Is attending an American university worth $44,000 a year? Leaving aside all those novels by Herman Hesse (where is Siddhartha now that we need him?) that you may read during your undergraduate years, let’s look at a few numbers. The average college semester is 15 weeks, give or take the odd road trip to Florida or a winter carnival. In other words, a week of college costs $1,466 or $209.52 per day, including Sundays, when you may have to struggle out of bed just to get to lunch on time. In exchange for forty-four grand, you get regular meals, access to campus buildings, about 15 hours a week of classes, and more books that you can read in a lifetime. (I am somewhere between my freshman and sophomore year, in terms of catching up on the required reading.) Many colleges throw in a fitness center and a homecoming parade. Come spring, more than a few tolerate a toga party. But instead of a year at college, for the same money you could take about 30 cruises (promising about the same number of drinks, but fewer term papers).
I realize that pricing college by the day will strike most readers as cynical. At least I did not dwell on how much it costs per class hour (roughly $97.77). How can anyone put an hourly price on education? Isn’t college about having the time to discover the violin concertos of Mozart or the novels of Theodore Dreiser? Plus it prepares you for the so-called real world, in which few people would get a job if they showed up in a Personnel office and explained that during the last four years they had taken 120 cruises—even if they were comparable to four years at Brown.
I have been thinking about colleges and college costs because my oldest daughter is 18 and this year graduates from high school. Because we live in Switzerland, we have spent time during the last few years visiting campuses on both sides of the Atlantic Ocean. My college-tour conclusions are as follows: most European colleges look like public housing while in the U.S. even the state universities resemble five-star resorts. (F. Scott Fitzgerald called Princeton the “the pleasantest country club in America.”) I would enroll in any of the schools we visited. Seen from the perspective of middle age, what could be more enjoyable than four years on campus, reading books, attending lectures, working out, and eating meals with your friends? At the University of Maine, in Orono, I was even pleased to discover a dorm for thirtysomethings that frowns on music, smoking, liquor and drugs—what my friend Rob describes as a “no-fun house.” But it would suit a father of three teenagers, at least in my escapist dreams.
Appealing as most college campuses are, I know the reality of the course work is something else. Let’s face it: many university professors could not teach their way out of the third grade, when it comes to engaging a class. At my undergraduate university—Bucknell, in Lewisburg, PA—a story circulated of one professor who was celebrated for falling asleep during his own lectures. In other classes I remember confronting the dismal literature of social science—all those dreary textbooks about “social stratification” and “zero-sum games”—and being asked to read 700 pages of Thomas Mann “by Tuesday.” Sadly, it was only after college that I discovered the pleasures of reading and independent study, or encountered authors who wrote in a language that engaged my curiosity. As much as I enjoyed college and then graduate school at Columbia, I often found the reading lists tedious, the lectures arcane, and the professors worth something less than $97.77 an hour.
The problem with most university classes is this: you read a few books, take some illegible notes, write up three papers, and then sell the books back to the bookstore before going home for Christmas. Missing, except from a handful of students or teachers, is a passion for learning, an engagement with the subjects. I thought about this as my daughter and I were taking one college tour after another. Yes, it is a marvel that the schools have art museums, climbing walls, indoor pools, and Starbucks in the library. But in visiting American colleges, I found them sadly devoid of ideas, at least in their public relations. Where was the delight of intense conversation or of a great book? Harvard struck me as a staid English men’s club. Bowdoin looked to be copied from the pages of an L.L. Bean catalogue (degrees available in teal and hunter green). NYU was punk-rockish, as if all the lectures had been podcast. The more campuses we saw, the more I wanted to start my own university, one that would attract like-minded and passionate students and faculty. No more charging $44,000 and then assigning a class some unreadable article from the Journal of Phenomenological Studies.
For lack of a better name, I have been calling my utopian college Baseball University (BBU). It could be anywhere, but it might be more fun if the climate reminded everyone of spring training. Nor does it have to look like a traditional campus, with a bell tower and a Carnegie library. A nineteenth century field, with a rope as the outfield wall, could well define the campus. Some of the more popular classes could meet in skyboxes. Set between the university buildings I could imagine batting cages and softball diamonds, if not just the markings for stickball. During freshman orientation, everyone will read The Glory of Their Times by Lawrence Ritter. Those majoring in international relations might be assigned Robert Whiting’s You Gotta Have Wa, an account of Americans who have gone to play baseball in Japan. Over the front door of the Charles Dillon Stengel Library would be the inspiring words: “You could look it up.”
Even though Baseball University would be a delight to students and faculty, it would not be a gut. To graduate would require 32 credits, and a senior thesis, written with the stylistic clarity of a Red Smith or Ring Lardner, Jr. column. All students will take four years of mathematics (Statistical Modeling and the Use of Relief Pitchers would be required) and four years of languages (Spanish and Japanese are recommended). Pre-med students would have to take the necessary courses in biology and chemistry (known informally on campus as “the clear and the cream”). Liberal arts candidates could fulfill their science requirements by taking such popular surveys as “Steroids for Seniors” or “Knuckleballs,” given by the physics department. Instead of a yearbook, the college will distribute everyone’s baseball card, with their grade-point average on the back and a few words for prospective dates, such as: “Likes to hunt and fish in the off-season.” Professors with low averages will be cut.
Nearly all the subjects taught at conventional colleges will be offered at BBU; the only difference is that the curriculum will draw its inspiration, if not its case studies, from the world of baseball. English classes, for example, instead of reading George Eliot or William Faulkner would assign books like Bernard Malamud’s The Natural or Philip Roth’s The Great American Novel. In the economics department, students would study the impact of a salary cap on major league baseball’s finances. My friend Doug Adler, whose father worked for the 1962 Mets and who is keen on the idea of BBU, would be appointed the first provost.
I have yet to complete the course catalog, but some of the offerings would include: Wave Theory of a Fork Ball; Management Philosophy from John McGraw to Tony La Russa; Models of Municipal Finance in Stadium Economics; Dinger: An Introduction to Baseball Linguistics; The Iconography of Babe Ruth; Baseball in the Developing World; Faux Pas: The Civil Engineering Pretensions of New Ballparks; Minor League Films; and A Comparative History of the Negro Leagues and Civil Rights. My guess is that many professors would line up to teach these courses, so we could forget about having to offer tenure to attract mediocre academics.
Students of all ages, provided they met the university standards, would be encouraged to enroll. An exception might be made for barbers with a deep knowledge of the game. The calendar year at BBU would run from late February until October, with the fall break coinciding with the World Series. Why be away from campus during the nicest months of the year? During the winter semester, however, students would be encouraged to continue their studies in Venezuela or the Dominican Republic. Some might do independent study in Korea. Of course, students piling into cars to visit Fort Lauderdale would be given extra credit, provided at the beach they read either Why Time Begins on Opening Day, by Thomas Boswell, or Sparky Lyle’s The Bronx Zoo (a prerequisite for those studying abnormal psychology).
I have thought a lot about the design of the classrooms, with the initial notion that some could resemble booths at a sports bar. But the presence of large screen TVs and pitchers of beer, in my experience, never leads to interesting conversations. All anyone does is watch the game and munch on salty popcorn. In fact, the seminar rooms at BBU should look like corporate offices or cubicles, as it is in these settings that people have their most intense conversations—be they about baseball or life. Some smaller classes might even want to stand around a water cooler, preferably one once overturned by Tamp Bay manager Lou Piniella. Faculty members, however, would have to hold a certain number of office hours in the campus bleachers. What could be nicer than to talk to a professor while watching the summer game?
Because BBU is a university, and not some booster club for the major leagues, it would be a fountainhead of new ideas on ways to interpret and change baseball. The lovely on-campus stadium would encourage games between national teams from countries like Cuba and Panama, in anticipation of the World Cup of Baseball. Exhibitions featuring retired stars could be hosted, followed by lecturers or poetry readings. (Wasn't it Robert Frost who said that when you come a fork in the woods, "take it"?) The university would publish journal articles attacking baseball’s antitrust exemption, which, if lifted, would encourage investors to develop rival teams and leagues around the country—the major leagues simply being the best of the best, not those in the owners’ union. The World Series would be just that: a tournament of world’s best teams. Iconoclastic commentators on the game—such as Jim Bouton, the author of Ball Four—will be invited to spend a semester at BBU as writers-in-residence. Spaceman Bill Lee would be awarded an honorary degree. During the homecoming weekend, the bonfire could be stoked with Astroturf.
The great thing about Baseball University is that the professors would love teaching there, and the students would come with a passion for learning. How many times in college did you labor through a course on Political Geography or the early novels of Nathaniel Hawthorne only to discover, during the end-of-the-year picnic, that the professor both worshipped the Chicago Cubs and could discuss them passionately for hours? At BBU, that vibrant, switched-on professor would be the one in the classroom. (During nights and weekends, he or she could sneak into the family room to read The Marble Faun or find Bratislava on a map.) Likewise, students would come to every class with at least some background understanding of the subject under discussion. I am all for teaching American history, but how many college freshmen can comprehend the Depression economics of President Herbert Hoover? (Who did Smoot Hawley play for, anyway?) Seen through the contract negotiations of Babe Ruth, however, they might at least have a better year. Who knows, it might even be worth $44,000, which, looked at another way, doesn’t even get you a skybox at Camden Yards.
Friday, September 30, 2005
Thursday, September 22, 2005
The Flat Tax Society
When we last heard from Steve Forbes, the magazine editor and publisher, he was investing his own money to run for President. In 1996, and then again in 2000, he declined federal funding while campaigning for the Republican nomination. He did well in several primaries and acquired a handful of delegates, but his return on invested capital included neither the vice presidential nomination nor appointment as secretary of the treasury. In 1996 and 2000, the Republicans nominated a Dole and then a Bush—as they have every year since 1976—proving, if nothing else, that American politics is a branded business, perhaps something along the lines of Viagra or L.L. Bean.
