Thursday, November 10, 2016

A Reflection on the US presidential Election of 2016

                                         A Reflection on the US Presidential Election of 2016

 Have you ever faced a "Colossal Defeat? If so how did you deal with it?

I ask these questions having witnessed yesterday (November 9), Hillary Rodham Clinton dealing with such a loss, not an ordinary loss, a loss of a national election to the highest office in the land, if not the world-- the Presidency of the United States of America.

Whether you have voted for her or for the other candidate-Donald Trump, her concession speech ought to have touched your soul.

 In her concession speech, she has exhibited both serenity in defeat and uplifting of her countrymen spirit.
I was touched by her eloquence; she exhibited a "real" class. As a female member of the species, I wish her well. I wanted her to win, not necessarily because of her "unsurpassed" qualifications, or better judgment or truthfulness, but because of her "gender", yes her gender.

A woman president would have placed this country among the great, both in ancient history and in modern times for their recognition of "Women". Unfortunately, that would not be.

Hillary Clinton should have won; should have won not because she advocated a vision for America that put it on a par with great "democracies", not because she expounded on the need to embrace people of all nationalities and origin , but to me because she was a" woman"- a candidate representing a gender that was beat down by a system that discounts the qualifications of women, against those of not their betters but for the fact of gender-- being men.

With sadness I view her defeat and accept the judgment of the people. That what democracy is about-- win or lose you must uphold as "sacred" the "will" of the people. In this 2016 election, the people spoke more loudly than ever.

Hillary Clinton has accepted in good grace the "decision" of the people. I salute her and wish her the best. . 


Sunday, August 24, 2014

A Vexing Problem II: A Follow Up

A gathering of 50 leaders (Presidents and Prime ministers) from the African Continent took place in Washington D. C. USA per invitation from President Obama. The meeting described as the US-Africa leaders Summit (not quite a G-50 Summit), took place on August 3-6, where experts from the US and Africa tackled many issues least of which the form of aid to the African Nations.

Such an unprecedented gathering, by all accounts would result in a myriad of sessions, panels of experts, public policy advisers, as well as invited guests all addressing one or another aspects of development, trade and foreign assistance.
President Obama, the host of the conference, placed emphasis on two issues: that, “investing” in the next generation is at the core of a government responsibility; that a trajectory of African growth requires a shift from a donor mentality to a model of “business networking”. During the following two days, the conferees had the opportunity to discuss ways of:
• Stimulating growth,
• Unlocking opportunities and,
• Creating enabling environment for the next generation.

A tall order to be sure. Nonetheless, planning for the future is what governments do, or ought to do.

Economists, for long have recognized that the individual’s decision regarding consumption, saving and investment is carried out in an inter-temporal setting. That is, the individual in making a choice of what goods to buy, whether to save or invest as well as allocation of time between work and leisure, does so with an eye to the future. The objective is to allocate lifetime income to get maximum satisfaction (utility) over one’s lifetime.

“Good” governments could not afford to do less. The returns to individuals living in a society, depends on a societal allocation of its resources that maximizes returns to its members over their lifetimes.

Achieving such an optimal inter-temporal allocation both at the individual level, and in societal context is “vexing” at best. That does not mean that it should not be sought. Attendees and presenters at the President- Leadership summit made a valiant effort in identifying those pillars on which a society should construct its future. The multitude of sessions that have taking place during the Summit, put forth ideas and recommendations as well as made pledges for funding support for various projects initiated by governments and US business.

The task of stimulating growth, and, creating enabling environment for growth in the 50 African nations, as the saying goes, may be easier said than done. The 50 African countries differ significantly in terms of their natural and human resources, levels of literacy and educational attainments, levels of corruption and legitimacy of their governments- elected or dictatorial. That being said, one needs to add that, one ought not throw one’s hands and give in to a future that perpetuates the status quo. Addressing future needs of society have to go hands in hand with current needs.

One of the specific recommendations/ pledges that came out of the Summit is that the USA pledges, in partnership with business, to continue their efforts for the “Power Africa” initiative. The President announced on August 5th that private companies and government institutions are providing additional $12 billion in aid to the administration’s electrification program in Africa. The federal government would add $30 million to supplement this effort. Conferees at the Summit applauded the effort. Since the US government funding requires Congressional approval, that did not deter the US business community from pledging support to the effort to invest in power, and power infrastructure in sub-Saharan Africa (for details on this announcement see Juliet Eliperin, Obama to announce expansion of electrification in Africa, The Washington Post, August 5th ).

This brings me once more to the comment I have made in my August 2nd blog, prior to the US-African leaders Summit. There, I have suggested in response to an announcement by the GDN/Gates foundation asking for proposals that would recommend a way or ways to “reinvent foreign assistance”. My suggestion to whoever cared to listen is that the highest returns an investment would reap are through investing in education. No society in my view can prosper, let alone, compete in tomorrow’s world without a literate population. Once again, I endorse in the recommendation that “education” unlocks the door to prosperity.

My endorsement for education as the “right” approach to the so called “reinventing foreign aid”, elicited a response from one of my formal Doctoral students, currently a professor of economics with a great deal of expertise in development policies. I would like to share with you a brief exert from his note as it is quit enlightening:
“…the biggest bang for the foreign aid/ development assistance dollar may not be education expenditures, whose worthwhile returns are derived from other functional conditions being in place, but an investment in the necessary initial conditions that makes an economy organically and sustainably develop and progress. These include, inter alia, the establishment, enforcement, and education about the culture, of property rights, which includes the opportunity for people getting a competitive return on investing in their own education and human capital development”.

As I stated in my previous blog, I am not a development economist. Yet, I cannot help but wonder how a society in the African continent, with more than one third of its population are illiterate (the definition of literacy is that a person aged 15 and over is able to read and write), can possibly achieve those conditions that make an “economy organically and sustainably develop and progress”. A sustainable development would only prevail in a society whose members are literate.

Hopefully, an expansion of the “power Africa” project would bring the light of literacy to all citizen of the African continent.

Saturday, August 2, 2014

A Vexing Problem: How to Fashion Development Assistance

There has been and will always be vexing problems facing the inhabitants of Earth. Every generation faces multitudes of problems some get eventually solved while others fester from one generation to the next. One such problem is “Economic Development”.

Economic textbooks on development economics abound, all claiming their authors offer solutions to the “vexing” problem of developing the “less developed”, or as most often put the “underdeveloped” world. An often cited solution is “development assistance” to give the underdeveloped world a head start towards the so called “Take Off”.
The economic textbooks on development for the most part were successful in putting forth the idea that development is a long term process, that one shoes solution does not fit all. With the preponderance of evidence about the slow pace of development in many regions of the world in general, but in the African continent in particular, it is abundantly clear that development economists have “a long road to hoe” to claim success for the thesis put forth about development strategies.

As I am not a development economist, I cannot claim either success or failure of what the development economist has accomplished or failed to accomplish. Nonetheless, as a macro/public economics specialist, I feel that we economists have failed somewhat in putting forth clear and workable solutions to the vexing problem of economic development, and most significantly the role development assistance should or ought to play.

