No Fertilizer Needed for The Constant Gardener

Well, my wife prevailed upon me to see The Constant Gardener this weekend. How can I say this gently: Don’t waste your money. A new tuberculosis strain is wreaking havoc across Africa, you see, and a corrupt pharmaceutical firm has developed an effective treatment that, sadly, has the unfortunate side effect of killing many of those taking the drug. We know this because UN aid workers in Kenya, using only the most rigorous of statistical analytic tools, say so. And so the poor Africans killed by this drug are secretly buried in lime pits, while the official records of their lives are expunged. Only Soviet-style airbrushing of photos failed to have been included. Meanwhile, the starlet---Ms. Rachel Weisz, aka Tessa Quayle in the film---learns that the evil pharmaceutical firm, aided by some corrupt British officials, is covering up the obvious evidence of the drug’s deadly effects because fixing the formula would cost millions and take considerable time, during which the firm’s competitors could create their own effective drugs that would not kill people, thus cutting into the corrupt firm’s profits, etc., etc. And this perfidy makes sense because the epidemic is likely to spread worldwide, creating a large demand for the drug, and suppression of the deadly side effects will guarantee a huge market in Asia and the West. It’s all about the money, you see.

Got that? Anyway, the evil pharmaceutical firm through its allies in Kenya arranges for the murder of the fair Tessa and her ally, a Kenyan doctor both humanitarian and seemingly the only man in the country both unpoor and uncorrupt, before they can expose the plot. After all, that is not the kind of direct-to-consumer advertising that sells medicine. And so Tessa’s loving husband Justin picks up the torch, exposes the evildoers for what they are, and then allows himself to be murdered by the same nefarious forces so that he can be together again with his beloved Tessa in heaven. Who says that Hollywood is not religious?

Well, if Big Pharma is motivated only by money, why would they expose themselves so crudely to the plaintiff’s bar in the West? After all, people would start dying in the West also; can we even imagine the sums that the juries would award in such cases? And would the FDA and the other regulatory agencies in Europe simply accept the results of such African “clinical trials?” And what about the brand name capital of the offending pharmaceutical firm? Does it not have a profit motive to protect it by marketing only drugs the benefits of which justify the downside risks?

This flick is so silly—-so Michael Moore-like in its excess and mendacity—-that the pharmaceutical industry has little to fear from it in terms of adverse p.r. It’s good thing, as Martha might put it, when those out to destroy capitalism prove themselves so crude.

Surviving a Housing Bust

Returning to the highly controversial topic of the housing boom and potential bust in some areas, as in all good conscience I simply must, yea must, we find a very good article on the housing price situation and what to do about it, from bankrate.com by way of Yahoo! finance. The article points out that certain areas of the country really are in line for price corrections, then it gives several good tips about how to weather any changes:

Whenever you're upside down on a car because you owe more than it is worth, the cure-all is to literally drive your way out of it by keeping the car until the loan balance falls below the market value. Be prepared to do the same with a new-home purchase. If your feeling is that you're going to move in three years, it is time to make plans for other contingencies. Can you afford a mortgage that offers a fixed rate for a longer period, such as a 10/1 ARM or a 30-year fixed-rate mortgage? If not, continue renting. The transaction costs of buying and selling are steep, and any downturn in price over such a short holding period will clobber the unsuspecting buyer.

The home is first and foremost where you live. Get past the "my home is an investment" mentality to protect against the bursting bubble. The home is indeed an investment, but a long-term investment.

I think that the idea of paying off principle as quickly as possible is vitally important. If, when you find that you must or strongly wish to sell your house, the rise in value turns out to be less than you might have hoped, you will benefit greatly by having real equity built up. Shorter terms, such as ten or fifteen years, are much better than longer ones, as you pay the financing institution much less in interest, which means that more of your money is going into buying the house instead of renting money. In addition, stay away from adjustable rate mortgates, as the article warns (in contradiction to Fed chairman Alan Greenspan's advice), as they cause you to have to pay the most when the value of your house is rising most slowly or declining

Some people can make a nice profit by buying a scrotty house, fixing it up, and selling it at a profit, but that is not the same as riding value waves. The former is real investment, whereas the latter is speculation. One can succeed at the latter, but it is dependent more on luck than on skill. A real investment is one that a person puts work into.

