A recent debate over obesity featured James Glassman, an American Enterprise Institute resident fellow, defending the fast-food industry and Shannon Brownlee, a New America Foundation senior fellow, complaining “not only is your local, state and federal government not doing anything about this disease—anything credible about it—but they are actually promoting this disease through taxes and other policies.”¹

What Brownlee and other big-government advocates mean is U.S. tax policy through which, she alleges, “we allow the advertising of all kinds of food to children.” Tax policy that allows companies to advertise is responsible for obesity.

Unfortunately for Brownlee, a program likely to be much closer to her heart may have in fact made women fatter. It was in one sense unforeseen—but anyone who knows how government programs boomerang could have predicted that this program would have unforeseen results. In fact, the results were diametrically opposite those (supposedly) claimed by the proponents of the law in the first place.

What law am I referring to? Title IX, the famous “women’s equality” measure passed in 1972 as a federal education amendment. Conventional wisdom is that Title IX enhanced women’s fitness by prohibiting sex discrimination in any sports program receiving federal funding. This presumably applied to virtually all public schools and most private schools that accepted federal scholarships or grants. In theory Title IX required colleges and universities by 1978 to fund such programs as women’s soccer, basketball, and lacrosse if it funded men’s football, basketball, and baseball. Never mind that aside from women’s basketball, no one watched those sports, while literally millions of people turned out to watch NCAA men’s football. This was about equality . . . and fitness.

Except for one small problem. It now appears that Title IX has damaged women’s fitness in ways never imagined. One need not endorse government schools to see that if fitness is a stated goal of those schools, then Title IX has undercut that goal by elevating “higher” social objectives of “inclusiveness.” The Law of Unintended Consequences strikes again.

Colleges are the last stop and thus the least fruitful place to see what has happened to women’s fitness. Let’s look at the public schools K-12 instead, and let’s examine California as a case study. To accommodate Title IX, schools had to ensure that girls had as many resources as boys did when it came to locker rooms, physical-education (PE) classes, access to sports fields, and most important, faculty/coaching time. With the redistribution of resources—in essence, twice as many students with only a fraction more resources—schools had to make a choice. California responded by lopping off mandatory PE classes as part of its curriculum. In 1976, attempting to comply with Title IX, junior and senior high school students of both sexes were exempted from physical education, and within a year, an internal California survey found that “staffing has been reduced and teaching methods changed as a direct result of the new programs.”²

The point here is not that ending mandatory PE classes is a bad thing, but that from the vantage point of the advocates of Title IX, it was an undesirable unintended consequence.

The repercussions rippled through the schools. The number of juniors and seniors taking PE declined by about 50 percent. A 1980 Department of Education survey reported that “about 40 percent of schools. . . perceive that [Title IX] has caused program quality to decline.”³ Specialized female coaches for soccer, tennis, swimming, and other sports were needed, and due to the pressures of Title IX they often could coach such sports almost exclusively. With shrinking funds, general PE courses were cut.

Ironically, not only were a large number of girls now penalized so that a small number could play highly specialized sports, but the burdens broke down along class lines. Generally (and despite the misleading images provided by largely black NBA teams), poorer people exercise less than wealthier people, and non-whites, especially African-Americans and Hispanics, exercise less than whites. Most strikingly, the Center for Disease Control found in a 1994 study that the greatest disparity was between white girls and black girls, where more than 77 percent of the white girls said they exercised hard at least three times a week, while less than 70 percent of black girls reported doing so.

Meanwhile, a stunning rise in body fat (measured by body mass index, or BMI) was occurring. Between 1966 and 1994, obesity based on BMIs among youth rose from 7 percent to 22 percent, and at the “top end” (literally) of the scale, the morbidly obese (larger than 95 percent of their peers) were growing disproportionately. Only one out of five students in California schools could pass minimum standards for the state’s physical fitness tests—which themselves had been “dumbed down” in the wake of Title IX.

As the elite female athletes (mostly white and upper-middle class) benefited from Title IX, “average” kids (especially minorities) paid the price with less physical exertion in schools. Literally, female sports programs were funded on the bellies and thighs—not the backs—of the poor.

Standards Attacked

At the same time, measurement mechanisms to evaluate health and fitness were coming under attack for being racist, sexist, or discriminatory against, fat people. For example, the federal government for years has offered both dietary and fitness guides. Yet these came under attack because so few people met the goals.⁴ Several organizations, including the American Heart Association and the American College of Sports Medicine, looking at studies of predominantly white middle-class males tested at the Cooper Institute and at Stanford, concluded that people gained a lot from just a little exercise—a true but highly misleading conclusion, for it implied that people could “walk briskly” for 30 minutes a day and get meet all their fitness requirements.

The heart association also reduced its recommendations that people burn 2,000 calories a week in exercise in favor of merely 700 calories per week. The Clinton administration chimed in with a “Healthy People 2000” initiative that redefined fitness at such a low level that the Surgeon General guaranteed to “show improvement.” This allowed the government and, to a large extent, the media, to contend that a half-hour’s worth of gardening was equivalent to a half-hour’s jog. (Oprah Winfrey, a woman whose own battles with weight and fitness have been well publicized, was one of the few to run against the current by proclaiming loudly and often on her television show that a half-hour a day is not enough to lose weight.)

The bottom line (no pun intended) is that while a relatively small sliver of the female population who played competitive sports in college benefited from the redistribution of Title IX funds, women were, on the one hand, increasingly getting less exercise in government schools and becoming less fit every day. It took time for the impact of Title IX to be visible in women’s fitness. However, by 1985 when the third President’s Council on Physical Fitness survey was conducted, studying the fitness of 18,000 boys and girls, the results were shocking. In 1958, the average American 15-year-old boy could run 600 yards in just over two minutes and do 45 sit-ups, and those numbers improved by 1965 (by 19 seconds and almost 30 sit-ups). Since that survey, the testing methods had changed, but the message was unmistakable: half the girls could not run a mile in less than 10 minutes. Worse, analysis of fatness, including skin fold tests, showed that young women were becoming fatter.

The most insidious thing about Title IX was that its negative impact on women’s fitness hit in the early years—when fitness habits were formed among girls—and provided “benefits” only years later, when the young women got to college. By that time, Title IX had already done its damage to all but the few blue-chip athletes. Less capable girls, who might have developed exercise habits for life before college, and who might have discovered that a little sweat actually felt good and had important health benefits, dropped out of phys ed classes in significant numbers—and women’s dress sizes later expanded.

Title IX, championed as the panacea for women’s sports, has ended up like so many other federal programs: it benefits a few at the expense of the majority. Or more accurately, in this case it takes fat and calories from the few and “redistributes” them among the many.

Notes

1. Steve Brown, “Obesity Debate Centers on Pinning the Blame,” CNSnews.com, May 14, 2003, at www.cnsnews. com/ViewNation.asp?Page=\Nation\archive\200305\NAT20030514a.html.
2. Quoted in Greg Critser, Fat Land (New York: Houghton Mifflin, 2003), p. 67.
3. Ibid.
4. This is not to say that government is needed to issue dietary or fitness guidelines. In this regard, see Robert Wright, “Are Dietary Guidelines a Public Good?” Ideas on Liberty, November 2002.

Asked to identify prominent people in the music industry, most Americans will name musicians. A few may mention Phil Spector, Herb Alpert, Burt Bachrach, or Quincy Jones–producers, writers, and arrangers, not (essentially) performers. A true “music geek” may even name behind-the-scenes music gurus such as Clive Davis (founder of Arista Records) or Ahmet Ertegun (founder of Atlantic Records). Yet few musicians, songwriters, or performers have had as much impact on the American music industry as Berry Gordy Jr., founder of the original “black label,” Motown Records.¹ His is an illustrative chapter in story of American entrepreneurship.

Gordy loved the music business and dreamt of writing and producing. A former Golden Gloves boxer, he was drafted during the Korean War, and when he returned to his native Detroit, he started Gordy’s 3-D Record Mart to sell jazz records. But the store floundered: his customers wanted soul and blues. In 1955, after only two years, Gordy folded the business and took a job at Ford Motor Company’s Lincoln division.

But he had not given up his dream. He got his break when a concession business run by his family at the Flame Show Bar introduced him to several top entertainers. The Flame Show featured the top black acts in Detroit, including Billie Holiday and T-Bone Walker, and the club owner managed a young singer named Jackie Wilson. Gordy was invited to write some songs for Wilson, and he collaborated with Roquel “Billy” Davis to pen the hit “Lonely Teardrops.”

Gordy soon met Raynoma Liles, who auditioned for backup singer in some of the acts Gordy had begun to produce. Raynoma (whom Gordy married) could write music, and this talent fit perfectly with Gordy’s own freelancing songwriting style. In 1957 he produced “Reet Petite,” also sung by Wilson, bringing still more ambitious acts to Gordy’s doorstep. When a group called the “Matadors” was turned down by Wilson’s manager, Gordy took it under his wing, changing its name to the “Miracles” and spotlighting its lead singer, William “Smokey” Robinson. Gordy was now wearing three hats, as manager, writer, and producer for the Miracles. He produced their minor hit “Got a Job” (an answer to the Silhouettes’ “Get a Job”) and the success of the Miracles, along with the songs Gordy wrote for Jackie Wilson, convinced him that he could make the leap to the next level: owning his own record label. In 1959, using $500 that his mother lent to him, Gordy formed Tamla Records and a publishing arm, Jobete Publishing. This was a significant move, because as any musician knows, the lion’s share of the royalties goes to the publisher and writer, not the performer.

Gordy continued to write hits, including “Money (That’s What I Want),” recorded by Barrett Strong. But finding that his little label could not efficiently distribute the records around the country, he signed a national production and distribution deal with United Artists. In 1960, Gordy converted the Tamla and Hitsville USA record labels into a new company, “Motown,” from Detroit’s “Motor Town” nickname. On the advice of Smokey Robinson, Motown began to distribute its own records that year, bolstered by the success of Robinson and the Miracles’ “Shop Around.” By that time Detroit-based black talent started to beat on Gordy’s door with regularity, and the artists produced by Motown started to gain acceptance in wider markets. Mary Wells, for example, achieved “crossover” into white markets with the classic “My Guy” (1964).

Some stars were literally right under Gordy’s nose. His secretary, Martha Reeves, had a group called the “Vandellas,” and she successfully lobbied Gordy to record the group. After proving their mettle by singing backup on a few Motown hits, “Martha and the Vandellas” was allowed to record solo, with results that, by that time, should not have shocked Gordy. Their songs “Heat Wave” and “Dancin’ in the Streets” shot to the top of the charts.

Gordy realized, however, that blacks constituted only about 12 percent of the population in the United States, and even if he sold a record to every black adult, he could not make as much money as if he sold to only one-quarter of the white population. He therefore embarked on a risky and, in retrospect, brilliant strategy to “package” black Detroit acts in such a way that white audiences would buy their records. This was no mean feat. It could have backfired with his large black audiences, giving him a reputation for selling out. On the other hand, he faced a substantial hurdle in getting black artists on mainstream radio. Only a few years earlier, a white singer from Tupelo, Mississippi, Elvis Presley, had been denied airplay on some radio stations because he “sounded black.” But Gordy realized that cultural differences had to be bridged from both directions. If whites were to embrace the less rigid structure of black rhythm and blues, the music had to be presented in a polished, sophisticated (and non-threatening) way. In short, Gordy’s genius was that he presented black music in the entertainment structure that white audiences were familiar, and comfortable, with.