Now Steve Forbes is back in the political arena with a book on the flat tax, the idea that all Americans should pay 17 percent of their income to the federal government. To note my own special interests, I should say that I have the book as a gift from my good friend and long-time colleague, Stephen Beekman, whose sister is married to Steve Forbes. As a result of my friendship with Stephen, I have met Steve Forbes at several public events and have heard him address a conference. On some of these occasions, Forbes has made mention of the flat tax, around which he had earlier run for President. But now with his book, Flat Tax Revolution: Using a Postcard to Abolish the IRS, he has elaborated on the idea that was scorned during the campaigns but which is gaining converts, and currency, around the world. For me, it is a straightforward and good idea.
One of the problems with the book is that it is brought to the market by Regnery Publishing, a distributor of conservative doctrine, and has a forward by Newt Gingrich, elements that could consign the flat tax proposal to the right-wing choruses. But that would be a shame, as I see no reason why only Republicans should endorse the idea of a simplified tax code under which everyone would pay the same percentage of their income to Uncle Sam. Why should Democrats carry the fire for such convolutions as the Alternative Minimum Tax? Forbes even has a quote from Democratic icon Thomas Jefferson, who asked: “Would it not be better to simplify the system of taxation rather than to spread it over such a variety of subjects and pass through so many new hands.” In many ways, the idea of the flat tax is neither Democratic nor Republican, but populist in its conception and aimed at the permanent government in Washington. Forbes writes: “The flat tax will deal a devastating blow to a Washington political culture more interested in special interests than in the well being of America.”
What I like about the flat tax idea is that it is a simple solution to the question of how the U.S., or any government, can most efficiently collect revenue to pay for state-sponsored services. Early in the life of the American republic, import tariffs were sufficient to pay for the limited reach of government. Only during the Civil War did President Abraham Lincoln first impose a federal income tax, but that lapsed after the fighting stopped. Not until early in the twentieth century did the states pass the sixteenth amendment to the Constitution, authorizing a federal income tax. During World War I, according to Forbes, marginal rates grew from 7 percent to 77 percent.
During the balance of the twentieth century, the tax code—now stretching to a mind-boggling 9 million words—was altered not simply to collect money, but to foster an array of social policies. At one time or another, taxes have been increased or decreased to promote marriage, home ownership, professional baseball, national defense, children, and social security. Some or all may be worthy social goals, but that does not mean the existing tax system is the most efficient way to collect money to pay for them.
Under the so-called Forbes Flat Tax, the government would collect a flat 17 percent from both personal as well as corporate income. Only a few deductions would survive. For that mythical family of four, no federal income tax would be due on the first $46,165 of income. Nor would there be tax on dividend income, personal savings, or capital gains. The 17 percent corporate tax, prior to the payment of dividends, would cover that revenue stream. Eliminating double taxation is a tenet of the Forbes proposal, which would also do away with estate duties, what he calls “the death tax.” You paid tax on that money while you were living, so why pay again just because you are dead? Forbes would also eliminate most of the sacred cows of deductible expenses: for example, those for charity and mortgage interest. His argument is that what you lose in tax optimization you win by a general surge in economic activity now that investors can make decisions based on anticipated profits, not simply to lower taxable income. By his reckoning, in good times and bad, Americans give about 2 percent of the national income to charity, notwithstanding any tax write-offs that may accrue.
For whatever reasons, although it cannot be affection for the current tax regime, many Americans respond warily to the idea of the flat tax. They sense it is a stalking horse for the rich, for Halliburton, to cheat the poor, to bail out Enron, something other than an idea whose time has come. At the same time the average American spends, according to Forbes, 28 hours filling out their tax forms, and when you add in things like Social Security and sales taxes, they pay more than half of their earned income to the government. (In turn, I would argue that what they get back is things like a missile shield and a war in Iraq, but how taxes are spent is beyond the scope of both Forbes’s book and this column.) What the flat tax would eliminate overnight is the tax loophole businesses, all the lawyers and lobbyists petitioning government for this subsidy or that bailout, most of which are attached to tax legislation in the middle of the night. As an example, while reforming corporate taxes in 2004, the Bush administration allowed large corporations to repatriate $140 billion, tax-free, in overseas earnings.
Is the flat tax the most efficient way for the federal government to collect money? In my opinion, yes, although other ways include tariffs, a national sales tax, a value added tax, and a progressive income tax, which, in theory, is what we have today. By progressive what is meant is that tax rates increase as does income. One reason Americans are protective of the existing labyrinthine tax code is that they sense it exists to level the playing field between the rich and poor, and thus make the U.S. a more egalitarian society. They have a sentimental attachment to the memory of President Franklin Roosevelt soaking the rich or his cousin Teddy Roosevelt busting trusts. At the same time, the existing tax code has done little to prevent the U.S. from becoming the industrial nation with the largest gap between the rich and the poor.
In his book Wealth and Democracy, the social critic Kevin Philips makes the point that in 1979 the richest American families were ten times richer than the middle classes. By 1997, they were 27 times richer. In 1998, the top 1 percent of Americans had more income than 100 million people in the bottom 40 percent. New York Times columnist Paul Krugman has written that chief executive officers used to earn 39 times what average workers made. Now they make 1000 times more than those on shop floors. The flat tax might not redress this inequality. At the same time, it would at least get corporations to pay their fair share. In the 1950s, companies paid 25 percent of the nation’s tax. In 2001, they paid 7 percent.
Has the flat tax worked? Ironically, the countries that have most eagerly embraced the flat tax are those of the former Soviet Union. Flat taxes are now the law in countries like Estonia, Lithuania, and Russia, which bills its citizens 13 percent on all income. When Russia was Communist, needless to say, its tax rates were 100 percent. After the Russian revolution of 1991, the post-Communist governments of Boris Yeltsin held on to enough of the old tax code that nearly any Russian with money either hid it under the mattress or sent it overseas. As a result few people paid any income tax, and Russia lived off its state-owned enterprises, such as oil and gas. Since 2000, however, the flat tax of 13 percent has encouraged many Russians both to repatriate capital and pay tax. As Forbes writes: “My flat tax proposal has a rate of 17 percent. Putin instituted a 13 percent rate. I never thought the day would come when a former ex-communist and KGB agent such as Vladimir Putin would be more radical on taxes than I.” In Hong Kong, residents have the option to pay under a flat tax formula or under the existing regime, a choice that Forbes would give to American taxpayers under his formula. In other words, you could spend all of March on the living room floor, going through a shopping bag of receipts, or you could send in the Forbes flat tax postcard and pay 17 percent.
Flat Tax Revolution is not so much a book, but an 18th century pamphlet that argues for political change. Indeed the last chapters list the phone numbers of talk radio shows that acolytes can call, and Forbes encourages his devotees to take to the blogosphere. He tries, and does a good job, to show that a flat tax will not wipe out homeowners, charities or municipal bond dealers, returning to the point that it “would be such a powerful tonic to the economy. It would free up capital and energy. We could devote our brainpower and time to more productive pursuits than trying to cope with a time-consuming, bewildering tax code.” I think he is right, but I think Congress is the last place to find adherents to such a populist cause. Congress lives off the word loop in loophole. Indeed its tax reform bill of 2004 came to be known as the “No Lobbyist Left Behind Act.” I find it hard to believe Congress will unattach its strings long enough to drop the federal tax code and embrace a flat tax system. A flat earth, maybe, provided a few Platygaean lobbyists bought the dinner, but not a flat tax.
I do think, however, that Forbes would have a better chance with his idea if he worked to have it passed as an amendment to the constitution. To bypass Congress and the President would require, first, a constitutional convention, called by two-thirds of the states and, after proposing the amendment, ratification by three quarters of state legislatures. (Leave aside Mark Twain’s boast: "I think I can say with pride that we have legislatures that bring higher prices than any in the world.") Normally amendments to the Constitution come first from Congress and then go to the states. While this second method of reform exists, no amendment has ever come from this go-to-the-people approach. Such an amendment could even be used to impose a form of budgetary restraint on the federal government, which could be told that it annually has 17 percent of the nation’s income to spend, but no more. Would going to the states work? Tell me someone outside of Washington or a firm of lobbyists and lawyers who would not trade the current 9-million-word tax code for a flat tax of 17 percent? I also think populist ideas—and this is one of them—have the best chance to germinate among the grassroots.
Now Steve Forbes is back in the political arena with a book on the flat tax, the idea that all Americans should pay 17 percent of their income to the federal government. To note my own special interests, I should say that I have the book as a gift from my good friend and long-time colleague, Stephen Beekman, whose sister is married to Steve Forbes. As a result of my friendship with Stephen, I have met Steve Forbes at several public events and have heard him address a conference. On some of these occasions, Forbes has made mention of the flat tax, around which he had earlier run for President. But now with his book, Flat Tax Revolution: Using a Postcard to Abolish the IRS, he has elaborated on the idea that was scorned during the campaigns but which is gaining converts, and currency, around the world. For me, it is a straightforward and good idea.
One of the problems with the book is that it is brought to the market by Regnery Publishing, a distributor of conservative doctrine, and has a forward by Newt Gingrich, elements that could consign the flat tax proposal to the right-wing choruses. But that would be a shame, as I see no reason why only Republicans should endorse the idea of a simplified tax code under which everyone would pay the same percentage of their income to Uncle Sam. Why should Democrats carry the fire for such convolutions as the Alternative Minimum Tax? Forbes even has a quote from Democratic icon Thomas Jefferson, who asked: “Would it not be better to simplify the system of taxation rather than to spread it over such a variety of subjects and pass through so many new hands.” In many ways, the idea of the flat tax is neither Democratic nor Republican, but populist in its conception and aimed at the permanent government in Washington. Forbes writes: “The flat tax will deal a devastating blow to a Washington political culture more interested in special interests than in the well being of America.”
