Is Free Worth It? A Textbook Story

There are two extreme reactions to "free": with an irrational spurt of enthusiasm, or with "you get what you pay for" suspicion.When it comes to free textbooks, my experience is that suspicion is stronger.

Dan Ariely offers a nice discussion of the irrational attraction of "free" in his book Predictably Irrational. He writes in Chapter 3: "Have you ever grabbed a coupon offering a FREE! package of coffee beans--even though you don't drink coffee and don't even have a machine with which to brew it? What about all those FREE! extra helpings you piled on your plate at a buffet, even though your stomach had already started to ache from all the food you had consumed? And what about the worthless FREE! stuff you've accumulated--the promotional T-shirt from the radio station, the teddy bear that came with the box of Valentine chocolates, the magnetic calendar your insurance agent sends you each year? It's no secret that getting something free feels very good. Zero is not just another price, it turns out. Zero is an emotional hot button--a source of irrational excitement. ... Have you ever stood in line for a very long time (too long), just to get a free cone of Ben and Jerry's ice cream? Or have you bought two of a product that you wouldn't have chosen in the first place, just to get the third one for free?"

For some of Ariely's more detailed research on free, see his article "Zero as a Special Price: The True Value of Free Products," written with Kristina Shampanier and Nina Mazar in the November/December 2007 issue of Marketing Science. Ariely makes an argument that the huge allure of free is that people are afraid of making a bad deal and suffering a loss. "Free" eliminates this fear, which feels almost giddy. Indeed, Ariely finds that if people are offered a $10 gift certificate for free, or a chance to buy a $20 gift certificate for $7, they prefer the free choice. In his interpretation, a free $10 gift certificate has no risk of remorse, but paying $7 for a $20 gift certificate raises a possibility of regretting that $7 expenditure.

This sort of research encouraged me, when I published the first edition of my Principles of Economics textbook a few years back, to offer the book through a company called Textbook Media, which was following a "freemium" business model: that is, offer something on-line for free, and make your money in other ways. In their case, they hoped to make money through on-line advertising, and by selling various supplements for the textbook. 

However, this business model didn't work well for my book or any of their other books, and they have now moved to charging for their books--albeit being able to charge much less than mainline publishers. In a post last August, I wrote about Sky-High Textbook Prices--And My Suggested Solution for Intro Economics,
pointing out that a number of intro econ textbooks are selling for $200 and up, while a combination paper and e-version of my textbook sells for $33. (If you're teaching or taking an intro economics course, you can check out the book here.)

Why didn't "free" work out well in the case of this textbook? There are at least four plausible reasons.

1) When it comes to textbooks, all choices are equally "free" to the actual decision-maker, who in this case is the professor rather than the student. If students at the college bookstore could choose among equivalent books by price, the outcome might be rather different. Indeed, professors who are interested can get a few free lunches, a conference or two, and a few hundred dollars for reviewing intro econ textbooks.

2) For a producer, "free" needs to be made up some other way. In the case of textbooks, the prices in the online advertising market plunged when the recession deepened in 2008. Running an on-line advertising business is not the core competency of most textbook publishers. Most professors expect students to pay for the book, and then to have add-ons provided free to them or at low cost.

3) Free raises quality concerns. In the examples of getting a gift certificate, or picking up an extra dessert at the buffet line, quality concerns are diminished. But when something where low quality might cause us trouble or concern over a period of months, like a textbook, then the risk that "free" signals low quality is a real concern. Some feedback from professors was that students took a "free" book less seriously, because they hadn't paid for it.

4) It turns out that a number of students have a personal financial incentive to prefer expensive textbooks. When they purchase a new $200 book, the cost is covered by someone else--perhaps a college bookstore account funded by financial aid or college loans or parental tuition payments. However, when that student re-sells a $200 book for $120 in the used book market after the class is over, that $120 is cash in the student's pocket.  A book that sells new for $33 will sell for even less in the second-hand market.

I do still wonder if a business model of educational content that is free to college students can succeed. I dno't think it will be done by a big legacy publisher: they have too much overhead wrapped up in a conventional publishing model. But for example, perhaps a company like Google, with advertising and an array of related products, could partner with a consortium of colleges to explore the possibility of offering lots of educational content freely on-line as a way of attracting customers for its advertising content.The consortium of colleges would provide some assurance of quality, and perhaps also a ready-made market for the materials. The search engine company could customize advertising to the students in ways that would bring in the most revenue. The educational materials would also attract pageviews for other purposes, and perhaps even attract young adults who could become relatively "sticky" users of that search engine and its other related products for a time into the future.

