The global financial crisis severely affected economies in Eastern Europe and Central Asia (ECA). Currencies depreciated across the region. Government tax revenues declined sharply leading to high budget deficits and rising levels of public debt. Tightening credit supply and deteriorating financial conditions have limited the ability to borrow in the public and private sector. The financial crisis slowed demand enough to delay an imminent energy shortage by a few years. In this sense, the financial crisis bought ECA countries some time. This report analyzes the impacts of the global financial crisis on power sectors in five countries in the ECA region: Armenia, Kyrgyz Republic, Romania, Serbia and Ukraine. It estimates the investment gap and proposes a prioritization of critical investments in each country. The report also proposes actions needed to mobilize financing for the sector, including a continued commitment to legal, regulatory and policy reform in the sector. The global financial crisis has created a window of opportunity to meet investment needs and avert a potential power shortage, but Governments need to recognize and act on this opportunity. This report serves as a starting point to facilitate further World Bank engagement in the region that can help Governments make timely, critical investments and foster sustainable investment in the sector over the long-term.
This joint working paper lays out a rationale and strategic framework for improving food security and managing food-price shocks in the Arab countries. The paper does not provide country specific policy and project recommendations. Such recommendations will follow from the country by country application of the framework, taking into account each country's political and cultural preferences, resource endowments, and risk tolerance. In 2007 and the first half of 2008, a sharp rise in agricultural commodity and food prices triggered grave concerns about food security, malnutrition and increased poverty throughout the world. While the threat of a prolonged food-price shock receded with falling energy and commodity prices and a weakening global economy in the second half of 2008, many factors underlying the volatility in food prices appear here to stay and will require careful management if the world is to avoid future food-price shocks. This paper suggests three critical strategies that, together, can serve as pillars to help offset future vulnerability to price shocks: a) strengthen safety nets, provide people with better access to family planning services, and promote education; b) enhance the food supply provided by domestic agriculture and improve rural livelihoods by addressing lagging productivity growth through increased investment in research and development; and c) reduce exposure to market volatility by improving supply chain efficiency and by more effectively using financial instruments to hedge risk.
Die Inhalte der verlinkten Blogs und Blog Beiträge unterliegen in vielen Fällen keiner redaktionellen Kontrolle.
Warnung zur Verfügbarkeit
Eine dauerhafte Verfügbarkeit ist nicht garantiert und liegt vollumfänglich in den Händen der Blogbetreiber:innen. Bitte erstellen Sie sich selbständig eine Kopie falls Sie einen Blog Beitrag zitieren möchten.
I've been reading a lot of macro lately. In part, I'm just catching up from a few years of book writing. In part, I want to understand inflation dynamics, the quest set forth in "expectations and the neutrality of interest rates," and an obvious next step in the fiscal theory program. Perhaps blog readers might find interesting some summaries of recent papers, when there is a great idea that can be summarized without a huge amount of math. So, I start a series on cool papers I'm reading. Today: "Tail risk in production networks" by Ian Dew-Becker, a beautiful paper. A "production network" approach recognizes that each firm buys from others, and models this interconnection. It's a hot topic for lots of reasons, below. I'm interested because prices cascading through production networks might induce a better model of inflation dynamics. (This post uses Mathjax equations. If you're seeing garbage like [\alpha = \beta] then come back to the source here.) To Ian's paper: Each firm uses other firms' outputs as inputs. Now, hit the economy with a vector of productivity shocks. Some firms get more productive, some get less productive. The more productive ones will expand and lower prices, but that changes everyone's input prices too. Where does it all settle down? This is the fun question of network economics. Ian's central idea: The problem simplifies a lot for large shocks. Usually when problems are complicated we look at first or second order approximations, i.e. for small shocks, obtaining linear or quadratic ("simple") approximations. On the x axis, take a vector of productivity shocks for each firm, and scale it up or down. The x axis represents this overall scale. The y axis is GDP. The right hand graph is Ian's point: for large shocks, log GDP becomes linear in log productivity -- really simple. Why? Because for large enough shocks, all the networky stuff disappears. Each firm's output moves up or down depending only on one critical input. To see this, we have to dig deeper to complements vs. substitutes. Suppose the price of an input goes up 10%. The firm tries to use less of this input. If the best it can do is to cut use 5%, then the firm ends up paying 5% more overall for this input, the "expenditure share" of this input rises. That is the case of "complements." But if the firm can cut use of the input 15%, then it pays 5% less overall for the input, even though the price went up. That is the case of "substitutes." This is the key concept for the whole question: when an input's price goes up, does its share of overall expenditure go up (complements) or down (substitutes)? Suppose inputs are complements. Again, this vector of technology shocks hits the economy. As the size of the shock gets bigger, the expenditure of each firm, and thus the price it charges for its output, becomes more and more dominated by the one input whose price grows the most. In that sense, all the networkiness simplifies enormously. Each firm is only "connected" to one other firm. Turn the shock around. Each firm that was getting a productivity boost now gets a productivity reduction. Each price that was going up now goes down. Again, in the large shock limit, our firm's price becomes dominated by the price of its most expensive input. But it's a different input. So, naturally, the economy's response to this technology shock is linear, but with a different slope in one direction vs. the other. Suppose instead that inputs are substitutes. Now, as prices change, the firm expands more and more its use of the cheapest input, and its costs and price become dominated by that input instead. Again, the network collapsed to one link. Ian: "negative productivity shocks propagate downstream through parts of the production process that are complementary (\(\sigma_i < 1\)), while positive productivity shocks propagate through parts that are substitutable (\(\sigma_i > 1\)). ...every sector's behavior ends up driven by a single one of its inputs....there is a tail network, which depends on \(\theta\) and in which each sector has just a single upstream link."Equations: Each firm's production function is (somewhat simplifying Ian's (1)) \[Y_i = Z_i L_i^{1-\alpha} \left( \sum_j A_{ij}^{1/\sigma} X_{ij}^{(\sigma-1)/\sigma} \right)^{\alpha \sigma/(\sigma-1)}.\]Here \(Y_i\) is output, \(Z_i\) is productivity, \(L_i\) is labor input, \(X_{ij}\) is how much good j firm i uses as an input, and \(A_{ij}\) captures how important each input is in production. \(\sigma>1\) are substitutes, \(\sigma<1\) are complements. Firms are competitive, so price equals marginal cost, and each firm's price is \[ p_i = -z_i + \frac{\alpha}{1-\sigma}\log\left(\sum_j A_{ij}e^{(1-\sigma)p_j}\right).\; \; \; (1)\]Small letters are logs of big letters. Each price depends on the prices of all the inputs, plus the firm's own productivity. Log GDP, plotted in the above figure is \[gdp = -\beta'p\] where \(p\) is the vector of prices and \(\beta\) is a vector of how important each good is to the consumer. In the case \(\sigma=1\) (1) reduces to a linear formula. We can easily solve for prices and then gdp as a function of the technology shocks: \[p_i = - z_i + \sum_j A_{ij} p_j\] and hence \[p=-(I-\alpha A)^{-1}z,\]where the letters represent vectors and matrices across \(i\) and \(j\). This expression shows some of the point of networks, that the pattern of prices and output reflects the whole network of production, not just individual firm productivity. But with \(\sigma \neq 1\) (1) is nonlinear without a known closed form solution. Hence approximations. You can see Ian's central point directly from (1). Take the \(\sigma<1\) case, complements. Parameterize the size of the technology shocks by a fixed vector \(\theta = [\theta_1, \ \theta_2, \ ...\theta_i,...]\) times a scalar \(t>0\), so that \(z_i=\theta_i \times t\). Then let \(t\) grow keeping the pattern of shocks \(\theta\) the same. Now, as the \(\{p_i\}\) get larger in absolute value, the term with the greatest \(p_i\) has the greatest value of \( e^{(1-\sigma)p_j} \). So, for large technology shocks \(z\), only that largest term matters, the log and e cancel, and \[p_i \approx -z_i + \alpha \max_{j} p_j.\] This is linear, so we can also write prices as a pattern \(\phi\) times the scale \(t\), in the large-t limit \(p_i = \phi_i t\), and \[\phi_i = -\theta_i + \alpha \max_{j} \phi_j.\;\;\; (2)\] With substitutes, \(\sigma<1\), the firm's costs, and so its price, will be driven by the smallest (most negative) upstream price, in the same way. \[\phi_i \approx -\theta_i + \alpha \min_{j} \phi_j.\] To express gdp scaling with \(t\), write \(gdp=\lambda t\), or when you want to emphasize the dependence on the vector of technology shocks, \(\lambda(\theta)\). Then we find gdp by \(\lambda =-\beta'\phi\). In this big price limit, the \(A_{ij}\) contribute a constant term, which also washes out. Thus the actual "network" coefficients stop mattering at all so long as they are not zero -- the max and min are taken over all non-zero inputs. Ian: ...the limits for prices, do not depend on the exact values of any \(\sigma_i\) or \(A_{i,j}.\) All that matters is whether the elasticities are above or below 1 and whether the production weights are greater than zero. In the example in Figure 2, changing the exact values of the production parameters (away from \(\sigma_i = 1\) or \(A_{i,j} = 0\)) changes...the levels of the asymptotes, and it can change the curvature of GDP with respect to productivity, but the slopes of the asymptotes are unaffected....when thinking about the supply-chain risks associated with large shocks, what is important is not how large a given supplier is on average, but rather how many sectors it supplies...For a full solution, look at the (more interesting) case of complements, and suppose every firm uses a little bit of every other firm's output, so all the \(A_{ij}>0\). The largest input price in (2) is the same for each firm \(i\), and you can quickly see then that the biggest price will be the smallest technology shock. Now we can solve the model for prices and GDP as a function of technology shocks: \[\phi_i \approx -\theta_i - \frac{\alpha}{1-\alpha} \theta_{\min},\] \[\lambda \approx \beta'\theta + \frac{\alpha}{1-\alpha}\theta_{\min}.\] We have solved the large-shock approximation for prices and GDP as a function of technology shocks. (This is Ian's example 1.) The graph is concave when inputs are complements, and convex when they are substitutes. Let's do complements. We do the graph to the left of the kink by changing the sign of \(\theta\). If the identity of \(\theta_{\min}\) did not change, \(\lambda(-\theta)=-\lambda(\theta)\) and the graph would be linear; it would go down on the left of the kink by the same amount it goes up on the right of the kink. But now a different \(j\) has the largest price and the worst technology shock. Since this must be a worse technology shock than the one driving the previous case, GDP is lower and the graph is concave. \[-\lambda(-\theta) = \beta'\theta + \frac{\alpha}{1-\alpha}\theta_{\max} \ge\beta'\theta + \frac{\alpha}{1-\alpha}\theta_{\min} = \lambda(\theta).\] Therefore \(\lambda(-\theta)\le-\lambda(\theta),\) the left side falls by more than the right side rises. Does all of this matter? Well, surely more for questions when there might be a big shock, such as the big shocks we saw in a pandemic, or big shocks we might see in a war. One of the big questions that network theory asks is, how much does GDP change if there is a technology shock in a particular industry? The \(\sigma=1\) case in which expenditure shares are constant gives a standard and fairly reassuring result: the effect on GDP of a shock in industry i is given by the ratio of i's output to total GDP. ("Hulten's theorem.") Industries that are small relative to GDP don't affect GDP that much if they get into trouble. You can intuit that constant expenditure shares are important for this result. If an industry has a negative technology shock, raises its prices, and others can't reduce use of its inputs, then its share of expenditure will rise, and it will all of a sudden be important to GDP. Continuing our example, if one firm has a negative technology shock, then it is the minimum technology, and [(d gdp/dz_i = \beta_i + \frac{\alpha}{1-\alpha}.\] For small firms (industries) the latter term is likely to be the most important. All the A and \(\sigma\) have disappeared, and basically the whole economy is driven by this one unlucky industry and labor. Ian: ...what determines tail risk is not whether there is granularity on average, but whether there can ever be granularity – whether a single sector can become pivotal if shocks are large enough.For example, take electricity and restaurants. In normal times, those sectors are of similar size, which in a linear approximation would imply that they have similar effects on GDP. But one lesson of Covid was that shutting down restaurants is not catastrophic for GDP, [Consumer spending on food services and accommodations fell by 40 percent, or $403 billion between 2019Q4 and 2020Q2. Spending at movie theaters fell by 99 percent.] whereas one might expect that a significant reduction in available electricity would have strongly negative effects – and that those effects would be convex in the size of the decline in available power. Electricity is systemically important not because it is important in good times, but because it would be important in bad times. Ben Moll turned out to be right and Germany was able to substitute away from Russian Gas a lot more than people had thought, but even that proves the rule: if it is hard to substitute away from even a small input, then large shocks to that input imply larger expenditure shares and larger impacts on the economy than its small output in normal times would suggest.There is an enormous amount more in the paper and voluminous appendices, but this is enough for a blog review. ****Now, a few limitations, or really thoughts on where we go next. (No more in this paper, please, Ian!) Ian does a nice illustrative computation of the sensitivity to large shocks:Ian assumes \(\sigma>1\), so the main ingredients are how many downstream firms use your products and a bit their labor shares. No surprise, trucks, and energy have big tail impacts. But so do lawyers and insurance. Can we really not do without lawyers? Here I hope the next step looks hard at substitutes vs. complements.That raises a bunch of issues. Substitutes vs. complements surely depends on time horizon and size of shocks. It might be easy to use a little less water or electricity initially, but then really hard to reduce more than, say, 80%. It's usually easier to substitute in the long run than the short run. The analysis in this literature is "static," meaning it describes the economy when everything has settled down. The responses -- you charge more, I use less, I charge more, you use less of my output, etc. -- all happen instantly, or equivalently the model studies a long run where this has all settled down. But then we talk about responses to shocks, as in the pandemic. Surely there is a dynamic response here, not just including capital accumulation (which Ian studies). Indeed, my hope was to see prices spreading out through a production network over time, but this structure would have all price adjustments instantly. Mixing production networks with sticky prices is an obvious idea, which some of the papers below are working on. In the theory and data handling, you see a big discontinuity. If a firm uses any inputs at all from another firm, if \(A_{ij}>0\), that input can take over and drive everything. If it uses no inputs at all, then there is no network link and the upstream firm can't have any effect. There is a big discontinuity at \(A_{ij}=0.\) We would prefer a theory that does not jump from zero to everything when the firm buys one stick of chewing gum. Ian had to drop small but nonzero elements of the input-output matrix to produces sensible results. Perhaps we should regard very small inputs as always substitutes? How important is the network stuff anyway? We tend to use industry categorizations, because we have an industry input-output table. But how much of the US industry input-output is simply vertical: Loggers sell trees to mills who sell wood to lumberyards who sell lumber to Home Depot who sells it to contractors who put up your house? Energy and tools feed each stage, but don't use a whole lot of wood to make those. I haven't looked at an input-output matrix recently, but just how "vertical" is it? ****The literature on networks in macro is vast. One approach is to pick a recent paper like Ian's and work back through the references. I started to summarize, but gave up in the deluge. Have fun. One way to think of a branch of economics is not just "what tools does it use?" but "what questions is it asking? Long and Plosser "Real Business Cycles," a classic, went after idea that the central defining feature of business cycles (since Burns and Mitchell) is comovement. States and industries all go up and down together to a remarkable degree. That pointed to "aggregate demand" as a key driving force. One would think that "technology shocks" whatever they are would be local or industry specific. Long and Plosser showed that an input output structure led idiosyncratic shocks to produce business cycle common movement in output. Brilliant. Macro went in another way, emphasizing time series -- the idea that recessions are defined, say, by two quarters of aggregate GDP decline, or by the greater decline of investment and durable goods than consumption -- and in the aggregate models of Kydland and Prescott, and the stochastic growth model as pioneered by King, Plosser and Rebelo, driven by a single economy-wide technology shock. Part of this shift is simply technical: Long and Plosser used analytical tools, and were thereby stuck in a model without capital, plus they did not inaugurate matching to data. Kydland and Prescott brought numerical model solution and calibration to macro, which is what macro has done ever since. Maybe it's time to add capital, solve numerically, and calibrate Long and Plosser (with up to date frictions and consumer heterogeneity too, maybe). Xavier Gabaix (2011) had a different Big Question in mind: Why are business cycles so large? Individual firms and industries have large shocks, but \(\sigma/\sqrt{N}\) ought to dampen those at the aggregate level. Again, this was a classic argument for aggregate "demand" as opposed to "supply." Gabaix notices that the US has a fat-tailed firm distribution with a few large firms, and those firms have large shocks. He amplifies his argument via the Hulten mechanism, a bit of networkyiness, since the impact of a firm on the economy is sales / GDP, not value added / GDP. The enormous literature since then has gone after a variety of questions. Dew-Becker's paper is about the effect of big shocks, and obviously not that useful for small shocks. Remember which question you're after.My quest for a new Phillips curve in production networks is better represented by Elisa Rubbo's "Networks, Phillips curves and Monetary Policy," and Jennifer La'o and Alireza Tahbaz-Salehi's "Optimal Monetary Policy in Production Networks," If I can boil those down for the blog, you'll hear about it eventually. The "what's the question" question is doubly important for this branch of macro that explicitly models heterogeneous agents and heterogenous firms. Why are we doing this? One can always represent the aggregates with a social welfare function and an aggregate production function. You might be interested in how aggregates affect individuals, but that doesn't change your model of aggregates. Or, you might be interested in seeing what the aggregate production or utility function looks like -- is it consistent with what we know about individual firms and people? Does the size of the aggregate production function shock make sense? But still, you end up with just a better (hopefully) aggregate production and utility function. Or, you might want models that break the aggregation theorems in a significant way; models for which distributions matter for aggregate dynamics, theoretically and (harder) empirically. But don't forget you need a reason to build disaggregated models. Expression (1) is not easy to get to. I started reading Ian's paper in my usual way: to learn a literature start with the latest paper and work backward. Alas, this literature has evolved to the point that authors plop results down that "everybody knows" and will take you a day or so of head-scratching to reproduce. I complained to Ian, and he said he had the same problem when he was getting in to the literature! Yes, journals now demand such overstuffed papers that it's hard to do, but it would be awfully nice for everyone to start including ground up algebra for major results in one of the endless internet appendices. I eventually found Jonathan Dingel's notes on Dixit Stiglitz tricks, which were helpful. Update:Chase Abram's University of Chicago Math Camp notes here are also a fantastic resource. See Appendix B starting p. 94 for production network math. The rest of the notes are also really good. The first part goes a little deeper into more abstract material than is really necessary for the second part and applied work, but it is a wonderful and concise review of that material as well.
Untersuchungen zur Rohstoffeffizienz der Forst-Holz-Kette vor dem Hintergrund der Forstreform in Ghana Im Jahr 1994 wurde in Ghana eine Forstreform durchgeführt, mit dem Ziel, das Artenspektrum der kommerziell nutzbaren Bäume zu vergrößern, den Holzverlust in der Forst-Holz-Kette zu reduzieren sowie die Verarbeitungsprozesse in der Holzindustrie zu optimieren. Um den Erfolg dieser politisch motivierten Ziele sicherzustellen, wurden ein Exportverbot für Rundholz und Mindestpreise für den Verkauf von Holz auf dem Stock erlassen, die an die internationalen Marktpreise angepasst waren. In dieser Arbeit soll die Effizienz dieser Maßnahmen genauer beleuchtet werden. In einem ersten Abschnitt werden die Auswirkungen des Exportverbots von Rundholz (LEB=log export ban) ab 1995 auf die weiter verarbeitende Industrie, die Preisentwicklung auf nationaler und internationaler Ebene sowie die Nutzung des vorhandenen Artenspektrums mit statistischen Methoden untersucht. Dafür standen zwei Zeitreihen der Timber Industry Development Division (TIDD), einer Abteilung der Forstkommission von Ghana, zur Verfügung. Der erste Datensatz umfasst den Zeitraum von 1984 bis 2005, während der zweite, detailliertere Datensatz die Periode von 1995 bis 2005 abdeckt. Im zweiten Abschnitt der Arbeit wurde die bei Holzerntemaßnahmen erzielte Rundholzausbeute analysiert. Dazu wurden im Rahmen von Fallstudien Holzerntemaßnahmen mit detaillierten Untersuchungen begleitet. Verglichen wurden die aufgrund der Dimension und der Qualität der eingeschlagenen Bäume verwertungstechnisch objektiv nutzbaren Holzmengen mit denjenigen Rundholzmengen, die tatsächlich zur Verarbeitung gelangten. In die Untersuchung wurde die Kontrolle und Ausführung der Arbeit miteinbezogen. Aus den Ausbeutedaten wurden Modelle zur Berechnung eines angemessenen Stockpreises sowohl für einzelne Baumarten als auch als Durchschnittswerte entwickelt. Ein weiterer Arbeitsschritt befasste sich mit der Schnittholzausbeute im Sägewerk. Ebenfalls im Rahmen von Fallstudien wurden das eingesetzte Rundholz und das daraus erzeugte Schnittholz hinsichtlich Volumen und Qualität verglichen und die Gründe für Ausbeuteunterschiede analysiert. Die Analyse des Produktionsprozesses deckte dabei auf, welche Faktoren bei welchen Arbeitsschritten zu den beobachteten Verlusten bei der Schnittholzausbeute beitragen. Dabei wurden sowohl technische Faktoren als auch Motivation und Ausbildungsstand der Arbeiter berücksichtigt. Auswirkungen des Exportverbots – Entwicklung der Exportmengen In dem Zeitraum vor Inkrafttreten des Rundholzexportverbots in den Jahren 1984 bis 1985 betrug das Gesamtexportvolumen von Holz und Holzprodukten ca. 5,7 Mio. m³. Daran hatten Rundholz- und Sägeholzexporte einen Anteil von 55% bzw. 39%, während die Anteile von veredelten Produkten deutlich niedriger waren: Furnier 4,1%, Sperrholz 0,4% und Fertigwaren aus Holz 1,4%. In den Jahren zwischen 1996 und 2005, in denen sich das Rundholzexportverbot auswirkte, betrug das exportierte Gesamtvolumen von Holz und Holzprodukten 4,5 Mio. m³. Daran hatte das Sägeholz einen Anteil von 54%, während der Anteil weiterverarbeiteter Produkte deutlich zunahm: Furnier 21,3%, Sperrholz 10,5% und Hobelware bzw. Holzprodukte 14,2%. Die Analyse der Wirkung des Exportverbots für Rundholz aus Ghana zeigt, dass durch diese Maßnahme ein deutlich höherer Anteil der Wertschöpfung im Land verbleibt. Vor allem die Herstellung von Furnieren, Sperrholz und veredelten Holzprodukten stieg deutlich an. In dieser Hinsicht wird die Hypothese gestützt, dass ein Exportverbot von Rundholz die Produktion von höherwertigen Waren im Inland fördert. Weitere Faktoren für die beobachtete quantitative Zunahme und den Wertzuwachs bei den verarbeiteten Produkten dürften auch die Verknappung des Rundholzangebots, die hohen Exportzölle auf Halbfertigwaren (Sägeholz) und finanzielle Investitionsanreize seitens des Staates sein. Preisentwicklung für Exportprodukte Die Untersuchung zeigte, dass der aggregierte Preisindex für alle Holzprodukte, die vor Inkrafttreten des Rundholzexportverbots exportiert wurden, in der Zeit von 1984 bis 1995 inflationsbereinigt um 129% anstieg, während der aggregierte Preisindex nach Inkrafttreten des Rundholzexportverbots im Zeitraum von 1996 bis 2005 um 3% fiel. Dabei stiegen die Exportpreise für die verschiedenen Produkte in unterschiedlichem Ausmaß: Sägeholz um 109%, Furnier um 238%, Sperrholz um 142% und verarbeitete Holzprodukte um 102%. Im Zeitraum nach Eintreten des Rundholzexportverbots ergaben sich demgegenüber folgende Veränderungen in den Preisen: Sägeholz +14,8%, Furnier -21,9%, Sperrholz -47% und verarbeitete Holzprodukte -31,7%. Während die Exportpreise für Furnier an stärksten anzogen, fielen die Preise von Sperrholzprodukten aus tropischen Hölzern, da billige Sperrhölzer auf Nadelholzbasis den Markt eroberten. Auch der stetig ansteigende Einsatz von Holzwerkstoffen wie MDF und OSB im Möbelbau und im konstruktiven Bereich verdrängen tropische Sperrhölzer aus dem Markt. Ein weiterer Grund ist schließlich der starke Konkurrenzdruck auf diese Produkte durch Sperrholz aus chinesischer Produktion. China war bis vor kurzem noch ein wichtiger Importeur von tropischem Sperrholz, ist heute aber bereits einer der größten Exporteure. Die Ursachen für die Preisrrückgänge sind vermutlich auch in globalen Ereignissen zu sehen, wie beispielsweise dem Zusammenbruch der asiatischen Märkte in den Jahren 1997 und 1998, sowie der schwachen Nachfrage nach Waren auf internationalen Märkten zwischen 2000 und 2001, die u. a. aus der wirtschaftlichen Rezession der drei stärksten Volkswirtschaften (USA, Japan, Deutschland) resultierte. Anteil weniger genutzter Baumarten (LUS) Der Anteil der weniger genutzten Baumarten (LUS – lesser used species in Ghana, auch als "Pink" und "Green"-Baumarten bezeichnet) an der Exportmenge blieb auch während des Exportverbots für Rundholz relativ gering. An der Gesamtexportmenge (ca. 4,1 Mio. m³) der sechs Hauptprodukte, die zwischen 1995 und 2005 aus Gahana ausgeführt wurden, betrug der Volumenanteil der "Pink" und "Green" Baumarten nur 12,5% bzw. 1,3%. Die marktgängigen "Scarlet" und "Red"-Baumarten nahmen dagegen einen Mengenanteil von 49% bzw. 29,4% ein, während sonstige Baumarten zu 7,7% beitrugen. Detaillierte Analysen der Statistiken zeigen, dass veredelte Produkte wie Fußböden und Paneele nahezu vollständig aus "Scarlet" und "Red"-Baumarten hergestellt wurden. Der Anteil dieser Baumarten macht bei diesen Produktgruppen 87% bzw. 90% aus. Beide Produktgruppen gehören zu den höchstbezahlten Exportprodukten. In der Regel fordern Kunden und Verbraucher die spezifischen Holzeigenschaften dieser Holzartengruppen, woraus die hohen Anteile bei den hochwertigen Produkten zu erklären sind. Es steht zu erwarten, dass diese Holzarten auch in Zukunft in Produktgruppen dominieren. Wie erwartet, hat der Mengenanteil von luftgetrockneten Sägeholz aus "Scarlet" Baumarten von 83 % im Jahr 1995 auf etwa 6 % im Jahr 2005 abgenommen, während luftgetrocknetes Schnittholz aus den weniger genutzten "Pink"-Baumarten gegenläufig von 6 % im Jahr 1995 auf 22 % in 2005 anstieg. Die Substituierung von "Scarlet" durch "Pink" Baumarten spiegelt die zunehmende Knappheit dieser verwertungstechnisch geschätzten Baumarten wieder. In den letzten Jahren wurden durch die Forstverwaltung erhöhte Abgaben auf einfaches, luftgetrocknetes Schnittholz erhoben, welches aus den zunehmend knapper werdenden Hauptbaumarten hergestellt wird. Auch darin könnte die wachsende Bevorzugung der weniger genutzten Baumarten in diesem Produktbereich erklärt werden. Entgegen der Erwartungen blieb jedoch der hohe Anteil der Hauptbaumarten im Bereich des kammergetrockneten Sägeholzes stabil. Die Bevorzugung der "Scarlet" Baumarten für diese Produkte ist nicht zuletzt auf deren deutlich besseres Verhalten bei der künstlichen Trocknung zurückzuführen. Forschungsvorhaben und verbesserte praktische Erfahrungen über die technische Trocknung der bisher weniger genutzten Baumarten könnten dazu beitragen, dass auch in diesem höherwertigen Bereich zunehmend eine Substitution stattfindet. Ausbeuteverluste und mögliche Ursachen in der Forst- Holz-Kette Die Frage der Ausbeuteverluste und ihrer möglichen Ursachen entlang der Forst-Holz-Kette wurde methodisch im Rahmen eines Fallstudien-Ansatzes untersucht. Dazu wurden die Nutzungsgebiete von drei unterschiedlichen Konzessionären (A, B, D) ausgewählt, die von ihrer geographischen Lage und ihrer Struktur her für die primäre Holzverarbeitung durch die Industrie in Ghana typisch sind. Insgesamt 135 Bäume aus neun Baumarten wurden für diese Studie ausgewählt. Dabei handelt es sich um die für die Vermarktung bedeutendsten Baumarten. Das theoretisch holzindustriell verwendbare Volumen aller Bäume in dieser Studie belief sich auf 2.177 m3, d. h. im Durchschnitt 16 m3 je Baum. Tatsächlich aufgearbeitet und zum Sägewerk transportiert wurden jedoch nur 1.638 m3 oder 12 m3 je Baum. Damit betrug die durchschnittliche Ausbeutequote 75+/-11,82%, während gut 25% (539 m3) des an sich industriell verwendbaren Holzes als Hiebsreste im Wald verblieben. Sowohl der Zopfdurchmesser als auch die Länge dieser Reststücke, wie auch ihre Qualität wären durchaus für eine weitere Bearbeitung im Sägewerk geeignet gewesen. Während der Feldaufnahmen konnten ungenügende Arbeitstechniken und mangelhafte Überwachung als die wichtigsten Gründe für diese geringe Rundholzausbeute identifiziert werden. Dabei spielt auch die herrschende Praxis, nach der der Stockpreis ermittelt wird, den die Firmen an den Staat entrichten müssen, eine Rolle: Da nur für das tatsächlich aus dem Wald exportierte Holz gezahlt werden muss, ergibt sich für die Konzessionäre kein finanzieller Anreiz dafür, die gefällten Bäume möglichst vollständig industriell zu nutzen. Aus diesem offensichtlichen Missstand wurde die Notwendigkeit abgeleitet, Modelle zu entwickeln, die zur Bestimmung der gesamten potentiell vermarktbaren Holzmenge eines stehenden Baumes herangezogen werden können, um so den Stockpreis (stumpage fee) rechnerisch zu bestimmen. Auf der Basis der Versuchsergebnisse wurden drei allometrische Funktionen berechnet, die für eine Schätzung des nutzbaren Volumens herangezogen werden können. Für die Bildung von baumartenspezifischen Modellen wurden drei in Ghana vom Mengenaufkommen her wichtige und markgängige Baumarten herangezogen: Akasaa (Chrysophyllum albidum), Wawa (Triplochiton scleroxylon) und Ofram (Terminalia superba). Darüber hinaus wurden auch generelle Modelle ohne spezifischen Bezug auf einzelne Baumarten entwickelt. Als Datengrundlage dafür wurden neben den drei genannten Hauptbaumarten die Arten von neun weiteren Baumarten herangezogen. Im Allgemeinen hatten artenspezifische Modelle eine bessere Vorhersagbarkeit als gemischte Modelle. Der Grund könnte in der höheren Homogenität der beobachteten und der vorhergesagten Variablen bei den artenspezifischen Modellen liegen. Die Modelle, die auf der Basis der Variablen Brusthöhendurchmesser (DBH) und kommerziell nutzbarer Schaftlänge (L) die nutzbare Holzmenge schätzen, waren jenen Modellen überlegen, die als Variable lediglich den DBH heranziehen. Allerdings ist eine zutreffende Ermittlung der kommerziell nutzbaren Schaftlänge stehender Bäume in der Praxis schwierig. Auch die nur auf dem DBH basierenden Modelle konnten die sägefähigen Stammholzanteile einschließlich stärkerer Kronenanteile mit hinreichender Genauigkeit schätzen. Ein so genanntes Log-Tracking-System, das in Ghana eingeführt werden soll, könnte die Anwendung dieser Modelle in der Praxis begünstigen. Wenn mit ihrer Hilfe die tatsächlich genutzten Stammvolumina zuverlässiger als bisher ermittelt werden, kann mittels der entwickelten Modelle auf das reale, nutzbare Volumen der Bäume auf dem Stock zurückgeschlossen werden, und eine realistische Bestimmung des Stockgeldes (stumpage fee) wäre so möglich. Die Nutzung der entwickelten Modelle in der Praxis zur Festsetzung eines realistischen Stockpreises haben jedoch ihre Grenzen: Wenn sich im Zeitablauf die Ausbeuterelationen fundamental ändern, müssen durch aktuelle Untersuchungen die hier aufgestellten Modelle neu parametrisiert werden. Ausbeuteverluste und mögliche Ursachen im Sägewerk Um die Ausbeute von Schnittholz in der weiteren Bearbeitungsstufe zu bestimmen, wurden im Rahmen der Fallstudie in 4 Sägewerken (A, B, C, D) insgesamt 189 Stämme eingeschnitten. Dazu wurden folgende, für Ausbeute und Qualität ausschlaggebende Faktoren aufgenommen: • Dimension und Volumen des eingesetzten Rundholzes • Zeitraum zwischen Fällung und Verarbeitung der Stämme • Risse, Fäule, Pilzbefall und sonstige Fehler am Rundholz • Schnittbild • Einschnitttechnologien • Qualität des Einschnitts (Maßhaltigkeit) • Volumen und Qualität des erzeugten Schnittholzes Die durchschnittliche Schnittholzausbeute lag bei 28,3% und war damit deutlich niedriger als die in vergleichbaren Studien angegebenen Werte. Die Ausbeute schwankte zwischen nur 1,9% für die Baumart Otie (Pycnanthus angolensis), die im Sägewerk A eingeschnitten wurde, bis hin zu 52.6% für Mahagonie (Khaya ivorensis), eingeschnitten in Werk B. Es konnte festgestellt werden, dass die geringe Qualität und die hohen Materialverluste überwiegend auf die lange Lagerzeit zwischen Fällung und Einschnitt zurückzuführen waren. Alle Otie-Stämme (Pycnanthus angolensis) und die meisten der Wawa –Sägestämme (Triplochiton scleroxylon) zeigten tiefe Risse an der Stirnseite sowie starken Pilzbefall, was zu hohen Ausbeuteverlusten führte. Für die Baumart Otie (Pycnanthus angolensis) wurden durchschnittliche Zeiträume von 6 Monaten vom Einschlag bis zum Einschnitt ermittelt, für Wawa immerhin noch 4 Monate. Eine entscheidende Schwachstelle ist also die mangelhafte logistische Planung. Die unflexible Ausrichtung in der Schnittholzproduktion auf nur wenige exportgängige Liefermaße verursachte einen hohen Volumenanteil an Sägeresthölzern, die bei einer entsprechenden Einschnittgeometrie und Sortierung durchaus zu Fußböden, Paneelen oder anderen Produkten hätten weiterverarbeitet werden können. Um die Maßhaltigkeit der verwendeten Einschnitttechnologien zu bestimmen, wurden zusätzlich an 267 Brettern in sägefrischem Zustand Breite und Stärke ermittelt. Die Ergebnisse der Studie zur Maßhaltigkeit des Schnittholzes weisen darauf hin, dass veraltete und schlecht gewartete Sägentechnik für große Volumenverluste beim Einschnitt verantwortlich sind. Schwankungen der Maßhaltigkeit von 2 bis 17% innerhalb eines Brettes konnten bei der untersuchten Schnittware festgestellt werden. Die Streuung der Maßhaltigkeit zwischen den Brettern war signifikant höher, was wiederum eine schlechte Wartung bzw. Justierung der Einschnittaggregate bestätigt. Abschließend muss kritisch angemerkt werden, dass mit 4 Fallstudien der Stichprobenumfang bei der Bestimmung der Einschlagvolumina sowie der Ausbeuteuntersuchungen bei Schnittholz im Sägewerk keine statistisch repräsentativen und auf ganz Ghana verallgemeinerbare Aussagen zulassen. Dennoch sind die Ergebnisse insofern richtungweisend, als dass Ursachen und Faktoren für die hohen Material- und Wertverluste entlang der Forst-Holz-Kette in Ghana aufgezeigt werden. Damit können Lösungsansätze für die logistischen und technischen Probleme erarbeitet, ein effizientes Controlling konzipiert und innovative Ansätze für eine erweiterte Produktpalette entwickelt werden. Diese Maßnahmen sind dringend notwendig, um eine nachhaltige Bewirtschaftung der Naturwälder Ghanas sicherzustellen und den knappen Rohstoff Holz effizienter zu nutzen. ; SUMMARY: Assessment of raw material utilisation efficiency of the forest-wood chain as influence by the forest sector reform in Ghana. The 1994 forest sector reform in Ghana placed priority on downstream processing, utilisation of lesser-used species (LUS) and improvement of processing efficiency in the timber industry of Ghana. To ensure the success of these policy goals, a ban on exportation of logs was introduced and stumpage fees were adjusted to reflect the realistic timber prices on the international market. This thesis was designed to assess the raw material utilisation efficiency under the influence of the forest sector reform and forest-wood processing chain. The thesis set out to investigate the effects of the log export ban (LEB) policy on the downstream processing, the growth of volume and the prices of the export wood products, and the utilisation of the various timber species. Two sets of time series data as compiled by the Timber Industry Development Division (TIDD) of