Breaks New Ground

Gordy hired a choreographer, for example, to teach the groups how to move. Motown choreography, which eventually became a caricature of itself, nevertheless in its early years broke new ground in musical presentation. He also realized that his singers, most of whom were from poor inner-city neighborhoods, needed to be able to make a good showing in interviews to better promote their records. He hired elocution instructors and taught the artists proper English and social skills. Gordy dressed his acts in suits, tuxedos, or full dresses. If racists were going to complain that black music would pervert the nation’s youth, they would have a hard time proving it by looking at the Motown stable of groups, whose members were well-dressed, articulate, and polished. This was more than a superficial remake. “We don’t accept an artist easily,” Gordy told a Detroit newspaper. “We look for character and integrity as well as talent, and this produces a big family-type organization.”

Gordy demanded of his acts hard work, a straight life, and commitment to “the system,” and in return he recognized that he owed them sound financial advice so they would not squander their money. Setting up a financial-counseling service, Gordy explained in 1962, “We try to help artists personally with their investment programs so that they don’t wind up broke. We are very much concerned with the artist’s welfare.”²

Perhaps Gordy’s most impressive barrier-breaking move was not his formatted choreography or his “packaging” of black acts, but his fundamental assault on the construction of black blues itself. Knowing that traditional blues, as played by Muddy Waters, Blind Lemon Jefferson, and B. B. King would be a hard sell to white audiences, Gordy worked with Eddie Holland, Lamont Dozier, and Brian Holland (known as “Holland-Dozier-Holland” on the record labels) to transform the traditional 12-bar blues and 32-bar ballads into new, short strains that featured a repeated “hook,” or catch phrase. The innovation can be heard in the Supremes’ hit “Stop, in the Name of Love” and others.

Gordy’s Motown Records cranked out many hits in the early-to-mid-1960s from the Temptations, the Supremes, Martha and the Vandellas, and the Four Tops, always keeping the records within a two- to two-and-a-half-minute time frame so that disc jockeys would play them.

Like other artists, Holland, Dozier, and Holland flourished in Gordy’s Motown system, and yet they came to resent his control. The songwriters broke off in 1967 to form their own label. While they still produced a few minor hits, they never enjoyed the success they had at Motown—perhaps due in part to changes in musical taste by that time. They were not the first to leave: Gladys Knight and the Pips had left Motown after a huge hit, redoing Marvin Gaye’s “I Heard It Through the Grapevine.”

Motown suffered with the loss of artists and songwriters, and it fell into a two-year funk while Gordy struggled to find replacements. He found renewed life with a new band, the Jackson 5, who submitted to Gordy’s “polishing” process in Los Angeles. After a year of preparation, the Jackson 5 released “I Want You Back,” featuring the powerful and dynamic vocals of the youngest member of the family, Michael Jackson. Gordy realized that Michael had the strongest fan appeal, and during the time that the Jackson 5 continued to turn out the hits, Gordy groomed Michael for a solo career.

Gordy was correct in his assessment of Michael Jackson, but as had occurred with other Motown stars and songwriters, his tight grip alienated Michael and the group. In 1976 the Jackson 5 left Motown, renaming themselves the Jacksons, and not long after that, Michael Jackson changed the face of music history with his stunning albums, “Off the Wall” and “Thriller” (which was co-produced with Quincy Jones). Given the Gordy formula, it is unlikely Jackson ever would have created many of his masterpieces had he remained at Motown. But like so many others, including young Steveland Judkins (whom Gordy repackaged as “Little Stevie Wonder”), Michael Jackson owed his start to Gordy’s genius.

Top Black-Owned Business

By the early 1970s, when Black Enterprise magazine labeled Motown the top black-owned business in America, Gordy had relocated many of his operations to Los Angeles. As he involved himself less in daily matters, Motown’s hit-making reputation suffered. But with or without Gordy, Motown found that music itself had changed, developing a harder edge with the 1970s rock bands and the advent of the drug culture’s psychedelic and “metal” music. Motown remained locked into a formula for groups, producing the Commodores, but the heyday of its creativity was gone, and further erosions of black dance music occurred when the “disco” scene made several white acts, such as the Bee Gees and K. C. and the Sunshine Band, into dance-music stars.

In 1988 Gordy sold Motown to MCA Records. He had literally changed the American music industry, introducing large numbers of suburban whites to “black” music and advancing the careers of many who now are honored in the Rock and Roll Hall of Fame, as is Gordy himself. Gordy became a victim of his own success, and like Henry Ford, the revolutionary finally turned into the old guard. But weep not for Berry Gordy Jr. In the process of creating Motown records, he became wealthy, started an empire, and gave America some of its best music moments.

1. For information on Motown, see Dave Edwards and Mike Callahan, “The Motown Story,” online at www.bsnpubs.com/gordystory.html; “Sweet Soul Music,” in Thaddeus Wawro, Radicals and Visionaries: Entrepreneurs Who Revolutionized the 20th Century (Irvine, Calif.: Entrepreneur Press, 2000), pp. 154-57; and Larry Schweikart, The Entrepreneurial Adventure: A History of Business in the United States (Ft. Worth: Harcourt, 2000), pp. 398-99.
2. Ken Barnard, “Berry Gordy Jr.-Detroit’s Record King,” Detroit Free Press, December 26, 1962, http://www.freep.com/motownat40/archives/122662mo.htm.

Perhaps it is the emphasis on youth in marketing and advertising—aside from a few prescription-drug commercials these days—that creates the impression that the rich are all young or have their career paths set by age 30. In fact, however, America’s business landscape blooms with people who didn’t hit their stride until they reached 50. Opportunity sometimes knocks later rather than sooner, but as the following examples show, what is important is whether or not you are ready to open the door.

John K. Hanson (born 1913), who was a furniture dealer after World War II in Forest City, Iowa, came up with the concept often associated with older people, the Winnebago motor home. He once accepted livestock in payment for couches and tables, even drawing the attention of Time magazine in 1947. Concerned his little town might be shriveling with the decline of family farming, Hanson pondered ways to save the town. Rather than run to the government for aid, Hanson noticed (ironically, also in Time) an article about the camping and trailer boom in California. After researching the project in person, he convinced more than 200 local townspeople to invest $50,000 in a corporation to manufacture travel trailers for a California company.

That venture failed, however, not long after the first trailer came off the assembly line. Hanson, convinced that the outdoors movement was a trend, bought out some investors and encouraged others to stay in and give the project another try. At Winnebago Industries he copied Alfred Sloan’s model at General Motors: have plenty of variety in cost, luxury, and accessories. After ten years the company had 20 models of campers and mobile homes, all making use of Hanson’s innovative foam-rubber cushions and mattresses that made the units more comfortable and thus more profitable. He also introduced the “unbalanced panel,” in which plywood and aluminum sandwiched a layer of Styrofoam insulation, which proved lighter and cheaper than existing “balanced” panels.

By 1965 Winnebago reached $2.8 million in sales, offered stock to the public, and soon became the first exclusively recreational vehicle firm listed on the New York Stock Exchange. After retiring, Hanson watched Winnebago stock slide from over $80 to a low of $1.75 in 1979. Coming out of retirement at age 65, Hanson brought the company back to profitability, although it was difficult. He had to fire more than 3,200 employees: “I came in like Wyatt Earp. I just lined ‘em up and shot ‘em down.”¹ But he saved the company, and for the second time, saved the town. Reflecting back on whether he could have started Winnebago at an earlier age, he concluded there was no way. He did not have the experience or knowledge.

A more colorful and bombastic figure, Phineas Taylor “P.T.” Barnum experienced success even later in life. Barnum (born 1810) was a natural salesman, who loved a practical joke. A prankster as a child, he once pushed a scam too far when he had a friend spread the word around town that he was an escaped killer. A mob nearly lynched him. But this, and other experiences, convinced Barnum of the incredible power of hype—that publicity could sell anything. In 1835, he managed the American Museum, where he displayed a woman he claimed was 165 years old, and when public interest declined, he wrote articles to the local papers under pseudonyms accusing him—Barnum—of fraud regarding the exhibit, and attendance again soared. Although he never admitted it, one of his main attractions at the museum was the “Feejee Mermaid,” a creature that Barnum had apparently sewn together from a monkey’s head and a large fish’s tail.

No matter what the exhibit, though, Barnum learned that if you promoted it with “the largest” or “greatest,” or “most spectacular,” people would come to see it. But he also knew which acts sold, bringing the famous Jenny Lind, the “Swedish Nightingale,” to America for a tour. Typically, Barnum’s promotional skills produced a crowd of 30,000 to greet her.

Barnum went bankrupt in 1855 after getting involved with a clock-making company in which he was himself swindled. Embarrassed at being out-hustled, he rebuilt his fortune around exhibits of wild animals and birds. Collaborating with a circus group, Barnum conceived of the notion of moving the animals from town to town by railroad, although he still was not showing a profit. In 1880, however, he encountered the London Circus, run by James Bailey. They merged, with Barnum handling the promotion. Thus it was not until P.T. Barnum was 70 that the famous Barnum and Bailey Circus became a solid business.²

Fast Food at Fifty

Someone almost as well-known as Barnum, McDonald’s founder Ray Kroc, likewise did not come into his own until middle age. Kroc was a 52 year-old Dixie Cup salesman when he learned of a new product called the Multimixer, which mixed several milkshakes at once. When Kroc quit his paper-cup job to sell Multimixers, he became acquainted with Mac and Dick McDonald in San Bernadino, California. He observed their fast-food operation firsthand in 1954 and was amazed at the assembly-line production. All the operation needed, he thought, was his Multimixers. Working out a deal with the brothers for the name, Kroc opened his first location in Des Plaines, Illinois, and after more than a year, he had enough money to open other locations. Within five years Kroc, well past the mid-century mark, had 200 restaurants. Within another seven years the company would open 100 new stores per year.³

Less well known, but nearly as successful, were two other middle-aged masters of sales, Lowell Paxson (born 1934) and Roy Speer (born 1932), co-founders of the Home Shopping Network in 1982. Paxson had owned an AM radio station in Clearwater, Florida, but found FM radio stealing his listeners. He had difficulty selling ad time, so he experimented with selling products directly. Acquiring overstocked products from local merchants, he premiered a show called “Suncoast Bargainers.” After cable television penetrated the market, he decided to make the move to TV, where people could see the goods.

Paxson found his business and management skills wanting in some areas, so he looked for a partner. He found Roy Speer, a man nearly his own age. The two opened Vision Cable System in Clearwater to carry the Home Shopping Channel. Initially only 200,000 cable subscribers saw the show. Still, the duo had nearly $900,000 in sales after a year. They looked for an opportunity to go national, and in 1985, the Home Shopping Network began broadcasting 24 hours a day, earning $6 million in six months. Demand was so great that a year later, they started HSN2, a second network featuring more upscale, name-brand merchandise such as Gucci and Yamaha. Although the “rocket ride” that the two men experienced slowed in the late 1980s, when Sears and J. C. Penney started direct sales on cable, the success of Paxson and Speer seemed to confirm the adage that life begins at 50.⁴

Tonic and Soft Water

Probably few entrepreneurs had as hard a road to hoe as Lydia Pinkham, a housewife whose husband, Isaac, was in a wheelchair and who had five children to feed. The Panic of 1873 had pushed the Pinkhams into abject poverty, and out of desperation Lydia began selling a vegetable compound for “female complaints”—a term that covered a number of discomforts related to women’s anatomy. Manufacturing the tonic in her basement, she sent her two sons to sell and distribute the product, using their wages to purchase supplies. Husband Isaac wrote copy and stuffed envelopes. The family’s break came when an ad placed in the Boston Herald brought in large orders. By that time, Lydia was 60 and had her own image placed on the bottles. A new ad campaign, using streetcar signs, magazines, and bottles, made Lydia Pinkham a household name. Her share of misery did not end, though, as both sons died of tuberculosis, at which time Pinkham, then nearing 70, sold the business.⁵

Emmett Culligan was certainly younger than Lydia Pinkham when he invented his water-softener equipment in the early 1920s, but he did not make a go of his business until he was close to 50. In business terms, though, he had already lived two lifetimes. Culligan had been worth $200,000 at age 28 when the value of his lands plummeted and forced him to move home with his mother. Meanwhile, he had experimented with a filter that removed hard minerals from water using a natural greensand called zeolite. Borrowing a bag of the sand, he experimented until he perfected the device. Opening a new firm in St. Paul in 1924, Culligan immediately got into patent squabbles and found himself broke again. After resolving the dispute, he continued to believe in the water filter and concluded that he merely had to find a way to bring the price down to see heavy sales.