Development assistance espoused by policy makers, mostly on the advice of political economists and development practitioners, as a policy tool to lift humanity in the less developed world out of the desperate status most face, seems not to have delivered what was hoped for. Yet, not many would advocate that development assistance should be scraped (an exception is the CATO Institute who advocated eliminating US foreign development assistance altogether), or that the plight of humanity in many less developed countries should not be of concern to the many fortune individuals in the developed world.

There is ample evidence that most if not all members of the developed world believe that development assistance, although is only one of the pillars for successful development, has a place to play in the development of the less developed world. One such evidence, indeed one that prompted me to write this essay, is the “continual” search for the most effective means to promote development as parlayed in the following announcement.

Appearing in “The Economist” journal (July 19th-25th ) is the following announcement:
GDN (the Global Development Network) in partnership with the Bill& Malinda Gates Foundation seek suggestions from “any one with ideas” about development assistance. As the announcement indicates what they are seeking is “ideas” which would answer the question of “How to Reinvent Foreign Aid”. Individuals with the winning essays would each receive $20,000 and that their ideas would be promoted by the sponsors.

(I wonder how many students of developments would apply.)
Although I do applaud GDN and the Gates Foundation for seeking ideas as to how to “ reinvent” foreign assistance, I nonetheless find it a bit “ simpleminded” as to believe that simply by offering a sum of money (not significant at that) to the readers of The Economist, they would gain insight that could not have been gained from reading most if not all texts on economic development, and most significantly from the voluminous literature, policy papers, testimonies and other forums on the failure of many well designed publicaly and privately funded programs of foreign assistance. What would have been, perhaps most informative was to provide a focus to the inquiry.

To begin with: The announcement ought to have made it clear that development assistance by NGO that is non-governmental organization accounts for only 15-20% of total development assistance; that the other 80% or so is provided by governments mostly by the United States under the auspices of the Agency of International Development( AID). According to statistics provided by the OECD development aid amounted to $134.8 billion in 2013. Development Aid provided by private voluntary agencies amounted to $29.7 billion in 2012 of which the US contributed $22.1 billion. Hence any effort to enhance such a contribution would be most welcomed. Another issue is that public sector donors as well as private donors have their “own’ agenda in dolling out said assistance. Most importantly is the fact that the host country is friendly toward such largess – that it would accept whatever strings donors are bound to impose. Hence it would have been helpful in shaping up a response— reinventing foreign aid proposal, to know whether or not a donor is likely to withhold assistance to a country based on its political standing.

It is worth noting that two centuries have passed since development assistance was inaugurated. The most successful of course is the “Marshall Plan” which was instrumental for the development of Europe following the destruction of WWII. But this is not the development assistance the solicitation of proposal has in mind. It seeks I believe ideas that would break the cycle of underdevelopment in the less developed world. In some sense, the GDN and the Gates foundation hope to elicit new suggestions as to device and put in place a successful (hopefully) assistance program. But once again: is there a shoe that would fit all. No one is likely to think so.

Few months ago I watched a couple of televised hearings by a “Congressional Committee” on foreign assistance. Appearing before the committee was an administrator from AID, as well as representatives from private agencies that are engaged in providing development assistance. Obviously the Congressional Committee in scheduling such hearings is acting as the “Watch Dog” guarding our interests as US taxpayers in that, it needs to insure for us that money taking out of our pockets yields a higher rate of return than if left there (not all obviously would agree, but then in a democracy one ought to believe that it is so). One of the issues that came up in one of those hearing was in relation to a program called “Power Africa”. Before the hearing started, and before hearing AID’s administrator makes his statement, I wondered what such a program is about. What “power” are we US citizens want to impair to Africa. Thankfully, the administrator did not keep me guessing for long. He was reporting on an initiative with a public- private partnership to double the number of people with access to “Electricity” in six focus countries: Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania. The program engages both the African governments and the private partners—the World Bank, the African Development Bank as well as other private partners in such effort.
As a taxpayer I applauded such effort, not only because electric power is an enabler but also because it conveys a message that we should always adhere to in our life: “let there be light”.

There are a host of private-public partnerships in Africa and other developing countries that aim to fill a gap in knowledge about resource use or supplement existing resources through access to resources not available at home. Physical and human capital is needed to be combined to produce output, whether such output is for consumption or to augment the productive capacity of a country. This in essence is what development assistance is all about. Unfortunately good intentions may not always yield good outcomes.

I have read and participated in conferences as well as written papers on some aspects of developments, in particular that which deals with the role of the public sector. On August 19-21, 2008, The Institute for Economic Policy Studies, Worcester, MA, USA sponsored a conference that was held in Gaborone, Botswana with a theme: “Developing the African Continent: Who is in charge”, papers from that conference appears in a special Issue of the journal; International Advances in Economic Research, August 2009.The conferees were academician as well as policy makers in the field of development. The most striking facts arising from the conference sessions are: first, an overwhelming level of corruption still persists in many sub-Saharan African countries, hence impacting the use of foreign assistance; secondly, that aid should be channeled into activities that not only complement and enhance current investment, but also provide the environment to attract further investment and thirdly, perhaps most significantly is that a “better understanding” of human development and its impact on growth is imperative for the development of a successful development assistance program.
Now I offer my “two cents” and not a “$20,000” suggestion:

An Integrated Approach to Development no matter in which Area, or for which Country.

In the “Power Africa” initiative, for example, it is not enough to build cables to supply electricity. It does not do much for a country where the majority of its inhabitants have no decent housing to make use of electricity, nor for education attainments if there are no schools that can make use of electric power to deliver education to students throughout the year. Perhaps that was the reason for the pilot project of the “Power Africa” program to limit the program to six sub-Saharan African countries.

A final word: Education should be the Road on which Development Assistance Ought to Travel.

Tuesday, March 4, 2014

My Anonymous Readers: Thanks

Once in a while most if not all of us get down in the “dump”. Thankfully we pull ourselves up and as the “Brit” would put it “get on with it”.

A couple of days ago, I was there—down in the dump. The unending snow storms, the unsavory cold weather, the wind, the pile after pile of dirty snow finally got to me. When we contemplated a move from D.C. to New England, so many years ago (it seems now like eternity), I was so delighted to see a city blanketed in snow. The sun cast a lovely spell on the City, I basked in the beauty of New England, and hence we stayed. That was ages ago.

Today, like many others in my city I find myself surrounded with “mountains of dirty snow”. And, if you had to depend on someone to plow the driveway for you, you see the money disappearing faster than the ice melting on your roof or on your front door. Mind you, I did not mind then, neither the snow, nor the dirty roads. Once I got to my classrooms, the sun shined on me, my graduate students made my day.

During my carrier as a professor of Economics, I had the good fortune to graduate so many doctoral students (50 PhD), and as their doctoral thesis chairman, I had successfully placed most, if not all in very rewarding positions, a feat that even today I remain thankful for.

A couple of days ago, as the snow kept mounting on the roof, the ice accumulating on windows and glass doors, the water spilling into the house through the glass frames, I felt perhaps for the first time the chill of winter. I asked myself “had I came to the end of the road?”