the Forestry Commission of Ghana were analysed with statistical regressions. The first set of data spanned from 1984 to 2005 whilst the second more detailed data set was compiled from 1995 to 2005. This thesis further assessed, on a case study basis, logging recovery and examined the effect of lax supervision on the logging recovery, and thus justifying the need to develop models to predict the total merchantable volume and logically, the realistic stumpage volume and fees. It continued to assess the sawnwood processing recovery and quantified the volume loss due to sawnwood thickness over-sizing and sawing variation and investigated other factors that contribute to the low sawnwood recovery so as to provide managers and operators with insight into their operation performance and identify ways to improve production. Export market- Volumes Before the LEB policy in the years from 1984 to 1995, the total export volume of wood and wood products was about 5.7 million cubic metres. Out of this volume, log and sawnwood exports accounted for about 55 % and 39 % respectively whilst the contributions from veneer, plywood, and processed wood exports were 4.1 %, 0.4 % and 1.4 % respectively. In the years between 1996 and 2005, the total volume of wood and wood products exported during the LEB policy was about 4.5 million cubic metres. Veneer, plywood, and processed moulding showed increasing shares in the export market, contributing respectively 21.3 %, 10.5 % and 14.2 % during this period, whilst sawnwood accounted for 53.9%. The results of the study showed that the implementation of the log export ban policy in Ghana caused increases in the volume shares of the value-added products such as veneer, plywood and processed wood, which is in agreement with the theory that an LEB policy stimulates the production of value-added products. However, important factors such as shortage of timber supply, high export taxes on the primary products (sawnwood), and investment incentives may have played significant roles in increasing the volume of these products. Export market- Prices The study found that the aggregate price index of all the wood products exported before the LEB policy increased by 129 % compared to the decline of the aggregate price index by -3.9 % during the LEB policy. The growth in the export prices of sawnwood, veneer, plywood and processed wood before the LEB policy were respectively 109 %, 238 %, 142 % and 102 % compared to the corresponding growths or declines of 14.8 %, -21.9 %, -47 % and -31.7 % during the LEB policy. Whilst the export prices of veneer appear to have been bolstered by the increasing market share of re-constituted panels such as MDF and OSB, those of plywood from the tropical forests were eclipsed by the increasing substitution of tropical plywood by softwood plywood and other panels such as MDF and OSB in furniture, millwork, and mouldings production. Another important contributing factor to the decline in the prices of plywood is the intense competition from China, which until recently was a major importer of tropical plywood, and is now a major exporter of plywood. The need to find new markets for tropical plywood could help revive its export trade. These decline in prices also appears also to have been caused by such global factors as the collapse of the Asian economy in 1997 and 1998, and the weak demand for international commodity in 2000 and 2001, resulting from the economic recession of the world's three largest economies (U.S.A., Japan and Germany). Export volume of the traditional (scarlet and red) and the Lesser-Used Species (LUS) (pink and green) species During the LEB policy, the export volume shares of the LUS (pink and green species) stayed relatively low. Out of the total export volume of 4,074,570 m³ of the six main products exported from 1995 to 2005, pink and green species (LUS) contributed only 12.5 % and 1.3 % respectively. Furthermore, scarlet and red species had a respective volume share of 49 % and 29.4 % whilst "other species" contributed 7.7 %. The results indicated that flooring and moulding products were almost exclusively produced from the traditional timber species. About 87 % of the flooring and 90 % of the moulding products were produced from both the scarlet and red species. These two products are among the highly-priced export products. The flooring and moulding products are generally used for decoration purposes and the traditional and highly-valued timber species such as the scarlet and red species are expected to dominate the choice of species for these products. This fact probably explains the high volume contribution of the traditional timber species to the production of flooring and moulding products. In the face of a limited supply of the primary timber species, scarlet and red species obviously should be reserved for the highly-priced products such as flooring and moulding. As expected, the trend in the volume share of air-dried (AD) sawnwood produced from the scarlet species showed a substantial decrease from 83 % in 1995 to about 6 % in 2005, whilst air-dried sawnwood from the pink species increased from about 6 % in 1995 to about 22 % in 2005. The substitution of the scarlet species by the pink species reflects the increasing shortage of supply of the former. Another reason could be the result of systematic efforts by the stakeholders in forest management in Ghana to substitute the LUS species for the scarlet in the production of sawnwood (AD) by imposing levies on sawnwood (AD) produced from the primary timber species. Contrary to expectation, kiln-dried (KD) sawnwood had the most stable volume share from the scarlet species, decreasing only marginally from about 86 % in 1995 to about 84 % in 2005. Technical difficulties in developing kiln-drying schedules for the LUS species may explain a higher percentage volume share of the scarlet species used to produce sawnwood (KD). The logging efficiency and the development of allometric models to predict the realistic stumpage volume In a case study approach, a total of 135 trees from nine timber species were sampled from three logging sites of mills A, B and D to allow for the assessment of logging recovery and the development of models to predict the total merchantable volume. The mills were selected according to the prevailing sawmill industry structure in Ghana. The main species were selected on the basis of their forest availability and economic importance. Wawa (Triplochiton scleroxylon), for example, constitutes about 21 % of Forest Inventory Project (FIP) class 1 volume greater than 70 cm in diameter (see Ghana Forestry Department 1989) and hence justifies its higher selection percentage. The merchantable volume of all the trees sampled from the three studied mills totalled 2,177 m³, averaging 16.0 m³ per tree. The logs that were extracted from this total merchantable volume by the mills amounted to 1,638 m³, averaging 12 m³ per tree. The average logging recovery rate of the three studied logging sites was 75±11.82 % whilst 25 % (539 m³) of the merchantable volume was left at the logging site as residues. On the basis of the small-end diameter and length values, the merchantable wood residues were of sufficient quality to warrant their utilisation. For example, the small-end diameter of the residues ranged from 41 cm for ofram (Terminalia superba) to 60 cm for wawa (Triplochiton scleroxylon) whilst the average length of the residues also varied between 4.2 m for sapele (Entandrophragma cylindricum) and 8.5 m for wawa (Triplochiton scleroxylon). The study identified insufficient working techniques and lax supervision as one of the major causes of low logging recovery and the existing practice of fixing stumpage fees gives only weak economical incentives to improve volume recovery. Therefore the need to develop models to predict the total merchantable volume as a basis for adjusted stumpage fee calculation, was justified. To fix realistic stumpage fees, which take into account the true potential of the harvested trees, three allometric equations were developed to allow for comparison in terms of predictive accuracy. Three main species, namely akasaa (Chrysophyllum albidum), wawa (Triplochiton scleroxylon), and ofram (Terminalia superba) were sampled for the construction of the species-specific based models. The mixed-species based models were developed from the three main species and six additional tree species. In general, the species-specific models had a better predictive power than the mixed-species based models and this could be attributed to the relatively higher homogeneity of both the observed and predictor variables of the species-specific based models. Among the mixed-species based models, those that predicted the total merchantable volume indirectly from the log volume had the highest predictive power. The log tracking system which is being introduced in Ghana could benefit from these models. When logging data are available (through the log tracking system) the models could be used to predict the realistic stumpage volume. These models however, were found to perform relatively better for small-sized trees than for large-sized trees over (20 m³). The models that predicted the total merchantable volume from DBH and the total merchantable length had better fits than those that used only DBH as a predictor variable. Nevertheless they have little practical importance because of difficulty in measuring the total merchantable length in the forest. These models have however theoretically showed that, by including the merchantable branches, the general form of allometric equation did not substantially change. DBH as a predictor of the total merchantable volume has several advantages. It is easier and simpler to use since forest inventories include DBH measurements. For the mixed-species based models that predicted the total merchantable volume from DBH only, the site-specific models had a higher predictive power than a single model developed for all-sites, indicating that for a higher accuracy, DBH may be a good predictor of the total merchantable volume of tree species at a specific site. The use of these models, however, presents a limitation. If logging efficiency of individual mills changes substantially over time, the model may have to be validated periodically before it could be applied. Sawmill efficiency In order to determine sawnwood recovery in a case study approach, a total of 189 saw logs were sampled from four mills (Mills A, B, C and D). In order to assess the factors that affect sawnwood recovery, the following inquiries and observations were made and recorded: • Log dimensions (length, diameter at both ends) • Time between felling and processing of logs, • Prior to processing, each sampled saw logs was inspected for defects such as end-splits, rots and fungal blue stain. • Log breakdown technique, • Edging and trimming techniques and • Quality of trimming off-cuts The average sawnwood recovery (28.3 %) found in this study was substantially lower than the reported average recovery rate in the previous studies. The sawnwood recovery ranged from 1.9 % for the otie (Pycnanthus angolensis) processed at mill A to 52.6 % for the mahogany (Khaya ivorensis) processed at mill B. The study found that the poor log quality, resulting mainly from long storage periods between felling and processing, had a substantial effect on the sawnwood volume recovery. All of the otie (Pycnanthus angolensis) saw logs and most of the wawa (Triplochiton scleroxylon) saw logs sampled had end-splits and were severely infested with fungal blue stain and thus their low recovery was expected. The low sawnwood recovery reported in this study could be mainly attributed to a lack of proper management of logs and a lack of adequate logistic planning. For example, the period between felling and processing of the otie (Pycnanthus angolensis) logs was about six months whilst due to logistical problems and poor planning the period between felling and processing of the wawa logs sawn at mill D was about three months. In addition, 267 green sawn boards were sampled from the mills to quantify the sawnwood volume loss due to thickness over-sizing and sawing variation. The results of this study indicated that the volume that could have been gained by reducing the sawnwood thickness over-sizing and sawing variation ranged from about 2 % to 17 % in volume of the sampled sawnwood. The study also found that between-board sawing variation was substantially higher than within-board sawing variation indicating that lack of setworks repeatability could be the major cause of the loss in volume. It was observed that the studied mills concentrated their production on sawnwood in export dimensions and grades. Therefore, off-cuts and trim ends that could have been processed further into mouldings, battens, floorings, and other products were discarded or sold at cheaper prices. The limited supply of timber resources give every reason for sawmills in Ghana to optimise fibre recovery from every tree that is felled. Even though this thesis studied only a limited number of cases, which represent a small fraction of the forest and sawmill industry in Ghana, there is a reason to believe that conditions prevailing in other operations are not very different from those observed in these case study mills. Ghanaian sawmills stand to benefit economically if they could improve their logistical planning and integrate production lines devoted to recovering fibre from off-cuts and trimmings.
Die Inhalte der verlinkten Blogs und Blog Beiträge unterliegen in vielen Fällen keiner redaktionellen Kontrolle.
Warnung zur Verfügbarkeit
Eine dauerhafte Verfügbarkeit ist nicht garantiert und liegt vollumfänglich in den Händen der Blogbetreiber:innen. Bitte erstellen Sie sich selbständig eine Kopie falls Sie einen Blog Beitrag zitieren möchten.
There are a lot of moving parts to the MMT program. I want to focus on one of these parts today: the relation between monetary and fiscal policy. One thing I find appealing about MMT scholars is their attention to monetary history and institutional details. I've learned a lot from them in this regard. But as is often the case with details, one has to worry about whether they help shed light on a specific question of interest, or whether they sometimes let us not see the forest for the trees. And in terms of the broader picture, since I grew up in that branch of macroeconomics that tries to take money, banking, and debt seriously (i.e., not standard NK theory), I sometimes have a hard time understanding what all the fuss is about. Much of standard monetary theory (SMT) seems perfectly consistent with some of the ideas I seen discussed in MMT proponents; see, for example, The Failure to Inflate Japan.
This post is devoted to better understanding a contribution by Eric Tymoigne. Eric is one of the people I go to whenever I want to learn more about MMT (if you're interested in MMT, you should follow him on Twitter @tymoignee). In this post, I discuss his article "Modern Monetary Theory, and Interrelations Between the Treasury and Central Bank: The Case of the United States." (JEI 2014). Passages quoted from his paper are highlighted in blue. The working paper version of the paper can be found here. Eric has kindly agreed to respond to my comments and let me post our conversation. We had to some editing, hopefully this did not disrupt the flow too much. In any case, I hope you find it interesting. And, as always, feel free to join in on the conversation in the comments section below. -- DA
One of the main contributions of modern money theory (MMT) has been to explain why monetarily sovereign governments have a very flexible policy space. Not only can they issue their own currency to spend and to service their public debt denominated in their own unit of account, but also any self-imposed constraint on budgetary operations can be easily bypassed.
I'm curious to know what the contribution is here relative to standard monetary theory (SMT). In SMT, the government can also issue its own currency to spend and to service the public debt denominated in its own unit of account. So this degree of "flexibility" is already accounted for. As for "self-imposed constraints on budgetary operations," SMT takes several approaches to this issue, depending on the purpose of the analysis. One approach is to take these constraints as given and then to study their implications. But it is also common to consolidate the central bank, treasury and government into a single authority, which implies no self-imposed constraints on budgetary operations.
Perhaps what is meant is that MMT shows how existing self-imposed constraints on budgetary operations can be (or are) bypassed in reality. This leads us to question, however, concerning what those self-imposed constraints are doing there in the first place. Are they there by design and, if so, why? Or are they there by accident (and, if so, how in the world did this happen)?
ET: Yes consolidation is not unique to MMT as we have said repeatedly. Not only is it used quite commonly in the economic literature, but also it is a common rhetorical tool in economic talks, discourse, etc.
DA: Right, so everyone understands this (at least, they should)--it's perfectly consistent with standard monetary theory. So far, so good.
ET: Most economists, politicians and the public don't understand this or its implications. They will interpret the above as saying that it is obvious that the government can create money but it is not a normal way to proceed and it is inflationary. MMT just pushes consolidation to its logical conclusions and shows that institutional details do back those conclusions. In a consolidated framework, the federal government can only implement spending by creating money, this is not abnormal and it is not inflationary by itself. There is no other way to find the necessary dollars to spend. Here is what consolidation means in terms of balance sheets:
For the federal government, taxes destroy currency (L1 falls) and claims on non-fed sectors falls (A1 falls) (an alternative offsetting operation is net worth of government rises). When US spends, it credits accounts (L1 rises). Similarly, bond issuance does not lead to a gain of any asset for the government; all it does is replace a non-interest earning government liability (monetary base) with an interest-earning government liability (Treasury securities).
DA: I am not going to argue against your accounting. As for bond-issuance, in SMT, an open-market operation is modeled as a swap of zero-interest reserves for interest-bearing treasuries. The interest on treasuries is explained by their relative illiquidity (another self-imposed constraint). The economic consequences of such a swap depends on a host of factors, which I'm sure you're familiar with.
ET: Sure, in addition, self-imposed financial constraints (e.g. debt ceiling, no direct financing by the Fed, no monetary power for treasury) have been put in place at various times with the argument that they impose discipline in public finances. MMT argues, these financial constraints are not necessary and are bypassed routinely through Treasury-Central Bank coordination.
DA: Sure, the standard view is that these self-imposed constraints are designed to impose discipline in public finance. The proposition that these financial constraints are or are not necessary, however, must be based on a set of assumptions that may or may not be satisfied in reality. (The fact that these constraints may be bypassed through Treasury-Central Bank coordination does not seem relevant to me -- the conflict emphasized by SMT is between an "independent" central bank and the legislative authority (e.g., the Fed and Congress, not the Fed and Treasury). I'm not sure why a new theory is needed here. We know, for example, that if the legislative branch of government fully trusts itself (and future elected representatives) to behave in a fiscally responsible manner, the notion of an "independent" central bank (and other self-imposed constraints) makes little sense.
ET: Remember that MMT emphasizes the irrelevance of financial/nominal constraints for monetarily sovereign governments (bond vigilantes, risk of insolvency of social security, etc.). One can do that by using the consolidated government (taxes don't finance, bonds don't finance, government spends by crediting accounts, etc.) or by using the unconsolidated government (the central bank helps the Treasury, the Treasury helps the central bank). The second method conforms to actual federal government operations but it is much less easy to use rhetorically and it waters down the core point: government finances are never a financial issue as long as monetary sovereignty applies.
Given that point, as you note, financial constraints are not only irrelevant, but also disruptive and used for political games. MMT wants to make government financial operations as smooth and flexible as possible. Once society has decided how, and to what degree, government should be involved in solving socioeconomic problems, finding the money should not be an issue when monetary sovereignty prevails. That means demystifying and eliminating financial barriers to government operations so the political debate can focus on solving real issues (environment issues, socio-economic issues, etc.). Fearmongering about the public debt and fiscal deficits makes for poor political debates and policy prescriptions.
There is a view, expressed by Paul Samuelson, that if we tell policymakers and the public that there are no financial limits to government spending, policymakers will spend like mad; therefore, economists need to lie to policymakers and the public (and themselves). This is nonsense. We ought to discuss policy choices not on the basis of Noble Lies but rather on the basis of sound and informed premises. Economists needs to make sure that policymakers focus on resource constraints.
In addition, political constraints on government should be geared toward improving the transparency and participatory aspects of government (e.g. limit role of big money in elections, limit wastes, etc.). We already have a government that passes a budget (it needs to do so for transparency and accountability purposes), we already have an auditing process, and we already have some (limited) democratic process, so aim at improving these aspects. MMT proponents are not naive, we know that some politicians are self-interested, we know that policy implementation may lead to mistakes, we know people may try to game the system ("free riders"); however we trust that a transparent and democratic government can (and does) get through these issues. MMT does not see financial constraints as helping in any ways, rather they inhibit the democratic process.
Of course, MMT proponents also have a policy agenda (Job guarantee, financial regulation based on Minsky, etc.) because we do not see market mechanisms as self-promoting full employment, price stability and financial stability. As such, as you said, MMT proponents favor alternative means to achieve these goals through direct government intervention. We don't see the central bank as an effective means to promote price stability. The central bank should focus on financial stability through interest-rate stabilization and financial regulation (an area where the Fed has not performed well).
Finally, yes independence of the central bank is seen as a big deal but MMT disagrees for two reasons. First, MMT emphasizes the lack of effectiveness of monetary policy in managing the business cycle and, second, and probably more importantly, MMT notes that central-bank independence in terms of interest-rate setting and goal settings does not mean independence from the financial needs of the Treasury.
DA: I think it's fair to say most people want to see government operations run smoothly, and would welcome a sober debate over the issues at hand without the fear-mongering that some like to promote. The broad objective seems the same--the debate is more over implementation--how monetary and fiscal policy is to be coordinated--given human frailties.
Having said this, I think you go too far by asserting that "government finances are never an issue as long as monetary sovereignty applies." Of course, technical default on nominal debt is not an issue (we all understand this). But SMT also recognizes the importance of economic default on nominal debt. True, a government can always print money to satisfy its nominal debt obligation, but if money printing dilutes the purchasing power of money, this is a de facto default.
On a related issue, SMT asks "what are the limits to seigniorage?" The fact that a government can print money does not give it the power to command resources without constraint. People can (and do) find substitutes for government money (they may also substitute out of taxed activities into non-taxed activities). SMT treats the limits to seigniorage as a financial constraint. Maybe MMT has a different label for this constraint? Perhaps it is related to what I hear MMT proponents call an "inflation constraint." Maybe one way to reconcile MMT with SMT on this score is by recognizing that SMT usually assumes (sometimes incorrectly) that the inflation constraint is always binding. If this is the case, a monetarily-sovereign government does have a financial constraint, even according to MMT.
ET: Yes, ability to create a currency does not mean ability to command resources because there may not be a demand for the currency. That is where tax liabilities and other dues owed to the government become important (cf. the chartalist theory of money, a component of MMT). That's also why taxes, monetary creation and bond issuance are not conceptualized by MMT as alternative financing means but rather as complementary. The government imposes a tax liability, spends by issuing the currency necessary to pay the tax liability, then taxes and issues bonds. Spending may be inflationary indeed and so there is an inflation constraint; but it is not a financial constraint, it is a resource constraint.
About the "printing" of money by government, inflation and economic default. Regarding the first two, there is no evidence of an automatic relation between money and inflation. In a consolidated view, government always spends by monetary creation but controls the impact on inflation via taxes and the impact on interest rates via bond issuance. In an unconsolidated view, the central bank routinely finances and refinances the Treasury by helping some of the auction bidders and by participating in the auction.
Finally, regarding economic default, governments routinely "default" in that sense with no problems. I don't see that as a relevant concept unless someone can show that economic default raises interest rates or generates rising inflation (it does not); here again, there is no automatic link between inflation and interest rates. That link depends on how the central bank reacts; if it does not then market participants don't either.
DA: Let me return to the manner in which the Fed/Treasury/Congress are consolidated (or not) in SMT and why this matters, in your view. In some SMT treatments, Congress decides spending and taxes, which implies a primary deficit. It's up to the Treasury to finance that deficit, with the Fed playing a supporting role (by determining interest rate and issuing reserves for treasury debt). What's wrong with this approach?
ET: That goes in the right direction with an understanding that the government really has no control over its fiscal position. All this, which relates to the implementation of monetary sovereignty, helps understand why the financial crowding out is not operative, why monetary financing is not by definition inflationary, why i > g is normal. It helps explain why the hysterical rhetoric surrounding the public debt and deficits in nonsense. I recently wrote a piece for Challenge Magazine on that topic. Surpluses are celebrated, governments implement austerity during a recession to "live within our means", Social Security needs to be fixed to avoid bankrupting it, governments need to save more, etc. All of this is incorrect.
DA: I'm not sure why you claim SMT leads to the idea of i > g. The case i < g is perfectly consistent with SMT (see Blanchard's 2019 AEA Presidential address, and also my posts here and here). The correct criticism (I think) is that mainstream economists have assumed i > g as being the empirically relevant case (it is not).
ET: That is what I meant. MMT links that to monetary sovereignty.
DA: I think that's correct. I should like to add that mainstream economists (apart from a small set of monetary theorists) have not appreciated the role of high-grade sovereign debt as an exchange medium in wholesale financial markets and as a global store of value, which in my view likely explains a lot of the "missing inflation." But as for "surpluses being celebrated," you are now talking about individual viewpoints and not SMT per se. There were plenty of calls out there for countercyclical fiscal policy based on standard macroeconomic principles. But I do agree virtually all mainstream economists are (perhaps overly) concerned about "long-run fiscal sustainability." The view is that at the end of the day, stuff has to be paid for -- and that having the ability to print money, while granting an extra degree of flexibility, does not get around this basic fact.
DA: I'd like to ask you about this statement you make:
In (the unconsolidated) case, the Treasury collects taxes and issues securities before it can spend. However, federal taxes and bond offerings also serve another highly important function that is overlooked in standard monetary economics. Specifically, federal taxes and bond offerings result in a drainage of funds from the banking system, and MMT carefully analyzes the implication of this fact. From that analysis, MMT argues that federal taxes and bond offerings are best conceptualized as devices that maintain price and interest-rate stability, respectively (of course, the tax structure also has some important role to play in terms of influencing incentives and income distribution; something not disputed by MMT).
DA: Well, yes, taxes serve both as a revenue device (permitting the government to gain control over resources that would otherwise be in control of the private sector) and as a way to control inflation. I'm not sure about the idea of the Treasury offering bonds for the purpose of achieving interest-rate stability (though this may happen to some extent when the treasury determines which maturity to offer). I don't think this is the way things work in the U.S. today.
ET: Taxes and issuance of treasuries drain reserves and so raise the overnight rate. Hence, on a daily basis, a fiscal surplus raises the overnight rate and a fiscal deficit lowers it. There has been significant Treasury-Fed coordination to smooth the impact of taxes (and treasury spending) on the money market.
DA: Fine, but so what? We all understand "coordination" between Fed and Treasury exists at the operational level.
ET: I think you are too kind to other economists and policymakers. On taxes as price-stabilizing factors, there is indeed some similarities here. On the role of treasuries for interest-rate stability, it does work like this today. It may not be obvious because of the current emphasis on treasuries as Treasury's budgetary tools, but Treasury has issued securities for other purposes than its budgetary needs. In the US, this occurred most recently during the 2008 crisis (SFP bills). In Australia, in the early 2000s, the Treasury issued securities while running surpluses in order to promote financial stability.
DA: But even if this is not the way things actually work (in my view, it's the Fed that stabilizes interest rates, possibly through OMOs involving U.S. Treasuries), I'm not sure what point is being made. I think we can all agree that monetary and fiscal policy can be thought of as being consolidated in some manner. What would be good to know is how a specific MMT consolidation matters (relative to other specifications) for a specific set of questions being addressed. There is nothing in the abstract or introduction of this paper that suggests an answer to this question.
ET: The point being made is that in a consolidated government, tax and bond issuance lose the financial purpose they have for the Treasury but keep their price and interest-stability purposes.
DA: In standard monetary theory, tax and bond issuance keeps its funding purposes for the government and at the same time can be used to influence the price-level (inflation) and interest rates. Is this wrong? I don't think so. At some level, taxes (a vacuum cleaner sucking up money from the private sector) must have some implications for the ability of government to exert command over real resources in the economy. What we label this ability (whether "funding" or ''finance" or whatever, seems inconsequential).
ET: Ok here comes the crucial difference between financial and real sides of the economy. In financial terms, taxes do not increase the capacity of the government to spend, i.e. the government does not earn any money from taxing; taxes destroy the currency. In financial terms, there is no reason to fear a fiscal deficit; deficits are the norm, are sustainable and help other sectors grow their financial net wealth. As such, it is not because a government wants to spend more that it must tax more or lower spending somewhere else. That is the PAYGO mentality. This mentality makes policymakers think of spending and taxing in terms of how they impact the fiscal balance instead of their impact on employment, inflation, incentives, etc. While deficits may have negative consequences, they are not automatic. If one takes a look at the evidence, deficits have no automatic negative impacts on interest rates, tax rates, public-debt sustainability, or inflation.
In real terms, the necessity to increase tax rates to prevent inflation, and so move more resources to the government, depends on the state of the economy and the permanency of the increase in government spending relative to the size of the economy. In an underemployed economy, the government can spend more without raising tax rates. In a fully employed economy, shifting resources to the government without generating inflation does require raising tax rate and/or putting in place other measures such as rationing, price controls, and delayed private-income payment. Here Keynes's "How to Pay for the War" provides the roadmap. Standard economics is full-employment economics so opportunity costs are always present. MMT follows Kalecki, Keynes and the work of their followers (have a look at Lavoie's "Foundations of Post Keynesian Economic Analysis") and note that capitalist economies are usually underemployment and economic growth is demand driven. Put in a picture, the economy is usually at point a.
Put succinctly, the real constraint is conditionally relevant, the financial constraint is irrelevant if monetary sovereignty prevails. That is the proper way to frame the policy debates and to advise policymakers; don't worry about the money, worry about how spending impacts the economy.
ET: Moving to another topic, consolidation of the government brings to the forefront forces that are operating in the current system but that are buried under institutional complications. Namely that a fiscal deficit lowers interest rates and treasuries issuance brings them back up, that spending must come before taxing and treasuries issuance, that monetary financing of the government is not intrinsically unsound and does not mean that tax and treasuries issuance don't have to be implemented.
DA: The statement that "deficit lower interest rates" needs considerable qualification. Among other things, it depends on the monetary policy reaction function. As for the claim that spending *must* come before taxes, this is not a universally valid statement (even if it may be true in some circumstances. But even more importantly, who cares? Mainstream theory does not suggest that monetary financing is intrinsically unsound (seigniorage is fine, if it respects inflation ceiling). As for money, taxes and bonds not being alternative "funding" sources, I worry that this semantics. You can call X a "funding" source or not -- it's just a label. The real question is: what are the macroeconomic implications of X?
ET: Let me emphasize where I agree. Yes, evidence shows the central role of monetary policy for the direction of interest rates, fiscal policy is at best a very small driver. And yes, one ought to focus on the real implications of government spending and we ought to forget about the financial implications. A fiscal deficit is not unsustainable nor abnormal; deficits are the stylized fact of government finances and are financially sustainable if monetary sovereignty is present. So don't try to frame the policy debate and set policy in terms of household finances, bankruptcy, fixing the deficit, etc.
To conclude I see three reasons why the "taxes/bonds don't finance the government" rhetoric is helpful:
1- It is strictly true for the federal government (i.e. consolidation).
2- it brings to the forefront some lesser-known aspects of taxes and treasuries issuance: impacts on money market, role of central bank in fiscal policy, role of treasury in monetary policy.
3- It changes the narrative in terms of policy and political economy: government does not rely on the rich to finance itself, taxes should be set to remove the "bads" not to finance the government (e.g. one should not set tax rates on pollution with the goal of balancing the budget but with the goal of curbing pollution to whatever is considered appropriate, that may lead to much higher tax rates than what is needed to balance the budget), PAYGO is insane, one should focus on the real outcomes of government policies not the budgetary outcomes.
DA:
1. I think this is semantics.
2. Not sure how it helps in this regard.
3. I think all of these positions are defensible without the statement "taxes/bonds don't finance the government", so if this is the ultimate goal (and I think it should be), perhaps we should set aside semantic debates and focus on the real issues at hand.
ET: 1 is not semantic. I know you have in mind taxes as a means to leave resources to the government. MMT makes a clear difference between financial (ability to find the money) and resources constraint (ability to get the goods and services) as explained above. The financial constraint is highly relevant for non-monetarily sovereign governments so it should be noted and clearly separated from the real constraint. Too many policy discussions and decisions by policymakers operating under monetary sovereignty are based on an inexistent inability to find money and the imagined dear financial consequences of budgeting fiscal deficits. 2 helps to understand how monetary sovereignty is implemented in practice. On 3, yes focus on the real issues.
DA: We agree on 3! Thank you for an interesting discussion, Eric. There's so much more to talk about, but let's leave that for another day.
