She deserves the job (which is far more influential than running the Fed) because, during the financial crisis, she told her colleagues:
“On Wall Street trading floors there is a joke going around: ‘The trouble with bank balance sheets is nothing on the left is right, and nothing on the right is left.'”
Copyright Thomas Doerflinger 2014. All Rights Reserved
In the summer of 2008 a gay friend of mine, who was active in Democratic politics, told me she did not expect Barack Obama to come out in favor of gay marriage because it could blow his chances of winning the White House. He did not favor gay marriage until the end of 2010. The left did not brand him as a big for opposing gay marriage until 2011. Yet Brendan Eich lost his job as CEO of Mozilla for donating $1000 in 2008 in support of California Prop 108 opposing gay marriage.
This is an open and shut case of close-minded bigotry and intolerance–the opposite of the intellectual “diversity” liberals claim to love. Historians decry McCartheyism of the 1950s and the “black lists” of suspected communists who could not get jobs in Hollywood. This situation is identical. Eich was blacklisted for having politically incorrect views on gay marriage. Gay pundit Andrew Sullivan correctly calls this an outrage, which is no more defensible than job discrimination against gay people. I will be interested to see how many other liberals join him in denouncing Silicon Valley’s black list.
Copyright Thomas Doerflinger 2014. All Rights Reserved.
It’s instructive to review the holdings of the smart PM’s at leading mutual fund houses—T Rowe Price, Fidelity, Gamco and Vanguard. We looked at the top 10 holdings of 18 big-cap growth-oriented funds. Some themes:
We know that smart, very well-informed investors like the fundamentals of the 20 stocks highlighted. I own 7 of them. But you have to decide for yourself whether some of them (perhaps V, MA, DHR, GOOG, GILD) are too popular. I am rather surprised these funds don’t own more industrial names, which benefit from creating a cleaner, more energy efficient infrastructure, as discussed in my February 13, 2014 post.
Un-natural Selection Leaves Skeletons in the “Value” Closet
A challenge for “Value investors:” because Mr. Market is smart, “cheap” stocks are often cheap for a reason. In what might be called a process of unnatural selection, some big, dominant companies are mismanaged for so long that their corporate DNA is corrupted to the point where they are very difficult to turn around.
Take GM and Citigroup–please. It turns out that GM knew about its defective ignitions for years without telling regulators; twelve motorists died. On Friday GM did another giant recall. Not great for a tarnished brand in a hyper-competitive industry that is adding lots of new capacity. Meanwhile Citigroup managed to lose $400 million dealing with a shady bank in Mexico, and for the second time it failed its Fed stress test. I am guessing the Fed folks did not give Citi the benefit of the doubt, given its century-long history of egregious mismanagement and government bailouts. Recall that Citi lost Wachovia to Wells Fargo after it thought it had a “done deal.” (See my Dec. 16, 2012 post, “Chronic Crony Capitalist – Time for a Break-Up.”)
Both GM and Citi were giant, sprawling, flat-footed industry “incumbents” that almost failed in 2008 and needed government assistance. They have probably had a hard time recruiting top talent. Their “low valuations” may look tempting, but after years of mismanagement the corporate genes may be more defective than investors appreciate.
More on China—“Reform” and “Downside Risks to Growth” are Perfectly Consistent
On Bloomberg Surveillance perennial China bull Stephen Roach, formerly of Morgan Stanley and now at Yale, sounded peeved when responding to China bears worried about a severe slowdown. They are missing the point, he explained. China is simply “reforming” by shifting from an export and investment led economy to one driven by consumer spending and services (which are more labor intensive and so create more jobs). A crackdown on corruption, less support for State Owned Enterprises and a shift toward market discipline (i.e., more bankruptcies and bond defaults) are other elements of the reform agenda.
I get all that. But Mr. Roche admitted that reform might entail a GDP slowdown. To me, the downside risks are considerable; growth may fall far below the spurious 7-8% GDP numbers Street economists bandy about. Here is an economy moving from being driven by strong export growth, a government financed building boom, a housing boom, and huge credit expansion (to over 200% of GDP), to a more disciplined, market-oriented, consumer-led economy – at a time when housing prices are moderating and export markets are sluggish. It’s hugely optimistic to assume this transition will be smooth and easy.