A 1978 perspective on Jude Wanniski (who just died)

Review of The Way the World Works, by Jude Wanniski. Basic Books. 319 pp. $ 12.95.
from The Public Interest, Fall 1978:


“Reality in One Lesson”

ALAN REYNOLDS

The marvelous audacity of the title The Way the World Workswill attract some, repel others. Amazingly, it is appropriate. This actually is an attempt to explain political and economic events throughout the ancient and modern world in terms of a manage-able number of general principles. Even more remarkable, this heroic effort is frequently successful-illuminating many of the mysteries of history, from the decline of Rome to the stock market crash of 1929 and today's global stagflation.

The book is deceptively easy to read, which may cause those who associate economic wisdom with impenetrable prose mistakenly to interpret its clarity as a lack of depth. As his unsigned Wall Street Journal editorials attest, Wanniski is a master of illustration, and each piece of the political-economic model he propounds is carefully interwoven with folksy examples, then amply documented with rigorous historical evidence.

Wanniski's economic model is simply brilliant and brilliantly simple. The starting point is to examine the supply side of an economy -to ask what motivates people to add to the quantity and quality of marketed goods and services. The answer builds upon a broad definition of work as a complex combination of physical and intellectual effort. Most work is in the barter economy-housework, do-it-yourself projects, trading tasks with family or friends. Smith the carpenter and Jones the plumber will exchange services with each other in the marketplace only "when it is easier to trade their work for somebody else's in the public economy." Otherwise, Smith will fix his own sink and Jones his own kitchen cabinet, each thus depriving the other of a job.

There are enormous efficiencies in specialization and additional gains from using money to expand the scope of possible exchanges within, and even beyond, national boundaries. But entering the public economy to specialize makes the transaction visible and therefore subject to government taxes, tariffs, and regulations. When the government imposes too heavy a burden on transactions in the public economy, people drop back into the inefficient private barter economy (friends, "do=it-yourself," and casual labor for cash), or they substitute leisure for taxed income.

This brings us to the "wedge model," attributed to Professor Arthur Laffer of the University of Southern California, which explains how a variety of taxes and regulations form a wedge between what employers pay for workers and what employees ultimately receive in after-tax income. Reducing this wedge makes it cheaper for employers to offer jobs and more lucrative for employees to accept and retain jobs. A similar wedge between what business pays for capital and what suppliers of capital (investors) ultimately receive in after-tax income reduces savings, investment, and economic growth.

According to Wanniski, the practice of taxing additions to income at sharply increasing rates-the progressive income tax-has a particularly demoralizing effect on personal effort and specialization. "Workers now have less incentive to become skilled workers or foremen, foremen have less incentive to become salespeople, sales-men have less incentive to become managers, and managers less incentive to become entrepreneurs." This effect has been com-pounded by inflation, which pushes unreal increases in incomes into higher and higher marginal tax brackets, thus discouraging supply and producing the apparent paradox of "stagflation."

"The only way government can increase production," concludes Wanniski, "is by making work more attractive than non-work." The Soviet Union accomplishes this task with the least generous welfare, retirement, and unemployment benefits in the civilized world. They use the stick to replace the carrot. Western countries, however, have tended to forget the stick and tax the carrot with policies that discourage work and subsidize non-work, with the predictable result that we are getting less effort and more "leisure."

The most famous illustration of the model, the "Laffer Curve," rests on the crucial distinction between tax rates and tax revenues: "There are always two tax rates that yield the same revenues." A zero rate yields zero revenue, and so does a 100-percent rate (be-cause the taxed activity would cease). Between these extremes lies an optimal point "at which the electorate desires to be taxed." Raising tax rates beyond that point lowers both the public economy's output and the government's revenue. The optimal tax rate can be very high during war time, but high rates at other times will normally generate wholesale tax evasion and a reversion to inefficient, unspecialized barter.

A chapter on the Crash of 1929 meshes the theory with some truly original historical research. The stock market always reflects the best available information about the future course of the economy, Wanniski argues, and therefore could not have been grossly overpriced at the 1929 peak. The market's fall must instead have reflected a previously unexpected increase in the political cost of doing business (the "wedge").