Part one of an interview with Aldo and Anna Mazzaferro. Topics include: Family history. How his parents came to the United States from Italy. How his parents were married and moved to Leominster, MA. Aldo's education and memories from Leominster High School and Holy Cross. Aldo's work at the DuPont company. What life was like during World War II. Aldo's work history. How Aldo and Anna were married. In 1953, Aldo started his CPA business in Leominster and Fitchburg. The different clients he had. His work at Art Plastics and the plastics business in general. His sons joined the plastics business. ; 1 INTERVIEWER: October 4, 2011. This is Linda [Rosenwan], with the Center for Italian Culture at Fitchburg State College with Aldo and Anna Mazzaferro's house, 575 West Street in Leominster. So maybe we should begin, Aldo, if you could just give me some personal information regarding when you were born and where. SPEAKER 1: Very definitely. But I must say that October 4th, 1955, our second son was born. Today is his birthday. SPEAKER 2: That's right. SPEAKER 1: But getting back to me, I was born on November 11th, 1921, in Leominster, Massachusetts. And I went to the public schools here, graduated from Leominster High School 1939. And I went on to Holy Cross College after graduation from Leominster High School. INTERVIEWER: Okay. Were your parents both born in Leominster? SPEAKER 1: No, they were not. They were both born in Italy. My dad was born in the province of Abruzzo in a town called [Scafa]. And my mother was born in Abruzzo on the Adriatic Sea in a town called Pescara. And my dad was born in 1880, and my mother was born in 1882. INTERVIEWER: And when did your father come to this country? SPEAKER 1: My father came to this country, I would say, around 1900. In the winter, they lived in the Bronx within New York. [Unintelligible - 00:01:52] Ellis Island. He lived in the Bronx. INTERVIEWER: And your mother? SPEAKER 1: And my mother arrived, I would say, probably 1902, 1903. And she also went to live in the Bronx, New York with her sister. And her sister was married, had a family, and so my mother came over. And prior to my mother's coming over here in the Bronx, my dad and my mother conducted a romance by way of correspondence through letters. They didn't know each other. So he paid for -- my dad paid for my mother's passage here.2 SPEAKER 2: Your dad boarding at… SPEAKER 1: Yeah. My dad was a boarder. In those days it was frequent -- frequently, the immigrants would come over and they would go to places where they have some relatives or friends. And they were taken in as boarders. My dad was a boarder at my mother's sister's house or apartment in New York City. It is how my dad saw pictures of my mother and how it all started. SPEAKER 2: Sent for her to come from Italy to America. SPEAKER 1: Yeah, he paid for her passage. INTERVIEWER: So they followed. SPEAKER 1: So they courted, married a couple of days later. SPEAKER 2: It was all done that way, the parents would pick a mate for their son or their daughter. In fact, I think it was done on the next generation, too. I have a cousin that was married that way. She lived in Italy, and her husband lived in New York. And they sent for one another and met through pictures and photographs. INTERVIEWER: And did the female part of this arrangement, did she have much to say about it? SPEAKER 1: I'm sure she did. I'm sure that -- my mother is a very strong-willed person, and she did what -- she preferred -- to do it, apparently, it was a great attraction between my parents, and -- it wasn't pre-arranged. It was sustained correspondent with each other and having interests, and it materialized when they met it New York. INTERVIEWER: Interesting. So what brought them to Leominster? SPEAKER 1: Well, they had their children in New York. They're nine -- they had nine children. I believe -- let's see, four or five were born in the Bronx, New York. And my dad wound up in a basement apartment in New York and ran the apartment building for the landlord. And as part of the rent, he lives rent-free with his family. And it came about that my mother's brother, Horrace, came to Leominster and found that there was work here at the DuPont 3 Company. And so he sent news back to the Bronx, and so my dad came along. He got a job at the DuPont Company in Leominster, and he came here with all his family. He works here I don't know for how long a period of time. Let's say around 1950 or 1970, and he brought his family to New York and settled down in Leominster. And they settled at 53 [unintelligible - 00:06:00], and that particular house was owned by one of the mayors of Leominster, Mayor Burdett, and they rented that house. It was a cottage with three bedrooms upstairs and with some land [unintelligible - 00:06:17]. But they eventually purchased that property after a few years. INTERVIEWER: So what kind of work did he do at DuPont? SPEAKER 1: Well he was a -- not a laborer. A benchman, I would believe, at the DuPont Company. But it wasn't to his liking, so he left DuPont Company and went to work for the Leominster Fuel Company and became the delivery person, delivered coal. The Leominster Fuel Company, in those days had the [unintelligible - 00:07:00], and they were always delivered. Those were the days they really have oil burners. And so frankly, our homes, all the boilers used coal. INTERVIEWER: Did you ever go with him to make a delivery? SPEAKER 1: No, no. No, I never did. I was not quite three years old when my dad died. INTERVIEWER: That must have been tremendous hardship for your mother. So your family decided to stay in Leominster? SPEAKER 1: Oh, yes. Yeah. Yes. After my father died, the ninth child was born a couple of months later. Well, the family stayed in Leominster. My oldest brother was probably 16 or 17. He left high school and went to work to support the family. And then each brother, you know, took his turn and went to work and supported the family. And one of my brothers -- I have five brothers ahead 4 of me, and only one was able to complete high school. And I was the sixth brother, and I was able to complete high school. INTERVIEWER: And are you the only one that attended college? SPEAKER 1: Yes, I'm the only one who attended college. INTERVIEWER: Would you like to stop for a minute? SPEAKER 1: Okay. All right. Well as I grew up, without my dad, my mother always impressed upon me the fact that my dad long ago wanted his children to go to college, to get a good education. She was quite disappointed that it wasn't happening. So I guess I was determined to do that, go to college, so that my mother would be happy. So when I was in junior high school I took the classical course, and in most days, junior high school went through the ninth grade. So when I was in ninth grade I questioned whether or not I had the financial resources to go to college. So I determined that there was no way that I could go to college. We don't have enough funds. So when I went to Leominster high school in my sophomore year, I switched from the classical course to college course to the commercial course. And then during my sophomore year at Leominster high school, I trained my mind [unintelligible - 00:10:07] determination that I wanted to go to college bad enough that I would find some way to go. And so my junior/senior year, I switched back to the college course in Leominster High School, and in those days it was a three-year high school, you had to have a minimum of 40 credits a year to pass. We have to have 120 credits to graduate, but because of the fact that I had to cram two college preparation years in my junior/senior year, I was required to take extra courses. So I had hardly any -- I don't think I had any study periods in my senior year. I recall only having one [unintelligible - 00:10:54] period and some semester not having [unintelligible - 00:10:59]. So as a result of that I took a great deal of courses at 5 Leominster High School. I had one year of business courses in commercial, which helped me later on in college. In my junior/senior year I had the college courses. So I was graduated with 151 credits from Leominster High School. We were only required 120, 125. The average credits that they got when we graduate, probably 125. I had 151, and a lot of course were behind me. INTERVIEWER: Did you have to work while you were in high school? SPEAKER 1: Yes, while I was in junior high school, actually junior high school, I got a job working at a Chinese laundry. I learned how to man load shirts, [unintelligible - 00:11:51] the collar, the collar, [unintelligible - 00:11:54] the cuffs, and to iron the shirts. So I learned -- I did very well. I worked at various Chinese laundries in Leominster, Fitchburg on Saturdays, especially. Also my high school years, I started to work at a Chinese laundry while I was in junior high school. And before the Chinese laundry career, I shined shoes at Monument Square in Leominster on Fridays and Saturdays. In most days everyone went downtown. On Saturdays, it's quite crowded downtown, and I did okay shining shoes. INTERVIEWER: I bet you could bank quite a bit of money doing that. SPEAKER 1: I don't have a bank. INTERVIEWER: You don't have a bank. You gave it to your mother? SPEAKER 1: There wasn't enough to go around. I can remember one time when I was in junior high school, I believe, it was during the Depression days in 1930s, and corduroy breeches were very popular in those days. They are the corduroy trousers that went down just below your knees, just below your knees, they had a little [unintelligible - 00:13:12], and they would walk, and they would try to meet that. Everybody at school would have a pair of corduroy breeches. I never had any. INTERVIEWER: Did you wish you did?6 SPEAKER 1: Well, I pushed my older brother Tony, who worked at the DuPont Company—he used to work four to twelve—and you know, just begged him to buy me a pair. He did finally buy me a pair, but I don't know what it costs. It costs less than a dollar, I think, in those days. And I was very proud that I had it. INTERVIEWER: And when you went to Holy Cross, what year was that? SPEAKER 1: Well, in 1939, I graduated -- I graduated in Leominster High School in 1939 in June. I went to Holy Cross in September 1943. And I was admitted to Holy Cross on a scholarship work program, and I was required to pay about one-third of the tuition. In those days, tuition was $280, and I was required to pay $100 of that tuition. And the balance I was required to earn at a rate of approximately 35 cents an hour credit working in the college library. INTERVIEWER: Thirty five cents… SPEAKER 1: … an hour would be credited towards… INTERVIEWER: To the $100 or the $200? SPEAKER 1: … to the 180 balance. That's what I was required to do. So I worked in my freshman year at the college library, normally evenings from about six o'clock to nine o'clock five and six evenings a week, unless there was some college event that I couldn't do it. Basically I did that all during my freshmen year, I worked at the college library, even some Saturdays and Sundays. In those days we went to college, we had classes on Saturday mornings until noontime. So, college was six days a week way back in the '30s and '40s. INTERVIEWER: So you lived on campus then? SPEAKER 1: No, I did not. I lived -- in my freshman year, I lived in Worcester with my older sister. She was married and lived in Worcester, and I stayed with her and I took the bus. And in my freshman year, I commuted, went to Holy Cross. And I lived with her in my 7 freshman year. And then from my sophomore year on, I stayed in Leominster. I lived in Leominster and I commuted daily to Holy Cross. In those days class started at nine o'clock in the morning and ran until 3:30. And then lab would be in the afternoon until 5:30, six o'clock. INTERVIEWER: And then you worked. SPEAKER 1: [Unintelligible - 00:16:20]? INTERVIEWER: No, that's fine. We're going to edit this anyway. Then you would work until nine o'clock at night? SPEAKER 1: No. Well, yes, in the college library. So I'd get home at -- in my freshman year I'd probably get back at 9:30, 10:00 to my sister's house. That was during my freshmen year. That was quite a program. I was gone all the time. But I didn't look upon it -- I shifted to something that had to be done. So I might say that during my freshman year, that the library, right after the football season was over, that one of the -- my good friend in class that played in the college band showed up at the library to work and told me that he was on the same scholarship work program that I was on, and that he had to play in the band and then work at the library to earn his credits. And he told me that next year, because he was in the college band, it would not be necessary for him to work at the library, just be in the college band he would get enough credits so he wouldn't have to work in the library. Just play in the college band. So I didn't know one note of music, and I heard about this. So in those days, they have the WTA Recreation Week, and they [unintelligible - 00:18:04]. They were offering the class on how to play musical instrument at the [unintelligible - 00:18:10] in Worcester. And this was during my freshman year. And so there was a Professor Castana who taught music, and I decided that I wanted to learn to play the cornet so that I could fit into the college 8 band in my sophomore year. So I approached him and told him that I had not -- I'm not looking to be a music major. I just wanna know enough music so that I could play well enough to play the Star-Spangled Banner and probably the football march and some things like that, and national anthem so that I could be admitted into the college band. So I took music lessons in the spring of my freshman year from about, I'd say from January to May in Worcester while I lived with my sister. So I used to go down there, so I'm busy weekends, and whenever I could fit it in, sometimes during the afternoon. INTERVIEWER: So was that a success? Did you get admitted? SPEAKER 1: Yes, yes. I came back after my freshman year was over in the summer of 1940, there was a Professor [unintelligible - 00:19:40] that taught music, and I finished my musical education with him. And I got to play the cornet, and I told him the same thing. I just want him to know that I wasn't gonna do a major in music. So then in my freshmen year, I was admitted to the college band. And I played the second cornet, second trumpet. So I knew all the [unintelligible - 00:20:18]. In a couple of weeks, I learned all the songs that have to be played, probably 12 or 15. And I played in the second cornet. I didn't require the music sheet on the lyre. And so because I could play by heart all the numbers, they placed me outside of the band. When you go on the outside so that you could [unintelligible - 00:20:49] the person on the outside will all be going [unintelligible - 00:20:54]. So that's where I wound up with the college band. INTERVIEWER: Do you still play? SPEAKER 1: No, I don't. I quitted after my junior year, and I haven't played. I'm not a musician.9 SPEAKER 2: Wasn't there a story where you started to usher because you found you got more credits being in the usher than you were playing in a band? SPEAKER 1: Well, what happened was half of my freshmen year, I was able to find a job with the DuPont Company. And in the summer after my freshman year, I worked on the 12-8 shift at the DuPont Company. Then when school started in the fall in my sophomore year, I was able to continue working at the DuPont Company. In order to keep my job with them, I was required to work 82 hours a week, and I would be considered a permanent employee. And if I put in 32 hours or more per week, I would be entitled to a two-week vacation period and paid holidays. So that's what I did in my sophomore, junior, and senior years. While I was at Holy Cross I had a full-time job working at the DuPont Company. My normal schedule after the football season was over, that I had to work on a Saturday from 4-12. I would get 8 hours. Then on a Sunday I would go to mass at 7 o'clock, and I would be at the DuPont Company from 8 o'clock, and I would work 8-4. So on a Saturday and Sunday, I got 16 hours, and I have the rest of the week to get in another 16 or more hours. So the way the classes were at Holy Cross on a Tuesday and a Thursday, the class schedule was light. I would have I think two classes at night on Tuesdays and Thursdays. I was normally to class about 1:30 to two o'clock and it was all done class on two o'clock. So I would get back to Leominster at three o'clock, four o'clock, usually five or six o'clock, and I would work from 6-9 and 7-10, something like that. Or even sometimes 7-12. And once in a while, if I was up to it, I would even go beyond 12 o'clock at work. If I have an exam the next day I would probably work until… INTERVIEWER: I guess I'm wondering when did you study? I think…10 SPEAKER 1: Going to see if I'm coming too strong enough [unintelligible - 00:24:06]. Ah, let's see. When did I study? I didn't study as much as I would've wanted to. In order to make up for the fact that I couldn't study as much as I wanted to, when I was in class I really focused on what the professor was talking about. I would not permit myself to be distracted by what was going on in class. I just focused right on that professor and tried to understand what they were trying to put across. And I think that saved me a lot of -- I did my homework, less consuming. But I studied between classes, and I actually used to study on the job at the DuPont Company. I had a job running an automatic comb-polishing machine, was about 40 or 50 feet long. And I sat at the beginning of the machine, and said comb fell into a belt. And after a while you'll get so used to it you didn't have to look at what you're doing. You just grab a handful of combs, and one by one you would put those combs down the belt about a half an inch a pack. And you didn't have to watch it too carefully. So I used to set up the machine with a book in my lap if I have some studying to do. So I used to get some studying done that way. And the… INTERVIEWER: And what was your major? SPEAKER 1: My major at Holy Cross was economics, Bachelor of Science in Economics. But that's when I enrolled there. But then in the senior year, they changed the name of the degree to Business Administration. Actually, my concentration there was in Economics, actually. I took the accounting -- the accounting program was required for the first two years. And then after the junior and senior year, then you decide whether or not to continue on the accounting later on. I decided to get into economics, applied economics. INTERVIEWER: What was it like going to school during the war?11 SPEAKER 1: Well, it wasn't really until December 7, 1941, the day of Pearl Harbor, that I think that the [unintelligible - 00:26:52] heavily involved in. There was a -- I don't exactly know when. I don't think that the interest in following through -- there would seem to be a "Let's get it over with. I'm gonna be in the service anyway. Let's get education over with," and everything was accelerated. After 1942, they dispensed with the summer vacation from college. Normally you would get out of college in first week of June. We went right through, started our senior year in June of 1942. We finished our -- we finished our junior year in May of 1942. It took just a few weeks, two days before we started the senior year, went right through the summer. [Unintelligible - 00:28:17] a week down to July 4th, holiday. It was like that right through the summer of 1942. And with the accelerated program, we graduated February 1943 where we should have been graduated in June of 1943. And there was gas rationing in those days, and travel was my priority. So it was difficult to travel. INTERVIEWER: At that time you were traveling back and forth at Leominster? SPEAKER 1: I was commuting back and forth. INTERVIEWER: So how did you do that? SPEAKER 1: We have enough gas. It was rationed. We have enough gas to go to school. But because of the travel restriction, they cancelled our graduation exercises. So we had no graduation exercises in 1943, and we received our diplomas through the mail. I might say that about traveling, it wasn't commuting back and forth that was the worst to Holy Cross from Leominster that my brother and myself, in my sophomore year, bought a 1929 Packard that I could use and was gonna use later on in this business. So when I went back to school in September of my sophomore year with the Packard, I had about four, five other students as passengers, and that helped to defer the cost of traveling gas and oil back and forth to Worcester. 12 And this Packard broke down after the second week that I was in college. I had to tow it back to Leominster. So over the weekend there was an old 1934 Packard that was for sale, so my brother purchased this 1934 Packard for $50. And I used that, but it consumed a lot of gasoline. I probably got six or seven or eight miles a gallon at the most. But gasoline was not expensive in those days. You can probably get -- I think we were paying 12 to 15 cents a gallon of gasoline in 1940, 1941. So… INTERVIEWER: So it sounds as if your brothers gave out a lot for the family. SPEAKER 1: Well, I always -- they helped, definitely. When I need a couple of dollars here and there, and usually they would let me have a dollar or two if I need it. But then as I worked at the DuPont Company and got in, got my time, especially in the summer, I worked full time. I worked 40 hours a week and probably even 48 or 50. I put in plenty of time. And then the two-week vacation period that I got paid for, I actually worked at the DuPont Company, so I developed this sufficient income stream to carry, to support myself. INTERVIEWER: Did anyone else go to college from your family? SPEAKER 1: No. Not anyone. No. INTERVIEWER: Again, going back to the war. Did you have to serve? SPEAKER 1: No, I didn't. I was eligible for limited service. So I wasn't eligible for the draft until I was graduated from college. In those days I believe all the college students were permitted to finish their college career as long as they are in good standing. And so I was eligible for limited service. First time that the draft board called upon me, I went down and they didn't need anyone for limited service. And at that time I was working for Peat Marwick Mitchell Company. This was in 1943, and I was involved in auditing in the British West Indies, Central America, Northern South America. There was security involved in auditing, and I was doing it, and it 13 involved auditing for the United States government. And so I never got into the service. INTERVIEWER: Is this company in Leominster? SPEAKER 1: No. Peat Marwick Mitchell is one of the big three accounting firms in those days. There were Peat Marwick Mitchell, Price Waterhouse, [unintelligible - 00:33:52], companies like that. And today, Peat Marwick Mitchell is now known as KPGM, one of the big, large international firms. So I went to work for them in November of 1943. INTERVIEWER: And where was it located? SPEAKER 1: They have -- well, they have had their worldwide headquarters in London, in Scotland, in New York, throughout the United States, and I worked at the Boston office in the Worcester branch. I had assignments. I went to work with them in November. We audited companies like Melville Shoe, which became the Thom McAn shoe stores, the General Electric company, American Optical, [unintelligible - 00:34:50] Electronics… INTERVIEWER: Did you stay in Leominster and commute? SPEAKER 1: Yes. I probably -- much of the time I was with Peat Marwick Mitchell, I was traveling. And for instance, we would go to Southbridge and audit the books of American Optical; that would take about six weeks, seven weeks. And we would stay at the Columbia Hotel in Southbridge, Massachusetts all week long. So I would come home on weekends. It was like that. We audited the General Electric Company in Pittsville, Massachusetts with the same arrangement. We would stay at the hotel. There was lot of traveling away from -- in fact, in 1944, I was on assignment to Central America from Labor Day to Thanksgiving. So I was away and conducting audits for the United States Commercial Company, that supplies corporation that was part of the security that Peat Marwick Mitchell was involved in during the war. There was also, 14 in Panama, there was a tropical radio and telegraph company, which was very important for communication. That was part of the auditing contract that Peat Marwick Mitchell had with the United States government. But the big account that was prevalent throughout those areas was United Food Company, which was like a government unto itself. It had schools. It supported the schools. It had its own schools, education, railroads throughout the Central America. INTERVIEWER: And how long did you go with that company? SPEAKER 1: I was with Peat Marwick Mitchell until November of 1947. No, December, end of December, until January 1948 I was with Peat Marwick Mitchell. I left Peat Marwick Mitchell and went to work with Baker and Baker. It was another CPA firm out of [Worcester in] New York. And one of the assignments I had with them, the longest, was down in New York City working at 90 Broad Street, and we conducted investigation of the New York Waterworks. Investigation involves contracts and transactions that dated back to the early 1900s when they installed the water supply from New York City in Long Island. So I worked in the fraud investigation regarding a case that was going on. And as I lived in New York from -- I think I was assigned there from the end of July of 1948, July or August of 1948, and I was there until November of '48. We stayed at the St. George Hotel or St. Charles Hotel in Long Island. I would take the subway to Wall Street to 90 Broad Street where we were working on the audit. INTERVIEWER: Okay, and how long were you with that company? SPEAKER 1: I was with them I would say until 1950. And then I went to work -- one of the accounts that Baker and Baker had was the Dollar Greeting Cards, which was located in Fitchburg, Massachusetts. And I had conducted the audit of Dollar Greeting Cards for Baker and Baker Company. And then you recall there was a recession in 15 1949, and so Baker and Baker had to let much of its staff go. And I was one of the staff that was let go in probably August or September of 1949. SPEAKER 2: In May. SPEAKER 1: Well, they told me they were gonna let me go in May, but then after our wedding we came back, and they told me they're gonna keep me on. So that's an interesting story if you want me to tell you a little bit about it. INTERVIEWER: I was just about to ask you when you got married. 1949? SPEAKER 2: May 1949. He was unemployed. SPEAKER 1: Well, let me tell you the story is that that we had our wedding date set up May 7, 1949. It was two or three weeks before the wedding, Baker and Baker notified me that they're gonna have to let me go during my vacation, because of the, you know, the recession. So I didn't mention that to her. And so we were married. I think we were honeymooning in Canada, we went up to Canada, I said, well this is a safe place to tell her. So I let her know that she had married an unemployed person but not to worry about it because things will work out okay. And so we got back, and Baker and Baker kept me on for another two months, and I land the Dollar Greeting Cards audit after that. And then when they had to leave Baker and Baker, and so they came about the Dollar Greeting Card. Dollar Greeting Card needed assistants in the accounting department, the special projects that they had going on. So I was hired. So I left them. I was hired by Dollar Greeting cards. So I left Baker and Baker on a Friday, and on Monday I showed up at the Dollar Greeting Cards Company. And I worked there on special projects, and probably important projects. I worked onwards on assignments that determine the tax advantages and disadvantages of transferring Dollar Greeting Cards from being a Massachusetts corporation to a 16 North Hampshire corporation. That was one of the assignments I had, and I made the recommendation that it would be a great tax saving by relocating to North Hampshire. And so shortly after I made that report, I left. I left Dollar Greeting cards. I passed the CPA exam in November of 1949. Yes. And so it's 1950, I left Dollar Greeting Cards, and I went to work for Colorado Fuel and Iron Corporation that had the large steel manufacturing company. They had headquarters in Buffalo, Colorado. The eastern division was headquarters and offices at 585 Madison Avenue, and I worked out of the New York office. And my position with them is -- I was named assistant to the chief plant department for the Eastern division for of Colorado Fuel and Iron. And it had various divisions, it had the [unintelligible - 00:44:06] Iron and Steel division, which was located in New England. And while I was an auditor with Peat Marwick Mitchell, I ran -- Colorado Fuel was one of the clients of Peat Marwick Mitchell. So I ran the audit of the [unintelligible - 00:44:24] Steel division in Worcester, Clinton, and [unintelligible - 00:44:27], Massachusetts. And over this part there was a problem. There was an accounting problem regarding the inventory problem, which was quite serious, that I was involved in. And as a result of the examinations that I had to make, I got to meet the treasurer of the Colorado Fuel, [unintelligible - 00:44:54] from New York City during the course of this audit, which sort of took place in 1947, when I was auditing the [unintelligible - 00:45:07] Steel division. So we finally settled our differences and we certified the statements for Colorado Fuel and Iron. And at the end of the meetings that we had, the treasurer mentioned to me that most fellas in public accounting where I was, after four, five years, they tire up. They wanna find a place where they can have a career with a great company. And he said to me, think of Colorado Fuel 17 and Iron when you're ready to leave public accounting. So when I was with Dollar Greeting Cards in 1949 or 1950, I didn't see that I had a future there. And so I contacted the treasurer of Colorado Fuel and Iron and went down for an interview in New York City. I was hired immediately, and I went to work for them in 1950. INTERVIEWER: And after that you stayed behind? SPEAKER 2: We stayed in Leominster. SPEAKER 1: Yeah, they lived in Leominster. SPEAKER 2: He'd worked -- he'd come home weekends. And then we'll drive him to the Union Station in Worcester for him to take the midnight train, the sleeper, to go to work maybe Chicago, Buffalo, New York… SPEAKER 1: Not only Buffalo. They had a big -- so in Buffalo, in [unintelligible - 00:46:32] New York, the big steel facility requires [unintelligible - 00:46:36] Steel division. SPEAKER 2: It was -- Sunday night I would drive to Worcester for the midnight train. SPEAKER 1: So I would spend time away. INTERVIEWER: And how long did you stay with them? SPEAKER 1: I was with them -- I can remember the day exactly, April Fools' Day, April 1, 1953, I left. And I was traveling all the time. I was hardly ever home. Closest I ever worked was Clinton. They had a [unintelligible - 00:47:10] Steel, and then in Worcester. But they were all very small in comparison to the other facilities that Colorado Fuel had. In Buffalo there are probably 5,000 or 6,000 workers. And then in Trenton, New Jersey, we acquired the [unintelligible - 00:47:32] division, probably 5,000 or 6,000 people at work there. The nearest facility [unintelligible - 00:47:39] Pennsylvania, New Jersey, Claymont, Delaware, all these facilities that they have, I worked there. INTERVIEWER: So what happened in 1953?18 SPEAKER 1: Well, in 1953, I decided to come back to Leominster and establish my CPA practice. I always wanted to have a CPA practice to public accounting. And I had, I was certified. And so while I was head, all these employments out of town, I developed an accounting practice in Leominster and Fitchburg. And so what was important in getting back to Leominster is I had one account. And I had many, but one of the accounts I had was the Art Plastics Company, and it was a very successful plastics company. And it did the greatest volume of [unintelligible - 00:48:48] would be SS Kresge Company, which today is known as the Kmart. And so in 1951 or 1952, they started to lose their bargain in business that was the Kresge Company, and it got to the point where in late 1952, early 1953, they lost money, the volume of their business with the Kresge Company. And so they became insolvent. And they had -- they owed money to the major chemical manufacturer in those days. Dall Chemical, [unintelligible - 00:49:43] and so, the credit offices of these companies were located in the New York City area. And while I was with Colorado Fuel working down in Madison Avenue in New York, I contacted the credit department of the Dall Chemical, [unintelligible - 00:50:00], and was able to affect the settlement for Art Plastics of 10 to 25 cents on a dollar, they would settle for it, because I was able to show that without some compromise, the Art Plastics was gonna go out of business. They were insolvent, they were heading to bankruptcy. And so as a result of these accommodations I made for the Art Plastics Company, it was able to exist in not just to keep it running from day to day. And they had one account, a custom molding account, which was enough to keep it alive. So they wanted me to see what I could do, improve the facility and join the company and make it viable. And so I accepted an arrangement after great discussion to go to work with them on April 1 and leave Colorado Fuel. And19 my salary was $100 a week, which was less than what I was earning with Colorado Fuel. But the arrangement that I would stay long enough to either make a [unintelligible - 00:51:36] company or not, and that I would put all the time that I could, especially every morning, but then afternoons I would be free if I had to take care of my accounting practice, which I was going to build up. So I used Art Plastics as a steppingstone to develop my public accounting practice. And so I joined Art Plastics, and simultaneously, when I joined, there were three main stockholders, three partners at Art Plastics. One of them left abruptly as I joined the company, and so I joined the company and made all kinds of drastic cuts, like slashed salaries of the remaining partners, almost 50 percent, and you know, in [unintelligible - 00:52:40] warehouse based at [unintelligible - 00:52:44]. I made a lot of cost-cutting procedures. INTERVIEWER: So you were a very popular guy? SPEAKER 1: I was not popular at all. And so at the end of the first month, six to seven weeks that I was there, the second partner approached and said I can't get along on my meager income now, and what I'd like to do is leave the company but I'd like to take the machine shop as a swap for my share in the company. So I okayed it, and I checked with the other partner, the other remaining partner, who was elderly and who was not that active in the plastics business but who was the investment person, the person who put up the fund at the start the company. And so it was fine with him. So at the end of two months, I was -- I found myself there with just one partner. Then he suddenly developed an ulcer and was hospitalized, and he was told to stay away from the plastics company. So in the short space of time, I found myself running the plastic company that I didn't completely understand, and I was learning. And so that went on. I managed to keep running, and…20 INTERVIEWER: Doing all of these for a $100 a week? SPEAKER 1: Well, yes. But I had my accounting practice, and I was earning about as much in my accounting practice on a part-time basis, because I was working for the Art Plastics Company. And the practice was that I would hold my payroll checks for perhaps two or three weeks, whatever I had to, when there was not enough money in Art Plastics to cover the payroll checks. So we managed to stay alive and keep Art Plastics running. We get down to the point where we -- normally, Art Plastics had 60, 70 employees when it was running. But they kept down to the point where we only had five or six employees when there was hardly any business. But we managed to hang in there by cost cutting and settling with creditors in giving us time to pay. We managed to stay alive. And I stayed in the plastics business longer than what I had planned. So I was busy running the plastics business, running my public accounting practice, time goes by. And the plastics business was seasonal, and it worked out that public accounting in those days was seasonal. You were busy from about December until about April, and that's about when the plastics company was not that busy. So I was able to balance the two and keep the plastics company alive. And after three, four, five years, we developed new customers in the plastics, with Art Plastics. I made a decision around 1960 after just being so busy running the plastics business during the day and running my public accounting practice in the evening and weekends, and taking time away from the plastics business during the week, I made the decision to stay in the plastics business. And I thought that I might take my public accounting practice alive by bringing somebody in. And so it was 1959 or 1958, one of those years, that I brought in one of my colleagues that I work with at Peat Marwick Mitchell Company, 21 and he came to work with me, and I was passing on -- he handled all the public accounts. We set up an office, and the [unintelligible - 00:57:31] building downtown, I remember. And that went on for a year or a year and a half, maybe two years, and he abruptly passed away. And right in the middle of taxing, probably February or March. And so all these taxes returns we were working on, I had to get extensions. And so that's when I decided that I wouldn't be able to keep up my public accounting practice, so that's when I divested my accounts and made arrangements for other CPAs in the area to take over some of my accounts. But I wasn't able to give them all up. I kept a couple. Not that I wanted to, but because they wanted to. There was some loyalty there. And so I [unintelligible - 00:58:39] that I kept maybe for another 10, 15 years. It was not a very… INTERVIEWER: What made you stay in the Art Plastics Company? Sounds like an incredible amount of work. SPEAKER 1: Well, there is a lot of work. But we have 30, 40, 50 people there. You can delegate a lot. I think in public accounting, it was -- for me, it was more time-consuming to get the work done, whereas in manufacturing you delegate and you're more of a manager and you have time. And I can recall a conversation that I had with two of my colleagues when I was working in Southbridge at the American Optical, and we were talking one evening, the three of us, as to what we wanted to after we get out of public accounting. And one of them said, "Well, I wanna become the comptroller of a large gold chip firm." And he did, he became comptroller and assistant treasurer of the Pittston Company. And the other fellow wanted to stay in public accounting and be partner, and he did that. He stayed. I remember saying I wanna be a manufacturer. I just think that the opportunity in manufacturing, owning your own business. 22 I remember saying that maybe if turned up that I had that opportunity to work on… INTERVIEWER: So tell me, what did Art Plastics make? SPEAKER 1: Art Plastics had their line of horticultural flower pot ornaments, that was its line. It made these trellises for flower pots, it made the ornaments that you would stick in the flower pots, like the flamingoes, [unintelligible - 01:00:45] watering flowers, those palm trees, a frog on the… INTERVIEWER: And this was very popular in the '60s? SPEAKER 1: Well, it was -- yes, it had a line. But we developed a -- we got into custom molding products. Custom molding is more than we did, the proprietary line. So we became custom molders, basically. That's when we would -- people would come to us with molds of their own, and we would mold their products. And we used to -- one of our big accounts had a big line of toy dolls. And you know that Barbie doll that was popular? We used to mold that. We used to mold it in acetate. That was our main account. We mold it for the company that put the [unintelligible - 01:01:45] sprayed the eyes on it, the eye lashes. INTERVIEWER: The Barbie doll, the Mattel Company? SPEAKER 1: No, they were competitors. Got to be competitors. This was back in the late 1950s, '60s. Yeah. So we were custom molders. We used to mold for other big companies, like [unintelligible - 01:02:16]. They manufacture beautiful knives, forks, and spoons, and we used to mold those. And companies like Tupperware. Have you heard of Tupperware? They would get extremely busy, and they would approach molders like Art Plastics. And we would mold their basins and dish bowls and things like that on a seasonal basis. SPEAKER 2: Clothes hangers?23 SPEAKER 1: Clothes hangers. That was one big account. But we made all their hangers that they made—not for the consumer market but for the display of hangers in stores and department stores like Saks, and… [Lauren] Taylor, companies like that. They have a very expensive line of plastic hangers, and we were their molders. So we were -- we get a great deal of custom molding with Art Plastics. SPEAKER 2: May I insert a story? We were on the trip, and Aldo's looking at the store with fur coats in the windows. And our friends said, "Oh Aldo's looking to buy you a fur coat." I says, "No, he wants to see if that was one of the hangers molded at Art Plastics." SPEAKER 1: I want to see it that was one of our hangers. SPEAKER 2: So I had many stories little stories like that. He'd be looking to see if it was done at Art Plastics Company or some other place. INTERVIEWER: Now, what would happen if you saw that it was done at another? SPEAKER 1: Well, if it was a competitor's, I would report it back to our customers; say you got to get your salesman out there. So that's what Art Plastics did. And so it leads to some [unintelligible - 01:04:15]. INTERVIEWER: But I'm not sure I fully understand Art Plastics, meaning after the partners that you had suddenly died. You decided no longer… SPEAKER 1: No, he developed an ulcer, and he was advised not to return to work for a few months. INTERVIEWER: Oh yeah, not him, but during your public accounting. SPEAKER 1: Oh. Well, I liquidated my company, public accounting practice, and couple of other CPAs in the area took the accounts over. INTERVIEWER: And then you continued with… SPEAKER 1: Then I stayed in plastics; I stayed in plastics and developed Art Plastics. And in 1960, we were paying rent in what they called in those days the old DuPont building. So we had an opportunity to buy a piece of real estate owned by the Borden Chemical Company at 75 Water Street in Leominster. And so we acquired that 24 property I believe in 1960. And so Art Plastics relocated and moved up to this new facility, and that's when I made all my decision that I'm gonna stay in the plastics business, liquidate my public accounting. It was around 1960 when we purchased the Art Plastics building on the Walter Street from the Borden Chemical Company. INTERVIEWER: Now 40 years later, are you in the same location? SPEAKER 1: Comes about it, I'm going back. That's a long circle around. So… SPEAKER 2: That building has always been Art Plastics and Cardinal Co. Then we have another building. But now, Art Plastics is back on 75 Water Street. Lots of stories in between. SPEAKER 1: Lots of stories in between. INTERVIEWER: Do you want to say all of them? Because we're up to 1960, so we might as well go on. SPEAKER 1: All right. So in the '60s we developed Art Plastics in custom molding. And I decided that, that we had culturally floral [unintelligible - 01:06:55] that we had, the trellises and things like that, were not developing the way I thought. And I was looking for a proprietary line to get into. So we had a lot of experience molding combs for the DuPont Company, the Tupperware Company, hangers and things like that, and also standard home products that we used to custom mold. So we had a background in molding combs. And Leominster is known as the combing city that it always had. They manufacture combs here. So I had an opportunity to employ somebody who was knowledgeable in comb business, so I decided to be in the comb business, and that was in 1969, that the first thing we did was we had a pocket comb mold built. That caught, let's say, 36-cavity 5-inch pocket comb, heavy-duty pocket comb that cost us $7,200. That was our first mold to go into the comb business. INTERVIEWER: And that cost you $7,200 for the mold?25 SPEAKER 1: For that one mold to introduce us. That was a very pro -- and that was a man's pocket comb. Every man has a pocket comb, a black pocket comb in those days, and it was a bread and butter entry to the business. So we started Cardinal Comb in 1969. Around 1970, there was a -- another company in Leominster that was involved in the comb business, and they have been in business two or three or four years. And they were faltering, and they were going out of business. So we acquired their machinery, molds and machinery. INTERVIEWER: Which business was that? Which company? What was the name of it? Can you remember? SPEAKER 1: They call it Rafaeli Plastics. Cardinal Comb acquired all the assets, the machinery, the equipment, the inventory, and the customer list… whom I was already doing business with. But that doesn't matter. So that was in 1999, we acquire Rafaeli Plastics. And after that, going through our line. INTERVIEWER: Were you the only company in the area producing combs? SPEAKER 1: No, we were not. We were a late entry. Probably a half a dozen other people making combs in Leominster, or at least I knew about. So we entered the comb business. INTERVIEWER: And what gave you the courage for that? SPEAKER 1: Well, I hired this person who had experience in sales in combs. I was -- I felt he could do well in the comb business. So during the '70s and '80s, our comb business grew. We had a machine shop, and we built our own molds. In those days it had the black and the [unintelligible - 01:10:52] movement. And so they were the new styles of combs coming in to the market, and molds have to be built. We had the facility, machine shop facility. We built many of our own molds, and it saved us considerable… INTERVIEWER: Who would make a decision like that? Is it something that you read about, knowing what kinds of combs are coming into style?26 SPEAKER 1: Well, we would go to trade shows. We would go to trade shows in New York, Chicago. And you could -- the trend was out there, there was a trend, and you could detect it. And what other people, what other competitors would do, they have a pulse for what the market wanted. And after that was happening in the '70s or '80s, comb business was changing. And people change styles along. They became sharp. For a while they have all these apple comb, shampoo comb, the big 9-inch comb with a handle on it. Normally they have a regular 9-inch dresser comb which was all comb. Half of the comb was fine teeth; the other half was coarse teeth. So the apple comb with the shampoo comb with coarse teeth with a handle on it. So we were probably one of the first to get in on that trend. And they have this list; they give you the afro look. And we were very involved with that. And at the same time, with the change in the style of combs, there was also a change in the color of combs. Because the comb industry, basically, that we started with, we only had about three colors of comb. You'll have black, baby pink, and baby blue. Those were the colors. So if we went to trade shows, and plastics, the new plastics resins coming in to the market where you could color, add all kinds of color very easily. So color became very important in the comb business. So we got in on that trend and started to make a lot of colors, and it's one of the ways I think that we expanded and kept up with the competition. INTERVIEWER: Is Art Plastics and Cardinal Combs two separate companies? SPEAKER 1: Yes. SPEAKER 2: Two separate corporations. Same people. SPEAKER 1: Yes. Two separate corporations. Common ownership. The family owns -- I actually took the beginning. The family, to mention, our family, owned Art Plastics and Cardinal Comb. My son didn't join me in the plastics business until probably 1980 or so. 27 SPEAKER 2: Because of college. INTERVIEWER: Two sons, or… SPEAKER 2: Two sons in the plastics business now. INTERVIEWER: But did they originally all work in the plastics? SPEAKER 1: No. I'll tell you a little story. But the important and interesting is -- so we started to develop these colors like yellow and fuchsia, strawberry and lime, all the different colors of a comb. So it was probably my son Edward -- when did get he out of college? SPEAKER 2: '82. SPEAKER 1: '82. Edward, the youngest of my three sons, joined me at Cardinal Comb, and he was in charge of production, scheduling. And he and I went to trade shows. And then my second son Anthony was working in Boston in public accounting. So at one point my son Anthony said, "Dad I'm gonna be joining Cardinal Comb," and I said, "Are you?" "Yes. Edward wants me to join the company. He said that we need some help." I said that's fine. Glad to hear it. And so Anthony joined the company around 1983, something like that. So then I decided, this is not all the heads that we're gonna have, so we really have to expand to cover Anthony's salary. And so we concentrated more on marketing. So I put Anthony in charge of sales and marketing. And so Anthony would go to the trade shows. And so he came back from one trade show after he's been with the company for a year or so, he said, "Dad, we have to have more colors. We just can't get by with just three or four. We have to have eight or nine different colors. And we can get more of the shares of the market." And so I called Edward in, I said "Edward, we're gonna increase the inventory line of combs from about four colors to about eight or nine." Edward said, "Over my dead body, Dad. I'm not ready to have any more different colors." So I had these two very strong individuals, strong personality, and I could say from my experience from public accounting, I had seen 28 collisions or difficulty come in to certain partnerships and family arrangements. And I sat back and said no, these two [unintelligible - 01:17:11] want to run the show. It can only have one person running an operation; I got to find another way. I got to separate these companies. So that's when I made the decision to purchase another company called St. John, which we renamed First Plastics. And then I put Edward in charge of that. And so each -- it is my decision or purpose or call, really, to have each one of my eldest boys run their own company, which they would run it completely and be responsible. And that would give them the incentive, too. If they did well, they'd be rewarded. So it worked out very well, I think. INTERVIEWER: So is Art Plastics also making combs? SPEAKER 2: No. Just molding. SPEAKER 1: No. First Plastics was strictly a custom molding operation. That had some customers. So we acquired First Plastics in 1987, '88. 1988. We actually acquired it. And we had a relationship of molding with them. When we purchased -- when we set up First Plastics, the name of the company was St. John, and that was owned by the [unintelligible - 01:18:48] family from [unintelligible - 01:18:55] Massachusetts. So we get custom molding for them, and they own it solely because they have to go into plastics to make their plastics and things like that. But after they go on a few years, it didn't work out well for them and they decided that they were going to get out of the plastics business, and that's when St. John was up for sale. And that's when we purchased the company. And they had some custom molding and customer list, small customer list that went a long way. So we set up First Plastics in a separate location down the [unintelligible - 01:19:36], and Edward became the president of First Plastics, and Anthony became the president of Cardinal Comb./AT/jf/kb/es