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New Trade Rules for the Evolving World Economy

I recently ran across a World Trade Organization working paper published last May by Richard Baldwin called 21st Century Regionalism: Filling the gap between 21st century trade and 20th century trade rules.
Baldwin begins: 

"The last time multilateral trade rules were updated, Bill Clinton was in his first term of office, data was shared by airmailing 1.4 megabyte HD floppy disks (few people had email), cell phones looked like bricks and calling costs were measured in dollars per minute. Trade mostly meant selling goods made in a factory in one nation to a customer in another. Simple trade needed simple rules – a fact reflected in both multilateral and regional trade agreements."

Baldwin points out that patterns of trade in the 21st century are fundamentally different than the make-it-in-a-factory, ship-it-to-another country trade that prevailed in the late 20th century. 

"The heart of 21st century trade is an intertwining of: 1) trade in goods, 2) international investment in production facilities, training, technology and long-term business relationships, and 3) the use of infrastructure services to coordinate the dispersed production, especially services such as telecoms, internet, express parcel delivery, air cargo, trade-related finance, customs clearance services, etc. This could be called the trade-investment-services nexus. ...

 "[T]he nexus entails two elements, each of which generated new demands for more complex international disciplines:

• Doing business abroad. When firms set up production facilities abroad – or form long-term ties with foreign suppliers – they typically expose their capital as well as their technical, managerial and marketing know-how to new international risks. Threats to these tangible and intangible property rights became 21st century trade barriers. 
• Connecting international production facilities. Bringing high-quality, competitively-priced goods to customers in a timely manner requires international coordination of production facilities via the continuous two-way flow of goods, people, ideas and investments. Threats to these flows became 21st century trade barriers.

For an illustration, here's a graph of the number of Japanese auto and electrical machinery plants  manufacturers in other countries in east Asia, and how they have increased in the last 20 years or so.

 The basic role of the World Trade Organization, as with the GATT before it, has been to reduce tariffs gradually over time, and to referee arguments over what trade practices are "unfair." But when thinking about 21st century trade, in which supply chains and ownership stretch across international borders, this focus is inadequate. Baldwin offers some examples of the kinds of international agreements that are needed to facilitate 21st century trade--or to put it another way, the kinds of agreements whose absence will tend to block the development of 21st century trade. Here are his examples:

• The sharing of tacit and explicit technology and intellectual property is facilitated by assurances that foreign knowledge-capital owners will be treated fairly and their property rights will be respected.
• Foreign investments in the training of workers and managers, physical plant, and the development of long-term business relationships are facilitated by assurances on property rights, rights of establishment, and anticompetitive practices.
• Assurances on business related capital flows – ranging from new FDI to profit repatriation – also helped foster the investment part of the trade-investment-services nexus.
• Connecting factories often involves time-sensitive shipping, world class telecoms and short-term movement of managers and technicians, so assurances on infrastructure services are also important.
• Tariffs and other border measures also matter – just as they mattered in the 20th century but more so since the ratio of value added to value on individual shipment falls as the production chain fragments, even though tariffs are applied to the value of the goods as they cross borders.

 In short, tariffs still matter, and non-tariff barriers still matter, but in 21st century trade, they become a much smaller part of the overall trade liberalization agenda. In addition, negotiations over these matters tend to detailed and industry-specific. Baldwin argues that the need for a new kind of trade liberalization has contributed to the near-zero progress in recent years on an overall Doha trade agreement, while at the same time the world economy has seen a "regionalist" trade agenda, in which countries negotiate regional trade agreements, bilateral investment treaties, and even take unilateral steps to reassure potential trade partners. This graph shows on the right-hand axis the drop in world tariff rates over time, and on the left-hand axis the explosion of new regional trade agreements.

So far, as Baldwin readily admits, the regionalist trade agenda has not blocked a dramatic expansion in world trade: "Trade liberalisation has progressed with historically unprecedented speed in the 21st century ... As a result, trade volumes have boomed, lifting billions out of dire poverty. Twenty years ago, one could wonder whether regionalism would be a building or stumbling block; now we know there were no stumbling blocks on the road to zero tariffs. The road remained open and the world is driving down it as fast as ever."