My Blog “The End of the Road” posted few weeks ago, perhaps articulated how one feels when one reaches the end of the road. As one gets older, as one’s formal supply of labor is depleted, one cannot help but delve in such thoughts. I wondered: “Had I truly reached the end of the road?” Then, I opened my e-mail. There, I found a lovely note from an anonymous reader commenting on my Blog: “Marvelous, what a wonderful site. Keep it up”.

My anonymous reader reminded me of the task that I have dedicated myself to- Economic Education. This simple line lifted the “fog” that had engulfed me for a few days. I knew then, that I have yet to reach the “end of the road”. It is a road that we must travel nonetheless. So to whomever, wrote that short note my sincere thanks. Tomorrow, I start working on a new blog: “Tax Reform: the elusive dream”. Till next week then.

Sunday, November 24, 2013

The End of the Road: A Reflection on Value

There was a song I have heard a long-long time ago which had started or ended, I am not quite sure with the following words: “the king of the road”. Sitting on my desk pondering whether or not I should begin work on my next book, about the state of the Federal Budget and the unsustainable levels of debts in the US and most EU member countries, I found myself recalling this particular tune. The mind works in mysterious ways, as so many believe.

Why this tune, and at this point in time. I am sure psychologists can answer this question. For me, a trigger prompted me to recall it. I have just published a paper on the “Rate of Return to Aging: A capital Stock Approach” (International Advances in Economic Research, November 2013, vol.19, pp.355-366), where I came up with the finding that the rate of return to aging if not negative is close to zero. Another and perhaps a more subtle reminder about the implications of aging is the relationship between old age and work, especially the value of work. On reflection I knew why I associated the song with age.

I am fond of watching a program on PBS called “Window to the Wild”. There the host of the program, perhaps in his 60’s or early 70’s takes his viewers into the “wild”. A day or two ago, I saw an episode where the host of the program took his viewers into a place in Massachusetts quite deserted called “Dog Town”. What prompted me to think, I believe about the song and the title of this blog is a most interesting statement carved on one of the town boulders that stated: “When Work Stops Value Diminishes”. Whoever thought of it did well to carve it in stone.

Not every one, I am sure will realize or envisage how this small, yet a most powerful sentence pricks the mind. For an economist, value is a very important concept in the economist’s repertoire. Value has two characteristics: Value in “use”, and value in “exchange”. An inquiry into the history of economic thought leads you to the question of what determines value.

Value defines a good or service. A good such as bread or water have a value to the user but may not have a value in exchange. For example, water in a river can be obtained free of charge, and if the water is available to all, it will have no exchange value. On the other hand, if water is not available to all, and it is useful to users, then it will have a value in exchange. Whoever possesses the water can exchange it for other commodities or for money.

Determining a good's value in exchange has been at the foundation of economics from Adam Smith’s the Wealth of Nations (1776) to Leon Walras Elements of Pure Economics (1873) and Alfred Marshall (1890) to name a few. Through the history of economic thought one of the issues that have occupied the classical and neo- classical economists has been the determination of value in exchange. Although the analysis differed, one thing they have settled on was that “LABOR” determines the value in exchange (For a review of the history of economic thought on this issue see Attiat F. Ott with Sheila Vegarie: What Economists Do: A Journey Through the History of Economic Thought i Universe LLC, 2013, ch.4).
If “Labor” as our forefathers put it is the source of value in exchange, then the statement carved in stone in the Dog Town is quite remarkable.

As a professor of Economics who spent all my academic life teaching and writing about economic issues and principles, my value to my profession was determined by my labor. When dispensing labor services stops—comes to an end with retirement, value unquestionably diminishes. A person who has retired from the work force, his/her labor clearly has value in use but little in exchange in a monetary economy.

Everyone knows that, if a good has an exchange value, and if such a good has a limited life span, (an exhaustible resource) from instantaneous to a relatively longer duration, at some point in time it will cease to command a value in exchange. Labor is such a good, its services fall under the label of exhaustible resource. By labor, it is meant not only physical existence, but also the embodiment of said labor in value in exchange. When labor diminishes, or erodes through the passage of time, so does its value.

The law of Economics, since Adam Smith still holds. Labor is the source of value in exchange, and when work stops, as it happens sooner or later, “VALUE DIMINISHES” and that is the end of the road.

Wednesday, October 2, 2013

Shutting down the Federal Government: It is Time for a Nationwide Recall of Our Representatives in Congress

“Here we go again”. These four words were uttered by former president Ronald Reagan during a televised debate in New Hampshire back in the late 1970’s during the primary. Frustrated over a repetitive question raised by his fellow contestants for the White House, Reagan admonished his fellow contenders for such behavior so that they move on to address issues of national priorities. The admonishment seems to have worked—they moved on and Reagan won the presidency in 1980.

President Obama should do no less. He should remind the Republicans of the futility of hanging on the one issue that is holding the government and the people hostage to “ideology. President Obama articulated such behavior best in stating (October 1) that “”holding the function of government hostage to ideology is “‘unseemly”.

The American public should be indignant about the shutdown of the Federal government. True, the Republican minority that are holding the functioning of the Federal government over the Affordable Care Act—Known best as the Obama’s care plan are acting on behalf of their constituents who share their ideology. This is how democracy functions. They were sent there to represent their constituents, their votes offered or withheld should reflect those of their constituents. But in this instance, they are not acting the way they should in a representative democracy where a vote up or down is governed by a simple majority. The issue on which government shutdown rests is irrelevant. The Affordable Care Act or the so called Obama’s care plan is the law of the land. It has been challenged, and the challenge was defeated as the US Supreme Court affirmed its legality. The ideology was put to test and in the case of the Obama’s care plan was defeated. In a representative democracy, this how a democracy functions. Our representatives have to either accept the outcome of a single majority vote, or insist in cases that divide their constituents according to ideology, that the issue should be determined by a 2/3 majority.

The American public should not let the government shut down go by the wayside. Our representatives are sent to Washington (their accountants only know how much they spend to get there) to serve the public and not the private interest. That may be an old fashion concept but that what democratic institutions are about. The segment of the Republican Party in the House of Representative that are holding the government functioning hostage to their unsuccessful effort to defeat the Obama care law, when they had the opportunity to do so, should reserve their fight for another day. Win or lose they must honor a system that allowed them to be there. A democratic system of government built on simple majority rule. Failure to achieve simple majority on any issue should be hammered out to insure the survival of democracy. The blame game should be beneath men and women in both houses of Congress. It is unworthy of representatives who pride themselves in living and serving in a democracy.

This is not the time or place to argue for against the Obama care law. Those who failed to stop it from becoming the law of the land, if they adamantly believe it to be injurious to their constituents should, in a democracy, garner the support of a majority to repeal it. That is how a democracy survives and avoids the pitfalls of autocracy.