Interview with Fred Mastrangelo. Topics include: The history of the Mastrangelo name. How his father immigrated to the United States from Italy and became a tailor in Fitchburg, MA. What Fitchburg was like when Fred was growing up with a diverse population. His father and uncle's carpentry business. Fred's education. The Angel Hotel in Hyannis, MA. The different businesses Fred has started. How kitchens in America are different from those in Europe and how European kitchens have changed over time. Fred's children and their occupations. The traditions Fred carried on with his family. Memories from his childhood. The house his father built. What his parents were like. ; 1 LINDA ROSE: Okay. This is Linda Rose and we're on at the Center for Italian Culture. FRED MASTRANGELO: That's right. LINDA ROSE: Right? FRED MASTRANGELO: Mm-hmm. LINDA ROSE: And [unintelligible - 00:00:10]. FRED MASTRANGELO: It's Mastrangelo. It's just the way it sounds, M-A-S-T-R-A-N-G-E-L-O. LINDA ROSE: So can you give me a little bit of a history. FRED MASTRANGELO: Obviously when my dad emigrated here to the United States and attempted to get assimilated into society, he felt that in business purposes that a shorter name would be much better because he was competing with the Browns and the Whites and the Smith, and so he just took the last part of the name and called it Angel and used it as his business name. We in turn carried it on. We've never changed it legally to Angels, you know, but it's an alias that makes it easy, because Angel or Angel with tailor, which is what he started his business, so it's a lot easier to say and anybody to know. That's the reason for the Angel name. LINDA ROSE: Okay. Now can you give me… FRED MASTRANGELO: Interesting story. He emigrated over here in the late 1890s, young man, 21 years old. He had $21 in his pocket when he landed in New York and obviously moved in with friends from the old country. And like all immigrants, he had to learn the trade. His trade was a tailor and so he worked as a tailor in the Bronx in New York for a number of years, but becoming independent – now you got to know that my dad had no education, you know, relatively speaking. He's a very smart man, and I'm not saying that 2 lightly because he had to cope with all of the language difficulties in a whole bit. After a few years in the Bronx, he went… he started to feel his oats, as all young men did and wanted to become independent, and then he realized how life in the country was. He analyzed it as he tell us and says, "Look if I – look, for example, I settled in Florida and they had a [unintelligible - 00:01:55], no one would buy my suits. If I went to Pennsylvania and joined the Lewis [coal] mine strike, the miners wouldn't buy my suits." So somebody told him in New York that there was a little town known as Fitchburg, Mass that was diversified, even at that time was very diversified. They had paper mills. They had industrial complexes. They had their [unintelligible - 00:02:14]. They had a fantastic ethnic background made up of Italians, Jews, Irish, French, all in their own colonies, and it was a such diversification that my dad said, "Gee, if, you know, everyone else go down, at least [unintelligible - 00:02:30] the guys will buy my suits, so independent [unintelligible - 00:02:34] group will buy. So that up to business per se, in the community, if one segment or area dropped, at least I have an opportunity to market my product." So he moved to Fitchburg and started Angel Tailor in Main Street. That tailor shop right now is presently occupied by Mario the Tailor, whose family also came from the same part of Italy that my dad did. So, that was the start of Angel. As my mother says, your father wasn't a very good tailor but he was a hell of a businessman – and that's true; he was. He was extremely marketing-oriented and he employed at the time, at the height of his career, somewhere in the 19… part of the World War I, at least six or seven tailors, so he was doing a 3 very lucrative business. That was the start of the tailor shop. LINDA ROSE: Okay, just getting back, when did he come to Fitchburg? FRED MASTRANGELO: I'm going to say probably in the early 1900s and he spent about two, three or four years in New York and then became independent. I hadn't documented to trace it down, but I'm sure I could. You know, I just hadn't done it. LINDA ROSE: And did he travel to the United States by himself? FRED MASTRANGELO: Yes, mm-hmm. LINDA ROSE: How old was he? FRED MASTRANGELO: 21. LINDA ROSE: So 21in the market? FRED MASTRANGELO: Mm-hmm. LINDA ROSE: So young to see a man… FRED MASTRANGELO: No, it's just that through the contacts, as all immigrants have, there was a good established Italian culture community, as it were, as I indicated to you before, very strong ethnic groups in Fitchburg, which makes up the strength of Fitchburg. And he made contacts with some of the people from the [unintelligible - 00:04:20] which is the old country and the [unintelligible - 00:04:22] for example and some other people in Water Street, which was where the Italians lived, and decided to do it and that's what he did. As the business got successful, he bought a place on Granich Street, right above the so-called Water Street Complex and that's where we grew up as kids, so it's a fun time. LINDA ROSE: That was your Fitchburg [unintelligible - 00:04:48].4 FRED MASTRANGELO: Mm-hmm. It's great, great time and, you know, the community was close-knit. It was friendly, more kids that you can stick at and so we had an enjoyable childhood. LINDA ROSE: Do you remember any particular? FRED MASTRANGELO: In reference to? LINDA ROSE: Any special time? FRED MASTRANGELO: No, it's just that in retrospect, as I look back on it—and this isn't particularly just with our family—but the old-time immigrants had a flare. They had a strong cultural belief and tradition, and as they became involved in the American way of life, they adapted easily. They still maintained their all, you know, language and culture and religious backgrounds, but all of them, regardless of their occupation, believed in family number one and continuation of the traditions that they've learned which makes [unintelligible - 00:05:40] and integrity and working hard to success. I think those were the qualifications, particularly in my dad's generation. We're just so strong and it stuck in my mind. Now as I reach the autumn of my years, remembering my childhood, you know, we respected them and the authority that they [brought up]. Obviously it was interesting because as kids, we were brought into the parochial school system. I'm sure [unintelligible - 00:06:12] about that a bit, but that was quite an experience because we had it. In my particular class maybe three or four Italians in a strong Irish St. Bernard's grade school complex, and every day was a tremendous experience for us, particularly maintaining our culture. And you know how kids can be, so we had an awful lot of fun defending our name. LINDA ROSE: Because they give it fun back then?5 FRED MASTRANGELO: It was a learning experience, but nothing earth-shattering, and of course the sisters got left on the farm during their early years, as you know the rules of going to parochial school. They were hard taskmasters. LINDA ROSE: Mm-hmm. FRED MASTRANGELO: Delightful growing up in that community and to mingle with the various groups and… not really, it's just that we knew they were Irish and we were Italians, and that's the way it worked – but no, nothing like in today's current situation where bias is so strong and dominant, you know, no. We defended our positions and they defended theirs, but we got along [eventually]. LINDA ROSE: But the [unintelligible - 00:07:33]? FRED MASTRANGELO: Indirectly but nothing strong. We had large classes too, I mean, 90 in a class; it was, you know, a bit large. LINDA ROSE: That's a really – 90? FRED MASTRANGELO: In many classes. I think my first grade class is something like 76, 77; it's unbelievable. Oh, yeah, all in a row and all maintain the discipline and all maintained that pecking order. The smart kids sit up front, the dummies sit in the back. LINDA ROSE: Really? So it wasn't alphabetized? FRED MASTRANGELO: [No]. LINDA ROSE: So where were you? FRED MASTRANGELO: God knows, from grade to grade, probably raising hell in everyone of them. LINDA ROSE: You remember that? FRED MASTRANGELO: It sounds like my sister. LINDA ROSE: So it's great. I got [unintelligible - 00:08:16] movie but you don't remember. FRED MASTRANGELO: Mm-hmm.6 LINDA ROSE: Is that your experience? FRED MASTRANGELO: Yes ma'am, mm-hmm. [Unintelligible - 00:08:23] very friendly and as I said, it was just a little bit of…we didn't realize it at the time, but later on, it's a little bit of, you know, and likely so, the pride of their ethnic background, the pride of our ethnic background. We would have little conflict, I think no [unintelligible - 00:08:42]. Yes, yes, but the Water Street Complex was Italian. I mean all those markets and stalls were Italian, but obviously the parish, St. Bernard's Parish, is made up of the Irish people that lived—that wasn't the dominant; the dominant group up there were Italians up from Water Street. The Irish lived in the so-called Tahoe District, which is where the present St. Bernard's High School is. That was there area. If we crossed the bridge, we were in their territory, and they cross it the other way, they were in our territory. And I don't mean to constantly harp on this. It's just a little bit of a background – that's all. LINDA ROSE: That's important. FRED MASTRANGELO: Now they're changing… they're changing that area but there were still the great community [unintelligible - 00:09:39] you know, the [unintelligible - 00:09:43] element, the strong Finnish colony, the French [unintelligible - 00:09:48] area, I mean you know they've been infiltrated by other cultures, but at the time we were growing up, those were strong enclaves. If I were a politician and wanted to feel my oaths, I would have come to Fitchburg, because if I could cope with all of these groups, I would know I have a great stand. And they're strong dominant groups, no question about it, but… go ahead, go ahead.7 LINDA ROSE: Were there any rites of passage? FRED MASTRANGELO: Yeah, that was part of it, but I can't think of anything too dominant; you know, it's kids' things. The guys used to come down with me and we'd swim at the lake and we had fun together, but if they took the issue with a certain fact, then we'd stand up – because that part of the culture. If it was Mastrangelo, it was Mastrangelo, don't insult my name, don't insult my family and vice versa. Don't mess with the [O'Malley's] and the [Riley's] and, you know – we were just not… but we are harping on something that we shouldn't harp on so… LINDA ROSE: I was thinking more about right… FRED MASTRANGELO: All through the grade schools, from first grade to eight. LINDA ROSE: I had heard that… FRED MASTRANGELO: I suppose. LINDA ROSE: Maybe you were a little too young. FRED MASTRANGELO: Right, I think the important fact there is the strong mark that my dad and his people like him, marked in the community. That's the important part of our discussion. LINDA ROSE: Now… FRED MASTRANGELO: Yes. And the interesting approach was, as I indicated before, all of the immigrants had a trade. My father's brother, Alfonse, was a carpenter by trade. My dad when he was successful in the tailor business brought him over and Al lived with my dad. And to keep him out of trouble, they started a little woodworking shop, known as the Angel Novelty Company, and that was the start of the Angel Company per se. My dad had become successful and he bought a building off of Route 2A in Lunenburg Street, which is the halfway bakery at the time and that's where they started manufacturing wooden novelties. So, that 8 finally led to interior millwork, so the Angel Company became very dominant in interior millwork and by that, I mean doors and windows and corner cabinets. Now the important thing was that was also a successful business. I mean prohibition hit and that lasted a relatively short period of time; the brothers decided that it has nothing to do since the prohibition is going to be repealed as they get the restaurant seating, so they manufactured a line of wooden bar seating equipment that even today, I can recognize if I go to on an old-time bar and sit down, because it's the most comfortable goddamn thing you ever sat in your life. It was very successful and that was the flipside that they used throughout their business ability when… it was successful during that time period, manufacturing the restaurant seating, as I indicated, doors and windows—and you may not remember this because you're too young for it—but at one time, many of the houses had the so-called milkman access. There was a spot on your front door, as you buy a front door that the milkman will bring the milk in, you would open it from the inside and to take your milk in. And they were very successful on that approach and they did – as I said, it was novelty items, but then they changed the name to Strong Millwork at the Angel Company and that started… I'm going to say the real strong starting point was right after the end of World War II and then the so-called climb back in economic climate, and then the recession hit. And my father often—my mother often tells the story about my dad—but he told me himself; he said in recession he had another guy who's jumping out of the window. He said to himself, "This country is so strong; this country, there's so 9 much going for it that it can't go bad." So while everybody else was panicking, he took everything he owned, put mortgages on it, all his lifesavings, and invested in mills. This was the full run of the side of the Angel Company on Broad Street, which is a huge 100,000 square foot complex, and he bought mills on River Street. He bought property in downtown Fitchburg, and that was the success of his operations as a businessman. He brought his brother along with him. They were successful in that operation. So, on Broad Street, in this 100,000-square foot plant, they employed about 110 people and they changed their marketing approach, from restaurant seating to interior mill work—stone doors, windows, corner cabinets, kitchen cabinets—very large well-equipped plant, very successful through the years. LINDA ROSE: Now before you go on… FRED MASTRANGELO: By that time, he had sold his tailor shop to a shop, by the name of Sccino, which you may have interviewed. It's Sccino, S-C-C-I-N-O. It's another well-known name in Italian culture here in the Fitchburg area, and he spent all of his time devoted to the Angel Company. LINDA ROSE: Okay. FRED MASTRANGELO: And now that was roughly, as I indicated, from '38 to well, all the way through until the day he died, which was, you know, in the '60s…'50s and '60s. Now it was a full-grown conclusion that the boys, myself and my cousin who's the same age, Alfonse' son, would take all of the business. So after we graduated in college, I went to the service for two years. When I came back out, we got involved with the business, and at that time, the two brothers, Frank and Al, passed away within two to three years of each other. So we 10 took over and changed it from the millwork company into a kitchen cabinet company, and we were very, very successful. The interesting thing, reverting back to the Italian culture, is the fact that at the Angel Company, I bet you, 70 percent of the employees, even though we employed 100 and some on, were of Italian background. And I can see them doing that because they still spoke the language and they still have that strong cultural feeling, and they did everything in their power to work with the community. Yeah, tables and benches, very similar to breakfast nooks – remember the yellow old-fashioned breakfast, that type of concept. Yeah. LINDA ROSE: Mm-hmm. FRED MASTRANGELO: We're very, very successful on that because through a business, we feel everybody got involved with the problems and, you know, that's fine. LINDA ROSE: [Unintelligible - 00:16:52] FRED MASTRANGELO: That's a good sign. LINDA ROSE: Okay. So who was…? FRED MASTRANGELO: Yeah, that's when I stay put, that's exactly how it worked. My dad was in marketing, sales unit, and Alfonse, because of his woodworking background, handled the production, and they got along very well on that – because I tell you that it started with his brother and they were so close and his brother was a woodworker and a carpenter, and so it led to doing something with Alfonse, which in turn led to the growth of the business. LINDA ROSE: Right. [Unintelligible - 00:17:30] your father, Frank… FRED MASTRANGELO: That's a minor incident. LINDA ROSE: [Unintelligible - 00:17:32]?11 FRED MASTRANGELO: Yeah, right. In becoming a tailor, he just had designed a ruler to help measure pants; that was insignificant. It had no bearing on this over all, because it's just a minor type of… just like I had pants on my own right now that are worthless, but they don't mean a damn thing, right. What's important, if you look at the headlines of that paper, you'll see that the impetus is on sales and marketing, and that's the knowledge that he brought in. That's the ability to be ahead of his time, which is why he bought mills and why he turned his business ability into more than just making suits. If he were only to be a tailor, he would just still fight to go on a tailoring business in the community such as Fitchburg, but if you were a manufacturer, you had 52 states from which to draw, the world from which to draw, and my father saw that and his brother went along with it and they became – we changed it to Angel Novelty; it's when, Ed, my cousin and I came up, we decided it had to make sense so we changed the name to the Angel Company. You got to remember, the work there is youngsters, both my cousin and I all our lives, because it was the rule of stepping in, in time, and so it became very strong in millwork, and by millwork, I mean things that had to be milled: doors, windows, pine products, kitchen cabinets, corner cabinets, balustrades, stairwells. And we had a very strong – the marketing approach was to sell through distributors, someone termed '[south] lumberyards', so people like Webber Lumber Company that was in Fitchburg were our outlets. There is no such thing as a Home Depot in those days. They were all lumberyards, all small individual minor power operations. They did it together. They did together, you know in their 12 own way, uneducated men but very smart, in their own way test marketed, analyzed it, brought in a strong group of sales managers, production managers, accounting experts, because it was a multimillion dollar business. [Unintelligible - 00:19:56] LINDA ROSE: [Unintelligible - 00:19:59] market for that? FRED MASTRANGELO: [Unintelligible - 00:20:01] took over. This is in time when Dr. [Giolidante] was expected to start his father's shoe shop. He got smart; he became a doctor. That's what made him a smart man, because he did it at the time when he was independently a pioneer and, like many of those cohorts, had to do it. But like all that was so-called immigrants, number one on their list is to make their life better for their kids and they recognized that education was important for you to make it. If you had the wherewithal, you went beyond high school, into college. We were very lucky that he felt that way. I went to… after I got out of St. Bernard's, I graduated from Philips Andover Academy in '46, and then I went to Boston University, graduated in the class of '50. Actually I worked my tail off. I went to four years of college in three years by going to summer school and I had [unintelligible - 00:21:04]. LINDA ROSE: So why did you want to do that? FRED MASTRANGELO: I want to get the hell out of it and to work right away. I was working, because in the group of college people that I roomed with, they were all ex-veterans from World War II so they straightened me out, yes. And then I went… as soon as I graduated, for all my work, I went to Miami for three years, so I was in the service during the Korean War. Now I spent all my life in the military going to school. I went from private one to a second lieutenant in three years,13 so that was all due to schooling. I spent my lifetime in Miami Boarding School, which is fun. LINDA ROSE: So it was a… FRED MASTRANGELO: Oh God, yes. Even today in retrospect, I look back and say, you know, school's into this. Thank God it was fantastic because instead of climbing up from the bottom of the ladder, they put me in the middle of the ladder so, you know, that was a very fortunate approach. But would I have wanted to do this? I don't know. I always have misgiving. I should have done something else, etcetera, etcetera, etcetera, which is why I got involved with many other businesses, such as aviation, which is my first love, and my cousin with a motel in Hyannis, which was fun to do. I ran a Japanese restaurant. I built condominiums and [unintelligible - 00:22:19]. I had a ball going beyond the Angel Company but that's me personally. LINDA ROSE: Yeah, so coming up forward with building, you have [unintelligible - 00:22:31]. FRED MASTRANGELO: Well, once again, as the business started to develop, we turned it into a very successful prefinished cabinet company. The Angel cabinet line was well known in the northeast, and when I got out of the service, the industry was changing. I recognized the fact that instead of just millwork, we had to get into something else that was currently… we're losing our doors and our windows to the aluminum people. We were losing some of our product line, because they were building ranch houses rather than two-storey homes, and so we lost some of the product line, and so I was instrumental in turning the company to a prefinished cabinet company. I remember the first—we had always made kitchen cabinets; we had never done 14 prefinished cabinetry—and I remember the first cabinet we did; we thought it was absolutely gorgeous, but it was an abomination because we knew nothing about finishing so we had to just do it, to develop it, and that turned out to be very, very successful. With that success, obviously, a nice start to gain more independence because of our financial approach and we thought in terms of other investments. I had thought at the time that prefabrication was coming into this in the housing market, and I said, "Gee, I've been leading a big factory here. We got a fantastic approach. We know how to work with wood. Why am I thinking in terms of prefabrication?" But we decided that instead of prefabricating homes because they're all different, we would get involve with something that would be standardized, and motels seemed to be – all the rooms are the same. We put up 20 units and, you know, 20 walls the size, and so we spent a year looking for a site to build and we thought in terms of Hyannis because the Cape at that time was in its [growth] period. This goes back to 1955, '56, I mean, that time period. We found a delightful site on Route 132 that is now completely overgrown, but we were fortunate. We designed a motel, called it the Angel Motel, built it and – we knew nothing about the motel business. We knew very little about prefabrication, but the two seemed to work. We built it in the factory, shipped it down by truck, put it up in 30 days, opened up, and the first season was a huge success. Then we realized that the motel business was a fun thing to do. We paid for it, we did it off in something like five years, because here was a business that had no accounts receivable, that had no [late effect] because we hired high 15 school girls to clean; it had no merchandising inventory, and every night, you pick up, you know, X amount of dollars in cash, so it was a fun thing to do. And we sold it about three years ago, and I did. I mean, during that time, I got involved with the flight instruction and selling of aircraft at the Fitchburg Airport with another chap, a partner of mine, and we started the Silver Wings Company. We trained students how to fly and we sold type of aircrafts. Now it was fun because you could jump in a plane at Fitchburg, land at Hyannis and walk to the site, so both Dad and I used to fly down periodically, you know, in a matter of 20-30 minutes and walk way to the motel, so that was a beautiful approach to it. As I indicated, that was also successful. LINDA ROSE: What is the hotel called now? FRED MASTRANGELO: They've torn it down. They've put instead a mall now. Right after that, what was – it's interesting some of the stuff I've done and it sounds like I'm blowing my own horn, and I don't mean to. LINDA ROSE: No, it's important. FRED MASTRANGELO: Cleaning up and laundry were just coming in, okay. I've been involved with a group of investors and we started this, [Taco Outfit]. We're the first cleanup and laundry in Fitchburg. We had the second one on Duck Mill Road. It sounded like a great idea because the concept was outstanding. In other words, you put in machines, 24 hours a day, people would come in with quarters and you go get them the next morning, and it sounded like you make an awful lot of money because you know it was unattended. Well, we learned the hard way then. The first week, every called "liberty man," every oil man, every mechanic 16 brought in their overalls and they destroyed the machine. So that was a fun thing to do, but a terrible business decision. Now, of course, it's changed, as you know, because there are usually attendants in there. Then at the same time, right after that, I got involved with a group of people and we… well, I shouldn't say right after that. After Ed and I decided we had enough with the Angel Company, which is back in the '70s, I got involved establishing my own business because I was strong in marketing and I started Angel and Associates, which is a small advertising company. I said, "Gee, you know, the Fitchburg—as my dad said, you know, said in the past—Fitchburg area lends itself with someone who can carry some marketing, like the big boys do into a small-time operation," so I started an individual advertising. That was my background in college, marketing and advertising, and I had a number of the towns in Fitchburg that I would do their advertising for, both the newspaper, establish on TV, mostly paperwork ads and so on. One of my accounts was a friend of a friend who had a Japanese restaurant in Amherst, Mass and I did his advertising and it was very successful. And we got involved in saying, "Gee, you know, what should be done is something like McDonald's, except in Japanese style, and we would have…" He said he thought it was a hell of an idea. We would have a place on the Cape, because that's where all the activity was, but instead of 15 Japanese chefs chopping and doing things, we would have one in the window and you'd drive up and get your Chinese takeout. He thought it was like… yeah, so we spent a year looking at that. And at that time, right across the street from the Angel Motel was a Chinese 17 restaurant that had gone under. We made a bid for it and changed that concept and opened up the second Japanese restaurant, full-time scale with the chefs at the table. We had 12 tables and 12 Japanese chefs and that was an interesting experience. That's a whole another story, but it was fun to do. And so what happened in my business life and the reason for this spouting and rambling is that you asked if I have ever done something else besides. Well, yes, in later years, I did explore, but they still directly involved marketing and sales. That was my forte and I just had a ball in some of the things that I had done. Some were successful; some utter failures but an awful lot of interests. LINDA ROSE: You mentioned that you and your cousin were [unintelligible - 00:29:27]. FRED MASTRANGELO: We sold it. LINDA ROSE: Okay. FRED MASTRANGELO: Yup. LINDA ROSE: And that was a mistake? FRED MASTRANGELO: Yes. And the other thing too is, of course, having brought up the company into the 20th century with prefinished cabinetry, when we sold the company and I thought it would be summary… a retirement, I lasted maybe about five weeks and my sister said, "Get on and go do something, you're driving me crazy." At the time, one of my good competitors had an opening, who would open a retail store in Shrewsbury, Mass, selling kitchen cabinetry, which does a full run of the so-called design centers, which you now see. I went down there and I started to work with him, and after the second year, I had done enough selling so that the business just about tripled and he said, "Why 18 don't you take it over?" So I turned around and took over and turned that in what they call [Margelo] Kitchens, and we had a retail store on Route 9 in Shrewsbury. It was very, very successful for about five or six or seven years. We had a staff of four designers, five installers and we sold a design and custom work for kitchen cabinetry, which is a fascinating business, lost our lease and – at the time, I had some, I had my daughter working for me, and I said, "Christina, you have to go find another spot." And then one day, we woke up and said, "This is crazy. Why don't we, you know, we pay out our bills and let's shut it down?" She was up to here with it and she had had enough and I had had enough. It demanded a lot of our attention, being once again a small manpower operation, and so I said that enough is enough and we liquidated the business. About three weeks later, I got a call from one of my competitors and explained our present situation, I still work in the kitchen industry from one of my competitors on a part-time basis and I fully enjoy it. It's gone from cupboards to furniture. You got to bear in mind that cupboards… the word "cupboards" means cup boards. They were boards that were put up that you put your cups on. In the old days, you had you big stove then you had shelving in which you put cups and your dishes, and then sooner or later, somebody put doors on them and turned them into cabinets. Then, instead of going from the so-called pantry kitchen concept, the Americans and others in their own home, decided that they needed cabinetry in their kitchen and they didn't have maids and pantries and butlers anymore, and so we… it developed into where I'm putting furniture on four walls. The kitchen history has turned into putting custom 19 furniture, as you have in your house, as I have in my house, and with it came the changes in appliances, came the changes in countertops, came the changes in living, came the changes in microwave cooking – the whole thing has progressed. It's the most important room in the home. That's where the fun has come, and staying abreast with it has been, you know, it's remarkable what has happened in the industry, from just cupboards, you know, to literally thousands and thousands of dollars spent in furniture in the home. It's not unusual to see a $70,000-80,000 kitchen. LINDA ROSE: So… FRED MASTRANGELO: The Europeans, as we said, have developed this so-called kitchen concept. The Europeans designed kitchen cabinetry [unintelligible - 00:32:59] they were the forerunners of some of the present and modern day, and so well designed for one reason. One is most Europeans do daily shopping. They go out to the market— in particular, the Italians—they go down to the market and buy that fresh, you know, fruits and vegetables and take them home and cook and go down again, so they didn't really have the need for the tremendous amounts spent on appliances or refrigeration, that type of thing. Of course, it's changed a lot now but that's the background. That's number one. Number two, when you sell a house in Europe, you take the cabinets with you, and Americans attached it to the wall, they're going to stay here. The European concept develops so that you just undo them and take them with you, because they didn't have many, many cabinets because of the concept of shopping everyday at the marketplace. But they were instrumental in developing the so-called sleek sophisticated post-1938 modern approach and just recently,20 the past decade, this high streamline effect that they've done some beautiful work, and the Americans have copied them. It's been a fun business. LINDA ROSE: What do you see at the future for those? FRED MASTRANGELO: We have yet… we haven't touched the potential in kitchen cabinetry because every home you see, sooner or later, works in the premise that you get to keep up with the Joneses, which is step number one. You got to stay advance with style. The appliance factory has changed tremendously. No one used this microwave cooking until recently; that's changing. Refrigeration has changed in concept; dishwashing – you know, I see a more sophisticated sleek utilization of the kitchen. It's still kind of [unintelligible - 00:34:44] of the family gathering, but making it a lot more efficient, so you go out and do what you're supposed to do because we're just running to keep up living today, so the American public, in particular, want to spend less time in the kitchen and more time up playing tennis, golf and bridge. LINDA ROSE: Can you see that in [unintelligible - 00:35:01] culture? FRED MASTRANGELO: I think they will. I think as they start to advance in electronic technology, you find the same concept going on where you can press the button, you know, and electronically you get food processed into whatever cooking, stirs it in, and 30 seconds later, you have your seven-course meal. You'll always have that so-called throwback in the old days when the kitchen was a warm friendly approach, but I think that in time, the changes that will come will be electronically. The appliances will change dramatically, and with them, the lesser need for storage and lesser food preparation.21 LINDA ROSE: I thought [unintelligible - 00:35:42] electronic cabinet. FRED MASTRANGELO: Yes ma'am – yeah, yeah, no question about it, yeah. LINDA ROSE: That would be amazing [unintelligible - 00:35:046] what do you think your father would [say]? FRED MASTRANGELO: He would have been the first one to say, "Yeah, let's go for it." LINDA ROSE: Yeah. FRED MASTRANGELO: And the ability to take a shot into… foresee the future, , you know be ahead of this time and… they just didn't sit back and say, well, damn, you know, make little no work to it. They were ahead of their time. LINDA ROSE: Do you ever [unintelligible - 00:36:15]? FRED MASTRANGELO: I think it was inborn obviously, but it was [thrusted] and promulgated by the opportunity that existed in America, which is why they…people of that ilk jumped ahead and invested in property and tried things, because the country is just – and even today, it's such a dramatic country. We haven't capped its natural resources and saw its potential, even with the stuff that we got going on, which, you know, worldwide fiasco. But every day – and the proof of the pudding is that modest invention that just broke… I mean just like what's happening. And in my lifetime, especially my love for aviation, you know the Wright Brothers started in 1907, that's 100 years, and we've gone to the moon, so it's fascinating. LINDA ROSE: But it's just in a side but [unintelligible - 00:37:04]? FRED MASTRANGELO: No, really. LINDA ROSE: I guess the power, if you lost power [unintelligible - 00:37:08] so I was a little surprised to see a plane coming in.22 FRED MASTRANGELO: My heart goes out to him, because, well, about three years ago, he started building my own aircraft and I had an engine failure and put in the Blackstone River Valley. That was quite an experience. It was a fun time. LINDA ROSE: It was fun? FRED MASTRANGELO: Yeah. LINDA ROSE: Were you alone? FRED MASTRANGELO: Yup. LINDA ROSE: So what [unintelligible - 00:37:05]? FRED MASTRANGELO: The light didn't flash in a failure. What you do is you pull your fate that it doesn't happen so fast and when it's down, my reaction was, "Damn it, I just lost a $25,000 airplane, which took me three years to build." Not that I was hurt or anything else, that's what went through my mind. What a shame! But if you deal with transportation, I don't think if they're rollerblading, driving a cab, on a school bus, in an airplane, sooner or later, something's going to happen. If it's a human being moved, something's going to happen to him. LINDA ROSE: Just thinking of transportation, what is…? FRED MASTRANGELO: It's marvelous and I think it's going to… its advancement is going to come in… people who are on their feet all the time, such as the couriers in New York and such as the postal service people. And then in time, as the market warrants it and they bring the prices down, we'll all have them. I can be going to school on the damn things, no question about it. LINDA ROSE: And that brings up a whole other issue sort of [unintelligible - 00:38:23]. FRED MASTRANGELO: Yeah, but we've got them now. We've got so-called sidelines and we got running tracks and we've got mediums 23 in the middle of highways that they can easily convert to, whole bunches of people and these two-wheel [drivers]. LINDA ROSE: I never thought of that. Is there a talk of doing something [unintelligible - 00:38:39]? FRED MASTRANGELO: It's just something that makes good sense to me. LINDA ROSE: Right. Sounds like a new business. FRED MASTRANGELO: Yeah, right, that was all 20 years yonder. LINDA ROSE: Oh yeah. FRED MASTRANGELO: Oh god yes, I guess that's what I want to do. LINDA ROSE: You mentioned your daughter; do you have any other kids? FRED MASTRANGELO: I have three girls and a guy. LINDA ROSE: And [unintelligible - 00:38:54]? FRED MASTRANGELO: My oldest daughter works in the kitchen industry. The other children are involved with their own life and had no inkling to it – and I didn't force the issue. I didn't. You know, from my experience, I said to my son, "I'm not going to make him a kitchen designer." Let him do what the hell he wants. LINDA ROSE: What are they doing? FRED MASTRANGELO: My son is involved… he is a Fitchburg state teacher, graduate in communications. He spent his first two years in one of the TV channels and he said, "Dad, I don't want to be [confined] to a desk. I want to be outdoors," and he got involved with outdoor landscaping and diving. He became an assistant [mini-skipper] for a country club in Duxbury and now he works for a private millionaire in Duxbury as the head of the landscape crew. He loves it. My oldest daughter works for kitchen design center in Maine. My second daughter married a young naval aviator and she lives up in Kittery and is involved with one of the merchandisers of home style jellies and that type of thing –24 and does very well. And my baby daughter married a young budding artist here in Lunenburg, of the Demers family. Donald Demers became well-known as a maritime artist and did some outstanding work in the maritime painting field. And that's the crew! We still carry the traditions that my dad and mom instilled and we have our family get-together. We're very close. You take on one, you take them all on, so… a very close family. LINDA ROSE: Good, so tell me… FRED MASTRANGELO: Over and above, the integrity traditions of honor, loyalty, family, you know, the so-called [side] expressions are still strong. Yeah, it involves the holidays, the get-togethers, getting together on family events… pull them together in case of need. That's a very strong trait of our family. If someone needs a hand, everybody else jumps in. And then, of course, the story-swapping and the fun that we had growing up altogether and I just truly love my babies because I had so much fun raising them; they're just a delight, night after night. So those are the things. It's not a strong religious tradition because we're all forced into our religious background. We didn't choose it, but we brought them all up to respect it and they all understand that. But it's more, yeah, the Christmas dinners and the daily flickers because of the fish dinner, and the Easter – how [sad] we were that we didn't learn how to do Nana's Easter bread and that type of thing. LINDA ROSE: Did you bring up your child? FRED MASTRANGELO: Yes, it's about 40 years, yeah. LINDA ROSE: So right across from the home that you grew up?25 FRED MASTRANGELO: Yes, the reason I built this house with the A-frame was when we did the motel. I had designed the office as an [A-frame], because it seemed to make sense to me, a very simple structure, where the rough became finished, and I fell in love with the concept and built this one which was way ahead of its time – an awful lot of room in this house and very economical to build – well, absolute well. You know when school was up, I put on a pair of shorts and I spent the entire summer with my friends. I'll buy myself, exploring every nook and cranny on that lake, doing the fishing and the swimming. And across the park was in full [throttle]; that would mean riding over my bike and getting to know everybody and riding on the rides and hopping in out on the roller coaster, pedaling my bike down at the airport to watch some planes so I can learn to fly—and I soloed at an, early, early