Category: Books

I will talking about my book (with Eric Helland) Judge and Jury: Amercian Tort Law on Trial at the Harvard Club in NYC this Thursday (June 14, 07), 12pm-2pm.  The event is sponsored by the Manhattan Institute.  You can RSVP here.

Lots of catch-up from time abroad:

1. Liza Mundy, Everything is Conceivable: How Assisted Reproduction is Changing Men, Women, and the World.  Excellent stories, even-handed, and surprisingly philosophical.  How can you not read a good book on this topic?

2. Janos Kornai, By Force of Thought: Irregular Memoirs of an Intellectual Journey.  Charming memoirs of one of the major economists from the Communist bloc.  An intellectual autobiography, an account of how and why human beings change their minds, and an explanation of why he was more creative in Hungary than with the mainstream at Harvard.

3. Trevor Corson, The Zen of Fish: The Story of Sushi, from Samurai to Supermarket.  The first few chapters are an excellent overview and history of sushi, after that the book is a lame account of a bunch of losers taking a sushi course.

4. Brink Lindsey, The Age of Abundance: How Prosperity Transformed America’s Politics and Culture, on how America became so libertarian, reviewed here by George Will.

5. Hermann Broch, Die Schlafwandler (The Sleepwalkers).  Broch remains one of the most underrated authors of the 20th century, this may be his masterpiece but start with his shorter Death of Virgil.

Chris Anderson…talk[s] about the possibility of giving away online his next book – which he fittingly intends to title “Free” – to readers who were willing to read it with advertisements interspersed throughout its pages.  (He still intends to sell the book traditionally to readers who’d rather get their text without the ads.)

Here is the longer story.  I love free books.  I would find it easy to skip the ads (if you are good at skipping text, you can be good at skipping ads), though perhaps I am naively unaware of the publisher’s counterstrategies in this war.  In another direction, I recall hearing of free long distance service, at least provided you are willing to have your call interrupted periodically with advertisements.  If we are willing to pay people to hear or watch ads, why stop there?  How about "free life"?  Corporations subsidize or create extra babies, under the proviso that the guardians agree to have their little ones doused with particular ads.  What if you could addict your kid to Coca-Cola, or some other product, before birth, what sort of market would arise?  What if you could stamp a permanent tattoo on Jimmy’s forehead?

Bookies are certain Harry’s a goner. William Hill Plc, a London-based bookmaker, is so sure of Harry’s demise that it stopped accepting wagers and shifted betting to the possible killers.  Lord Voldemort, who murdered Potter’s parents, is the most likely villain, at 2-1 odds, followed by Professor Snape, one of his teachers, at 5-2.  "Every penny was on Harry dying, and it became untenable,” said Rupert Adams, a William Hill spokesman.  "People are obsessed about this book.”

Here is the full story.  The pointer is from John De Palma.

To all of you who have responded to my posting on Marginal Revolution, many thanks. I have enjoyed the dialogue and the sparring.  All of us, I believe, have our country’s interests at heart even though we may come at these issues from different perspectives. My purpose in writing The Price of Liberty – which, as I have noted in several postings is a quote from Hamilton about Revolutionary War debt and not about the Iraq War – was to trace the history of wartime financing from the Revolution through the War on Terrorism to see what we can learn from the past and how we can do things better. I think even those who have taken issue with me about the current set of policy issues will enjoy the history contained in the book.  I hope that whatever you think, you will let me know your thoughts, your comments and your criticisms. I hope you at least find it interesting – even if there are parts of it you disagree with.

Thanks again to Marginal Revolution for hosting me as a guest blogger this week.

Warm regards,

Bob Hormats

author of The Price of Liberty

To Indiana Jim: Thanks for your question. I do not combine war
spending and entitlement spending. The former is in the so-called
“discretionary” portion of the budget; the latter is in the “mandatory”
portion (i.e., it is based on a predetermined formula set by past
legislation and will be paid out under that formula until it is
changed.)

To Freelance: Thank you very much.

To Adrian: Yes. Occasionally bribing foreign governments has been
used successfully, although it has been done covertly for obvious
reasons. But after 9/11, I don’t think we had that option with Al-Qaeda
and the Taliban in Afghanistan. And some terrorist movements are so
fanatical that bribing them is unlikely to work.

