When Blogs Were Young

Laura at 11D has an absolutely terrific post up about how the blogosphere has changed over the last six or seven years.  The upshot is that it's a lot harder to make it big in the blogosphere, while the old A-listers are burning out.  Blogging more than a thousand words a day, every day, is mentally exhausting, and if you aren't getting paid for it, eventually, your life intrudes.

Back in the day, new bloggers were emerging all the time.  Now it's happening much more slowly, and the old bloggers have gravitated to various professional positions. Is the new media revolution over?

Department of Invidious Comparisons

Felix Salmon notes who California feels is important enough to pay in cash.  Legislators yes, blind and disabled people, no.  Natch.

Wal-Mart and Health Insurance: The Theories of the Case

I find it hard to believe that none of the liberal commentators breathlessly celebrating Wal-Mart's "capitulation" on national health care have even entertained the most parsimonious explanation:  that Wal-Mart is in favor of this because it raises the barriers to entry in the retail market, and hammers Wal-Mart's competition.  Yet somehow, this appears nowhere in any of the analysis.  These are the explanations that they found more plausible:

1.  Wal-Mart wants to change its image, which is better accomplished by securing a massive regulatory mandate than by, say, insuring more employees, or setting up a happy-face charitable foundation.

2.  Wal-Mart wants to make its voice heard in the process, which is better accomplished this way than by paying lobbyists.  Also, Wal-Mart is hoping that the federal government will deliver health-care cost control, which is something the company that gave us $4 prescription drugs couldn't hope to do on its own.  Controlling health care costs is, of course, a big worry for a company that I'm told does not insure many of its employees.

3.  Wal-Mart is flummoxed by unpredictable health care costs for all the workers it apparently isn't covering.  Because if there's one thing that we've learned over the years, it's that when the government gets involved, health care costs become totally predictible. 

Also not considered:  Wal-Mart cut a deal with the SEIU in exchange for the SEIU leaving it alone.

Yet, even in liberal academic literature, it is a commonplace that regulations disproportionately benefit several types of firms:

a)  Incumbents
b)  Market leaders
c)  Firms with the most employees

Regulation has a very high fixed cost for compliance; the larger the firm, the more dollars/employees over which to amortize the fixed cost.  Meanwhile, market leaders have disproportionate bargaining power, and tend to get better rates from suppliers than smaller competitors.  Finally, a high fixed cost means either that it's harder to initially enter the market, or (if there are exemptions for the smallest firms) harder to grow.

On the other side, there is regulatory capture.  Wal-Mart is always going to have a seat at the table when employer mandates are discussed, because Wal-Mart is the nation's largest private employer.  Target and Macy's probably won't have a seat at the table.  So Wal-Mart can influence the rules in ways that benefit Wal-Mart at the expense of the competition.  This is partly because the regulators often cycle into jobs at the firms they regulate, but also simply because the regulator's attention is finite, so being consistently at the table allows you to shape their views over time.   Again, this isn't some kind of crazy right-wing analysis; regulatory capture was first diagnosed by a Marxist historian named Gabriel Kolko.

All of which is to say, Bootleggers and Baptists should be required reading in all schools.  When you find strange bedfellows in politics, don't look for a surprising outbreak of spontaneous virtue:  looking for the hidden conspiracy.

Old Media Blues

Jack Shafer writes a lovely column celebrating the rise of new media, and pooh-poohing the old guard who are just afraid of competition from upstarts:

Let me say it another way: The barriers of entry into the journalism business have been battered down, making it easier than ever to enter the profession. That will read as small consolation to the journalists who have had their publications shot out from under them--the Rocky Mountain News, the Seattle Post-Intelligencer, the Ann Arbor News (come July 23), and magazines too numerous to tally. But please notice that I'm not saying there has never been a more lucrative or prestigious time to become a journalist. The cash and status associated with the profession are fairly recent. Until the early 1970s or thereabouts, the average journalist made an average salary (if that), and his societal standing was modest.

If the downside of the battered-down barriers to entry is less pay and lower status, the potential upside is that a flood of new entrants into the field could portend a journalistic renaissance. No, I'm not saying that every junior blogger and pint-size videographer will immediately stand as tall as Barton Gellman and Errol Morris and that the Washington Post and NBC News should be flushed. But journalism has generally benefited by increases in the number of competitors, the entry of new and once-marginalized players, and the creation of new approaches to cracking stories. Just because the journalism business is going to hell and it may no longer make economic sense to maintain mega-news bureaus at the center of war zones doesn't mean that journalism isn't thriving.