The current ideological battle is not one that it ought to be fought by shutting down the government. Just look at what the battle is about: not to repeal the law, that battle was fought and lost, but to delay the funding for one year. You should ask: then what? Will the government be threatened with a shutdown next year, or the year that follows? Will the delay impede the implementation of the law? Just listen to what president Obama said in his televised speech: “The government is shutdown but the health care act is alive and well--the uninsured are ready to get insurance; to bail themselves out of a burden for long has been on their shoulders”.

Yesterday an American citizen reacting to the President speech put it to the Network carrying the speech: “do you know a country in either the Eastern or the Western Hemisphere where they shutdown the government because of differences in ideology?” The question was left hanging there.

The last shut down of the Federal government that took place 17 years ago lasted 21 days. How many days will it last this time around? Placing the responsibility of the shutdown on the shoulders’ of either Senator Reid or Representative Boehner does not help matters much. The American people should hold members of Congress; Democrats and Republicans hostage for their votes.
It is time for a “Nationwide recall of our representatives in Congress”. If they cannot discharge their obligations to govern, they should be sent home. The country will not be worse off than it is today.

Friday, January 11, 2013

A Time to Remember: a Memorial to a Nobel Laureate, James M. Buchanan (1919-2013)

Nobel laureate James M. Buchanan passed away January 2013. His death, to his family, colleagues, friends and students, was heart retching. For me, personally, it was devastating as I was looking forwards to see professor Buchanan at least one more time at the Public Choice Society meeting in March celebrating the 50th anniversary of the publication of his seminal work (with Gordon Tullock): “The Calculus of Consent”. One knows that death is always waiting at the doorstep, but never realizes it until it comes.

Today, I find myself in remembrance of Jim Buchanan looking back at the history of public Economics. In remembrance one accepts death as a continuation of life. Today, like so many others of Jim’s colleagues and friends, I face his passing through remembrance of what his life’s accomplishments have meant to us, colleges, friends, students, but most of all to our discipline—the discipline of public economics.

Professor James Buchanan together with professor Gordon Tullock have revolutionized our thinking about the role of the individual in a free society, and how he/she interacts (or should) interact with the sovereign. Their Philosophy embodied in the Calculus of Consent will forever light our way as we seek to forge a relation tempered with good will with the representatives of the public sector—the sovereign.

The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962) was published by the University of Michigan Press. At the time of publication I was a PhD student in Economics at the University of Michigan. One of my fields of specialization was Public Economics, known then as Public Finance. I studied with Professor Richard Musgrave, known then as well as today as the father of public economics. I felt so fortunate to be one of his students and since my graduation; I have remained faithful to the discipline of public Economics.

As a student of Richard Musgrave, I have espoused a positive role for the public sector. The individual, to be sure had a role to play in setting budget allocation and distribution, but the framework of analyses left no room to think about an alternative arrangement—arrangement where the individual in a democratic setting sets the rules by which the “sovereign” is to interact with the individual in a “public choice” setting.

Not until I met Professors James Buchanan and Gordon Tullock at VPI in 1975 at the campus of the University (where I was invited to join the Public Choice group housed in the so called “white House” of the university) that I have realized that an alternative view of the public economy should complement the traditional study of the public economy. Although at that time I could not accept the invitation to join, it has given me an entrĂ©e to the field of public choice. Listening to Professors Buchanan and Tullock discussing the shortcomings of our knowledge about the role of the individual in the sphere of public economics I appreciated the force of the arguments presented in the Calculus of Consent. Reading it over and again I realized the enormous task and the burden the Calculus of Consent has placed on students of public economics. It was a path breaking for all of us students of public economics to understand what public choice is about and how individuals’ choice has to be effected in a democratic setting. The rest is history.

The Nobel Prize Committee in awarding the Nobel Prize to James Buchanan in 1986 has cited his contribution for: “the Development of the Contractual and Constitutional Bases for the Theory of Economic and Political Decision Making”. Not quite adequate a description of the colossal impacts of the contribution of Buchanan to the study of the public economy. Students of the public Economy have found in the Calculus of Consent a blue print, a guide to the complex and intricate relationship that has existed and remain so between the rights and aspirations of the individual in a democratic setting against the power of a sovereign motivated by self interest or the so-called the public interest.

For those of us whose task was, perhaps still is, the search for those institutions that would meet the Buchanan ideal of the Contractual and Constitutional bases for a theory of the public economy, need look no further than a second reading of the Calculus of Consent.

The public choice school, the brainchild of Buchanan and Tullock enriched the economist’s knowledge of the process of decision making when the collectivity replaces the individual as the decision maker. The contribution of the public choice school, when put in the frame of reference of our forefathers; the political economists dating back to the 17th century, clearly changed the landscape for the study of the public economy.

But, there is a softer side to Professor Buchanan. When I first met the great Economist, Professor Buchanan, I did not think that I could talk with him about other life undertakings. I found out how easy and wonderful it was to listen to Jim talking about his home in Blacksburg, Virginia, the pecan trees he had where he spent a relaxing time shelling those pecans, and to my delight found out that we shared the love of one author; Nevil Shute. One particular novel we both felt it to be a great novel was: “In The Wet”. I told Jim that I have gone to Torquay, England to see the place where Nevil Shute wrote his novels. At that time I was given the task to put together a conference sponsored by the Liberty Fund, and we thought perhaps it would be nice to have the conference there. Unfortunately, that was not done; I guess the expenses would have exceeded the grant.

Many of Jim colleagues, students and friends, I am sure, would have a great deal of soft memories of the Jim Buchanan, the great economist and the wonderful thoughtful human being. In his presence, you felt his greatness flow over and engulf you with warmth and appreciation of being there. Those of us who knew him, personally or through his writings, will always carry with us the soft glow imparted on us in knowing him and been rewarded with a glimpse of his inner thought. The economic profession has lost one of its pillars, but he lives on through his contributions to the economics discipline and the many students who followed in his footsteps.

Professor Buchanan: We shall miss you, but your thoughts will forever live on.

Friday, December 14, 2012

Falling off the Fiscal Cliff

Everyone is talking about the fiscal cliff, maybe not exactly everyone. Those who are talking about the fiscal cliff are “naturally” our policy makers and the media guru. One expects our policy makers to make “hay” about the so called cliff, but the pundits in Washington and just about anywhere they can hook up a so called commentator to the phone or to a TV camera the news makers are having a field day about the so called fiscal cliff.

Before getting into the nitty-gritty of what the fiscal cliff is all about and where the country is heading, off or on the cliff, let me backtrack a little and talk about the ingenuity of the label—the FISCAL CLIFF. It sounds ominous, or does it? The first time I heard of the term--the Fiscal Cliff, I had this image of those superb divers in Acapulco Mexico diving from extreme heights off a cliff. None, at least to this viewer have suffered ill consequences of a dive, but it obviously takes skill, stamina and fortitude for a diver to achieve such an exhilarating and superb dive. So what will it be like to fall off the Fiscal Cliff: will the economy survive the fall? What is at stake?