To John Thacker: I do not argue that current defense spending is
unsustainable. It could be more efficient, but the levels by historical
standards as a portion of GDP are quite low, as you point out. But this
will still be the second most costly war in U.S. history if it
continues to the end of the year. The cost of entitlements is, as you
point out, likely to grow, and these could squeeze many other programs
in the budget, including defense, in the next decade. They would have
to be reformed even if there were zero money spent for defense because
they are financially unsustainable.

True, FDR promised a balanced budget when he took office, but he
rapidly abandoned that pledge well before the war. But you are correct;
I was underscoring FDR’s call to make sacrifices at home to support the
troops on the battlefield through taxes, borrowing and the other things
you correctly mentioned.

To Barkley Rosser: I agree that Medicare presents a more difficult
problem than Social Security, which in fact, as you correctly point
out, enjoys a surplus. But neither is sustainable over coming decades
given the current trajectories of benefit payments and inflows. The
danger is that neither program will be sustainable without some
reforms, and the sooner they occur the less disruptive they will be.
The alternative is a bid increase in borrowing and/or taxes as well as
a drawing of funds from other programs. In all of these cases, we leave
our children a very bad legacy.

To Mr. Noah: What kind of guide do you need?

To Jay Livingston: Yes, I am. Great to hear from you. Where are you
living now? What great times we had together at Pocono. Hope you are
well. Best regards.

To Barkley Rosser: I agree with your May 28 posting in which you
said that the Social Security System is not in crisis, and indeed there
is a chance that it will not be for some time. But there is a high
probability that inflows will fall far short of benefits within a
couple of decades. That was the risk in the early 1980s, when with a
few changes the Greenspan Commission put it on a sustainable basis and
improved the chances that it would be there for many decades to come.
All I am arguing is for a few adjustments today, similar to those in
1983; to be sure that it is around for those who need it for a very
long time. And I do not want to see it reach a point where it gets so
out of balance that major change will be required, so let’s make minor
ones today.

More of my responses to your comments will be posted tomorrow.

Thanks again,

Robert D. Hormats
author of The Price of Liberty

I would like to thank the hosts of Marginal Revolution for giving me the opportunity to answer questions about my book “The Price of Liberty: Paying for America’s Wars” and for allowing me to enter into a dialogue with your contributors on the issues I have raised in the book.

If you have not had the opportunity to see it, I also encourage you to read an Outlook piece I did for the Washington Post on May 6. It contains some of the views contained in my book. The Post has been kind enough to allow us to circulate this piece.

In view of the many very interesting postings on Marginal Revolution about international financial matters, I thought it would be useful to focus on one particular aspect of US strategic vulnerability — the growing risk that in the event of a major catastrophe in the US — from a major new act of terrorism, another massive hurricane, or a pandemic — the foreign capital that we have become used to receiving from the rest of the world, to the tune of $700 to 800 billion annually on a net basis at relatively low cost, will not be available in abundant amounts.

Alexander Hamilton called the debt the nation had accumulated during the Revolution the “price of liberty” and insisted that it be faithfully repaid, especially to foreign lenders, whose financial support was critical to the success of the Revolution. He recognized that were there to be another war foreign funds would also be critical to American success — so financial strength, which he took to mean sound finances and robust international creditworthiness, was important to future military strength.

The same is true today. If another major terrorist attack were to take place the budget deficit will increase dramatically as revenues drop due to economic weakness  and the government has to bear the cost of recovery and retaliation. Foreigners would then be reluctant to buy American financial assets or will demand a higher risk premium — i.e. higher interest rates — to do so. In either case there would be a major financial disruption harming an already weakened economy. It is worth noting the contrast between today and 9/11; in 2001 the US had had four years of surpluses as opposed to four years of deficits, and then we were only half as dependent on foreign capital as we are today. Both differences increase our vulnerability — and bigger imbalances in the next decade will add to that vulnerability.

This is a concern I have. I would be interested in whether others share it. Do you believe that heavy and growing dependence of foreign capital constitutes a strategic vulnerability in the event of a catastrophic attack. And if so what should be do to reduce this vulnerability?

I look forward to a dialogue on this and related subjects during my blog tour this week and thank you for your willingness to provide your thoughts.

Bob Hormats, Author,
“The Price of Liberty: Paying for America’s Wars” (Times Books)

Will we one day see a Council of Economic Advisors able to veto legislation for being uneconomic?  It seems unlikely but do not underestimate the influence of my friend Bryan Caplan whose The Myth of the Rational Voter flirts with putting limits on the vote-franchise and yet still manages to get a favorable review in the New York Times Magazine!