Culligan also understood that no matter how good the product was, it would not just “sell itself.” Creating the right type of sales force was key. Ready to try again in the middle of the Great Depression, Culligan opened a new company in Northbrook, Illinois. Using new machinery, he got the price down, but the sales gimmick that proved successful was a guarantee that the customer could cancel service anytime. Continuing to sell during World War II, by V-E day, Culligan had nearly half a million subscribers. Previously he had hired salesmen to copy the tactics of vacuum-cleaner salesmen or the famous “Fuller Brush Man.” But by the 1950s times had changed, and Culligan altered his approach. An ad company in 1959 came up with the famous line, “Hey, Culligan Man,” which characterized all the company’s promotions. By the early 1960s, sales had doubled, and Emmett Culligan, having made his fortune after he was 50, retired before he lost another.⁶

Mary Kay

Opportunity is no respecter of persons or circumstances. Consider Mary Kay Ash (born 1915), whose life resembled a movie, something like The First Wives’ Club. Supporting her husband by selling cleaning supplies and conducting in-home demonstrations, Ash attained a top position and a good salary in a direct-sales organization. She was repeatedly passed over for promotions, however, even after outperforming male counterparts. Then, having gotten her husband’s company off the ground, she found herself served with divorce papers. Already in her late 40s with a family to support, she took more sales positions, until she encountered a woman who had developed her own skin products. Purchasing these, Ash started her own company in 1963 under the name Beauty by Mary Kay. She conceived the sales tactic in which a woman would host an in-home beauty show, or party, for her friends in return for certain rewards. Most of Ash’s sales force were women—many in the same position as she had been—and she emphasized incentives as a means to boost sales. Although she gave out bonuses, vacations, and other prizes, the most famous of her incentives was a car. At first she gave away pink Buick Regals, but eventually upgraded the prize to the famous Mary Kay pink Cadillac.

By the late 1980s Mary Kay had 120,000 employees and had established itself as one of the leading cosmetics/beauty companies in the world. When she died in 2001, Mary Kay had created an empire, all of it after age 50.⁷

If the stories of these eight individuals tell us anything, it is that opportunity knocks, although sometimes later rather than sooner. The key is to be ready to open the door. More important, though, most of these successful entrepreneurs failed and struggled, some of them for decades, before finally landing on the product or service that made them famous. Resilience, determination, and a refusal to view age, poor health, marital status, or any other circumstance as an impediment moved these men and women to the forefront of their businesses.

Notes

1. Quoted in Joseph J. Fucini and Suzy Fucini, Experience, Inc. (New York: Free Press, 1987), p. 64.
2. Phineas T. Barnum, Struggles and Triumphs, or, Forty Years’ Recollections of P.T. Barnum (Buffalo, N.Y.: Courier Company, 1878), and Irving Wallace, The Fabulous Showman: The Life and Times of P. T. Barnum (New York: Knopf, 1939).
3. Ray Kroc and Robert Anderson, Grinding It Out: The Making of McDonald’s (Chicago: Contemporary Books, 1977).
4. See Fucini and Fucini, pp. 89–95.
5. Robert Sobel and David B. Sicilia, The Entrepreneurs: An American Adventure (Boston: Houghton Mifflin, 1986), pp. 193–96.
6. Emmett Culligan, “Softeners Rented,” Business Week, December 28, 1946, p. 21, and Joseph J. Fucini and Suzy Fucini, Entrepreneurs: The Men and Women Behind Famous Brand Names and How They Made It (Boston: G. K. Hall, 1985), pp. 99–101.
7. See P. Rosenfield, “The Beautiful Make-Up of Mary Kay,” Saturday Evening Post, October 1981, pp. 58–63, and Larry Schweikart, Entrepreneurial Adventure: A History of Business in the United States (Ft. Worth, Tex.: Harcourt, 2000), pp. 504–505.

It’s a convenient and easily told story, but it has left students, well, buffaloed. It has certainly caused the story of the buffalo to be misunderstood. Several new scholarly studies have emerged, though, and they universally provide a much more complex picture of the Great Plains in the late 1800s. Among other revisions, the works address the nature of Indian hunting, white motivations for killing the bison, and nonhuman factors affecting herd sizes. Most of all, though, they show that the ultimate savior of the buffalo was not the government, but the free market. Here, I will briefly review the findings insofar as they throw new light on the economics of the Indians both before and after the arrival of whites. I will look then at their assessment of the hunting efficiency of both Indians and whites. Finally, we will examine how private market forces, not government action, revived the buffalo herds.

Myth of the Ecological Indian

It is doubtful any of the authors intended their research to have political overtones per se. Dan Flores, a professor of history at Texas Tech University before moving to the University of Montana at Missoula; Shepard Krech III, an anthropology professor at Brown University; and Andrew C. Isenberg, a professor of history at Princeton, all have produced challenging new studies about Indians, whites, and the Plains environment. Most of all, they all have offered significant revisions of the views that Americans have held regarding the destruction of the buffalo.¹

The first myth they explode is that of the "natural" Indian who lived in harmony with nature-unlike the greedy Europeans who conquered the continent. Instead, the authors unveil evidence of communal economies that engaged in large-scale burning to "clear" forests and also to kill game. "Controlled" burns by the Indians often got out of control, and without modern firefighting equipment, flashed through forests, destroying everything in their path. Deer, beaver, and birds of all sorts were already on a trajectory to extinction in some areas, because over and above the hunting done by Indians, natural predators and disasters thinned herds. Isenberg wonders whether the North American bison herd was already falling below replacement levels before white hunters arrived.

Capitalism comes in for a huge share of the blame. Both Krech and Isenberg attribute changes in Native American farming/gathering lifestyles to increased trade with Europeans. Indians (reluctantly, in Isenberg’s view) became hunters, which transformed their entire society, making them more dependent on nature than ever before. Tribes had to follow herds and become even more wasteful, as the buffalo meat was their main source of food and the hides (and beaver pelts) their only product for trade.

Notions that "pre-capitalist" Indians lived in harmony with nature-especially the buffalo-are thoroughly exploded in the new works by these anthropologists and historians. Indians used the tools at their disposal, mostly fire and cunning, to hunt buffalo. "Box burning," a common tactic, involved setting simultaneous fires on all four sides of a herd. The French word "Brulé," or "burnt," referred to the Sicangu ("burnt thigh") Sioux division whose survivors of hunting fires were burned on the legs. Charles McKenzie, traveling the plains in 1804, observed entire herds charred from Indian fires. Another favored hunting tactic, the "buffalo jump," involved luring a herd after an Indian dressed in a buffalo skin. At a full run, the brave led the herd to a cliff, where he leapt to a small ledge while the buffalo careened over the edge to their deaths. Either of these methods led to horrible waste and inefficient use of resources.

No Property Rights

The ultimate problem, however, was lack of property rights. One trader observed that the moving habits of the Plains Indians "prevent the accumulation of much baggage. . . . Thus personal property cannot be acquired to any amount."² Lacking the ability to store a surplus, the Indians acquired none. While their communal heritage encouraged them to band together in hard times, the lack of surplus meat or robes meant that they only shared scarcity. A powerful myth emerged-one repeated in many textbooks-that the Indians "used every part of the buffalo," implying that the Plains Indians used all the buffalo they killed. That was not the case. Estimates made in the 1850s suggest that Indians harvested about 450,000 animals a year, and some think the figure was far higher than that. After stripping the best meat and some useful parts, the Indians left the remainder to rot. The stench permeated the prairie for miles, and many a pioneer came across acres of bones from buffalo killed by the Indians before they moved on.

Isenberg, for one, doubts whether Indian slaughter alone would have made the buffalo extinct, but when combined with natural factors-wolf predation, fire, and drought-the Indians’ annual harvest probably exceeded the ability of the herds to maintain themselves. More important, as Isenberg points out, "Even had they recognized a decline, the inherent instability of the nomadic societies made it difficult always to enforce the mandates against waste."³ Equally important, many Indian religions held that nature provided an inexhaustible supply, and thus it was impossible to "overhunt." Put another way, without private property rights, the bison were already doomed before the white man arrived.

Westward expansion of whites and trade between whites and Indians produced two significant changes, one more destructive than the other. The first-already mentioned-was that Indians shifted from a farming to a nomadic, hunting lifestyle. More important, as American settlers pushed west, both the Indians and the buffalo constituted an impediment to further expansion. A thriving buffalo-hide trade already existed with Indian hunters, but by the 1860s, a new wave of white hunters, using modern firearms and industrial processing methods vastly expanded the slaughter of the bison. This had three purposes: (1) it fed railroad workers and some western markets; (2) it continued to provide robes and hides to tanneries; and (3) it provided a way to get rid of the Indian by eliminating his food supply.

In the 1890s, the leather industry in the United States had increased to an $8.6 million business, and many of the hides came from buffalo. Buffalo bones, used for fertilizer and pigments, filled 5,000 boxcars annually. Tales of the deadly effectiveness of the Plains hunters, such as Buffalo Bill, are renowned. Working from a "stand," in which lead buffalo are shot at long range so as not to panic the herd, a good hunter could kill 10-50 animals and skin them in a single morning’s work. The hides revealed the final tally, wherein a single warehouse would hold 60,000-80,000 hides, and the number of hides shipped on the Union Pacific alone exceeded 1.3 million between 1872 and 1874. "You can hear guns popping all over the country," said one Texan.

Washington fostered policies that worked counter to each other. One bill made it unlawful for non-Indians to kill buffalo, in an effort to restore buffalo hunting to the Indians. Other federal policies, though, already viewed elimination of the bison as a key element in removing the food source for the Plains Indians, much the way Sherman sacked Georgia. Ranchers were already claiming that cattle made more efficient use of the plains than did buffalo. Where the Indians thought the supply of buffalo was endless, whites recognized it was finite and intended to eliminate it as a means to eliminate the Indians.

The Market Saves the Buffalo

There is no question that market forces nearly marked the bison for extinction sooner than had buffalo been left to the Indians alone. As early as 1832, artist George Catlin warned that the bison was being eradicated. Forty years later, Yellowstone National Park provided the only public refuge for bison outside city zoos and held a large remnant herd. However, Isenberg’s conclusion upsets the entire apple cart of prior assumptions when he writes, "This remnant herd and other scattered survivors might eventually have perished as well had it not been for the efforts of a handful of Americans and Canadians. These advocates of preservation were primarily Western ranchers who speculated that ownership of the few remaining bison could be profitable and elite Easterners possessed of a nostalgic urge to recreate . . . the frontier" (emphasis added).⁴

Credit goes to the private sector, through formation of the American Bison Society in 1905, virtually all of whose members were from New York, New Jersey, Pennsylvania, or New England. A few sought to preserve the buffalo. Some sought to develop cattle/bison hybrids called "beefalo," but others, including banker J. P. Morgan, focused on establishing open-range reserves where "the buffalo roam." He funded a 20,000-acre tract in Colorado and stocked it with buffalo.

