Running the Great Game on Empty

A little knowledge is a dangerous thing, and that’s what I have when it comes to the oil business. I can neither read a seismic survey nor explain the best method to drill for gas in a fractured reservoir. That said, for more than twenty years, I have been involved with oil and gas companies, read their financial statements, listened to their traders, and studied their results. I have visited oil fields in Kuwait and Texas, and refineries in a far-flung Russian province. In Riga, the Latvian capital, I even went to an old U-boat pen that the government wanted to convert into a storage terminal (for oil, I was told, not U-boats).

In this time, I have formed a few conclusions about the petroleum industry, along these lines: a lot of people in the so-called upstream side of the business (that is, those companies exploring for new oil and gas) tend to have the personalities of riverboat gamblers, if not the matching pearl-lined vests. Rarely do they see an underground prospect that does not contain the reserves of the next Saudi Arabia. On the downstream side—that making its money in the chain between refining and service stations—location and borrowed money rule the balance sheet. The companies that do well are those with the lowest debt-to-equity ratios and the best locations. An inefficient refinery in Rotterdam with little debt will last longer than a modern but debt-laden plant in Belarus, because it is closer to the consumer markets of Western Europe. The same is true of gas stations or pipelines.

I thought of my petroleum clichés recently in England when I met a series of people connected to different segments of the oil and gas business. At times, or so it seemed, everyone at the table was $50 million short and looking for ways to drill into the proven reserves of Middle East money. In general at oil exploration meetings, one group shows up with a dream, and the other party supplies the money, although everyone at the table tends to have divining rods, if not conical hats.

During some of the meetings, I found my mind wandering to the larger questions: Is the North Sea running on empty? Did the recent spike in oil prices mark the beginning of petroleum’s end or for the next fifty years, as prices increase, will the world’s proven energy reserves also move up? Is it necessary for countries to be energy independent? To what extent should the struggle against terrorism be known as The Oil Wars?

Whither the North Sea?

A lot of the discussions in England touched on the future of the North Sea, which, in terms of global production, once represented about 10 percent of global oil production (now it’s below 5 %). At one meeting, I met a geologist who was present at the creation of the offshore oil industry. I asked him if North Sea oil was in decline and, if so, how long would it take to run dry.

He said he expected such established fields as Norway’s Brent to last until around 2024. But then he made the trenchant remark that the only way to run out of oil—in the North Sea or anywhere else—“is to stop looking for it.” He spoke of new technologies, available only in the last three years, which would allow geologists to estimate the hydrocarbons in fields adjacent to those pumped dry. He thought that giant new fields (known in the trade as “elephants”) might be found 30,000 feet under the seabed. But the only way to verify such possibilities is to drill into them, and drilling to 10,000 meters presents a host of technological and legal challenges. Technologically, the deeper you go, the more expensive a well costs; legally, it is not clear who owns the rights to petroleum assets potentially below existing but shallower oil fields.

Another problem in the North Sea is that while its oil is depleting, it is also short of rigs. With the boom in petroleum prices, day rates of deep-sea oil rigs have skyrocketed, which means that even if you want to search North Sea acreage for new reserves, the cost of employing a rig is more than $300,000 a day, making it the province of the multinationals. As a result of the rig shortage and day rates, smaller companies, some with so-called “promote licenses,” risk losing their grubstake claims if within two years they cannot develop their chosen fields. Only those companies in the North Sea with access to rigs will make money there.

Given such platform demand and short supply, you might think it better to own shares in a rig outfit than those of an oil exploration company, especially a small one. But the problem with that strategy is one of price. For example, shares in a leading North Sea rig company, Transocean Inc., trade at 47 times earnings, which indicate for its shareholders the well has already come in—even if for the exploring company it may be a dry hole.

Is the Oil Tank Half Empty or Half Full?

In the circles of geological and petroleum sciences, there is a lively debate as to if and when the world, in general, has or will have depleted more than half of its petroleum reserves. Some scientists argue that the hydrocarbon bell-curve will keep moving to the right, as new technology allows companies to find more oil and, as the price of oil increases, its extraction becomes more economically efficient. Nevertheless, one report I have read claims global oil production will peak before 2010. Meanwhile alchemists employed by the U.S. Department of Energy keep stirring their vats to prove that oil production will only peak long into the future, presumably after the last barrels have been extracted from the last deposits of molten lead. But whenever the oil wave crests, the reality is that most of the easy money has been made from Western reservoirs, and that increasingly the world’s petroleum spigots will be turned in countries where despotism, or at least some form of Islamic fundamentalism, may have a hand on the tap.

The problem for the Western democracies is that the bell curve has certainly sounded on their domestic oil production. You can argue with the finer points in the data, but essentially oil production in the North Sea peaked around year 2000 while in the US the high-oil mark came around 1971. Based on current rates of exploitation, the oil fields in the North Sea, and in East Texas and the Gulf of Mexico, will run dry a lot sooner than the wells in places like Iran, Iraq, and Saudi Arabia. At present neither the U.S. nor any European country appears on the list of countries with large proven oil reserves. Saudi Arabia tops the chart with some 261 billions barrels of proven reserves. Others include Iran with 125 billion barrels, Venezuela with 77 billion, and Russia with 60 billion. With nearly all the countries on this list, is it surprising that, in the last thirty years, the US has fought either a hot or cold war?

In terms of proven oil reserves, the United States, with 22 billion barrels, ranks ahead of Qatar, but behind China, in 13th place on the world’s reserves table. At the same time, the U.S. consumes more barrels of oil a day than are used by the next six countries combined, and those economies include Japan, China, Germany, Russia, South Korea, and Brazil. Recent statistics have tried to downplay the importance of oil in western economies, arguing that its price hikes are less inflationary than they were in the 1970s and 80s—when energy costs were more significant in the consumer price index. But domestic U.S. oil production only fulfills about 40 percent of the country’s consumption demands, which may explain why Washington is always preaching from The Democratic Book of Virtue to countries like Venezuela, Iran, and Nigeria but is strangely silent to genocide in places like oil-dry Rwanda.