Copyright Thomas Doerflinger 2014. All Rights Reserved
Eight months ago I warned that the China slowdown would be much worse than expected. I suggested the Wall Street parlor game of China economists daintily trimming their GDP growth estimates from 7.5% to 7.3%, etc. was fairly ridiculous because the figures were fictitious. Today on Bloomberg Radio, this view was supported by Leland Miller of China Beige Book, whose firm regularly surveys 2000 China business.
Since our last post, the incremental news on China has been worse than many observers expected. I expect that to continue to be the case. Some Wall Street firms forecast a rebound in GDP next year, but I think that is very unlikely. It is extremely difficult to reposition an economy from being driven by exports and government-sponsored investment to being driven by private consumption and private investment. Japan tried to do it in the 1990s, without success.
What I wrote Eight Months Ago (Which Still Looks Right to Me)
I know almost nothing about China, except what I read in The Financial Times. But what I read is pretty scary; if you apply a little logic it is reasonable to conclude China growth will be much worse than current consensus. Yesterday in an FT column, “wise man” Gavyn Davies made these salient points:
It gets worse. The latest figures on exports and imports were much weaker than expected, which is not surprising because all of China’s major markets are growing slowly, if at all. The FT quotes a “spokesman for the customs administration” as saying, “Our country is facing serious challenges.”
So, to summarize, the two major drivers of China’s growth, exports and investment, are slowing sharply. A credit bubble is being popped. And much of the credit growth of the past few years funded government projects which, by definition, were made at least partly for political not economic reasons.
Even if the government has the capital needed to prevent a “China Syndrome” meltdown, we can expect Wall Street economists to keep ratcheting down their forecasts—a lot. For the past couple of years the major Wall Street houses have been playing a dainty parlor game of cutting their China GDP growth forecasts 10 or 20 bps at a time—7.5%, 7.4%, 7.2%. My guess is that, before they are done cutting, they will be debating whether growth is above or below 5%. Even competent, well-managed governments of giant, sprawling nations that are simultaneously grappling with a credit bubble, overinvestment by governments, and a sharp slowdown in exports should not be expected to engineer an oh-so-soft landing in GDP growth.
March 2014 Post Script
The recent export figures and PMI data have been very weak, which is not too surprising because most export markets have been soft. The Ukraine crisis won’t help. Real estate prices are rising more slowly. The government has said it will permit some bond defaults, which won’t be great for investor confidence. Obviously it is not easy to shift the economy toward consumptions when consumers are seeing real estate values soften.
I continue to be impressed by the opacity of the China situation. Just how bad are the loans made in the “shadow banking system?” In my experience, when credit bubbles unwind the news is always worse than expected. I am reminded of a Citi executive who said after the last crisis is, “After you get an estimate of the haircut in asset values, the first thing you do is increase it 50%.”
Copyright 2014 Thomas Doerflinger. All Rights Reserved.
Tuesday, March 4, 2014 was a seminal day in the history of American social policy. Seven thousand school kids, mostly black and Hispanic, went to Albany to protest NYC Mayor Bill de Blasio’s attack on the charter schools that were giving them a good education. Their protest worked; Governor Cuomo sided with the kids and against his fellow Democrat in City Hall.
Why was this a big deal? Because racially paternalistic liberals – who really really hate charter schools, which are supported by hedge fund honchos and feared by teachers’ unions—could not play the race card, as they invariably do when anyone attacks failed liberal social policies. How are rich white guys like Bill de Blasio and Paul Krugman , or rich black guys like Jesse Jackson and Al Sharpton, going to argue with a black mother in Harlem who believes she has found the right school for her son or daughter?
Republicans should take notice and push the charter school agenda aggressively. Follow the lead of Louisiana Governor Bobby Jindal, whose recent New York Post column took de Blasio and the teachers’ union to task and went on to celebrate the expansion of charter schools in his own state. House Republicans should create a special tax deduction for charter schools and dare Democrats to oppose it.
Two Pauls: Ryan Assesses the “War on Poverty;” Krugman Plays the Race Card
Claiming Republicans are intrinsically, inherently, innately racist, the media will do all it can to prevent them from constructively addressing inner city poverty, which has worsened since Obama became President. The poverty rate has been stuck at 15% for an unprecedented three straight years. Median black household income in 2012 was 10% below the 2005-07 average. Over the past year the employment / population ratio for black males averaged 58.4%, down a huge 6.7 percentage points from the 2005-07 average; the ratio for white males is much higher (68.4%) and has declined less (5.1 percentage points).