It was the Wild West Show, popularized by none other than Buffalo Bill, that took private support for the buffalo to the next level. His shows featured "buffalo hunts" with Indians and whites "hunting" a herd released into the arena. Touring the United States and Europe from the early 1880s until 1913, Cody introduced the buffalo to millions of people who had never seen one. More than a few contributed to the American Bison Society or in other ways worked to preserve the buffalo.

Meanwhile, western ranchers such as Charles Goodnight, who captured buffalo calves in 1878, determined that there might be great value in private bison herds. As a result, "many of the bison that eventually populated government preserves descended from the herd of two Montana ranchers" (emphasis added).⁵ Profit, as Isenberg notes, was the primary motivation for these and other keepers of the bison, just as it was for hide hunters a decade earlier. One rancher advertised, "We Supply Buffalo for Zoos, Parks, Circuses, and Barbecues."

Private herds had value, and thus were well guarded. But the public parks were "open hunting" for poachers, despite repeated efforts to raise fines for killing bison at Yellowstone. The public parks continually had difficulty keeping hunters out. The private reserves thrived on hunting.

But the beauty of the private market is that it also permits people to engage in charity, and it is from humanitarian motives that a second preservationist group appeared, the Society for the Prevention of Cruelty to Animals (SPCA). Unlike modern reformers, the nineteenth-century humanitarians did not immediately plead for help from government. Quite the contrary, the SPCA tried to inform the public, explaining both the destruction of bison and the need to maintain and replenish the herds. The Society took great pleasure when a son of Theodore Roosevelt, Kermit, published his refusal to kill any buffalo at a time when the buffalo were nearly extinct.

Together, the American Bison Society and the SPCA-one to maintain a symbol of masculinity and frontier ruggedness, the other out of a desire to "feminize" Americans toward its humane view-nevertheless worked together to allow market forces to operate. The American Bison Society purchased buffalo directly, but referred customers to the ranchers. One Michigan game reserve was established by purchasing the private herd of Joshua Hill. Virtually all of the Yellowstone herd rejuvenated in 1902 under the new game warden, "Buffalo" Jones, came from two private herds.

As a government employee, Jones, credited with helping to restore the herds, did so to a large extent by using the private sector. He realized that his "product," besides scenery, was the buffalo herd. He located his bison corrals near the Mammoth Hot Springs, which was the park’s busiest entrance, allowing a private souvenir shop to be set up. After he resigned, the new management still kept herds near the Hot Springs.

Other private enterprises saw the value of promoting the buffalo. The Northern Pacific Railroad and hoteliers especially perceived that bison equaled profits. The Northern Pacific promoted Yellowstone heavily, emphasizing that only its line took visitors to the park, and by the twentieth century, sport hunters created such a demand for buffalo that it became a small industry in itself. In the 1960s, public parks finally acceded to hunting, allowing private hunters to pay $200 each to shoot a buffalo.

The American Bison Society disappeared in the mid-1920s, but it had accomplished its mission, largely without government interference. Yellowstone aside, the private sector had saved the buffalo. By the 1990s, more than 90 percent of the bison in North America were in private hands, rather than publicly owned. As Isenberg notes, they were "preserved not for their iconic significance in the interest of biological diversity but simply raised to be slaughtered for their meat."⁶

Without question, market forces had contributed to the near-extinction of the bison, along with the political objective of destroying the Indians by eliminating their food source. But that is well known. What is almost never mentioned is that it was market forces-ranchers, hunters, tourism developers, railroaders, and philanthropists-that ultimately saved the buffalo as well.

Larry Schweikart teaches history at the University of Dayton.

Notes

1. Dan Flores, "Bison Ecology and Bison Diplomacy: The Southern Plains from 1800-1850," in Helen Wheatley, ed., Agriculture, Resource Exploitation, and Environmental Change (Brookfield, Vt.: Variorum, 1997), pp. 47-68; Shepard Krech III, The Ecological Indian: Myth and History (New York: Norton, 1999); Andrew C. Isenberg, The Destruction of the Bison (New York: Cambridge, 2000). Here I will, for sake of convenience, rely mostly on Isenberg, who has the study most focused on bison and yet is broader than Flores’s research.
2. Quoted in Isenberg, p. 79.
3. Ibid., p. 84.
4. Ibid., p. 164.
5. Ibid., p. 176.
6. Ibid., p. 189.

About that time, you begin to think, “What’s wrong with me? Is my taste really that poor? Why is it that the movies I like the critics always hate?”

This question nagged me as I watched a television biography of the famous “BAM!” chef, Emeril Lagasse. People who don’t know garbanzos from garlic know Emeril. His live concert-type shows draw thousands, and people line up for hours to—are you ready for this?—watch a guy cook! I can understand: I’ve watched his show, and realize that even if you don’t like to cook, you like to eat. Anyone who makes cooking and eating so much fun has to be on the right track.

Not according to the critics. A New York Times food writer trashed Emeril’s live show and his cookbooks, complaining he doesn’t “educate” enough. Or, in other words, Emeril makes food too much fun. Even in food, it seems, critics insist on belittling and attacking anything that in the slightest way seems popular.

You realize I must not have had much to do when, at this point, I began to ponder seriously this as an economic problem. Think of a television show, or a movie, or a novel, or any entertainment as a collection of scarce resources. With a movie, we have, within about two hours, elements of plot, character, photography, and music as just a few of the major pieces that go into a motion picture. So when we see Spider-Man or Episode II: Attack of the Clones, we are really looking at how the producers and directors allocated their scarce resources. Did they spend two hours developing character? Did the camera linger endlessly on scenery and color? Was the music intended as a central factor in moving the plot?

Believe it or not, these essentially are economic questions put to film. The filmmaker cannot, under normal circumstances, develop character, feature action, celebrate beauty, weave intricate plots, and underscore music at the same time. The eye–and the ear–naturally choose something on which to focus. Imagine, for example, Annakin Skywalker and Padme having meaningful discussions of their inner thoughts while evil robots blasted at them and winged insectoids zipped by. On the other hand, any appreciation of scenery (even computer-generated scenery!) or animated art demands the viewer’s attention. If it is diluted by action or dialogue or music, it loses its impact.

So how does that relate to Emeril? It struck me that what the critics were complaining about—and what they always seem to complain about—is that we, the viewing/reading/dining/listening public allocate our limited resources differently than they do.

They choose the “education” function of Emeril’s show as the most valuable aspect, but most viewers obviously do not. They choose the entertainment function. That drives the critics wild! Elite critics, or “the anointed,” as Thomas Sowell calls them, know what is best for people. When they attack Emeril for “too much” entertainment, or Spider-Man for shallow characters, their real targets are the viewers, who must be made to allocate resources the way the critics see fit.

Ahead of the Market

In areas of culture, more so than in economics, critics can hide behind a mystical veil of “taste” and savoir-faire. Food preparation, music, theater, after all, have no “bottom line” in and of themselves. Thus it becomes easy for the failed producer of a musical, or the writer whose manuscripts never sell, to claim that they are in reality “ahead” of the market. Once in a while, they are right. Literary history is full of people who became famous and whose works became best sellers after their deaths. However, more often than not, this is an out. Usually, unless people are willing to pay for something, it does not have a great deal of value.

Which brings us back to our critics. Ever notice how the “People’s Choice” awards have almost nothing in common with the Oscars, the Emmys, or other awards shows? With the “People’s Choice,” the voting usually (though not always) reflects the fact that people were willing to spend money—their scarce resources—on someone else’s labor. It is, of course, the application of the market to any area of culture or “taste” that critics despise most of all, because it is the one area where there is no appeal, no equivocation. When the market rules something a success, regardless of what one thinks of the person, song, book, or movie, the profit line cannot be explained away.

Now, “The Osbournes,” anyone?

Larry Schweikart teaches history at the University of Dayton.

At any rate, Ehrenreich must be given credit for at least entering the world of
minimum-wage work, rather than sitting in her comfortable study or pontificating from a lofty perch at a think tank. The woman did get her hands dirty, quite literally. At times, a little less dirt and a little more scholarship might have been useful.

Ehrenreich conducted a live experiment in which she worked at minimum-wage jobs, living, as best she could, in whatever circumstances those wages would afford. She worked in Florida as a waitress at a greasy spoon, sometimes for $2.43 an hour, plus tips. Soon, she augmented her job with other work, such as housekeeping. Having satisfied herself with that part of her experiment, she moved on to Maine, where she toiled as a maid, and finally completed her research with a stint in Minnesota at Wal-Mart. She concluded that if she could have maintained her two-job regimen, and if she had no dire or sudden illnesses, she could have just barely gotten by. Despite her occasional genuinely funny quips—her exposition on feces, as a maid, is something to behold—her overall message is incredibly depressing and drenched in hopelessness. If her assessment is accurate, it is impossible to get by in America in low-level jobs. That’s if.

Fortunately for many Americans—and for virtually all people who find themselves in these jobs—Ehrenreich’s analysis has fatal flaws. Since it is certain this book will become the basis for many other “can’t-get-by” studies that pass for policy analysis, it is worth analyzing her weaknesses in some detail.

First and foremost, Ehrenreich pretended to be a minimum-wage worker. She acted in a role for a few months. Critics might see this as supporting her position, but I think it blows up the entire foundation. The purpose of work is not to get by, but to get ahead. This is a critical distinction: how Ehrenreich looks at her work and life, and the reality of the situation. Most people, no matter what the job of the moment, see it as a way to get ahead later. Yet Ehrenreich did not even try to move up. She lied about her education and credentials at the outset so as to not prejudice the employers, either favorably (by giving her higher-paying positions) or negatively (“What’s wrong with you that you can’t find a gig with all your education?”). She apparently doesn’t see this as a slap in the face for all those “proletarians” with whom she identifies who struggle to get that GED, or to get a college education at night.

Not only did she not try to advance, but she never sought out others who had. We learn about the private, sometimes tragic, lives of many of her co-workers, but never find anyone who made it into management, who left for greener pastures, or who even made it to the top of the low-level wage ladder. Quite the contrary, none of her managers are appealing: they are all greedy, petty, stupid, egotistical, and uncaring.

Since Ehrenreich’s story involves personal experience as fact, my own background must be equally valid, if dated. When I turned 15, I got a minimum-wage job at Der Weinerschnitzel—the hotdog version of McDonald’s. Almost instantly the manager (who was, as best I could tell, neither stupid or uncaring) was willing to make me an assistant manager. It had something to do with being able to remember to turn the sign off before I went home. Soon, I left the “dog house” for a better job, as a carryout boy at a local (and locally owned) grocery store. At the time I saw that as my big break: I started at $3.35 an hour, plus overtime, plus double time on holidays. Several women worked as cashiers there and had been there for years. Word got out that they earned more than $10 an hour! Again, while the managers did not baby us—they expected hard work and good habits, as well as a smile—we were well treated, and, for the day, well paid. It was an interracial staff, both among the carryout boys and the management. But no one there, unless someone was aiming at a managerial position, planned to stay at the grocery store his entire life. It was, as most minimum-wage jobs are, an entry-level position designed to train people in basic skills (working a cash register, counting change, stocking, taking inventory, ordering, and above all, being polite and energetic).

Wouldn’t Go Hungry

There was a flip side to Ehrenreich’s self-imposed limits: “I had no intention of going hungry.” Harsh as it may be, though, there is a powerful incentive when one goes hungry. It was exactly that kind of incentive, both in positive terms of advancing and in negative terms of utter failure, that rendered her experiment unrealistic.

If Ehrenreich missed this important (fundamental?) element to the world of minimum-wage work, or any work for that matter, what else did she miss? Plenty.

