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Über dieses Buch

For over fifty years, Eli Schwartz has inspired generations of economists through his prolific publications and dedicated in teaching. In 2008, the Martindale Center for the Study of Private Enterprise at Lehigh University invited prominent academics and practitioners—including Nobel Prize recipients, Robert Solow and Harry Markowitz, and former Chairman of the Economic Advisers to Ronald Reagan, Murray Weidenbaum—to contribute pieces that reflect their own approaches to issues that Schwartz has explored over the long span of his career. The twelve original essays cover a range of topics, including tax reform, corporate finance, fiscal policy, banking, economic growth, and globalization, representing a variety of methodologies, including economic theory, econometrics, and case analysis. The collection emphasizes the underlying connections among seemingly disparate facets of economic activity, and underscores the tremendous influence of Schwartz on economic analysis, policy, and leadership today.




It has been a pleasure to put together this


in honor of Professor Eli Schwartz. The word


is taken from two German words whose meanings are, respectively, “celebration (or feast)” and “writing”; and this


does precisely that. It celebrates, through a collection of invited essays, the contributions that Eli has made over the years to his profession, to his colleagues and friends, and to Lehigh University. The volume title,

Variations in Economic Analysis

, is certainly appropriate.

J. Richard Aronson, Harriet L. Parmet, Robert J. Thornton

My Favorite Two Corporate Finance Puzzles

Long ago, Fischer Black (1976) wrote the classic paper, “The Dividend Puzzle.” But even though the paper clearly defined the puzzle, it is appropriate that more attention be paid now to this interesting issue. It is not sufficient that we conclude as Fischer Black did with “We don’t know.”

Harold Bierman

The Solvency of Federal Welfare Entitlement Programs: Social Security and Medicare

When President Clinton signed the Welfare Reform Bill in 1996, he described it as the “end of welfare as we know it.” It was a premature declaration of victory, for welfare is alive and well in the American economy. It is growing at a rate that will soon ignite public debate over the cost of federal entitlement programs. But the major beneficiaries are not the poor. They are the cohort of the U.S. population over the age of 62 that will swell the number of welfare recipients in 2008 when the first Baby Boomers become eligible to collect Social Security. The burden will jump again in 2011 when they become eligible for Medicare. The 50 million Americans who will be 62 years or older in 2010 will grow in number to 83 million by 2030 and to 100 million by 2050. Their relative importance in the population will rise from 16% in 2010 to 24% in 2050. Extended life expectancy assures that the bulge will last for many decades and will exacerbate the drain on the financial reserves of the Social Security and Medicare trust funds.

George H. Borts

The Corporate Sector as a Net Exporter of Funds: Additional Evidence

Using aggregate data, Schwartz and Aronson (1966) documented the role of the corporate sector in generating more funds than it can profitability use over 40 years from 1924–1964. One of the primary issues behind the corporate sector exporting funds was the controversy of dividends. Schwartz and Aronson noted that aggregate dividends far exceeded net new external financing. In this study, we present evidence for the 1971–2006 period for all stocks covered by the Compustat tapes, some 200,000 firms (approximately 2,300–6,000 firms per year). We substantiate the original Schwartz and Aronson hypothesis of the corporate sector as a net exporter of funds and offer additional evidence as to how the components of the net exporter sector calculations have evolved over time. We address additional questions with regard to debt and equity issuances, repurchases, the relationship of dividends and stock prices, and whether significant sector effects are present.

John B. Guerard

Piscal Folicy 101—Economic Policy Meets Partisan Politics

The world of political Washington is leavened by a wonderful troupe called the Capitol Steps, an ensemble whose mission is to poke fun at our political follies. Their signature rap is called “Lirty Dies,” open-ended verse in which the first letters of words are strategically reversed, causing outbursts of laughter and insight.

John Hilley

A Taxonomy of Utility Functions

Modern financial theory began with the publication of two articles in 1952: Markowitz (1952a) and Roy (1952). The principal difference between the Roy article and the Markowitz article is that Roy recommended a specific portfolio from the mean-variance frontier, namely, the one which maximizes

Benjamin J. Gillen, Harry M. Markowitz

Equilibrium and Disequilibrium Growth: a Comment on a Comment

An old cartoon by James Thurber shows one of his overpowering women, evidently an actress, sitting down next to one of his mousy men, and saying: “Now let’s talk about you. What did you think of my performance?” With that lesson in mind, my favorite way to pay tribute to an old friend like Eli Schwartz on occasions like this is to reread one of his works and try to hold up my end of an imaginary conversation. What came readily to hand was his 1993 book

Theory and Application of the Interest Rate.