But on the other side, the notion of global trading rules is being continually eroded. In such a world, the world's most powerful economies--which will include the U.S., the nations of Europe, along with rising global trading powers like China, India are Brazil --will write new ad hoc trading rules as they go. Baldwin notes:  "If the RTAs and their power asymmetries take over, there is a risk that the GATT/WTO would go down in future history books as a 70-year experiment where world trade was rules-based instead of power-based. It would, at least for a few more years, be a world where the world's rich nations write the new rules-of-the-road in settings marked by vast power asymmetries. This trend should worry all world leaders."

How to rethink the world trading rules so that they can focus clearly on the issues of 21st century trade is very much a work in progress. But as world trade rules march steadily toward an ad hoc set of bilateral and regional agreements based on the economic power of the participants, it's important to start considering what alternative paths might be viable.

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Ebenezer Scroggie: Urban Legend?

The notion that Charles Dickens was inspired by the gravestone of a real-life character named Ebenezer Scroggie to invent a character called Ebenezer Scrooge may be an urban legend--a good story that's taken on a life of its own.

Last Friday, I posted some "Thoughts on Ebenezer Scrooge," which told the story. Tim Worstall linked to the post here at the Adam Smith Institute website, with some details of his own about Adam Smith. Worstall e-mailed me earlier today to say that he has been told on good authority that the story is an invention, "created entirely out of thin air by Peter Clarke back in 1996 as an amusing tale and no more. Bit of a pity really but there we are....." Tim adds: "Oh, and the signifier that it must be a spoof? The General Assembly of the Church of Scotland. Open even now only to priests, elders or deacons. And back then, most certainly not including women so there would be no Countess there to goose. I should have realised that before I ran with the story..."

With Tim's note in hand, I then asked a Dickens expert, who acknowledged having heard the Ebenezer Scroggie story, but was professorially reluctant to opine on whether it was actually true. He wrote: "I've read the same legend about Scrooge but can't say for certain if it's accurate or not.  I suspect not:  the name is too perfectly Dickensian, I think, to be anything other than his creation."


I suppose one lesson here is that of simpleton colonials (that would be me) being snookered by that sophisticated British sense of humor. But a number of newspapers, websites, and the city of Edinburgh might be wise to get this straightened out, too. A 2010 article in the Scotsman newspaper reported the Scroggie story with this information: "Now a memorial may be erected, along with interpretation panels charting Scroggie's fascinating life story. Scroggie, who died in 1836, may also feature in material promoting Edinburgh as a Unesco World City of Literature. Edinburgh World Heritage, the Cockburn Association, the Edinburgh City of Literature Trust and tour guides all want to see more done to raise awareness of Scroggie's claim to fame."

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Feldstein, the Euro, and Optimal Currency Areas

Martin Feldstein has an essay in the January/February 2012 issue of Foreign Affairs on "The Failure of the Euro"  (it's not available free on-line). I found it especially interesting because Feldstein is a long-term skeptic on the euro and explained his skepticism the Fall 1997 issue of my own Journal of Economic Perspectives,
in   "The Political Economy of the European Economic and Monetary Union: Political Sources of an Economic Liability."  (Like all JEP articles from the current issue back to 1994, it is freely available on-line courtesy of the American Economic Association.) But while Feldstein is a long-time skeptic on the euro, his argument has shifted slightly over the last 14 years.  


Here's Feldstein's critique from the 2012 article: "The euro should now be recognized as an experiment that failed. This failure, which has come after just over a dozen years since the euro was introduced, in 1999, was not an accident or the result of bureaucratic mismanagement but rather the inevitable consequence of imposing a single currency on a very heterogeneous group of countries."


Feldstein has long argued that the euro is best understood not as an economic policy, but as a step toward an attempted political unification of Europe. In both the 2012 and 1997 articles, he quotes a comment from German Chancellor in 1956, after the U.S. forced England and France to abandon their attack on the Suez Canal. As quoted in the JEP article, Adenauer said: "France and England will never be powers comparable to the United States and the Soviet Union. Nor Germany, either. There remains to them only one way of playing a decisive role in the world; that is to unite to make Europe. England is not ripe for it but the affair of Suez will help to prepare her spirits for it. We have no time to waste: Europe will be your revenge."

The Treaty of Rome launched the European Common Market a year later. But it wasn't until the Maastricht treaty in 1992 that a common currency became part of the project. In retrospect, it's obvious to point out that lots of countries have extensive trade with low trade barriers--say, the U.S. and Canada, or the countries of Europe circa 1995--without any particular need for a common currency to facilitate such trade.