What I like about the flat tax idea is that it is a simple solution to the question of how the U.S., or any government, can most efficiently collect revenue to pay for state-sponsored services. Early in the life of the American republic, import tariffs were sufficient to pay for the limited reach of government. Only during the Civil War did President Abraham Lincoln first impose a federal income tax, but that lapsed after the fighting stopped. Not until early in the twentieth century did the states pass the sixteenth amendment to the Constitution, authorizing a federal income tax. During World War I, according to Forbes, marginal rates grew from 7 percent to 77 percent.
During the balance of the twentieth century, the tax code—now stretching to a mind-boggling 9 million words—was altered not simply to collect money, but to foster an array of social policies. At one time or another, taxes have been increased or decreased to promote marriage, home ownership, professional baseball, national defense, children, and social security. Some or all may be worthy social goals, but that does not mean the existing tax system is the most efficient way to collect money to pay for them.
Under the so-called Forbes Flat Tax, the government would collect a flat 17 percent from both personal as well as corporate income. Only a few deductions would survive. For that mythical family of four, no federal income tax would be due on the first $46,165 of income. Nor would there be tax on dividend income, personal savings, or capital gains. The 17 percent corporate tax, prior to the payment of dividends, would cover that revenue stream. Eliminating double taxation is a tenet of the Forbes proposal, which would also do away with estate duties, what he calls “the death tax.” You paid tax on that money while you were living, so why pay again just because you are dead? Forbes would also eliminate most of the sacred cows of deductible expenses: for example, those for charity and mortgage interest. His argument is that what you lose in tax optimization you win by a general surge in economic activity now that investors can make decisions based on anticipated profits, not simply to lower taxable income. By his reckoning, in good times and bad, Americans give about 2 percent of the national income to charity, notwithstanding any tax write-offs that may accrue.
For whatever reasons, although it cannot be affection for the current tax regime, many Americans respond warily to the idea of the flat tax. They sense it is a stalking horse for the rich, for Halliburton, to cheat the poor, to bail out Enron, something other than an idea whose time has come. At the same time the average American spends, according to Forbes, 28 hours filling out their tax forms, and when you add in things like Social Security and sales taxes, they pay more than half of their earned income to the government. (In turn, I would argue that what they get back is things like a missile shield and a war in Iraq, but how taxes are spent is beyond the scope of both Forbes’s book and this column.) What the flat tax would eliminate overnight is the tax loophole businesses, all the lawyers and lobbyists petitioning government for this subsidy or that bailout, most of which are attached to tax legislation in the middle of the night. As an example, while reforming corporate taxes in 2004, the Bush administration allowed large corporations to repatriate $140 billion, tax-free, in overseas earnings.
Is the flat tax the most efficient way for the federal government to collect money? In my opinion, yes, although other ways include tariffs, a national sales tax, a value added tax, and a progressive income tax, which, in theory, is what we have today. By progressive what is meant is that tax rates increase as does income. One reason Americans are protective of the existing labyrinthine tax code is that they sense it exists to level the playing field between the rich and poor, and thus make the U.S. a more egalitarian society. They have a sentimental attachment to the memory of President Franklin Roosevelt soaking the rich or his cousin Teddy Roosevelt busting trusts. At the same time, the existing tax code has done little to prevent the U.S. from becoming the industrial nation with the largest gap between the rich and the poor.
In his book Wealth and Democracy, the social critic Kevin Philips makes the point that in 1979 the richest American families were ten times richer than the middle classes. By 1997, they were 27 times richer. In 1998, the top 1 percent of Americans had more income than 100 million people in the bottom 40 percent. New York Times columnist Paul Krugman has written that chief executive officers used to earn 39 times what average workers made. Now they make 1000 times more than those on shop floors. The flat tax might not redress this inequality. At the same time, it would at least get corporations to pay their fair share. In the 1950s, companies paid 25 percent of the nation’s tax. In 2001, they paid 7 percent.
Has the flat tax worked? Ironically, the countries that have most eagerly embraced the flat tax are those of the former Soviet Union. Flat taxes are now the law in countries like Estonia, Lithuania, and Russia, which bills its citizens 13 percent on all income. When Russia was Communist, needless to say, its tax rates were 100 percent. After the Russian revolution of 1991, the post-Communist governments of Boris Yeltsin held on to enough of the old tax code that nearly any Russian with money either hid it under the mattress or sent it overseas. As a result few people paid any income tax, and Russia lived off its state-owned enterprises, such as oil and gas. Since 2000, however, the flat tax of 13 percent has encouraged many Russians both to repatriate capital and pay tax. As Forbes writes: “My flat tax proposal has a rate of 17 percent. Putin instituted a 13 percent rate. I never thought the day would come when a former ex-communist and KGB agent such as Vladimir Putin would be more radical on taxes than I.” In Hong Kong, residents have the option to pay under a flat tax formula or under the existing regime, a choice that Forbes would give to American taxpayers under his formula. In other words, you could spend all of March on the living room floor, going through a shopping bag of receipts, or you could send in the Forbes flat tax postcard and pay 17 percent.
Flat Tax Revolution is not so much a book, but an 18th century pamphlet that argues for political change. Indeed the last chapters list the phone numbers of talk radio shows that acolytes can call, and Forbes encourages his devotees to take to the blogosphere. He tries, and does a good job, to show that a flat tax will not wipe out homeowners, charities or municipal bond dealers, returning to the point that it “would be such a powerful tonic to the economy. It would free up capital and energy. We could devote our brainpower and time to more productive pursuits than trying to cope with a time-consuming, bewildering tax code.” I think he is right, but I think Congress is the last place to find adherents to such a populist cause. Congress lives off the word loop in loophole. Indeed its tax reform bill of 2004 came to be known as the “No Lobbyist Left Behind Act.” I find it hard to believe Congress will unattach its strings long enough to drop the federal tax code and embrace a flat tax system. A flat earth, maybe, provided a few Platygaean lobbyists bought the dinner, but not a flat tax.
I do think, however, that Forbes would have a better chance with his idea if he worked to have it passed as an amendment to the constitution. To bypass Congress and the President would require, first, a constitutional convention, called by two-thirds of the states and, after proposing the amendment, ratification by three quarters of state legislatures. (Leave aside Mark Twain’s boast: "I think I can say with pride that we have legislatures that bring higher prices than any in the world.") Normally amendments to the Constitution come first from Congress and then go to the states. While this second method of reform exists, no amendment has ever come from this go-to-the-people approach. Such an amendment could even be used to impose a form of budgetary restraint on the federal government, which could be told that it annually has 17 percent of the nation’s income to spend, but no more. Would going to the states work? Tell me someone outside of Washington or a firm of lobbyists and lawyers who would not trade the current 9-million-word tax code for a flat tax of 17 percent? I also think populist ideas—and this is one of them—have the best chance to germinate among the grassroots.
Friday, September 16, 2005
Getting Into The Market
Here is what happens when most people consider going on vacation to Florida. They spend countless evenings on the Internet, surfing travel sites, comparing prices, jotting down connections. They weigh a midnight change in Atlanta if it means saving $22 and finally, near the point of exhaustion, they book four tickets at 6:30 AM to Orlando and then repeat the experience to find a hotel and rental car.
When it comes to buying a stock or a bond, something else happens. Their broker calls and says: “I think we ought to get into NUKE,” some company that only rings a dim bell, perhaps one that first chimed during a Super Bowl commercial. In truth, the investor has no idea what the company does, who runs it, or why he should be buying the stock. Usually, a few feeble questions are posed, as in: “Wasn’t that the nuclear waste corporation where the management was indicted last year after they dumped uranium into swimming pools and then covered it up in the annual report?” At this report, the broker scoffs that this is “old news” and goes on to explain how the brokerage firm now rates NUKE “a buy,” and how now is the time to jump in—to the stock, not the swimming pools. The conversation ends with the investor saying meekly: “Well, okay, if you think so.”
In the case of the Florida air tickets, the amount spent is about $288 dollars, after six hours of research. With the stock market, after a brief phone conversation, the investor often parts with $10,000 or $20,000, if not more. Nothing else is heard from the broker until he calls a year later and says: “I think it’s time we got out of NUKE,” which is then followed by an explanation about how the company hasn’t performed “in line with expectations,” which can mean anything from flat performance to bankruptcy.
I thought of these mythic conversations during the last several weeks, when a few friends and business acquaintances have called to ask what I thought was a good investment. I gave some rambling answer about how interest rates are going up and the stock market might go down. But since the questions were posed, I have reflected on various answers, a few of which are expanded here:
What do you think of the US stock market?
I don’t love the US stock market for the simple reason that many stocks have been up during the year, and I fear a rise in interest rates will choke off the feel-good summer rally. Nor do I like the fundamental economic trends of the United States for reasons that are troubling: rising interest rates, budget and trade deficits, dependence on foreign oil, choked interstates, and bubbles in the real estate market. Neither a hurricane in the Gulf nor an occupation of Iraq means recession for the United States, but stimulating an economy with deficit spending, storm relief, national guard mobilizations or home-equity financing is nothing more than putting a country on a ration of food stamps.
Hence for the US investor, I prefer things like funds in distressed securities, short-term well-rated bonds, and cash deposits. I think gold is expensive ($480) for something that is practically a pet rock, and I think the whispers of a recession in the US would choke off the rally in the price of oil. It might also be the time to short the real estate market, although I realize that houses are not as easy to sell short as pork bellies.
What about Russia? Should I be thinking of investing there?
In Europe, the fundamental question is whether Russia plans to embrace the European or the Soviet Union. If President Vladimir Putin continues to attack economic oligarchy, it could scare foreign investors away from Russia, the ruble, and the oil fields. Several years ago, nearly every mutual fund investing in Russia owned, as a matter of routine, shares in Yukos, the oil giant that was dissolved after the Russian government went after the two company founders—as if they were the brothers Karamazov. At the same time, if President Putin allows the Russian economy to become captive to a handful of robber barons, little of the country’s vast wealth will filter into the paychecks of the working classes.