To put the issue in some order let us begin with the label. Obviously there is no such thing as a fiscal cliff; it is a metaphor, which is ascribed to one of our illustrious policy makers. When I heard the term, I presumed that someone either in the popular media, or a talk show host coined the phrase. A bit of poking however, identified the source. According to Wikipedia, the term “Fiscal Cliff, if not invented by our illustrious Chairman of the Federal Reserve, it was popularized by him. Stan Collender in a blog posted 12/07/2012 identified the source. He attributes the phrase to Ben Bernanke the chairman of the Fed. He goes even further to note that Alan Greenspan, the former chairman of the Fed “would have been proud of the Ben Bernanke-coined fiscal cliff”; he goes further to postulate that Greenspan himself would have used the phrase. But would he?

I raise the question as a graduate teacher of macroeconomics and public economics for more than a quarter of a century. Our books and articles are rich in models, theoretical and empirical about the macro economy, the public sector, its budget posture, the budget deficit, the aggregate as well as the structural and cycle adjusted deficits, the “equilibrium” level of debt to GDP and so many other thesis about the debt/GDP ratio and the implications of this ratio for the stability of the economy. Nowhere in our arsenal do we label a parameter value indicative of either the Deficit/GDP ratio and or the Debt/GDP ratio as something akin to a fiscal cliff. But then “Who” would have listened if economists would explain the equilibrium value of these ratios and the dire consequences if these ratios exceeded their equilibrium values. The term fiscal cliff whether coined by the Chairman of the Fed or popularized by him, caught the imagination of both the policy makers and the news establishment—it is more ominous to fall off a cliff than to fall of an equilibrium formula developed by economists.

Now that you know, that you are not likely to find the term “Fiscal Cliff” at least in macroeconomics, and public economics books and articles vintage 2011 and earlier, let us make some economic sense of what the “cliff” is made off, who is ready to jump, the players who would like to push the other team off the cliff and whether it really matters in the “longer-run” whether the jumper survives the jump or simply hang in there waiting for the next jump.

For a start, there is indeed a critical value for the federal debt to the gross domestic product (GDP), beyond which the national economy suffers adverse economic consequences, put in current terminology: “falls off the cliff”. What is this critical value, and why is it said that the economy falls off the cliff. To make sense of this claim, key economic principles are in order.

The national economy consists of three major components: Consumption, investments and government. These three have activities we refer to as consumption, investment and government spending. Consumers and investors generate activities and products hence income that enable them to consume, save, produce and invest. Unlike consumers and investors, government has no income of its own (of course there are some assets, but these assets are not sufficient to fund its activities), thus the government has to acquire the resources (income) from someone—consumers and investors. Taxation is the method all governments use to transfer income to themselves. The transfer is done through taxation whether a direct tax such as the income tax or an indirect taxation such as excise tax, or sales tax. If the taxes imposed are sufficient to cover government expenditures there will be no need for further transfer from the private economy to the public economy, in other words there will be no public debt.

But then few of us are debt free, so why should the government be? Households borrow to finance the purchase of assets, such as homes, their children education and the like. Borrowing is made possible because the lender evaluates the future capability of the borrower and if sound they lend, if not they do not. Most borrowers are careful not to exceed some critical value: the ratio of debt to personal income (debt/income), for if this ratio is exceeded, not only their credits will be cut off but they may slide off their own cliff.

The same scenario applies to the federal government—its take falls short of its spending. True the government has a better access to funds, its credit rating, until 2011 was superior to most of us borrowers and the universal faith in its ability to pay its debt was unshaken. But then came the summer of 2011 when the battle of the debt ceiling was waged and almost lost. The fiscal cliff is linked to this battle.
Let me backtrack a bit and talk about where we got here from there. As I mentioned earlier there is a critical value of the debt to GDP ratio. A great deal of economic modeling has come up with a value of this ratio: The ratio (debt/GDP) cannot exceed 60%. This is the ratio adopted by the European Union (one of the Maastricht criteria for membership). When and how far the US has departed from this ratio will be taken up below.

Taking a look at the recent history of the federal budget one cannot help but wonder at the way the budget posture slid out of control over a relatively short span of time. If economists’ debt to GDP ratio was a marker to be taken seriously, it is quite apparent from the progression of this ratio that the day of reckoning is not too far away. Going back to 1980 the ratio of federal debt in the hand of the public to GDP was 42.3%, the ratio began creeping upward a bit slowly over the 1980’s and the 1990’s decades reaching 50% in the year 2000. The explosion of the federal debt took place in the following 10 years. The first danger signal appeared in the year 2008 when the ratio reached 70%, at present (2012) the ratio is 102%.

One reason that the danger was ignored is the status of the economy. By now everyone knows how difficult the year 2008 was; the economy was in a “recession”, the financial system was in disarray, and a responsible public sector could not remain on the sideline. Economic advisors had to invoke the Keynesian remedy of pumping money to stimulate aggregate demand, hence the stimulus packages. The cost of course is a rise in the federal debt—no advisor at that time would have argued for tax increases to fund the stimulus packages, although some advisors, outside the policy clique argued for restraint. Given a persistent high rate of unemployment, the “prevailing wisdom” was to throw good money after good money—more stimulus and more debt. Economists of the Keynesian tradition would argue that the stimulus cost is a price worth paying, for without the stimulus the recession would worsen and the recovery date would be further away. The optimistic view, not necessarily the consensus was that once the economy began to recover, economic activities will pick up, taxes rise and support payments such as unemployment compensation would fall. Under this scenario, the debt/GDP ratio would begin a downward slide toward its “efficient” value.

Well this did not happen. In 2012 and the coming year of 2013 a reality show is in the offing. A few numbers at this point are in order.

To understand what is at stake one needs to be appraised of the imbalance in the federal budget. Looking at the ratio of federal debt in the hand of the public to GDP in 2011, and the ratio of federal taxes to GDP in 2011, it is not surprising that the economy is poised to jump over a cliff, fiscal or otherwise--the deficit/GDP (8.5%) is almost as much as the federal tax revenues/GDP (8.5%), can anyone of us be able to sustain this kind of behavior? Well so far the Federal Government, with the acquiescence of Congress was able to do just that. Now we face, I believe more than the proverbial CLIFF.

Remember that when either a household or government borrows to finance “current” expenditure, the debt incurs interest charges. These charges have to be paid from current income, and if current income is not sufficient to cover the spending plus the interest on the debt, further borrowing takes place and the debt incurs additional interest and the debt accumulates as well as the interest charges. In the case of the individual the lender may extend the repayment date, increase the interest charge and or downgrade the borrower “credit score” foreclosing on whatever asset the borrower has and/or driving the borrower to bankruptcy. The situation is similar for the government except that the government has no asset to be ceased, and most importantly the economy cannot function with a bankrupt public economy. One thing that differed in this scenario with respect to the borrowing of the government versus the borrowing of the household is that the rules are different; the government cannot increase the size of its debt unilaterally—there is a debt ceiling imposed on the federal government borrowing that cannot be exceeded without congressional approval. This is the battle that was fought in the summer of 2011 giving rise to the “Mandatory” tax increases and spending cuts in the Simpson-Bowles blue print of fiscal reform.