From where I drink, the champagne is still dry, cold, and fizzy.

This seems to me to rather precisely miss the point.  The problem besetting newspapers is not that there are hordes of bloggers giving it away for free.  Bloggers are, to be sure, great competition for the op-ed section.  But the op-ed section is not a money maker, as the New York Times so painfully discovered with Times Select.  As I wrote at the time, the Times confused what people were emailing each other with what they would be willing to pay for.  If those things were the same, poems about Jesus and pictures of kittens wearing hats would have replaced gambling and porn as the internet's most profitable content.

Journalism is not being brought low by excess supply of content; it's being steadily eroded by insufficient demand for advertising pages.  For most of history, most publications lost money, or at best broke even, on their subscription base, which just about paid for the cost of printing and distributing the papers.  Advertising was what paid the bills.  To be sure, some of that advertising is migrating to blogs and similar new media.  But most of it is simply being siphoned out of journalism altogether.  Craigslist ate the classified ads.  eHarmony stole the personals.  Google took those tiny ads for weird products.  And Macy's can email its own damn customers to announce a sale.

We could herd every new media type into camps and force them to become shorthand/typists, and newspapers would still be in just as bad shape as they are now.  We could take down Google News, and it would barely register in their bottom lines.  Even if every newspaper and magazine in the country entered into a binding cartel agreement not to put more than a smidgen of free content on their websites, newspapers would still be losing money, and closing by the dozens.  It's the economics, stupid.

We're not witnessing the breakup of a monopoly, in which more players make more modest incomes providing more stuff, and everyone flourishes (except the monopolist).  We're witnessing the death of a business model.  And no one has figured out how to pay for hard news.  Hard news stories take a great deal of time to write--more time than most amateurs can afford, which is why blogs tend to do opinion rather than journalism.  Moreover, they are at least greatly improved when their authors are not worried about losing their jobs if what they write pisses off a local power broker.

This is a genuine loss for the American public.  Cities without newspapers seem to experience a sizeable increase in insider self-dealing and other forms of corruption--one theory as to why the Federal government is less corrupt than state and local governments is simply that it's more thoroughly covered by the press.  I am second to none in my appreciation of new media and its possibilities.  But so far, it has proven more effective as a complement to old media than a replacement.

Aspen Bulletin: Austan Goolsbee Explains It All

I haven't gotten to attend many panels this year, because I've been on too many.  But of the ones I have gone to, the Austan Goolsbee Q&A is by far the liveliest.  People who attend Aspen are very successful, and the questions he's being asked hit close to home for them:  marginal income tax rates, taxation of worldwide corporate profits, H1B visas for foreign graduate students educated in America.

The questions for Goolsbee are much more hostile than they were last year.  I don't know whether to attribute this to the economy, or the fact that the disadvantages of Obama's policies are now apparent.  All policies sound better when they're in white paper, and Obama's rhetorical deftness made it particularly easy to make his proposals sound like all things to all people.  Now deficits have to be paid for, climate change bills turn out to lack teeth for anyone except the Chinese, health care gets scored by the CBO rather than optimistic campaign members. 

Billy Mays Died of Heart Disease

Or so it seems.  But of that day and hour knoweth no man, no, not the angels of heaven . . . 

Markets in Everything

Spend your vacation hunting pirates.

Omnibus blog post written at 5:30 CDT

Blogging will be light today, as I am wending my way west towards the Aspen Ideas Festival, where I'll be blogging, and moderating a few panels.  If I have time between flights, I will try to provide you with a couple of posts on intellectual property and other goodies.  Meanwhile, a few thoughts to tide you over:

Really moving article on black autoworkers in Detroit.  This seems mostly like a hook, because the core story is the same as that of white autoworkers in Detroit.  Liberals often accuse conservatives of hating union workers, and maybe some do, but I think it's great that people who maybe weren't cut out for college had a decent way of earning a good living, getting ahead a little.  I think it's really sad that era is over, especially for people who were encouraged to bet their whole futures on a deeply troubled industry.  It's just that I'm also aware that the reason people could have well-appointed jobs-for-life was an oligopolistic cartel which was able to cut rich side deals in order to buy labor and political peace.  The culmination of this was the hideous junk of the 1970s, which is the kind of place that oligopolistic cartels tend to end up.