One is struck by the utter absence of marriage in this book. Most of Ehrenreich’s sob-story examples are women who are single with children or are “living together.” This is not a minor point. Charles Murray and others have demonstrated irrefutably that the single most important factor correlated with increasing wealth is marriage. Yet the author scarcely mentions marriage, as if it had no bearing on how some of her co-workers got where they were. One sees the subtle implications of this in her apparently unwitting choice of data from the Bureau of Labor Statistics which show that private household workers earn $23 a week less than the poverty level “for a family of three.” A family of three is either a married couple with one child or a single-parent (usually a woman) with two kids. If the latter, this statistic almost by itself suggests that if there were two wage-earners, they would make well above the poverty level. In other words, the controlling factor is marriage, not wages.

Another thing is absent in the book: accumulated wealth. Everyone has something. Usually it’s a house and “stuff,” but most people, even poor people, have cars, televisions, VCRs, jewelry, or other items that constitute wealth. For Ehrenreich’s experiment to “succeed” (for her to “not get by”), she had to begin with no wealth. She excludes a car from her equation and has no house, no tangibles, nothing to sell. Thus she began her experiment at a lower point than most of her subjects, many of whom at least owned cars and trailers (while Ehrenreich was renting transportation and living space at high weekly rates). Moreover, age is key to accumulating wealth: a 30-year-old has more stuff than a 20-year-old; a 50-year-old more than a 30-year-old; and so on. Part of “moving up” entails acquisition of things that you no longer have to purchase on a daily, or weekly, basis.

Ehrenreich’s job choices, even within her narrow selections, were rigged to ensure the answer she wanted. She never took higher-paying jobs. Waiting tables can be low-paying, but it can also be quite lucrative. Waitresses at good restaurants and bars can pull in $100 a night, and in more upscale areas many times that. She might counter that she was too old or not good-looking enough for such gigs, but the elderly and, shall we say, “seasoned” ladies who occasionally wait on me at the pancake house or in some of the nicer restaurants are not Hollywood starlets. While it is true that Hooters has its own “look” when it comes to servers, most other establishments have no problem hiring older men or women, as long as they are clean and dependable.

In some places, often when producing statistics that either are extremely controversial or barely believable (“30 percent of the workforce toils for $8 or less”), Ehrenreich relies on studies from predictably “liberal” think tanks. There is nothing wrong with that, if you also cite the other, conflicting evidence. How permanent are workers in this 30 percent? Not very, if most minimum-wage jobs are any indicator. Likewise, she claims that in “a survey conducted by the U.S. Conference of Mayors, 67 percent of the adults requesting emergency food aid are people with jobs.” But her notes don’t refer to any such study, only a Detroit News secondhand referral, which may, or may not, have gotten the details right. Again, though, the impression Ehrenreich gives is one of a massive subculture of minimum-wage peons, rather than the more accurate image of an escalator, in which some at the bottom rise all the way to the top, some get off on the second floor, and so on.

Where Are the Taxes?

While Ehrenreich spends many of her 200 pages detailing how she scrimped, cut corners, or otherwise tried to squeeze blood out of a Ding Dong, there is scarcely a word about taxes. The omission is staggering, especially considering her obsession, at times, with earning the additional 30 cents that one job offered over another. Consider this: Uncle Sam takes 10–25 percent of any worker’s paycheck, right off the top, under “withholding.” Gone. History. Vanished. In my state of Ohio, the government in Columbus takes another cut, around 6 percent. Dayton, where I work, and Springboro, where I live, also want their “take,” slicing off yet another half a percent. And there is unemployment paid to the state—again, all coming right off the top. Then there is the Social Security and Medicare “contribution.”

For middle-class employees these deductions are painful. But for low-income people they are nearly fatal. Most of Ehrenreich’s co-workers would have had double the pay if not for the government’s secular tithe. Maybe we can’t get by without taxes, but let’s assume, for a moment, that the federal tax rate was 15 percent. That would have saved most of Ehrenreich’s colleagues up to 73 cents per hour (at $7.25). And how about if we assume that there is no state tax, as in New Hampshire? That would add another 43 cents per hour. Social Security is a true luxury to people who need bigger paychecks now: would it not be wiser to let them keep their money at the front end? And unemployment? How many minimum-wage workers do you know who draw unemployment? Let’s say that these “forced contributions” account for another 20 cents per hour. Merely by omitting these onerous taxes and other “contributions,” we could give a hypothetical $7.25 per-hour employee a raise of up to $1.36, making the job $8.61. Spread over a 45-hour week (we’ll assume a hard worker wants a little overtime), that could be an extra $61.20 per week, or an incredible $244.80 per month. This alone would have paid half the rent on a good apartment, not the sleazy motels that Ehrenreich had to frequent.

More taxes? Try this: the FICA “contribution” is paid half at the front end by the employee, but also half at the back end by the employee, even though the employer supposedly pays it. It is still the employee’s money, but diverted from wages. Moreover, Ehrenreich disparages benefits and other “perks” as being preferred by employers because they are easier to take away in a crunch. She completely misses the obvious: to a point (I realize you cannot eat benefits), it is much more valuable to take a benefit than an extra dollar in salary. Consider health insurance. Employers can give an employee a dollar in benefits, a dollar that the employee could have used to purchase his own health care. But the benefit is pretax income; a dollar in benefits equals a dollar. After taxes, the dollar would be worth only about 65 cents to the employee.

There are even more tax issues that Ehrenreich carefully avoids when doing her survival assessments. If there is a tax incentive for home ownership, there is a corollary tax penalty for renting. There is a double tax penalty for renting motel rooms, which Ehrenreich had to rent until she could get an apartment, because most states tax them. What is troubling is that on multiple levels, and repeatedly, Ehrenreich refuses to even acknowledge, let alone consider, the impact of taxation on even the lowest-paid Americans because, apparently, it doesn’t fit her mold.

Ehrenreich’s proposals are predictable: a higher minimum wage, more welfare, more unionization. She admits that “nobody bothers to pull all these stories together” to proclaim a widespread state of emergency. That is precisely the point: these are disparate, isolated, and usually temporary stories, and when economists have “pulled them all together,” they have not found anything near the minimum-wage hell to which Ehrenreich’s denizens are damned. She wants to blame a “conspiracy of silence” for misrepresenting the “failure” of welfare reform, but the fact is that welfare reform, and minimum-wage work, have been studied extensively. Both the statistics, and the human success stories, reveal a different—and better—reality than the one Barbara Ehrenreich visited briefly in her search for “evidence.”

Larry Schweikart teaches history at the University of Dayton.

Such is the case of the tariff in American history, particularly two key episodes: the early “protective tariff” established in George Washington’s day and the Smoot-Hawley Tariff, whose role in sparking the Great Depression has been asserted but never proved. Until quite recently, free-market advocates have had to rely on theory to advance the position that those tariffs were at best unnecessary and at worst destructive. But scholars continue to look for new topics, and better ways of investigating the topics they have. The result is a series of new studies that shed light on these two critical chapters in American tariff history.

First, the basics: a tariff is a tax on imports. Since the United States of America has a government, even the most minimalist “Jeffersonian” government needs money to carry out its functions, and it must come from some source. In the early Republic, where the Founders despised direct taxes, George Washington’s administration, led by Secretary of the Treasury Alexander Hamilton and Secretary of State Thomas Jefferson, settled on two main sources to avoid direct taxation: a tariff and land sales. Hamilton’s argument on the tariff was that it would raise revenue and “protect” infant American industries against the more established competition from Great Britain. Thus it was known as a “protective” tariff.

Although the dean of tariff historians, Frank Taussig (1931), contended that this tariff ceased to protect after the 1830s, he lacked the computing tools and masses of data now available to back up his claims.¹ Nor could he say much about the early period, when he, like most other economists and historians, agreed that the tariff had indeed “protected” American manufacturers. Over the next 60 years the so-called liberal drift of academe tended to gently repudiate Taussig. Then in 1984 Mark Bils and C. Knick Harley wrote articles in the Journal of Economic History arguing that the tariff was absolutely necessary even after the 1830s for the survival of American manufacturing.²

Fortunately, that was not the last word. Douglas Irwin and Peter Temin detected a major flaw in previous analyses of the supposed benefits of tariffs in the early Republic, namely: the analysts always assumed that American producers would make the same things as their British competitors. This, of course, was a complaint by free marketeers for some time, but on a slightly higher level. It went something like this: if the British were more competitive in textiles than American manufacturers, then Americans would simply have made other products or specialized more in agriculture, like, say, New Zealand. This line of thinking ironically played into the hands of the protective-tariff crowd, who then pointed out all the “spillover” effects of the textile industry that were not present in agriculture. Textile manufacturing techniques influenced virtually all other early American production, and management structures spread to almost all other businesses.

Thus it might be argued that the United States would have become a substantial agricultural exporter, but it would have been more difficult to see how the nation could have achieved industrial greatness. That, in turn, would have undercut a basic free-enterprise argument that no matter who has a head start, anyone can catch up through hard work and the infusion of talent and energy. If the United States never could have caught up to England without the tariffs, there might be a case for the old “rich-getting-richer” argument.

Thankfully, that is not the case. In the September 2001 issue of the Journal of Economic History, Irwin and Temin demonstrate that earlier scholarship on the tariff was most likely wrong because of flawed assumptions. Rather than competing in the same types of cloths, British and American producers made different types of textile products that were, as the authors say, “imperfect substitutes” for one another.³ In fact, the authors found, the “U.S. cotton-textile producers were not dependent upon the tariff” by the 1830s, and they conclude that the industry could have survived even if the tariff had been eliminated. Simply put, Irwin and Temin discovered that Americans did not try to compete head-on with the British at the outset, but rather immediately identified their “comparative advantage” in cheaper cloths.

Although Irwin and Temin nearly shut the door on the tariff debate, they did leave a small crack: The period from 1816 to 1830, when the textile industry first took off, was arguably the most critical time, the point where tariffs would have their maximum effect. But that argument has its own problems. First, the data stinks, colloquially speaking, for that 14-year span. Second, Thomas (“small-government”) Jefferson embargoed all exports to Britain in 1808, meaning that from that time until the end of the War of 1812 (ostensibly the Treaty of Ghent, ratified in 1815), there was no competitive free market anyway.

What about the post-war period? Separating any effects of the tariff from other economic dislocations of the day is difficult, mainly because of the nationwide depression that began in 1816 that is generally associated with a spate of inflationary bank-note issues. Textile producers, seeing a flood of British imports when their own mills were in trouble due to the Western currency collapse, “could not do anything about the general economic slump, [but] they could try to stop imports.”⁴ Thus they appealed to Congress for tariff protection. It is likely that this sole remaining 14-year “window” will become the subject of new econometric studies to determine the impact of the tariff, but if the current trend in scholarship is any indicator, the pro-“protective tariff” crowd will not be happy with the results.

Al Gore vs. Ross Perot, Part Deux

The second tariff that has come under scholarly scrutiny recently is the Smoot-Hawley Tariff of 1930, which was viewed as being linked to the Great Crash, and therefore the Great Depression, on the basis of circumstantial evidence in Jude Wanniski’s book The Way the World Works.⁵ This tariff, raising rates even higher than the earlier Fordney-McCumber Tariff, increased duties on almost all imports. But on some extremely important raw materials, key to the manufacturing sector, the rates soared by more than 30 percent. According to Wanniski, Smoot-Hawley passed critical points in the congressional committee system just prior to the Crash. He ties the successes of the tariff, and its setbacks, to drops and surges in the stock market. Wanniski produces no smoking gun, but argues that the crucial vote occurred on October 28, 1929, when the tariff bill cleared its final committee hurdle. Claiming that industries engaged in predictable defensive responses at the inescapable tax, Wanniski argues that they laid off employees, raised prices, and reduced production. Another likely response not claimed by Wanniski is that companies (which are often their own largest stockholders) would have naturally dumped their own securities on the open market in an attempt to get liquid.

