Passing the Baton

Only a few years older than I was at the time, my son Jonathan is making his first business trip to Japan and China (having traveled extensively on his own in those regions, and having lived there as well).  The confluence of his eduction, business experience, and language abilities has led to this moment.  I had no such language skills and whenever I traveled in Japan I needed a translator.  This left me at a disadvantage when it came to negotiations which usually entailed a team of Japanese executives on the one side and me on the other, they free to converse among themselves in my presence without my being able to understand a word.  It was the collective "them" against lonely "me."

While my son is there on a business mission that doesn't directly involve negotiating, his language abilities are key to his success there.  He reports on the number of Japanese women that are now in the executive ranks, a far cry from when I first went there in the 1970s.  The photograph below (circa 1977) shows me in a meeting with all male executives, a translator to my left.  When tea was served, it was brought by women but they were not allowed to cross into the conference room -- a sacred domain of the men -- instead handing us the cups at the door.  Oh, how things have changed there.  The Japanese are finally becoming a more heterogeneous society.

From the depth of my files, I unexpectedly came across the speech I had referred to in this entry about a trip I made at the turn of the New Year, 1990 (I had presumed the speech lost to time).

I've reread that speech and am amused by many of its observations.  Japan was the economic juggernaut at the time, reveling in a sense of exuberant nationalism that comes with that territory.  To an extent I bought into that then, but Japan since --- when the Nikkei 225 reached its peak of 40,000, certainly a genuine case of irrational exuberance -- has paid an economic price for that incredible bubble, and, making matters worse, their government "zigged" (raising interest rates) when it should have "zagged" (monetary accommodation).  It only made their recession, and deflation a multi decade affair.

They too have been impacted by the economic rise of China and the creative destruction of the Internet.  When I review this speech which I delivered to Tokyo's Rotary Club, consisting of executives of leading Japanese companies at the time, I'm now fully conscious of those two giant forces no one at the time could have fully anticipated. I'm also acutely aware of how China is now in the position of Japan -- an economic juggernaut that is also flexing its nationalistic muscles.  Just witness its recent landing on the moon, a highly symbolic statement of where it stands today and the rise of its navy.

And the Internet has forged forces of incredible change, breaking down trade barriers that had stood for scores of years, "flattening" the world's labor forces, allowing manufacturing to follow where it might be done best and cheapest.  When one looks at the components of a car or a cell phone, one needs a world map to track the many places they come from.  And the impact of the Internet on the publishing industry in which I worked for decades are self evident, rendering some of the observations I made in the speech about the future of huge multinational publishing conglomerates more a figment of past imagination.   Google and Amazon rule!

So, completing the entry I wrote in March, 2011, I can now add that speech itself which I made at the end of 1989.  Still many of these issues exist, although, now, the trade battle, and our trade deficit, relate to China.  The more things change, the more things do indeed seem to stay the same.  Over to you, the next generation!

Speech to the Tokyo Koishikawa Rotary Club on December 29, 1989

by Robert Hagelstein

It is truly an honor for me to stand before you today and to have an opportunity to discuss Japan and United States economic relations as viewed by an American academic publisher. By Japanese standards, our business is a fledgling one, established only 23 years ago. During that time, we have grown both internally and by acquisition and we have very successfully sold our books in Japan. This sales success is attributable to the excellent work of our Japanese business partner and the continued expansion of Japan's fine educational system.

Thus, I have had some first-hand business experience dealing with Japan, and I have watched it emerge as a leading economic power. One of the reasons I am particularly honored to speak on the topic of Japan-U.S. economic relations as the decade closes, is because we may be on the eve of a new stage in world economic development. Not only will there be an economically unified Western Europe in 1992, but the recent move away from communism in Eastern Europe and the embracement of democratic and capitalistic philosophies, even in the Soviet Union, will create a completely new political environment and new economic opportunities.

Unfortunately, with the opportunities come the danger of political instability, and we need to make the right decisions. What evolves over the next decade very much depends on whether Japan, the economic community of Europe, and the United States trade in harmony or whether splinter groups succeed in creating an environment of mutual suspicion.

Therefore it is important that Japanese business leaders, like yourselves, understand how many Americans perceive past Japanese growth to an economic superpower status and how Japanese relations with the United States are perceived. Incidentally, I do believe that many of these same perceptions are gaining ground in the European community, an arena where Japanese exports and Japanese investments are becoming significant.