But that doesn't make all this any less tragic for the workers.

Next tragedy:  Michael Jackson.  Oxycontin.  Discussion question for libertarians:  assume we all agree that drugs should be legal.  Is a doctor who enables an addicted patient to take fatal doses a good doctor, or should he be liable for malpractice?  Discussion question for non-libertarians:  how, pray tell, is this an argument in support of our current draconian drug laws?

Third tragedy: now we've lost Billy Mays too.  Whatever cosmic force is targeting celebreties, I think it's time to stop, 'kay?  I was really enjoying Pitchmen, though of course, I'm not sure there's really a wide market for business-and-economics themed reality shows.  (The Apprentice doesn't count as either, thank-you-very-much).

Off to Aspen, where Madras goes to die.

The Moral of the Zicam Story

Derek Lowe:

A lot of people are convinced that zinc is good for colds - I'm agnostic, having not seen much convincing evidence - so if that's the case, why not snort zinc up your nose? That, at any rate, seems to be the condensed version of the Zicam pitch, although I don't believe that they used that exact wording in their ads. (A gift for advertising copy might not be one of my more robust talents. . .) At any rate, snorting zinc salts has actually been known, for some time now, to injure the sense of smell in some people. So it's proved with Zicam, with several hundred victims.

The moral? If you're going to sell homeopathic medicine - and boy, is it a lucrative business - make sure that you don't put anything in there except sterile water. That'll cut down on your expenses, too, since most ingredients cost more than water, anyway. Stick with that strategy, and you can be absolutely sure that nothing bad will happen to your customers. Nothing good will happen to them either, but they won't know that. When their cold/headache/whatever goes away of its own accord, they'll ascribe it to your miracle product. Sit back and profit! Be sure to thank Senator Hatch while you count your money, though - it's only proper.

Rethinking the CRA

John Carney has been doing a lot of blogging about the role of the CRA in the financial meltdown.  That role is overstated by conservatives who are unwilling to admit that markets can have bad outcomes, but it is understated by liberals who are unwilling to admit that regulation, too, can produce hideous unintended consequences.

The CRA did not singlehandedly cause the meltdown.  But the relaxation of credit standards that allowed the meltdown did start, as far as I can tell, with the CRA.  And perhaps more importantly, the CRA, and the mentality behind the CRA, made regulators extremely unwilling to intervene.  Everyone wanted to make credit more widely available to the poor.  Well, the poor aren't good lending risks.  So if you want to give them access to credit, you need to relax your lending standards.  Any attempt to tighten lending standards on the part of the government would have resulted in a massive contraction in the credit available to core Democratic constituencies.  Meanwhile, the Republicans were hoping that turning poor people into homeowners would make them more Republican.

Regardless of how much causal blame you assign it, the financial crisis has certainly proven that the CRA seems to have been a very, very bad idea.  Yet Barney Frank is still trying to keep risky loans flowing in the hope that things will all somehow come right in the end if we just pretend, as hard as hard can be, that there isn't substantial risk attached to doing things like buying a condo in a building that is less than 50% occupied.

Michael Jackson, RIP

Ben Bernanke Faces Congress

I'm on the record as thinking Bernanke has done a pretty good job in a pretty scary crisis.  Nothing I've heard recently has changed my mind on that.  However, I have to say, watching his testimony to Congress today, I suspect that he's not going to be reappointed when his term ends next year.  Whatever happened between him and Paulson and Ken Lewis, he is now giving a very good impression of someone who is lying.  And Congress wants someone to blame.  Besides, firing Bernanke lets Obama portray all of the failures of this year as Bush errors in policy or appointment.

I think if he's pushed out it will be a real pity, for several reasons.  First, Bernanke really is the most superbly qualified economist out there to deal with this particular sort of crisis.  But perhaps more importantly, regulatory uncertainty is not what we need now.  Bernanke may be tempted to keep monetary policy loose in order to make the economy look better and save his job.  Obama may be tempted to appoint someone insufficiently interested in inflation, both to goose the economy ahead of the midterms, and to ease his debt problem.  And whoever it is will be getting his feet wet at exactly the wrong time.  There's a strong argument to be made that one of the reasons the Great Depression was so bad in America was that the Fed power vacuum left behind by the death of Benjamin Strong left the central bank too divided to take appropriate action.