Treasury Secretary Andrew Mellon emerges as the principal political hero of the book for slashing back the income-tax rates several times from 1921 through 1929 (rates ranged from 4 percent to 73 percent in 1920, 0.4 percent to 24 percent in 1929) while simultaneously running budget surpluses. The much-maligned Coolidge era provided five years of 3.5-percent unemployment and 0.5-percent annual inflation-a combination that is impossible in Keynesian theory (especially with budget surpluses), and certainly unmatched in Keynesian practice.

If the Coolidge tax cuts were such a successful application of Wanniski's model, what brought on the market's crash? By sifting through newspapers of the day, Wanniski demonstrates beyond reasonable doubt that the stock market crash of 1929 ensued be-cause of the growing likelihood of passage of the Smoot-Hawley Tariff Act of 1930. A domestic tax is "a wedge between the trading of Jones and Smith. The tariff is a wedge between the trading of Jones, a national, and Schmidt, a foreigner. The effects on commerce are precisely the same."

To make matters worse, income taxes were increased again and again during the 1930's (ranging from 4 percent to 79 percent by1936), and became particularly punitive toward people worth high incomes by virtue of their ability to add value to enterprises. The politics of the day liked employment but hated employers, a situation that wasn't really improved until another of the book's heroes, President Kennedy, cut tariffs and slashed tax rates (from a 20-percent to 91-percent range to a more moderate 14-percent to 70-percent range), while simultaneously reducing Federal spending and borrowing.

Wanniski goes too far, however, in denying that the collapse of the banking system and the related destruction of a third of the U.S. money stock had any effect in prolonging the Great Depression. "If prices could have risen by one third," he says, "there would have been no need for the banking collapse." But it was the banking collapse that produced the falling prices, and it could have been prevented.

Those of us who have labored under the accusation of employing "19th-century economics" will enjoy Wanniski's clever uses of 18th-century, classical economics to browbeat the current intellectual fashions.

Marx is accused of a fixation on economic contraction, which requires "submerging individualism into collectivism, because it is the untrammeled individual who is viewed as driving the capitalist system toward overproduction, boom and bust." Each worker is supposed to work harder in Marxist economies simply because of the ideological promise that others will do the same.
Like the Marxist model, says Wanniski, the Keynesian model is primarily a rationale for redistributing income (sharing misery) during periods of economic decline. Keynesian theory rests uneasily on "bond illusion"-people's presumed failure to recognize that an increase in government debt must require higher taxes in the future to repay or pay interest on that debt. Deficit spending just replaces present taxes with future taxes, and people will not "work for bonds, under the illusion that they can be exchanged for real goods."

If Keynesians base their theory on "bond illusion," monetarists stand indicted for peddling "money illusion"-"the notion that people will work for `money' as a form of wealth, whether or not there is anything that money can buy." Some monetarists do argue that an unanticipated inflation can briefly reduce unemployment (because prices rise faster than wages), but only until adjustments are made. Indeed, the "rational expectations" school of monetarism even goes further than Wanniski in denying illusion, since Wanniski remarks that "creditors suffer and debtors benefit by an unanticipated switch in coin by the government." If lenders never suffered even temporary money illusion, then interest rates would always be high enough to compensate for any loss of purchasing power.

The real problem, of course, is long-term contracts in a changing world. If employers agree to pay 10-percent annual wage increases for three years in the expectation of being able to raise prices by 7 percent a year, a lower than anticipated monetary inflation will toss them into a cost-price squeeze, requiring layoffs. Imperfect foresight isn't really a matter of illusion, as Wanniski suggests, any more than the stock market suffered illusion in 1929 before the news about tariffs changed so quickly.
In Wanniski's model, it would apparently make no difference if there were a 100-percent inflation one day and a 100-percent deflation the next, except insofar as it distorted the tax structure. All prices and wages not only adjust to changing money growth, but do so evenly and instantaneously. Expectations are not only rational, in the sense of incorporating each day's best information, but also perfectly correct in anticipating future policy shifts. This is a useful simplification for some purposes, notably in drawing attention to the real factors that ultimately determine long-run economic growth, but it is not sufficiently precise to erase even temporary links between money, spending, and production.