Declarations of Energy Independence?

In addition to being a political resource—something largely traded by state oil companies, or oil companies that run states—petroleum has qualities of an aesthetic commodity. North Sea oil evokes the same virtues of energy independence as does the gas extracted in Oklahoma or the power generated by the windmills in Holland. By contrast, Nigerian oil is synonymous with African corruption, and purchasing barrels of Iranian crude implies sympathy for a nuclear devil. Although many countries—including the U.S.—take the measure of their national security as a ratio between homegrown and imported oil, there are only small degrees of difference (most having to do with sulfur content) between, for example, Libyan crude and that bubbling to the ground in Titusville, Pennsylvania. Thus does it matter what countries, or which governments, own an oil field? In the era of naval historian Alfred Mahan’s imperial fleets, countries wanted to control the sea-lanes to keep markets stocked and the empire running. But, in the 21st century, should we care whether the oil turning over the engine of an SUV comes from Alberta’s tar sands or Iranian mullahs?

Keep in mind that there is little price differential between high-test fermented in the Gulf of Mexico or that drilled along Colonel Muammar al-Qaddafi’s Line of Death. Once a barrel of oil reaches the high seas, it becomes a commodity as fungible as coffee, sugar or cocoa: something difficult to trace to its wellhead, especially if it is blended. The recent report on the UN Oil-for-Food Program in Iraq, undertaken by His Moral Conscience, Paul Volker, makes it clear that the international community was tilting at oilrigs when it thought it could control the distribution of Saddam Hussein’s Iraqi petroleum. Once the crude passed the Straits of Hormuz, it was anybody’s game. Ironically, to line his pockets and palaces, Saddam flooded the oil market as best he could, helping to lower world petroleum prices, while the American invasion has mostly crippled Iraq’s output, thus pushing prices skyward. Instead of declaring a war on terror, the Bush administration might just as well have asked the Texas Railroad Commission to draw up the by-laws of a new Greater Economic Co-Prosperity Sphere. When OPEC rallies its faithful, are American oilmen on their feet or knees?

Filling Up al-Qaida?

A few years ago, I read a doomsday scenario by the former National Security expert on terrorism, Richard Clarke, who wrote a celebrated book about September 11th. In the conclusion he imagines fundamentalist control of Pakistan, instability in Afghanistan, Iranian Shiite control of southern Iraq, and a revolutionary al-Qaida-like government in Saudi Arabia. It is not an impossible scenario to imagine, given the inequality that divides many of the Middle Eastern sheikdoms from their impoverished citizens, among whom al-Qaida has a niche market.

For the U.S. and its industrial partners, the question is whether radical or fundamentalist Muslim Middle East would cut off oil shipments to the West. They might try, but somehow I doubt they would succeed, if for no other reason than that cheating on OPEC quotas is one of the great petroleum sports. (Right up there with embargo busting and pretending that high-test or STP does anything for your engine.) Whether the West would want to transfer billions of dollars of its wealth, in exchange for oil, to its sworn enemies is a more difficult question. I would say we should not, but then I tend to be a Luddite, and would develop an Interstate bicycle highway and bring back the Twentieth Century Limited.

You can’t have a nation of single-passenger commuters and a Route 66 mentality in the White House, and then have any illusions about energy independence. Anyone who has spent time on the highways of America knows that the U.S. is a gas-guzzling republic, hostage to the fortunes of oil-producing entities. For some years, the words “fill her up” have been a muezzin’s call to the faithful. I wish it were otherwise, but you don’t win the Great Game by ripping up train tracks or driving Hummers to the mall.

GM: A Genetically-Modified Balance Sheet

I may be missing something in the financial print, but isn’t General Motors already bankrupt? Or at least insolvent? If you read the press releases coming out of Detroit, or the dispatches from the shill automotive press—there to test drive the new Corvette, not to read cash flow statements—the news about General Motors is not all bad. It has about $19 billion in cash on its balance sheet, and the wizards of Grosse Point have a plan to streamline the company, close some plants, gradually lay off 30,000 workers, and downsize an SUV-sized company into a mean lean machine, although presumably something with tighter lines than the old AMC Gremlin.

I hope the reorganization plan works, just the way I hope, whenever I am in a GM car, that I can open the trunk or find the gas-cap release. But before we dream about a new Camaro saving GM, let’s go through the GM numbers, which ought to be giving anyone sticker shock, including those selling used-car economics in Washington.

Through the third quarter of 2005, GM reported a net loss of $3.8 billion. It would have been $6.4 billion had the company not had tax-losses carried forward that tipped $2.2 billion to the bottom line. But the news is actually worse than that. The car division lost almost $10 billion in the first nine months, red ink that was offset by more tax-loss carryforwards and another $2.2 billion earned at General Motors Acceptance Corporation (GMAC), which is essentially the GM house bank. It does more than provide financing for the family Bonneville, although that’s a major part of the business. As an asset-based lender, GMAC provides mortgages, commercial credit, and other banking services that have nothing to do with all those documents the car salesmen make you sign before you can drive a Hummer H3 into the desert storm that is Little League baseball.