On the 50th anniversary of LBJ’s declaration of “War on Poverty,” the House Budget Committee published a detailed analysis of why Federal anti-poverty efforts have largely failed. Commenting on the report, Paul Ryan noted that one cause of poverty was a “culture, in our inner cities in particular, of men not working and just generations of men not even thinking about working.” As Rich Lowry noted, Ryan’s comments merely echoed various statements by Barack Obama. Nevertheless liberals attacked Ryan as a racist and, rather than get in an argument the media would never let him win, Ryan backed off, saying his comments had been “inarticulate.” Paul Krugman ludicrously accused Ryan of using a “racial dog whistle” “because American conservatism is still, after all these years, largely driven by claims that liberals are taking away their hard-earned money and giving it to Those People.”
Terrible Education for “Those People” . . .
Actually, conservatives favor policies that really do help folks in the inner city escape poverty and achieve The American Dream. Even leaving aside moral considerations, affluent tax payers obviously stand to benefit from rising prosperity in the inner city. A good place to start is education reform, which was a hot topic at a meeting of conservatives I attended recently. A measure of the challenge is results of tests to gain entry to New York City’s elite high schools. As an example, in 2013 Stuyvesant High School offered admission to 9 black students, 24 Hispanics, 177 whites and 620 Asians. Students in the worst schools are literally cheated out of an education and don’t even know it. Here’s a letter to the New York Post from a student at Murray Bergtraum High School, protesting the Post’s attack on the school’s corrupt and incompetent principal:
“Hi my name is M.B. I’m a junior at Murry Bergtraum high school I’m a junior at Murry Bergtraum high school , I was concern and surprised by what (a teacher) said of us that we are a fail factory With all respect who are you to be making false accusations we are not any of the things that he or you said instead of talking about how Bergtraum is scamming or is a fail factory why don’t you talk about our womens basketball team that we are known as having one of the best ones .
“What do you get of giving false accusations im one of the students that has blended learning I had a course of English and I passed and and it helped a lot you’re a reported your support to get truth information other than starting rumors for your information if it wasn’t for blended learning seniors wouldn’t be graduing come to Bergtraum one day and get information real information. Sincerely M.B.”
I’m guessing M.B. will have a hard time getting a good job. The Post provided writing samples from seven other students, showing that unfortunately M.B.’s writing skills were fairly representative.
. . . but Not for My Kids
Liberals’ opposition to charter schools is the height of hypocrisy. Rich liberals are strong supporters of public education for all students in the inner city – except their own. In Washington DC the Obamas and their peers send their kids to Sidwell Friends (middle school tuition and fees: $35,733 per year). In New York, they send them to Dalton, Trinity and the Little Red School House. If they are unable to afford private schools or get their kids into the best public schools, New York Times reporters move to Montclair NJ.
School choice for me but not for thee. Pathetic and, yes, racist.
Racism Inc. Exploits the Underclass
As far back as 1987 the sociologist William Julius Wilson highlighted a fast-expanding gap between the successful black middle/upper class and an “underclass” suffering poverty and high crime, mostly in inner cities. Part of the black middle class and elite, together with paternalistic whites, cynically exploit the woes of the underclass to maintain their America-is-racist narrative. Call it Racism Inc.—which is both an ideology and an industry supporting thousands of bureaucrats, lawyers, educators, affirmative action consultants and academics who pretend to assist poor blacks while promoting policies that have failed to alleviate inner city poverty for a half century.
Eugene Robinson . . . .
Exhibit A is Eugene Robinson of the Washington Post. Early this year, when he was on a TV panel discussing likely big news stories for 2014, Robinson said:
“And one story, huge story in 2013 that we kind of don’t mention, was the acquittal of George Zimmerman and the racial issues and conflict that remain just under the surface that bubble up from time to time, that erupt. And I think you can predict we’ll have more eruptions in 2014. We come to big anniversaries of the Civil War, big anniversaries of the Emancipation and this and that. We’ll see more of that.”