Russia is a tempting investment, because it is so big and has so much oil and gas. But I would stay away from listed shares in this market until you are sure that when you buy them, you will get to keep them. Just because Russia has embraced free enterprise and a market economy does not mean you can make money lending to that market some of your savings.
A friend of mine is investing in a golf course. Is that a good deal?
Traveling around in Europe in recent months, I have met a number of people keen to invest in the golf business. They are interested in hotels, Spanish time-shares, and golf courses. But is golf a good investment? Certainly the demographics are good. Armies of amateur golfers are wandering the world in search of the perfect weekend. In the US greens fees have topped $300 for rounds at elite resorts while in Britain it costs about $200 to play one of the Scottish courses used for the British Open. But golf also generates money through the sale of equipment, stays in hotels, and other ancillary services. Go on a golf weekend sometime and try to come home with change left from your $2000.
What tempts some investors is that Europe has yet to develop some of the integrated golf resort complexes that are so popular in places like Arizona, California, and Florida. For example, the famous Scottish course at Carnoustie, in Scotland, has only one hotel near the first tee, and it looks like an airport Sheraton. But aside from Spain and Portugal, the European climate makes golf a short summer game. What happens then to the hotel between October and April? How many conference centers does the world need?
For the average investor, I would stay away from golf-related investments, which are closer to fashion than cash-flow statements. Study your buddy’s golf bag over the last few years. One year he shows up with a $450 Big Bertha from Callaway (ELY), as that is the club that will save his erratic game. Then a year or so later, he has something else—a Wilson or Titleist—and the Callaway is on consignment for $45 in a driving-range barrel. But he is still not breaking 90. Nor is Callaway, which earned $69 million in 2002 and $46 million in 2003, but then lost $10 million in 2004. So far 2005 looks more promising, proving even corporations get a mulligan.
For institutional investors, I like the idea of creating an elite chain of small hotels located on premier golf courses. People love to travel around Europe and to play golf, but usually this means making hotel and golf reservations one-by-one. Plus the results can be uneven. You can get the golf right, but then the hotel is lousy. But a boutique chain that could insure both first-class golf and first-class accommodation would attract golfers on the loose.
Bank stocks haven’t done anything for a long time. Is now the time to buy?
Because I have worked for banks, I follow their stocks. In the last five years, with few exceptions, banks have yielded mediocre returns. The flavor-of-the-month in banking these days is the selling of retail services: consumer debt, mortgage financing, credit cards, and everything else that begins after you hand the customer a black-and-white TV. A few years ago, everyone was saying that retail branches would disappear, that people would only bank online. Or they were saying that only investment banks, with their large trading books and speculative positions, would make money. As it turned out, merger and acquisition business declined, trading margins narrowed, and the only banks that made money had drive-thru windows. One New Jersey retail bank I follow, Hudson County Bancorp (HCBK), used to sell at a P/E of 10 times earnings, with very little fanfare. Now its share multiple is 29 times its earnings, and everyone loves the stock.
Despite the lack of excitement in their results, other large money center bank stocks still trade at an average premium of 13 times earnings. Many have market-to-book ratios in excess of 2 times, meaning the market value of the bank is more than twice the accounting value. For half that goodwill you have to hope that the bank’s customers will pay back all their loans. Will they? The risk in bank balance sheets is their exposure to residential and commercial real estate. If that plummets, it might not to be the time to put your money in toasters. But if you believe in the banking sector holding up to interest-rate rises or real estate dips, some stocks like Bank of America (BAC) are selling at 10 times earnings and paying a 4.7 percent yield—more than their passbooks. Wachovia (WB) yields 4.2 %, and trades at 12 times earnings. Citibank (C) yields 3.9 percent and has a P/E of 11.
In summary, for those with money to invest, you might consider:
--Sticking with short-term investments in highly rated bonds;
--Selling long positions in gold and other commodities;
--Reducing personal and commercial debt, which will get more expensive as rates rise;
--Investing in funds that acquire distressed securities at a fraction of their initial offering prices.
--Playing more golf, but limiting your bets to $1 a hole.
If you want exposure to Russia, may I suggest Tolstoy?
When it comes to buying a stock or a bond, something else happens. Their broker calls and says: “I think we ought to get into NUKE,” some company that only rings a dim bell, perhaps one that first chimed during a Super Bowl commercial. In truth, the investor has no idea what the company does, who runs it, or why he should be buying the stock. Usually, a few feeble questions are posed, as in: “Wasn’t that the nuclear waste corporation where the management was indicted last year after they dumped uranium into swimming pools and then covered it up in the annual report?” At this report, the broker scoffs that this is “old news” and goes on to explain how the brokerage firm now rates NUKE “a buy,” and how now is the time to jump in—to the stock, not the swimming pools. The conversation ends with the investor saying meekly: “Well, okay, if you think so.”
In the case of the Florida air tickets, the amount spent is about $288 dollars, after six hours of research. With the stock market, after a brief phone conversation, the investor often parts with $10,000 or $20,000, if not more. Nothing else is heard from the broker until he calls a year later and says: “I think it’s time we got out of NUKE,” which is then followed by an explanation about how the company hasn’t performed “in line with expectations,” which can mean anything from flat performance to bankruptcy.
I thought of these mythic conversations during the last several weeks, when a few friends and business acquaintances have called to ask what I thought was a good investment. I gave some rambling answer about how interest rates are going up and the stock market might go down. But since the questions were posed, I have reflected on various answers, a few of which are expanded here:
What do you think of the US stock market?
I don’t love the US stock market for the simple reason that many stocks have been up during the year, and I fear a rise in interest rates will choke off the feel-good summer rally. Nor do I like the fundamental economic trends of the United States for reasons that are troubling: rising interest rates, budget and trade deficits, dependence on foreign oil, choked interstates, and bubbles in the real estate market. Neither a hurricane in the Gulf nor an occupation of Iraq means recession for the United States, but stimulating an economy with deficit spending, storm relief, national guard mobilizations or home-equity financing is nothing more than putting a country on a ration of food stamps.
Hence for the US investor, I prefer things like funds in distressed securities, short-term well-rated bonds, and cash deposits. I think gold is expensive ($480) for something that is practically a pet rock, and I think the whispers of a recession in the US would choke off the rally in the price of oil. It might also be the time to short the real estate market, although I realize that houses are not as easy to sell short as pork bellies.
What about Russia? Should I be thinking of investing there?
In Europe, the fundamental question is whether Russia plans to embrace the European or the Soviet Union. If President Vladimir Putin continues to attack economic oligarchy, it could scare foreign investors away from Russia, the ruble, and the oil fields. Several years ago, nearly every mutual fund investing in Russia owned, as a matter of routine, shares in Yukos, the oil giant that was dissolved after the Russian government went after the two company founders—as if they were the brothers Karamazov. At the same time, if President Putin allows the Russian economy to become captive to a handful of robber barons, little of the country’s vast wealth will filter into the paychecks of the working classes.
Russia is a tempting investment, because it is so big and has so much oil and gas. But I would stay away from listed shares in this market until you are sure that when you buy them, you will get to keep them. Just because Russia has embraced free enterprise and a market economy does not mean you can make money lending to that market some of your savings.
A friend of mine is investing in a golf course. Is that a good deal?
Traveling around in Europe in recent months, I have met a number of people keen to invest in the golf business. They are interested in hotels, Spanish time-shares, and golf courses. But is golf a good investment? Certainly the demographics are good. Armies of amateur golfers are wandering the world in search of the perfect weekend. In the US greens fees have topped $300 for rounds at elite resorts while in Britain it costs about $200 to play one of the Scottish courses used for the British Open. But golf also generates money through the sale of equipment, stays in hotels, and other ancillary services. Go on a golf weekend sometime and try to come home with change left from your $2000.
What tempts some investors is that Europe has yet to develop some of the integrated golf resort complexes that are so popular in places like Arizona, California, and Florida. For example, the famous Scottish course at Carnoustie, in Scotland, has only one hotel near the first tee, and it looks like an airport Sheraton. But aside from Spain and Portugal, the European climate makes golf a short summer game. What happens then to the hotel between October and April? How many conference centers does the world need?
For the average investor, I would stay away from golf-related investments, which are closer to fashion than cash-flow statements. Study your buddy’s golf bag over the last few years. One year he shows up with a $450 Big Bertha from Callaway (ELY), as that is the club that will save his erratic game. Then a year or so later, he has something else—a Wilson or Titleist—and the Callaway is on consignment for $45 in a driving-range barrel. But he is still not breaking 90. Nor is Callaway, which earned $69 million in 2002 and $46 million in 2003, but then lost $10 million in 2004. So far 2005 looks more promising, proving even corporations get a mulligan.
For institutional investors, I like the idea of creating an elite chain of small hotels located on premier golf courses. People love to travel around Europe and to play golf, but usually this means making hotel and golf reservations one-by-one. Plus the results can be uneven. You can get the golf right, but then the hotel is lousy. But a boutique chain that could insure both first-class golf and first-class accommodation would attract golfers on the loose.
Bank stocks haven’t done anything for a long time. Is now the time to buy?
Because I have worked for banks, I follow their stocks. In the last five years, with few exceptions, banks have yielded mediocre returns. The flavor-of-the-month in banking these days is the selling of retail services: consumer debt, mortgage financing, credit cards, and everything else that begins after you hand the customer a black-and-white TV. A few years ago, everyone was saying that retail branches would disappear, that people would only bank online. Or they were saying that only investment banks, with their large trading books and speculative positions, would make money. As it turned out, merger and acquisition business declined, trading margins narrowed, and the only banks that made money had drive-thru windows. One New Jersey retail bank I follow, Hudson County Bancorp (HCBK), used to sell at a P/E of 10 times earnings, with very little fanfare. Now its share multiple is 29 times its earnings, and everyone loves the stock.