But please let me underscore that I am talking about perceptions, how people think things are, not necessarily how they really are. If steel is the raw commodity most widely used in the business of selling automobiles, ideas are the main commodity of my industry, publishing. Therefore it is fitting, although perhaps unfortunate, that two recently published books may have a significant impact on U.S. - Japan economic relations. The first, The Japan Which Can Say No by Akio Morita and Shintaro Ishihara, is not available in the United States except in a bootleg translated edition, but it is already having quite an effect. The book is seen as a strong expression of burgeoning Japanese nationalism which views America's present trade dilemma as being rooted in bigotry and the decline of the American will and competitive ability. It argues that Japan can say "No" to any American suggestion by simply playing the U.S. off against the Soviet Union for technology components.

The second book that will undoubtedly have an impact on American policymakers and the media is one that was recently published in the United States, and which was named one of the outstanding business books by Business Week, The Enigma of Japanese Power by a Dutch journalist, Karel van Wolferen. This book argues that Japan is actually an oligarchy and while Japan professes to be engaged in free market trade and to have democracy, it is run by a tiny group of huge mega-corporations. These corporations have access to cheap capital and compliant labor, and they are protected by the government. Van Wolferen also contends that the Japanese standard of living is not much above that of some Eastern European nations, even though the Japanese worker is enormously productive.

As I said these books may very well have a negative effect on how Japan is perceived by the broader American public; they may give intellectual support to those who want to raise barriers to Japanese imports and Japanese investments in the United States. While even the vociferous protectionists recognize that Japanese workers are among the most productive in the world, and that Japanese industry has succeeded all too well in producing well engineered durable consumer goods, many Americans perceive that the transformation of Japan in the decades after 1945 into an economic superpower occurred, not because of hard work, sacrifices and ingenuity, but, rather, because the United States and Western Europe were left with the responsibility to blunt the threat of Communist aggression, thereby having to put extensive human and monetary resources into defense.

Even today, while the United States spends six percent of its gross national product on defense, Japan spends only one percent. Many in the West cite such figures (as well as the comparatively low--at least until recently--levels of Japanese foreign aid to developing nations) as one of the primary reasons for Japan's rise to economic power. By having been able to concentrate on internal industrial investment and foreign trade, Japan is perceived to have captured--unfairly to some extent--our overseas markets and thereby transforming itself into the economic power it is today.

The argument continues that while the United States was forced to play the role of the world's policeman, making the huge miscalculation of becoming involved in the Vietnam War in the 1960s and then having to pay for it in the 1970s, Japan, under the leadership of Prime Minister Tanaka, methodically pursued its strategy of building exports. Automobile exports to the United States, for instance, rose from some 381,000 units in 1970 to 2,527,000 by 1985. By 1985, the U.S. - Japanese trade balance, which had been tilted in the U.S. favor in the early 1970s, became a U. S. deficit of some $46 billion.

Fortunately, as I said at the onset, we may well be on the eve of a new stage of world economic cooperation, and the widely held negative perception of how Japan got to where it is today may become far less important. The major changes, of course, are the rapid disintegration of the Eastern European military bloc and the continued steps toward military disengagement and disarmament. If these changes continue, tremendous amounts of capital and technical manpower can be shifted from creating new generations of advanced weaponry, and maintaining large military forces, into devising new generations of industrial and consumer products as well as rebuilding America's infrastructure, from schools and-hospitals on the one hand, to highways and housing on the other.

You and I recognize, that these economic and political changes will not be completed overnight. But they are underway, and they will help to strengthen very significant economic changes already occurring in the United States.

This change began when America's self-image reached its nadir in 1979. American military and civilian personnel were seized by radical elements in Iran and held hostage for more than a year. The Carter administration appeared to be impotent and American feelings about themselves were at an all time low. The United States was completing a decade of inflation, stagflation, and high interest rates. Most of this pain was inevitable, as the United States had to pay for its policy of guns and butter in the 1960s and for the enormous cost of putting a man on the moon.

When Ronald Reagan became president in 1980, the stage was set for a significant turnaround. President Reagan promised to lower the inflation rate and restore American values while maintaining a strong military presence, and to promote capitalism throughout the world. It is remarkable that, in his decade, he accomplished many of his objectives with the very notable exception of balancing the federal budget.

We also began to recognize that American schools, in contrast to Japanese schools, were graduating poorly trained students, who, in contrast to Japanese students, were inefficient workers. American industry, also in contrast to Japanese firms, could not design quality goods, could not organize their work forces efficiently, and would not invest for future growth.