Car enthusiasts and GM believers will argue that the current losses are beyond the control of the company’s management. High gas prices choked off SUV sales (that’s because of Bush, Rummy, Katrina, and Rita). Blame the Japanese and the Koreans for GM’s drop in market share (in the US, 44 percent in 1983 to about 22 percent now; GM’s share of the global market is currently14 percent). Blame Asia in general for paying their workers about $1 an hour and limiting pension and health benefits to a few bowls of watery soup. You can thank the Germans for making all those Audi and BMW black sedans a must-have rung on the ascendant corporate ladder. Because of the Electoral College, Michigan is an important Democratic swing state, where unemployment is not a hot option. Plus sleazy Enron-like accountants tanked Delphi, the former GM parts division that was spun off and is now bankrupt, threatening GM’s ability to source inventory. Take away GM’s generous labor contracts, the pension shortfall, the prescription invoices, the competition in Asia and Europe, the odd recall here and there of 300,000 cars, the memory of the Chevy Vega, and you could say we’ve got a pretty good company.

Still, GM’s balance sheet has breakdowns that might perplex even Mr. Goodwrench. Yes, at September 30th, 2005, the company lists $55 billion in “cash and marketable securities,” and total assets of $469 billion. Although the company has to mail out a few “Red Tag” rebate checks before the end of 2005, that cushion should see GM into the future, even if it loses $5 billion for a few years or revives the Corvair. Except that, under a bankruptcy-court’s hammer, I have a hard time imagining that a GM will net $469 billion.

To come to terms with GM’s liquidation value, you have to understand the corporation as not one company, but at least four: a car company, which has a death rattle; a Health Maintenance Organization (HMO), where none of the patients pay; a pension plan, in which the company took the actuarial gamble that no one would get old; and a bank, which, while making money and well-managed, still has a lot of Chevy Impalas backing up its loan portfolio. I am sure there are buyers for the bank (GMAC), and at 12-15 times earnings, maybe it could fetch $34-40 billion. But if a part of GM is worth that amount, what does it say about the rest, given that the entire company, including GMAC, has a current market value of $13 billion. It says the car business of GM is in a $20 billion hole.

If some of GM’s assets are questionable in a distressed sale, the liabilities are stubbornly real. Total liabilities amounted to $446 billion, which, in theory, leaves the shareholders with $23 billion in capital, although balance sheet equity is what in accounting is called a plug figure. For example, among its assets GM lists $28 billion in deferred taxes and inventory of $14 billion—assets of value so long as GM is a going concern. Shut the doors, and there is not much of a secondary market for its tax credits or Caddy mufflers. The same would be true of halted assembly lines.

Other liabilities include the often-reported health benefits that are due to retirees. $32 billion due is carried on the balance sheet as “post-retirement benefits other than pensions,” which explains why GM is the world’s largest HMO, albeit one without doctors. Another $10 billion is due to the pension plan. Together these obligations are often imagined as a “$1,600-per-vehicle handicap” that is chained to the bumper of every new GM car. These numbers are those of September 30th. I have read elsewhere that GM’s unfunded pension liability is closer to $17 billion—but all these figures are the difference between calculated future pension obligations and the current market value of GM’s pension investments. GM’s pension nut is covered in a buoyant stock market, like that of the roaring 1990s, but crushed in a bad one. The company may even get hit with another $11 billion in similar pension/health charges if its supplier, and former subsidiary, Delphi, is liquidated, and some of their personnel charges are shifted back to the seller, GM, which agreed to cover those liabilities in a liquidation.

Despite boasting of a cash surplus on the balance sheet, the challenge at GM is to avoid a run at the bank. In 2006, according to one report, the company has to pay off or refinance some $44.7 billion in outstanding debt. But since those notes went on the books, GM’s credit rating has been lowered to junk-bond status, which means that instead of paying 5 or 6 percent for five-year money, GM may be looking at coupons in the range of 10-15 percent. In the land of loan sharking, that is a lot of vigorish.

Already in 2005, GM has paid $11 billion in interest expense, although most of that ($9.3 billion) has been to fund the finance company, which draws about $260 billion from the market. The $3 billion that it will cost in 2005 to fund the car companies will jump next year as interest rates increase and GM has to raise junk money to fund their losing propositions in the pension and health-care portfolios. At the moment GM’s 30-year, 2033 bonds (with 8.375 percent coupons) sell at $0.74 on the dollar, giving them an effective yield to maturity of 11.7 percent. But 30-year GM bonds don’t sound to me any more realistic than the illusion of keeping of a Chevy Caprice for 30 years.

Other than selling a lot more cars, what’s the solution to GM’s problems?

The persistent rumor is that, beyond sticking the pension obligations to the U.S. government, laying off 30,000 workers and closing some plants, GM plans to sell down enough of GMAC to move the finance company off the balance sheet. As a stand-alone business, GMAC would not be saddled with its parent company’s distressed credit rating. But as a stand-alone, it might also look for loan collateral other than a Buick LaCrosse. GMAC was set up to finance GM car sales. Dealers without easy money, however, will feel like they are back to the challenge of talking up the horsepower or handling abilities of the Chevy Nova.

Official bankruptcy might give the company a chance to renegotiate its union contracts, or pass more of the pension and health liabilities on to the federal government. Airlines in the same bind have used this strategy. But it would also start a run at the bank, which funds some $260 billion in the institutional market. Hence the GM dilemma: it can sell GMAC and lose its in-house financing arm, or it can keep GMAC and watch its balance sheet become a hostage to the high-coupon misfortunes of the car industry.

In recent months, the financier Kirk Kerkorian—who has previously held large stakes in the likes of MGM and Chrysler—has acquired 9.9 percent of GM. His capital invested in GM is roughly $1.68 billion, according to published reports of his stake. Mr. Kerkorian is a smart investor but you have to wonder why he would be eager to own 10 percent of a company that has more than $300 billion in debts, less than $30 billion in equity, and is betting the ranch on selling suburban vehicles that get the gas mileage of armored cars. He might be of the view that GM is, as they say of other large banks, “too big to fail,” and that the Bush administration will assume the pension and health care cost in exchange for GM avoiding bankruptcy. After all, the Carter administration bailed out Chrysler, and it lived another day to sell mini-vans, much to the profit of Mr. Kerkorian, although he bought into the company after the bailout.