Despite the lack of excitement in their results, other large money center bank stocks still trade at an average premium of 13 times earnings. Many have market-to-book ratios in excess of 2 times, meaning the market value of the bank is more than twice the accounting value. For half that goodwill you have to hope that the bank’s customers will pay back all their loans. Will they? The risk in bank balance sheets is their exposure to residential and commercial real estate. If that plummets, it might not to be the time to put your money in toasters. But if you believe in the banking sector holding up to interest-rate rises or real estate dips, some stocks like Bank of America (BAC) are selling at 10 times earnings and paying a 4.7 percent yield—more than their passbooks. Wachovia (WB) yields 4.2 %, and trades at 12 times earnings. Citibank (C) yields 3.9 percent and has a P/E of 11.
In summary, for those with money to invest, you might consider:
--Sticking with short-term investments in highly rated bonds;
--Selling long positions in gold and other commodities;
--Reducing personal and commercial debt, which will get more expensive as rates rise;
--Investing in funds that acquire distressed securities at a fraction of their initial offering prices.
--Playing more golf, but limiting your bets to $1 a hole.
If you want exposure to Russia, may I suggest Tolstoy?
Friday, September 09, 2005
Gulf Storms
Although I chase neither fire engines nor ambulances, I have long had an interest in hurricanes. As a child on Long Island in the 1960s, I huddled around a candle-lit kitchen table while Hurricane Donna blew through New England. Once on a British Airways flight from London to New York, I sat filled with admiration and fascination as the pilot landed the plane into the fringes of Hurricane Belle, which on the tarmac he described as “not much worse than a summer day in Brighton.” In college along the banks of the Susquehanna River, I watched the remnants of a hurricane flood the town of Lewisburg, Pennsylvania, where during a dark night I went door-to-door to convince the residents that it was either time to leave their houses or sleep in the attic. Interestingly, I managed to persuade only a handful of riverside residents to leave in time. The torrent that Susquehanna became at flood stage was more persuasive.
The hurricane bug stayed with me into my twenties, when I proposed to the magazine of Pan American Airways, Clipper, to write an article about tropical storms. The editor wasn’t sure if passengers wanted to be reminded of eyewalls and swirling low pressure while flying the oceans. But I explained to her that hurricanes did not pose much of a risk to commercial aviation, and some weeks later I departed for Florida to interview what in the newspapers are called “hurricane officials.”
I began my week in Coral Gables, Florida, where I met the then-director of the National Hurricane Center, Dr. Neil Frank. The hurricane season generally lasts from June to November. As I was there in the off-season, he invited me to lunch and toured me around the center, which then had banks of primitive computers and radar monitors, like you might see in a tower of air-traffic controllers. Dr. Frank had an ebullient and engaging personality, and after a sandwich lunch he gave me a slide show on the back of his office door.
Before visiting the center, I knew a few of the hurricane basics: that they generally form over Africa or the eastern Atlantic as systems of low pressure, that not all low pressure systems mature into hurricanes, that they feed off the warm waters of the Atlantic and the Caribbean, and that when they approach the southeastern American coast, they are guided by upper air currents and those of the Gulf Stream. Dr. Frank kept repeating that hurricanes were “nature’s teapot,” a rolling boil that lets off the steam of an African summer or other Atlantic highs.
Yes, he feared some correlation between global warming and increased hurricane activity, but at that time in the early 1980s, his evidence on that subject was not conclusive. Rather he spoke more of patterns in the upper atmosphere that either pushed hurricanes into the Gulf of Mexico or up the Atlantic seaboard. In the 1950s, a lot of hurricanes had gone ashore around the Outer Banks of North Carolina while later they tended to slam into either Texas or the Gulf coasts of Louisiana and Mississippi. Hurricanes are strongest, he said, at their recurvature point, when like bowling bowls they started to curve, usually to the northeast. He made the point that as a hurricane went further north along the Atlantic seaboard, it tended to lose strength over cooler waters, but at the same time often moved faster. The 1938 hurricane that blasted Long Island and New England was traveling at close to 60 miles per hour when it came ashore, while some tropical storms around the warmer Caribbean had dithered and stalled before making landfall.
If you spend any time around hurricane experts, you learn quickly that they all have their favorite storms, and they can discuss many as if they had distinct personalities. Dr. Frank got excited speaking of storms that changed direction abruptly, or those that lasted more than two weeks, or others that had perfect eyewall formations. Hurricane Betsy in 1965 did a small loop, like a basketball player splitting a zone. Zigging and zagging, Hurricane Ginger made about four passes over central Cuba. Hurricane Donna, from my childhood, had maintained its strength while raking Florida and North Carolina and finally New England.
While respecting the lethal qualities of any hurricane, the few experts I met all marveled when they encountered the perfect storm, such as Hurricane Camille, a category 5 that devastated the Gulf coast in 1969. In scientific terms, Camille had it all: low pressure, size, a distinctive tail, and a strengthening drive found in few storms in the last century. Hurricane Allen, in 1980, had been a category 5 several times on its way across the Gulf of Mexico but then lost its mojo and came ashore in Brownsville, Texas as a 3. Most powerful of all storms was the 1935 hurricane that, in the era before satellites and aerial reconnaissance, devastated the Florida Keys with no warning.
As it happened, Dr. Frank went to Gulfport and Biloxi, Mississippi, in 1969, hours after Camille had made landfall. He had brought with him a camera, and it was slides from that trip that I saw on the back of his office door. In particular, Dr. Frank explained to me that the greatest threat in a hurricane, perhaps worse than the high winds, is the storm surge—the dome of high water that comes ashore with a tropical cyclone. On beach piers he had marked the levels of surge associated with Camille, which were more than twenty feet above normal sea levels. Then he spoke about the risks of similar surge elsewhere around the country.
Dr. Frank had various doomsday scenarios—all resulting from a combination of meteorological shortcomings and the force of nature. In most cases, hurricanes are as hard to forecast as skittles or spinning tops. You may know the incline of the floor and the consistency of the tiles. But storms can make freakish turns—sometimes called wobbles—at the last minute, just as Katrina did before she came ashore. A result of this unpredictability is that forecasters do not always know where a hurricane will strike, and that can leave coastal residents with less than adequate time to escape harm’s way.
Dr. Frank kept returning to the hurricane risk in the Florida Keys. In good weather, it would take two or three days to evacuate them, given there is only one way out. At the same time, the Keys are virtually at sea level, and the escape routes, in a bad and unpredictable storm, would be closed hours before the storm hit. One that came with a twenty-foot surge would cover the Keys. Thus forecasters have the unenviable position of having to predict the worse and at times being wrong. Some storms weaken before hitting land; others drift out to sea. If you ask most people, they can describe all the hurricanes that have missed them, and very few that delivered on the apocalyptic promise. The early forecasts had Hurricane Andrew coming ashore on a Tuesday or a Wednesday in Palm Beach, when it landed early on a Monday morning, south of Miami.
What scared Dr. Frank was the following: big powerful storms, with little warning time, striking Miami, Tampa Bay, or New Orleans. He even said the worse possible time would be on the last day of the Labor Day weekend, when people were stuck in holiday traffic. Usually, hurricanes have long tracks across the Atlantic and the Caribbean—so-called Cape Verde storms—and satellites together with Hurricane Hunter planes have made forecasting them more a science than an art. But Caribbean storms can intensify with sudden violence. Both Camille in 1969, and Katrina in 2005, grew to category 5 storms only in the Gulf of Mexico, and then struck land within two days. To evacuate a city like New Orleans, I remember Dr. Frank telling me, would take more than a week, and how is that possible every time a storm spins into the Gulf? Since 1851, 108 hurricanes have struck Texas and Louisiana. What made Katrina so lethal was its vast size, its relative slow speed, the warmth and shallow coastline of the Gulf, and the misfortune that its cyclonic winds caught the levees from the north and lakeside of the city. But it was not an exception: in the last 150 years about twenty category 4 and 5 hurricanes have come ashore along the US Gulf.
Dr. Frank was not an economist, but his argument about hurricanes, in the end, was financial. The point he kept making in 1981 was that the U.S. could not afford the cost of hurricane damage if it continued to allow beachside construction on sand dunes and in flood zones. He showed me maps and slides of Florida in the 1940s, when deserted barrier islands could absorb the brunt of a strong hurricane, and then modern photographs of the same coastline, now dotted with high-rise condominiums. He believed his forecasters could get many people away from a hurricane’s fury, but he had no ability to stop the frantic development of the Eastern and Gulf coastlines. As a result, he predicted the usual cycle of tropical storms, but ones that would cost proportionately more money than anyone could imagine.
I have lost track of Dr. Frank, but not his cautionary tales. The news that Hurricane Katrina would cost more than $100 billion in losses prompted me to look at the invoices associated with other hurricanes. The National Hurricane Center has a list on its Web site of the costliest U.S. hurricanes. Alas, the figures are not adjusted for inflation. Nevertheless, of the thirty most expensive storms since 1900, 19 have occurred since 1989, when Hurricane Hugo cost the city of Charleston, South Carolina $7 billion. Before Katrina flooded New Orleans, the costliest storm was Andrew, which ran up bills of $26.5 billion in south Florida—the same coastline that Dr. Frank had warned me was ripe for a large hurricane.
In the case of Hurricane Katrina, Congress voted temporary disaster aid of $10 billion before the last survivors were off the rooftops. A few days later President George W. Bush defiantly promised to rebuild the ravished coasts and requested another $51 billion in disaster aid. He knew well what he was promising, as in the months prior to the 2004 presidential election, hurricanes Charley, Ivan, and Jeanne had prompted $36.1 billion in payouts to Florida residents. The federal government had footed many of those bills, supporting the inalienable American right to live in the path of natural disasters. Nor did it hurt anyone’s claim that the people crawling out of their devastated trailers would soon be voting in the presidential election. In the case of New Orleans, nearly all of the bailout will also come from the federal government as for many years insurance companies there have refused to write flood insurance—showing more foresight than the Bush administration when it diverted funds for levee reinforcement to Iraq and tax cuts.