The Perils of the Second Derivative

One of the alleged "green shoots" perking up the economy was that unemployment was getting worse more slowly.  Economic and financial journalists have been calling this the "second derivative" argument:  measuring the state of the economy by the rate of change in the rate of change.  There's something to this, but not as much as was made out of it--if unemployment continues to grow more slowly for another two years, that's still bad news.

Then, of course, how are you supposed to feel when the initial jobless claims figures start going back up, as they did this week?  I'm more inclined to credit jobless students flooding the market than some disastrous turn in our economy's fortunes.  But then, I was never that cheered by the second derivative in the first place.  I'll feel cheerful when the unemployment figures start going down.

Time and Tide

I don't want to make too much of myself, but at the age of 22, I wrote what may be the worst novel ever penned in the English language.  So I was particularly interested in John Scalzi's explanation of why writers tend to be older.  But even if you have not written the worst novel in the English language, you will be interested too.

The Magic of the VA

Bruce McQuain says that the problems at Walter Reed prove that the VA isn't so hot.  Ezra Klein snaps back :

Walter Reed is an army hospital, not a veteran's hospital. The two systems have nothing to do with one another. That's why the problems at Walter Reed led to the resignation of the Secretary of the Army and not the Secretary of Veterans Affairs.

Ezra wins on points.  But here's the thing:  Army hospitals have all the advantages that single-payer advocates love about the VA.  They're unified.  There's no profit incentive--indeed, the doctors are on quite low salaries.  They have great incentives for preventive care.  They certainly don't have any profit motive to provide bad care.  So why did Walter Reed suck?  And what guarantees that the VA is the system we'll follow, rather than the multiple other dysfunctional government systems everyone hates?

Blast from the Past

Last month, I wrote about my adventures in 1930 primary sources.  I did a lot of 1930s reading for this month's business column, but truthfully, I've been reading old magazines for years, just because I'm kind of obsessed with historical pop culture.  What always surprises me is the optimism of those early depression years--during what may well have been the worst financial crisis in American history, people mostly expect things to get better.  This gives me pause whenever I examine our "green shoots", even though I'm very sure we've got much better fiscal and monetary policy than our ancestors did.

Now you can experience some of the magic of cognitive dissonance yourself, through a blog that simply summarizes the daily newspaper from 1930.   A sample of yesterday's entry:

Economic news and individual company reports:

US merchandise exports in May fell to $322 million, lowest for any month since July 1924. Imports fell to $285M, lowest since August 1924. Attributed to general decline in business and commodity deflation.

Metro-Goldwyn-Mayer production plans for upcoming year include 50 feature films, 60 comedy/novelty shorts, and 104 Hearst Metrotone newsreels.

Ford Motor Company has found it's practical to salvage materials from antiquated cars; currently has 120 men dismantling the old cars at a rate of 375 every 16 hours, plans to expand the operation.

Goldman Sachs continues to hit new record lows, now selling at less than one sixth its 1929 high.

Growers and packers are uniting to try and cope with a large oversupply of cling peaches. Number of cases has increased from 1.5 million in 1910 to almost 15 million in 1928. Similar glut conditions in the raisin grape industry.

Heard on the Street:

"'Things are getting back to normal,' remarked the head of a Broadway house. 'Again the main topic of discussion among our customers is the 18th amendment.'" [Prohibition]

The Boring Stuff

Commerce Department reports a reduction of $561M in net capital exports from the US during 1929. This includes money spent abroad for tourist travel, investments abroad, payments of debt abroad, etc. One major result was an inflow of gold of $307M, or about 3% of total world gold stock. This may be causing problems by reducing money supply in the rest of the world; it would be good to smooth out these major fluctuations in US capital exports.

Many stock buyers are waiting for commodity prices to stop declining. Q2 earnings are also expected to be poor. Therefore we can expect bears to launch another attack on the Dow Jones panic low of 198.69 reached last Nov. 13. Based on the history of previous bear markets, however, it's likely this level will not be substantially broken, if at all. Also further declines are expected to be dull and low volume as is typical of the tail end of bear markets.

Last Friday marked the anniversary of the low from the panic of 1921 when the Dow 20 Industrials hit 64.90 and 20 rails hit 65.52. A couple of months later the greatest bull market in this country's history began.