Although Wanniski is an accomplished economist, he is no academic, and thus his theory was pigeonholed as that of a “pop” economist with no real data—until quite recently. Once again, tariff historian Irwin has provided answers that “go where no man has gone before.”⁶ In several studies he found that the tariff reduced imports 4–8 percent in nominal terms, but when deflationary effects are factored in, the real decline attributable to Smoot-Hawley may have accounted for a fourth of the 40 percent decline in imports after 1930.⁷

So what? say some economists. After all, the impact of Smoot-Hawley on the total trade of the United States still only represented a small share of output. How could changes in the terms of trade, no matter how dramatic, affect the entire economy? In fact, as Mario Crucini and James Kahn show, the changes in trade had a ripple effect, in which the Smoot-Hawley Tariff alone could have reduced the U.S. GNP by 2 percent in the 1930s. To put things in perspective, most economic historians have assessed the impact of the railroads on the nation’s economic growth at 5 percent.8 Or, in other words, the Smoot-Hawley Tariff in two or three years took away half the growth that the railroads added in 50! And, like Irwin, Crucini and Kahn found that the Fed’s deflationary policy—which some libertarians have wedded to the notion of a Fed inflation in the 1920s—made the Smoot-Hawley Tariff much worse.

Irwin, Crucini, and Kahn have not only provided the evidence that the Smoot-Hawley Tariff was phenomenally damaging, but that when combined with the Fed’s monstrous deflation so adeptly outlined by Milton Friedman, it became a true two-headed hydra. The only question remaining is Wanniski’s original allegation that anticipated passage of the tariff bill sparked the Great Crash, and once again, we have new research to suggest that it did. In the 1990s Robert Archibald and David Feldman found that the politics of the Tariff generated tremendous business uncertainty. That uncertainty started in 1928 and grew worse throughout 1929 as the Tariff marched forward. Archibald and Feldman come as close as anyone has to linking the Smoot-Hawley Tariff specifically to the Great Crash.⁹

Where once free marketeers had only good sense, general theory, and a little history on their side, a new wave of econometric studies has now established that tariffs did not protect anything after 1830; that they likely did not protect much before 1830; and that the Smoot-Hawley Tariff was one of the most destructive pieces of economic legislation ever written.

Notes

1. Frank W. Taussig, The Tariff History of the United States, 8th ed. (New York: G. P. Putnam’s Sons, 1931).
2. Mark Bils, “Tariff Protection and Production in the Early U.S. Cotton Textile Industry,” Journal of Economic History, December 1984, pp. 1033–45, and C. Knick Harley, “International Competitiveness of the Antebellum American Cotton Textile Industry,” Journal of Economic History, September 1992, pp. 559–84.
3. Douglas A. Irwin and Peter Temin, “The Antebellum Tariff on Cotton Textiles Revisited,” Journal of Economic History, September 2001, pp. 777–98.
4. . Ibid.
5. Jude Wanniski, The Way the World Works: How Economies Fail—and Succeed (New York: Basic Books, 1978). Irwin provided a good overview of all trade policy in light of tariffs in his book Against the Tide: an Intellectual History of Free Trade (Princeton: Princeton University Press, 1996).
6. Douglas A. Irwin, “The Smoot-Hawley Tariff: A Quantitative Assessment,” Review of Economics and Statistics, May 1988, pp. 326–34; “Change in U.S. Tariffs: The Role of Import Prices and Commercial Policies,” American Economic Review, September 1988, pp. 1015–26; and “From Smoot-Hawley to Reciprocal Trade Agreements: Changing the Course of U.S. Trade Policy in the 1930s” in Michael D. Bordo, Claudia Goldin, and Eugene N. White, The Defining Moment: The Great Depression and the American Economy in the Twentieth Century (Chicago: University of Chicago Press, 1988), pp. 325–52.
7. Mario J. Crucini and James Kahn, “Tariffs and Aggregate Economic Activity: Lessons from the Great Depression,” Journal of Monetary Economics, 38 (1996), pp. 427–67, and Crucini, “Sources of Variation in Real Tariff Rates: The United States, 1900–1940,” American Economic Review, June 1994, pp. 732–43.
8. Robert B. Archibald and David H. Feldman, “Investment During the Great Depression: Uncertainty and the Role of the Smoot-Hawley Tariff,” Southern Economic Journal, 64 (1998), pp. 837–79.

Larry Schweikart teaches history at the University of Dayton.

Studying race or group behavior is dubious at best; in today’s climate, it’s even dangerous, since racial groupings are used by collectivists to serve a political agenda. Nevertheless, it is useful to examine the claims being made. Thomas Sowell has cautioned that culture, for example, is a far more important factor in economic activity than race, and in the case of the digital divide, the “experts” may be examining racial characteristics when they should be considering cultural effects. There is also substantial new data showing that Americans are racially intermarrying more frequently. The Census Bureau threw up its hands in frustration trying to count mixed-race Americans in the last census.

That said, let’s examine the new arguments about the digital divide, pretending for a moment that race was a factor in computer access and use.

First, although many readers may have trouble recalling a time without computer technology, it is still relatively new. Nevertheless, the Internet has filtered through the social strata from the top down faster than any other technology in history. According to Joel Kotkin and Ross DeVol’s working paper for the Milken Institute, here is how fast selected products spread to 25 percent of the population:

Internet usage in 2001 reached 176 million Americans, 62 percent of the population, according to one Nielsen survey, up from 57 percent just a year earlier. Still, “digital dividers” sound the alarm. Jesse Jackson claimed that differences in Internet use between whites and blacks are “classic apartheid.”² Research shows that differences in Internet use have little to do with income. Instead, computer access has played the pivotal role, according to Thomas Novak and Donna Hoffman of Vanderbilt University.³

To solve the “problem” (with “problem” defined as any differences between groups), obviously all the government needs to do is to make sure that regardless of income, everyone has access to a computer.

Not so fast. Other evidence shows that blacks in high numbers have computer access at work—virtually equal to that of whites—and that if one holds income and education constant, blacks are more likely to have computer access at work than whites.⁴ This statistic makes sense considering that blacks, in far higher proportions than whites, work for state, local, or the federal government, where computers are provided.

Does education explain the “divide”? There appears to be a link between education and computer access, but a tenuous one. Both British and American studies have shown that more highly educated people tend to use the Internet more, although the notion that pinheaded “friendless nerds” comprise the majority of “surfers” is baseless: one U.K. study found that “internet users lead more sociable lives than non-surfers.”⁵ However, before researchers jump the gun to claim a link between education levels and Net use, existing studies would have to go much further to hold constant the quality of education in racial comparisons, something that is seldom done.

Divide Myth

When the rhetoric is stripped away, it appears that the racial “digital divide” is largely a myth, and to the extent it does exist, it is somewhat correlated to education and somewhat correlated to access to computers. Aha, say the “digital dividers,” maybe racial groups don’t have equal access to computers.

Computer access can mean having a computer at work or at home, but researchers have tried to argue that having access only at work won’t cut it. Where a sharper divide occurs is in home computer ownership; 44 percent of whites have access to home computers compared to 29 percent of blacks. For this reason, at least one study claims, whites are more likely to use the Internet for information on a regular basis.⁶ Net-use rates correlate to having a home computer and a computer at work. The Vanderbilt study found that this was just about the only instance in which “race matters”—when students lacked a computer at home. “White, but not African American students,” wrote the researchers, “are able to take advantage of non-traditional access locations including homes of friends and relatives with home computers, and libraries and community centers with Internet access.”⁷ Even so, the study admitted more blacks were on line than is popularly thought and that the number was growing. As blacks became more familiar with the Internet, the authors concluded (apparently somewhat glumly), they would “catch up” to whites.

These findings pull the rug out from under the advocates of government provision of computer “access” through schools and public facilities. The key is not “access,” but attitude. Clearly, having access to public education did not close the “education gap.” Access to income-maintenance and welfare programs did not close the “income gap.” And now, with large numbers of computers at schools and public facilities, the researchers claim (surprise!) that free computers in public settings have not significantly closed the “digital gap.” Of course, to some extent, big-government types will use these studies for the perverse claim that we need to provide computers to low-income people in their homes. Indeed, in supporting tax-funded computer access for the homeless, the Digital Divide Network claimed that “Americans have long agreed that certain communications tools are so fundamental that their provision should not be left to the vagaries of the marketplace alone.”⁸

Cultural Differences

The “digital divide” involves cultural differences and experience levels that no government policies can address. For instance, another Vanderbilt study “found interesting differences in media use between whites and African Americans that also deserve further probing. For example, although the rate of home PC ownership among African Americans is flat or even decreasing, their rates of cable and satellite dish penetration are increasing dramatically. At a minimum, our results suggest that African Americans may make better immediate prospects than whites for Internet access through cable modems and satellite technology.”⁹

A British researcher found that there is a “huge divide” between those who surf the Net and those who do not. They differ in many respects, including income and education. Moreover, surfers “simply watch less television.”¹⁰ Once again, the “experts” are in a quandary, because as far as I know, races don’t demonstrate broadly different patterns of television viewing—some, to be sure, but even then, further analysis of the data points back to cultural, not racial, differences.

Are there differences in how races use the Internet? A broad study done in August 2000 by the Pew Internet & American Life Project, found significant differences in Net usage between blacks and whites. For example, blacks were 69 percent more likely than whites to have listened to music online, 45 percent more likely than online whites to play a game, and 12 percent more likely to “browse just for fun.” They were also nearly 40 percent more likely to have looked for information about jobs online and 65 percent more likely to seek religious information. But whites were slightly more likely to obtain financial information, and they purchased more products over the Internet.¹¹ However, the races were approximately equal in their use of the Net to get political news or information.

Contrast white and black use of the Web with Asians, who obtain news from it at an even higher rate than whites, download music more often than blacks, and get political information more often than either blacks or whites. Asians are also more likely than blacks to search for jobs and conduct work-related research on the Net, or to buy or sell stocks online than whites. They are, however, less likely than blacks to search for health information or listen to music online.¹²

The implications of these findings suggest trouble for those who think they can eliminate whatever “digital divide” that may exist through government programs. Buried in these studies is evidence that the members of racial or ethnic groups use the Internet differently—whites more for business and product purchases, blacks more for entertainment and spiritual growth, Asians for work research and political news.

That the patterns of technology use across racial and ethnic groups are not uniform should come as no surprise. Sowell has pointed out that ethnic groups have had different paths to economic success. He has documented the propensity of the Irish, for example, to dominate police and fire departments in eastern urban areas, seeing those jobs as a path to social acceptance and stability. On the other hand, Lebanese, coming from a commercial background, disproportionately go into grocery businesses, and blacks have disproportionately entered government employment and opened auto dealerships. Asians have focused on mathematics and engineering more heavily than other groups.¹³

One use of the Internet is not necessarily better than another—but there are clear differences that would manifest themselves in income, much the way a person who used his car to haul goods would have a different return on his vehicle from someone who polished it up for car shows on the weekend.

Market Bridges Divide

The fact is that the free market has moved rapidly to span the “digital divide” by making technology more accessible.¹⁴ Computers have become so inexpensive that almost anyone can own one, and Internet access is also cheap. What critics of the “digital divide” do not grasp is that people make choices about their resources. Of course, people will accept a free computer . . . or a free television, or a free Thanksgiving turkey. But when pressed to spend their own money on goods or services, it becomes clearer what aspects of their lives people value most. Unless the big-government advocates are ready to start regulating the number of hours that people watch television, the state can hand out computers like free movie passes without any impact on incomes.

All that minority groups need to finish bridging the “digital divide” is to gain further hands-on experience, which will come as younger generations learn the tools of the computer age. There are also work habits that must be adopted if the Internet is to assist in wealth creation. But acquiring them in cyberspace is no different from learning them at McDonald’s. Once these habits are established, the benefits of Internet access can become fully realized.