The potential difficulties with a common currency have been widely discussed among economists at least since the work on "optimal currency areas" by Robert Mundell and others back in the 1960s. When countries share a currency, they also share a one-size-fits-all monetary policy. Some countries might prefer lower interest rates to stimulate their economy, some might prefer higher interest rates to hold down inflation; but with a single currency, the countries all get the same monetary policy. Thus, countries must find other ways to adjust.

This theory suggests four key factors: if a group of nations has these four factors that affect economic adjustment, a single currency may work well; if it lacks these factors, the single currency may turn out badly. The four factors are: 1) fiscal transfers to and from a central government, overall moving funds to where the economy is doing less well; 2) geographic movement of families and companies away from areas where the economy is doing poorly to where it is doing better; 3) flexibility in prices and wages so that areas doing poorly see prices fall and become more attractive locations for business, and vice versa; and finally 4) that the economies of these different geographic areas move more-or-less in unison, so that economic differences across the regions don't require these other adjustments to do too much.

The United States, for example, scores pretty well on these four categories, which is part of what makes a single currency workable and beneficial. Europe doesn't score especially well on any of these four categories. Thus, the euro was an attempt to put the cart before the horse: instead of first creating a European economic and political structure where a single currency would work, the idea was to first create the single currency, and then follow up later with the needed economic and political structure. As a result, the euro created a situation in which national economies suffering difficult times, like Greece, no longer had an independent monetary policy to help, and also didn't have many other methods of adjustment. Perhaps not surprisingly, they turned to another short-term method of soothing their economic pain: large domestic budget deficits.

However, the euro's troubles in the last year or so did not arrive in the way Feldstein envisioned back in 1997. Back then, he was concerned that the new European Central Bank might not be very independent of political pressure,and thus would allow a higher rate of inflation to emerge along with an ongoing depreciation of the euro as a way of stimulating European exports. Back in 1997, Feldstein discussed the rules that as part of belonging to the euro, countries would have to limit their budget deficits. While he discussed the likelihood that these rules would not be strictly enforced (and that arguments over the deficit limit rules might even derail the euro negotiations), he did not seem to envision that the runaway levels of government debt in Greece and elsewhere would cause the euro to tremble. At that time, Feldstein was relying on another part of the treaty--the part which banned the European Central Bank from bailing out member states. That provision is being bent, although not yet totally abandoned, in the present crisis.

What actually happened, as Feldstein explains in the 2012 article, is that the European Central Bank did stay tough on inflation. As a result, countries around the periphery of Europe that had long experienced high interest rates--from fear of future inflation and instability--now found that they could borrow at low interest rates. Households borrowed and poured much of the money into housing; governments borrowed more and poured the money into everything. But bond-buyers seemed to ignore the provision in the euro treaty that there would be no bail-outs.  In the U.S. economy, it is accepted as a fact of life that some U.S. states and cities will need to pay higher interest rates when they borrow, because their finances are in dodgier shape. But
debt levels rose in Greece, Ireland, Italy, and Spain, they treated debt issued by these countries as if it had the same risk level and thus the same interest as debt issued by, say, Germany or France. When investors finally took notice of the greater risks, and started jacking up the interest rates they demanded on additional borrowing, severe overborrowing had already occurred.

At this point, there's no good way out of the euro tangle.  For example, one set of proposals are that Europe should now take steps toward a meaningful fiscal union, where countries like Greece would get funding from the rest of Europe in exchange for tight oversight of their future government borrowing. But ordinary Germans don't want to send money to Greece, and ordinary Greeks don't want Germany controlling their country's budget. Having the European Central Bank print euros to buy all the dodgy debt would flatly contradict the euro treaty provisions against bailing out countries, and would leave the ECB holding a bunch of financial securities that are unlikely to pay off.

Meanwhile, European banks hold large amounts of the bonds issued by governments, so any agreement for the governments to default on a substantial portion of their debts means that Europe's banks will be badly underwater. (In a way, this is similar to how U.S. banks were underwater when they thought they were holding safe mortgage-backed financial securities, but then those securities turned out not to be safe.) In facing the risk of these losses, European banks are trying to build up their capital ratios by holding down on lending, which slows Europe's economy more.