If there is a prime villain of the book, a Darth Vader, it must be Professor Nicholas Kaldor of Cambridge University. Kaldor has been a principal exponent of the notion that developing nations must impose draconian taxes in order to extract the "savings" to finance grandiose government "investments" (uneconomic steel mills and other monuments).

Wanniski traces the Kaldor theme back to mid-19th-century India, where British railroad builders plied their trade at the cost of an onerous debt burden on Indian taxpayers. Economic imperial-ism is thus nearly defined as "the exploitation of the underdeveloped world by pushing it beyond its capacity to develop, in the process burdening the masses of people in the Third World with indebtedness and taxes."

Wanniski's documentation here is devastating. We find that be-fore recent tax cuts, taxpayers in stagnant Asian countries faced 65-to 75-percent tax rates on incomes of around $7,000. In the booming Ivory Coast, marginal rates stop at 37.5 percent above $20,000, while in the similar but sluggish economy of Ghana tax rates hit 75 percent at $12,500. Anyone can pick the most troubled economies out of an extensive list by simply looking at the steepest taxes.

Economics in the real world is rarely divorced from politics, and what links the two, according to Wanniski, is the electorate's understanding of economics, which is acquired from childhood through dealings with others. "The only way an economist can know something his fellow human beings do not ... is if people them-selves do not know why they produce, distribute, and consume." It is one thing, however, to demonstrate that people understand their own economic circumstances, and quite another to claim that the electorate possesses the sorts of analytical skills and economic information needed to make political actions conform to their shared interests. Because each vote carries little weight, voters have no incentive to be as well-informed about politically determined economic issues as they are about something that affects their interests directly (such as the choice of employment or stereo components).

Some decisions nonetheless do have to be reached by political consensus: "When four people go out to dine, the wine selection requires a political decision because four tastes must be satisfied with one bottle." To solve such problems on a larger scale,the global electorate is seen pushing, at every opportunity, in the direction of systems capable of producing superior politicians. This political process has as its ultimate aim a solution to the basic economic problem that for all time has confronted the global electorate, which is the tension between income growth and income distribution.... No individual can possibly be as wise as the electorate, the consensus, in discerning the preferred tastes of all the individuals who compose the electorate.... [Every election] is the optimum reflection of the national or local interest, given the choices available to the electorate.

People know what they want, and cannot be induced to want something else, but that is not to say that politicians are not some-times mistaken or misled about the electorate's desires. When politicians lose touch with the people, the electorate is forced to find ways outside the normal political process to communicate with the politicians: revolution, religion, nationalism, and even, at times, assassination.

Unfortunately, Wanniski fails here to differentiate adequately among kinds of political action, and is left therefore with a formulation that amounts to saying that what is not upheaval is contentment.

These strained simplifications of political life are best illustrated by Wanniski's curiously charitable view of the Soviet Union's "democratic experiment." Communist systems apparently have the sup-port of their electorates, Wanniski says, "for if they did not we would expect to see more visible signs of internal dissension." But that is why such systems nationalize the means of dissent (news-papers, television, guns), so it is very difficult for outsiders-and even for other citizens-to see "visible signs" of dissension.

Wanniski's economic lessons appropriately concentrate on the political barriers to trade-tariffs and taxes-that diminish the market's efficiency in producing what is wanted. His analogy between political and economic markets would be greatly improved if it were likewise explicitly acknowledged that there are particularly formidable barriers to political "competition." These barriers make political decision making inherently less competitive and efficient than voluntary market transactions.

Still, the book offers quite a lot of anecdotal evidence that following the Laffer/Wanniski economic model is good politics-even given the great dissimilarities in traditions and expectations among people of different nations and cultures. Those who overtax the people eventually lose power, one way or another. In this sense, the political model may help to explain how the electorate pushes, albeit glacially, toward responsive government. For in the end, governments can't distribute goods and services that are not produced, or tax transactions and activities that do not take place. Production depends on the quantity and quality of work and capital, which, in turn, depend on the after-tax real rewards to productive effort and investment. When the creation and spending of money outrun production, you just get inflation. Government debt is not a source of real wealth. If The Way the World Works did nothing more than push a handful of political entrepreneurs toward such fundamental realities, as it already may have done, it would rank among the most influential books since the 1930's.