One cannot, however, ignore the implications of using the Net more for entertainment than for work. It is almost a given that the next generation of computer-related products will be in the realm of the “telecosm,” George Gilder’s name for the ethereal world of data in the telecommunications networks.¹⁵ Gilder has argued that computers themselves will become less important and valuable as more information, and even operating systems, are stored on the Net and downloaded as needed. If that is true, what counts are skills, not hardware. And if Gilder is right, there will be more distractions than ever on the Net, requiring more discipline to block out entertainment and to bore in on wealth creation.

In short, racial aggregates may indeed have different use patterns when it comes to the Internet, but these are largely attributable to different cultural emphases. If this constitutes a “digital divide,” so be it. But do we really want government to dictate our Internet habits? Different people have different views on how best to use the Internet. When the call for “equal access” to the Net proves insufficient to change people’s perceptions about how they value their online time, will we next hear calls to “train” people to use the Internet in “preferred” ways? Let us hope that the freedom enabled by the telecosm prophesied by Gilder does not become another tool to divide the races. That would truly be a disastrous “digital divide.”

Larry Schweikart teaches history at the University of Dayton.

Notes

1. Thomas P. Novak and Donna L. Hoffman, “Bridging the Digital Divide: The Impact of Race on Computer Access and Internet Use,” February 2, 1998, working paper available at wwww2000.ogsm.vanderbilt.edu/papers/race/science.html, and published as “Bridging the Racial Divide on the Internet,” Science, April 17, 1998, pp. 390–91. References here are to the Internet version.
2. Quoted in Adam D. Thierer, “How Free Computers Are Filling the Digital Divide,” Heritage Foundation Backgrounder, No. 1361, April 20, 2000, p. 2.
3. Novak and Hoffman.
4. Ibid.
5. Duncan Graham-Row and Will Knight, “Internet Users More Chic Than Geek,” New Scientist, November 26, 2001, at www.newscientist.com/news/news.jsp?id=ns99991606.
6. Novak and Hoffman.
7. Ibid.
8. Kevin Taglang, “A Low-Tech, Low-Cost Tool for the Homeless,” www.digitaldividenetwork.org/content/stories/index.cfm?key=204.
9. Donna L. Hoffman, Thomas P. Novak, and Ann E. Schlosser, “The Evolution of the Digital Divide: How Gaps in Internet Access May Impact Electronic Commerce,” available online at www.ascusc.org/jcmc/vol5/issue3/hoffman.html.
10. Graham-Row and Knight.
11. Tom Spooner and Lee Rainie, “African-Americans and the Internet,” Pew Online Life Report, October 22, 2000, available at www.pewinternet.org/reports/toc.asp?Report=25.
12. Tom Spooner, Lee Rainie, and Peter Meredith, “Asian Americans and the Internet: The Young and the Connected,” Pew Online Life Report, December 12, 2001, available at www.pewinternet.org/reports/toc.asp?Report=52.
13. Thomas Sowell, The Economics and Politics of Race (New York: William Morrow, 1983).
14. Donald L. Alexander, “Internet Access: Government Intervention or Private Innovation?” Working Paper, Mackinac Center for Public Policy, December 1999.
15. George Gilder, Telecosm: How Infinite Bandwidth Will Revolutionize Our World (New York: Free Press, 2000).

This produced some uncomfortable feelings in Washington, which as much as possible had shifted the burden of programs related to the environment, law enforcement, and other policies to the states, which in turn found themselves financially struggling. The result was an awareness that while voters still wanted their programs, they also refused further tax hikes to pay for them. What to do?

Into this dilemma jumped the American trial lawyers, first latching onto the tobacco litigation by persuading the attorneys general of a majority of states to tag along on a class-action suit against the tobacco companies. What was the hook to reel in the greedy state governments? Use the tobacco-settlement money to offset state health outlays caused by cigarettes! As the tobacco litigation wound its way through the courts–ultimately to be settled–a few states began to have second thoughts about the likelihood that the funds would ever end up in their coffers. Several of them pressured the trial lawyers to reduce their percentage of the take in this massive heist.

The details of the tobacco settlement are, for our purposes, irrelevant. What is important was the precedent set: state governments, strapped for cash, refused to make citizens face the reality of scarce resources. Instead, the states resorted to a type of alternative funding via the lawsuit. However, even that temporary solution yielded another problem. With the tobacco companies now immunized, where could states get more cash?

The answer, literally, was painted on the walls. In 1999, Rhode Island State Attorney General Sheldon Whitehouse (a Democrat) opened talks with the litigation firm Ness Motley, and soon Raymond Motley filed suit against the lead companies that have produced lead-based paint since the 1930s. It did not matter that the federal government only banned white lead paint for use in residential areas in 1978 or that Motley’s firm, along with six other major litigation firms, contributed more than $8 million to the 2000 election campaigns, virtually all of it to the Democratic Party.¹ All that mattered was that cities (and, soon, states) saw a new golden goose. San Francisco already had a four-attorney team called the “affirmative litigation” department charged with going to industries with threats of litigation to extort money.

Straight in the crosshairs of the new suits were long-established American companies such as Sherman-Williams and Dutch Boy and British-owned Glidden. Having brought the asbestos companies to their knees, Motley and Peter Angelos of Baltimore (and another major Democratic National Committee fundraiser) set out to prove a “conspiracy” on the part of the paint companies to foist deadly lead-based paint on unsuspecting urban parents. Attempting to drum up victims, the lawyers scoured through the data on children with learning disabilities and poor school performance. Although any actual links to lead would be almost impossible to prove to reasonable citizens, court trials often don’t involve reasonable people. Carefully screened emotional juries are set up to pit “the children” against “Big Lead.” We know who wins that one.

National Lead, the major producer of lead that made Dutch Boy paint, was not a fat enough target for the litigators. They needed to tie in all the paint companies, and that involved the conspiracy aspect; the litigators sought to prove that the evil paint companies knew decades ago that their product damaged children, and covered it up. Arguing that the companies (like “Big Tobacco”) knew the dangers and continued to sell–even to advertise!–the paint, the lawyers claim, proves the conspiracy.

The Power to Define

In fact, as historical research done by a colleague of mine shows, the companies’ advertising at the time was constrained only by the laws that specifically dealt with toxicity. Since lead paint was not intended to be eaten, no one even considered putting warning labels on paint cans, such as, “Warning! This is paint! Don’t eat it!” Moreover, even after the paint companies began to sponsor a series of studies at respected universities such as Johns Hopkins and Harvard in the 1950s, the measures used to determine either lead levels in blood or the danger levels that any particular “threshold” posed were hotly debated.² As with voting, it ultimately came down not to the data itself, but to who was allowed to define what the data meant. Once progressive “reformers” began to define lead poisoning as only a tiny fraction of what had before been considered tolerable, the attorneys had their “damages.”

Still, the results so far have not been favorable to the litigators. A 2000 study of children in Illinois, which had higher proportions of children with elevated blood-lead levels than the national average, found only one child in 1,000 had lead at 10 micrograms or higher–the danger point. Moreover, this study covered only the worst high-risk lead-paint neighborhoods. If the litigators can’t squeeze blood out of a turnip there, they will be hard pressed to show across-the-board damages.

The defendants’ attorneys have not sat on their hands. One of their necessary but utterly absurd (in a reasonable world) practices is to keep an attorney on the road attending city council meetings to parry suggestions from the ever-present lead lawyers who only want to be the city’s friend. These defense attorneys literally have to pre-empt and counteract efforts by the lead zealots to consider new class-action suits in cities from Milwaukee to Marietta.

And the battle has been joined in the halls of academia. Noted business historian David Sicilia and chemical historian John Heitmann have plowed through some three million documents trying to establish the historical time line for what the paint companies knew and didn’t know; what the reliability of blood-lead levels in 1930, 1940, and 1950 were; and how the companies advertised their products, not only to the public, but to lead and paint trade associations. It is all-out war, and if the trial lawyers succeed with paint, they will be back a year from now with yet another “dangerous” product. And if they don’t succeed with paint? Unfortunately, they’ll be back a year from now anyway, with state attorneys general in tow, whispering in their ears the names of new suckers to hit up for supplemental “contributions” to state budgets.

Larry Schweikart teaches history at the University of Dayton.

Notes

1. Table accompanying Michael Freedman, “Turning Lead into Gold,” Forbes, May 14, 2001“.
2. John Heitmann, “Absolutely the Right Tool for the Job: Atomic Absorption Spectroscopy and Childhood Lead Poisoning,” paper presented at the Chemical Heritage Foundation, 2000, and “‘Getting the Lead Out?‘ The International Labor Organization and Its Efforts to Prohibit Lead in Paint, 1919-1940,” a paper presented to the European Social Science History Conference, 2001, both in author’s possession.
3. Freedman.

Not long ago the television show Silicon Spin glumly reviewed the latest news of the cellular phone industry. The guests concluded that even if tech stocks, especially telecoms, had hit bottom, it would be 2003 before the experts thought the majority of them could again struggle back to profitability. Virtually all the problems, they concluded, stemmed from the industry’s rapid advance into broadband at a time that the market did not yet exist.

On the heels of the Silicon Spin analysis, the Wall Street Journal, focusing on a pair of telecoms called Qwest and Level 3 Communications, came to a similar judgment. The Web was “overbuilt,” resulting in a “fiber glut” that “underlies much of the uncertainty plaguing the telecom sector.”¹ Claiming that only 2.6 percent of the capacity was actually in use, the Journal bleakly concluded that “much of [the fiber] may remain dark forever.”

What was interesting in both the Journal and the Silicon Spin analyses was the comparison with the railroads in the nineteenth century and the argument that both the Web and the railroads were “built ahead of demand.” It behooves investors—let alone anyone concerned with the future of high-tech America—to learn if telecoms indeed do have a similar historical pattern to that of the railroads, and if so, how they also differ.

America’s first railroad construction came through private financing, although it didn’t take long before the state governments got involved. Economic historians have argued that the capital demands of the railroads dwarfed those of any other industry. While that might have been true in the 1850s, it was not the case in the 1830s or 1840s. Founders of many early roads had simple objectives, often merely linking a single city to a river, or even building a shortcut between a long and difficult bend in a single river, as was the case in Alabama.

After the canal craze of the 1830s, in which many state governments subsidized construction by guaranteeing the canal companies’ bonds, the precedent was set for the states to support railroads. A number did so enthusiastically, especially in the south. Still, private capital dominated the construction of the best—and most viciously fought-over—roads. Cornelius Vanderbilt’s New York and Harlem Railroad, then later the Erie, attracted the attention of journalists and the general public, because of the titanic struggles between Vanderbilt and a bevy of opponents, including Jim Fisk, Jay Gould, and Daniel Drew.

Until that point, the extent of most governments’ involvement with the railroads took the form of legislators’ and aldermen’s taking bribes in return for granting, or withholding, various rights to cross certain territory. This, in turn, allowed those with substantial railroad stock to manipulate the market in railroad securities. Of course, for every buyer there must be a seller, and to the dismay of Fisk, Gould, and Drew, the Commodore often would not be (pardon the pun) railroaded: quite the contrary, Vanderbilt sent his own agents into the securities market to sell when his opponents tried to drive prices up, or to buy when they tried to drive them down. His massive transactions often disrupted the schemes of stock manipulators, and in the process he taught the silent partners in Albany lessons they never forgot.