He might also push the GM board to spin off GMAC to existing shareholders, and then encourage the remaining GM shareholders to pull the plug on the car division. (That could double his investment if 9.9 percent of GMAC is worth about $3.5 billion.) But I think GM’s creditors, unions and shareholders will fight to keep GMAC under the parent company corporate umbrella. Meanwhile, he financed part of his investment with a $400 million line of credit from Bank of America, which can’t love the drop of $350 million on the position, although his wealth dwarfs these losses. At the same time, so long as GM clings to its $2 dividend (an 8.7 percent yield at current prices), Mr. Kerkorian can pocket about $29 million a quarter in dividends. But that yield will pale compared to equity losses if his chips remain on the table while GM’s shares slide away.

Despite the company’s reputation for industrial dominance, it has been a long time since the business of America was GM. Compare its $13 billion market capitalization with Intel’s $142 billion, Exxon Mobil’s $357 billion, or even the Gap’s $15 billion. At the same time GM’s revenue of $193 billion sets a lot of tables, and anyone who has recently sat in a traffic jam knows that it is impossible to go broke selling cars in America. With lower sales than GM, Toyota’s market cap is $181 billion, a point not lost on shrewd investors like Kirk Kerkoiran. But more than most businesses, GM is hostage is to many misfortunes, not to mention special interests.

During the 1980s, I spent two weeks in Detroit, assessing the industry. I met Edsel Ford (the corporate executive, not the 1950s car model with fins) and inspected injured crash dummies. My conclusion was that the US auto sector is part of the fashion industry, expected one month to have a complete line of gas-efficient hybrids and in the next to roll out some new muscle cars. But it takes years to retool a factory to turn out mini-vans instead of Firebirds. Sometimes it is even cheaper to close down a plant and build a new one elsewhere. Meanwhile GM has lost the luxury market to the Germans, and the fuel-efficient market to Japan, leaving Detroit to base its sale pitch on mid-range gas-guzzling sedans with “rich Corinthian leather.”

In a larger sense, GM and its creditors, which will soon fight over the spoils of a fading empire, are also hostage to the fashion catwalks in Washington. One administration speaks of empty oil reservoirs, and out comes the Ford Pinto. A few years later another administration preaches that oil is plentiful and that it is okay to cruise Route 66 in wood-paneled station wagons. Nor do companies like Ford or GM ever get the word on whether they are obliged to play by the rules of capitalism or socialism. If the rulebook is capitalistic, why does GM have to “buy American” and why can it not outsource its high costs to the same sweatshops that make Intel and Nike so successful? If the game is socialism, can GM not be proud of employing 350,000 workers, paying so many pensions, filling all those prescriptions, and making reasonable products, even if its balance sheet has the accounting air of a Soviet collective. A lot of lines are now blurred, and I imagine the real problem at GM is that senior management does not know whether it is coming or going.

Wasn’t the business of America easier to understand when everyone could be classified along the lines of being a “Chevy,” “Ford,” or “Pontiac” man?

London to Amsterdam By Bike

A few years ago, when my wife and children went back to America for a summer visit, I cooked up a weekend excursion to ride my bicycle from London to Amsterdam. The discount airline, easyJet, had recently come to Switzerland, and I noticed in the schedule that it served London Luton on Friday afternoons and came back to Geneva from Amsterdam late on Sunday night. In the meantime I calculated I could ride from Cambridge to Harwich, cross the North Sea on a ferry, and then head to Amsterdam from the Hook of Holland. In all ride would be about 200 kilometers (120 miles), and I had expectations that it would relieve my ignorance about the Netherlands. I had been to Amsterdam a few times on business, but all I knew from those day trips were airports taxis and corporate meals. I had never seen a canal nor tiptoed through the tulips.

When you live alone in the summer, friends check in warily, as if perhaps you are loitering nearer the secretarial rather than the neighborhood pool. On the day I was leaving good friends invited me to lunch, suspecting (correctly) that I was on my seventh consecutive day of pasta and those mixed salads that come shrink-wrapped in plastic. When I outlined my weekend plans and started quizzing them on English roads, they could not understand such eccentricity, telling me that Bury St. Edmonds was dreary and that Harwich had been going downhill since the Mayflower set sail. I tried to justify my mad-dog-and-Englishman approach by saying the venture was conceived because easyJet had come to Geneva. “Ah,” one of them said, “blame it on Stelios.”

I can’t blame Stelios, the easyJet founder, for wanting to ride in the summer midday sun. But I can lay guilt trip in his direction for the four-hour delay on my first flight from Geneva to London. Generally I would not have minded the delay, except that I was dressed in my bike clothes—space-age Lycra emblazoned with newspaper logos—and in the interest of saving weight I was traveling without a book. Having come of reading age in and around New York City, I usually carry a book everywhere, thinking of life as a subway delay. When the underground travel gods announce, “We’ve got holding signals up ahead,” I pass the time reading. But now I had to get by on departure-lounge freebie publications, those with names like “Jetway” or perhaps “Tarmac” (‘the magazine of mechanical difficulties’).

As a result of the delay, it was too late to ride from Luton Airport to Cambridge and still make a pre-arranged dinner. Hence the great bike weekend began inside a black London taxi. Fortunately, my bike of choice is a drop-handled racer, with narrow Italian tires and those ski-binding pedals. With the wheels removed, it fit into the taxi, and he dropped me in Cambridge outside a Chinese restaurant that, because of the fish tanks in the window, looked like the Great Barrier Reef.

I have a special affection for Cambridge. In 1974, I spent a semester studying cold war economics and politics at the London School of Economics (mostly what I learned about university life in England is that I don’t like sherry but that professors do). During the term I spent a few days in Cambridge, where my uncle had friends who worked for the University Press. They welcomed me into their weekend lives of walking the Roman roads and climbing church towers. Their warm company (and hot-water bottles) was more than enough to ward off the misty chills of an English November, although I was never colder in my life than on a Sunday afternoon while visiting Ely Cathedral.