When this was published in 1978, Alan Reynolds [now a senior fellow at the Cato Institute] was Vice President of the First National Bank of Chicago, and editor of First Chicago World Report.

Judge Rehnquist Is Dead

After 33 amazing years on the bench, in which he went from a lonely voice to a strong Chief Justice, William Rehnquist died last night. I've always wondered what Supreme Court justices, with the power they have wielded, think about as they die. I like to think Rehnquist was at peace with his responsibility to the gift/burden of authority he was given.

Once again, Jennifer Tilly has won a major poker tournament, her second in a few months. But she has only been playing for one year, since her boyfriend has been Phil Laak, the poker great. It is absolutely stunning to reach this level of dominance in a sport whose participants take it deadly seriously - and in such a short time. This is real quality insight into a person's intelligence and ability, something no publicist can fake.

Of course it helps that she is unbelievably wealthy, since she received a percentage of The Simpsons in her divorce from its creator, Sam Simon. Still, that may make you a cooler bettor, but you can't be a consistent champion like this without spectacular skills.

Brava, Jennifer!

New New Orleans

Louisiana native Fred Smith, the man who combined free market policy analysis with performance art to create the Competitive Enterprise Institute, offers some wise words on the rebuilding of New Orleans.

Personal note: I've been a member of a lot of odd sets, from the International Brotherhood of Electrical Workers to Our Lady's Rosary Makers. One of the most enjoyable and rewarding, and certainly the one with the most eminent fellow members, is "People Who Used to Work for Fred Smith." Only there can I presume to have something substantially in common with the likes of Jonathan Adler, Sasha Volokh, and Michael Fumento.

Global Warming and Tropical Storms

In today's edition of Tech Central Station, Dr. Roy Spencer, Principal Research Scientist at the University of Alabama and one of the world's top climatologists, considers the arguments that global warming is causing more frequent and intense tropical storms:

There is some recent research that suggests that of all Atlantic and West Pacific tropical cyclones measured since the 1970's, a warming trend in sea surface temperatures has been accompanied by stronger and longer-lived storms. In fact, the increase in the total power generated by the storms that the study computed was actually much larger than could be accounted for by theory, suggesting changes in wind shear or other processes are operating in addition to just increased temperatures. (Unpublished results by the same researcher suggests, however, that this trend was not apparent in land falling hurricanes since the 1970's).

Given the recent work, how should we view the role of global warming? First, we know that category 4, and even category 5, storms have always occurred, and will continue to occur, with or without the help of humans, as the above examples demonstrate. Therefore, if we are prepared for what nature can throw at us, we will be prepared for the possible small increase in hurricane activity that some studies have suggested could occur with man-made global warming. To suggest that Katrina was caused by mankind is not only grossly misleading, it also obscures the real issues that need to be addressed, even in the absence of global warming. From a practical point of view, there is little that we can do in the near term to avert much if any future warming anyway, no matter what you believe that warming will be, including participating in the Kyoto Protocol. So why even bring it up (other than through political, philosophical, or financial motivation)?

Texas Tea, Baby. But Not in Texas.

Rich! We're rich I tell ya!

That is, if the enviro-donkies don't prevent us from tapping the vein.

Here's a little taste of the big story:

The United States has an oil reserve at least three times that of Saudi Arabia locked in oil-shale deposits beneath federal land in Colorado, Utah and Wyoming, according to a study released yesterday.

(HT: Instapundit)

A Tale Of No City (Anymore)

Dereliction of my duty, you say? Perhaps you are right.

I have been remiss in not alerting my friends to the story that I reported in today's American Spectator. It takes us out a half-step ahead of the loop, while TV is still walking us through the gasping-but-not-grasping stage of gawking at the events. The stories usually emerge some time later, as selves are progressively collected. Here is a tale of woe, of awe, of horror, of desperation and, eventually of courage and heroism, even flashes of joy.

A human episode.