But more fundamentally, the euro has linked together quite disparate economies--like Germany and Greece--with a common exchange rate. In a post last November 18, I called this "The "Chermany" Problem of Unsustainable Exchange Rates." Just as China's long-term refusal to let its exchange rate relative to the U.S dollar move (much) has contributed to enormous ongoing trade surpluses for China and corresponding trade deficits for the U.S. economy, the locked-in common currency (in effect, a fixed exchange rate) between Germany and Greece has locked in large trade surpluses for Germany and large trade deficits for Greece.


Feldstein concludes his 2012 essay: "Looking ahead, the eurozone is likely to continue with almost all its current members. The challenge now will be to change the economic behavior of those countries. Formal constitutionally mandated balanced-budget rules of the type recently adopted by Germany, Italy, and Spain would, if actually implemented, put each country’s national debt on a path to a sustainable level. New policies must avoid current account deficits in the future by limiting the volume of national imports to amounts that can be financed with export earnings and direct foreign investment. Such measures should make it possible to
sustain the euro without future crises and without the fiscal transfers that are now creating tensions within Europe."

Back in the 1990s, I was dubious as to how the euro would actually work long-term. As a practical matter, I find it hard to believe that the EU will be able to enforce limits on government fiscal policies or on total volumes of trade across countries. I find it hard to believe that the needed economic adjustments when a country has slow productivity growth, like Greece, will happen through changes in wages and prices, or geographic mobility of people, or fiscal transfers. The euro will probably hobble on for awhile, because breaking up is hard to do. But it will probably hobble from one economic crisis to another until its underlying economic and political context has been fundamentally changed. 

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McCloskey on the Great Fact of Economic Growth

In a characteristically ornate, well-considered, good-humored and provocative essay, Dierdre McCloskey has a lot to say about "A Kirznerian Economic History of the Modern World." This essay was originally presented at the 2010 Upton Forum at Beloit College, which focused on the work of Israel Kirzner. This link is from a post by Peter Boettke at Coordination Problem. The conference proceedings will eventually be available third Annual Proceedings of the Wealth and Well-Being of Nations, although the essays don't seem to be posted on the Upton Forum website yet. Here's McCloskey:

"What I got with a jolt around age 65 was that economic growth since 1800, the Great Fact of an increase of real income per head by a factor of anything from a factor of 16 (using the most conventional statistics in the countries that were richest at the outset) all the way to (if you properly account for improved quality) a factor of 100, had very little to do with routine, Samuelsonian/ Friedmanite/Douglass-Northian adjustment of marginal cost to marginal benefit. That is, mere supply-and-demand efficiency does not explain the modern world. ..."

"The problem with all the economistic explanations lies deep within classical and most of subsequent economic thought: the conviction that shuffling stuff around makes us a little better off, which is true; and therefore that the shuffling makes us as rich as modern people are, which is false. Trade. Transportation. Reallocation. Information flow. Accumulation. Legal change. ... Yet the path to the modern was not through shuffling and reshuffling. It was not by the growth of foreign trade or of this or that industry, here or there, nor by shifting weights of one or another social class. Nor indeed was it by reshufflings of property rights. Nor, to speak of another sort of reshuffling, was it by rich people piling up more riches by shuffling income away from their worker-victims. They had always done that. Nor was it through bosses being nasty to workers, or through strong countries being nasty to weak countries, and forcibly shuffling stuff toward the nasty and strong. They had always done that, too. Piling up bricks and money and colonies had always been routine. ... The new path was not about anciently commonplace theft or accumulation or commercialization or reallocation or conquest of foreign kings or any other reshuffling. It was instead about discovery, and a creativity supported by novel words. In terms of the seven principal virtues, the routine of efficiency that Samuelsonian economists love so passionately depends only on the virtue of Prudence ...  What I am claiming here is that Austrian discovery and creativity depends also on the other virtues, in particular on Courage and Hope. ... As a result, previously unknown inputs were discovered (coal for steam engines; then coke for iron; then natural gas to replace the sickening coke burnt in French kitchens), fresh hierarchies of ends were articulated (in the new political economy, for example, which tended to the democratic end of general vs. privileged prosperity; in the new politics, which tended to the radical end of strict equality), new goods and services were created (black tulips, common stocks, reinforced concrete). All of it was very far from routine Prudence. ...