Actual market bottom:  Dow 42.48 on April 1st, 1932.

This is your Head, Blogging

Noam Scheiber and I on health care, finance, and so forth. No, I don't have a black eye--just bad lighting in our dining area.

Comment Sense: What if the Kindle Had Been Invented First?

Commenter Kindler writes:

I was walking through a bohemian part of town and ran across this place called a "bookstore". I thought, "Hmm, that's interesting. I've always gotten my books electronically on my kindle, but this could be an interesting idea." So I stepped inside. What I saw was an unfamiliar way of experiencing books: on hundreds of of sheets of paper, bound up on one side with glue and wrapped in a hard cardboard cover. They even smell a little musty, at least the old ones.

At first I was excited; but then I began to think, well how would I do a text search in such a book? Supposing it was a reference book, or I wanted to find a quote that was particularly memorable? Also, I can resell it if I don't want it, but I can't take notes in the book without ruining its value. Plus, where am I going to keep these books if I buy a whole bunch of them? They're really heavy! And it uses a lot of paper - especially newspapers! What if it's dark and I need a bigger font? What if I'm on the train to work and decide I want to buy the paper version of the Times that day? Can't get it!! Not only that, but they wanted to charge me MORE for these clunky, static, physical, books than the normal electronic price! Honestly, with all these limitations and disadvantages, they should be giving them away for free. I decided I'm never going to pay a single red cent for a paper book until these issues are addressed. No way.

Healthcare Economics: Standing Athwart History, Shouting "Stop!"

I'm very interested to see Herb Stein's famous quote being invoked by liberals to talk about healthcare.  When Herbert Stein first said "If something cannot go on forever, it will stop" in 1980, he was arguing against people who were using scary charts mindlessly extrapolating some trend out to 100% of the total economy in order to demand immediate government action on a problem--in that case, the balance-of-payments problem. 

The problem with these extrapolations is twofold.  First, you definitionally cannot see the feedback systems that will probably mitigate the trend--all trends seem inevitable until they stop.  Think about the population explosion literature of the 1970s.  Now, in theory the people of the 1970s had a piece of information available to them that should have warned them that their charts were likely to be off:  to wit, that women in the wealthy West no longer averaged six or seven children apiece.  In practice, they were distracted from this data point by a lot of other factors, including their own racism.

But also, especially in cases like this, we react inappropriately to future extrapolations, because we project them onto our own situations--we ignore the fact that the changes in income shares devoted to a given product arise from economic growth.  It is true that I cannot afford to spend 40% of my income on healthcare.  It was equally true that my great-great grandparents could not afford to spend a third of their income on housing, and another half on clothing, manufactured good, transportation, and services--Land o' Mercy, everyone in the future is going to starve to death!!!

Obviously this is ridiculous.  I am not consuming less food than my ancestors; I am consuming more.  (Too much more, according to the waistband of my favorite pants.)  But my income is vastly higher than theirs in real terms, so that the food I consume is 10% of my household budget, rather than 50%.  Similarly, our descendents in 2100 giving over 40% of their income to health care (if indeed they do), will not be skimping on housing, transportation, clothing, entertainment, or what have you.  In all probability, they will be consuming more of everything than I do, except maybe energy and housing.  It's just that they'll be devoting a large share of their extra income to health care.  This prospect doesn't worry me.  And it probably won't worry them, other than the way it (mostly) worries us:  because we'd always like everything we consume to cost less, and be more equally distributed. 

Department of Regulatory Risk

Clear, aka the "Registered Traveller" program, is no more.  Between airlines that allowed an increasing number of "elite" fliers to jump the security queues, and the TSA itself getting better at making the lines move, the company's value proposition rapidly eroded.  Did competition from the registered traveler program encourage these developments?  I guess we'll find out soon.  

Rethinking the Kindle

I've been an unabashed Kindle booster.  So you can imagine my shock when I saw this:

The customer rep asked me to send every one of the books in my Amazon library to my iPhone. Most of them gave the message that they were sent but a number of them returned the message "Cannot be sent to selected device".

"Oh that's the problem," he said "if some of the books will download and the others won't it means that you've reached the maximum number of times you can download the book."