Those Cambridge friends were now awaiting me in the Chinese restaurant, which launched a cultural revolt of sorts when I demanded to be seated near my bike. What I especially remembered about Cambridge was that bikes get stolen with the insouciance that beer gets consumed. (Locals blame it on socialism, if not Kim Philby.) Because I was traveling without a Kryptonite lock, I wanted to keep an eye on my wheels. In response, the restaurant owner and then his wife kept up a monologue about “health regulations.” But the choice for them was either to take in the bike or lose a party of five. Diplomatically or financially, he finally allowed me to store it near the kitchen.

For whatever reasons (perhaps ‘revenge is a dish best served with dumplings’) a lot of the sauce on my food tasted like chain lubricant. But I had great pleasure seeing my Cambridge friends. After dinner I loved riding around various colleges. Oxford campuses are hidden behind medieval walls. By contrast, Cambridge is open and looks like the setting for an elegant lawn party. In the half-light of dusk at 11 PM, I weaved along the cobblestone streets and meandered along the Cambs River, even at that hour alive with long boats and undergraduates, both of which looked tipsy.

My plan for the next morning, Saturday, was to buy a first-day copy of the new Harry Potter and to mail it to my expectant family in America. Then I would head for the coast, about 80 miles to the southwest, and catch the night boat to Holland. A funny thing happened, however, on the way to the North Sea: I started lingering in Cambridge bookstores. For years I have ended long trips at a London airport, and then spent a jet-lag recovery day buying books in Cambridge. One of my travel frustrations is that in places like India or Pakistan, I can never find books about local politics and history. En route I make do with banal guides until I get to England, waylay a sales clerk in Cambridge, and get shown a shelf of books about places like Amritsar or Peshawar. On this occasion I found a topographical map of Suffolk, the county through which I would be riding, and other books that I “had to have.” It meant another trip to the post office, all of which cost me precious riding time.

I had calculated it would take me six hours to ride to the Harwich ferry terminal, and my ferry left at 8 PM. Thus I wanted to leave Cambridge no later than noon, to give myself time for breaks and flat tires. But after the bookstores, I met my friends for coffee, which turned into a pub lunch. I ordered something like “toad in the hole” and about an hour later the waitress showed up, apologizing profusely for having run out of toad. Plus the pub we had chosen, hoping for fast service, looked like a pinball machine. Will there always be an England if the pubs look like video arcades?

By the time I bolted, I was seriously behind schedule. To make matters worse, I took the wrong road out of Cambridge. After three or four map checks, I figured I wasn’t on the road to Sunbury but on another heading to Newmarket, which filled me with dread for two reasons: I might now miss my ferry, and the name of the town suggested a novel by Charles Dickens, perhaps one of those, like Hard Times, that I never finished reading for homework in the eight grade.

By mid-afternoon, I was laboring along busy roads outside Bury St. Edmunds, annoyed at both the traffic and now the cold drizzle. Wasn’t this a July weekend? Why did it feel like, well, England? I veered south toward Lavenham, in the company of some large trucks, feeling skeptical about the entire undertaking. Yes, blame it on Stelios. But little by little the road narrowed and the truck traffic faded away. It may be a tourist Mecca, but I loved Lavenham, where the main street has pink Tudor houses, giving it a touch of Bermuda on the edge of a Turner painting. It prompted me to stop for tea and to admire England’s love of public benches.

The rest of the afternoon was a race against the clock. When I got to Hadleigh, I still had more than twenty miles to go, and less than two hours to make the boat. Riders in the Tour de France average 24 M.P.H. even over mountains but I cruise around 17 M.P.H., at least on open roads when I know where I am going. Here, while the landscape was flat and partitioned into ancient fields, I had to stop often at crossroads and make decisions about whether I wanted to ride toward places like Stoke-by-Nayland (I didn’t) or Manningtree (I did). The last ten miles hugged the coast of the River Strour; as I got closer to Harwich it would occasionally vanish behind great mountains of shipping containers.

Not knowing where I was going (even though there were endless signs that said “Ferry”), I scrambled onto a local train for the final run into Harwich, remembering that the railroad connected directly with the boat terminal. I was among the last passengers to line up for my ticket and then the agent said I would have to board the bike as if it were a car, which meant I had to follow a zigzag course around the shipyard, guided by men wearing reflective jackets and waving batons. It reminded me of a school obstacle course. About ten minutes after walking the bike up the ship’s stern ramp, I felt the engines slipping into gear, and we were off to the Hook of Holland.

Originally I had hoped to take a night boat on which I could sleep in a cabin. But none were in service that evening. Instead I was on a high-speed ferry, an enormous catamaran with trucks and cars in the hold, and bars and restaurants on the glitzy passenger deck. During my London semester in 1974, whenever I crossed the Channel, the boats felt like they were escaping Dunkirk. They would pitch and roll, and by morning, the decks would be coated with salt, if not slanting rain. But the new ferries are floating Las Vegas hotels. You feel nothing from the waves. There are swank restaurants everywhere. Croupiers, mostly bored young girls from Eastern Europe, stand expressionless behind their velvet tables—making gambling feel like shopping in Bulgaria. Truck drivers swarm around the bars, drinking and watching television. I felt like I was lost at sea in a mall.