age—and it's just so much fun. Then come wintertime, the ice would freeze over, it was skating parties and hockey and, you know, it was idyllic growing up – idyllic because we explored. We didn't have TV. We didn't care about it. You know, we didn't worry about the radio; maybe often Nana got some of the other shows that were on, so it meant looking up – your own fun, like playing pirates or, you know, whatever we did on the summer's day was so much fun, and on the wintertime, going to the woods, you know. It was just play time. I had a happy childhood. LINDA ROSE: That's must have been enjoyable for you to think. FRED MASTRANGELO: Same thing, exactly the same. They had… when I built this house and I had the driveway put in, I built them up at the black top at the back which is a basketball court, hopscotch area and then they weren't any trees there, so they used to 26 slide down the hill into the little pond—because we still swim at the point that you saw from my sister's house up there, but that belongs to my son now—and they had a ball here, too. LINDA ROSE: Tell me about the revolutionary. FRED MASTRANGELO: I think I've explained that it was a [far see] thing, seeing man, you know, that he looked to the future. He and my mom went to the Chicago World's Fair in 1938. LINDA ROSE: So it was the Chicago [unintelligible - 00:44:26]. FRED MASTRANGELO: No, Chicago in '38. Chicago World's Fair in '38 was the forerunner of the avant-garde thinking of modern period; the so-called New Age of modernism started at the Chicago World's Fair, but prior to that time, it was all the old antiquity that was exciting the world, but this was the new concept. My dad fell in love with the modern concept. He came back and said he was going to build a house, and then, you know, just like poppy seeds that just kept growing and growing and growing, but he wanted clean cut lines and thought some unusual approaches towards the modern concept. So he designed this house, which is the first of its kind in the area, sleek sophisticated lines with the pine, had custom furniture done in the modern period, had custom—you know, you should see the house—and sometimes, the light [unintelligible - 00:45:21]. LINDA ROSE: It's for sale now. FRED MASTRANGELO: Yeah, right – and, once again, way ahead of his time. It's the first time anybody had put in horizontal windows, small touch but nonetheless. The first time anybody had used the [sleek] approach to dramatize the area. Modeling the interior wasn't done as the old-fashioned traditional Italian model of sleek, sophisticated black turn of 1938 thinking 27 statues that he found from the states that carried that theme. So it's a huge house, very modern, very well-advanced for its time, and we had a ball living in that one, too. LINDA ROSE: Did it take him very long building it? FRED MASTRANGELO: Oh yeah. Oh yeah. One time, we had a tally of how many [pounds of] bricks were in there and how many glass. He used glass spot extensively. Now it's a [unintelligible - 00:46:16] but at the time [unintelligible - 00:046:17] so yeah, so it's amazing. LINDA ROSE: So you were living on Granich Street while it was being built? FRED MASTRANGELO: Oh we had… my sister's house is the so-called summer camp, and we used to go down the area from Granich Street to that and we stayed there when the house was being built and during the summer that we moved back in Granich Street. That house of my sister's—I don't know if she told you—was the camp house and the ice run for when we used to cut ice in [unintelligible - 00:46:44] and that was turned into a… there are still… in some of the [cove], there are still states that have the ice run, where they used to cut the ice and then bring it up into the shed. LINDA ROSE: Is that the way [unintelligible - 00:46:58]? FRED MASTRANGELO: Yeah, that was the bunk house and the shed for the ice storage. LINDA ROSE: [Unintelligible - 00:47:03] so what was the… FRED MASTRANGELO: That wasn't, it was, once again, ahead of its time, sleek cabinetry, not high glass but, you know, very plain, simple, modern look – and the first time anyone had used stainless steel cabinets in the area, and this goes way, that's a long time ago. All [prefost] sinks and the stainless steel countertop, tile, back splashes, it wasn't…we still had a 28 separate range and a separate refrigerator, the so-called built-in concept that we have now, still ahead of its time. LINDA ROSE: Did your mother ever [unintelligible - 00:47:38]? FRED MASTRANGELO: Oh yes, my mother was very strong in supporting my father, knowing that, but when my father took one of the [mostly] bought and opened up [unintelligible - 00:47:47] to a gift shop, very large four-storey milk gift shop, known as the MDS Gift Shop in Fitchburg. She ran that one; my mother was ahead of her time, too. LINDA ROSE: She was quite a bit younger. FRED MASTRANGELO: Yes, mm-hmm. Her family had a market on Water Street. LINDA ROSE: Okay. FRED MASTRANGELO: That's the Montourri family. The Montourri family is [unintelligible - 00:48:08] Montourri Distribution, Montourri Trucking, a whole bunch of others. So that between Al and his kids, my mother's six …you know Christmas was a ball and it's like 50 people in that house at Christmastime. My mother lived in a house where we had the very first Angel cabinets put in; it was called a Cinderella line with a sloped phase, and she loved it, because she adapted, you know she's a modern girl. LINDA ROSE: [Unintelligible - 00:48:36]? FRED MASTRANGELO: Oh no. I know. I fell in love with them. LINDA ROSE: Yeah [unintelligible - 00:48:43]. FRED MASTRANGELO: As I indicated, very, very fortunate, very fortunate, but I think I know it's up in the air. You know, all my Italian buddies were – I didn't know any better. I didn't know I was a little bit more… better off than they were per se, so we just had a ball. LINDA ROSE: What kind of remarks?29 FRED MASTRANGELO: They call it the castle because it's such a big huge edifice. And it's so funny because I heard some comments when I was building this house. This house was a revolution for its time also. And they said, "Oh, yeah, just like his father, his father built a castle, he built a church," and they talked about it. Its design was going to be a simple story ranch, all one floor, make it easy for Marcia and I to you, know, spend our life before you go to the Happy Valley Restaurant. LINDA ROSE: [Unintelligible - 00:49:33] FRED MASTRANGELO: Broken, yeah, but pretty well, oh yeah. LINDA ROSE: Do you know how he learned? FRED MASTRANGELO: He was an avid reader and he started with the classics and followed every single newspaper, listened to the radio and paid attention, and then when he was in business, he had to because he had to negotiate deals. My father was genuine character, delightful genuine character, strong-willed, lovely man, twinkle in his eye all the time. He's the type of the guy that if you get involved with an argument, you know how you and I would say oftentimes – what I should have said was… well, he'd jump on his cab the next day and go back and start it out [unintelligible - 00:50:08]. He's just a fun guy to be with. LINDA ROSE: It seems that [unintelligible - 00:50:14] I felt my errands experience in Worcester, because I never give myself permission to work on. FRED MASTRANGELO: Okay. One of the [unintelligible - 00:50:029] C-U-C-C-A-R-O [unintelligible - 00:50:35] cabinetry is the most dominant line established in the [unintelligible - 00:50:53] and then mother [unintelligible - 00:50:56] everybody and 30 everything involving [unintelligible - 00:51:08] you go in there. LINDA ROSE: Okay, we may have to… I'm not really sure what's happening with this machine because as it keeps up printing's talking and it should never do that. Oh boy, now it isn't, now it is, I don't know. It's not [unintelligible - 00:51:33]. FRED MASTRANGELO: Okay. LINDA ROSE: Anyway working now, so let's get on. Would you… FRED MASTRANGELO: Just some of the… obviously the high school years [unintelligible - 00:51:44] and we had because of our… it's interesting now to be able to think back on both [unintelligible - 00:51:51]. LINDA ROSE: So [unintelligible - 00:51:52] something to share what makes it interesting? FRED MASTRANGELO: That I think Anthony's [unintelligible - 00:52:00] grade school, they were [unintelligible - 00:52:06] my father and Joe's father at that time [unintelligible - 00:52:12] but you could tell. There's a lot more than everything, Sunday morning after church [unintelligible - 00:52:22] my father [unintelligible - 00:52:23]. It's fascinating stories of their culture the whole day [unintelligible - 00:52:26] Sunday morning and spend some time up there and then they will give you coffee. And that was just delightful because they get hysterical over the most simple story that took place in their parish that took place on Water Street, that took place on Main Street – I mean the simple enjoyable cultural humor; that, to me, stuck in my mind and I'm sure [unintelligible - 00:52:55] touched on that story. The life of everyday story which I had the opportunity to have known my father's family, so that was fun too. What they 31 did in a short of period of time, you know, that's the thing. All of them, you know, I don't care if they're shoemaker or a night grinder or, you know, you own the market or you build cabinets, whatever it was, you know, hardworking. It's the same basic understanding of life [unintelligible - 00:53:28] and fighting because they had a stigma attached to them. They were the [unintelligible - 00:53:37]. They were the Italians that came over, just as the Irish had their tough times too, and they overcame all these obstacles, and they made it – all of them. LINDA ROSE: Did they treat the boy? FRED MASTRANGELO: Oh god, yeah, and they… oh yeah. The fact that they didn't love the girls but just figured they were girls; they too have to know about worldly affairs [unintelligible - 00:54:13] but they still had to [protect] the same rules as guys did, but they weren't involved in the [unintelligible - 00:54:28] not secretive but—what am I thinking of?—banding, the banding of the men. LINDA ROSE: Even with your sister. FRED MASTRANGELO: Well, as I was saying, most of the family, they had a will [unintelligible - 00:54:48] they would strongly force [unintelligible - 00:54:52] all of the children [unintelligible - 00:54:56] so it meant, you know, selling bread and [pick] even those nickels and try to [unintelligible - 00:55:13]. I think it's strictly as they indicated that they have [unintelligible - 00:55:25] because believe it or not, [unintelligible - 00:55:30] followed by whatever, you know, fantastic dinner [unintelligible - 00:55:37] and that was [unintelligible - 00:56:02] things to do and [unintelligible - 00:56:12] people would come over and just drop in for a Sunday dinner because 32 [unintelligible - 00:56:22] that I usually heard of that Sunday. [Unintelligible - 00:56:34] LINDA ROSE: Why is [unintelligible - 00:56:40] how could they keep things? FRED MASTRANGELO: And it was a simple life. I mean you didn't get the instant news or the instant ramification of [unintelligible - 00:56:48]. It was an event driving to Boston [unintelligible - 00:56:50]. You know [unintelligible - 00:56:55] what they are but it wasn't fast-moving, slow pace. Everything was slow pace. [Unintelligible - 00:57:03] It wouldn't take [unintelligible - 00:57:51] but at the time it was happening [unintelligible - 00:57:56]. He bid off something and then what happened, he had to and we just thought it as a natural progression, yeah, he wouldn't get far to it so that's the way all fathers were. Only in later years did you recognize the ability of your parents, you, Marcia and I, and then our kids hopefully in time, if only later on. But while it's going on, you don't think about it. [Unintelligible - 00:58:52] great guy or whatever and then you're growing up – I wouldn't have it any other way. [Unintelligible - 00:59:04] very, very [fortunate] [unintelligible - 00:59:09] bad Italians but by and large, it's just a nice, you know [unintelligible - 00:59:29] English. He probably got some various idea [unintelligible - 00:59:37] you may not want to hear. Oh I'm sure. LINDA ROSE: So I'd like to ask you one thing. FRED MASTRANGELO: Go on. LINDA ROSE: What is your hardest experience then? FRED MASTRANGELO: Oh God, Linda – about what? Life is so complex. I mean emotional, financial or what? Hardest experience? My 33 father's experience… that's a puzzlement. I'd have to really think about that one. Nothing jumps in my head – my hardest experience. LINDA ROSE: How did you [unintelligible - 01:00:23]? FRED MASTRANGELO: Yeah, hardest emotional experience was the loss of my parents. I mean, that happens to everybody, that's an exception. My hardest experience, like I say, I could probably ramble… you've heard an awful lot of it today, but it just sounds too "I, I, I" all the time and I don't mean it to be. LINDA ROSE: I don't think so but… FRED MASTRANGELO: Once again after 50, 60, 70 years, you know, there are little anecdotes and stories that demand going back to the reason why, which would take another two hours to explain why we came to this particular conclusion, if I started the story about the company, so I was giving you highlights rather than individual approach – like I'll tell you one little anecdote about my father to show you what guy he was. He was still in the tailor business—and my mother told us the stories—he was still in the tailor business and one of the Christmas shopping joints downtown Fitchburg would occur at night, you know, the stores stayed open relatively late in the last week. My mother said it was a terrible smelly awful, awful night, and she went down with my dad, and standing on the corner was a so-called urchin trying to sell the daily Fitchburg news, freezing his tail off, you know, as my mother indicated. My father said to him, "How long do you have to be out here?" And he said, "Until I sell all my papers," and my father bought them all from him and sent him home. That's the kind of a guy he was, you know, and it's just a delightful anecdote of his. 34 And he's also philanthropic. He would go down and he would help – but that's true of most of the boys on Water Street, and so that cultural importance came in. They would take care of each other and help. LINDA ROSE: You would help. FRED MASTRANGELO: Which is why the vast majority of the employees of the Angel—and I don't want to knock the rest of them that are there, because there's a whole bunch of them, big portion of Italian descent. LINDA ROSE: [Unintelligible - 01:02:31] FRED MASTRANGELO: Oh God, yes, oh yes – the fathers who worked there, uncles and brothers. LINDA ROSE: Was there any particular [unintelligible - 01:02:40]. FRED MASTRANGELO: Not to my knowledge. LINDA ROSE: Mm-hmm. FRED MASTRANGELO: Well, okay. LINDA ROSE: That's good. That's the end of the interview./AT/jf/el/ee
El objetivo principal de esta Tesis Doctoral es evaluar el desempeño financiero de las inversiones socialmente responsables (ISR). En las últimas décadas, la gestión de inversiones ha experimentado un proceso progresivo de adaptación en el que los objetivos financieros convencionales se han complementado con atributos no financieros como los criterios medioambientales, sociales y de gobernanza (ESG). Esta tendencia refleja una creciente conciencia sobre cuestiones ambientales, sociales y éticas que influye de manera importante en las decisiones de compra de los inversores (Mollet y Ziegler, 2014). La ISR atrae a inversores que desean ir más allá de la utilidad financiera de sus inversiones y que esperan una utilidad no financiera que refleje sus valores sociales (Auer, 2016; Auer y Schuhmacher, 2016). Los aspectos ESG se están convirtiendo en una parte importante del proceso de toma de decisiones de los inversores al ayudarles a identificar oportunidades y riesgos en el largo plazo. De acuerdo con el Global Sustainable Investment Review de 2016, en 2016 hubo 22,89 billones de dólares gestionados profesionalmente en el marco de estrategias de inversión responsable a nivel mundial, lo que representa un aumento del 25% desde 2014. En 2016, el 53% de los gestores en Europa utilizaron estrategias de inversión responsable, siendo esta proporción del 22% en EE.UU. y del 51% en Australia/Nueva Zelanda. Esta tendencia se ha ratificado para los dos últimos años. Los gestores de activos estadounidenses consideraron criterios ESG en su gestión por valor de 11,6 billones de dólares, un 44 por ciento más que los 8,1 billones de dólares de 2016 (USSIF, 2018). El informe EUROSIF (2018) también revela un crecimiento sostenido en Europa de las estrategias de inversión sostenibles. Los dos últimos años (2016-2018) muestran signos manifiestos de que la ISR se está convirtiendo en parte integrante de la gestión de los fondos europeos. La idea básica de la ISR es aplicar un conjunto de filtros al universo de inversión disponible con el fin de seleccionar o excluir activos en función de criterios ESG (Auer, 2016). En la práctica, existen diferentes estrategias ISR, como la integración, la selección positiva/best-in-class, la selección ética/negativa, la gobernanza, el compromiso, etc., todas ellas con el objetivo de dirigir los fondos hacia empresas socialmente responsables con proyectos y políticas constructivas y sostenibles. Desde la perspectiva de los inversores, la cuestión crítica es si la selección de acciones socialmente responsable conduce a ganancias o pérdidas en términos de rendimiento financiero. Por parte de las empresas, la cuestión es si el gasto de recursos en prácticas de responsabilidad social de las empresas (RSE) redundará en beneficio de la empresa y aumentará su valor. Si hacer el bien (social y medioambiental) está vinculado a hacerlo bien (financieramente), las empresas podrían verse incentivadas a comportarse de manera más sostenible. Una relación positiva entre el desempeño social y el financiero legitimaría incluso la RSE sobre razones económicas (Margolis et al. 2009). El crecimiento de la ISR y sus consecuencias ha estimulado la realización de estudios empíricos evaluando su comportamiento financiero. Una parte importante de la literatura se ha centrado en el rendimiento financiero de los fondos de inversión ISR. En general, estos estudios encuentran que no hay diferencias significativas en el desempeño financiero de fondos ISR y fondos de tipo convencional (Leite et al. 2018)2. Sin embargo, la evaluación del impacto financiero de la ISR mediante el análisis del rendimiento de los fondos de inversión ISR gestionados activamente presenta algunas deficiencias. Por ejemplo, como señalan Brammer et al (2006) y Kempf y Osthoff (2007), existen efectos confusos -como las habilidades de gestión del gestor y los honorarios y tasas por la gestión- que pueden dificultar la identificación del rendimiento de las ISR. Además, la evidencia de Utz y Wimmer (2014), Humphrey et al. (2016), y Statman y Glushkov (2016) sugiere que la etiqueta "socialmente responsable" puede ser una estrategia de marketing de los fondos, lo que suscitaría dudas entre los inversores sobre si un fondo ISR es realmente socialmente responsable. En consecuencia, los inversores pueden tener dificultades para saber en qué medida un fondo ISR tiene realmente en cuenta los criterios sociales en su proceso de selección. Para superar las limitaciones asociadas a los estudios sobre fondos de inversión ISR gestionados activamente, un enfoque alternativo para evaluar los efectos financieros de la ISR consiste en analizar el rendimiento de carteras sintéticas formadas utilizando características sociales, medioambientales y de gobernanza de las empresas. En esta Tesis Doctoral, seguimos este enfoque para evaluar las inversiones socialmente responsables. Esta Tesis Doctoral está organizada en dos secciones. La primera incluye los capítulos 1 y 2 en los que se evalúan algunos aspectos metodológicos relacionados con una medida de rendimiento financiero que se utiliza para evaluar el rendimiento financiero de la ISR en la sección dos. La segunda sección incluye los capítulos 3, 4, 5 y 6 en los que se evalúa el desempeño financiero de la ISR desde diferentes perspectivas. Primera Sección. En el Capítulo 1 se evalúa la utilidad de una estrategia de inversión sectorial basada en el modelo de tres factores de Fama y French (1992). En este capítulo desarrollamos un proceso de inversión, que hasta donde sabemos es nuevo, incluyendo en una cartera acciones que están infravaloradas con respecto a sus índices sectoriales, es decir, tomamos como factor de mercado relevante el índice sectorial al que pertenecen las empresas. Nuestro principal objetivo en este capítulo es comprobar si es posible conseguir de forma consistente una rentabilidad extraordinaria mediante una estrategia sectorial basada en el modelo de Fama y French (1992) para la toma de decisiones de inversión. En el Capítulo 2 se evalúa si el modelo Fama y French (1992) puede convertirse en una herramienta más versátil y flexible, capaz de incorporar las variaciones en las características de las empresas de una forma más dinámica. Específicamente, prestamos atención al procedimiento que siguen Fama y French (1992) para formar los factores de riesgo. Ellos toman datos anuales y evalúan las carteras de valor y tamaño una vez al año, manteniéndolas invariables durante todo el período. Sin embargo, observamos que las características de las empresas pueden variar durante un periodo de 12 meses. Argumentamos que en ese periodo la valoración de una empresa puede cambiar como resultado de, por ejemplo, variaciones en su precio de mercado, su tamaño o su precio en libros; sin embargo el modelo de Fama y French (1992) no refleja con precisión esta dinámica. Nuestro principal objetivo en este capítulo es probar la eficacia del modelo tomando datos mensuales y reformando las carteras de valor y tamaño al final de cada mes para desarrollar una herramienta más dinámica y adaptable. Segunda Sección. En el Capítulo 3 se evalúa el rendimiento financiero de carteras que pueden formar inversores minoristas con conciencia social en comparación con inversiones convencionales. Observamos que la mayoría de los estudios previos que evalúan el rendimiento financiero de la ISR se llevan a cabo desde la perspectiva de las decisiones de inversión de los inversores institucionales y no desde la perspectiva de los inversores particulares que desean mantener carteras ISR. Sin embargo, ha habido un aumento considerable de la popularidad de la ISR entre los inversores minoristas (Benijts, 2010). Nilsson (2015) destaca que los inversores particulares optan por dedicar al menos una parte de sus fondos a inversiones que incluyan algún tipo de preocupación social o medioambiental, convirtiéndose así en un factor importante en la configuración de la ISR. Según el Global Sustainable Investment Review de 2016, aunque el mercado ISR en la mayoría de las regiones está dominado por inversores institucionales profesionales, el interés de los inversores particulares por la ISR está adquiriendo relevancia. De hecho, la proporción relativa de inversiones en ISR al por menor en Canadá, Europa y Estados Unidos aumentó del 13 por ciento en 2014 al 26 por ciento a comienzos de 2016 (GSIA, 2016). El objetivo de este capítulo es evaluar el rendimiento de las carteras que pueden formar los inversores minoristas socialmente responsables en comparación con las inversiones convencionales. Utilizamos varias medidas de rendimiento financiero; entre otras, la desarrollada en el capítulo 2 de esta Tesis Doctoral. Como punto relevante para los inversores minoristas, para la selección de las empresas socialmente responsables acudimos a una fuente de información de acceso libre al público a la que puede acceder cualquier inversor minorista. Adicionalmente, en este capítulo analizamos el impacto que pueden tener diferentes estados del mercado (alcistas y bajistas) sobre el rendimiento financiero de las carteras ISR. Investigaciones recientes muestran que el rendimiento de fondos de renta variable ISR (Nofsinger y Varma, 2014; Becchetti et al., 2015, Leite y Cortez, 2015), fondos de renta fija de ISR (Henke, 2016) y empresas socialmente responsables (Brzeszczyński y McIntosh, 2014; Carvalho y Areal, 2016) son sensibles a diferentes estados del mercado. En el Capítulo 4 evaluamos el desempeño financiero de carteras de acciones construidas con criterios de RSC a nivel internacional. Observamos que los estudios previos que abordan el desempeño de las carteras sintéticas socialmente responsables adolecen de algunas limitaciones e inconsistencias, a saber: (1) la mayoría de los estudios previos se centran en los mercados bursátiles de EE.UU. y Europa; (2) con la excepción de Badía et al. (2017), los estudios anteriores no comparan el desempeño de las carteras de ISR de diferentes regiones del mundo; (3) existen estudios que miden la RSC sólo a través de una de sus dimensiones individuales, mientras que otros consideran medidas agregadas de la RSC; (4) la mayoría de los estudios no evalúan la influencia de la industria en el desempeño financiero de las carteras de acciones ISR; (5) en varios de los estudios que evalúan a empresas europeas, se utilizan muestras de tamaño reducido; (6) falta evidencia actualizada; y (7) algunos investigadores simplemente dividen los períodos de análisis en subperíodos para evaluar el ―efecto de tiempo‖, sin embargo, es posible que se haya descuidado un efecto importante, el impacto de diferentes estados del mercado sobre el rendimiento financiero. Nuestro principal objetivo en este capítulo es evaluar el rendimiento financiero de carteras construidas sobre la base de criterios RSC superando las limitaciones previas. Formamos carteras de acciones con valoraciones de sostenibilidad altas y bajas e investigamos el rendimiento de dichas carteras utilizando modelos multifactoriales. En este capítulo, ampliamos el análisis sobre el impacto de la utilización de filtros socialmente responsables en el rendimiento de las carteras de inversión a otras áreas geográficas (Norteamérica, Europa, Japón y Asia-Pacífico); comparamos el rendimiento financiero de las carteras ISR de estas regiones entre sí; formamos carteras basadas en una medida agregada de RSE, así como en tres de sus dimensiones específicas ESG; evaluamos la influencia de la industria en el rendimiento financiero de las carteras de acciones ISR; y, por último, evaluamos el rendimiento financiero de las carteras de acciones ISR en diferentes estados de los mercados: alcistas, bajistas y períodos de mercados mixtos. En el Capítulo 5 evaluamos el rendimiento financiero de carteras de deuda pública formadas según criterios ESG. Observamos que, aunque el concepto de ISR se relacionó originalmente con la selección de acciones, la proporción de inversores que aplican criterios ISR a bonos ha crecido significativamente en los últimos años. Según el Foro Europeo de Inversión Sostenible (EUROSIF, 2016), la renta variable representaba más del 30% de los activos de ISR en diciembre de 2015, lo que supone un descenso significativo respecto al 50% del año anterior. Por otra parte, se ha producido un fuerte aumento de los bonos, que han pasado del 40% registrado en diciembre de 2013 al 64%. Tanto los bonos corporativos como los bonos gubernamentales experimentaron un crecimiento notable. En este sentido, las implicaciones financieras de los procesos de selección ESG sobre bonos corporativos pueden estar estrechamente relacionadas con la selección de acciones, ya que los bonos corporativos están asociados a empresas. De hecho, estudios previos (por ejemplo, Derwall y Koedijk, 2009; Leite y Cortez, 2016) que evalúan el desempeño financiero de fondos que invierten en bonos de renta fija socialmente responsables, encuentran que en promedio tuvieron un desempeño similar al de los fondos convencionales. Estos resultados están en línea con la mayoría de los estudios empíricos sobre el desempeño de los fondos ISR que muestran que tienden a tener un desempeño similar al de sus pares convencionales (Revelly y Viviani, 2015). Sin embargo, los procesos de selección ESG sobre bonos gubernamentales, dado que no están relacionados con las empresas, pueden ayudar a comprender las consecuencias de la ISR para activos alternativos. A pesar del crecimiento del mercado de deuda pública ISR y del desarrollo de calificaciones de los países basadas en factores ESG en los últimos años, se ha pasado por alto el vínculo entre la rentabilidad de la deuda pública y el rendimiento de los países en términos de preocupaciones ESG. De hecho, hasta donde sabemos, ninguna investigación previa ha evaluado el rendimiento financiero de las inversiones responsables en bonos gubernamentales. El objetivo principal de este capítulo es llenar este vacío. Evaluamos el rendimiento financiero de carteras de deuda pública formadas según criterios ESG. A diferencia de estudios previos, en los que se aplican calificaciones de sostenibilidad de las empresas, se utilizan calificaciones de sostenibilidad relacionadas con los países. En el capítulo 6 se estudia un aspecto poco evaluado de la RSE: la distinción entre inversiones en cuestiones de sostenibilidad materiales e inmateriales. Sólo las empresas que se centran en cuestiones de sostenibilidad material asociadas a sus operaciones principales deberían lograr una ventaja competitiva y obtener un mayor rendimiento social y financiero. Las actividades de RSE y las innovaciones relacionadas deben realizarse sobre aspectos materiales, ya que de lo contrario no se debería espera un efecto positivo en el rendimiento financiero. De hecho, las inversiones en cuestiones inmateriales pueden implicar costes empresariales adicionales sin un rendimiento social y financiero asociado. Para las empresas es importante centrarse en las cuestiones materiales ya que de este modo invierten en aspectos sociales que realmente afectan a sus operaciones. A pesar de que temas como la seguridad de los productos, el cambio climático y la intensidad en el uso de los recursos tienen impactos en varias industrias, como señalan Herz and Rogers (2016), esos efectos a menudo varían en gran medida de una industria a otra. Los riesgos pueden estar en todas partes, aunque también son particulares. Como consecuencia, las empresas de diferentes industrias tienen sus perfiles de sostenibilidad particulares. Es probable que una empresa que invierte sobre temas de sostenibilidad material en su industria logre un desempeño financiero positivo. Mientras tanto, es probable que una empresa que invierte en cuestiones de sostenibilidad materiales pero también inmateriales no logre un rendimiento financiero superior. En este capítulo, el objetivo principal es evaluar el rendimiento financiero de carteras de acciones formadas en función de cuestiones de RSC materiales e inmateriales. Khan et al (2016) muestran que las empresas estadounidenses con un fuerte desempeño en aspectos materiales superan a las empresas con un desempeño pobre en temas materiales. Nuestro conjunto de datos incluye empresas de estadounidenses y Europa. De este modo, ampliamos las pruebas anteriores de Khan et al. (2016) a las empresas europeas. La evaluación de las empresas estadounidenses y europeas es particularmente interesante dada la heterogeneidad de las pautas de desarrollo de la ISR en los distintos países (Neher y Hebb, 2015). En este capítulo utilizamos las puntuaciones de las empresas a partir de un conjunto de datos original que integra los estándares del Mapa de Materialidad SASB que, hasta donde sabemos, no se ha utilizado antes en este contexto. ; The main objective of this Doctoral Thesis is to evaluate the financial performance of socially responsible investments (SRI). In recent decades, investment management has undergone a progressive adaption process in which conventional financial objectives are increasingly being complemented by non-financial attributes such as environment, social and governance (ESG) criteria. This trend reflects an increasing awareness of environmental, social, and ethical issues that is strongly influencing the purchase decisions of investors (Mollet and Ziegler, 2014). SRI appeals to investors who wish to go beyond the financial utility of their investments and also derive non-financial utility from holding securities that reflect their social values (Auer, 2016; Auer and Schuhmacher, 2016). Additionally, ESG issues are becoming an important part of investors' decision-making process by helping them to identify firms' long-term opportunities and risks. According to the 2016 Global Sustainable Investment Review, in 2016 there were $22.89 trillion of assets being professionally managed under responsible investment strategies globally, representing an increase of 25% since 2014. In 2016, 53% of managers in Europe used responsible investment strategies, this proportion being 22% in the US and 51% in Australia/New Zealand. This tendency has been ratified recently for the last two years. US asset managers considered ESG criteria across $11.6 trillion in assets, up 44 percent from $8.1 trillion in 2016 (USSIF, 2018). The EUROSIF (2018) report discloses sustained growth for most sustainable and responsible investment strategies. The past two years (2016-2018) show manifest signs of SRI becoming integral to European fund management. The basic idea of SRI is to apply a set of screens to the available investment universe, in order to select or exclude assets based on ESG criteria (Auer, 2016). In practice, there is a range of SRI strategies, such as integration, positive/best-in-class screening, ethical/negative screening, governance and engagement, etc. All of these aim to drive funds towards socially responsible firms with constructive sustainable projects and policies. From an investors' perspective, the critical issue is whether socially responsible stock selection leads to gains or losses in terms of financial performance. On the firms' side, the question is whether spending resources on corporate social responsibility (CSR) practices will render benefits for the firm and increase its value. If doing good is indeed linked to doing well, firms may be led to behave in a more sustainable way. A positive relationship between social and financial performance would even legitimize CSR on economic grounds (Margolis et al. 2009). The growth of SRI and its consequences has stimulated empirical studies assessing financial behaviours. An important stream of the literature has focused on the financial performance of SRI mutual funds. In general, these studies find that there are no significant differences between the performance of SRI mutual funds and conventional funds (Leite et al. 2018). However, assessing the financial impact of SRI by evaluating the performance of actively managed SRI mutual funds has some shortcomings. For instance, as Brammer et al. (2006), and Kempf and Osthoff (2007) point out, there are confounding effects - such as fund manager skills and management fees - that may make it difficult to identify the performance that is due to the social characteristics of the underlying holdings. Furthermore, the evidence of Utz and Wimmer (2014), Humphrey et al. (2016), and Statman and Glushkov (2016) suggests that the 'socially responsible' label may be more akin to a marketing strategy, thus raising doubts among investors that an SRI fund is really socially responsible. As a consequence, investors may find it difficult to know the extent to which an SRI fund is really considering social criteria in its selection process. To overcome the limitations associated to studies on actively managed SRI mutual funds, an alternative approach to evaluate the financial effects of SRI involves evaluating the performance of synthetic portfolios formed on assets' social characteristics. In this Doctoral Thesis, we follow this approach to evaluating socially responsible investments. This Doctoral Thesis is organized in two sections. The first includes chapters 1 and 2 in which we evaluate some methodological aspects related to a financial performance measure which is used to assess the financial performance of SRI in Section two. The second Section includes Chapters 3, 4, 5, and 6 in which we evaluate the financial performance of SRI from different perspectives. First Section. In Chapter 1 we assess the usefulness of a sector investment strategy based on the three-factor Fama and French (1992) model. We develop an investment process that is, as far as we know, new by including stocks that are undervalued with respect to their sector indices in a portfolio. We take as the relevant market factor the sector index to which firms belong. We base the strategy on the difficulty entailed in effectively choosing the appropriate market portfolio (Roll, 1977).Our main objective in this chapter is to test whether it is possible to consistently achieve extra-financial returns by means of a sector strategy using the Fama and French model (1992) as a basis for decision-making. In Chapter 2 we evaluate whether the Fama and French (1992) model may be adapted to become a more versatile and flexible tool, capable of incorporating variations of firms characteristics in a more dynamic form. We pay attention to the procedure that Fama and French (1992) follow to form the risk factors. They take annual data, and the value and size portfolios are assessed once a year, maintaining invariability during the whole period. However, we note that firms' characteristics can change during any given 12-month period. We argue that, over time, firms' valuation may change as a result of variations in its market price, size or book price, and we are aware that the Fama and French (1992) model does not accurately reflect these dynamics. Our main objective in this chapter is to test the effectiveness of the model by taking month-to-month data and reforming the value and size portfolios at the end of each month, aiming to develop a more dynamic and adaptable tool. Second Section. In Chapter 3 we evaluate the financial performance of portfolios that can be formed by socially conscious retail investors compared to conventional investments. We note that most previous studies evaluating the financial performance of SRI are conducted from the perspective of institutional investors' investment decisions and not from the perspective of retail investors who wish to hold SRI portfolios. Nonetheless, there has been a considerable increase in the popularity of SRI among retail investors (Benijts, 2010). Nilsson (2015) highlights that retail investors choose to devote at least part of their funds to investments that include some kind of social or environmental concerns, thereby having become an important factor in shaping SRI. According to the 2016 Global Sustainable Investment Review, although the SRI market in most of the regions is dominated by professional institutional investors, retail investors' interest in SRI is gaining relevance. Indeed, the relative proportion of retail SRI investments in Canada, Europe and the United States increased from 13 percent in 2014 to 26 percent at the start of 2016 (GSIA, 2016). Furthermore, over one third of SRI assets in the United States come from retail investors. The objective of this chapter is to assess the performance of portfolios that can be formed by socially responsible retail investors compared to conventional investments. We use several financial performance measures. Among others, that developed in chapter 2 of this Doctoral Thesis. As a relevant point to retail investors, we use stocks listed on a source freely available to the public that any retail investor may access. Additionally, we analyse the impact of different market states on the financial performance of SRI portfolios. Recent research shows that the performance of SRI equity funds (Nofsinger and Varma, 2014; Becchetti et al., 2015, Leite and Cortez, 2015), SRI fixed-income funds (Henke, 2016), and socially responsible stocks (Brzeszczyński and McIntosh, 2014; Carvalho and Areal, 2016) is sensitive to different market states (e.g., expansion and recession periods). In Chapter 4 we evaluate the financial performance of international stock portfolios based on CSR criteria. We note that previous studies that address the performance of socially screened synthetic portfolios suffer from some limitations and inconsistencies, namely, (1) the majority of prior evidence only refers to the US and European stock markets; (2) with the exception of Badía et al. (2017), previous studies do not compare the performance of SRI portfolios of different regions worldwide; (3) there are studies that measure CSR through one of its individual dimension only, whereas others consider an aggregate construct of CSR; (4) most studies do not evaluate the influence of specific industries on the financial performance of SRI stock portfolios; (5) in several studies assessing European firms, undersized samples are used; (6) up-to-date evidence is lacking; and (7) some researchers who split sample periods merely into sub-periods to evaluate a 'time effect', i.e., whether SRI returns were better in earlier years and yet declined in more recent periods, may have neglected an important effect, specifically, the impact of different market states. Our main objective in this chapter is to evaluate the financial performance of international stock portfolios based on CSR criteria aiming to overcome previous limitations in the evaluation of SRI stock portfolio performance. We form portfolios of stocks with high and low sustainability scores and investigate the performance of such portfolios using multi-factor models. In this chapter, we extend the analysis on the impact of including socially responsible screens on investment portfolios performance to additional geographical areas (North America, Europe, Japan, and Asia Pacific); we compare the financial performance of SRI portfolios of these regions to each other; we form portfolios based on an aggregate measure of CSR as well as on three of its specific ESG dimensions; we evaluate the influence of specific industries on the financial performance of SRI stock portfolios; and finally, we assess the financial performance of SRI stock portfolios over different market states: bear, bull and mixed market periods. In Chapter 5 we evaluate the financial performance of government bond portfolios formed according to ESG criteria. We note that although the concept of SRI was originally related to stock selection, the proportion of portfolio investors applying SRI criteria to bonds has grown significantly in recent years. According to the European Sustainable Investment Forum (EUROSIF, 2016), equities represented over 30% of SRI assets in December 2015, a significant decrease from the previous year's 50%. Meanwhile, there was a strong increase in bonds from the 40% registered in December 2013 to 64%. Both corporate bonds and government bonds underwent a remarkable growth. The former rose from 21.3% to 51.17% of the bond allocation, while the latter increased from 16.6% to 41.26%.In this regard, the financial implications of ESG screening processes on corporate bonds may be closely related to stock selections since corporate bonds are associated with firms. Indeed, previous studies (e.g., Derwall and Koedijk, 2009; Leite and Cortez, 2016) which evaluate the financial performance of mutual funds that invest in socially responsible fixed-income stocks, find that the average SRI bond funds performed similarly to conventional funds. These results are in line with most empirical studies about the performance of SRI funds, which show that they tend to have a similar performance to their conventional peers (Revelly and Viviani, 2015). However, ESG screening processes on government bonds, since they are not related to firms, can help gain an in-depth understanding of SRI consequences for alternative assets. Despite the SRI government bond market growth and the development of country ratings based on ESG factors in recent years, the link between government bond returns and country performance in terms of ESG concerns has been overlooked. In fact, to the best of our knowledge, no previous research has evaluated the financial performance of responsible government bond investments. The main objective of this chapter is to fill this gap. We assess the financial performance of government bond portfolios formed according to ESG criteria. We thus open a discussion on the financial performance of SRI for an alternative asset to firms.In contrast to previous studies, which apply firm sustainability ratings, we use sustainability ratings related to countries. In Chapter 6 we ascertain a less assessed aspect in CSR: distinguishing between investments in material versus immaterial sustainability issues. We note that only firms focused on material sustainability issues associated with their main operations should achieve a competitive advantage and obtain a higher social and financial performance. CSR activities and innovations should be performed on material aspects since otherwise a positive effect on financial performance is not expected. Indeed, investments on immaterial issues may involve additional corporate costs without a social and financial performance associated return. Focusing on material issues is important for firms since they do investments in social aspects that truly affect their operations. Despite issues as prod¬uct safety, climate change, and resource intensity have impacts across several industries, as Hertz et al. (2016) note, those effects often vary to a great extent from one industry to the next. Risks may be everywhere, although they are indeed also particular. As a consequence, firms of specific industries have their particular sustainability profiles. Thus, a firm investing and reporting on material sustainability issues is likely achieved positive financial performance. Meanwhile, a firm investing on material but also on immaterial sustainability issues is likely not achieved superior financial performance. In this chapter, the main objective is to assess the financial performance of stock portfolios formed according to material and immaterial CSR issues. Khan et al. (2016) show that US firms with strong performance on material aspects outperform firms with poor performance on material topics. Our dataset includes companies from US and Europe. We thus extend the previous evidence of Khan et al. (2016) to European firms. Evaluating firms from US and Europe is particularly interesting given the heterogeneity in the patterns of development of SRI across countries (Neher and Hebb, 2015). Furthermore, we use firm' scores from an original dataset that integrates the SASB Materiality Map standards which, to our knowledge, has not been used before.