The battle over raising the debt ceiling in 2011, gave impetus to the creation of the National Commission on Fiscal Responsibility and Reform. The underlying reason behind the creation of this Commission is to draw a line in the sand: if neither the President nor Congress has the will or the ability to fix the Debt problem then they faces a legal biding resolution which takes off their hands the discretion over tax increases and spending cuts. The path for spending cuts and tax changes embodied in the Commission recommendations would take effect as of January 1, 2013. Facing the prospects of a deadlock on raising the debt ceiling, both the President and Congress had a temporary respite from the fight over the debt ceiling, in the expectation that once the presidential election is over, a new leaf is turned—the winner can bargain more forcefully about which expenditure cut should be legislated and which tax increase or reduction should be the order of the day. The expectation (at least in my view) was that, the Commission’s recommendation will serve only as a guide to policy making in the 2013 and beyond, that the new president and Congress will iron out their differences and come up with a “rescue” plan that takes down the path of the debt to GDP from its current unsustainable level to something closer to its “”efficient value”. The club that the commission held over the executive and the legislative branches of government is a powerful one. No matter what the election results turned out to be, a compromise has to be worked out between the two branches of government to put the debt/GDP on a downward path toward a sustainable ratio. Failure to do so, it is said that the COUNTRY WILL GO OFF THE CLIFF”. In terms of economics, the expiring Bush tax cuts and new tax increases along with spending cuts (sequester) in entitlement programs as well as defense amounting to some $600 billion will take effect as of January 2013. Falling off the cliff then means that a fall in aggregate demand due to the fall in private spending (consumption and investment) and government spending on defense and nondefense will be a drag on the economy which (under all reasonable forecasts) will cause a rise in unemployment and a decline of GDP growth, even a recession.
With the current experience with unemployment, the fall in income and the rising disparities in the distribution of income, the consensus is that no one wants to see a return to a 9 or 10 per cent rates of unemployment, a collapse in the housing market and a reduction in the safety net.

If all agree that falling off the “cliff is the worst policy outcome” why the deadlock over budget and debt policy.

The president will not submit his budget until February 2013, or thereabout, after the inauguration of his second term. The Simpson-Bowles Commission recommendations take effect January 1, 2013. Congress is supposed to adjourn December 14 (although the likelihood is that they will not do so in the expectation that a compromise will be worked out before the beginning of the year).

Given these constraints you would have thought that both the legislative and the executive branches of government would NOT HAVE SIGNED ONTO THE WORST POSSIBLE OUTCOME (The Simpson- Bowles).

By now, most individuals are apprized of the contents of Simpson- Bowles’ Commission ‘s legislation, although some may be more aware than others of how the implementation of their provisions would affect their personal finances. Two things that stick out in the mind of most people are that: their taxes will rise and those who are beneficiaries of Medicare will see their benefits eroded. What is clouding the debate over the so-called fiscal cliff is the tax issue. During the months and months of campaigning for the Presidential election, one group of population was bid against another—the 2% versus the so-called 47%. The president insisted that no deal with the Republican in Congress will be made unless the taxes of the 2% high-income group are raised. The Republicans, whose party believes that higher taxes adversely affect investment, are against taxes on those most likely to invest—the top 2%. Since neither the President nor the speaker of the House of Representatives are willing to let this issue remain dormant until next budget season, or find a middle way, the Simpson- Bowles option may not be a bad deal for either.

Let us pose a minute to think about the Simpson- Bowles plan:
First, the President wants to remove the Bush tax cut from the top 2%. The plan does away with the Bush tax cut for all including the top 2%. Without doing anything the president would fulfill his campaign promise. What about the Republicans in Congress? Everyone knows especially their constituents that “Republicans” oppose tax increases. So, lacking a compromise where the Speaker has to bow to the President demand and accept tax increases on the top 2%, he is in a better position with his party—the president forced the issue, refusing to compromise, and the tax increase on the top 2% is not of his making.

Second, take the recommendation that entitlements have to be cut and reformed. The President finds a way out of facing constituents who have overwhelmingly supported him during the Presidential election. The President can blame the Republicans in Congress for failure to negotiate, and avoid making the tough choice of enumerating the cuts to the entitlements program.
What about the Republicans in Congress? They too will get what they vowed to do: cut and/or reform the entitlement program. The Simpson- Bowles recommendations accomplish the objectives without the Republicans in Congress appearing to be anti- the old folks.
What of the Fiscal Cliff?

If you think about it, no matter what plan is put in effect, the economy will “stagger” through the next few years, with a modest if not small growth until the budget posture improves and the debt/GDP ratio retreats to its “efficient” level.
The Fed Chairman in his news conference yesterday (12/12/2012), although stating that the Fed does not have in its “arsenal” tools to offset the expected adverse effects if we go over the “fiscal cliff”, he nonetheless outlined Fed policy that would certainly ameliorate the predicted adverse outcome. One tool in the Fed arsenal is liquidity. He stated that the “federal fund rate” will remain near the ZERO level until the unemployment rate reaches 6.5% or lower. This is a novel principle as the Fed has not in the past targeted the unemployment rate. Moreover, the Fed announced that they will increase their holding of assets effectively increasing the quantity of money. Economists may debate the potency of fiscal versus monetary policy, but the fact the Fed acted indicates that the Fed will not remain passive if the economy were to go over the so called Fiscal Cliff. Of course time will tell if we were to fall off the Cliff or go around it.

Attiat Ott, Ph.D.
Research Professor, Clark University, Worcester, MA
President, Institute for Economic Policy Studies, Worcester, MA

Monday, December 3, 2012

Worcester Going the Timbuktu Way (Round Two)