After leaving the office of Dr. Frank in Coral Gables, I spent a week in Florida touring hurricane preparedness offices, and speaking with coast watchers in places like Key West. All of them agreed that they did not have the resources to deal with a major storm, such as a Camille or an Andrew, either in terms of convincing people to leave or in terms of protecting private property. Building codes were rarely enforced, they noted, and more than one official described how the low pressure of a hurricane’s core had the ability to pop roofs off houses as if they were bottle tops. The only way to escape from the savage sea was to be inland—a lesson state and federal governments have dismissed since a hurricane in 1900 killed 8,000 residents in Galveston, Texas. In Florida alone in the last hundred years, the population has increased by 15 million, and most of that growth has been along the coastline.
Just because Dr. Frank warned me in 1981 about the hurricane risks to New Orleans does not mean the disaster there was avoidable. At the same time no one in city, state or the federal government can say of the breached levees, as did President Bush: “How were we to know?” or the more provocative, “Tell me what didn’t go right?” Dr. Frank and his successors, men like Bob Sheets and the current director, Max Mayfield, all knew. Sheets published Hurricane Watch in 2001 in which he writes: “Among the experts, the vulnerability of New Orleans is legendary and scary,” and then devotes a chapter to describing how the city would flood in a category 4 hurricane, and how many residents would not get out in time. The book costs $15; paying for ignoring its conclusions will cost more than $100 billion.
A friend of mine once said about politics that it is no fun to be in government if you can’t spend any money. By that account, the Bush administration must be having a ball in Washington. It turned a half trillion-dollar budget surplus into a deficit of the same amount. The occupation of Iraq is costing more than $5 billion a month, and the annual budgets for defense and homeland security now exceed $450 billion, although for that money you can’t get bottled water delivered to the New Orleans Convention Center. Another half a trillion dollar invoice is that of the trade deficit, much of it paid to Middle East sheikdoms to import oil, if not their religious fundamentalism. The attacks of September 11th, also on the radar of many forecasters, cost between $10-20 billion. In the last year the Bush administration will have paid out almost $150 billion to cover hurricane damage, although none of that funding will erase the image of New Orleans as a first-world Bangladesh—a flood zone of anarchy and absentee leadership. Is it any wonder then that, after Katrina, a few African and Asian governments offered to send the residents of Louisiana tents and blankets? Maybe next time around they will send financial aid?
The hurricane bug stayed with me into my twenties, when I proposed to the magazine of Pan American Airways, Clipper, to write an article about tropical storms. The editor wasn’t sure if passengers wanted to be reminded of eyewalls and swirling low pressure while flying the oceans. But I explained to her that hurricanes did not pose much of a risk to commercial aviation, and some weeks later I departed for Florida to interview what in the newspapers are called “hurricane officials.”
I began my week in Coral Gables, Florida, where I met the then-director of the National Hurricane Center, Dr. Neil Frank. The hurricane season generally lasts from June to November. As I was there in the off-season, he invited me to lunch and toured me around the center, which then had banks of primitive computers and radar monitors, like you might see in a tower of air-traffic controllers. Dr. Frank had an ebullient and engaging personality, and after a sandwich lunch he gave me a slide show on the back of his office door.
Before visiting the center, I knew a few of the hurricane basics: that they generally form over Africa or the eastern Atlantic as systems of low pressure, that not all low pressure systems mature into hurricanes, that they feed off the warm waters of the Atlantic and the Caribbean, and that when they approach the southeastern American coast, they are guided by upper air currents and those of the Gulf Stream. Dr. Frank kept repeating that hurricanes were “nature’s teapot,” a rolling boil that lets off the steam of an African summer or other Atlantic highs.
Yes, he feared some correlation between global warming and increased hurricane activity, but at that time in the early 1980s, his evidence on that subject was not conclusive. Rather he spoke more of patterns in the upper atmosphere that either pushed hurricanes into the Gulf of Mexico or up the Atlantic seaboard. In the 1950s, a lot of hurricanes had gone ashore around the Outer Banks of North Carolina while later they tended to slam into either Texas or the Gulf coasts of Louisiana and Mississippi. Hurricanes are strongest, he said, at their recurvature point, when like bowling bowls they started to curve, usually to the northeast. He made the point that as a hurricane went further north along the Atlantic seaboard, it tended to lose strength over cooler waters, but at the same time often moved faster. The 1938 hurricane that blasted Long Island and New England was traveling at close to 60 miles per hour when it came ashore, while some tropical storms around the warmer Caribbean had dithered and stalled before making landfall.
If you spend any time around hurricane experts, you learn quickly that they all have their favorite storms, and they can discuss many as if they had distinct personalities. Dr. Frank got excited speaking of storms that changed direction abruptly, or those that lasted more than two weeks, or others that had perfect eyewall formations. Hurricane Betsy in 1965 did a small loop, like a basketball player splitting a zone. Zigging and zagging, Hurricane Ginger made about four passes over central Cuba. Hurricane Donna, from my childhood, had maintained its strength while raking Florida and North Carolina and finally New England.
While respecting the lethal qualities of any hurricane, the few experts I met all marveled when they encountered the perfect storm, such as Hurricane Camille, a category 5 that devastated the Gulf coast in 1969. In scientific terms, Camille had it all: low pressure, size, a distinctive tail, and a strengthening drive found in few storms in the last century. Hurricane Allen, in 1980, had been a category 5 several times on its way across the Gulf of Mexico but then lost its mojo and came ashore in Brownsville, Texas as a 3. Most powerful of all storms was the 1935 hurricane that, in the era before satellites and aerial reconnaissance, devastated the Florida Keys with no warning.
As it happened, Dr. Frank went to Gulfport and Biloxi, Mississippi, in 1969, hours after Camille had made landfall. He had brought with him a camera, and it was slides from that trip that I saw on the back of his office door. In particular, Dr. Frank explained to me that the greatest threat in a hurricane, perhaps worse than the high winds, is the storm surge—the dome of high water that comes ashore with a tropical cyclone. On beach piers he had marked the levels of surge associated with Camille, which were more than twenty feet above normal sea levels. Then he spoke about the risks of similar surge elsewhere around the country.
Dr. Frank had various doomsday scenarios—all resulting from a combination of meteorological shortcomings and the force of nature. In most cases, hurricanes are as hard to forecast as skittles or spinning tops. You may know the incline of the floor and the consistency of the tiles. But storms can make freakish turns—sometimes called wobbles—at the last minute, just as Katrina did before she came ashore. A result of this unpredictability is that forecasters do not always know where a hurricane will strike, and that can leave coastal residents with less than adequate time to escape harm’s way.
Dr. Frank kept returning to the hurricane risk in the Florida Keys. In good weather, it would take two or three days to evacuate them, given there is only one way out. At the same time, the Keys are virtually at sea level, and the escape routes, in a bad and unpredictable storm, would be closed hours before the storm hit. One that came with a twenty-foot surge would cover the Keys. Thus forecasters have the unenviable position of having to predict the worse and at times being wrong. Some storms weaken before hitting land; others drift out to sea. If you ask most people, they can describe all the hurricanes that have missed them, and very few that delivered on the apocalyptic promise. The early forecasts had Hurricane Andrew coming ashore on a Tuesday or a Wednesday in Palm Beach, when it landed early on a Monday morning, south of Miami.
What scared Dr. Frank was the following: big powerful storms, with little warning time, striking Miami, Tampa Bay, or New Orleans. He even said the worse possible time would be on the last day of the Labor Day weekend, when people were stuck in holiday traffic. Usually, hurricanes have long tracks across the Atlantic and the Caribbean—so-called Cape Verde storms—and satellites together with Hurricane Hunter planes have made forecasting them more a science than an art. But Caribbean storms can intensify with sudden violence. Both Camille in 1969, and Katrina in 2005, grew to category 5 storms only in the Gulf of Mexico, and then struck land within two days. To evacuate a city like New Orleans, I remember Dr. Frank telling me, would take more than a week, and how is that possible every time a storm spins into the Gulf? Since 1851, 108 hurricanes have struck Texas and Louisiana. What made Katrina so lethal was its vast size, its relative slow speed, the warmth and shallow coastline of the Gulf, and the misfortune that its cyclonic winds caught the levees from the north and lakeside of the city. But it was not an exception: in the last 150 years about twenty category 4 and 5 hurricanes have come ashore along the US Gulf.
Dr. Frank was not an economist, but his argument about hurricanes, in the end, was financial. The point he kept making in 1981 was that the U.S. could not afford the cost of hurricane damage if it continued to allow beachside construction on sand dunes and in flood zones. He showed me maps and slides of Florida in the 1940s, when deserted barrier islands could absorb the brunt of a strong hurricane, and then modern photographs of the same coastline, now dotted with high-rise condominiums. He believed his forecasters could get many people away from a hurricane’s fury, but he had no ability to stop the frantic development of the Eastern and Gulf coastlines. As a result, he predicted the usual cycle of tropical storms, but ones that would cost proportionately more money than anyone could imagine.
I have lost track of Dr. Frank, but not his cautionary tales. The news that Hurricane Katrina would cost more than $100 billion in losses prompted me to look at the invoices associated with other hurricanes. The National Hurricane Center has a list on its Web site of the costliest U.S. hurricanes. Alas, the figures are not adjusted for inflation. Nevertheless, of the thirty most expensive storms since 1900, 19 have occurred since 1989, when Hurricane Hugo cost the city of Charleston, South Carolina $7 billion. Before Katrina flooded New Orleans, the costliest storm was Andrew, which ran up bills of $26.5 billion in south Florida—the same coastline that Dr. Frank had warned me was ripe for a large hurricane.