The present study documents a language educator's reflection on two transitions that mirror current curricular changes in undergraduate language programs in the United States. The first chronicles her personal pedagogical transformation from a general-purposes Spanish language professor and her adjustment to teaching as a visiting professor in a Spanish for Specific Purposes (SSP) language-learning environment at the United States Air Force Academy. The second reports the evolution over several decades of the Spanish language program at University of Alabama at Birmingham from a traditional general Spanish-language program to a multipurpose program. The study suggests that SSP and liberal arts values are not mutually exclusive, and it explores what Spanish for General Purposes (SGP) can learn from SSP. Spanish programs that find common ground and hybridize to respond to multiple demands of today's Spanish learners are likely to be the most successful in the future. ; To cite the digital version, add its Reference URL (found by following the link in the header above the digital file). ; A TALE OF TWO INSTITUTIONS Scholarship and Teaching on Languages for Specific Purposes (2013) 88 The Unexpected Spanish for Specific Purposes Professor: A Tale of Two Institutions Sheri Spaine Long United States Air Force Academy University of Alabama at Birmingham Abstract: The present study documents a language educator's reflection on two transitions that mirror current curricular changes in undergraduate language programs in the United States. The first chronicles her personal pedagogical transformation from a general-purposes Spanish language professor and her adjustment to teaching as a visiting professor in a Spanish for Specific Purposes (SSP) language-learning environment at the United States Air Force Academy. The second reports the evolution over several decades of the Spanish language program at University of Alabama at Birmingham from a traditional general Spanish-language program to a multipurpose program. The study suggests that SSP and liberal arts values are not mutually exclusive, and it explores what Spanish for General Purposes (SGP) can learn from SSP. Spanish programs that find common ground and hybridize to respond to multiple demands of today's Spanish learners are likely to be the most successful in the future. Keywords: language learning curriculum, liberal arts, medical Spanish, military language learning, Spanish for General Purposes (SGP), Spanish instruction, Spanish for Specific Purposes (SSP), United States Air Force Academy, University of Alabama at Birmingham (UAB) Introduction This academic year, I dubbed myself the unexpected Spanish for Specific Purposes (SSP) professor because specialized career-focused instruction became part of my pedagogical repertoire. Working in a SSP language-learning environment has made me take stock of what mainstream language educators can gain from exposure to the philosophy and instructional techniques of languages for specific purposes. I am serving currently as Distinguished Visiting Professor of Spanish at the United States Air Force Academy. I am a permanent Professor of Spanish at the University of Alabama at Birmingham (UAB). In this reflective paper, I chronicle two transitions. First, I share observations about my transition from general purposes language instruction to the more focused language-learning setting at the United States Air Force Academy. Language learning at the United States Air Force Academy exemplifies the definition of a Spanish for Specific Purposes (SSP) program because it is dedicated to the goal of educating future Air Force officer-leaders with a global perspective. Secondly, I narrate from an administrative/ administrator's point of view UAB's evolution from a traditional Spanish curriculum to a dual-purpose program that includes a SSP certificate. I conclude that both the United States Air Force Academy and UAB Spanish language programs provide unique insights into the curricular changes and challenges in language teaching that have emerged during the last several decades in higher education. My experiences in these respective undergraduate Spanish programs show that signature language curricula have been and can be developed to serve diverse missions of learners and institutions and that intellectual and practical needs simultaneously helped mold these A TALE OF TWO INSTITUTIONS Scholarship and Teaching on Languages for Specific Purposes (2013) 89 programs. The United States Air Force Academy and UAB Spanish language programs are traditional and nontraditional at the same time. I posit they will resemble our future hybridized Spanish language programs. For purposes of this paper, I understand hybridized to mean multipurpose programs that have SSP components and a liberal arts foundation. The subfield of SSP can be defined as a practice that gives language learners access to the Spanish that they need to accomplish their own academic or occupational goals (Sánchez-López, 2013). It is necessary to locate SSP within the domain of Second Language Acquisition (SLA) in order to recognize that SSP is not a departure from current theory or practices in foreign language education. The counterpoint to SSP is Spanish for General Purposes (SGP). SGP is a broad descriptor for the teaching and learning of Spanish in ways that can be exploratory in nature. It is language teaching and learning that is likely not to have a singular career focus. Along with the concept of language learning for cultural breadth, traditionally SGP has been ensconced within the notion of liberal arts education. After almost 20 years of teaching principally undergraduate SGP at UAB, I relocated to Colorado Springs to experience anew the teaching and learning of Spanish in a different context. The learning environment that I envisioned at the service academy would be focused on the specific Air Force mission within undergraduate higher education. By contrast, I am the product of a liberal arts education that was not singularly focused on a specific career. For the last several decades, I have taught students with a variety of goals, both professional and personal. The teaching and learning environment with which I am the most familiar is rooted in the model of a liberal education that has historically framed SGP programs across the United States over the last 75 years. Goals of the liberal arts education include such attributes as thinking critically, possessing broad analytical skills, learning how to learn, thinking independently, seeing all sides of an issue, communicating clearly (orally and in writing), exercising self-control for the sake of broader loyalties, showing self-assurance in leadership ability, and participating in and enjoying (cross-)cultural experience (Blaich, Bost, Chan, & Lynch, 2010). By reviewing some attributes commonly found in definitions of a liberal arts education, I highlight the cornerstone of numerous undergraduate programs in higher education. My goal is not to produce a comprehensive list of its characteristics. In fact, one finds variations in the definition of the liberal arts education tailored to suit institutional realities and needs. The elements that I emphasize in the present discussion are particular characteristics, such as analytical and critical thinking, leadership development, civic responsibility and cultural breadth, which are especially relevant to how these two Spanish language programs evolved at both the United States Air Force Academy and UAB. Although critical thinking may not be one of the characteristics that spring to mind within military education given the realities of obedience, discipline and hierarchy, critical thinking is an essential characteristic of military officers that must make decisions in complex situations. The teaching/learning of the ability to analyze critically is key in military service academies and in civilian institutions, such as UAB. UAB and arrived at the United States Air Force Academy in summer 2011. Because of the courses that I had been asked to design and teach, I knew that the United States Air Force Academy's curriculum was not about technical instruction as in Spanish for Military Purposes. In fact, my fall courses had mainstream course titles that one might find in any Spanish program: Literature and Film of Spain and Latin American Civilization and Culture. My military supervisors told me that I was invited here to bring a different perspective and pedagogy into the classroom. As my first semester unfolded, I set out to learn from diverse A TALE OF TWO INSTITUTIONS Scholarship and Teaching on Languages for Specific Purposes (2013) 90 pupils and faculty members and to absorb and adapt to the differences before me. The United States Air Force Academy's mission fits neatly on a sign that everyone reads upon entering the military installation: "Developing Leaders of Character." The United States Air Force Academy (2011) is an undergraduate institution, awarding the BS degree as part of its mission to inspire and develop officers with knowledge, character and discipline. Undergraduates are referred to as cadets, and this underscores both the military and academic focus of the learners. After a few weeks at the United States Air Force Academy, I realized that I had landed in a one-of-a-kind educational setting. The institution subscribes to and emphasizes many of the key core values that I associate with a liberal arts education while additionally providing technical training. As Pennington (2012) pointed out in her recent commentary in The Chronicle of Higher Education, we need to acknowledge that preparing for work and pursuing a liberal arts education are not mutually exclusive. Considering liberal arts principles and professional training as polar opposites is a deeply ingrained notion by many individuals in higher education and in society at large. This belief needs to change because of the type of complex preparation that today's students will need to flourish in the future. Below is the complete list of shared outcomes of the Unites States Air Force Academy. Even with a cursory examination, one finds intertwined traditional liberals arts concepts and elements associated with technical education for engineers, scientists and warriors: Shared United States Air Force Academy Outcomes (2011) Commission leaders of character who embody the Air Force core values. . . . . .committed to Societal, Professional, and Individual Responsibilities Ethical Reasoning and Action Respect for Human Dignity Service to the Nation Lifelong Development and Contributions Intercultural Competence and Involvement . . .empowered by integrated Intellectual and Warrior Skills Quantitative and Information Literacy Oral and Written Communication Critical Thinking Decision Making Stamina Courage Discipline Teamwork . . .grounded in essential Knowledge of the Profession of Arms and the Human & Physical Worlds Heritage and Application of Air, Space, and Cyberspace Power National Security and Full Spectrum of Joint and Coalition Warfare A TALE OF TWO INSTITUTIONS Scholarship and Teaching on Languages for Specific Purposes (2013) 91 Civic, Cultural and International Environments Ethics and the Foundations of Character Principles of Science and the Scientific Method Principles of Engineering and the Application of Technology Source: http://www.usafa.edu/df/usafaoutcomes.cfm?catname=Dean%20of%20Faculty Values such as critical thinking, ethics and ethical reasoning, respect for human dignity, lifelong development and contributions, intercultural competence, and oral and written communication are integral to a liberal arts education and are the foundation of cadet education. The first phrase that frames the entire list—"Commission leaders of character who embody the Air Force core values. . ."—is key to my contention that the United States Air Force Academy's type of SSP is the teaching and learning of languages in the broader context of leadership education. The direct relationship between what one associates with well-informed leaders and liberal arts values emphasizes the importance of nurturing future leaders (whether cadets or college students) that are civically and globally astute. Leadership development clearly underpins both liberal arts values and those of the United States Air Force Academy. Like many undergraduate institutions in the United States, Spanish is widely taught at the United States Air Force Academy. According to Diane K. Johnson, an institutional statistician, there are a total of more than 500 cadets (out of a total cadet enrollment of over 4,000) that are in Spanish classes (introductory through advanced) in spring semester 2012. There are also cadets enrolled in 7 other languages that are labeled strategic or enduring. Notably, there is no language major at the United States Air Force Academy. However, there is a Foreign Area Studies major. Also, cadets can declare a minor in a language. There were 327 cadets with minor in languages at the time of this spring semester 2012 snapshot. The specific mission statement of the United States Air Force Academy's Department of Foreign Languages is: "To develop leaders of character with a global perspective through world-class language and culture education." Language and culture are embedded in the concept of the kind of global perspective that a 21st-century leader must possess. From Washington DC to Wall Street, there is agreement that future leaders internationally—both military and civilian—need to be multilingual and culturally adept to be able to navigate and lead in the 21st century (Education for global leadership, 2006). According to Lt. Col. Western (2011), it is imperative that our military comprehend that maintaining world leadership and security requires a broad understanding of other languages, cultures and thought processes. Although the Department of Defense's report (2012) on "Sustaining United States Global Leadership: Priorities for 21st Century Defense" does not directly address language and cultural expertise, many of theses priorities rely on knowledge from military leaders with considerable language and cultural acumen. Historically, the language department has always had a dual purpose that has consisted of SSP focusing on developing future Air Force officers, while providing many elements of a liberal arts education. From the following list, you will see a sampling of the generic course titles. They are not a departure from what one might find at other institutions: Basic Spanish I & Basic Spanish II (Spanish 131–132), Intermediate Spanish A TALE OF TWO INSTITUTIONS Scholarship and Teaching on Languages for Specific Purposes (2013) 92 I & Intermediate Spanish II (Spanish 221–222), Advanced Spanish I & Advanced Spanish II (Spanish 321–322), Civilization and Culture (Spanish 365), Current Events in the Spanish-Speaking World (Spanish 371), Introduction to Peninsular Literature (Spanish 376), Introduction to Latin American Literature (Spanish 377), Advanced Spanish Readings (Spanish 491), and Special Topics (Spanish 495). The course titles do not offer clues as to how these classes might differ from the average civilian college or university classes with similar names. In my experience teaching and/or observing these classes, differences do stand out because language learners at the United States Air Force Academy focus on application of language as a skill combined with cultural and historical knowledge. The cadets also seek intellectual breadth through the analysis of multiple perspectives particularly found in intermediate- to upper-level Spanish language classes. In the first six months in residence at the United States Air Force Academy, I observed that cadets are more intellectually broad than I assumed at the outset. Cadets read about literature and culture, analyzed film, and even wrote poetry in Spanish with gusto. They do perform in the classroom with a defined career in mind. The focus on the military profession and leadership changes the daily routine in the language classroom. By emphasizing deliberate leadership and language teaching and/or learning opportunities, crosspollination enhances the classroom exper-ience and improves institutional learning outcomes. Form cannot be divorced from function in language learning, so the synthesis of leadership development and language/cultural learning occurs. Recent studies from interdisciplinary research with the neurosciences and education show that fusion between disciplines can provide effective pathways to learning (Coyle, Hood, & Marsh, 2010). Teaching Spanish at the United States Air Force Academy altered my preparations and delivery. Because of SSP, I adapted to differences that are administrative, operational, pedagogical, experiential and conceptual. First, I experienced the surface-level administrative transformations from SGP to the special brand of SSP at this institution. I learned about: Classroom rituals that include military protocols, such as calling the class to attention in Spanish, inspecting students' regulation dress and upholding other classroom standards in the target language; References to Air Force traditions and military rank in the target language; And, lock down, active shooter and natural disaster drills that might happen during class time in the target language. Additionally, there were different details in course design that reshaped my pedagogical filter. During an examination of all Spanish language course syllabi at the United States Air Force Academy, I noticed that the communities standard from the 5Cs in the Standards for Foreign Language Learning (1999) is often replaced with a different C that stands for Careers. The focus on the professional use of Spanish is starkly emphasized through this substitution. On an operational level in the classroom, staying abreast of current events in the Spanish-speaking world and being able to interpret them—such as changes in government officials, political and economic transitions in the target culture—take on greater importance while teaching at the United States Air Force Academy. For example, when A TALE OF TWO INSTITUTIONS Scholarship and Teaching on Languages for Specific Purposes (2013) 93 learners know that they might be assigned to carry out tasks in any Latin American country in the future, the learners understandably pay more attention to geographical details, how economic conditions impact political situations, how longstanding historical realities affect the current mood, and so on. The language-learning environment carries with it a cachet of practical information, and it also supplies complex situations and problem-solving scenarios on which future Air Force decision makers can cut their teeth. Language practice includes creating a number of hypothetical SSP situations in which cadets participate in order to foreshadow their leadership roles, such as role-play opportunities that are relevant to Air Force operations. For example, cadets might be asked what they would do and say as a United States Air Attaché or an intelligence officer stationed in Latin America. On the conceptual level, I am currently organizing and creating a seminar that is titled War in the Arts, Literature and Film in Spain and Latin America. It is a themed-humanities seminar that offers a rich lexical environment and an opportunity to focus on the profession of war, ethics, conflict and peacekeeping in the context of film, art and print texts of the Spanish-speaking world. Considering, for example, the representation of the warrior in a literary work provides an opportunity to discuss ethics and strategies and to analyze the representation of leaders across cultures. At the United States Air Force Academy, I have participated in preparing cadets to go on semester-long exchanges to foreign military academies. Some of this is done through wayside teaching at our Spanish conversation table, emphasizing the type of current and relevant social, linguistic, and cultural information that a cadet might need to function abroad in a variety of contexts and represent the United States. One way to prepare for going abroad has been to encourage and mentor cadets to volunteer for selection to host visiting military dignitaries, such as ranking delegations from the Colombian and Mexican Air Force. To prepare cadets, instructors share with them tips about how to interact appropriately and to display leadership through social intelligence and knowledge of protocol in the target language and culture. As a follow up, debriefing after these events is essential to discuss perceptions and observations and to develop cross-cultural competence. Much like teaching and interacting with SGP students, there are immediate needs, and then, there is the important long-range goal of encouraging life-long learning in Spanish. In the context of the United States Air Force, there are programs that make this objective more concrete than what is generally experienced by students in civilian colleges and universities. To take advantage of what the Air Force has to offer, I have also learned about LEAP (Language Enabled Airman Program), which provides for structured life-long language learning for specific purposes in the Air Force. According to the Air Force Culture and Language Center ("Air force culture," 2012), LEAP is designed to sustain, enhance and utilize the existing language skills and talents of Airmen in the program. The stated goal of LEAP is to develop a core group of Airmen across specialties and careers possessing the capability to communicate in one or more foreign languages. To become a participant in LEAP, Airmen must already possess moderate to high levels of proficiency in a foreign language. Individuals that apply and are accepted into the LEAP program receive regular training both face to face and online in the target language as well as have immersion opportunities at intervals during their careers. Working to encourage and help cadets apply for LEAP is another SSP goal at the United States Air Force. A TALE OF TWO INSTITUTIONS Scholarship and Teaching on Languages for Specific Purposes (2013) 94 These are an overview of my unexpected SSP experiences at the Air Force Academy. My transformation from SGP to SSP started with learning and applying new vocabulary that focuses on cadets' professional needs. Later, I began to think of my learners as future leaders that will need to perform and apply knowledge to make judgments about the Spanish-speaking individuals and groups. This motivated me to reorganize courses and reconceive of them with a keener eye toward performance and to explore ways to get cadets to think beyond their immediate milieu. With the overlay of leadership development and military culture, this teaching experience has driven me to operate in a more interdisciplinary fashion than before. I experienced first hand a teaching and learning climate that offers a unique hybrid of liberal arts and technical education in a military context. Perhaps the best lesson that SSP teaches is to constantly question the relevance of what you are doing in the classroom: to whom is it relevant and for what purpose? Within the Department of Foreign Languages at the United States Air Force Academy, the SSP focus on career preparation in language instruction and the liberal arts connection with leadership evolved simultaneously. This dual focus of the curriculum contrasts the reality in most civilian language departments where there was one general focus and departments are being (or have been retrofitted) to include new curricula and/or tracks. Many civilian language departments are currently transitioning from SGP programs and integrating more SSP language options. In the late 1980s and on into the 1990s, Spanish for Business and Medical Spanish courses appeared. The integration of professional courses happened in response to societal needs (Doyle, 2010). The Department of Foreign Languages at the United States Air Force Academy offers a rare, fully integrated model of the curricular common ground of career-focused language learning with an underpinning of liberal arts breadth. Conversely, civilian language programs have transitioned to dual-purpose or multipurpose programs for different reasons. In many cases, motives for transitioning programs have been to maintain relevance and enrollments. The latter was clearly the case with the Spanish language program at UAB in the 1990s. This two-fold reality raises the palpable issue of how best to organize these dual-purpose programs from both a curricular and an administrative point of view. Undergraduate language departments and programs have to meet the needs of both their general and specific constituencies. There is a general consensus in the language discipline that multiple paths to the language major, as advocated by the Modern Language Association in the report "Foreign Languages and Higher Education: New Structures for a Changed World" (2007), will be a necessity for the future survival of undergraduate language programs. With curricular reform underway, how do traditional language programs best transition from general purposes programs to hybridized programs that also house languages for specific purposes? Another obvious driver of dual-purpose Spanish language programs is the limited support for language teaching and learning. As programs transform, we need to be mindful of the realities that face most undergraduate language programs: 1) limited financial resources to support language programs, 2) staffing limitations because of faculty back-ground and adaptability, 3) reward systems that favor faculty members who work in the more established subdisciplines in the language field, and 4) multifoci and/or shifting interests of undergraduate students. Because of these conditions, exploring ways that resources can be shared intentionally and constructively will be essential to benefit general A TALE OF TWO INSTITUTIONS Scholarship and Teaching on Languages for Specific Purposes (2013) 95 and specific purposes language programs at the same time. The UAB Spanish language program learned to share resources and evolved into a multipurpose program. The UAB Spanish language program transitioned from SGP to include SSP gradually over several decades. This transformation aligns the department with the institution's vision and mission, which is outlined below: The UAB Vision UAB's vision is to be an internationally renowned research university—a first choice for education and health care. The UAB Mission UAB's mission is to be a research university and academic health center that dis- covers, teaches and applies knowledge for the intellectual, cultural, social and eco- nomic benefit of Birmingham, the state and beyond. Source: http://www.uab.edu/plan/ Reflecting the mission and vision at UAB, these statements clearly present the dual role of the institution: it is both medical and educational. When I joined the faculty 20 years ago, we spoke of the medical side and the academic side of campus in a way that implied a scant relationship between the two. Therefore, the undergraduate curriculum in the language department in the early years of my appointment had no relationship with the health sciences. This separation slowly eroded over the years. When I was hired in 1992, the curriculum for the UAB undergraduate language major would best be described as traditional: language and literature. UAB students studied languages for a variety of reasons, ranging from enrichment to the fulfillment of the compulsory language requirement. We had a multiquarter language requirement that was rescinded in the mid-1990s as a result of the politics between the state's community colleges and the universities. Currently, UAB has no foreign language requirement. Almost 650 students were enrolled in Spanish in spring 2012 out of an undergraduate population of close to 12,000 students ("UAB student profile," 2011). Ironically, the lack of a language requirement in the undergraduate curriculum set the department on a path toward popularizing SSP. At that time, the UAB Department of Foreign Languages and Literatures began to turn its attention to providing courses that the students demanded. As a result in the mid-1990s, UAB offered its first medical Spanish classes for undergraduate students. From that time on, I became interested increasingly in SSP for reasons that had to do with the institution's human capital both faculty and student. Also from 2002–2009, I served as chairperson of the UAB Department of Foreign Languages and Literatures. I took an administrator's interest in growing and integrating a SSP program into the existing general Spanish program. The medical Spanish courses were a good match for the interests of our student body. Approximately 40% of the freshmen that enroll at UAB declare that they are on the premedicine track. Many students are attracted to our campus because UAB houses an internationally known School of Medicine, although many freshmen abandon the premedicine track for other health-related fields. A TALE OF TWO INSTITUTIONS Scholarship and Teaching on Languages for Specific Purposes (2013) 96 Student interest grew in professionally focused language courses and key faculty members invested in SSP as well. In 2001, our first applied linguist in Spanish was hired in the language department. She shared her vision of starting a SSP program by offering a few courses to appeal to pre-professionals. She became the director of the nascent SSP program. Over the years, the SSP program became so popular that it evolved into a more defined and elaborate SSP certificate program ("UAB Spanish for specific purposes program," 2012) that had 62 students enrolled in the program in spring 2012. It was the first undergraduate certificate program on the UAB campus. As the program grew, the SSP Director was successful in convincing existing junior faculty to take professional development seminars in SSP and develop additional SSP courses, such as Intermediate Spanish for the Professions, Advanced Business Spanish and Advanced Spanish for Health Professionals. In 2007, we hired a Spanish instructor to develop and expand the medical Spanish courses in the undergraduate curriculum under the umbrella of SSP. She began to collaborate with the Schools of Nursing, Medicine, and Dentistry to provide short courses to their graduate students. Over time, signs of curricular integration increased between the medical and academic sides of campus. Also, there was a confluence of external events in the state of Alabama and internal events on the UAB campus that occurred in the late 1990s and the first decade of the 21st century that promoted the success of the SSP program. Prior to the 2007 recession, a rapidly growing Spanish-speaking population in Alabama had health professionals in a reactive mode because they were not prepared to handle patients that spoke limited English ("Demographic profile of Hispanics in Alabama," 2012). In 2005, UAB hosted campus-wide events around its first freshmen discussion book The Spirit Catches you and you Fall Down: A Hmong Child, her American Doctors and the Collision of two Cultures by Ann Fadiman (1997). The book was widely read across campus, especially in the School of Medicine. Fadiman's volume chronicled Hmong (not Spanish) speakers. Nevertheless, the book captured the timely problem of the critical need for communication with the foreign born in the health professions. From that year on, the importance of cross-cultural communication became part of the UAB campus dialogue. Also around this time, UAB's prominent, grant-funded Minority Health and Research Center unofficially broadened its definition of minority to include Latinos. Meanwhile, within the UAB Department of Foreign Languages and Literatures we were able to offer our first scholarship award for a Spanish major on the premedicine track in 2003. Beginning in 2003, I recall anecdotally receiving periodic inquiries from ranking individuals in the School of Medicine that wanted to collaborate. Typically, they requested the assistance of Spanish-speaking faculty with informed-consent forms. There were repeated requests for help with interpretation until the UAB clinics developed protocols to deal with Spanish-language only patients. In January 2010, we piloted a short course in Spanish (Davidson & Long, 2012) that was offered as part of the medical school elective curriculum. In 2002, the staff of the language department informally observed a trend in the increase of undergraduate students who declared a double major in Spanish and Biology/Chemistry. I procured a modest donation from a local physician for the aforementioned scholarship. All of these events fueled the popularity of the UAB SSP program and clearly defined the need for it. The current SSP program and certificate houses a number of preprofessional courses that are not limited exclusively to SSP students. The full program description can A TALE OF TWO INSTITUTIONS Scholarship and Teaching on Languages for Specific Purposes (2013) 97 be viewed at http://www.uab.edu/languages/languages-programs/ssp. The number of general versus pre-professional students varies from course to course, but courses such as Spanish Translation and Interpretation tend to enroll students from both cohorts, whereas Spanish for the Health Professionals enrolls few general-purposes students. Of course, the faculty members have noticed over time that our student clientele had slowly changed: two very different types of students were sitting in the same classroom. Professionally focused Spanish students and general Spanish students enrolled in the some of the same courses. This presented new pedagogical challenges for our faculty members and raised the issue: how does one meet the needs of both groups (SSP and SGP) in the context of our institution's student body? To date, this matter has not been systematically dealt with in the UAB Spanish Division. Individual professors have developed strategies, like individualizing projects, and yet, other faculty members teach to one group to the exclusion of the other. The curricular changes discussed by the Modern Language Association have come about in many language departments, and they have been welcomed by some faculty members but not by all. Embracing the notion that the traditional liberal arts language learner can cohabitate with the interdisciplinary and/or career-focused language learner (as demonstrated at the United States Air Force Academy) is key. Highlighting the philo-sophical common ground rooted in a liberal arts education is what may be perceived by some individuals as strictly technical training may help ease the transition. The next phase will be to articulate relevant practices for educators and administrators, as well as shared values and outcomes, and to provide models that show transitional programs how to achieve what I would like to call 'constructive hybridity.' I define constructive hybridity as a positive and collective effort to sort out and integrate the best of traditional Spanish language programs with different SSP practices evidencing more focused professional goals. The next task is to define the 'shared canon' between the various tracks in any given Spanish program. Obviously, this is not a one-size-fits-all charge due to different student, societal and institutional needs, but there is foundational work to be done in order to come up with more consensuses. Given my administrative experiences as a faculty member at UAB and my teaching experience at the United States Air Force Academy, I have come to realize that both general and specific missions in Spanish-language learning are not mutually exclusive. In June 2011, I marched off to Colorado to teach and to learn. I have learned that there is a place for time-tested liberal arts values within SSP programs and that hybridized programs (liberal arts and SSP) can be successful and beneficial to the learner. As suggested by the United States Air Force Academy and UAB programs, future programs in Spanish-language instruction will need to focus on our common ground to serve multiple purposes. Thus, I return to the concept that I mentioned at the outset: it is time to think hybrid. Our future undergraduate language programs will have multiple tracks/purposes. This hybridization can be as positive and enriching for both faculty members and language learners as it has been for me during this phase of my career as a language educator. Returning to my own narrative as a committed, career Spanish professor, I have no doubt that, in the future, my newfound SSP instructional acumen and orientation will inform my future general purposes classes and improve them. A TALE OF TWO INSTITUTIONS Scholarship and Teaching on Languages for Specific Purposes (2013) 98 Disclaimer The views expressed in this paper are those of the author and do not necessarily represent those of the United States Air Force Academy, the United States Air Force, The Depart-ment of Defense or the United States Government. References Air force culture and language center. (2012, May). Retrieved from http://www.culture.af.mil/leap/index.aspx Blaich, C., Bost, A., Chan, E., & Lynch, R. (2010). Defining liberal arts education. Retrieved from http://www.liberalarts.wabash.edu/storage Coyle, D., Hood, P., & Marsh, D. (2010). Content and language integrated learning (p. 25). Cambridge: Cambridge University Press. Davidson, L., & Long, S. S. (2012). Medical Spanish for US medical students: A pilot case study. Dimension, 1–13. Retrieved from http://scolt.webnode.com/ Demographic profile of Hispanics in Alabama. (2012). Retrieved from http://www.pewhispanic.org/states/state/al/ Doyle, M. S. (2010). A responsive, integrative Spanish curriculum at UNC Charlotte. Hispania, 93(1), 80–84. Education for global leadership: The importance of international studies and foreign language education for US economic and national security. (2006). Washington, DC: Committee for Economic Development. Fadiman, A. (1997). The spirit catches you and you fall down: A Hmong child, her American doctors, and the collision of two cultures. NY: Farrar, Straus and Giroux. Foreign languages and higher education: new structures for a changed world. (2007) MLA ad hoc committee on foreign languages. Profession published by the Modern Language Association, 2007 (May), 1–11. Pennington, H. (2012, April 13). For student success, stop debating and start improving. The Chronicle of Higher Education, pp. A33–A34. Sánchez-López, L. (2013). Spanish for specific purposes. In C. Chapelle (Ed.), The Encyclopedia of Applied Linguistics. Oxford, UK: Wiley-Blackwell. Standards for foreign language learning in the 21st century. (1999) Lawrence, KS: National Standards in Foreign Language Education Project, Allen Press. Sustaining US global leadership: Priorities for 21st century defense. (2012) Washington DC: Department of Defense. UAB Spanish for specific purposes program. (2012). Retrieved from http://www.uab.edu/languages/ssp UAB Student profile. (2011). Retrieved from http://www.uab.edu/home/about/student-profile-accomplishments United States Air Force Academy curriculum handbook 2011–2012. (2011). USAF Academy, CO: Academy Board. Western, D. J. (2011). How to say 'national security' in 1,100 languages. Air & Space Power Journal, 48–61. Retrieved from http://www.airpower.au.af.mil
Die Inhalte der verlinkten Blogs und Blog Beiträge unterliegen in vielen Fällen keiner redaktionellen Kontrolle.
Warnung zur Verfügbarkeit
Eine dauerhafte Verfügbarkeit ist nicht garantiert und liegt vollumfänglich in den Händen der Blogbetreiber:innen. Bitte erstellen Sie sich selbständig eine Kopie falls Sie einen Blog Beitrag zitieren möchten.