However, it seems to be coming clear, at least to Americans, that our own "American bashing" has gone on for too long. Paul Craig Roberts, who is with the Center for Strategic and International Studies in Washington, said that it is America's own self-loathing that is giving Japan the mistaken message that we are really a declining economic power. He said that if we, ourselves, give the mistaken message that the 1980s were a failure from an American economic perspective, we will be failing to recognize the stunning accomplishments achieved in this decade by the United States. It will also be unlikely that our trading partners will also recognize those accomplishments.

In fact, while there are still many problems, such as the trade imbalance, lack of savings and a growing national debt, counterbalancing these are improvements such as more productive workers, lower levels of unemployment, stable inflation, and leadership in industries that have become truly global: software, entertainment and service industries. For instance, American engineers may have transformed the entire debate over high definition television, an area perceived in the United States to be a prime area for technology spinoffs in the 1990s and beyond, by devising a digital, not analog, approach. And even in the automobile industry, Detroit is now being seen, at least in the United States, as able to design and build a moderately priced and well-engineered durable product. Confidence in the long term prospects for the American economy is growing.

Perhaps of equal importance, in the fall President Bush convened a domestic summit conference in Williamsburg, Va., only the third such domestic conference in American history. It was specifically concerned with finding ways to improve American education. While no tangible improvements in education have emerged from that conference yet, as with reductions in military spending, this meeting could be the beginning of a movement that will have a significant impact on American economic growth in the 1990s.

Speaking in regard to my own industry, publishing, I believe that the global opportunities will also be significant in the coming decade. In the 1980s, two very significant trends emerged: one, a trend of consolidation through acquisitions by large multinational firms and, two, an explosion of information publishing which has now become even more dominant in the U.S. than trade publishing. In fact, by 1988, according to an estimate prepared by Veronis Suhler & Associates, gross expenditures on business information services was 19.7 billion dollars in the United States, surpassing book publishing's 18.4 billion dollars. Multinational companies, for example Reed Communications, Pearson, International Thompson, Elsevier, and McGraw Hill, are positioning themselves to become dominant forces in the 1990s. These companies are dedicated to information and scientific publishing. Meanwhile, the trade publishers have been teaming up with entertainment and consumer magazine conglomerates. John Suhler recently speculated that Japanese publishing firms may soon begin to acquire Western publishing properties, following the lead of Japanese investment in recording and film companies. Global giants will emerge in the publishing, entertainment and communications industries.

I have talked about how Japan's economic stature is perceived, how the United States (and perhaps others as well) perceived American economic power in the 1980s, and how Americans are beginning to perceive a stronger economic future for themselves in the 1990s. How Japan is perceived as an economic superpower in the 1990s is something that the leaders in this room can affect.

With a reduction in international tensions, I suspect few in the United States and Western Europe will be calling for Japan to shoulder the burden of increased military spending. But you can anticipate that calls for Japanese aid to the developing world will increase. Then calls for Japan to streamline its distribution system, to open them more to Western influences and to diminish the influence which its large business cartels have will also increase. But, by working to create the same conditions and environment for foreign goods and investment that you enjoy, or that you want for your goods and investment abroad, you will ensure that Japan is recognized as a responsible economic superpower. You will also help to ensure that Japanese workers will enjoy more of the material rewards of their decades of hard work.

Indeed, there are epochal opportunities in the 1990s and we must all decide how we can develop common interests and common goals. If the leaders in this room apply the same ingenuity and hard work you applied to transform Japan, you can be a very positive force in transforming U.S. - Japanese business relations and the world economy. Thank you.

Engineering Failures and World-Wide Consequences

The similarities between the BP oil spill disaster in the Gulf of Mexico and the ongoing nuclear Fukushima Daiichi crisis in Japan are striking.

Both were unimaginable before they happened. Both the nuclear facility and the oil rig had what was thought to be containment and shut down protection, as well as redundancy features, in the event of a serious accident. In each case, these systems failed. The response to each event was similar, a series of improvisational Hail Mary attempts to mitigate the damage, resembling a disaster movie in slow motion. Each catastrophe has long term consequences to the earth's ecosystem and human health, way beyond the immediate geographic area of its origin. The lack of contingency planning in Gulf crisis is evident again in the Japan disaster.