Cutting the waves at almost thirty knots, the ferry reached the Hook of Holland shortly after midnight. In disbelief that this chilly month was still July, I biked into the brisk, refinery air to search for the Hotel America, which I had reserved on the Internet. After a few turns, I found it tucked into a dreary strip of stores and restaurants. Who really wants to stay in the Hook of Holland anyway? To check in all I had to do was take the key from a waiter. As in the Cambridge restaurant, he didn’t want me taking my bike upstairs. Not that it was against the rules to room with a bicycle, but the waiter tried to tell me it was a stupid idea. I persisted, pleading that I had no lock. But I figured out what he was trying to explain when I got to the second floor and the staircase, as in many Dutch houses, turned almost into a ladder. Only by taking the bike apart did I manage to climb to my tree-house room, which I entered humming lyrics from the Eagles: “Welcome to the Hotel California.”

Now, at 1 AM on Sunday morning, I was more than halfway to Amsterdam, and the next day I looked forward to riding along the country’s fabled network of cycle paths, which everyone said would steer me from any corner into downtown Amsterdam. For that reason I didn’t even have a detailed road map. I slept well, needless to say, but what I didn’t figure on was the driving rain that sliced against the windowpanes at 7 AM. After a breakfast of mousetrap cheese and stale crackers, I was soaked to the bone shortly just as I left the hotel (“You can check out any time you like/But you can never leave.”)

Leaving the Hook, I followed a path that ran along coastal sand dunes. From what could see through my fogged-up bike glasses, I guessed that the Netherlands is probably lovely, at least in summer. But I wondered if I was too early or too late in the season to have enjoyed it. At least when you ride in the rain, you stay warm. But I wanted to stop in The Hague, where friends were living, and that was my undoing. First, I confused the unpronounceable Scheveningen for The Hague. The first is a tawdry seaside resort; the latter is a royal capital. But I missed the turn for the palace and aimlessly circled the two cities, which are among the few in Europe without a central square or legible maps in bus kiosks. By the time I found my friends’ house, I could feel the water in my shoes sloshing around my toes.

Coffee helped to restore me, but I didn’t dare peel off my rain jacket, both to spare their parquet kitchen floor and because I thought it might prompt me to end the venture then and there. I made brief wharf-rat conversation, and then, claiming the need to stay warm, vanished into the vaporous midst. My next destination was Leiden, site of the medieval university. Since childhood, I had heard about the University of Leiden from Dutch friends who visited us when my sisters and I were small. Now I tried to find it in the rain. I bounced along some cobblestone streets, but somehow I think I missed the university. Either that, or the Dutch college blends into Leiden’s canal houses.

An Amsterdam friend is a bike enthusiast, and we had arranged to meet at the Leiden train station. His wife would collect my sodden backpack, and together he and I would ride the last thirty miles into the city. In theory, when planning the long weekend, it sounded perfect to go Dutch into Amsterdam. But by the time we hooked up, it was 11 AM, I was beyond cold, and he had what bike racers call “fresh legs.”

Right from the station, he was breaking away, and I was holding on for dear life. (The bike term for this clinging desperation is “wheel-sucking.”) Not only was he rested, fed and dry, he was also a good rider. We flew alongside canals, over small bridges, up the River Amstel, and past windmills until, to use another bike expression, I “bonked” or “blew up.” That’s when you can’t turn the pedals, when you can’t walk the bike, when all you want to do is pitch the machine into a canal and lie down in a field. Fortunately, I blew up near an attractive restaurant. We ate sandwiches at the bar because the headwaiter thought it best if we didn’t sit on their upholstered chairs.

After lunch, when we finally glimpsed some Amsterdam canals, I felt I would make it. It had stopped raining. We made a little detour so I could see the heart of the city, including the red-light district. At least some of that window-shopping warmed me up. The trip ended at my friends’ house around 5 PM when I was shown to the guest bathroom. There I made the decision to enter the shower fully clothed. For thirty minutes, I peeled off one layer after another until the bottom of the shower was covered with roadside grit from places likes Cockfield, Monster, and Amstelveen. Returning to life under the torrent of hot water I could finally stop blaming it all on Stelios. Or as the Eagles liked to remind us, in those pitched-seventies voices: “They’re livin’ it up at the Hotel California.”

A Washington Scandal Libretto

This summary is not available. Please click here to view the post.

Homage to Catalonia

Am I the only one who has never figured out Spain? I know it gets millions of visitors a year, and all of them seem to come back with sunburn, bottles of sangria, and perhaps ownership in a time-share. But I never seem to be so lucky.

During my junior year abroad in college, I laid plans to spend the January semester traveling in Spain. I bought For Whom the Bell Tolls, the Hemingway novel, and George Orwell’s Homage to Catalonia. My itinerary was to start in Barcelona and work my way south to Gibraltar. I was interested to learn more about the Spanish Civil War, about which I was hazy, and I have always had a fascination with the politics of Christopher Columbus: a Genovese who convinced a ruthless Spanish court to search for new worlds. With train tickets in hand, however, I succumbed to a lower back inflammation in Vienna, where I was enrolled in school. The dean sent me to a private clinic for a small operation, which went fine, although in hospital I lost not only my prehistoric tail but also all my money. First, my roommate, Steve Schnee, visited me in the clinic. In roommate fashion, he decided I would not be going anywhere during the term break. As such he thought it best if I lent him a few hundred dollars so he could take his girlfriend skiing. Dizzy from anesthesia, I parted with the money. Then the clinic made me pay cash for the operation when I checked out, a Blue Cross policy meaning nothing to glint-eyed Austrian hospital accountants. Stripped of my Austrian shillings—while Schnee was skiing at Innsbruck—I had to walk home from the hospital. While awaiting some money from my parents, I read the only books I had on hand—those of Hemingway and Orwell—which was as close as I got to Spain until the 1990s.