Translation: Let’s hope we have another Trayvon Martin type story, whether real or fabricated, involving a white person killing a black person, to whip up racial tensions and divert attention from the pathetic record of Barack Obama and the Obamacare Democrats.
. . . . Meet James Hailey
On Christmas night 2013, on Schley Street in Newark New Jersey, Zainee Hailey age 13 and Kasson Morman age 15 were killed by a gunman while minding their own business. A third victim, Abdul “Scooter” Frazier, was critically wounded and died in mid-January. Zainee was taking out the trash. She was an honor student and cheerleader and sang in the choir at the New Zion Baptist Church in Elizabeth NJ. Her father, James Hailey, said, “She was just joyful. That’s all. She was just a fun person to be around, when I’m down, she keep me up, in so many words man, she was me and I was her.” It turned out that the gunman was a 15-year-old from the neighborhood.
To the Eugene Robinsons and Paul Krugmans of the world, the killing of Zainee Haily, Kasson Morman, and Abdul Frazier was no big deal because they were not killed by a white person. No news there. No racial “hook” for CNN and MSNBC. Happens all the time. B O R I N G. Robinson (and Sharpton, Matthews, Krugman, et. al) need a tale of white racism that the paternalistic liberal press can really sink its teeth into.
Copyright Thomas Doerflinger 2014. All Rights Reserved.
Obama Vows to “Step on Gas” in Response to Putin
Address to Nation
Shift in Energy Policy to Increase U.S. Exports,
Reduce European Dependence on Russia, Curb Emissions
By Keith Beidermeyer and Philip Furlinger
WASHINGTON — In a ten minute speech from the oval office, U.S. President Barack Obama outlined a plan to accelerate development of American oil and natural gas resources in a bid to reduce Russian influence in Europe. “It is time for America to step on the gas. If we move decisively, in concert with our European friends and allies,” Mr. Obama said, “we can increase U.S. exports, reduce European reliance on Russian natural gas, raise the living standards of America’s working families, and cut global emissions of greenhouse gasses that threaten our planet.” The plan has four main elements. First, immediate approval of the Keystone XL Pipeline, which will move crude oil from Canada to America’s gulf coast. Second, permitting renewed exports of crude oil from the United States, which were banned during the oil crisis of the early 1970s. Third, open up more Federal land in the United States to oil and gas production, while encouraging states to speed up drilling permits. Fourth, accelerate permits for construction of liquefied natural gas (LNG) export facilities in U.S. ports.
Financial markets reacted swiftly to the unexpected news. Asian stocks rallied strongly, as Obama’s plan was believed to cut the risk of a violent confrontation with Russia over Ukraine. In Japan, which imports most of its energy, the Nikkei index was up 2.3% at mid-day; the Shanghai Composite Index rose 1.7%. U.S. stock index futures were up 1.5%. Natural gas prices plunged on an expected increase in global supply. The price on contracts for May delivery fell 12.7% to $5.23 per million British thermal units. Brent crude oil prices declined $2.86 to $102.35 per barrel. Currency markets were also volatile. The Euro climbed 1% versus the U.S. dollar to $1.393 on the improved energy outlook in Europe and reduced tensions in the Ukraine. But the Russian ruble fell 5.2% and shares of Gazprom, the Russian energy giant, plummeted 12.8% to a ten-year low. Russian share prices were broadly lower. “The Russian economy is a one-trick pony, and that pony just broke its leg,” said Erhard Zimmerman, senior emerging market economist at Deutsche Bank in Frankfurt.
Mr. Obama’s plan is likely to be controversial with environmental activists within the Democratic Party. But administration officials pointed out that it would actually reduce greenhouse gas emissions in Europe, which has increasingly been relying on importing U.S. coal, whose price has declined as it is displaced by cheap natural gas in the U.S. electricity sector. “This is an economic, environmental, and geopolitical win for both the U.S. and Europe.” said Barton Howard Wentworth, Undersecretary of State for Economic Affairs, “U.S. exports will increase while European energy security improves. And carbon emissions will decline as Europe uses less coal.” Opposition to the Keystone Pipeline has been a major priority for environmental advocates. Mr. Wentworth noted that pipelines were safer than moving crude oil by rail cars, which have been involved in several major accidents in recent years. Cleopatra Franpoui, spokesman for the Progressive Energy Coalition, vowed to fight Obama’s plan, saying “This stop-gap measure will only increase American addiction to . . . .
