Battles at Chautauqua

Battlefield strewn with flowers


Chautauqua is a battlefield, where citizens and not soldiers wage a war – a war of ideas. 
May the best idea win.


Let me start at the end.  Friday is the finale of the programs of the week, with a theme for each week.  Here’s a sampling of the nine topics for this season: “Global Health and Development as Foreign Policy,” “Sparking a Culture of Creativity and Innovation,” “The Path to the Civil War,” “A Case for the Arts”-- and the theme for this week, “The U.S. Economy:  Beyond a Quick Fix.”

Pity the speakers who committed a year ago to address the last topic, and who had to tear up draft after draft of their speeches to stay current with turbulent reality.  As you know, on Friday Standard & Poor downgraded the United States credit rating from AAA to AA.  This week NYSE gyrated 11,000 points.  Somehow we had missed the ‘quick fix” to the economy.  So what do we do now?

The guiding light for the programs this week was provided by Fred Bergsten, founding director of the Peterson Institute for International Economics.  He was introduced to us this morning as someone USA Today identified as one of the ten most important public figures with influence on your life.  Bergsten said that actually the listing was of ten influential figures you’ve never heard of.

Bergsten connected with the crowd immediately because he came to Chautauqua many years as a boy and teenager, the son of a Methodist minister.  He has worked at a high level as an economist in both Democratic and Republican administrations and has written or edited 40 books.  He helped plan this week at Chautauqua and was the final speaker.

Monday we heard from John Koskinen, chairman of Freddie Mac, speaking about “The Future of Housing, Immigration, and Education in Our Economy.”  In the middle of a bubble, he said, no one is sure whether it’s a bubble or economic progress.  We misinterpreted the steady growth of housing valuations.  Now that we’ve stalled, “an important indicator of recovery will be the renewed willingness of the private sector to re-enter the mortgage market.”

Koskinen observed that the wave of immigration into the U.S. in the 1990’s was greater than in the disruptive period of the early 1900’s.  Our continuing population growth and new household formation of echo baby boomers will eventually lead to housing demand.  That’s the good news.  Our economy will still be in trouble, however, if we neglect our education system.

Paul Solman, business correspondent for PBS NewsHour, was the featured speaker on Tuesday.  His topic was “The Problem of Inequality.”  He joked that there are two kinds of economists: 1) those who don’t know the future; 2) those who don’t know they don’t know.  Changing his tone, Solman noted harshly that in the U.S. our level of inequality is similar to China’s, and we would fit in the worst half of African countries.  The top 20 percent of our population holds 83 percent of the wealth; the bottom 40 percent has just 0.3 percent.  Steps to improve our economy must address our growing inequality, and two measures he favors are eliminating the payroll tax ceiling, and reinstituting a strong estate tax.

Bethany McLean spoke on Wednesday.  Although her current title is editor-at-large at Vanity Fair, she is best known for the whistle-blowing article she wrote for Fortune in 2001 entitled, “Is Enron Overpriced?”  She sees self-delusion and incompetence and moral failing as factors that contributed more to our economic morass than simple greed.  “You can’t over-estimate the incompetence in the world…And if you don’t want something to become public, don’t do it!”

McLean endorsed the saying of Joshua Rosner, who wrote in 2001, “A home without equity is a rental with debt.”  She ended by commenting, “I think that the best thing anybody can do for their financial health is to live within their means.”  In her personal life I think she’d follow the Warren Buffett school of investing:  examine spreadsheets, and before proceeding further assess the character of the top executives.

John Stropki, chairman and CEO of Lincoln Electric, was the speaker on Thursday.  His company has received a lot of attention over the years for its employee profit-sharing program and no-layoff policy for those with three or more continuous years of employment (the work week varies from 32 – 47 hours depending on circumstances).  Under Stropki’s leadership since 2004, the company has tripled revenues from $1 billion to $3 billion through overseas expansion.  Stropki made a cogent case for trade policies and tax policies that would encourage American export growth.

Fred Bergsten of the Peterson Institute for International Economics ended the week.  “The American economy is $1 trillion a year richer because of our exports.  But manufacturing is only 10 percent of the U.S. economy, and services are 80 percent.  Business services can be exported and are, yet there is great opportunity for expansion in this area.  Free trade does result in some job loss, however the benefit-to-cost ratio is 20 to 1.  From the benefits we do need to ameliorate the human costs, which relate to structural unemployment.

Bergsten would like us to have the following goal:  “From 10 percent of GDP in 2010, increase exports to 20 percent in 2020.”  He feels that China should be called to account for manipulating its currency, in violation of the Bretton-Woods Agreement, and we should be stronger in defending intellectual property rights, since intellectual property is one of our strengths.  But the ability of the United States to influence international policies is waning, along with our economic status.  Time is running out.

Bergsten is sure that the Congressional budget committee is not going to raise tax rates; however he thinks that once the knife-wielders see the pain of cuts, they will look for new revenue.  With tax reform comes possibility for new taxes on consumption, and taxes that aid environmental issues.

In addition to what I’ve outlined here, the five speakers told us exactly what will happen in the stock market and matters of international finance over the next six months.  I wish I could pass that on to you.  But what happens in Chautauqua stays in Chautauqua.