To put it another way, economics in the style of Adam Smith, which is the mainstream of economic thinking, is about scarcity and saving and other Calvinistic notions ... In the sweat of thy face shalt thou eat bread, till thou return unto the ground. We cannot have more of everything. Grow up and face scarcity. We must abstain Calvinistically from consumption today if we are to eat adequately tomorrow. Or in the modern catchphrase: There Ain’t No Such Thing as a Free Lunch (TANSTAAFL). But over time, taking the long view, modern economic growth has been a massive free lunch. Discovery, not reshuffling, was the mechanism, and the springs were the nonprudential virtues."

All of this and much else in the essay is very well-said, as one expects from McCloskey, but at some level, the posited separation between supply-and-demand efficiency and economic growth seems to me a bit overstated. Yes, basic supply and demand is static and one-time, and economic growth is a dynamic process over time. But at least when I teach supply and demand, I emphasize that the interaction of utility-maximizing consumers looking and profit-seeking producers is an evolving process. Producers are continually attempting to entice consumers, through combinations of new qualities and new products, along with price competition. Consumers are continually seeking a better deal. To me, at least, even the most basic models of mainstream supply-and-demand economics are built on more than penny-pinching Prudence. They are also incorporate discovery, creativity, and even creativity and hope.

I fear that in McCloskey's effort to emphasize this broader perspective, she draws too bright a line between supply-and-demand and the Great Fact of economic growth, and thus veers close to a reductionist or perhaps a mechanistic view that if economic models don't include a specific variable for Courage or Hope or Creativity or Discovery, then the models can't encompass those motivations.  But being reminded of the importance of such concerns and motivations is always useful, and thus McCloskey's bracing and entertaining essay is well worth reading.

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Thoughts on Ebenezer Scrooge

Added December 27: 
 Is the story of Ebenezer Scroggie that follows too good to be true? See follow-up post on December 27 at Ebenezer Scroggie: Urban Legend? 

Original post follows:
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The story goes that Charles Dickens was visiting Edinburgh to give a public reading of his work in 1842, and spent some time looking around the Canongate church graveyard. He saw one grave that made him shudder. The name on the grave was Ebenezer Lennox Scroggie--mean man." According to Peter Clark, a British political economist who seems the starting point for this story, Dickens misread the inscription. It actually said "Meal man," because Scroggie was a corn merchant.

But Dickens was shocked by the inscription, and apparently noted it in  his diary. A geneology website reported Dickens's comment this way in 2010: "[T]o be remembered through eternity only for being mean seemed the greatest testament to a life wasted." In a 1996 telling, Clark reported the comment from Dickens diary in this way: "How bleak to have one's shrivelled soul advertised forever. It made me shudder. It made me feel for the flesh corrupting beneath me." Shortly afterwards, Charles Dickens published "A Christmas Carol," with a main character named Ebenezer Scrooge, and the plot revolving around what it would be like to be forever stamped as a "mean man," when there was still time to change your ways.

Apparently Ebenezer Scroggie was about as far from his fictional namesake as one can get. A "History of Leith, Edinburgh" website reported in 2010: "In life, Scroggie was apparently a rambunctious, generous and licentious man who gave wild parties, impregnated the odd serving wench and once wonderfully interrupted the General Assembly of the Church of Scotland by grabbing the buttocks of a hapless countess." However, for those seeking to link Ebenezer Scrooge more tightly to the heartlessness of economics, it may be comforting to know that Scroggie was apparently a cousin of Adam Smith. A 2004 article in the Scotsman newspaper reports: "Scroggie was born in Kirkcaldy, Fife; his mother was the niece of Adam Smith, the 18th century political economist and philosopher." There is now some talk in Edinburgh of erecting a monument to Scroggie, although his actual gravesite was apparently removed for redevelopment of the port back in the early 1930s.

Each Christmas you can find an economist or two taking the contrarian position that Ebenezer Scrooge was an unpleasant person, but in economic terms a useful contributor to society. For a good example, here's Steven Landsberg's 2004 half-serious, half tongue-in-cheek riff on the theme: "What I Like About Scrooge."
"In this whole world, there is nobody more generous than the miser—the man who could deplete the world's resources but chooses not to. The only difference between miserliness and philanthropy is that the philanthropist serves a favored few while the miser spreads his largess far and wide."

I like thinking about Scrooge in various roles: consumer, employer, and man of business.