Someone once said you can’t fight City Hall! To whoever said that I take off my hat (I do indeed wear a hat). Now that the City of Worcester Public Work Department won the day, Their Salisbury- Forest Streets expansion plan was put in place. Some of the residents’ objections were swept away like dust, and we ended up with a vision of the historic district that suited the Commissioner of Public work plans. I will not dwell on the matter, as the saying goes “why throw away good money after bad”. What I would like to address are a few learned on hand experiences in dealing with the public sector. As a Public Economics professor, I have taught, did research about the economic of the public sector. Our accumulated knowledge has given us a view of the activities of the public sector, mostly in the aggregate and not on individual basis. We build models about the role, activities and behavior of government, Federal, State and local; we test our models by injecting appropriate date, draw conclusions and offer advice as to the efficiency or lack of public sector provisions, the allocation of tax shares, and the role of the individual as a consumer and tax payers in the public economy. True we point out the various inefficiencies associated with public sector provisions, the sometimes unjust distribution of the tax burden, the perils of a growing public debt and the role of the individual, in a democratic society viz a viz his government. In the sphere of local government we have offered and tested the “Tibout model” or what has been referred to as “voting with one’s feet”—if you do not like the provision and tax allocation of your local government, you have recourse—pick up and leave. That may be easier said than done. Given the so many constraints that face the individual, and the relatively small weight of public sector involvement in the life and burse of the individual, picking up and leaving can only be accomplished in the relatively longer run. Of course they may be so strong that the cost of voting with one’s feet become the preferred option. As this blog is not intended as a thesis on the economics of the public sector, but rather use what we have learned and teach about the public economy to identify gaps in our presumed relation of “the individual” viz a viz his government learned by this Public Economics professor in one instant of interaction with representatives of the public sector. The case used is The City of Worcester Plan for the Salisbury- Forest Streets. In the previous blog, round one, I pointed out the implications of the choice of the form of local government for the citizens. The City of Worcester like few others has opted for the Council-Manager form of local government. Under this system the council members are elected by the voters’ citizens and their tenure is subject to voters’ approval. A Councilman can represent a district, or be elected at large. The Mayor is the Councilman elected at large who garners the highest number of votes. The Council appoints the Manager, and he reports to the Council. The Council has the legislative power whereas the Manager performs the day-to-day activities of running the City. Another form of local government is the Mayor-Council. In the other form of local government, the Mayor –Council, the Councilman, whether represents a specific district or elected at large is in tone with his constituents’ needs. This form of local government is perhaps the most responsive to voters as a councilor’s tenure depends on the voters’ approval. The City of Worcester form of government has undergone a few changes since its formation back in 1848 where its first Charter went into effect. The Charter established a Mayor Bicameral form of government. In 1947, the City approved a change whereby the form of government was replaced by the Council- Manager form. This was the structure from 1949 until the mid-1980’s when the Citizens of Worcester, seemingly unhappy with such representation sought to change it to a “more” representative form— the Mayer- Council form of government. Sadly, that did not pan out. Every community seems to sprout “cliques” of powerful men and women who have interest in shaping the affairs of their City. Worcester is no exception. Tired of the Council- Manager form of their local government, the citizens of Worcester mounted a campaign to replace it with the Mayer-Council form. In 1983 the City voters decided to change the City Charter. A Charter Commission was formed (guess what) chaired by Mr. Morgan, one of those powerful Worcester residents. As Chairman of the newly formed Charter Commission, he was instrumental in deflecting all efforts directed by some Charter Commission members to change the form of government to the Mayer- Council form in response of the citizens’ wishes. Powerful men and women seem to dominate the scene. Whether through the use of tacit or open persuasion, they rule the day. The Charter Commission under the stewardship of Mr. Morgan, and while fully aware of citizens dissatisfaction of the Council- Manager form pushed through his agenda and succeeded in overruling all objections to his favorite form of government—the Council- Manager form, thus succeeding in silencing dissent. A quarter of a century later we the citizens of Worcester (at least this Economist) are reflecting about what happened back in the 1980. Given our latest experience with the Salisbury- Forest Streets expansion plan, perhaps the time is ripe to effect a change in the form of local government for the City of Worcester. One May not succeed in fighting City Hall, but surely we the Citizens can Change it. Over the past few weeks, the news about the Civil War in Mali, the West African nation has reached our shores. As my first blog used Timbuktu, the great City of Mali as an example of a revival of a magnificent city and the efforts of its citizen to return their city to its earlier glory, I am saddened by these developments. The Civil war that is tearing up the fabric of a great city and inflicting death and destruction on a nation that faced a great deal of turmoil to secure a better living for its citizen and in promoting democracy and liberty. Being apprized with what the Citizens of Mali are facing, I am more than ever convinced that individual rights, just causes must be won, they cannot be left in the dust. Civil wars are quite prevalent in Sub-Saharan Africa. Their causes are varied, and the outcome is never certain. The Civil war in Mali has many roots and grievances abound. What role outside forces play and how far civil liberty will be ignored will be the subject of my next blog. One thing I need to say in closing: There should not be a price put on liberty. Complacency breads tyranny and tyranny is the death of liberty.