This post takes up from two previous posts (part 1; part 2), asking just what do we (we economists) really know about how interest rates affect inflation. Today, what does contemporary economic theory say? As you may recall, the standard story says that the Fed raises interest rates; inflation (and expected inflation) don't immediately jump up, so real interest rates rise; with some lag, higher real interest rates push down employment and output (IS); with some more lag, the softer economy leads to lower prices and wages (Phillips curve). So higher interest rates lower future inflation, albeit with "long and variable lags." Higher interest rates -> (lag) lower output, employment -> (lag) lower inflation. In part 1, we saw that it's not easy to see that story in the data. In part 2, we saw that half a century of formal empirical work also leaves that conclusion on very shaky ground. As they say at the University of Chicago, "Well, so much for the real world, how does it work in theory?" That is an important question. We never really believe things we don't have a theory for, and for good reason. So, today, let's look at what modern theory has to say about this question. And they are not unrelated questions. Theory has been trying to replicate this story for decades. The answer: Modern (anything post 1972) theory really does not support this idea. The standard new-Keynesian model does not produce anything like the standard story. Models that modify that simple model to achieve something like result of the standard story do so with a long list of complex ingredients. The new ingredients are not just sufficient, they are (apparently) necessary to produce the desired dynamic pattern. Even these models do not implement the verbal logic above. If the pattern that high interest rates lower inflation over a few years is true, it is by a completely different mechanism than the story tells. I conclude that we don't have a simple economic model that produces the standard belief. ("Simple" and "economic" are important qualifiers.) The simple new-Keynesian model The central problem comes from the Phillips curve. The modern Phillips curve asserts that price-setters are forward-looking. If they know inflation will be high next year, they raise prices now. So Inflation today = expected inflation next year + (coefficient) x output gap. \[\pi_t = E_t\pi_{t+1} + \kappa x_t\](If you know enough to complain about \(\beta\approx0.99\) in front of \(E_t\pi_{t+1}\) you know enough that it doesn't matter for the issues here.)Now, if the Fed raises interest rates, and if (if) that lowers output or raises unemployment, inflation today goes down. The trouble is, that's not what we're looking for. Inflation goes down today, (\(\pi_t\))relative to expected inflation next year (\(E_t\pi_{t+1}\)). So a higher interest rate and lower output correlate with inflation that is rising over time. Here is a concrete example: The plot is the response of the standard three equation new-Keynesian model to an \(\varepsilon_1\) shock at time 1:\[\begin{align} x_t &= E_t x_{t+1} - \sigma(i_t - E_t\pi_{t+1}) \\ \pi_t & = \beta E_t \pi_{t+1} + \kappa x_t \\ i_t &= \phi \pi_t + u_t \\ u_t &= \eta u_{t-1} + \varepsilon_t. \end{align}\] Here \(x\) is output, \(i\) is the interest rate, \(\pi\) is inflation, \(\eta=0.6\), \(\sigma=1\), \(\kappa=0.25\), \(\beta=0.95\), \(\phi=1.2\). In this plot, higher interest rates are said to lower inflation. But they lower inflation immediately, on the day of the interest rate shock. Then, as explained above, inflation rises over time. In the standard view, and the empirical estimates from the last post, a higher interest rate has no immediate effect, and then future inflation is lower. See plots in the last post, or this one from Romer and Romer's 2023 summary:Inflation jumping down and then rising in the future is quite different from inflation that does nothing immediately, might even rise for a few months, and then starts gently going down. You might even wonder about the downward jump in inflation. The Phillips curve makes it clear why current inflation is lower than expected future inflation, but why doesn't current inflation stay the same, or even rise, and expected future inflation rise more? That's the "equilibrium selection" issue. All those paths are possible, and you need extra rules to pick a particular one. Fiscal theory points out that the downward jump needs a fiscal tightening, so represents a joint monetary-fiscal policy. But we don't argue about that today. Take the standard new Keynesian model exactly as is, with passive fiscal policy and standard equilibrium selection rules. It predicts that inflation jumps down immediately and then rises over time. It does not predict that inflation slowly declines over time. This is not a new issue. Larry Ball (1994) first pointed out that the standard new Keynesian Phillips curve says that output is high when inflation is high relative to expected future inflation, that is when inflation is declining. Standard beliefs go the other way: output is high when inflation is rising. The IS curve is a key part of the overall prediction, and output faces a similar problem. I just assumed above that output falls when interest rates rise. In the model it does; output follows a path with the same shape as inflation in my little plot. Output also jumps down and then rises over time. Here too, the (much stronger) empirical evidence says that an interest rate rise does not change output immediately, and output then falls rather than rises over time. The intuition has even clearer economics behind it: Higher real interest rates induce people to consume less today and more tomorrow. Higher real interest rates should go with higher, not lower, future consumption growth. Again, the model only apparently reverses the sign by having output jump down before rising. Key issuesHow can we be here, 40 years later, and the benchmark textbook model so utterly does not replicate standard beliefs about monetary policy? One answer, I believe, is confusing adjustment to equilibrium with equilibrium dynamics. The model generates inflation lower than yesterday (time 0 to time 1) and lower than it otherwise would be (time 1 without shock vs time 1 with shock). Now, all economic models are a bit stylized. It's easy to say that when we add various frictions, "lower than yesterday" or "lower than it would have been" is a good parable for "goes down over time." If in a simple supply and demand graph we say that an increase in demand raises prices instantly, we naturally understand that as a parable for a drawn out period of price increases once we add appropriate frictions. But dynamic macroeconomics doesn't work that way. We have already added what was supposed to be the central friction, sticky prices. Dynamic economics is supposed to describe the time-path of variables already, with no extra parables. If adjustment to equilibrium takes time, then model that. The IS and Phillips curve are forward looking, like stock prices. It would make little sense to say "news comes out that the company will never make money, so the stock price should decline gradually over a few years." It should jump down now. Inflation and output behave that way in the standard model. A second confusion, I think, is between sticky prices and sticky inflation. The new-Keynesian model posits, and a huge empirical literature examines, sticky prices. But that is not the same thing as sticky inflation. Prices can be arbitrarily sticky and inflation, the first derivative of prices, can still jump. In the Calvo model, imagine that only a tiny fraction of firms can change prices at each instant. But when they do, they will change prices a lot, and the overall price level will start increasing right away. In the continuous-time version of the model, prices are continuous (sticky), but inflation jumps at the moment of the shock. The standard story wants sticky inflation. Many authors explain the new-Keynesian model with sentences like "the Fed raises interest rates. Prices are sticky, so inflation can't go up right away and real interest rates are higher." This is wrong. Inflation can rise right away. In the standard new-Keynesian model it does so with \(\eta=1\), for any amount of price stickiness. Inflation rises immediately with a persistent monetary policy shock. Just get it out of your heads. The standard model does not produce the standard story. The obvious response is, let's add ingredients to the standard model and see if we can modify the response function to look something like the common beliefs and VAR estimates. Let's go. Adaptive expectations We can reproduce standard beliefs about monetary policy with thoroughly adaptive expectations, in the 1970s ISLM form. I think this is a large part of what most policy makers and commenters have in mind. Modify the above model to leave out the dynamic part of the intertemporal substitution equation, to just say in rather ad hoc way that higher real interest rates lower output, and specify that the expected inflation that drives the real rate and that drives pricing decisions is mechanically equal to previous inflation, \(E_t \pi_{t+1} = \pi_{t-1}\). We get \[ \begin{align} x_t &= -\sigma (i_t - \pi_{t-1}) \\ \pi_t & = \pi_{t-1} + \kappa x_t .\end{align}\] We can solve this sytsem analytically to \[\pi_t = (1+\sigma\kappa)\pi_{t-1} - \sigma\kappa i_t.\]Here's what happens if the Fed permanently raises the interest rate. Higher interest rates send future inflation down. (\(\kappa=0.25,\ \sigma=1.\)) Inflation eventually spirals away, but central banks don't leave interest rates alone forever. If we add a Taylor rule response \(i_t = \phi \pi_t + u_t\), so the central bank reacts to the emerging spiral, we get this response to a permanent monetary policy disturbance \(u_t\): The higher interest rate sets off a deflation spiral. But the Fed quickly follows inflation down to stabilize the situation. This is, I think, the conventional story of the 1980s. In terms of ingredients, an apparently minor change of index from \(E_t \pi_{t+1}\) to \(\pi_{t-1}\) is in fact a big change. It means directly that higher output comes with increasing inflation, not decreasing inflation, solving Ball's puzzle. The change basically changes the sign of output in the Phillips curve. Again, it's not really all in the Phillips curve. This model with rational expectations in the IS equation and adaptive in the Phillips curve produces junk. To get the result you need adaptive expectations everywhere. The adaptive expectations model gets the desired result by changing the basic sign and stability properties of the model. Under rational expectations the model is stable; inflation goes away all on its own under an interest rate peg. With adaptive expectations, the model is unstable. Inflation or deflation spiral away under an interest rate peg or at the zero bound. The Fed's job is like balancing a broom upside down. If you move the bottom (interest rates) one way, the broom zooms off the other way. With rational expectations, the model is stable, like a pendulum. This is not a small wrinkle designed to modify dynamics. This is major surgery. It is also a robust property: small changes in parameters do not change the dominant eigenvalue of a model from over one to less than one. A more refined way to capture how Fed officials and pundits think and talk might be called "temporarily fixed expectations." Policy people do talk about the modern Phillips curve; they say inflation depends on inflation expectations and employment. Expectations are not mechanically adaptive. Expectations are a third force, sometimes "anchored," and amenable to manipulation by speeches and dot plots. Crucially, in this analysis, expected inflation does not move when the Fed changes interest rates. Expectations are then very slowly adaptive, if inflation is persistent, or if there is a more general loss of faith in "anchoring." In the above new-Keynesian model graph, at the minute the Fed raises the interest rate, expected inflation jumps up to follow the graph's plot of the model's forecast of inflation. As a simple way to capture these beliefs, suppose expectations are fixed or "anchored" at \(\pi^e\). Then my simple model is \[\begin{align}x_t & = -\sigma(i_t - \pi^e) \\ \pi_t & = \pi^e + \kappa x_t\end{align}\]so \[\pi_t = \pi^e - \sigma \kappa (i_t - \pi^e).\] Inflation is expected inflation, and lowered by higher interest rates (last - sign). But those rates need only be higher than the fixed expectations; they do not need to be higher than past rates as they do in the adaptive expectations model. That's why the Fed thinks 3% interest rates with 5% inflation is still "contractionary"--expected inflation remains at 2%, not the 5% of recent adaptive experience. Also by fixing expectations, I remove the instability of the adaptive expectations model... so long as those expectations stay anchored. The Fed recognizes that eventually higher inflation moves the expectations, and with a belief that is adaptive, they fear that an inflation spiral can still break out.Even this view does not give us any lags, however. The Fed and commenters clearly believe that higher real interest rates today lower output next year, not immediately; and they believe that lower output and employment today drive inflation down in the future, not immediately. They believe something like \[\begin{align}x_{t+1} &= - \sigma(i_t - \pi^e) \\ \pi_{t+1} &= \pi^e + \kappa x_t.\end{align}\] But now we're at the kind of non-economic ad-hockery that the whole 1970s revolution abandoned. And for a reason: Ad hoc models are unstable, regimes are always changing. Moreover, let me remind you of our quest: Is there a simple economic model of monetary policy that generates something like the standard view? At this level of ad-hockery you might as well just write down the coefficients of Romer and Romer's response function and call that the model of how interest rates affect inflation. Academic economics gave up on mechanical expectations and ad-hoc models in the 1970s. You can't publish a paper with this sort of model. So when I mean a "modern" model, I mean rational expectations, or at least the consistency condition that the expectations in the model are not fundamentally different from forecasts of the model. (Models with explicit learning or other expectation-formation frictions count too.) It's easy to puff about people aren't rational, and looking out the window lots of people do dumb things. But if we take that view, then the whole project of monetary policy on the proposition that people are fundamentally unable to learn patterns in the economy, that a benevolent Federal Reserve can trick the poor little souls into a better outcome. And somehow the Fed is the lone super-rational actor who can avoid all those pesky behavioral biases. We are looking for the minimum necessary ingredients to describe the basic signs and function of monetary policy. A bit of irrational or complex expectation formation as icing on the cake, a possible sufficient ingredient to produce quantitatively realistic dynamics, isn't awful. But it would be sad if irrational expectations or other behavior is a necessary ingredient to get the most basic sign and story of monetary policy right. If persistent irrationality is a central necessary ingredient for the basic sign and operation of monetary policy -- if higher interest rates will raise inflation the minute people smarten up; if there is no simple supply and demand, MV=PY sensible economics underlying the basic operation of monetary policy; if it's all a conjuring trick -- that should really weaken our faith in the whole monetary policy project. Facts help, and we don't have to get religious about it. During the long zero bound, the same commentators and central bankers kept warning about a deflation spiral, clearly predicted by this model. It never happened. Interest rates below inflation from 2021 to 2023 should have led to an upward inflation spiral. It never happened -- inflation eased all on its own with interest rates below inflation.Getting the desired response to interest rates by making the model unstable isn't tenable whether or not you like the ingredient. Inflation also surged in the 1970s faster than adaptive expectations came close to predicting, and fell faster in the 1980s. The ends of many inflations come with credible changes in regime. There is a lot of work now desperately trying to fix new-Keynesian models by making them more old-Keynesian, putting lagged inflation in the Phillips curve, current income in the IS equation, and so forth. Complex learning and expectation formation stories replace the simplistic adaptive expectations here. As far as I can tell, to the extent they work they largely do so in the same way, by reversing the basic stability of the model. Modifying the new-Keynesian modelThe alternative is to add ingredients to the basic new-Keynesian model, maintaining its insistence on real "micro-founded" economics and forward-looking behavior, and describing explicit dynamics as the evolution of equilibrium quantities. Christiano Eichenbaum and Evans (2005) is one of the most famous examples. Recall these same authors created the first most influential VAR that gave the "right" answer to the effects of monetary policy shocks. This paper modifies the standard new-Keynesian model with a specific eye to matching impulse response functions. The want to match all impulse-responses, with a special focus on output. When I started asking my young macro colleagues for a standard model which produces the desired response shape, they still cite CEE first, though it's 20 years later. That's quite an accomplishment. I'll look at it in detail, as the general picture is the same as many other models that achieve the desired result. Here's their bottom line response to a monetary policy shock: (Figure from the 2018 Christiano Eichenbaum and Trabandt Journal of Economic Perspectives summary paper.) The solid line is the VAR point estimate and gray shading is the 95% confidence band. The solid blue line is the main model. The dashed line is the model with only price stickiness, to emphasize the importance of wage stickiness. The shock happens at time 0. Notice the funds rate line that jumps down at that date. That the other lines do not move at time 0 is a result. I graphed the response to a time 1 shock above. That's the answer, now what's the question? What ingredients did they add above the textbook model to reverse the basic sign and jump problem and to produce these pretty pictures? Here is a partial list: Habit formation. The utility function is \(log(c_t - bc_{t-1})\). A capital stock with adjustment costs in investment. Adjustment costs are proportional to investment growth, \([1-S(i_t/i_{t-1})]i_t\), rather than the usual formulation in which adjustment costs are proportional to the investment to capital ratio \(S(i_t/k_t)i_t\). Variable capital utilization. Capital services \(k_t\) are related to the capital stock \(\bar{k}t\) by \(k_t = u_t \bar{k}_t\). The utilization rate \(u_t\) is set by households facing an upward sloping cost \(a(u_t)\bar{k}_t\).Calvo pricing with indexation: Firms randomly get to reset prices, but firms that aren't allowed to reset prices do automatically raise prices at the rate of inflation.Prices are also fixed for a quarter. Technically, firms must post prices before they see the period's shocks.Sticky wages, also with indexation. Households are monopoly suppliers of labor, and set wages Calvo-style like firms. (Later papers put all households into a union which does the wage setting.) Wages are also indexed; Households that don't get to reoptimize their wage still raise wages following inflation. Firms must borrow working capital to finance their wage bill a quarter in advance, and thus pay a interest on the wage bill. Money in the utility function, and money supply control. Monetary policy is a change in the money growth rate, not a pure interest rate target. Whew! But which of these ingredients are necessary, and which are just sufficient? Knowing the authors, I strongly suspect that they are all necessary to get the suite of results. They don't add ingredients for show. But they want to match all of the impulse response functions, not just the inflation response. Perhaps a simpler set of ingredients could generate the inflation response while missing some of the others. Let's understand what each of these ingredients is doing, which will help us to see (if) they are necessary and essential to getting the desired result. I see a common theme in habit formation, adjustment costs that scale by investment growth, and indexation. These ingredients each add a derivative; they take a standard relationship between levels of economic variables and change it to one in growth rates. Each of consumption, investment, and inflation is a "jump variable" in standard economics, like stock prices. Consumption (roughly) jumps to the present value of future income. The level of investment is proportional to the stock price in the standard q theory, and jumps when there is new information. Iterating forward the new-Keynesian Phillips curve \(\pi_t = \beta E_t \pi_{t+1} + \kappa x_t\), inflation jumps to the discounted sum of future output gaps, \(\pi_t = E_t \sum_{j=0}^\infty \beta^jx_{t+j}.\) To produce responses in which output, consumption and investment as well as inflation rise slowly after a shock, we don't want levels of consumption, investment, and inflation to jump this way. Instead we want growth rates to do so. With standard utility, the consumer's linearized first order condition equates expected consumption growth to the interest rate, \( E_t (c_{t+1}/c_t) = \delta + r_t \) Habit, with \(b=1\) gives \( E_t [(c_{t+1}-c_t)/(c_t-c_{t-1})] = \delta + r_t \). (I left out the strategic terms.) Mixing logs and levels a bit, you can see we put a growth rate in place of a level. (The paper has \(b=0.65\) .) An investment adjustment cost function with \(S(i_t/i_{t-1})\) rather than the standard \(S(i_t/k_t)\) puts a derivative in place of a level. Normally we tell a story that if you want a house painted, doubling the number of painters doesn't get the job done twice as fast because they get in each other's way. But you can double the number of painters overnight if you want to do so. Here the cost is on the increase in number of painters each day. Indexation results in a Phillips curve with a lagged inflation term, and that gives "sticky inflation." The Phillips curve of the model (32) and (33) is \[\pi_t = \frac{1}{1+\beta}\pi_{t-1} + \frac{\beta}{1+\beta}E_{t-1}\pi_{t+1} + (\text{constants}) E_{t-1}s_t\]where \(s_t\) are marginal costs (more later). The \(E_{t-1}\) come from the assumption that prices can't react to time \(t\) information. Iterate that forward to (33)\[\pi_t - \pi_{t-1} = (\text{constants}) E_{t-1}\sum_{j=0}^\infty \beta^j s_{t+j}.\] We have successfully put the change in inflation in place of the level of inflation. The Phillips curve is anchored by real marginal costs, and they are not proportional to output in this model as they are in the textbook model above. That's important too. Instead,\[s_t = (\text{constants}) (r^k_t)^\alpha \left(\frac{W_t}{P_t}R_t\right)^{1-\alpha}\] where \(r^k\) is the return to capital \(W/P\) is the real wage and \(R\) is the nominal interest rate. The latter term crops up from the assumption that firms must borrow the wage bill one period in advance. This is an interesting ingredient. There is a lot of talk that higher interest rates raise costs for firms, and they are reducing output as a result. That might get us around some of the IS curve problems. But that's not how it works here. Here's how I think it works. Higher interest rates raise marginal costs, and thus push up current inflation relative to expected future inflation. The equilibrium-selection rules and the rule against instant price changes (coming up next) tie down current inflation, so the higher interest rates have to push down expected future inflation. CEE disagree (p. 28). Writing of an interest rate decline, so all the signs are opposite of my stories, ... the interest rate appears in firms' marginal cost. Since the interest rate drops after an expansionary monetary policy shock, the model embeds a force that pushes marginal costs down for a period of time. Indeed, in the estimated benchmark model the effect is strong enough to induce a transient fall in inflation.But pushing marginal costs down lowers current inflation relative to future inflation -- they're looking at the same Phillips curve just above. It looks to me like they're confusing current with expected future inflation. Intuition is hard. There are plenty of Fisherian forces in this model that want lower interest rates to lower inflation. More deeply, we see here a foundational trouble of the Phillips curve. It was originally a statistical relation between wage inflation and unemployment. It became a (weaker) statistical relation between price inflation and unemployment or the output gap. The new-Keynesian theory wants naturally to describe a relation between marginal costs and price changes, and it takes contortions to make output equal to marginal costs. Phillips curves fit the data terribly. So authors estimating Phillips curves (An early favorite by Tim Cogley and Argia Sbordone) go back, and separate marginal cost from output or employment. As CET write later, they "build features into the model which ensure that firms' marginal costs are nearly acyclical." That helps the fit, but it divorces the Phillips curve shifter variable from the business cycle! Standard doctrine says that for the Fed to lower inflation it must soften the economy and risk unemployment. Doves say don't do it, live with inflation to avoid that cost. Well, if the Phillips curve shifter is "acyclical" you have to throw all that out the window. This shift also points to the central conundrum of the Phillips curve. Here it describes the adjustment of prices to wages or "costs" more generally. It fundamentally describes a relative price, not a price level. OK, but the phenomenon we want to explain is the common component, how all prices and wage tie together or equivalently the decline in the value of the currency, stripped of relative price movements. The central puzzle of macroeconomics is why the common component, a rise or fall of all prices and wages together, has anything to do with output, and for us how it is controlled by the Fed. Christiano Eichenbaum and Evans write (p.3) that "it is crucial to allow for variable capital utilization." I'll try explain why in my own words. Without capital adjustment costs, any change in the real return leads to a big investment jump. \(r=f'(k)\) must jump and that takes a lot of extra \(k\). We add adjustment costs to tamp down the investment response. But now when there is any shock, capital can't adjust enough and there is a big rate of return response. So we need something that acts like a big jump in the capital stock to tamp down \(r=f'(k)\) variability, but not a big investment jump. Variable capital utilization acts like the big investment jump without us seeing a big investment jump. And all this is going to be important for inflation too. Remember the Phillips curve; if output jumps then inflation jumps too. Sticky wages are crucial, and indeed CEE report that they can dispense with sticky prices. One reason is that otherwise profits are countercyclical. In a boom, prices go up faster than wages so profits go up. With sticky prices and flexible wages you get the opposite sign. It's interesting that the "textbook" model has not moved this way. Again, we don't often enough write textbooks. Fixing prices and wages during the period of the shock by assuming price setters can't see the shock for a quarter has a direct effect: It stops any price or wage jumps during the quarter of the shock, as in my first graph. That's almost cheating. Note the VAR also has absolutely zero instantaneous inflation response. This too is by assumption. They "orthogonalize" the variables so that all the contemporaneous correlation between monetary policy shocks and inflation or output is considered part of the Fed's "rule" and none of it reflects within-quarter reaction of prices or quantities to the Fed's actions. Step back and admire. Given the project "find elaborations of the standard new-Keynesian model to match VAR impulse response functions" could you have come up with any of this? But back to our task. That's a lot of apparently necessary ingredients. And reading here or CEE's verbal intuition, the logic of this model is nothing like the standard simple intuition, which includes none of the necessary ingredients. Do we really need all of this to produce the basic pattern of monetary policy? As far as we know, we do. And hence, that pattern may not be as robust as it seems. For all of these ingredients are pretty, ... imaginative. Really, we are a long way from the Lucas/Prescott vision that macroeconomic models should be based on well tried and measured microeconomic ingredients that are believably invariant to changes in the policy regime. CEE argue hard for the plausibility of these microeconomic specifications (see especially the later CET Journal of Economic Perspectives article), but they have to try so hard precisely because the standard literature doesn't have any of these ingredients. The "level" rather than "growth rate" foundations of consumption, investment, and pricing decisions pervade microeconomics. Microeconomists worry about labor monopsony, not labor monopoly; firms set wages, households don't. (Christiano Eichenbam and Trabandt (2016) get wage stickiness from a more realistic search and matching model. Curiously, the one big labor union fiction is still the most common, though few private sector workers are unionized.) Firms don't borrow the wage bill a quarter ahead of time. Very few prices and wages are indexed in the US. Like habits, perhaps these ingredients are simple stand ins for something else, but at some point we need to know what that something else is. That is especially true if one wants to do optimal policy or welfare analysis. Just how much economics must we reinvent to match this one response function? How far are we really from the ad-hoc ISLM equations that Sims (1980) destroyed? Sadly, subsequent literature doesn't help much (more below). Subsequent literature has mostly added ingredients, including heterogeneous agents (big these days), borrowing constraints, additional financial frictions (especially after 2008), zero bound constraints, QE, learning and complex expectations dynamics. (See CET 2018 JEP for a good verbal survey.) The rewards in our profession go to those who add a new ingredient. It's very hard to publish papers that strip a model down to its basics. Editors don't count that as "new research," but just "exposition" below the prestige of their journals. Though boiling a model down to essentials is maybe more important in the end than adding more bells and whistles. This is about where we are. Despite the pretty response functions, I still score that we don't have a reliable, simple, economic model that produces the standard view of monetary policy. Mankiw and Reis, sticky expectations Mankiw and Reis (2002) expressed the challenge clearly over 20 years ago. In reference to the "standard" New-Keynesian Phillips curve \(\pi_t = \beta E_t \pi_{t+1} + \kappa x_t\) they write a beautiful and succinct paragraph: Ball [1994a] shows that the model yields the surprising result that announced, credible disinflations cause booms rather than recessions. Fuhrer and Moore [1995] argue that it cannot explain why inflation is so persistent. Mankiw [2001] notes that it has trouble explaining why shocks to monetary policy have a delayed and gradual effect on inflation. These problems appear to arise from the same source: although the price level is sticky in this model, the inflation rate can change quickly. By contrast, empirical analyses of the inflation process (e.g., Gordon [1997]) typically give a large role to "inflation inertia."At the cost of repetition, I emphasize the last sentence because it is so overlooked. Sticky prices are not sticky inflation. Ball already said this in 1994: Taylor (1979, 198) and Blanchard (1983, 1986) show that staggering produces inertia in the price level: prices just slowly to a fall in th money supply. ...Disinflation, however, is a change in the growth rate of money not a one-time shock to the level. In informal discussions, analysts often assume that the inertia result carries over from levels to growth rates -- that inflation adjusts slowly to a fall in money growth. As I see it, Mankiw and Reis generalize the Lucas (1972) Phillips curve. For Lucas, roughly, output is related to unexpected inflation\[\pi_t = E_{t-1}\pi_t + \kappa x_t.\] Firms don't see everyone else's prices in the period. Thus, when a firm sees an unexpected rise in prices, it doesn't know if it is a higher relative price or a higher general price level; the firm expands output based on how much it thinks the event might be a relative price increase. I love this model for many reasons, but one, which seems to have fallen by the wayside, is that it explicitly founds the Phillips curve in firms' confusion about relative prices vs. the price level, and thus faces up to the problem why should a rise in the price level have any real effects. Mankiw and Reis basically suppose that firms find out the general price level with lags, so output depends on inflation relative to a distributed lag of its expectations. It's clearest for the price level (p. 1300)\[p_t = \lambda\sum_{j=0}^\infty (1-\lambda)^j E_{t-j}(p_t + \alpha x_t).\] The inflation expression is \[\pi_t = \frac{\alpha \lambda}{1-\lambda}x_t + \lambda \sum_{j=0}^\infty (1-\lambda)^j E_{t-1-j}(\pi_t + \alpha \Delta x_t).\](Some of the complication is that you want it to be \(\pi_t = \sum_{j=0}^\infty E_{t-1-j}\pi_t + \kappa x_t\), but output doesn't enter that way.) This seems totally natural and sensible to me. What is a "period" anyway? It makes sense that firms learn heterogeneously whether a price increase is relative or price level. And it obviously solves the central persistence problem with the Lucas (1972) model, that it only produces a one-period output movement. Well, what's a period anyway? (Mankiw and Reis don't sell it this way, and actually don't cite Lucas at all. Curious.) It's not immediately obvious that this curve solves the Ball puzzle and the declining inflation puzzle, and indeed one must put it in a full model to do so. Mankiw and Reis (2002) mix it with \(m_t + v = p_t + x_t\) and make some stylized analysis, but don't show how to put the idea in models such as I started with or make a plot. Their less well known follow on paper Sticky Information in General Equilibrium (2007) is much better for this purpose because they do show you how to put the idea in an explicit new-Keynesian model, like the one I started with. They also add a Taylor rule, and an interest rate rather than money supply instrument, along with wage stickiness and a few other ingredients,. They show how to solve the model overcoming the problem that there are many lagged expectations as state variables. But here is the response to the monetary policy shock: Response to a Monetary Policy Shock, Mankiw and Reis (2007). Sadly they don't report how interest rates respond to the shock. I presume interest rates went down temporarily. Look: the inflation and output gap plots are about the same. Except for the slight delay going up, these are exactly the responses of the standard NK model. When output is high, inflation is high and declining. The whole point was to produce a model in which high output level would correspond to rising inflation. Relative to the first graph, the main improvement is just a slight hump shape in both inflation and output responses. Describing the same model in "Pervasive Stickiness" (2006), Mankiw and Reis describe the desideratum well: The Acceleration Phenomenon....inflation tends to rise when the economy is booming and falls when economic activity is depressed. This is the central insight of the empirical literature on the Phillips curve. One simple way to illustrate this fact is to correlate the change in inflation, \(\pi_{t+2}-\pi_{t-2}\) with [the level of] output, \(y_t\), detrended with the HP filter. In U.S. quarterly data from 1954-Q3 to 2005-Q3, the correlation is 0.47. That is, the change in inflation is procyclical.Now look again at the graph. As far as I can see, it's not there. Is this version of sticky inflation a bust, for this purpose? I still think it's a neat idea worth more exploration. But I thought so 20 years ago too. Mankiw and Reis have a lot of citations but nobody followed them. Why not? I suspect it's part of a general pattern that lots of great micro sticky price papers are not used because they don't produce an easy aggregate Phillips curve. If you want cites, make sure people can plug it in to Dynare. Mankiw and Reis' curve is pretty simple, but you still have to keep all past expectations around as a state variable. There may be alternative ways of doing that with modern computational technology, putting it in a Markov environment or cutting off the lags, everyone learns the price level after 5 years. Hank models have even bigger state spaces! Some more modelsWhat about within the Fed? Chung, Kiley, and Laforte 2010, "Documentation of the Estimated, Dynamic, Optimization-based (EDO) Model of the U.S. Economy: 2010 Version" is one such model. (Thanks to Ben Moll, in a lecture slide titled "Effects of interest rate hike in U.S. Fed's own New Keynesian model") They describe it as This paper provides documentation for a large-scale estimated DSGE model of the U.S. economy – the Federal Reserve Board's Estimated, Dynamic, Optimization- based (FRB/EDO) model project. The model can be used to address a wide range of practical policy questions on a routine basis.Here are the central plots for our purpose: The response of interest rates and inflation to a monetary policy shock. No long and variable lags here. Just as in the simple model, inflation jumps down on the day of the shock and then reverts. As with Mankiw and Reis, there is a tiny hump shape, but that's it. This is nothing like the Romer and Romer plot. Smets and Wouters (2007) "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach" is about as famous as Christiano Eichenbaum and Evans as a standard new-Keynesian model that supposedly matches data well. It "contains many shocks and frictions. It features sticky nominal price and wage settings that allow for backward inflation indexation, habit formation in consumption, and investment adjustment costs that create hump-shaped responses... and variable capital utilization and fixed costs in production"Here is their central graph of the response to a monetary policy shockAgain, there is a little hump-shape, but the overall picture is just like the one we started with. Inflation mostly jumps down immediately and then recovers; the interest rate shock leads to future inflation that is higher, not lower than current inflation. There are no lags from higher interest rates to future inflation declines. The major difference, I think, is that Smets and Wouters do not impose the restriction that inflation cannot jump immediately on either their theory or empirical work, and Christiano, Eichenbaum and Evans impose that restriction in both places. This is important. In a new-Keynesian model some combination of state variables must jump on the day of the shock, as it is only saddle-path stable. If inflation can't move right away, that means something else does. Therefore, I think, CEE also preclude inflation jumping the next period. Comparing otherwise similar ingredients, it looks like this is the key ingredient for producing Romer-Romer like responses consistent with the belief in sticky inflation. But perhaps the original model and Smets-Wouters are right! I do not know what happens if you remove the CEE orthogonalization restriction and allow inflation to jump on the day of the shock in the date. That would rescue the new-Keynesian model, but it would destroy the belief in sticky inflation and long and variable lags. Closing thoughtsI'll reiterate the main point. As far as I can tell, there is no simple economic model that produces the standard belief. Now, maybe belief is right and models just have to catch up. It is interesting that there is so little effort going on to do this. As above, the vast outpouring of new-Keynesian modeling has been to add even more ingredients. In part, again, that's the natural pressures of journal publication. But I think it's also an honest feeling that after Christiano Eichenbaun and Evans, this is a solved problem and adding other ingredients is all there is to do. So part of the point of this post (and "Expectations and the neutrality of interest rates") is to argue that this is not a solved problem, and that removing ingredients to find the simplest economic model that can produce standard beliefs is a really important task. Then, does the model incorporate anything at all of the standard intuition, or is it based on some different mechanism al together? These are first order important and unresolved questions!But for my lay readers, here is as far as I know where we are. If you, like the Fed, hold to standard beliefs that higher interest rates lower future output and inflation with long and variable lags, know there is no simple economic theory behind that belief, and certainly the standard story is not how economic models of the last four decades work. Update:I repeat a response to a comment below, because it is so important. I probably wasn't clear enough that the "problem" of high output with inflation falling rather than rising is a problem of models vs. traditional beliefs, rather than of models vs. facts. The point of the sequence of posts, really, is that the traditional beliefs are likely wrong. Inflation does not fall, following interest rate increases, with dependable, long, and perhaps variable lags. That belief is strong, but neither facts, empirical evidence, or theory supports it. ("Variable" is a great way to scrounge data to make it fit priors.) Indeed many successful disinflations like ends of hyperinflations feature a sigh of relief and output surge on the real side.