Copyright Thomas Doerflinger 2014. All Rights Reserved.
Barack Obama promised to “transform” America by curbing income inequality, and toward that end he declared war on “millionaires and billionaires.” To gauge his progress in this noble campaign, I departed the frigid climes of the Northeast for Palm Beach, Florida. A tough assignment, but someone had to do it.
Sadly, signs of progress in the Mill & Bill War are difficult to discern on the island known to cognoscenti as “America’s Riviera.” Even before you reach the island, there are troubling signs. Moored in the Inter-Coastal Waterway, between the déclassé mainland (West Palm Beach) and Palm Beach proper, is a sprawling fleet of gleaming white yachts. On the island itself, ensconced in a profusion of exotic foliage and freshly clipped topiary, opulent Mediterranean mansions shimmer in the sunlight. For billionaires and mega-millionaires, they are very fairly priced. An exquisite Atlantic prospect, palm-shaded swimming pool, soaring entry hall graced by Venetian gothic windows and intricate wrought iron screens, a Renaissance dining room with Islamic tiled floor and coffered ceiling—this and more can be yours for a trifling $22 million. Alas, in today’s hot real estate market few such properties are available.
On the narrow lanes of Palm Beach, BMW’s and Mercedes are overawed by Bentleys and Ferraris. The main shopping street, appropriately named Worth Avenue (formerly Net Worth Avenue, but the prefix was dropped in the 1930s, I suspect) received a pricey face-lift a few years ago—not unlike many of its denizens. Jewelry shops abound. The local book shop features eight different magazines describing the polo tournaments and benefit balls of Palm Beach Society. Well preserved gentlemen squire comely female companions half their age. Still younger, single females are on the prowl. Don’t be surprised if that baby carriage up ahead is transporting a white Poodle. (Babies are scarce in Palm Beach.) Worth Avenue restaurants Bice and Taboo are packed on a Monday night. At Bice, try the Costata di Vitello Alla Griglia Con Capponatta E Salsa All Timo for just $46.
Though it is forward-looking and up-to-date, Palm Beach pays due respect to its moneyed heritage. The top cultural attraction is the Flagler Museum, once the sumptuous 75-room mansion that Standard Oil magnate Henry Flagler built for his third wife in 1902, at the apex of the first Gilded Age. The Flaglers called it home for a couple of months each winter. Like many of Florida’s founding fathers, Henry Flagler’s main contribution to the state was to build hotels, which were strung along his Florida East Coast Railroad, from St. Augustine to Miami, like so many pearls. The hotel he built in Palm Beach was said to be the largest wooden structure in the world.
I would not wish to convey the impression that you have to be a billionaire or a mega-millionaire to enjoy Palm Beach. Common millionaires are welcome as well. They can find shelter at the Breakers, a perfectly adequate beachfront hostelry with two golf courses, six swimming pools, eight restaurants, and 2000 employees—all situated in lush tropical acreage and ornate beaux arts interiors patterned after a Renaissance Italian palace. The imperial suite is well worth the price at $5,800 per night (excluding taxes and fees).
Bernie, my able accountant, who has clients in Palm Beach, explained to me that the town deals with crime the old fashioned way. After a heist, they pull up the draw bridges, so the brigands cannot escape to the mainland. To caution the locals, a patrol car is permanently parked on Bingham Island, one of the potential escape routes.
Barack Obama, Secret Friend of Millionaires and Billionaires
How are we to explain the tragic failure of Obama’s War on Mills & Bills? The uncharitable take on our President—the sneering, insolent, disrespectful view of the Fox News crowd– is that his eloquence is exceeded only by his incompetence. But I, as usual, take a more nuanced view.
Obama is way smarter than you think. He is looking ahead to his post-White House days. By throwing up multiple regulatory barriers to hiring, Obama obliges the Fed to keep interest rates near zero. This is great for Mills & Bills who can borrow at 1.1% and buy stocks with current yields of 2-5%, dividend growth of 5-20%, and PE’s that are drifting higher in a zero-rate environment. (Fed policy is not so great for middle class savers who get just 1.3% on a three-year CD.) Once President Obama leaves office and is earning $400,000 per speech he, too, can hop aboard this nourishing gravy train. A gleaming multi-deck yacht and $22 million Palm Beach mansion may be in his future. As for the huddled masses who can’t find jobs, well, hey, Obama—unlike those heartless Republicans—is supporting an extension of unemployment insurance and a hike in the minimum wage. What more do you want?