After moving to Europe in 1991, I renewed my quest to visit Spain. It was the era before discount airlines, and the cost of taking a family of four from Switzerland to Geneva felt like back surgery. When my parents came for a visit in 1995, I pooled enough frequent flyer miles for all of us to spend a long weekend in Malaga. Before leaving for the Costa del Sol, I had asked the same Schnee (he repaid the loan about the time Blue Cross reimbursed something like $32.50 for the surgery) what was the nicest part of the Spanish coast. His answer: “Tuscany.” Like many, he rolled his eyes about Spain’s coastal development. Nevertheless, we forged ahead to Malaga, knowing it might be the Spanish Brighton. We spent a day at the Alhambra, motored up and down the sprawling coast, and treated my three-year-old son to a bucket of balls at a golf driving range. Malaga was a high-rise jungle—similar to a resort that a friend described as “white Harlem by the sea.” What saved the visit was the hotel, part of the Spanish parador or inn system that renovates classic properties and serves regional cooking at reasonable prices. What I remember most about the visit were the lovely dinners, which began at 9:30 PM and meandered through many graceful servings. As Miquel de Cervantes once wrote: “Fair and softly goes far.”

After our visit to Malaga, I went to Madrid on business, where one of the dinners started at the appetizing hour of 1 AM. Everyone but me seemed to be smoking and eating octopus. At 4 AM I declined the invitation to move the dinner party into a nearby nightclub. On that business trip, I raced through the Prado, although it felt less like a museum afternoon and more like a drive-by shooting. On another visit to Madrid, I had both my sons in tow, as we were there for a Real Madrid soccer match. Pushing a little culture before we headed to the Bernabeu stadium, I led them into the Prado, where I had one of those moments of fatherly pride and surprise. My youngest son, then 8, walked up to the celebrated painting of the little girl holding a magpie on a leash and then described to me the significance of the bird cage and the nearby cat, the mindlessness of the Spanish royal family, and the artist’s insight into revolutionary culture. I had gone to Madrid expecting such an infomercial about Zinedine Zidane, not Francisco de Goya.

Actually I wound up getting both. After the Sunday night football match, I sent my two boys off with a friend who had a connection to the Real Madrid management. He didn’t think he could get the boys into the locker room, but as Real had won the match 6-0, he thought a few of the team’s all-world players might sign something on their way through the parking lot. The boys had makeshift autograph books and disposable cameras, as I had not dreamed that they had a chance to meet some of the players. I waited in a sidewalk scrum while my sons vanished into the depths of the stadium. An hour later the planet’s happiest boys emerged from the stadium waving stacks of signed papers. I know that after matches, by reputation, millionaire football players are supposed to push little boys aside while chasing down starlets or groupies. But here I can put in a good word for the Real Madrid’s superstar culture. Zidane (according to one son, “painfully shy”) signed his autograph and then stood awkwardly for a picture. David Beckham did more: he interrupted a business conversation to say, “Wait a minute, I have to look after these boys,” signed their books, chatted to them in English, and posed for pictures. So did the gracious Roberto Carlos, who congratulated my son, Charles, for sharing his name. On it went. Whenever the boys approached a star in the parking lot, he took it to be part of his civic obligation to sign autographs. The goal scorer, Raul, introduced the boys to his father. Figo fussed their hair and spoke to them in French. Ronaldo cheerfully stood for photographs and introduced his girlfriend. I am surprised the team did not take the boys clubbing. Unlike me, I think they would have gone.

My memories of visiting Barcelona are more mixed. I went there first in 2003 as part of a family holiday during a weeklong Mediterranean cruise. We docked in the city just as monsoon-like rains came ashore. It had been like that for much of the cruise. By the time we got to a drenched Barcelona, I had the sulking rage of a vacationing Basil Fawlty or Clark Griswald. No matter how hard it was raining I was determined to see the city. On the open double-decker tour bus, I made the children encase themselves in ponchos and ride outside to absorb the architecture of Antoni Gaudi. At his Parc Gruel, I insisted that we picnic outside on the mosaic benches. Needless to say, that day in Barcelona is recalled in family lore as if an outtake from Saturday Night Live. Most of the stories begin: “Remember when Daddy made us put on the ponchos….?” If Salvador Dali were to have painted our day out in Barcelona, it might have featured a father before one of those Goya-esque firing squads together with a soaked picnic basket and a middle-class family, looking like they had been rescued from a shipwreck.

From touring Barcelona in the rain, you would have thought that I had learned my lesson about Catalonia. But recently someone came to my office and proposed meetings in Andorra. The chance to visit the mountainous principality intrigued me. I remember once, at a dinner party, boasting to the guests that I had visited every country in Europe. I then recounted plane changes in Iceland, drives across Macedonia, and summer evenings in Estonia. My bragging held up until someone at the dinner table questioned me about Andorra and San Marino. I tried to say they weren’t really countries—principalities like Vatican City or Monaco—and dropped phrases at the dinner table about “cereal-box monarchies.” The conversation drifted away from my recollections of Albania, but I knew full well that I had not been to Andorra. In fact, I did not even know if it was a country or a country club with a flag, which is why I gladly accepted this invitation to drive across Catalonia and then spend the night in Andorra La Vella, the capital of the principality.

To get from Geneva to Barcelona is a straightforward business of flying for 85 minutes across France and the Pyrenees. But to get to Andorra is another mater. It is 185 kilometers from Barcelona and the roads wind slowly through Catalonia’s barren hills. As I was driving there on Sunday, I decided to visit some castles en route and eat lunch in a parador, remembering our meals in Malaga. (If you want a great holiday, drive from parador to parador around Spain.) But I got lost leaving the airport, wandered aimlessly through some industrial suburbs, and only got to the Cardona castle in the late afternoon. I had expected Catalonia to be tropical, basking in late summer warmth. Instead, a raw northerly wind swept around the Romanesque fortress. When I ordered lunch in the hotel lounge, I got a harangue from the waiter. (Was he “from Barcelona?”) Like all paradors, this one had a superb location, originally suitable to the dukes of Cardona. But all the guests, including myself, struck me as complaining Americans.