Surely, given the facts of Chernobyl and Three Mile Island there are commonalities with Fukushima Daiichi. No doubt the first line of defense in the construction of a nuclear facility or a deep water drilling rig has to be containment and redundancy features and bulletproof regulatory oversight, first at the national level, but perhaps with international participation as well. Too bad the UN is not a more effective institution. It needs to be in this area.

Any country that constructs these engineering marvels, for drilling oil in the deepest of oceans, or generating nuclear power, facilities that have world-wide consequences when they fail, should be required by the world community to maintain a national task force with readily available and deployable equipment to deal with catastrophic failure (rather than totally relying on the company responsible such as Tokyo Electric Power or BP). How much time was lost in dealing with Fukushima Daiichi when the tsunami destroyed its redundant pumps and power generating equipment?

Perhaps this may be oversimplification, but if we have the technology to create these engineering leviathans, we should also have the resources for a nuclear (and deep water drilling rig) immediate response task force, a small army trained for this once in a generation disaster, with the necessary deployable equipment (such as generators that could have been airlifted immediately to the Fukushima Daiichi site allowing the resumption of core cooling systems). We only need the universal will. Meanwhile, we all helplessly watch this terrible disaster unfolding in Japan.

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Why Johnny Can't Compete

The horrendous images of the Japanese earthquake and tsunami haunt my consciousness. We have friends there and as I said in an earlier post, our son is presently traveling there (he is safe and has been able to move south more out of harm's way).

Our prior travels in Japan are cherished memories. We developed the greatest respect for the Japanese people, a nation which seemed to reach its economic zenith during our stay as the New Year dawned in 1990. The Nikkei Dow touched 40,000 and Japan was booming. Our domestic press was full of stories about the Japanese having an unfair trade advantage and consequently how America was no longer able to compete with this economic juggernaut. Japan was said to be destroying American industry and would be buying up all our assets. Only a couple of months before the iconic Rockefeller Center complex was purchased by Japan's Mitsubishi Group. "Made in Japan" went from a joke in the 1950s to an economic threat by the end of the 1980s.

The dire forecasts concerning Japan faded over the next two decades as boom turned to bust and it fell into an ongoing deflationary spiral. But today we are saying the exact same things about China's unfair trade advantages, China buying up our assets and holding our debt, almost as if we are victims of outside forces and bear no responsibility for our own economic predicament.

While in Japan in 1990 I was invited to deliver a speech to the Rotary Club of Tokyo Koishikawa on the subject of US - Japan trade relations. When I returned home, I was asked to write an article about our experience, which for one reason or another was not published, probably because its contents did not blame Japan for our own failures.

I think the Japanese economy will recover from this tragedy, although it will take years. Our heartfelt hopes for recovery are with the Japanese people, and for a minimal loss of life and containment of what is appearing to be a serious threat from damage to several of its nuclear facilities. Please consider a donation to the Red Cross for those devastated in Japan.

I recently came across that unpublished article and was not surprised about how little has changed. One now only has to substitute "China" for some of the examples I used for Japan. Our fundamental problem about successfully competing remains: education. The irony is our best graduate schools are attended by some of the finest minds from overseas, but upon their graduation, we give them a diploma without a green card and send them on their way home. But the primary failure here is our public school system, the same failure I decried twenty plus years ago. Nothing has changed and it could be argued that they have worsened.

Given the folly in Wisconsin and the rhetoric of some of our politicians, one would think that our nation is going broke because we overpay our teachers. Of course the converse is true. Why go into teaching when one can become a master of the universe at an investment bank and rake in bonuses? We need great teachers and a better public education system to begin to reverse a continuing decline in our students' performance. "The three-yearly OECD Programme for International Student Assessment (PISA) report, which compares the knowledge and skills of 15-year-olds in 70 countries around the world, ranked the United States 14th out of 34 OECD countries for reading skills, 17th for science and a below-average 25th for mathematics."

The following is what I wrote in January 1990, in many ways as relevant today as it was then:

Why Johnny Can't Compete

In my capacity as president of an academic and professional book publishing company I have had the opportunity to visit Japan from time to time over the past 20 years. Even though our publications are in English, Japan has become our largest market outside of the United States. It has been an interesting sideline of these trips to be able to compare the economic, social, and educational progress of Japan with what I observe at home.

