This week, the New York Times published an interesting article on the burgeoning culinary movement in Brooklyn, one similar to the movement led by Alice Waters1 and others in Berkeley, California, in the 1970s ("Brooklyn's New Culinary Movement"). There are some broader political and economic issues related to this story that the article doesn't touch on, which I try to touch on below.
The article described how a number of Brooklynites were building viable businesses and creating livelihoods for themselves. Conspicuously absent was the role of formal education in most of this. The butcher learned his trade from an apprenticeship of sorts; the ricotta cheese makers learned that craft on a trip to Italy; the chocolate-making brothers were mainly self-taught, etc. Since education is one of President Obama's three main policy foci, it would be good if he or his aides took note of this, but I doubt they will, for a couple of reasons. The first is because of the extent to which the Democratic focus on education is about feeding the educational industry, and the second is because I doubt many of Obama's aids (or outside advisers) have ever done the sort of thing these Brooklynites are doing: building businesses from scratch. That lack of hands-on experience leads to blind spots among our elites, both in the public sector and in the corporate sector.
That's a thought I had considered writing a post on a few months ago, but I'll make the point here instead. There's been speculation in recent months about how some of the catastrophes that combined into the financial crisis could have happened on the watch of some of America's best and brightest, in big business and government. In a recent New York Times column, Ben Stein, drawing on his experience in the Nixon White House, speculated that most of the best and brightest weren't that bright. He wrote that most of the men he worked with in Washington were B+ types, with the exceptions of two he considered to be geniuses, Henry Kissinger and Paul O'Neil. Others in recent months, including Atlantic blogger and Harvard alumnus Ross Douthat, have blamed the arrogance of Harvard-educated elites. I suspect the lack of hands on experience in closer-to-the ground businesses is partly to blame. Relatively few alumni of Harvard or other elite schools go into these sorts of businesses, as they tend to have lower-risk, lucrative job opportunities in big business, consulting, etc.
Attitudes toward debt and leverage are one example. Most small businessmen I've known are inherently cautious about both2. The New York Times article doesn't give much detail on how these culinary-related businesses are financed, but what details it does give suggest an aversion to getting over-extended with debt (e.g., the chocolate-makers paying the designer of their packages in chocolate bars and deciding to let their business "evolve" rather than trying to grow it more quickly). The academic perspective on leverage (at least for public companies), up until recently, was different3, and of course there was no shortage of elite university grads at highly-levered Wall Street firms.
The image above, from the article, gives you an idea of the sort of ethnic diversity you can find in many gentrifying New York City neighborhoods.
1In doing some research before writing this post, I came across this related essay (which I don't entirely buy) by John Schwenkler: Eat Republican: How an organic movement born in Berkeley exemplifies conservative values.
2In lending businesses, some amount of leverage is necessary, but the owner of a local non-traditional lender for whom I've done some work explained to me that his business is usually levered less than 3-to-1: far less than most commercial banks, let alone investment banks. He also takes a more hands-on approach to asset-backed lending than some of his counterparts in big Wall Street firms, e.g., driving out to a retail property backing a note and watching its foot traffic, etc.
3The academic perspective on this always struck me as counter-intuitive. In an NY Institute of Finance class a couple of years ago, for example, the instructor, a veteran CPA and CFA, lectured that it was a bad thing for a company to have a lot of cash on its balance sheet (because that dragged down returns on equity). He said that a company flush with cash it couldn't put to use ought to use it to buy back its stock, and then lever up and buy back some more stock. Of course, companies that followed that sort of advice in the last couple of years haven't been well served by it, while companies holding net cash may now have some attractive opportunities to put it to use in a depressed market.