Nor is that all.  An even more powerful demonstration of the spread of Caplanianism can be found here.

Spread the word – buy The Myth of the Rational Voter and go forth and multiply.

It is too perfect.  It is light, compact, has decent-sized print, and presumably, even if the story is not great, it would hold my attention on a long plane trip.

That is why I have never read it.  I am saving it up for the worst plane trip of my life.  As long as I have never read this book, I feel protected against the prospect of that plane trip.

I’ve brought the book on this trip, but I’m not sure I’ll crack the first page.  Its liquidity premium is simply too high.

This 936-page romantic canvas of the Indian underworld, and the adventures of one scoundrel therein, is one of the best bad books I have read.  Try this passage:

It seemed impossible that a modern airport, full of prosperous and purposeful travellers, was only kilometers away from those crushed and cindered dreams.

It is a must for all lovers of Bombay.  Here is information on the author, who was an anarchist, escaped criminal, and heroin dealer before hitting it big.  Most of this tale draws upon his life.  Buy it here; if you think you might like it you will.

This obscure but interesting Ludwig Lachmann book is now available on-line for free.  I studied with Lachmann at NYU when I was very young, and he helped make me more contrarian.  This short book is about how institutions coordinate plans, and how the sociological legacy of Weber is an indispensable component of any theory of Hayekian spontaneous order.  From that description alone, you ought to know whether or not you will like it.

The English were well known for their disposition to provide help in emergencies.  This disposition went to the heart of their conception of society, as a duty-bound relation between strangers.  Their charitable behaviour was a way of emphasizing that strangers are just as important as friends — because all of us, in the end, are nobodies.  By devoting yourself to the distressed stranger you make it clear that you too are a stranger in this world.  You reaffirm the distance between yourself and others, by showing that the motive that binds you to society is one of impartial justice and objective duty.  The charitable relief of strangers was simply another aspect of English reserve.

That is from Roger Scruton’s over the top but nonetheless fascinating England: An Elegy; he portrays the English as a people who have substituted morale and teamwork for intimacy.  If you are looking to understand why so many parts of the world find it difficult to adopt either capitalism or free political institutions, this is one of the very best places to start.  The English recipe is by no means the only way to go, but from Scruton one gets a good sense of just how much cultural background is needed to sustain liberty.

Free Exchange reports:

Defending the central bank’s independence, European finance ministers warned Nicolas Sarkozy, the incoming French president, not to blame the ECB for France’s economic woe.  While electioneering, Sarkozy suggested the ECB’s policy objective be amended from achieving price stability within the Euro Zone to focus on job creation and growth.

Sarkozy is, in my view, correct to think that a bit more inflation would improve the French macroeconomy.  France has about the stickiest nominal wages on Planet Earth.  A little extra inflation would boost the labor market by allowing real wages to fall.  Some inflation might also spur exports in the short run.  Do note that the latter effect is, in the first best, cancelled by the inferior French command over non-Euro-denominated imports.  Still the job gains might offer some second best benefits in this context, such as alleviating social tensions. 

That said, two very important qualifiers are required:

1. It is not useful for a French politician to make ECB policy a political issue in front of the public.  If the ECB gives in to French politicians at their whim, it is not long for this world.

2. The Euro probably requires a lower rate of price inflation than does the dollar, even though European wages are stickier.  "Price stability" is focal, more or less.  "Three percent inflation" is not.  There are now 13 countries in the Eurozone, maybe someday 25.  Zero is a good number to agree upon, perhaps it is the only number they can agree upon.

This all reflects a very real tension behind European monetary policy.  It is much harder to have monetary discretion when many nations belong to the currency union and have an ultimate voice in what happens.  I view the current structure of the ECB as somewhat of a contraption.  France and Germany had favored strong ECB independence and a price stability mandate and they more or less forced everyone else in Europe to play that game, whether they liked it or not.  Can Portugal and Italy really today make such a stink about tight monetary policy?  No.  But Germany can’t do the enforcing all on its own.  Sarkozy needs to not only give in to Merkel, he needs to signal that he will return France to its previous role as partial enforcer of tight monetary policy.  Is he up to so much humbling so soon?

Sarkozy is still right on the economics, so I wonder if he’ll be able to see his way past that.  Three percent inflation would be better for France over the next five years.  It would not be better for Europe over the next thirty.