My most recent trip to Japan occurred over the Christmas and New Year holiday season, when many westerners who live in Japan return home, and Tokyo's hotels are given over to craft exhibits and festivals in celebration of the New Year. The Japanese New Year holiday is a major one: people stop working for nearly a week to greet the new year at shrines and temples, and to pay respect to their families. I made the trip this time with my wife and 13-year-old son, and we felt privileged to be there at this special time of year.

By prior arrangement with my Japanese host (the head of the company that distributes our books in Japan), I was to give a speech to the Rotary Club of Tokyo Koishikawa on the subject of U.S.-Japan trade relations as perceived by the American people -- a subject of great concern to the Japanese. I was aware of the symbolism of making such a speech at the end of this past decade. Japan has emerged as a leading economic power, while we, ourselves, perceive our own position to be in decline. While I made an effort to put what America had accomplished in the 1980's in the best possible light and to emphasize how the U.S. and Japan can become equal trading partners with the new opportunities in the 1990's, particularly those created by the decline of communism in Eastern Europe, in retrospect my words seem hollow. I returned with the realization that if we are to truly compete with Japan as the 21st century approaches, our nation will have to undergo radical changes by rediscovering many of the values embraced by Japan.

There is a cultural basis for Japan's success. The resolve to work hard, to be productive, to be well-educated, to respect one another, to be part of the team, and to be patient in attaining goals is the very essence of their culture. It little matters what one does, it only matters how well the work is done. In Japan, the marked contrasts to minimal working standards we have become conditioned to accept are everywhere. Is it no wonder we have difficulty in competing with a society that prides itself in being the best it possibly can be?

In a discussion with my host about such issues he asked, "Why is there a drug problem in the U.S.? Japanese people do not understand why such a problem should exist." "A feeling of-hopelessness," I replied. Thinking about that discussion, I believe that our future success or failure in restoring hope might be at the very core of competing with Japan. This can only be done by completely restructuring our educational system and giving it our highest societal priority.

Quality education is truly available to all in Japan and it is widely perceived to be desirable. Japanese teachers occupy a high status in society and are well paid. Illiteracy is virtually unknown. Even peasants were able to read and write by the nineteenth century. Japan ranked among the most advanced countries of western Europe in educational excellence.

Contrast this to our present situation. Our minimal educational standards have led to wide-spread illiteracy and millions are basically unemployable. The recently released report by the Secretary of Education estimates that 60% of our nation's 11th graders are barely able to read the most rudimentary documents. How and why does our society tolerate this perversion? Only by radically improving our educational system will we be able to ultimately remove the pervasive hopelessness that corrodes our land, drugs our children, and produces the type of wide-spread violent crime that is virtually unknown in Japan.

So, while we are urging Japan to make cosmetic changes to facilitate better U.S.-Japan economic relations, we must make mammoth changes to compete in the long run. What is needed is the equivalent of President Kennedy's pronouncement in the early 1960's that our national objective was to put a man on the moon by the end of that decade. Do we have the moral fortitude to declare that, as a national goal, we can and will create a public education system which is second to none by the end of this decade?

Only until we restore hope, the expectation that one generation can be better off than the previous one and people can find meaningful employment opportunities -- the very ideals which made this country the great melting pot of the 19th and early 20th centuries -- will we be able to successfully compete with Japan in the 21st century.

Things are by no means perfect in Japan. Their dedication to work borders on workaholism; individuals may not have the same degree of freedom to which we have become accustomed. However, for years Japan has been accused of copying the best of western business ways and technology and then improving upon them. In dealing with our economic dilemmas, the time has come for us to adopt some aspects of Japanese culture and, in so doing, rediscover many of the values that once made our country great.

Japan Needs Our Help

Here is the Red Cross site for helping Japan deal with a catastrophe of unimaginable enormity.

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Forces of Nature and Us

We woke up this morning to the news and videos of the powerful earthquake in Japan and the ensuing tsunami and our first thoughts were of our son who is presently traveling in Japan. We were not even sure where in Japan he was at the time. I reached for my phone hoping he would have the good sense to email or text knowing we would be concerned and there it was: "Re: I'm Fine." He is in Tokyo and although he felt the quake, he is in a new building, built to code, so we were relieved.

We were in a 4.8 earthquake once, staying at Tokyo's Okura Hotel, no comparison of course to the horrific magnitude of the one that just hit north of Tokyo, but enough to frighten most hotel occupants from their beds and into the hallways. A quake of 8.9 is unimaginable.