Ptolenomics

What was the big deal with Copernicus and Galileo, really? I mean, if you live on the Earth's surface, what difference does it make if the earth or the sun or some other spot is the center of the universe? What difference does it make if the sun and planets move around the Earth in epicycles on crystal spheres or if Tycho Brahe was right and Kepler was wrong. You can hold these views and still explain anything you'd be likely to observe. Stick ellipses on Tycho and you can even explain the phases of Venus. There really is no reason for such a person to prefer modern cosmology to Ptolemy, is there?

In fact, there's a good reason for such a person to reject modern cosmology. The Ptolemaic system doesn't require you to accept the obviously ludicrous notion that the earth is moving. Only some ivory tower mooncalf, with no knowledge of the real world, could possibly believe a theory that requires the obviously still and solid world to be hurtling through space.

Now replace "Copernicus and Galileo" with "modern economists" and "Ptolemy" with "certain commenters in the 'I Am Speechless' threads" and I think you'll see where I'm going.

There is, really, no reason for the vast majority of people, even successful business people, to think in the way economists think. It is not necessary for them to interpret the world with our concepts in order to make and sell products. They can happily take as given and fixed all the information that economists know is being constantly generated and recalibrated through interactions in the market. They can make decisions using this information, without being aware of their own role in changing and generating new information.

They can even believe they are putting one over on their customers -- that they are, for instance, selling them goods purposely designed to wear out "too fast" and thereby sell more and earn more than if they made the sturdy, quality products the customers really want. They can believe this even while the relative prices for durable and disposable goods are reflecting consumers' time preferences and discount rates with exquisite precision, leading the businessman to supply exactly the mix of goods the consumers desired.

I've never quite understood, though, what was the point of getting so shirty when economists explain what's really going on. But then, Galileo got a few goats in his day too.

"Just Give Them What They Want, and They'll Stop Fighting"

In his latest column, the Boston Globe's Jeff Jacoby writes about the conclusion of Israel's withdrawal from Gaza, and what it means:

[I]f Sharon and the supporters of unilateral withdrawal are right, the departure from Gaza should mean fewer terrorist attacks like the one that cost Elkanah Gubi his life. No longer obliged to defend a Jewish presence there, physically separated from the Palestinians by a security fence, Israelis ought to be more secure without Gaza than they ever were with it.

For years, Israel has been told much the same thing by its critics: Since the "occupation" of Gaza and the West Bank is the cause of Arab terrorism, the way to end Palestinian terrorism is to end Israel's presence in the territories.

But far from reducing the terrorists' bloodlust, Israel's retreat from Gaza has only inflamed it. In just the past two weeks, a Palestinian knifed a Jewish student to death in Jerusalem's Old City, an Israeli policemen was stabbed in the throat by an Arab in Hebron, Kassam rockets were fired from Gaza into the southern Israeli town of Sderot, a suicide bomber blew himself up in Beersheba's crowded bus station, a Katyusha missile launched from Lebanon exploded in the Israeli village of Margaliot, a firebomb was thrown at an Israeli vehicle on a highway outside Jerusalem, and a 14-year-old boy from Nablus was caught with three bombs.

In a videotape circulated by Hamas this week, archterrorist Mohammed Deif vowed that Israel's departure from Gaza would mean more of the same.

"Today you leave Gaza in humiliation," he taunted the Israelis. "You are leaving hell. We promise that tomorrow, with Allah's help, all of Palestine will be hell for you." For the umpteenth time, an Israeli government spokesman urged the Palestinian Authority to disarm and dismantle Hamas, as required by the international "road map" it has agreed to.

If Jacoby is correct, as I believe him to be, the implications regarding U.S. efforts in Iraq are clear.

Widespread Dissatisfaction

The recovery of survivors from New Orleans has left a lot to be desired. A friend wrote me outraged that babies are dying for lack of adequate food, shelter, etc. How can this be in the richest, most creative, most powerful nation in the world?

I think the answer is as follows: We haven't had a disaster like this in a long, long time and when it happened in the past, the vast majority of victims died rather than surviving. We have not been faced with something of this magnitude spread over such a great geographic area, probably ever. Certainly, we haven't seen a major inner city area suddenly and violently reclaimed by nature.

FEMA probably had enough water, food, drugs, and bandages ready, but not the kind of massive mobilization of search and rescue workers needed for a disaster like this. It was simply incomprehensible.