By the Panic of 1857, most railroads relied on private investment. The depression of that year put many of them into bankruptcy, however. Ironically, while economists have for years thought that the origins of that panic lay in disruptions of the wheat market or foreign instability, it turns out that the Dred Scott decision—which overthrew the Missouri Compromise and opened up all territories to slavery—so terrified investors that the bonds of east-west roads collapsed. (Significantly, none of the roads running predominantly north and south collapsed, because their future business and traffic would have been relatively unaffected by the decision.)²

What would have become of the rail networks had the Civil War not intervened, of course, is difficult to determine. It is likely that, had slavery been prohibited from the territories per the Missouri Compromise post-1860, a normal construction program by private investors, largely absent state government intrusions, would have occurred. It is worth noting that the single most important business transformation in American history—the rise of the so-called “managerial hierarchies”—had already taken place in the private sector to address the capital needs of the railroads—a full decade before the first government-backed transcontinental railroad was launched.

Move Along, No Consumers Here

For many years, the nation had sought to support construction of a railroad to the Pacific for military reasons—largely to supply the forts on the frontier, but also to ensure quicker and more reliable support to California and Oregon. If there was agreement over the necessity of a transcontinental, there was disagreement over the route: southerners wanted a route running from Nashville or New Orleans, while northerners wanted a Chicago locus. It was Senator Stephen Douglas’s introduction of legislation to build a railroad through Nebraska that had touched off “Bloody Kansas,” and, eventually, the war itself. When the Civil War broke out, the Union government needed California’s gold and silver as well as the endless supply of horses and cattle provided by the frontier west. Supply lines were secured by the army, and Congress, without southern opposition, immediately passed the Pacific Railroad Act of 1862, which became a badly flawed blueprint for most of the transcontinental railroads. Under the Act, the government gave the railroad a substantial land grant (which was within its constitutional authority to do, and fit the Articles of Confederation’s provisions of the Land Ordinance of 1784 that reserved four sections of every township to the federal government).

Having the authority and using it wisely were two different things, however, and the free land proved as much a curse to the railroads as a blessing. But the other part of the Pacific Railroad Act involved a provision to give a subsidy to the construction of railroads in the form of United States bonds that the companies could sell on the market, then apply the proceeds to construction costs.

Under any circumstances, this was bad economics. The structure of the subsidies, though, proved even more short-sighted. For each mile of track constructed, the railroad received $16,000 worth of government bonds, rewarding the railroad for miles of track laid instead of actual services provided.

Despite what appear as lucrative inducements to modern Americans, few investors jumped at the opportunity to invest in a transcontinental railroad. People could do the math, and they concluded that it would be decades before such a project turned a genuine profit. There simply were not enough customers on the Great Plains to support the railroads. Congress thus sweetened the pot, doubling the land grant and allowing the railroads to sell their own bonds in addition to the government securities for construction. To make a long story short, this resulted in the infamous Credit Mobilier scandal.

After the government had sufficiently jump-started the Union Pacific and Central Pacific, another competitor subsidized by government land grants, the Northern Pacific, also entered the building frenzy. Whatever other feelings this must have evoked from Native Americans, the sight of these endless and obviously expensive tracks must have struck them as incredibly silly. The Indians, because they negotiated the Plains regularly, saw that even after the sodbusters arrived there were no people out there to speak of.

One railroad builder did not rely on government land grants or bond subsidies for his transcontinental railroad. James J. Hill, a Canadian who was blind in one eye, had started his own transcontinental by steadily marching across Minnesota. Hill recognized the simple economic fact that the other roads missed—largely because they were on the government dole—that there were no customers for the railroads to serve. To that end, Hill decided to create his own customer base, a strategy that would have remarkable implications for the telecom industry in the 21st century. He enticed future customers—in this case, farmers—to places where his railroad ran by offering them land. In a direct inversion of the practice of the other roads, namely getting land from the government, Hill bought land and gave it away! Hill also experimented with a variety of new wheat strains, cattle breeds, and agricultural advances that would keep his future customers profitable, in the process putting his railroad in the black. Burton Folsom’s The Myth of the Robber Barons has thoroughly dealt with the stark differences between the government-funded transcontinentals and the Great Northern. For our purposes, the key factor is that Hill did not “build ahead of demand,” but rather ensured through his own efforts that the demand would be there when he needed it. It was the ultimate essence of Say’s Law.

Back to the Future

Jump ahead now more than a century to the late 1990s and the exploding telecom, wireless, fiber-optic, and high-tech boom. Once again, there are concerns that businesses are building ahead of demand. But the comparison to railroads doesn’t hold water. The railroads—at least, all but the Great Northern—were subsidized by the government and had no incentive to develop a customer base.

Indeed, the government was the customer until the legislators finally took away the golden goose. By the 1880s enough people had moved into the Great Plains and onto the frontier to obscure what had happened: the government had constructed several roads that would not have been profitable if left to their own resources, or at least not using the strategies that operators employed with Uncle Sam.

Economists have beaten the railroad data to death, and while there is near unanimity on the fact that the railroads provided “social savings” in the neighborhood of 5 to 15 percent of GNP by 1890, these conclusions universally ignore the dynamics of a free market. “Social savings” is a term that postulates general benefits to everyone (lower travel costs and shipping prices) that might not have existed in the absence of the railroads. The best that economists have come up with to actually test these theories is an imaginary—but potentially real—system of interstate canals that could have been constructed in place of the railroads. Again, however, proving that no private investors would have built the railroads in the absence of subsidies is impossible. Moreover, it is unlikely none would have done so, given the history of not only Hill and Vanderbilt, but also of the intrastate railroad construction prior to 1860. In other words, absent the government, the railroad entrepreneurs in the 1800s knew their market and had a good grip on the size of the customer base.

For the telecom industry in the modern period, the pundits are solemnly nodding their heads in unison that the “fiber barons” do not know their industry or their customer base—that they “built ahead of demand.” But is that the case? The Wall Street Journal has even argued that, to paraphrase Senator Fritz Hollings, “There’s too much competin’ goin’ on out there.” Further, competitors came in, the Journal implied, because of the “easy availability of funding.” Aha! All those stupid capitalists were so anxious to lose their money that they marched into fiberworld like lemmings, dumping millions into dark cable, all because of the “easy availability” of capital.

One must pause, then, to consider the warnings of tech guru and prophet George Gilder, who has for a decade warned that the high-tech industry (and bandwidth/cable in particular) is underfunded! The key to Internet growth has been the venture capital firms, the top 20 of which, from 1974 to 1995, beat even Warren Buffett’s well-known Berkshire Hathaway returns of 32 percent per year. Following four years of George H. W. Bush and two years of Bill Clinton, the investment in technology firms began to wane.

Three things heated up the Internet economy after 1994, however. First, energy prices continued to remain low and as silicon chip companies gobbled up electricity at rapidly accelerating levels, this component of their price fell steadily. Second, Web browsers appeared in 1994, making the Internet genuinely commercial. Third, the GOP Congress lowered capital gains taxes to 20 percent, while the Fed kept the lid on inflation, with prices rising at a tolerable 2 percent in the 1990s. Low interest rates, low energy costs, and low taxes—you can’t beat that combination for economic growth, and the sector that is on the cutting edge will grow the fastest.

Magnify all of this by the “Law of the Telecosm,” which states that the value of a network grows by a square of the processing power of all the terminals attached to it, and “Gilder’s Law,” which postulates that bandwidth grows at least three times as fast as computing power, and the high-tech economy of the 1990s became a skyrocket. The United States rode this skyrocket, claiming some 80 percent of the Web domain names and dominating Internet traffic. At the same time, the cost of manufacturing the “nuts and bolts” of computer—chips—shrank to almost immeasurable proportions, falling at rates of nearly 70 percent a year and forcing the price of a bit down to a millionth of a cent. Although the Journal may question the claim that Internet bandwidth and traffic are doubling every few months, even its own position—that traffic is doubling more like once a year (based on a single AT&T researcher’s paper)—if true, is still an astonishing growth rate. Given this incredible level of expansion, is there anyone out there—aside from the Journal staff—who seriously wants to argue that the availability of venture capital has grown at exponential levels to match the rest of the Internet?

Low interest rates have not sparked a torrent of new venture capital. Nor has anticipation of the desperately needed, but modest, Bush tax cuts. Part of the bottleneck in venture capital has rested in the Byzantine FCC laws governing bandwidth and the monopoly positions of the Bells. Supposedly the 1996 Telecommunications Act required the Bells to unload their networks and free up local areas to competitors, and in return the Bells would receive the authority to re-enter long-distance data transmission. A burst of new “competitive local exchange carriers” (CLECs) suddenly appeared, only to find that the Act did not provide a timetable for or fines for not allowing the competitors into the loops. Then U.S. Representatives Billy Tauzin and John Dingell introduced legislation to allow the Bells into long-distance data transmission regardless.

Complaining that the “companies focused on the easy part of building a network [while] too little money went into [getting] into homes and offices,” or a phenomenon called the “last mile” connections, the WSJ nevertheless admitted that the culprit might be the Baby Bells, which owned most of the “last mile” connections, not venture capital. Where the WSJ sees plummeting prices for dark fiber and the tech stock leaders, however, analysts such as Gilder see nothing but opportunities and market-driven growth. Falling prices are to be expected and celebrated, Gilder would argue.

Internecine Debate

The proper course of action on the Baby Bells, for the time being, is the fulcrum of analysis, pitting free marketeers with different solutions and approaches to de-monopolizing against each other. On the one hand, the “pure” marketeers such as Gilder brushed aside the impact of anti-Bell legislation, arguing that it was irrelevant in the long run what the Bells did. The key, he maintained, was fiber, which “trumps both copper and the airwaves,”³ and cable companies, not the Bells, command the fiber. And since the important regulations were those governing cable, the Bell monopoly-related legislation was a sideshow: the real action was under the ground.

Other bona fide free marketeers saw the Tauzin/Dingell legislation as a crippling blow to the telecoms. William Lehr, an MIT economist, and James Glassman of the American Enterprise Institute constructed a stock index of the CLECs and found that their market capitalization plunged in direct proportion to the Tauzin/Dingell legislation’s progress.⁴ However, Gilder responded in an “open letter” to the new FCC chairman that these CLECs were merely “litigation shops” intent on forcing the Bells to share their copper.⁵ They were not, he maintained, interested in dynamic change.

Gilder’s solution is perhaps politically unfeasible, but eminently sensible: let the cable companies make hay out of their temporary monopoly status. Forget the Bells, and give them the profits from copper. As he correctly notes, no Internet advantage will last more than a fleeting moment. Quit trying to level the playing field. The market is the ultimate groundskeeper. Competition from broadband, DSL, and other technologies will quickly eliminate any advantages the Bells ever held.

One thing is certain. The Internet, and the glass fibers on which it should travel, has little in common with the transcontinental railroads. One was built by entrepreneurs, one by the government. One caused prices to plummet and services to spread; the other allowed companies to pool and price fix with Washington’s blessing. One still suffers from not enough venture capital, while the other nearly collapsed because of too much free money from the taxpayers. The most interesting result of the comparison of wires and rails is that to succeed, one must waste its resource, bandwidth, because bandwidth is potentially the cheapest commodity in the world, driving costs down. The other wasted material resources, because it was subsidized by the government, driving costs up. James J. Hill would have appreciated the differences.

Notes

1. Rebecca Blumenstein, “Web Overbuilt: How the Fiber Barons Plunged the U.S. Into a Telecom Glut,” Wall Street Journal, June 18, 2001.
2. Charles Calomiris and Larry Schweikart, “The Panic of 1857: Causes, Transmission, and Containment,” Journal of Economic History, December 1990, pp. 807–34.
3. George Gilder, Telecosm: How Infinite Bandwidth Will Revolutionize Our World (New York: Free Press, 2000), p. 266.
4. See James K. Glassman, “Look to Politics to Find Broadband’s Market Cap Shortfall,” www.techcentralstation.com, June 22, 2001.
5. George Gilder and Brett Swanson, “The Broadband Economy Needs a Hero,” Wall Street Journal, February 23, 2001.