In the case of Hurricane Katrina, Congress voted temporary disaster aid of $10 billion before the last survivors were off the rooftops. A few days later President George W. Bush defiantly promised to rebuild the ravished coasts and requested another $51 billion in disaster aid. He knew well what he was promising, as in the months prior to the 2004 presidential election, hurricanes Charley, Ivan, and Jeanne had prompted $36.1 billion in payouts to Florida residents. The federal government had footed many of those bills, supporting the inalienable American right to live in the path of natural disasters. Nor did it hurt anyone’s claim that the people crawling out of their devastated trailers would soon be voting in the presidential election. In the case of New Orleans, nearly all of the bailout will also come from the federal government as for many years insurance companies there have refused to write flood insurance—showing more foresight than the Bush administration when it diverted funds for levee reinforcement to Iraq and tax cuts.
After leaving the office of Dr. Frank in Coral Gables, I spent a week in Florida touring hurricane preparedness offices, and speaking with coast watchers in places like Key West. All of them agreed that they did not have the resources to deal with a major storm, such as a Camille or an Andrew, either in terms of convincing people to leave or in terms of protecting private property. Building codes were rarely enforced, they noted, and more than one official described how the low pressure of a hurricane’s core had the ability to pop roofs off houses as if they were bottle tops. The only way to escape from the savage sea was to be inland—a lesson state and federal governments have dismissed since a hurricane in 1900 killed 8,000 residents in Galveston, Texas. In Florida alone in the last hundred years, the population has increased by 15 million, and most of that growth has been along the coastline.
Just because Dr. Frank warned me in 1981 about the hurricane risks to New Orleans does not mean the disaster there was avoidable. At the same time no one in city, state or the federal government can say of the breached levees, as did President Bush: “How were we to know?” or the more provocative, “Tell me what didn’t go right?” Dr. Frank and his successors, men like Bob Sheets and the current director, Max Mayfield, all knew. Sheets published Hurricane Watch in 2001 in which he writes: “Among the experts, the vulnerability of New Orleans is legendary and scary,” and then devotes a chapter to describing how the city would flood in a category 4 hurricane, and how many residents would not get out in time. The book costs $15; paying for ignoring its conclusions will cost more than $100 billion.
A friend of mine once said about politics that it is no fun to be in government if you can’t spend any money. By that account, the Bush administration must be having a ball in Washington. It turned a half trillion-dollar budget surplus into a deficit of the same amount. The occupation of Iraq is costing more than $5 billion a month, and the annual budgets for defense and homeland security now exceed $450 billion, although for that money you can’t get bottled water delivered to the New Orleans Convention Center. Another half a trillion dollar invoice is that of the trade deficit, much of it paid to Middle East sheikdoms to import oil, if not their religious fundamentalism. The attacks of September 11th, also on the radar of many forecasters, cost between $10-20 billion. In the last year the Bush administration will have paid out almost $150 billion to cover hurricane damage, although none of that funding will erase the image of New Orleans as a first-world Bangladesh—a flood zone of anarchy and absentee leadership. Is it any wonder then that, after Katrina, a few African and Asian governments offered to send the residents of Louisiana tents and blankets? Maybe next time around they will send financial aid?
Thursday, September 01, 2005
Get Me Machiavelli on His Cell Phone
Every so often a business motivational book appears that takes inspiration from an historical figure. I even think there was a management handbook that drew lessons from the corporate style of Genghis Khan, whose personnel file no doubt includes a few words on his “inability to get along with his colleagues.” While not sweating the small stuff, managers can absorb the leadership style of George Patton, Vince Lombardi, Sun Tzu, or, for all I know, Jay Gatsby, who like most bosses never knew anyone’s name and called even his friends “Old Sport.”
One of the more popular business consultants is Niccolò Machiavelli, the Florentine diplomatist and writer, who published The Prince toward the end of his life. From Machiavelli, we get the adjective Machiavellian, which has diverse meanings, but would include traits such as cunning, duplicity, ruthlessness, and power for power’s sake. Henry Kissinger would, for most people, be a walking definition of the word Machiavellian; Jimmy Carter would not. As most chief executives live like princes, it makes sense that someone like Niccolò Machiavelli should act as their personal fitness trainer.
Until this summer, I knew little about Machiavelli’s personal life. I knew he had written The Prince, which I was unable to finish when I tried it in high school. Later I read it with more appreciation. I associated him with the Florentine republic. I suspected he had written his handbook on princely behavior at the request of a wealthy patron, perhaps one of the Renaissance oligarchs who every year lost a few food tasters. But beyond general impressions, I did not know whether Machiavelli deserved his reputation until I had occasion, in June, to spend a day in Tuscany.
I was in Florence to study the decline and fall of the Medici’s bank, which flourished during the 15th century and then collapsed around 1480, when Machiavelli was a boy. Having spent twenty years of my life in the company of both banks and wannabe Medicis, I was curious to learn that Florence’s leading family had gotten rich on papal deposits and then lost the bank through what is now called sovereign lending: loans to governments, including the likes of the Vatican. The original Medici fortune came from taking deposits in one city, and then extending loans in another. For that they charged silk merchants and others the equivalent of 20 percent per annum. In the end, principalities turned to the Medici to fund their wars (Iraq isn’t the first war launched by a dynastic family), and when it came time to collect, the borrowers were either dead or in prison, and the Medicis themselves needed mercenaries just to call in their loans.
While walking the stations of the Medici cross in Florence, I found myself drawn to the life of Machiavelli. At first I found his tomb in the cathedral of Santa Croce, which is the burial ground of the Renaissance dream team, including Michelangelo, Donatello, Cellini, and Vespucci, the mapmaker with the first name Amerigo. That prompted me to ask in a bookstore if Florence had a Machiavelli museum. No, the shop owner said, nothing in Florence celebrated the life of the famous writer. But she sold me a new account of his life with the subtitle “A man misunderstood.” Another customer in the store circled his native Tuscan village, Sant’Andrea in Percussina, on my map but said it was hard to get there without a car and suggested I find some Machiavelli paintings at the city hall, Palazzo Vecchio.
Although I had seen Machiavelli’s portrait on various book jackets, I did not expect, in various pictures and a sculpture I tracked down, to encounter a slight man with a humane expression. One biographer described his portrait this way: “His face is that of a small wild animal, a fox or a lynx perhaps, all skin and bone...He has thin lips and his fraction of a smile is almost impossible to read…it is a rather cynical smile.” Indeed, in his few recorded images, Machiavelli looks less like a ruthless prince and more like James Boswell or Jonathan Swift—an observer rather than a participant in the worlds of power politics.
Machiavelli was a friend of Leonardo da Vinci as they were contemporaries in Florence. He was also a wit and a womanizer, and enjoyed evenings of cards and conversation. He was more a literary man and a politician, in the sense of Thomas Jefferson, than someone cut from the mold of Otto von Bismarck. Alas, I am not saying The Prince is only a satire on princely conduct. At the same time, as my day in Tuscany progressed, I grew sure it wasn’t just a handbook for those whose management style included slow poison and the garrote.
As lovely as Florence is, days there can grow long, especially when you are standing in museum lines. I lingered with my maps and book over lunch, strolled to Dante’s house (“Midway along the path of our life” was the line there) and then made up my find to find the house where Machiavelli had written The Prince. A waiter suggested I hire a taxi, but the price quoted was, well, Machiavellian, and bus service, I found, would have gotten me there but not back. In the end I rented a bicycle, strapped on a helmet, and set off south of Florence into the Tuscan hills, much like those you can see in the background of the Mona Lisa.
Just across the Ponte Vecchio, which one guide I had describes as a “squalid mixture of souk, airport lounge, and dormitory,” I found the neighborhood where Niccolò Machiavelli had grown up. His father was middle class, but maintained useful political connections. In school Machiavelli excelled at expressing complex thoughts concisely on paper. After his formal education, he became a secretary in the equivalent of the ministry of foreign affairs, and later Florence’s chief diplomat—there to negotiate alliances that would allow the republic, without a professional army, to co-exist alongside such fortified city-states as Milan and Rome. He traveled often, observed wars and princes first hand, and sent eloquent diplomatic impressions to the Palazzo Vecchio, from which Florence was governed by a rotating city council. During this period the Medici were banished with their bad debts and, in the Palazza Vecchio, Savonarola ignited his bonfire of the vanities—before he, himself, was burned at the stake.
Had Machiavelli written The Prince when in the pay of a powerful family, it would make sense to read it as a primer on power politics. Indeed the model for The Prince is thought to be Cesare Borgia, Duke Valentino, who committed murders in the casual way that executives today shut down divisions. Borgia engaged Machiavelli’s keen interest in political animals. He had led armies across the Italian peninsula, and, indeed, had threatened the independence of Florence. Machiavelli describes the prince exactly as he saw him during many nights of diplomatic dinners and exchanges. “He did not invent Machiavellianism,” one biographer has written, “he observed it.” The style he employed was that which today we would call a briefing memo, advice to those less skilled in the political arts of how to be a “lion and a fox.” But it is no more a consultant’s report than Babbitt is an account of a Rotary meeting.
Alas, Machiavelli wrote The Prince in Sant’Andrea, at this family’s farmhouse, while in a form of exile. He had lost his patrons in government and had served time in prison on an exaggerated charge of disloyalty. Maybe he was hoping that the primer on political artistry would return him to favor? More likely, he was disparaging those who had cast him away, and The Prince was a measure of all they were not. In exile, he passed his days chopping wood and evenings finding solace in his writing. “…For four hours at a time,” he wrote a friend about his books, “I feel no boredom, I forget all my troubles, I do not dread poverty, and I am not afraid by death.”
Even with a good map, Sant’Andrea is hard to find. On the bike I made a series of wrong turns, labored up Tuscan hills, and finally, after almost two hours, arrived parched and breathless in the village. All it has is a tavern bearing Machiavelli’s name and a small general store where I bought two bottles of water. A local man showed me the farmhouse where Machiavelli wrote and then walked me along the main road, from which I could see the skyline of Florence and Brunelleschi’s dome. During Machiavelli’s fourteen years of exile, he looked down each day on the city where he had achieved diplomatic fame and some fortune. As Dante wrote of another purgatory:
You shall find out how bitter
someone else’s bread tastes,
and how hard is the way
up and down another’s stairs.