We don't keep an army of rescue workers waiting around for something like Katrina. I'm not sure we could even afford to do so. But the situation is grave and what must be considered is something new. We can't let the victims die. We have to mobilize. That means it may be time to consider conscription of boats, buses, helicopters, etc. Maybe even the conscription of men if volunteers can't be found. I know I'm offending libertarians. But it may be time to think on those lines. Actually, it simply is time.

The End of New Orleans?

Throughout the coverage of the disaster that has befallen New Orleans, it seems one thing has been assumed throughout: the rebuilding of New Orleans. Much depends on how long it will take to get rid of the water, engage in massive repair and new construction, and how much of the city's tax base sticks around.

The reality is that the entire professional class or a large portion thereof will relocate because they are unable to wait for the new city to rise. Many businesses will take a hard look at the New Orleans operation and decide they can't let resources like fallow that long. Expect a major migration of many branch offices and probably some headquarters locations.

Even the poor citizens of the town whom we have seen engaged in remarkable suffering as all rescue efforts pale before their plight may never come back to town. As many of them are long term clients of government programs, they will probably have the option to spend time in ultra-ultilitarian state and federal camps or to resettle elsewhere with the help of social workers and/or family members in other cities.

Unless someone can show me otherwise, I don't think there should be any assumption that New Orleans is going to continue as a major metropolitan area in the United States. It may just be a ghost living a marginal existence. Galveston never truly recovered from the great hurricane that leveled the town and killed so many. New Orleans may not rise even so high as the old Wall Street of the West on the Texas coast.

The Way the World Worked

As Hunter Baker posted below, Jude Wanniski unexpectedly passed away Monday afternoon after he suffered a massive heart attack. I've heard our esteemed co-blogger Alan Reynolds tell many stories about Mr. Wanniski and Polyconomics, but I'll let Alan tell those stories himself if he's so inclined. I want to tell a story about the effect a small group of men, including Alan and Jude, had on my generation of economists, social scientists, and policymakers.

When I started graduate school in the fall of 1980, it looked very much as though the country would be run by Jimmy Carter for four more years. When I looked back over my life from what then seemed the impossibly mature vantage point of 22 years on earth, I saw little but anxiety, conflict, and pessimism. I started paying attention to the outside world at about age ten, so my memories were bookended by Soviet tanks in Czechoslovakia and Soviet tanks in Afghanistan. Sandwiched in between were domestic political assassinations, oil embargoes, hostages in Iran, Watergate, double digit inflation, double digit unemployment, and the bankruptcy of New York City. I don't even remember now why I wanted to be an economist then. Economists were responsible for the splitting of ever smaller pies at home, and negotiating surrender to whichever economy would overtake us abroad.

Then Reagan beat Carter at the last minute. And we discovered that some of our professors were closet free market libertarians. Austrian School, even, a couple of them. They started lobbing ideas among themselves, and then at us, that first seemed silly, and then subversive. Critiques of Keynes, Samuelson, Kuznets, and Myrdal that undermined everything we’d learned as undergrads. Hints that macroeconomics would never be intellectually solid until it was reintegrated with microeconomics. Proposals that all sorts of behavior, not just commerce, could be explained with economic principles.

We starting passing a few books around among ourselves, on the QT; we were a little abashed that we were studying popular works instead of articles from JPE and Econometrica. But the stuff made sense, and kept on making sense the farther we pushed it: Thomas Sowell’s Knowledge and Decisions. George Gilder’s Wealth and Poverty. Julian Simon’s The Ultimate Resource. But before all those, anticipating them and paving the way, was Jude Wanniski’s The Way the World Works. These books opened our eyes to an economics that was hopeful and exuberant, that placed human creativity at the center of wealth creation, and that gave the economist something valuable to do: help arrange civil society so that creative force can be free to make things better.

And things did get better, all through the 1980s. It was men like Alan Reynolds and Larry Kudlow who gave us the proof that Sowell and Gilder and Wanniski were right, by putting those ideas to work during the Reagan years.

Twenty-odd years later, even though I've spent few of those intervening years working as a professional economist, I've never again forgotten why I wanted to be an economist in the first place. Rest in peace, Jude Wanniski. Your place in this world is secure, go forth into the next.