Life is such a series of about-faces. Yesterday as a cold front swept through Florida, we briefly had high winds and torrential rains. It blew our patio furniture around. Then came an amazing tranquil sunset right out our back door. All is well with the world. And, now, a catastrophe of still unknown dimensions in the Pacific. Always hoping for the best, but while nature can invoke its beauty it also underscores life's fragility.

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Tale of Two Economists

In an ironic twist, an economist turned entrepreneur writes a rigidly academic critique, The Recklessness of Quantitative Easing, and an academic pens an anecdotal piece of writing on a different but related subject, I Can Afford Higher Taxes. But They’ll Make Me Work Less.

Recklessness by John Hussman, whom I’ve quoted before in this blog as I consider him to be one of the clearer thinkers about the uncharted territory we call today’s economy, argues that the Federal Reserve’s announced intention to pursue a second round of QE is to drive “interest rates to negative levels in hopes of stimulating loan demand and discouraging saving” and to “increase the supply of lendable reserves in the banking system.” But will this increase output and employment?

Hussman thinks not as “interest rates are already low enough that variations in their level are not the primary drivers of loan demand.” There is simply a lack of confidence – both for the consumer and businesses -- that they will have the income in the future to pay off loans. So low or even negative interest rates is not a barrier and “removing a barrier allows you to move forward only if that particular barrier is the one that is holding you back (the economic term being "constrained optimization" as he explains.)

“Instead, businesses and consumers now see their debt burdens as too high in relation to their prospective income. The result is a continuing effort to deleverage, in order to improve their long-term financial stability. This is rational behavior. Does the Fed actually believe that the act of reducing interest rates from already low levels, or driving real interest rates to negative levels, will provoke consumers and businesses from acting in their best interests to improve their balance sheets?”

The effect of all the talk about QE2 has been to propel gold to new highs and to further erode the value of the US dollar as the Fed dramatically expands its balance sheet. “But once the Fed has quadrupled or quintupled the U.S. monetary base from its level of three years ago, how will it reverse its position?” Hussman’s answer is that many years down the road it will be forced to sell off the instruments it is buying, driving interest rates much higher as foreign buyers might be absent from such auctions, and undermining whatever recovery might have begun of its own accord, just further accentuating the boom bust cycle.

He has constructive suggestions, fiscal responses that might include “extending unemployment benefits, ensuring multi-year predictability of tax policy, expanding productive forms of spending such as public infrastructure, supporting public research activity through mechanisms such as the National Institute of Health, increasing administrative efforts to restructure debt through writedowns and debt-equity swaps, abandoning policies that protect reckless lenders from taking losses, and expanding incentives and tax credits for private capital investment, research and development.” Of course many of these require the cooperation of Congress and watching the mud slinging of the mid term elections, one has to wonder.

But Hussman’s article is must reading it its entirety, especially if you are an individual investor and wondering how to position a portfolio in this strange new economic world. The net effect of the Fed’s actions, besides the obvious nearly zero return on any CD you might buy, is to “force” the investor to move into riskier assets commodities in particular and equities as well. One could also “play” the decline of the dollar by investing overseas or in US multinational companies, which derive a majority of their income abroad. But to what extent QE2 is already baked into the prices of these riskier assets is anyone’s guess. There is also the possibility of a more protracted deflationary period than anyone can imagine right now, with the ongoing real estate crisis and high unemployment having a continuing impact. There seems to be a heavy reliance on the Fed’s future actions leading to an idyllic outcome. I think Hussman would disagree.

One of his suggestions as noted is “ensuring multi-year predictability of tax policy” which leads me to the other economist, Professor Mankiw who is professor of economics at Harvard and was an adviser to President George W. Bush, whose administration has to share some if not a majority of the responsibility of our present economic morass.

Professor Mankiw op-ed piece in the October 9th New York Times, through a convoluted and highly subjective mathematical exercise, argues the proposed tax increase on the 2% wealthiest Americans – some attempt at least to close the budget abyss -- will lead to such people not working much, including, alas, movie and rock stars and even novelists! Outraged, and disappointed that I might not see another Harrison Ford movie, or see my first Lady Gaga “concert” or that Jonathan Franzen will put down his pen, denying us his next novel in protest, I immediately shot off a letter to the editor of the NY Times business section, in which Mankiw’s article appeared. Some very good letters were published in response, but not mine. The nice thing about a blog is I can publish my own rejections! So here is what I wrote:

While it is hard to argue with Professor Mankiw’s math (“I Can Afford Higher Taxes. But They’ll Make Me Work Less”) of what his incremental income might become thirty years in the future in a halcyon tax-free world, his conclusion that movie stars, novelists, rock stars, and surgeons might work less if taxes are increased is based more on his own anecdotal view of working. By his own admission: “I don’t aspire for much more than a typical upper-middle-class lifestyle,” and that’s fine, but don’t blame the tax code for declining his next free lance opportunity. If he should climb down from his Ivy tower and look at the real world with real unemployment around 15%, people trying to work to simply support their families and hold onto their homes rather than handing down wealth to succeeding generations, he might have a little more empathy for a progressive tax code that did not seem to destroy incentives during the Clinton years, the last years in which our country actually had a surplus. And even Warren Buffett and Bill Gates see the fairness in having some sort of an inheritance tax.

Maybe the Times found it too preachy or politically oriented. Perhaps I should have concentrated on the nature of work itself. Remember Hussman’s comment about constrained optimization, that removing a particular barrier only has a beneficial impact if indeed it was that particular barrier holding you back? If Mankiw is entitled to personalize his argument, so can I. I worked as hard when in a higher incremental tax bracket as I did when they were lowered. Why? I loved work, simple as that. And, that is what is missing not only from Mankiw’s formula but how our society looks at work and values workers.

I remember my first visit on business to Japan in the 1970’s, the taxi cab drivers waiting at the hotel for a fare, their cabs gleaming as between fares they would polish and clean their cars. The refuse collector doing his job well was as highly valued by society as a company executive. Japan today, of course, suffers some of the same maladies as ours, with a twenty-year head start on the phenomenon of deflation, so perhaps that has taken its toll on their workers. Somehow, as a society, we need to value all workers and restore work as something to be embraced.

Of course we don’t always have an idyllic choice of the work we do in our lifetimes, but we do have a choice of doing it well or not and by choosing the former, we open a path to finding it meaningful. I’m sorry Prof. Mankiw chooses whether he will write an article or accept an invitation for a speech merely based on what his incremental income bracket might be, although I think most people would envy that he actually has a choice.

I like what the great short story writer, Raymond Carver, wrote thinking about a friend who admitted he wrote something just to make a deadline and make a buck, knowing he could have written something better if he took the time. “If writing can’t be made as good as it is within us to make it, then why do it? In the end, the satisfaction of having done our best, and the proof of that labor, is the one thing we can take into the grave. I wanted to say to my friend, for heaven’s sake go do something else. There have to be easier and maybe more honest ways to try and earn a living. Or else just do it to the best of your abilities, your talents, and then don’t justify or make excuses. Don’t complain, don’t explain."

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Wanderlust

Our younger son, Jonathan, is a traveler, while our older son’s avocation is that of a writer (see Chris’ Why am I a Writer at the end of http://lacunaemusing.blogspot.com/2008/03/words-do-this.html).

It is hard to believe Jonathan is now 31 and Chris is 43 as it seems like mere moments have passed between these two photographs, the first Jonathan looking up in admiration of his older brother in the early 1980’s and the other of me flanked by them just this last Xmas holiday.

This summer, between jobs in private equity, Jonathan decided to take a trip he's always dreamed about. Last week he flew to Brussels and then was on his way to Egypt, Giza and the Pyramids, Cairo, Jordan, Petra, Lebanon, Syria (Damascus), through Israel, Bulgaria, Turkey, onto Greece where he is boarding a boat for a cruise of the Greek Islands, then to India, Delhi, to Kathmandu in Nepal, and two weeks traveling by boat, bus, jeep, and yak all throughout the northern cities of India, Agra, etc., ultimately hiking through the Himalayas. Whew! Most of his travel is being done with frequent flyer miles, a backpack and, except for parts of India, on his own. Talk about Wanderlust!

I suppose this is indeed the time to undertake such an ambitious trip before the responsibilities of a new job and perhaps marriage and family intercede. I never had those options, although my work entailed a number of international trips and contacts. In fact, on some of those trips I would bring my wife, Ann, and Jonathan. One I think he found especially impressionable was a trip to Japan when he was only twelve. The Japanese library market sought our professional and scholarly books and so my travels occasionally brought me there and I became close to the Japanese booksellers, particularly our distributor. My Japanese host and the head of the distribution company, Mitsuo, admired Jonathan’s inquisitiveness and took him under his wing. We travelled with Mitsuo and his wife to a spa hotel northwest of Tokyo where Naruhito, the Crown Prince of Japan, had stayed. There on the eve of the 1990 New Year, we were treated to a special weekend where we were the only Westerners, sleeping on handcrafted tatami mats, eating traditional Japanese food. My host challenged me to guess the identity of the dinner appetizer – something that tasted like steak tartar to me. He laughed when he told me it was raw horsemeat, a delicacy in the region. Luckily, I had sufficient Sake to wash it down. Not so at breakfast that consisted of seafood, rice, and fermented foods. Jonathan ate adventurously.