As a consumer, Scrooge is famously a miser. He likes darkness, because it's cheap. He eats gruel. He uses microfragments of coal. All this is just fine with me. People get to choose how they want to live. Those who save also make a contribution to the economy. Of course, if Scrooge had not been miserly all those years, and instead had been greatly in debt from high living, he wouldn't have had the resources to help Bob Cratchit's family and Tiny Tim at the close of the book

As an employer, Scrooge is more harsh than necessary--and he knows it. When the Spirit of Christmas Past asks whether Fezziwig, where Scrooge was apprenticed, really deserves much praise. Scrooge describes Fezziwig as an employer in this way: "He [that is, Fezziwig] has the power to render us happy or unhappy; to make our service light or burdensome; a pleasure or a toil. Say that his power lies in words and looks; in things so slight and insignificant that it is impossible to add and count 'em up ..." In more modern terms, an employment relationship is more than a trade of hours for pay. Scrooge at the beginning of the book makes Bob Cratchit's life more difficult than it already is, and if Scrooge had been willing to use modest nonmonetary rewards like speaking pleasantly, their work relationship might well have been more productive on both sides.

Being a "man of business" is often an epithet in Christmas Carol, so it's worth noting that the book includes examples of men of business in the book who are clearly meant to be admirable characters--with Fezziwig leading the way. But  to me, one of the most grim passages in the book is when Scrooge is visiting with the last of the Spirits, and nearly broken by what he has seen, he says to the Spirit: "If there is any person in the town, who feels emotion caused by this man's death ... show that person to me, Spirit, I beseech you!" The Spirit takes him to a room where a mother and children are waiting for a husband to arrive. When the husband arrives, his face has an odd look: "There is a remarkable expression in it now; a kind of serious delight of which he felt ashamed, and which he struggled to repress." He has learned that Scrooge has died, and the man and his wife are grateful to hear of this, and ashamed for being grateful. The wife asks: "To whom will our debt be transferred?" The husband answers: "I don't know. But before that time we shall be ready with the money, and even though we were not, it would be bad fortune indeed to find so merciless a creditor as his successor. We may sleep tonight with light hearts, Caroline!"

To me, this passage suggests that Scrooge had moved well beyond the category of being an unloved but tough but essentially fair businessman. Just as he had abused his power as an employer over Cratchit, and enjoyed it, he was abusing his power as a lender. Scrooge wrapped himself in the comforting rhetoric of "man of business" as a self-justification for his actions. A lot of other misanthropes and predators over time have used "man of business" as justification for their actions, so the acid in the term stings. But working in business doesn't require these traits; indeed, one might argue that true "man of business" perceives and pursues all sorts of opportunities for adding value, while Scrooge was actually practicing a machismo of self-congratulatory greed and surliness.

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Consumer Financial Obligations Nearly Back to 1979 Levels

One reason underlying the Great Recession that followed the financial crash is that U.S. households had over-committed themselves with excessive borrowing. As households were faced with the task of paying off these debts and reducing their debt burdens, they weren't consuming as much as they otherwise would have done--which slowed the economy.

This pattern can be tracked with a couple of statistics that the Federal Reserve calls the "debt service ratio" and the "financial obligations ratio." The terms are defined in this way: "The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt. The financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio."

Here's the household debt service ratio, as generated by the ever-useful FRED website at the St. Louis Fed:

Christoffer Koch and J.B. Cooke of the Dallas Fed point out that the "financial obligations ratio"--that is, financial obligations as a share of disposable income--has now nearly dropped back to the lower levels observed in the last few decades. Here is their figure:

It's clearly good news that U.S. households as a group have largely worked through the problem of dealing with their oversized debt obligations. However, this success in reducing debt service and financial obligations remains a bit fragile. These obligations have two major ingredients: how much debt you have, and the interest rate you are paying on that debt. As Koch and Cooke explain: "

"Debt-to-income ratios are still elevated; they have been receding, but some of this improvement can be attributed to lenders writing down mortgage debt at unusually high levels. Improvements in household debt burdens positively impact consumer spending by affecting both housing-related consumption and—via net wealth and liquidity effects—overall consumption. In the same vein, financial obligations ratios (FOR) suggest de-levering may be nearing an end, with these ratios nearly back to post-1979 lows (Chart 4). The decline reflects increased write-downs on and paying off of mortgage debt, amplified by lower interest rates across the maturity spectrum." 

In short, household debt levels are still "elevated," but household financial obligations are nonetheless low because of the ultra-low interest rates in the U.S. economy. The low interest rates are, in a way, buying some time for U.S. households to continue reducing their debt burdens.

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