Copyright Thomas Doerflinger 2014. All Rights Reserved.
Lately economists have been comparing today’s digital revolution to the first industrial revolution (1790-1860) and the second (1870-1930). This granular, micro-economic analysis is a welcome respite from the absurdly abstract macro parlor games played by Keynesians and their adversaries. Three economists have weighed in:
Economists and Historians Debate the Gilded Age
Amidst their disagreements, these economist concur on two things: A) They all fret about the increase in inequality that has accompanied the digital revolution. B) They agree that the aforementioned “second industrial revolution” of the late 19th century greatly improved living standards. What is fascinating to me is that most historians take a far darker view of the “gilded age” of the late 19th century when, they argue, a vast increase in economic inequality—a yawning gap between colluding capitalists and ordinary workers—threatened American democracy. Let’s let the historians speak for themselves:
In his classic expose, The Robber Barons, Matthew Josephson wrote that over-investment in the 1890s was to be expected in a “scheme of distribution which brought to a few men incomes of from ten to twenty millions per annum, while even the skilled among the underlying population enjoyed a purchasing power of no more than $500 a year—and this by no means stable….[in 1890] Jay Gould’s income was approximately ten millions of dollars per year.”
In The Monied Metropolis, Harvard historian Sven Beckert spotlights the conspicuous over-consumption of Manhattan’s haute bourgeoisie, including extravagant balls such as the 1897 party that Cornelia Martin threw for 700 of her closest friends, who showed up at the Waldorf Astoria wearing costumes of historic figures. No less than 50 celebrants came as Marie Antoinette. The Park Avenue Armory at 68th Street, now a popular venue for over-priced antique shows, was built by Manhattan’s capitalist elite as a fortified castle that could, if necessary, hold off New York’s working class rabble.
Journalist Jack Beatty unambiguously begins his book, The Age of Betrayal: The Triumph of Money in America, 1865-1900 by announcing “This book tells the saddest story: How, having redeemed democracy in the Civil War, America betrayed it in the Gilded Age.” He agrees with popular economist Henry George that America had a government “by the corporations, of the corporations, and for the corporations.”
In Standing at Armageddon, Princeton historian Nell Irvin Painter notes that “from the 1870s to the 1910s (and beyond) some Americans feared that a society in which the privileged wielded enormous power to further own interests could not at the same time function as a democracy in which all were created equal.”
Clearly there is a weird disconnect between historians’ hand-wringing about the first “Gilded Age” and economists’ judgment that the living standards of the average American improved dramatically. Perhaps, a century from now, there will be similar disagreement about whether the benefits of the Internet ultimately outweighed rising income inequality.
The Free Stuff Problem
One huge problem in assessing the benefits of the Internet is that, in economics, something does not exist unless someone buys it. But much of what is available on the web is free—books, music, maps, news, stock charts, games, etc. etc. In emerging markets, users of the WattsApp service that Facebook just acquired can get two years of texting (text, photos, video) for just $1.00. Economists are well aware of the problem but ultimately end up ignoring it. So we are told that the median income of American males has not increased since 1973 even though their living standards have, in many respects, improved dramatically.
Let’s Get the History Right
The aforementioned economists forget that the first “industrial revolution” was not all about technology. Initially it involved increasing specialization of production (using traditional technology), made possible in the late 18th century by the expansion of the market. Adam Smith described how pin production became much more efficient when it was broken into separate steps performed by specialized workers. In the U.S., specialization transformed the shoe industry without the aid of much new technology. The industry shifted from an artisanal craft where one cordwainer made the whole shoe to a “putting out system” where some people made the “uppers,” some made the sole, and still other workmen assembled the final product.