The high point of the weekend was the spa. First indoors we had to bathe sitting on a small stool, using a bucket with water, soaking and scrubbing ourselves until clean. Then, with nothing but a bathrobe, we walked outside into the cold night air, with snow on the ground, disrobed, and plunged ourselves in the hot springs. A bamboo curtain separated the ladies from the men. We could talk to our wives but not peek. Jonathan took to this so naturally while I had to be coaxed into the hot pool, simply because the temperature difference was so great.

In fact in two short weeks, Jonathan was beginning to find himself around Tokyo with little difficulty, using public transportation, and we let him explore a little. Ann and I remember sitting in our hotel room at the New Otani Tokyo, after he had left to go to the Ginza to see the latest electronics, watching him from our 30th floor window, a little speck on the street, crossing a bridge to the underground. Amazing we thought (perhaps as much surprised by our permissiveness as by his courage).

So it is no wonder that as a student at Bates College, Jonathan choose to spend his junior year abroad, living in Kyoto with a host family, attending Doshisha University, immersing himself in Japanese. We visited him there and were favorably impressed by his rapidly developing language skills as he took us to Temples and local restaurants. Today he has a good working knowledge of the Japanese language and of course the culture. Immediately after college he again returned to Japan, initially with the thought of job searching there, but, having mastered Japanese, Jonathan was intent on learning more about Asia, particularly China, so he choose to teach English in Guanjo, China and in so doing, developed conversational abilities in Mandarin. Several years later he returned to China to complete his MBA, finishing his last semester at Beijing University. By this time, his Mandarin was as fluent as his Japanese.

While working at a major financial firm for several years, he planned his vacations for other points in the Far East, including Viet Nam and Cambodia, always choosing the more challenging trips to the leisurely ones. So it is no wonder that given this new two month window, he has planned a demanding itinerary.

A little more than ten years ago he turned 21. At that time I wrote him a letter which I still stand by today. It almost sounds prophetic.

Dear Jonathan,

Today you are 21. There were other watershed years, your 13th, your 18th, but, for some reason, this is the really big one -- at least from my perspective. Why? Maybe, symbolically, it marks the true demarcation between dependency and non-dependency and, therefore, has as much meaning to Mom and me as it does to you -- as you move away from our lives and into your own. In other words, your 21st is also a reflection on us and the roles we have played while you were growing up.

I feel a deep sense of sadness in one respect. I could have been a better parent, maybe had a better relationship with you. In my defense, though, the time, which I thought, was so timeless, suddenly disappeared and here we are at this moment. In my next life, maybe, I will be more conscious of time and how fleetingly, even suddenly, it passes. I held you in my arms one minute and the next we touch mostly in cyberspace.

But, enough about my perspective as the best thing about turning 21 is something you might not think about much: the future. In many respects I wish I could skip ahead for one moment and see your life when you are my age. The possibilities, the possibilities.... And, it's all about choices -- you'll have many more than we had but, still, you have to make the choices. These relate to not only career tracks but also ethical, behavioral, and life style choices. I am not going to sit here and say anything about what you should do but I will note that these choices are being made every day by you whether you are aware of them or not. The Gestalt of those choices is the person you will become and the life you will lead. May it be a happy and productive one.

It is only fitting, I think, that you are going off to Japan in a few days. What a start to becoming 21. Leaving the cocoon of your childhood and going out into the world. But, your Mom and I will always be there for you -- even after we are not there. May you always feel that love. I gave you a poem, once, by Robert Mazzacco. No doubt you read it quickly and it became one of those victims of the moment. I'll close this note quoting that poem. I could never say it any better and I admire the ability to say something so profound is such small space:

Dynasty
Family voices; you still can hear them,
ever so dimly, there in your own voice:
your father's voice, even your mother's voice.

The older we get
the more you'll hear them,
though no one else does.
Just as you still can see them, all over
your body, though, of course, no one else must:
family scars and family kisses.

- Robert Mazzacco