Friday, October 12, 2012

Worcester Going the Timbuktu (Tombuctou) Way

Few residents of Worcester or the State of Massachusetts for that matter know about the history of Timbuktu, a historical city in Mali, a West African country. The history of Timbuktu came to mind few days ago (October 2nd), as I was attending a special meeting organized by the Worcester City Council in response to an outrage voiced by some residents of a historical district in the city of Worcester; Specifically residents whose properties are located at a corner bounded by Salisbury and Forest streets. The outrage was prompted by a decision taken by the City Manager who gave the green light to the Commissioner of Public Works to devise a road plan, that in their views would ease the traffic congestion during the rush hours—morning and early afternoon in the said corner It is heartening that the city “officialdoms” finally saw fit to include in their plans resurfacing of Salisbury Street and re-paving the sidewalks. As a resident of Salisbury Street for over 30 years I did not have the good fortune to witness the Department of Public Works in action in my street or Forest Street. Salisbury Street was never resurfaced, the sidewalks crumbled especially in front of my residence but the City was oblivious to the residents needs, even though the neighborhood is perhaps the highest taxed residential area under the City property tax. Opposition to the plan, it seemed incensed some of the Council members and some individuals appearing on the “Council’s corner”. As taxpayers, the residents not only are entitled to voice their concerns for their own neighborhood , but have the “right” under the Manger- Council municipal government to air their concerns before the City Council, after all the Manager is appointed by them and he and his budget must be approved by them. This is what a Manger-Council form of municipal government is about. Perhaps at this stage, I need to enlighten you about the choice of the title of this Blog, and why I felt the need to put down on paper not only my own concerns about the proposed plan, but most importantly the flagrant comments we have received for voicing our opposition to the plan—a right guaranteed to us by the Constitution. In a subsequent Blog I shall address the forms of municipal government: the Mayer- Council form versus the Manger- Council format. For a start, let me convey to you very briefly my own outrage about the decision taken by the City Manager to “mess” around with our neighborhood. Aside from the fact that the plan would reduce if not destroy the quality of life for the residents at the corner of Salisbury and Forest and increase rather than decrease the traffic safety (more on that later), my own concerns have to do with the way the decision in our type of municipal of government—Manger-Council—was carried out. Residents of that corner woke up one morning to find “Orange Markers” placed on their properties, without a word from either the City of Worcester’s department of public works or from their representatives at the City Council as to the reason for this invasion of their property rights. The most obvious action for us was to contact a representative from the public works department to find out. This was done by my neighbor. No satisfactory answer was given. All told was that major expansion affecting the corner is scheduled to take place in a few days. The next course of action was to find out on whose “authority”, and “why” the residents were not contacted about whatever the Manger’s public works department had in mind. We did just that in contacting our Councilman, the one who represents our district. If you believe in a democratic – representative form of government you would be as concerned and incensed as I was. Not only, “we”, the property owners were not consulted before those “orange markers” were placed on our properties, but even worse, that our own Representatives on the Worcester City Council knew nothing about it! To placate few of us, letters appeared the following two days, some neither dated others not signed to inform us of the plan (with incomprehensible maps), explaining the plan and a hurried up meeting was arranged by our district Councilman so that we may hear about the details of the plan, and to allow some of us to voice our reservations about it. To add insult to injury some Councilmen and those on the Manager-council corner not only showed total lack of concerns for the rights of the residents in the affected corner but also sought to educate us about the “role” of government. As an economist of repute with a specialization in the economics of the PUBLC SECTOR, I cannot let some of the contents of said lecture go unchallenged. It is unfortunate for the Councilman who thought to educate us that he made his comments before an economist. To show off his knowledge of the role of the public sector he chose to use John Stuart Mill’s social philosophy to tell us that social rights supersede individual rights. Unfortunately, the speaker invoked an argument by Mill who was concerned with the status of the “LABOURER CLASS” in EIGHTEEN-CENTURY ENGLAND. Had he read the 900 or so pages of Mill’s Principles of Economics he would realized the context in which Mill have formulated his social philosophy. Moreover, if he was aware of the judgments of Nobel Laureates in Economics about Mill, he may have been reluctant to invoke Mill Philosophy. Paul Samuelson, a Nobel Laureate in Economics describes Mill’s presence in the economic sphere as a “transitional figure”, another Nobel laureate in Economics, George Stigler, points out that Mill’s contribution to economic thought was so “minimal” that he had to relinquish the field as an academic to work as a journalist to support his family. Even the father of Socialist thoughts, Karl Marx, had few unkind words about Mill’s brand of socialism. I do not mean by this critique to belittle Mill’s contributions to the principles of economics. Within his 900 pages of his Principles, he pioneered the analysis of tax burden and tax incidence as well as the returns to the factors of production—the heart of the economics of the private economy. It is to be emphasized that the context in which Mill’s socialist philosophy was put before us was not appropriate to the issue being discussed. Expanding the road to help commuters (mostly out of the City of Worcester) avoid traffic delays while causing injury (material in the form of a reduction of the value of property in the affected area, as well as other non pecuniary factors such as the quality of life) to affected property owners do not involve a redistribution to a “labourer class”. In effect residents in the affected area, a highly taxed area under the City of Worcester property tax do pay taxes to support social programs to benefit the resident of the city of Worcester, especially the support of public schools. Spill over of their tax dollars go to support residents of the surrounding Towns especially Holden, a wealthy community whose residents use the Salisbury- Forest Streets for own convenience rather than the use of accessible roads such as Route 190 or Indian lake route. In the public sector economics we call that the “spill over” effect and policy makers in the City of Worcester should be concerned of this effect not only on the residents of the city of Worcester but also on the City budget allocation. Another comment made by an individual in the Manager-Council’s corner was that those of us, who came before the Council to air our concerns, came there in his own words “to hear ourselves talk”. “Pardonez Moi”. I am not privileged to know what kind of education said individual had or from where, but I am more than confident to state, that the average level of education of those of us attending the meeting exceeded the Master degree or MBA and few of us have a PhD degree. I do not believe that any of us needed to speak at the meeting so that we can “hear ourselves talk.” That brings me to the title of this Blog: why the reference to “Timbuktu”? I grew up in Cairo Egypt. One of the hallmarks of education in a country like Egypt at that time was to instill into the children few values, foremost among them is the value of education and good dietary habits. In addition, every child was made aware of the Egyptian history and heritage, after all the Pharaohs dynasty is something all Egyptian have to behold and never forget. No Child in Egypt was not made aware of his/her Egyptian heritage, indeed there was no need to tell about it: everywhere one looked, there before him stood the glorious past made immortal by the accomplishments of the pharaohs, from the Gaza pyramids to the Luxor temples. In short, history resides in every Egyptian’s blood. Where does Timbuktu come in? Mothers all over the world teach their children by examples often invoking history and historical fables. My mother strived to influence our behavior in the formative age with interesting historical foibles. As I was growing up, around the age of 8 years or so, my mother had two things that she insisted on: to be at the top of my class, and to drink a glass of milk daily. The first was not a challenge, throughout my life I have accomplished that; the second was not easy to comply with. No matter how I thought of ways to get away with non compliance, she found out and I had to drink it under her supervision. When I was caught disposing of the milk in lieu of drinking it, I was threatened with the following: “If you do not drink your milk or if you falter in your study you will be shipped to Timbuktu”. At the time it sounded too ominous a threat. I had no idea where Timbuktu was, how I was going to be shipped there, or what to do when I got there. An 8 year-old has not got that far in the history study to have the answers, But as most children know “curiosity” is at the heart of knowledge (WGBH in Boston have been teaching this with their Curious George Fables). Of course I drank the milk and outperformed all my classmates, but I could never get Timbuktu out of my thoughts. Two questions had to be addressed: Where? And why? Studying history gave me the first answer. I find out where Timbuktu was: the second involved not only knowing the location but the political development that shaped the fortunes not only of Timbuktu but also Mali the West African Nation. History unlocks all mystery. History apprises you with the historical development that shaped the fortunes of the city of Timbuktu and its residents as well as the historical and economic development of the West African State of Mali—there I found out the answer to my mother reference to the city of Timbuktu. Going back through history (for a quick historical over view, see The Rough guide to West Africa, edited by Jim Hudgens and Richard Trillo., www., I uncovered the glorious past of Timbuktu, the trials and the tribulations that followed, the rise and fall of the city of Timbuktu, fortunes made and lost, and above all liberty lost and won by the citizen of Timbuktu. What was intriguing to me is to find out the reference by my mother to Timbuktu. As the history unfolds, I found out that Timbuktu, The “Forbidden City” as it has been named from the time of the crusaders, has always fascinated outsiders. The folklore developed in Egypt about Timbuktu goes back to the fourteenth century during the visit to Cairo by Mansa Mousa, the Emperor of Mali. The Emperor stunned the city residents as well as their King with the fabulous entourage, especially with all the gold he carried. The Wealth and opulence of Timbuktu’s royal court was described and marveled at by visitors as late as the sixteenth century, when the fortunes of Timbuktu plummeted. The opulence was replaced with a new legendary reputation: going to Timbuktu became synonymous with “going to the end of the earth – or to hell”. In between these two epics lies the threat. Timbuktu lost its glory, its citizens lost more than wealth—they lost their liberty as one ruler foreign or home grown, one after the other stifled dissent, plundered the city’s resources, imposed heavy and arbitrary taxes on wealthy traders. It took many rulers and few centuries for the citizen of Timbuktu to extract themselves from the tyranny of its rulers, foreign and home grown. Seven centuries later, Timbuktu is regaining some of its glorious past. In 1988, it was formally declared “UNESCO World National Heritage”. The lesson my mother instilled on me in using the example of Timbuktu is that one must be vigilant, if one is to gain a place in the sun, or in Timbuktu’s case in UNESCO World National Heritage. The residents of Worcester, specifically those of us residing in Worcester Historical District, face the threat of the loss of liberty, put differently we face taxation without representation—pay the tax but have no voice. One should always remember that complacency is not compatible with liberty. Here I would like to remember a lesson given by Dr. Herbert Stein, former Chairman of the President’s Council of Economic Advisers. When asked: “what taxes are for?” His answer: “Taxes are the price of civilization”. We the residents of the Historical District pay our taxes and as taxpayers we have exercised our rights in protesting the expansion plan imposed on us by a manger- council form of municipal government. Our representatives ought to remember that voters can exercise their rights by choosing a form of government that is responsive to those they represent. History had always championed liberty. My next Blog will address this issue as well as the history of the governing structure for the city of Worcester.