transport lines incapacitated.

6 weeks later, on October 28, super storm Sandy hit. And yes, subways flooded for weeks, basements were inundated, electricity was out, water was undrinkable and commuter transport lines were incapacitated. Now, still cleaning up from her massive damage, NY and NJ are asking those September 12 questions. Should they prepare for the next Sandy? Should the PATH at a cost of $181 million have higher floodgates? Below is a picture of an inflatable bladder. At $400,000 or so apiece, these bladders could be mobilized when a storm approached.

Our Bottom Line: The timeless issue is opportunity cost. With cost defined as sacrifice, the cost of disaster preparation is whatever we cancel because we cannot afford to do both. To what extent do we divert money and resources that we need now to preparation for an event that might not occur?

How much should we spend for protection against the next super storm?

Sources and Resources: This blog from WNYC specifies commuting hardships created by Sandy and here is the article about and source of my picture of inflatable subway bladders. Responding, here is the Congressional debate about mitigation for future storms.

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Industries afflicted with Baumol's Disease have slower productivity growth.

When butter makers had Baumol’s Disease, for centuries, there was no cure.

From the 1700s to 1940, making butter required some cream, a churn and usually a woman with lots of time and energy to crank or plunge a shaft. When, in 1850, someone invented a double chamber thermometer churn that made the cream the optimal temperature, the process remained the same. Even when some churns got bigger, others got smaller and the people at the Dazey Churn & Manufacturing Company used glass instead of wood, still, little changed. As long as butter making remained labor intensive, it was tough to increase productivity.

Similarly, for teaching a class or examining a patient, human energy plays a central role that a machine cannot replace. Centuries ago and now Mozart’s String Quartet in G Minor requires a cellist, 2 violinists, 2 violists. Whether teaching a class, performing a masterpiece or presenting a lecture, it is tough to increase your productivity.

Our Bottom Line: When an industry–especially one based on labor rather than technology– experiences rising costs because it cannot keep up with productivity increases elsewhere, it is afflicted with Baumol’s cost disease. So, when you say that the US healthcare system is sick, now you can add that it is suffering from a case of Baumol’s disease that many say is incurable.

An interesting quote: Senator Daniel Moynihan (1927-2003) was quoted by Dr, Baumol as having said, “You have now explained to me why the Democratic Party is called the party of tax and spend, because we are financing all the things that are affected by the cost disease and Republicans want to short-change them.”

Sources and Resources: For an enjoyable read about Baumol’s Disease, I recommend this New Yorker column while for an academic perspective, this paper provides analysis. My facts about butter came from slate.com and to consider the speed and spread of contemporary innovation, you could look at Tyler Cowen’s The Great Stagnation through an inexpensive ($3.99) Kindle download and his TED talk. Finally, superbly, this NY Times column explains the connection between Baumol’s disease and our health care challenges.

Labor Intensive Activities Have Low Productivity Growth

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Retailers slow down escalators for the elderly.

If people over 60 are your biggest spenders, then how do retailers respond? For starters, they slow down the escalators.

In Japan, with people over 60 doing 44 percent of the spending, and with those over 65, 23.3% of the entire population, merchants are becoming more elder-friendly. One major Tokyo-based supermarket has slowed its escalators to two-thirds their normal speed and made their shopping carts lighter. Seeing elders buy more diapers than young mothers, retailers also expect increasing demand for small size food packages and lunch delivery trucks. And several large chains have begun to offer discounts to people over 65 on the days that pension checks arrive.

Our bottom line: In countries like Japan with aging populations, the public and private sectors will have to adjust. As fiscal policy–spending, taxing, borrowing–increasingly targets the challenge of supporting more retirees, so too will businesses respond to a shifting demographic.

Sources and Resources: All of my facts about Japanese retailers are from this Bloomberg article while the population pyramids that follow are from the Economist’s “Graphic Detail” daily charts, a great source for fascinating information. In addition, here, in a series of 2010 Special Report articles, the Economist discusses the challenges Japan faces as its demography shifts. Finally, I thought it might be helpful to see the OECD (Organization for Economic Cooperation and development) “Elderly Population” graph to compare worldwide aging. You can see India at one end and Japan at the other.

Merchants are adjusting to an aging population in Japan.

Comparing Worldwide Aging

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euro zone map

Will international creditors say yes again to Greece after today’s meeting in Brussels?

Part of the deal involves selling or leasing whatever the Greek government owns. The proceeds reduce the debt and meanwhile, by building roads and business parks, resuscitating ports and recapitalizing banks, foreign investors pour money into the country.

It has not been quite that easy, though.

A closer look at government-owned beaches that were for sale revealed squatter communities composed of thousands of undocumented houses. In addition, because Greek property registries are woefully inaccurate, land transfers everywhere have been problematic. (If you can’t prove you own the land, then no one will buy it from you.)

The ports? Greek citizens are worried about prime assets being transferred to foreign ownership or worse, to Greek oligarches awaiting a fire sale. In addition, no one appears to be quite sure how much ownership the government should retain. And even if the Greek parliament settles all of that, foreign banks hestitate to finance Greek deals and the Greek banks need recapitalization.

All of these privatization complications made me wonder how many deals could be involved so I went through a month of articles at eKathimerini.com and came up with this random list of government-owned properties that could be partially or entirely sold or leased. They represent only a small proportion of the hundred of deals that might transpire but do provide a picture of the massive task facing the Greek government.

  • Public Power Corporation
  • Gaming company, OPAP
  • State lottery licenses
  • Public Gas Corporation
  • Gas transmission operators
  • Hellenic Postbank
  • Elliniko International Airport
  • Athens Water Company
  • Hellenic Petroleum
  • Hellenic Vehicles
  • Assorted Port Authorities
  • Buildings that house state agencies
  • Thessaloniki Water Company
  • Larco, Europe’s largest ferronickel producer
  • Egnatia motorway

Finally, where will the money go? Satisfying the bailout “troika,” the IMF, the European Central bank, and the European Commission, the Greek Parliament has issued “decrees” that direct the money to an escrow fund dedicated to paying the Greek debt.

Sources and Resources: I recommend these NY Times articles, here and here, for interesting stories while a Greek perspective is at eKathimerini.

Finally, the following Merle Hazard “Greek Debt Song” is always fun to watch.

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