The tone of this book is distinctive. The mainstream theoretical core is always evident, but the text is full of practical advice and numerical examples. I will try to keep with that way of proceeding. The part of the book where I thought I might have something to add is the final Chapter 10 on “Growth, Profits and the Interest Rate.” (From now on I will refer to the author, rather artificially, as “ES.” The natural “Eli” is too informal for print, and the conventional “Schwartz” is impossibly formal.)

Robert Solow

Reputational Risk and Conflicts of Interest in Banking and Finance: The Evidence So Far

Financial services comprise an array of “special” businesses. They are special because they deal mainly with other people’s money, and because problems that arise in financial intermediation can trigger serious external costs. In recent years the role of various types of financial intermediaries has evolved dramatically. Capital markets and institutional asset managers have taken intermediation share from banks. Insurance activities conducted in the capital markets compete with classic reinsurance functions. Fiduciary activities for institutional and retail clients are conducted by banks, broker-dealers, life insurers and independent fund management companies. Intermediaries in each cohort compete as vigorously with their traditional rivals as with players in other cohorts, competition that has been intensified by deregulation and rapid innovation in financial products and processes. Market developments have periodically overtaken regulatory capabilities intended to promote stability and fairness as well as efficiency and innovation.

Ingo Walter

Seeking Common Ground on Globalization

Globalization is one of the great and controversial developments of our time. It is an ongoing process that more closely integrates the many local, regional, and national markets. Globalization is characterized by a rising tendency for national borders to be crossed by people, goods, services, money, information, and ideas. Many specific factors are involved in the fundamental shifts that are occurring in the world economy.

Murray Weidenbaum

Tax Reform Then and Now

The U.S. tax structure has been reformed and simplified many times in the last 30 years but the need for reform and simplification remains greater than ever. (For a detailed summary of recent tax acts see C.E. Steuerle, 1992, 2004). Should the tax structure be built on a foundation of comprehensive income or on comprehensive consumption? (Examples of excellent tax reform analysis are Bradford, 1984 and Aaron and Gale, 1996.) Should wealth transfer taxes be inheritance taxes, estate taxes or repealed entirely? Should payroll taxes apply to all earned income or should the tax base be capped? These are all tax issues upon which reasonable people can differ. Unanimity of thought is not expected. But there is at least one area of tax reform upon which even those of opposing economic philosophies can agree.

J. Richard Aronson

Joseph A. Schumpeter: Not Guilty of Plagiarism but of “Infelicities of Attribution”

Throughout his academic life, Eli Schwartz’s field of specialization has been Corporate Finance. In 1962 he published his successful text,

Corporate Finance

, and in 2007, with John B. Guerard, Jr., he co-authored

Quantitative Corporate Finance

. For decades he has ruled supremely in this field at Lehigh’s College of Business; and today generations of his former students are plying the skills they acquired from him throughout the U.S.

Nicholas W. Balabkins

Economics and the Tanakh—the Hebrew Bible

The Hebrew Bible or


offers economic utopias for building a theocratic society. This paper will present various economic situations and concepts found therein. These themes include social policies, the Sabbath, years of Sabbath and Jubilee, the agrarian society and the ethics of social justice. Quotes are offered from the


(also known as the Five Books of Moses) as well as the larger corpus of biblical texts, the



Harriet L. Parmet

Muted Signals in Academe: Letters of Recommendation and Grade Inflation

One morning at coffee several years ago (ok, so it’s more like twenty), Eli told a funny story about his writing of a letter of recommendation for a top student. After having written several very favorable paragraphs, Eli concluded the letter by saying that “He simply couldn’t recommend the student too highly.” When he looked at what he had written, Eli said, “I realized that one could interpret the concluding sentence as either high praise or damning! The sentence was completely ambiguous!” To Eli and his inadvertent stumbling upon this ambiguous recommendation, I owe a debt of gratitude.

Robert J. Thornton


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