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September 22, 2002
David Warsh, Proprietor


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Short Takes

1. A YEAR AFTER 9/11/01, what’s become of the theory that a new and quite different kind of Cold War has begun? Last week the theory became the official policy of the American government, with the publication of the Bush administration’s National Security Strategy. The document won’t be posted on the White House Web-page until it has been transmitted to Congress, but the newspapers have got it now, and its argument is clear enough.

“America is now threatened less by conquering states than we are by failing ones. As a matter of common sense and self-defense, America will act against such emerging threats before they are fully formed.”

The new doctrines of pre-emptive action and collective alliances against terror will be forged through trial and error, just as were the strategies of containment and deterrence in the 1940s, ’50s and ’60s. The strengthened rationale for the centrality of government and the subordination of business interests that accompany Cold War II probably will stimulate the global economy in new and unexpected ways, as did the civic infrastructure of CW I.

The new mind-set, as gradually it takes hold, also will cast into sharper relief the period of unaccustomed peace, with its many extravagant goings-on, that lasted from the fall of the Berlin Wall in December 1989 until that clear morning in September, 2001.

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2. SPEAKING OF WHICH, there may be some movement in the case of United States of America v. President and Fellows of Harvard College, Andrei Shleifer and Jonathan Hay, when the parties meet before US District Judge Douglas Woodlock next month (October 23) to argue their respective motions for summary judgment.

The US attorney in Boston charges that Harvard professor Shleifer and consultant Hay and their families made personal investments in Russia while serving as the US government’s top advisers to the Russian government, in violation of the rules. Harvard replies that it was their right to do so and besides they did a great job.

A year of discovery has produced the depositions of 57 witnesses, including that of University president Lawrence Summers (who was at the Treasury Department at the time, overseeing US aid to Russia), as well as several hundred thousand documents, emails, etc.. In due course the case will produce a raft of commentary and, of course, the judge’s decision.

For the present, the best introduction to the background of the high-stakes case remains Collision and Collusion: The Strange Case of Western Aid to Eastern Europe, by Janine R. Wedel, an anthropologist who was living in Poland when the Wall came down. Somewhat incongruously, the highly-talented Shleifer will give the keynote address when the International Society For New Institutional Economics gathers next week in Cambridge, Mass., for its annual meeting. His topic: “The Practice of Justice.”

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3. WITH NATION-BUILDING once again moving to the top of the US foreign policy agenda, surely the time has finally come to pull the plug on the corporate welfare program for Boeing and Lockheed that is the International Space Station. In the widely-followed electronic newsletter/Web-site What’s New, Robert Park reports that a National Research Council committee has become the latest panel of experts to criticize the boondoggle, whose costs are expected to reach $100 billion. World class scientists simply won’t use the space station, says the report.

What’s needed to carry ever-more sophisticated scientific instruments into orbit are big, dumb, cheap and dependable booster rockets, says Paul Burstein of Skiametrics, Inc. — perhaps $2 billion worth of development altogether. Yet two-thirds of NASA’s $15 billion budget now goes for the shuttle and the space station. Burstein’s solution: give the contract for nation-building to Lockheed and Boeing.

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4. IS THERE A MOVEMENT to restore New York City as an intellectual center in economics? Certainly New Yorkers think so. Jon E. Hilsenrath reported (subscription required) in the Wall Street Journal last week that New York University had hired eight economists, including Tom Sargent, one of the world’s leading economic theorists. For fifteen years Sargent has oscillated between the University of Chicago and Stanford. Now he’s moving into offices on Mercer Street.

The others moving to NYU include Niall Ferguson, a leading financial historian, development economist William Easterly, econometricians Jushan Bai and Xiaoshong Chen, international economist Jonathan Eaton, economic psychologist John Leahy, game theorist Ennio Stacchetti and macroeconomist Gianluca Violante. Visitors include a pair of experimentalists, Tom Palfrey and Barry Sopher, and theorist Per Krusell. The package is in some degree a block appointment, related to Sargent’s decision and designed to give NYU a higher profile in Minnesota-style applied macroeconomics.

With the decisions last year of a couple of international stars to relocate to Columbia University — development guru Jeffrey Sachs from Harvard and Nobel laureate Joseph Stiglitz from Stanford — there’s no doubt that New York has improved its standing. This is particularily the case in international economics, where Columbia professors Edmund Phelps and Jagdish Bhagwati are thought leaders and where junior appointments have been strong as well.

A key to this evolution probably is the proximity to the city of Princeton University (about an hour by train.) To mention the most striking example, all-around star Jose Scheinkman now lives in the city and reverse commutes to what is in effect Princeton’s far-suburban campus. Presumably the same mechanism operates with respect to Yale University (90 minutes), attenuated by the greater distance and its lesser riches and doubtless weakened further by venture capitalist Benno Schmidt’s ill-considered attempt a few years ago to serve as the university’s president while living in Manhattan.

It remains to be seen whether New York ever again will rank with the other American centers of economic learning — the San Francisco Bay area, Chicago and Cambridge Mass. But this much is clear: prepare for a blast of City-of-Finalists chauvinism.

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5. I WAS INTERESTED to read Jack Welch’s piece (subscription required) on the editorial page of the Wall Street Journal last week — “My Dilemma — and How I Resolved It.”

The dilemma, of course, is the astounding list of corporate perks he took into his retirement from General Electric, where he served as the highly-successful chairman for 20 years. The extensive privileges — a company apartment and access to the corporate jets topped the list — were negotiated a few years ago in lieu of a one-time payment of many tens of millions of dollars designed to keep him from taking early retirement and going elsewhere, he says. Its details became public when his wife sued him for divorce.

The way he resolved to deal with the embarrassment was to give back — he agreed to pay GE $2 million or so annually for the privileges he intended to keep and to accept gratis only traditional office and administrative support.

One thing he probably won’t have to pay for is a ghost writer. Whoever wrote the piece that appeared under his name in the Wall Street Journal was an ace. It could have been John Byrne, the Business Week editor who ghosted Welch’s autobiography, Straight from the Gut.

Judging from the various stylistic flourishes of the piece, however, my candidate for that distinction would be Suzy Wetlaufer, the former Harvard Business Review editor for whom Welch left his wife. Somehow, I couldn’t bring myself to ask.

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