Part one of an interview with Salvatore "Sal" Pisciotta. Topics include: How Sal became a barber and eventually quit because he didn't like the work. How his parents immigrated to the United States from Italy. His parents lived in Ashburnham, MA and then moved to Fitchburg, where Sal was born. His parents were uneducated and the disadvantages they faced because of that. Stories Sal's parents told about Italy. How his family felt when World War II broke out. Sal's feelings about the events of September 11th and terrorism in general. His father's work as a laborer. The differences in how girls and boys were treated in his family. Education. What his mother was like and what a typical day was like for her. The garden his parents kept. Memories from his childhood. The food his mother used to prepare. His mother's experience working at a mill. What it was like to buy groceries and have ice delivered. Making wine and sausages. What Fitchburg was like when Sal was growing up. The boarders his parents housed. ; 1 LINDA: This is Linda [Rosenwan] on Friday, November 9. It's 9:50 a.m. We're with Sal Pisciotta, 208 Woodland Street in Fitchburg. And hello, Sal. SAL: Hi. Hi, Linda. LINDA: Okay. Here we go. So why don't you tell me -- you were just telling me a little bit -- I hate to ask you again, but tell me what happened after you graduated from Fitchburg High School in 1948. SAL: Oh. I went to barber school in Boston; that was for six months. Six months course, and then brother Joe and I, we opened up a barber shop down the street here, you know, in Fitchburg. And I always disliked being a barber, but I was forced into it. I always wanted to be civil engineer, but I mean, in those days if your father or brother was a barber you had to be a barber or a tailor or a cobbler or what the heck ever they were. LINDA: So he was an older brother. SAL: Oh, yeah. He was 17 years. I never grew up with him. I mean, I never grew up he and I being brothers. I mean, he was 17 years. He was… I was 3 years old when he got married, so we never grew up being close as brothers. And then the Korean War came along, I got drafted, and I went to Korea. I was there for, well, 15 months in the 24th Division. When I came back I wanted to go to school but then I got married, and one thing led into another. I went back into barbering, but then that was it. I couldn't take it anymore. I just had to get the heck out of there. LINDA: Did your brother know that you hated it? SAL: Oh, yeah. He knew it. He didn't want to see me leave, but hey, I quit. I told him I was leaving, then I had problems with my wife and I couldn't find a job. The country was in a recession back in '63, '62. So finally I landed this job in Leominster for the Doyle Estate, which was a wonderful thing, working for this lady. She's been very gracious and great to me and my three children. And that's it. I'm supposed to be retired here. LINDA: Okay, so we're going to stop the interview. Again. SAL: Okay. What we said is all gone, right? LINDA: All gone. We were just starting. See, it's at two minutes again.2 SAL: Okay. LINDA: Because we were just talking about -- so we won't talk about her personally. SAL: No, please, no. Don't say it. Nothing about her personally. LINDA: Okay. So then let me thing back what we should talk about. SAL: [Unintelligible – 00:02:55]? LINDA: Yes, we could start there. So your parents, Antonio… SAL: Antonio and Antoinette. LINDA: Now, did they come from Italy together? SAL: Yes. He came -- Dad was born in 1883. He went into the Italian Army. I think he was in the Italian Army a couple of years. Then he came to America, I think it was in 1906, or '07, whatever it is. And he worked in the Sumner Tunnel in Boston, I'd say. And then I guess he got laid off. He got laid off, and then he was going to go back to Italy. You know, the Italian government was calling these people, these immigrants, these Italian people that came over here. There was no work, and for $5 you could get on ship and go back to Italy. And my father had bought a ticket; he was going back to Italy. He was down on Hanover Street or one of the streets in the North End, and he met another Italian man, and they asked my father where he was going, where he was working. And my father says, I have no job here. I'm going back to Italy. So he said, tomorrow you meet at a certain place here in Boston, and we're going to go to Wellesley. In Wellesley there was a very, very wealthy man that has horses and stables and greenhouses, exactly what these Italians could do. So that's how my father went to work there, and he worked there for a few months. Then he did go back to Italy, and he was going to go marry this woman that he had left that he was in love with.3 Come to find out, she didn't wait for him. She had already gotten married to somebody else. So he struck up a relationship, which I think actually was a fixed marriage, with my mother. And anyway, he met somebody on the street, another -- I think Papa says once he was the mailman or something and says, Tony, get married and go back to America. Italy is about ready to go to war with Tripoli. LINDA: Oh, so wait a minute. So he did go back to Italy? SAL: Yes. Yeah. He went back to Italy to get married, but the woman that he was in love with, that he liked, she already got married. A letter carrier said to him, go back to America; that Italy is ready to go to war with Tripoli and that's when the 1912, I think it was, Dad came back with -- and she was 19 years old and my dad was 27, I guess. In 1912 they came and they landed in Boston. LINDA: So at this time he had been -- it was a married arranged for him, to a 19-year-old Antoinette. SAL: Yes. It was just, in those days, it was all arranged marriages. LINDA: Yeah. So they both came back here? SAL: Yeah. And I think they settled in South Ashburnham, a little jerk town up the street here, in South Ashburnham. And then he raised his family there. LINDA: Now, why do you think he ended up there? SAL: In those days, Linda, if Joe came, or Frank came to America, he would call him brother and his brother, he comes to America and didn't even know how to speak English, so where do you go? You go with your brother, or you go with somebody that you knew that called you. Then when you get here, you call your father-in-law or your sister-in-law, whatever it is, and you all get together. Because in those days, they all came here to Fitchburg. There was quite a population there was here, they call it the patch down on Water Street, and there was a lot of Italian people.4 But had there been work here in Fitchburg, today the Italian population would have been greater than it is in the North End of Boston, because what had happened was the work stopped. There was no more work, they weren't building any more factories, and then they started building the State House in New York, and all the Italians -- not all the Italians, but a lot of Italians, picked up their roots here from Fitchburg and Leominster, and they went to Albany, New York to live. LINDA: So who did you father follow then to Ashburnham? Do you know who was living there? SAL: Oh, yeah. His brother. LINDA: His brother. SAL: Yeah. LINDA: Now, what kind of work was he doing there? SAL: Laborers. That's all they ever do. Laborers. In those days they were building the paper mills, and that's it. A pick and shovel. There was no call up the cement truck and the cement truck come over with some cement. Everything was made by hand. It was laborers. And they were getting maybe $5 or $6 a week, and that was it. A week. Not a day or an hour, a week. LINDA: Now, where were they living, do you know? Were they living in a boarding house? SAL: No. It was a regular house. In fact, my daughter, Cynthia, lives up the street but the house is demolished now. The house isn't there anymore. Then from there they moved from South Ashburnham, they came down here on Orchard Street here in Fitchburg. They lived there for a few years, then they moved to [Edlee] Street and that's where I was born 72 years ago. LINDA: So what made them come to Fitchburg? SAL: Because one of his brothers was here, and there was work. LINDA: So he had a brother in Ashburnham and then Fitchburg?5 SAL: Then they came to Fitchburg because there was work here. They were building the paper mills, there was work. That's what they would do. They would just follow wherever work was, and then these Italians, the woman, would take in their brothers as boarders, so maybe about 65, or 70, a dollar a week they would cook for these guys, they would wash their clothes, iron, for a dollar a week. Cook their meals, make their lunch. That was America. They were the ones that built this country, those immigrants. Not only the Italians, I'm talking about the Swedes, the French and all that. Of course, and then the Italians. And then you get the Englishmen that came to this country and those -- is this being…? LINDA: Go ahead. That's fine. That's what history's about. SAL: So we got all these people that came over from Ireland, those guys ended up with the good jobs because they knew how to speak English. You get the Italians, the French, the Polocks, what do they know? They don't even know English. And that's how all the Kennedys and the rest of those rich families survived. Or got started. LINDA: That's what was so interesting about my interview yesterday. I think I told you, the Italian Citizens Club, with the [unintelligible - 00:10:20], was that they formed so that the Italians, they could teach them English and get them to become citizens and then show them the way to get better jobs. So they had to do that because there was a language barrier. SAL: Yeah. A language barrier. Like my father. My father and mother never went to school a day in their life. LINDA: Did they ever learn English? SAL: Yeah, they learned English. Very, very broken English, but they never went to school. I mean, we spoke in the house; it was all Italian as we grew up. I mean, with my mother and father usually would speak Italian, but amongst us kids it was English. But amongst Mom and Dad it was always Italian. LINDA: So they never became citizens?6 SAL: Oh, they did. Yeah. LINDA: Oh, they did? SAL: Yeah, during the Second World War, and then I can still remember before the Second World War my father became an American citizen. He was the happiest guy in the world. Then my mother, she became a citizen because she had a son that was in the Navy and he was in the war, and automatically she became an American citizen. LINDA: Wait, how did that work? SAL: What's that? LINDA: She automatically became a citizen? SAL: Her son was in the service, and I guess contributed to his country, and she just went to city hall one day and they had the ceremony and she became a citizen. But she never went to school. She never even knew how to sign her name. LINDA: I have my grandmother's passport where she has just an "x" where it says, sign your name. SAL: Dad could sign his name but it was… anyway. LINDA: It's amazing, though, isn't it? That they could come here and… SAL: They're the ones that built this county, right? LINDA: So you said your dad was the happiest man in the world. SAL: Oh, yeah. He was so proud. He became an American citizen, and he never had any desire to go back to Italy. He says, America's my home now. I want to stay in America. I don't want to go to Italy anymore. LINDA: Isn't that amazing? I mean, can you imagine yourself going to another country and…? SAL: And not even speaking a word of English? LINDA: And not becoming a citizen? SAL: And then becoming a citizen. Yeah. LINDA: So where were they from in Italy? SAL: Salemi. LINDA: Is this in Sicily?7 SAL: Yes, it's in Salemi. S-A-L-E-M-I. Salemi. Province of Trepani. T-R-E-P-A-N-I, Sicily. LINDA: Spell the Salemi again? SAL: S-A-L-E-M-I. LINDA: All right. So both your parents were from there? SAL: Yes. LINDA: Okay. So do you ever remember them talking about the old country? SAL: Oh, yeah. My father told me -- he would tell me that when he was courting my mother—because where they came from was all hills and mountains and there was no flashlights in those days and they used to have like a lamp and the lantern and my mother lived in the hills—and at nighttime he would slip, he would fall 200 or 300 feet down the cliff running. She came from the hills, poor thing. Nineteen years old she came to this country. Never went back, never saw her mother or father anymore, but anyway. LINDA: Did she used to have anyone write letters? Well, they probably couldn't read them. SAL: No, they could. My sister could speak Italian, and they would call [unintelligible - 00:14:11], but then naturally when the Second World War broke out, they were, you know, we were against the war on Italy, against Italy, so there was no communication then. LINDA: How did your parents feel about that when the United States was at war with Italy? Do you remember anything? SAL: That was terrible because they figured they were Americans, and they thought it was stupid that he got -- Mussolini in those days, got involved with Hitler. They thought it was a disgrace. The Italians, you know, if you look at history, they were the ones that turned against Hitler and the Italian army gave up. Every time they would see the American army coming they would always wave their hands and give up. They didn't want to fight. LINDA: So did your father have any brothers or sisters that stayed in Italy?8 SAL: Oh, yeah. Yeah. There were two of them, I think, that stayed in Italy. Sisters, no he didn't have. He had brothers. One of them was here in American, and two of them, I think, stayed in Italy. But he never saw the ones in Italy anymore. LINDA: He didn't try to get them over here? SAL: No. LINDA: No? What about your mother's family? SAL: She tried to get her brother over here. I can still remember going to city hall, and she tried to get her brother, whose name was Salvatore also, and the girl at the city hall says there was a quota in those days of foreigners coming into this country, and we asked how long it would take before her brother came to America, and they told me seven years. In those days. Today, what the hell happened to this quota? Right? So I guess he got disgusted or discouraged and he moved to Venezuela. And he did come here. He was here to visit my mother. He was here for about four or five weeks and then went back to Venezuela. But what happened to the quota in this country where you had to wait to come in here? Now the doors are open and every [screwball] can come in and out as they please. Right, Linda? LINDA: Do you think we'll go back to a quota system? SAL: No. LINDA: No? SAL: Of course not. Hey, you've got Bush, who just says what? Mexicans, a couple of months ago he says there's three million of them and we're going to go make them all American citizens. LINDA: How did people of your generation -- I mean, do you talk to your friends about what happened on September 11th? SAL: No, it's a tragedy it happened. And like everybody else we haven't seen nothing here. What the hell? Everybody that's -- not everybody, but that's the consensus… anybody doesn't have to be a brain surgeon to 9 figure that out. That war's going to be worse. [Unintelligible - 00:17:32] watching the bridges, they're watching the water supplies, airports. It's too bad. LINDA: I just always wonder how veterans of the war feel, because at least you knew who the enemy was, and you knew the country to attack. SAL: Right. And we would attack the enemy. These people, September 11, they attack these poor civilians, which was terrible. I mean, if they want to attack an army base or a Navy base or a ship, okay, that's war, like Pearl Harbor was war. But these people… again, it's their faith in Allah and the Mohammed and the wacky people that they are. But they're never going to erase terrorism. You're not going to wipe it out in this world. Never. [Unintelligible – 00:18:37] Mohammed and [unintelligible - 00:18:38] what the hell. You know it. There's another hundred guys right behind him that are worse than him. Am I right, Linda? LINDA: I'm afraid you might be. I know. That's a bad situation. SAL: Yes is it. It's terrible. LINDA: You think back to how your parents were. Their concern was putting a roof over their children's heads and putting food on the table, and now… SAL: Now we -- right. That's terrible. Like you say, you've got to worry about your grandchildren and your children, and that's… we've seen the better days of America. Let's put it that way, Linda. LINDA: I think of how heartbroken my grandparents would be to see something like this. SAL: Oh, God. They wouldn't believe it. When you see two big buildings like that just crumbling down, it's unbelievable. LINDA: Well, so getting back to… SAL: Do you want a cup of coffee? LINDA: No, do you? SAL: No. LINDA: I'm all set. SAL: You're all set?10 LINDA: Thanks. Every time I talk about it I get a little… SAL: Well, naturally, of course. It's a terrible thing that's happening in this country, and in the whole world. Even Italians, in Italy they're having their problems, too. [Unintelligible - 00:20:10] a few more, they had explosives in their car, they don't know where they were going. Anyway. LINDA: Back in your father's day, or even when you were younger, people just loved America. They even liked to be here. Now there's such an anti-American sentiment. Just, you know, in a relatively few short years things have really changed. SAL: Well, you know, America is the greatest country in the world, there's no question about it, okay. But the trouble with this country, I mean, is we try to force democracy down the throats of a lot of these small countries. Hey, let them live the way they want to live. If they want to live in communism, let them live in communism. Why do we have to spread democracy all the time? Am I right? It's a good forum, it's like a lecture. They want the communist rule, I mean, there's no more communism out there, I guess, and there's more crime. But anyway. LINDA: So your father must have been somewhat old when you were born, not old but what, like 40 years old? SAL: Oh yeah, he was. I think he was 42 or 43. LINDA: So he was still working as a laborer. SAL: Yeah. No, he worked in Simon's, it was a steel -- it was near Fitchburg, it was where they fabricated saws and paper knives and stuff like that, [unintelligible - 00:21:53] Steel. He worked there for 32 years, then he retired when he was 65. LINDA: So what did he do for them? SAL: Labor. Just hard work, just a hard laborer. LINDA: But it must have seemed like kind of a cushy job after working outside with a shovel. SAL: Oh yeah, I'm sure it must have been. But I mean, the way he was talking I guess they had this kind of a stones of a brace of [unintelligible -11 00:22:23] and they'd grind them down. I'm sure it must have been hard work for the poor guy. Then he used to walk back and forth to work to save a nickel or a cop there in those days. LINDA: How far is that? SAL: It used to be on North Street, right on Main Street. Right here at [unintelligible - 00:22:40] College, North Street. LINDA: Okay. He would walk from here? SAL: He would walk, yeah just to save a nickel on the bus. LINDA: He probably didn't have a very -- he didn't have [unintelligible - 00:22:55] back then, right? SAL: Oh God, no. Just a hardworking man, that's all he was. Poor guy, I feel so sorry. What a life he lived. But anyway. LINDA: Why do you say that? Because he worked so hard? SAL: Oh, he worked so hard and didn't have all the conveniences that we have today. We didn't have a telephone in the house. I think we had to go to the fire station to use the telephone. There was no telephones back when I was growing up. I think I was about five years old before I ever sat in an automobile. LINDA: So tell me about making a phone call. You'd walk down to the fire station? SAL: Yeah, there was a fire station. So you'd make a telephone call to somebody. We didn't have a phone. LINDA: Did they charge you? SAL: I don't remember, that I don't remember. But the first one we got was a four-party telephone. The phone used to ring three or four, that's not ours, that's not ours. LINDA: I vaguely remember my grandmother having that, yeah. SAL: We had a four-party telephone. LINDA: So tell me what your mother was like. SAL: Very strict. She was a strict woman, yeah. She brought up five daughters, and not one of them ever crossed the line. Real proud girls.12 LINDA: Were girls and boys treated differently? SAL: Oh yeah. To an Italian woman the sons were always the favorite. Yeah, I was the favorite. Especially the oldest one, he was always the favorite one. LINDA: Now, was that Joe? SAL: Joe, yeah. LINDA: So he decided to be a barber. That was a good decision that you would have to follow? SAL: Well. LINDA: A good decision for him. SAL: Good for him I guess. And in those days we didn't have the opportunity to go to high school anyway. At 16 years old everybody had to quit and go to work. LINDA: Did you quit high school? SAL: No, I graduated in '48. Out of seven, my sister Millie and I were the only ones that graduated. LINDA: You were the youngest? SAL: I was the youngest, yeah. LINDA: And she must have been a young… SAL: Millie right now I think is 78, I think, 79. LINDA: So did your parents think that education was important? SAL: Yes, they did, but food on the table was more important, yeah. LINDA: So were the children expected to go out and get jobs and contribute? SAL: Yeah, we all had to pay board in those days. Yeah, whatever the pay was that you brought into the house, a certain percentage had to go to the household, to my mother. She was a strict woman, very strict. But she was a good lady. Poor thing, she spent eight years of her life, eight years was in a nursing home after Alzheimer's I guess, after the sclerosis. Poor thing, didn't know who the hell she was, she didn't know who we were either. LINDA: Did she die after your father?13 SAL: Yeah. LINDA: So what was her day like every day? SAL: Well, when she was younger [unintelligible - 00:26:50] with her kids. She even worked in one of the yarn mills here in Fitchburg; she even had a job. I mean, she was a hardworking woman. And I used to remember her doing the canning; she'd can tomatoes and beans and dad had a little garden a couple miles away from here, a little piece of land. And he used to make his own grape, his own wine, rather. And it was great. All the Italians around here were living the -- I mean a lot of [unintelligible - 00:27:22] and the trucks used to go by this time of the year loaded with grape from California, and we would go down south, he would buy the grape, and we'd go down in the cellar and we would make two or three barrels of wine. All the Italians used to make barrels of wine. It was interesting, it was very interesting. But it's all gone now. I've got fond memories of that. LINDA: So it seems like maybe it didn't seem like work. But it was the way of life. SAL: No, it wasn't. The way of life, right. LINDA: So was it typical for a family to buy a little piece of land to garden? SAL: Oh yeah. They all had to have their grape arbor, had their grape arbor and land. They all had to have their piece of land. They had to grow their squash and their tomatoes. Well, most of them anyway. LINDA: So who would take care of the garden? SAL: My dad and I would. Come home from school, my father, he would come home, and there was no cars in those days, we used to have a big wagon. We'd pull the wagon, the garden was maybe a quarter of a mile away, half a mile away from here, and we would go up there. After school there was no going to play football with the kids or going swimming; it was work, work, work. That's how it was. And I would help my father. He would plant this and plant that. The poor guy didn't know how to read how to 14 plant this and what you should do, and I used to read and explain everything to him. LINDA: So who owned the land? I mean, did one person own the land and they kind of subdivided it? SAL: No, he bought the piece of land from the seller, the man who owned a lot of pieces of land. Of course, they're all houses now, but in those days it was all woods and stones, and he would, one of my uncles with a horse, they cleared all the land, chopped down all the trees, piled up all the stones. They cleared the land themselves. There was no bulldozers in those days; everything was done by hand. LINDA: Where was that? Do you know the street? SAL: Yeah, it was off between Herd and Exeter Street. LINDA: Now, did he continue doing that all the way? SAL: Until he passed away, yeah. LINDA: And what happened to it? SAL: The land? His dream was always having a house on this land, but my mother, in those days, again, five daughters, she figured if he built a house there was no men or boys that was still bringing in the pay. In other words a girl gets married, she's out of the house, there's no more money coming in. So my father went to one of the lumberyards in those days, I think it was $4,000. It would have cleared the land, built them a six-room house, and turned over the keys for $4,000. And my mother says no. She says we've got five daughters, there will be no money coming in. So that broke my father's heart. He never seen a house on that piece of land that he had. So he passed away, and the funeral parlor up the street here -- next to the funeral parlor there was a house, and it belonged to, I guess, his aunt or something, and he bought the land from him, my brother Joe, and they moved the house to the land over there, and somebody else is on our place now. The land is gone. LINDA: So why is it that your generation didn't keep the garden still?15 SAL: Number one it was a lot of work. And then my sisters all got married, and they would have a little garden behind their house. But I mean, as far as that big piece of land that my father had, nobody was interested in it anymore. Then I went into the service, the land just got lost. My brother Joe sold it to this undertaker over here and he moved the house. The house is on the land now. LINDA: So do you think your father had that garden to feed his family mostly? SAL: Oh yeah. Oh yeah, definitely that's what it was for. And they used to have a little -- everybody had a shack, my father had a shack, [oceandino] they'd call it, a shack on there. And he had a little stove in there. I can still see my mother with the tomatoes cooking her tomatoes on the wood burning stove. And there was a little bed in the corner where my father would get tired during the day working, he'd lay on the bed and take a nap. That's one thing about him, every afternoon he used to take a nap. Even if it was for 20 minutes, Dad would always take a nap. LINDA: It's the Italian way, right? They still do that now. SAL: Yeah, he used to take his nap. And Mom used to do all the canning. We used to go up there, we were kids, we used to go up there and had a big table underneath the grapevine and there was a well. We used to pump water out of the well. It was fun. I mean, you don't see that anymore. LINDA: They used to have a shack right on the land? SAL: Oh yeah, there was a shack. LINDA: And what was it called? SAL: Well, in Italian oceandino. But yeah, there was a wood burning stove in there, a nice wood burning stove. And there was a bed. And Msom had a table in there and chairs, and when it would rain we would eat inside. If not we would go outside to eat under the -- it had a grape arbor with a well, the well, and then there was a grape arbor all around. LINDA: Was this on weekends mostly? SAL: Weekends, or even after school. Get out of school at 2:00 and we used to walk up there, and Mom was there doing the canning. There was no cars 16 in those days. We used to have a big wagon, put everything in the wagon, and come down through the streets with the wagon. LINDA: So can you still smell that sauce cooking? SAL: Sure can. Boy, she could make it wonderful. And pizza, she used to make that pizza, not that stuff you buy in the stores today, that little thin stuff. She used to make the regular Sicilian pizza with about a good inch thick, yeah. LINDA: What other kinds of things did she make? SAL: She wasn't a fancy cook. Like I said, she left Italy when she was 18, 19 years old. But no, not to knock my mother, but she used to make a tremendous sauce. She used to do a lot of cooking with ricotta, you know that cottage cheese, ricotta. And a lot of fried stuff in those days, like fried peppers and fried squash. But real fancy dishes, no, poor thing, she didn't know anything about that. LINDA: Did she make her own cheese? SAL: No, no. LINDA: Did she use a lot of fish? Did she… SAL: Not too much. Mom didn't go for fish so much. And the fact that she didn't… she really didn't cook with garlic. LINDA: No? SAL: You know why? The poor thing, she was in the mill down at [unintelligible - 00:35:25] yard, and all the Italian women, the bosses and those ladies, they used to call them hey, you garlic eaters, you garlic eaters. My mother got offended because they would call her a garlic eater, and she never would cook with garlic. That's something, huh? LINDA: So do you think she was afraid that she'd smell like it? SAL: Yeah, she'd smell the aroma. LINDA: So when did she work at the mill? SAL: Oh geez, it was when I was born. After I was born, actually. It could have been in the early '30s, had to be. LINDA: So who was taking care of you?17 SAL: My sisters. LINDA: What else can you tell me about her experiences at the mill? SAL: Well, other than they were known as garlic-eating Italians, women were known as garlic-eaters; that's about all I can remember. I know there were long hours. She used to leave here about half past five in the morning and start to work at six. She used to work from six to twelve I think it was, or six to one. Then come home, wash clothes. And really, there was no fancy washing machine like they have today. I still remember her with an old scrub board. LINDA: Did she ever get the washing machine with the rollers? SAL: Yeah, yeah. Old Maytag, I remember that with the rollers in the back and you feed the -- she got that… and had a wood-burning stove. And that thing used to shine, God you could see your reflection on that black [unintelligible - 00:37:20]. And that thing used to shine, and gosh it was clean. She was immaculate, my mom. She used to have a big couch, not a couch but a piece of furniture over there. The telephone would ring and she would be there. While she was on the phone she would have the rag and she was wiping it, and my father would say [unintelligible - 00:37:47] when you're dead in your box you're still going to have that rag, you're still going to be wiping and wiping. She was crazy clean. Oh God, clean. God, was she clean! LINDA: Did she expect all her kids to be clean? SAL: Yeah. LINDA: Were all the [unintelligible - 00:38:11] immaculate too? SAL: No, it's not. LINDA: Looks like it. SAL: No, never, far from it. Messy. Messy, messy, I've got to get that damn counter cleaned. LINDA: So what was life like for your sisters when they got home from school?18 SAL: They helped Mama do the cooking, wash the clothes, do the shopping. But like I said one of my sisters was the only one that had the opportunity to graduate high school. But the rest of them at 16, they all had to quit and they had to go to work. And they all did their share when they came home as far as working and housework. There was no fancy supermarkets like they are today. LINDA: So tell me, what was it like to buy groceries? SAL: There used to be a little First National store down here, First National store, okay. And then the bottom of the hill there used to be another [Gigopies] market. And you just used to buy groceries for the day, whatever you needed. The bread, they used to make their own bread. I can remember coming home and my mother having that big wooden shovel making the bread and making the dough rise. There used to be a big pan and she used to put that on there, that dough would rise up, and then the dough that was left over, she used to make pizza with it. Yeah, they used to make their own bread. LINDA: So would they make the bread for the week? In one day? SAL: Oh, yeah. Yeah. LINDA: So whose job was it to knead all the bread? SAL: She would do all that. LINDA: She would? SAL: And my sisters, too, would help her. But mostly she would do it with her flour. She used to buy flour by 50-pound sacks. LINDA: Now, did someone used to come around on a truck and sell the flour? SAL: Yeah. Then there used to be trucks that used to come around, and they used to -- I can still remember, they used to come around, they used to sell -- maybe even was -- oh, geez. There used to be -- next street over there used to be a guy that used to go around with a horse and the meat in the back, he had a covered thing and he used to sell meat. Imagine that? Unrefrigerated. With a horse. A horse-drawn cart and go around, and then maybe about once a week or twice a week there used to be trucks that 19 used to come in from Boston, and they had all kinds of Italian cheese and Italian food in these trucks, and the mother or the people would go down and go around the truck, and they'd have all these goodies that they would be selling. Cookies, Italian cookies, cheeses, olive oil. LINDA: So did they go up and down all the streets? SAL: Yeah, they would go down the street, but they would go mostly to where Italian families were. They knew where the Italian families were. There used to be a lot of Italian families here in Fitchburg at one time. Even in this area here. A lot of them. But now they've all passed away now and they're married and they're gone. LINDA: Did they used to ring a bell? How did you know they were coming? SAL: Sometimes, if they had selling dishes they used to [hit] the dishes together and you'd know they were coming, or they would lay out in the street and yell out [foreign language – 00:41:56], which meant, "chickens, chickens, chickens." They would sell chickens, too. And in those days, too, they used to sell the chickens. They weren't like going to the [unintelligible - 00:42:05] market or buy them all packaged. You had to buy them, and I remember my father on the shed, he used to take the chicken by the neck and pull it, and the poor bird would bop-bop-bop, and he'd have the hot water going, stick it in hot water right away. You had to pull all feathers off before the water got cold. That's the way they used to do it. LINDA: Did you ever learn how to do that? SAL: No, but I didn't want to learn how to do that. Put the place together while he went, and then I clean all the innards. Thank God for [unintelligible – 00:42:45]. LINDA: Did your family eat meat much? SAL: No. No. What we ate was mostly chicken, but she would cook a lot of Italian dishes. Peasant dishes. Like lentils. LINDA: Thank you. Thanks for understanding. So we were talking about cooking. What do you think about what we were talking about?20 SAL: She would make the peasant dishes. Ricotta with cheese, [unintelligible – 00:43:26] escargot, ricotta with [unintelligible - 00:43:29]. LINDA: What's that with the [unintelligible - 00:43:32]? SAL: The lentils. LINDA: Oh, lentils. SAL: Come on, Linda. Don't you understand? LINDA: I guess not. Now who made the decision to buy groceries? Who decided how much money to spend? SAL: Oh, no. Mama would do that. Mom would do that, yeah. On Friday night in Fitchburg there used to be -- on Main Street there used to be an old A&P store years ago. And Millie, who is the only one that knew how to drive then, we had a 1938 Dodge that Papa had bought then. Of course, he couldn't drive. Naturally he didn't drive, and she was the driver and she was the chauffer. And Friday nights I could still remember them, Mama and Millie, would go down to A&P and do the grocery shopping. Let's see. What else can I tell you? LINDA: Well, what about the -- I like the stories about the trucks coming in from the North End. What about ice? Do you remember ice being delivered? SAL: Yeah. Ice. There used to be an ice truck that used to come around, and then what you would do, the ice truck would stop, and we used to have iceboxes in those days, naturally. And there used to be a card that you put at the window and it was either 25, 50, 10 cents, or a nickel. In other words, if you wanted the 25-cent piece you would put that standing up, 25. Do you follow me? If you wanted a 10-cent piece then you turn the card over. And the iceman would chop a piece, put it on his back, and bring it up and put it in the icebox. And he put that -- most of it, the iceboxes were in the sheds. They used to have sheds. Do you know what a shed is? Outside of the house there used to be up on the porch, there used to be like another little, a little but no heat in there, and we put the [unintelligible - 00:45:33] stuff like that and 21 put the icebox -- we used to call it the icebox, was in there, and then there was a pail underneath for the water to drip. And sometimes if you forget to empty the pail, you would hear downstairs, they were knocking on the ceiling that the water was running down through the house. You had to empty this pail. Yeah. LINDA: So they keep it out there even in the summer? SAL: Yeah. Oh, yeah. That was the refrigeration was this icebox. LINDA: It probably wasn't very big? The icebox? SAL: Where we were living, I guess… is that too strong or what? LINDA: No, it's good. SAL: Okay. Because I make coffee too strong. LINDA: No, I like it. SAL: In the park, this man used to cut the ice. They used to cut the ice on Wayland Park, and then they used to bring it over and store it in the barn, and they used to put sawdust on it in the wintertime. That used to preserve it. In the summertime they would take the sawdust off the ice and ice was still there. It wouldn't melt. Did you know that? LINDA: No. I've heard it before. But where did they used to store it? SAL: They had a big, big shed, a big barn, and they used to store the ice in big, big cakes of ice. LINDA: Now, did the ragman come around? SAL: Yeah, the junk man would come around. The ragman. Yeah. Or the horse-drawn wagon. And if you had any rags they would sell it, pick it by weight and they used a scale, used to weigh it, and they used to give you maybe 10 or 15 cents for a bag of rags or whatever kind of junk you had. LINDA: What would they do with those rags? SAL: I have no idea. I don't know. And you would have the trucks that would come around at this time of year, all full of grape, and they would go to different places, the Italians, and the men would… I actually remember my father used to either 40-, 42-pound box of grape; maybe he'll sell it for 22 about a dollar, dollar 15 cents. Now, today, it would cost about 20, 21 dollars for the same sized box of grape. LINDA: So was that a family affair making wine? Or was it the boys? SAL: Mostly the boys. Dad and I would -- of course my brother had been… then I took over. We used to grind the grape by hand. And always my father, watch the fingers, watch the fingers, as you're grinding the grapes, all those spokes. You had the fingers stuck in there; your fingers would have been caught. But it was all done by hand. Now they have machines, a bunch of machines, dump a box in there, push the button, it's all done. LINDA: Did you keep that tradition? SAL: Yeah, I was making it up about three or four years ago, and then I had bad luck on a whole barrel of wine. I had to throw it down the sink. It went bad on me, and so I said, from now on if you want wine, go up to Kathy's Package Store. But I did. I was making my own wine, but anyway. I still make my own sausages. LINDA: Oh, you do? SAL: Yeah. LINDA: Is that a seasonal? SAL: Mostly, it's pork, but you eat in the wintertime. I don't like to eat pork in the summertime. But sausages, it's more seasonal. Like Thanksgiving and Christmas. LINDA: Have you made it yet? SAL: No but I just bought a new machine. I don't know, one of those KitchenAid machines, I just bought one of those a couple of weeks ago. LINDA: So explain to me how you make it. SAL: What, sausage? Well, you buy either the pork butt or the shoulder. Okay. You debone it, and then you take all the meat out and cut it into small pieces, and you put it through the grinder. Once you put it through the grinder, then you lay it out on the table, then you put your seasoning on it. Your fennel, salt, pepper, whatever you want for seasoning, okay? Then you put it through the grinder again, okay? Then you mix this all up, and 23 you can put wine in it if you want, then you got your casings. You know what casings are? All right. Then there's an attachment, you put the casing on there, you put the meat and you grind it up and go through the casings, and you make the sausage. LINDA: So do you freeze a lot? SAL: No. By the time you give some to this daughter, that to this guy, then some to my nephew, 20, 25 pounds disappears fast. LINDA: Now, did your mother used to make that? SAL: Oh, yeah. LINDA: So how are things different now? I'm sure she didn't have a grinder. SAL: They had a hand grinder, and I can always remember every time Mom and Dad got together to make sausage, boy, there was a war. You could hear them. LINDA: Why? About the seasoning? SAL: Oh, you're doing this wrong. You're going too fast. Watch your fingers. You don't do it this way, you do it that way. It was hell. Yeah. LINDA: So what about filling the casings though? That may have been a little harder back then? SAL: Well, it's… you've got to coincide with the one that's holding the casing and the one that's grinding it by hand. Now it's all done by electricity. It's powered. But that's the only tricky thing. As the machine is feeding the meat in the casing, you've got to make sure that you don't put too much all at once in the casing or it'll crack or break. LINDA: So probably every family has their own recipe. Sort of like meatballs. SAL: Well, I don't think anybody makes it. Very few people make their own sausages now. I know my sister Marilyn still makes it. I make it. That's about it. LINDA: What other things do you make that your mother used to make? SAL: Oh, green olives. Yeah. She used to -- this time of year, with green olives used to smash those and cure them. And pizza, naturally. Everybody 24 makes pizza. But some of her peasant dishes, once in a great while, but I was never too fond of them anyway. LINDA: No. So what about Christmas Eve, do you know? SAL: Christmas Eve, not like the ones years ago. Christmas Eve years ago was my uncle and my mother and father and all the Italians used to all get together, and they used to cook on the stove some kind of a fancy dish of fried dough, dumplings like. No more. We don't get that closeness of families anymore. LINDA: Why not? SAL: I don't know why. I think number one, there're cars. Everybody goes here, everybody goes there. I would say cars. Anyway, we used to get together years ago on holidays and Christmas. We still get together, but it's not the way it was on Christmas Eve. It's different. I'm sure it must be the same with your family, right? LINDA: Yeah. When my grandmother was growing up and even after she got married, all of her sisters lived close by. But then when they started having children, everyone moved on. SAL: That's right. That's the way it goes. From generation to generation is always different, which is good, in a way. But it's good to keep up traditions though, I think. LINDA: So have any of your daughters learned how to make the sausage? SAL: No. They wait for Daddy to call them up and say, okay, come and get your sausage. LINDA: Now, did your parents have chickens? SAL: Oh, God no. LINDA: No? Why do you say it like that? SAL: Because we lived in the neighborhood, and no, we didn't. But when we had that piece of land up there, my father used to raise pigs. I remember we had pigs, a couple of pigs, and he used to slaughter those. I remember that when I was a kid.25 LINDA: Now, what was that like? Was there a particular name of that day when people would slaughter their pigs? Would they call it anything? SAL: No. It was just at the end of the season, like at this time, winter was coming and people -- I can still remember that shed that he had with the water boiling and the poor pigs, shooting and killing the poor pigs. Thank God I don't have to go through all that anymore. LINDA: Did they use every piece of the pig? SAL: Oh, yeah. Even the squeal. Only the squeal is the only thing that you don't use on the pigs. LINDA: Oh yeah, I know. So was there a smokehouse in the area? Did anyone have one? SAL: No. Not that I remember. LINDA: What about buying groceries? Was that on credit? SAL: No, that was cash. Everything was cash. My folks, everything was cash. There was no plastic in those days. Even if there was, if they didn't have the money, the Italians, they didn't buy it. Everything was cash. LINDA: So what is this area of Fitchburg called? SAL: This section here? This is called Cleghorn. LINDA: This is? So this is really the French? SAL: It was the French district at one time, but now it's Puerto Rican and everything else. Fitchburg was in different sections. Like you had Cleghorn was the French. The patch was at 1st, 2nd, and 3rd Street. Okay. That was the Italians. Then you had Greektown. Naturally, that was the Greeks. They all stuck together. Then West Fitchburg was the English, then you have Southside, that was the Irish. LINDA: So when the Italians started moving in here, were your parents part of that group that started moving into Cleghorn? SAL: I don't know. When they left South Ashburnham, I don't know when it was, but then they moved on to Orchard Street. They lived here -- I guess a few of my sisters were born out here on Orchard Street. But I know I was the only one of the family that was born over here on Edward Street. 26 And then it was in '48, yeah, 1948 I guess it was that one of my sisters went back home. Of course, in those days the girls had boyfriends, and they wanted their boyfriends to pick them up at a nice house. So, one of my sisters saw this place over here that was for sale. And anyway, Dad would come over, and they finally looked at it and they bought it. The price that they paid for it, I just had the roof, and the roof cost me the same price. And they bought the whole house. LINDA: What was that about? Three thousand or something? SAL: They paid $11,000 for the house, and I just spent $11,000 for a new roof. LINDA: So they paid $11,000 for this, but your mother didn't want to pay $4,000 for the other house? SAL: Yeah. Because she had the money but she wasn't going to spend it. And she wouldn't spend $4,000 to have a brand new house up there. But a few years later she spent $11,000 and bought this house. LINDA: Oh, so this was bought after. SAL: Oh, yeah. After. LINDA: I see. So about the different sections in Fitchburg, was there any competition or rivalries or differences? SAL: No. No. Maybe this will be interesting. My father was here down on the bottom of the hill one day, and in those days, like the mafia, there was the Black Hand. And it was a society that was shaking down these immigrants, and they approached my father, and this guy from the Black Hand wanted $5 from my father, and my father told him, I got two kids at home, I haven't got no $5. The $5 I've got is a week's pay. I've got to feed my family. And he says, you have that money here tomorrow at a certain time, otherwise there's going to be harm that's going to come to you and your family. So in those days, my mother had boarders, and one of them was this fellow from Albany, New York. He was boardering in my father's and my mother's house, and so Papa came home and he told him. And he was 27 [unintelligible – 00:59:56]. So he told him what had happened, so this man said to my father, he says, yeah, you let me know where this guy is and what time you're supposed to meet him. And he says, I'll go to meet him. Anyway, he approached this guy and he never bothered my father anymore. LINDA: So who were these people? SAL: Black Hand. It's like a society that's like the mafia or something like that, but they were gangsters shaking down these fellow Italians. So this guy must've taken a knife and shoved it up to his throat and said you won't bother this man anymore. LINDA: Do you think it was a group living in Fitchburg? SAL: I think so. LINDA: You think so? SAL: Yeah. LINDA: Your parents would take in boarders? SAL: Yeah, she took in boarders for a while. Like men that she knew, like my father's -- like a cousin or something like that, they came to this county and they had no place to go, and where do you go? You go see your paisano, you go see your relative or brother until they get located or until they get situated, and they used to take care of these men. Cook for them, make their lunch. Mostly all the Italians would take in boarders. LINDA: So were there many paisanos living around? SAL: Oh, yeah. There was quite a few. Like I said, the work came to an end, and then a lot of them left. They went to Albany, New York. But yeah, my mother had one of her brothers living the next block over, and Dad had another brother that was a few blocks up the street [unintelligible - 01:01:50], and they grouped together. They stayed together. LINDA: Because even though there were a lot of Italians living here, some in different regions, they speak a different dialect. SAL: Oh, yeah. I was in Italy here about three years ago, I think there's about 150, 200 dialects in Italy. When I was growing up there used to be like 28 Beech Street over here that's a bunch of Italians not from Northern Italy, but once they start talking, I don't understand them. I really don't. /AT/pa/my/cy/es
