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. Roughguide.com), 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.

Friday, July 20, 2012

Saying Goodbye to a Friend

One hardly ever gives a thought to commonly used phrases, salutations and the like. We say good morning when we meet friends in the morning, good night in the evening, goodbye when friends part. I said all of those greetings or whatever one calls them, yet I have never once stopped and thought about what these words conveyed, not to the listener, to the one who uttered them, that is, not until today. Today, I felt the need to say goodbye. I need to tell goodbye to a friend, a friend whom I have lost, but I could not say it, and even if I could, what such a word would convey. On an early morning, I found a message on my cell phone informing me that Dr. William Blake had passed away, not that day, or the day before, but several days ago. I had made a call to Dr. Blake only a few days before asking about his health and set up a time for a visit. You see, I had plans to visit him on the first week of July. When I called and received his voice on the answering machine I thought it was strange, and when I did not receive a return call I thought that something was amiss. I knew Dr. Blake was quite ill, but I had never thought that he would not be there; that he would not defy fate. When I saw him last, few weeks earlier, I had “jokingly” told him: “Dr. Blake, you cannot go before I do”. The echo of that message rings in my heart. It said, “Dr. Blake passed away on May 30th; you know he was quite ill”. Yes, I did know. Dr. Blake, to all of those thousands of patients who have known him, not only was he a great physician and a caring person: for me he was also a great scholar. Dr. Blake was my Physician for over 30 years. I owe him not only my gratitude for his care, but also for the quality of life he has imparted on me. Thirty years ago, he taught me how to listen, a task that is difficult for someone like me—a graduate school professor whose students hang on every word I say. Graduate students, as great as they are, look up to the teacher for enlightenment, and guidance, the teacher is like a preacher, the word the teacher utters is the gospel of the discipline. To them I was the preacher. I talked economics with Dr. Blake. Over 30 years, he not only attended to my medical care needs, but also enlightened me about the way people perceive economists and about what we the economists, had to say. More than thirty years ago, as a professor of economics at Clark University and Director of the Institute for Economics Studies, I had put in place a program called “Conversation With”, where speakers from academia, businesses and governments, especially those in public policy were invited to engage in a dialogue with members of the community. Issues ranging from health care to tax reform and the debt ceiling were aired out; dialogues across the various constituents took place. For ten years the program was in full swing, meeting once a month. Dr. Blake attended almost all such meetings, he has shown acumen in his grasp of economic jargons, and theories, offered us a point of view that needed to be heard and for me personally an appreciation of what others, the non-professional economists have to say. Two years ago, Dr. Blake retired from his practice of medicine due to illness, but thankfully knowing my peculiar reactions to certain foods and medicine, he kindly kept me under his radar screen, offering guidance and suggestions about what course of treatment I should pursue. During these two years I talked with Dr. Blake not only about medical issues but most importantly about economic ones: we talked about the 2008 financial crises, the health care bill: the so called Obama Care, the Euro zone crises, the downgrading of government bonds, the fiasco over the debt ceiling as well as other issues. Indeed, I did post some economic blogs inspired by our conversations. Talking with Dr. Blake made me feel at home, for I too have retired from my professorial duties at Clark University. But a teacher and an author have home only in his work. I began to work on a volume tracing “our discipline’s roots”; a volume showcasing the principles of economics put forth by our forefathers. During one of my visits, Dr. Blake asked me about what my latest venture: “a book about principles of economics”, I said. He asked: “What do you call the book?”, and I put before him the title and what I hoped to accomplish: “What Economists Do: A Journey through History of Economic Thought: from the Wealth of Nations to the Calculus of Consent”. “Well”, he said, “it is time someone put in ink what you fellow actually do”. He was kind enough to offer to read the chapters as I wrote them, offered his editorial talent as well as provide comments on what I had put down. Dr. Blake read, edited and took issue with my presentation especially the use of economic jargon and kept me going in earnest to finish the volume. Even when I felt ill, I had to pull myself up for he was there waiting for my next installment, encouraging me to get to the last chapter—chapter 7—where I put down my thoughts as to what economists do. I was distracted from completing this chapter, as I had a more urgent task to attend to, so instead of finishing the writing of chapter 7 by mid-May, I put it off until the end of June. I mentioned to Dr. Blake that he shall have it the first week of July, and I did. I mailed the chapter, but then I had no response. I have taught Economics for some forty years, written several books and articles, but this volume had a special meaning for me. Talking about the foundations of my discipline with Dr. Blake made me aware of a human side to economics I have seldom seen. My highest reward was in seeing Dr. Blake shake his head in recognition of my efforts in spreading the gospel of my chosen m├ętier. My one regret is that Dr. Blake was not there to read what I have put down as to “What Economists Do”. Nonetheless, I know in my heart that he would have liked what I had to say. Dr. Blake, you shall be missed: that I can say, as I know what is to be missed. But to say “good bye”! Merriam Webster Dictionary (p. 527) defines the term goodbye as: “God be with you “, a concluding remark or gesture at parting. So I will say: Goodbye My Friend. Maybe someday, I shall know. Attiat F. Ott Emeritus professor: Clark University, Worcester Massachusetts. President: The Institute for Economic policy Studies, Worcester, Massachusetts.