Brynjolfsson and McAfee think the steam engine initiated and drove the “First Machine Age.” Wrong, at least for the U.S. The first wave of industrialization in New England and the mid-Atlantic Region, between 1790 and 1830, had little to do with steam engines. Mechanization of textile production — spinning thread, weaving cloth, and then finishing and dying the cloth – transformed the industry at a time when textiles were the most important manufactured product in international trade. High-tech textile mills used water power, not steam engines. The most sophisticated mills were constructed in Massachusetts by the “Boston Associates”—Boston Brahmins who made their first fortunes in international trade, stole textile manufacturing secrets from Britain, and built large integrated textile mills on the Charles and Merrimac Rivers. (Come on guys, the Lowell Historical Site is only 38 miles from MIT. You should know this stuff.) The machinery in these water-powered factories required advanced mechanical engineering.
Most other “high tech” Northeastern factories used water power in the first third of the 19th century. In this period of American history steam engines were mainly used not in factories but on steamboats. Relatively light, high – pressure steam engines powered boats on the Mississippi and other western rivers. Unfortunately they had an annoying tendency to blow up. After 1830 steam engines gradually became more important in factories, and they were also used on railroads which began to proliferate in the 1830s. But the first railroads were used by passengers. Until the 1850s most freight was moved on wagons, barges, canals and sailing ships.
The Second Industrial Revolution (1870-1930): A Protracted Affair
If the “first industrial revolution” (1790-1860 in the U.S.) involved the mechanization of textiles and other manufacturing using water power, gradual introduction of steam engines, and development of railroads, the second industrial revolution involved a diverse collection of new technologies, including telephony, electricity, automobiles, modern chemistry, movies, and radio. It took a long time for new technologies to transform the broader economy. Electric lights began to appear in major cities in the 1880s, but as late as the 1920s manufacturing productivity was being driven by construction of modern factories that used electric motors rather than steam power. (Electric motors scattered along the assembly line were more flexible than a centralized steam engine.) Automobiles were developed in the 1890s but Ford’s Model T was not introduced until 1907 and autos did not really transform the lives of middle class Americans until the 1920s.
Copyright Thomas Doerflinger 2014. All Rights Reserved.
In 1791 in the state of New York was born Martha Ann Rogers, severely deformed. In the place of arms she had “two diminutive stumps projecting but a few inches from the shoulders.” She had “but one leg, which was also diminutive and ill formed, and on that leg was a stump similar to those which were substituted for arms.” What was to become of Martha Ann when she came of age?
We get the answer from the diary of Thomas P. Cope, a wealthy Philadelphia merchant who met Martha Ann on March 29, 1807, when she was sixteen years old . Martha Ann could not stand, but she sat erect “with perfect grace & ease.” “Her features are regular & even handsome,” Cope reported. “Her complexion fair & blooming. Her countenance animated & captivating. Her limbs excepted, she is well formed & of the usual size of persons at her age.”
While Martha Ann “conversed very freely & cheerfully” with the visiting merchant, she worked away at her craft “without any apparent labour or perplexity.” Cope asked her to make a watch paper, an ornamental packing placed in a watch case. Martha “cut me a very neat watch paper in a few minutes, holding the paper between two of her toes, moving the scissors with her lips and steadying the motion with what should have been an arm.”
In addition to cutting watch papers, Martha was an accomplished, and self-taught, seamstress. Cope purchased ”a piece of her work, which for the rich variety & beauty of the flowers & the elegancy of the design is not frequently surpassed by young girls who possess all their limbs & have had much pains bestowed in their instruction.” How could a young woman without hands and feet manage to sew? “She embroiders with her toes & lips, the former officiating below & the latter above the frame. She threads her own needle, knots her thread & designs her own pieces. She writes tolerably well by holding the pen in her mouth. Marking & common needlework she executes correctly.” Cope reckoned that Martha Ann would be able to support herself by her trade.
Meditating on the meaning of Martha Ann, the merchant concluded that she should “stimulate us to persevere in habits of industry under the conviction that labour & ingenuity will be rewarded.” Sadly, that is exactly opposite to the ideology of the modern welfare state, which seeks constantly to aggrandize power by branding ever more citizens as hapless victims who need to be coddled and controlled by the government.
Source: Eliza Cope Harrison, ed., Philadelphia Merchant: The Diary of Thomas P. Cope, 1800 – 1851 (South Bend Indiana, 1978).
Copyright Thomas Doerflinger 2014. All Rights Reserved.