I arrived in Andorra at sunset. Because it is country, not a region of either Spain or France, you must clear immigration and customs, although it’s only on the way out that Spanish officers inspect your car. Just across the border, I joined one of those ski resort traffic jams. For more than an hour, on a narrow mountain road, I idled along the main street of St. Julià de Lòria, the first Andorran town across the border. At an altitude of about a thousand meters, Andorra at first reminded me of an Asian shopping center, full of neon signs and glass-fronted department stores. In the background were the steep and harsh ridges of the Pyrenees.

What is Andorra, besides a mile-high duty-free country? Although it is called a principality, the government is more like a constitutional duchy. The co-princes, nominally the heads of state, are figureheads—not unlike like the mannequins you see in many elegant shop windows. Until 1278, however, Andorra was claimed jointly by the Bishop of Urgell, in Catalonia, and by the count of Foix, across the Pyrenees in France. Even then it was a buffer zone between rival and ambitious clerics. The country dates its independence to the peace signed on September 8, 1278. For the next 700 years the co-princes ruled over a smugglers’ paradise, as both the empires of France and Spain found it useful to have a neutral zone between them. Andorra’s sphere of neutrality is like those of Switzerland or Belgium. In 1419, Andorra convened its Council of Land, giving the country one of Europe’s oldest parliaments.

In 1993 voters ratified a constitution, which maintains, in theory, the supremacy of the co-princes. One is the president of France, and the other is the bishop of Deo de Urgell, both of whom appoint local nominees to preside over the country. (Apparently the French president is handed an Andorran passport after being sworn into office.) But power is now vested in the constitution and the parliament, which has 28 members and meets in a capitol that looks like a mountain chalet. I went there just after 9 AM, as I heard morning tours were offered. An elegant woman (perhaps the prime minister’s secretary?) came to where I was waiting and apologized that she could not show me around. She said the parliament was in session. Maybe I could come back at three? Still, I saw the old wooden table and chairs, carved from tree stumps, around which earlier parliamentarians had convened. They projected the image of government as a one-room schoolhouse.

In the age of transnationalism, globalization, and the European Union, what is to be thought of a 400 square kilometer constitutional co-principality that clings to nationhood? Andorra may not tip any balances of power. Nor is it a mouse that roars. But at least it can balance its accounts, and I took pleasure in deconstructing its financial statement, which I collected from the parliament. The country has a population of about 65,000 of whom about half work. Most of the economy revolves around tourism—skiing in winter, day-tripping to shop in summer. The country receives around 11 million visitors a year, which is a staggering number when you consider how hard it is get there. (The capital is also a three-hour drive from Toulouse, France.)

Part of the principality’s appeal is certainly its duty-free status, but it is not correct to say that the country has no taxes. Andorra has no income tax, but among its indirect taxes are tariffs (between 4-12 percent) imposed on imported goods, most of which are sold to the tourist hordes. Banks also pay tax on savings interest. In all, Andorra has a budget of about € (Euro) 300 million, which it spends on schools, the roads, a hospital, and other social programs, a category that may include ski lifts. Residency in Andorra is hard to come by, if you are not born into a local family. 63 percent of the population is of Spanish descent, and 16 percent are Portuguese—the rest being French. Per capita income of € 24,000 is higher than that in Spain, but lower than France. The most telling statistic is life expectancy, which is 91 for women, and 90 for men. It reminded me of a New Yorker cartoon, in which an aged mountain man, confined to his bed, looks up at his doctor and surrounding family, and announces: “You know, I am tired of yogurt.”

During World War II, a lot Allied airmen shot down over Fortress Europa escaped the Third Reich on the mountainous trails that weave through Andorra into Spain. Nevertheless, Andorra has no army today. It has signed various acts of cooperation with bodies like the United Nations and the European Union. Still, the country guards its independence. Local companies must have a majority of Andorran shareholders, although it makes an exception for three Spanish-owned banks. To avoid foreign entanglements, Andorra has resisted borrowing money to enhance its standards of living. The national debt is € 336 million or € 5,169 per head. Debt service, as a percentage of the budget, is less than 2 percent.

Mostly the economy is a service sector, catering to skiers and shoppers, although the local banks do employ about 1000 persons and collectively manage about € 25 billion. Admittedly, when it comes to managing money Andorra is no match for Switzerland, which has more than a trillion Euros in its banks. But Andorran banks are more profitable, with an average return of 24 percent on equity. Most international banks earn less than half that amount. Foreign investors have no chance to invest in the Andorran banking system, which is essentially a local club run by the established families, who must be thrilled at the profitability of the financial sector and its prudent capital ratios, which in some banks are close to 50 percent of outstanding loans.

Because it does not have an income tax, Andorra has the reputation of being a financial paradise. It may be, fiscally, but the rest of it looks like an overgrown ski resort, with a few Hong Kong electronics shops thrown into the mix. Locally, real estate is booming. You see new office buildings getting wedged into downtown plots, much the way Catalonian castles were built up in layers. What is a threat to Andorra’s future? No much that I could see. There is talk that the parliament might swing socialist in the next election, but one man I met described that party as embracing “Andorran socialism,” which may mean free distribution of imported Scotch. I suppose the European Union—like the departed count of Foix—could lay siege to the principality, and demand equalization on such matters as corporate income tax and banking secrecy. Or it could levy heavier import taxes on Andorran goods, like Marlboro cigarettes. But unlike other financial centers, Andorra does not cater much to outsiders, aside from the tourists who have their trunks searched upon departure. The country has neither rail service nor an airline. There is talk of a helicopter connection to Barcelona and Paris, something that might please the co-princes. In the meantime, Andorra—approaching its 600th year as a democracy and indebted to no one—remains one of the few duty-free shops without an airport. Nor, to use a phrase of George Orwell, who near here was wounded fighting in the Spanish Civil War, is it a place where you feel that Big Brother is watching.

Baseball University

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.

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.