Toward the end of his life, Machiavelli tried to escape exile by currying favor with restored Medicis. But eventually they decided they did not want him, and he decided he didn’t want them. He died in 1527, attended only by his family. The Prince and another book, the Discourses, had circulated but had yet to be published. Only later was his grave moved to the cathedral of Santa Croce, where he was entombed near Michelangelo and Galileo, perhaps because no one was ever quite sure if he was feared or loved. Machiavelli dreamed of a world of Roman republicanism, but as a diplomat he had to confront French kings, corrupt princes, and ambitious popes, including the son of Lorenzo the Magnificent, Leo X, who upon his election as pope wrote to his brother, the Duke of Nemours: “god has given us the papacy…now let us enjoy it.”
I am not sure how useful Machiavelli would be today as a management consultant, or what might be his hourly rates. To be sure he would recognize modern corporations as successors to the city-states of Renaissance Italy. Nor would princely avarice come as a surprise to someone who traveled with mercenary armies. But while I Machiavelli’s clients were paying him for advice on routes to success, he would be making notes on management’s weaknesses and strengths. A recent biographer, Michael White, writes that he defined his subjects as “the definition of a princedom, the categories of princedoms, how they are acquired, how they are retained, and why they are lost.” What mattered to Machiavelli was character, as he writes in The Prince: “Therefore it must be inferred that good counsels, whencesoever they come, are born of the wisdom of the prince, and not the wisdom of the prince from good counsels.” That’s not a bad way to judge a company.
One of the more popular business consultants is Niccolò Machiavelli, the Florentine diplomatist and writer, who published The Prince toward the end of his life. From Machiavelli, we get the adjective Machiavellian, which has diverse meanings, but would include traits such as cunning, duplicity, ruthlessness, and power for power’s sake. Henry Kissinger would, for most people, be a walking definition of the word Machiavellian; Jimmy Carter would not. As most chief executives live like princes, it makes sense that someone like Niccolò Machiavelli should act as their personal fitness trainer.
Until this summer, I knew little about Machiavelli’s personal life. I knew he had written The Prince, which I was unable to finish when I tried it in high school. Later I read it with more appreciation. I associated him with the Florentine republic. I suspected he had written his handbook on princely behavior at the request of a wealthy patron, perhaps one of the Renaissance oligarchs who every year lost a few food tasters. But beyond general impressions, I did not know whether Machiavelli deserved his reputation until I had occasion, in June, to spend a day in Tuscany.
I was in Florence to study the decline and fall of the Medici’s bank, which flourished during the 15th century and then collapsed around 1480, when Machiavelli was a boy. Having spent twenty years of my life in the company of both banks and wannabe Medicis, I was curious to learn that Florence’s leading family had gotten rich on papal deposits and then lost the bank through what is now called sovereign lending: loans to governments, including the likes of the Vatican. The original Medici fortune came from taking deposits in one city, and then extending loans in another. For that they charged silk merchants and others the equivalent of 20 percent per annum. In the end, principalities turned to the Medici to fund their wars (Iraq isn’t the first war launched by a dynastic family), and when it came time to collect, the borrowers were either dead or in prison, and the Medicis themselves needed mercenaries just to call in their loans.
While walking the stations of the Medici cross in Florence, I found myself drawn to the life of Machiavelli. At first I found his tomb in the cathedral of Santa Croce, which is the burial ground of the Renaissance dream team, including Michelangelo, Donatello, Cellini, and Vespucci, the mapmaker with the first name Amerigo. That prompted me to ask in a bookstore if Florence had a Machiavelli museum. No, the shop owner said, nothing in Florence celebrated the life of the famous writer. But she sold me a new account of his life with the subtitle “A man misunderstood.” Another customer in the store circled his native Tuscan village, Sant’Andrea in Percussina, on my map but said it was hard to get there without a car and suggested I find some Machiavelli paintings at the city hall, Palazzo Vecchio.
Although I had seen Machiavelli’s portrait on various book jackets, I did not expect, in various pictures and a sculpture I tracked down, to encounter a slight man with a humane expression. One biographer described his portrait this way: “His face is that of a small wild animal, a fox or a lynx perhaps, all skin and bone...He has thin lips and his fraction of a smile is almost impossible to read…it is a rather cynical smile.” Indeed, in his few recorded images, Machiavelli looks less like a ruthless prince and more like James Boswell or Jonathan Swift—an observer rather than a participant in the worlds of power politics.
Machiavelli was a friend of Leonardo da Vinci as they were contemporaries in Florence. He was also a wit and a womanizer, and enjoyed evenings of cards and conversation. He was more a literary man and a politician, in the sense of Thomas Jefferson, than someone cut from the mold of Otto von Bismarck. Alas, I am not saying The Prince is only a satire on princely conduct. At the same time, as my day in Tuscany progressed, I grew sure it wasn’t just a handbook for those whose management style included slow poison and the garrote.
As lovely as Florence is, days there can grow long, especially when you are standing in museum lines. I lingered with my maps and book over lunch, strolled to Dante’s house (“Midway along the path of our life” was the line there) and then made up my find to find the house where Machiavelli had written The Prince. A waiter suggested I hire a taxi, but the price quoted was, well, Machiavellian, and bus service, I found, would have gotten me there but not back. In the end I rented a bicycle, strapped on a helmet, and set off south of Florence into the Tuscan hills, much like those you can see in the background of the Mona Lisa.
Just across the Ponte Vecchio, which one guide I had describes as a “squalid mixture of souk, airport lounge, and dormitory,” I found the neighborhood where Niccolò Machiavelli had grown up. His father was middle class, but maintained useful political connections. In school Machiavelli excelled at expressing complex thoughts concisely on paper. After his formal education, he became a secretary in the equivalent of the ministry of foreign affairs, and later Florence’s chief diplomat—there to negotiate alliances that would allow the republic, without a professional army, to co-exist alongside such fortified city-states as Milan and Rome. He traveled often, observed wars and princes first hand, and sent eloquent diplomatic impressions to the Palazzo Vecchio, from which Florence was governed by a rotating city council. During this period the Medici were banished with their bad debts and, in the Palazza Vecchio, Savonarola ignited his bonfire of the vanities—before he, himself, was burned at the stake.
Had Machiavelli written The Prince when in the pay of a powerful family, it would make sense to read it as a primer on power politics. Indeed the model for The Prince is thought to be Cesare Borgia, Duke Valentino, who committed murders in the casual way that executives today shut down divisions. Borgia engaged Machiavelli’s keen interest in political animals. He had led armies across the Italian peninsula, and, indeed, had threatened the independence of Florence. Machiavelli describes the prince exactly as he saw him during many nights of diplomatic dinners and exchanges. “He did not invent Machiavellianism,” one biographer has written, “he observed it.” The style he employed was that which today we would call a briefing memo, advice to those less skilled in the political arts of how to be a “lion and a fox.” But it is no more a consultant’s report than Babbitt is an account of a Rotary meeting.
Alas, Machiavelli wrote The Prince in Sant’Andrea, at this family’s farmhouse, while in a form of exile. He had lost his patrons in government and had served time in prison on an exaggerated charge of disloyalty. Maybe he was hoping that the primer on political artistry would return him to favor? More likely, he was disparaging those who had cast him away, and The Prince was a measure of all they were not. In exile, he passed his days chopping wood and evenings finding solace in his writing. “…For four hours at a time,” he wrote a friend about his books, “I feel no boredom, I forget all my troubles, I do not dread poverty, and I am not afraid by death.”
Even with a good map, Sant’Andrea is hard to find. On the bike I made a series of wrong turns, labored up Tuscan hills, and finally, after almost two hours, arrived parched and breathless in the village. All it has is a tavern bearing Machiavelli’s name and a small general store where I bought two bottles of water. A local man showed me the farmhouse where Machiavelli wrote and then walked me along the main road, from which I could see the skyline of Florence and Brunelleschi’s dome. During Machiavelli’s fourteen years of exile, he looked down each day on the city where he had achieved diplomatic fame and some fortune. As Dante wrote of another purgatory:
You shall find out how bitter
someone else’s bread tastes,
and how hard is the way
up and down another’s stairs.
Toward the end of his life, Machiavelli tried to escape exile by currying favor with restored Medicis. But eventually they decided they did not want him, and he decided he didn’t want them. He died in 1527, attended only by his family. The Prince and another book, the Discourses, had circulated but had yet to be published. Only later was his grave moved to the cathedral of Santa Croce, where he was entombed near Michelangelo and Galileo, perhaps because no one was ever quite sure if he was feared or loved. Machiavelli dreamed of a world of Roman republicanism, but as a diplomat he had to confront French kings, corrupt princes, and ambitious popes, including the son of Lorenzo the Magnificent, Leo X, who upon his election as pope wrote to his brother, the Duke of Nemours: “god has given us the papacy…now let us enjoy it.”
I am not sure how useful Machiavelli would be today as a management consultant, or what might be his hourly rates. To be sure he would recognize modern corporations as successors to the city-states of Renaissance Italy. Nor would princely avarice come as a surprise to someone who traveled with mercenary armies. But while I Machiavelli’s clients were paying him for advice on routes to success, he would be making notes on management’s weaknesses and strengths. A recent biographer, Michael White, writes that he defined his subjects as “the definition of a princedom, the categories of princedoms, how they are acquired, how they are retained, and why they are lost.” What mattered to Machiavelli was character, as he writes in The Prince: “Therefore it must be inferred that good counsels, whencesoever they come, are born of the wisdom of the prince, and not the wisdom of the prince from good counsels.” That’s not a bad way to judge a company.
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