I asked him what that meant since the books I needed to download weren't currently on any device because I had wiped those devices clean and simply wanted to reinstall. He proceeded to tell me that there is always a limit to the number of times you can download a given book. Sometimes, he said, it's five or six times but at other times it may only be once or twice. And, here's the kicker folks, once you reach the cap you need to repurchase the book if you want to download it again.

Quick aside -- all of the books that are in my Fictionwise bookshelf having been downloaded numerous times and although I have to go through the pain of unlocking them each and every time, I'm able to download them to any iPhone or iPod touch I'm using without a problem. It's the reason that I've been using Stanza,  now owned by Amazon, a fair bit these days as I read through some of the books remaining in my account.

It gets worse.

I asked the customer representative where this information was available and he told me that it's in the fine print of the legalese agreement documentation. "It's not right that they are in bold print when you buy a book?" I asked. "No, I don't believe so. You can have to look for it."

We're not done- it gets even worse.

"How do I find out how many times I can download any given book?" I asked. He replied, "I don't think you can. That's entirely up to the publisher and I don't think we always know."

I pressed -- "You mean when you go to buy the book it doesn't say 'this book can be downloaded this number of times' even though that limitation is there?" To which he replied, "No, I'm very sorry it doesn't."

Here is the major problem with this scenario.

First, it's not clear that this is the policy.

Second, there's no way to find out in advance how many times a book is able to be downloaded. You can buy a book and it can only be downloaded numerous times or you can buy a book and only then discover that it can be downloaded only once. (The rep even put it this way!) There is no way to know.

In the meantime, Amazon wants us to upgrade our Kindles every year or two. Apple wants us to upgrade our iPhone or iPod touch every year or two. This means that although the books remain in your Kindle library online you may not be able to download them once you upgrade your hardware. And there is no way to know -- at least according to what the customer service rep told me.

We were thinking of becoming a two-Kindle family.  Now I'm rethinking the one I've got.  I'm a total supporter of hard DRM.  But if I have to wipe my Kindle, or upgrade to a new one, I don't want to find out I have to buy all my books again.

Then I saw the update.  Apparently, the limits are on simultaneous devices, not downloads.  Except, apparently, Amazon customer service reps didn't know that.

This is why customer service matters. It's often the first thing to be cut by companies, because bad customer service doesn't show up anywhere on the bottom line.  Not until much later, and not very clearly even then.  But I'm willing to bet they'll lose substantial sales to people who see the first post, but not the second.

Steve Jobs Is Very, Very Sick

So, Steve Jobs was a lot sicker than Apple let on--like, liver transplant sick.  The Wall Street Journal is reporting that Jobs underwent a liver transplant two months ago in order to deal with the liver metastes of his neuroendocrine pancreatic tumor.

Orac has some extended explanation.  Key points:

• Steve Jobs' wealth and power let him jump the queue for organ transplants in a way that even I am uncomfortable with--and I am in favor of paying organ donors.
  
• The transplant is highly controversial with an unknown success rate
• There's a pretty good chance that in the next five years, we'll find out whether CEOs matter--at least to Apple.

The Singular of Data is Anecdote

If it's a recession when your neighbor loses his job, and a depression when you lose yours, the depression just ended for the McArdle-Suderman household.  Peter has accepted a Koch fellowship* to work at Reason for the next eleven months, and today's his first day.

Oddly, the stock market does not seem to have gotten the message that the depression is over.  So I thought this blog post might help.

*  Yes, that Koch.  No, I had no idea when I wrote about them that he would be applying for a fellowship.  We both thought he'd have a job by now.  But journalism seems second only to auto manufacturing in job losses during this recession; by our count, about 20% of our friends have lost jobs in the last six months.

Marking Up Waxman-Markey

There is some very angry back and forth about the CBO's scoring of the Waxman-Markey climate change bill.  Economically, I agree, the per-household costs seem to be small.  Politically, they may be much larger than their economic cost, for two reasons:  first, I'm not sure people are going to put any rebate in the same mental basket as the higher prices, and second, people aren't going to pay the costs on a per-household basis.  Some households will suffer a lot, while others will be net beneficiaries.  Matt, Ezra, Ryan and I are all probably among the net beneficiaries.

But the real question, I think, is whether the low cost is a feature or a bug.  The only way a bill is going to have an impact is if it causes real financial pain to American households--enough to get them to change their behavior.  Waxman-Markey obviously is not going to do that.  And indeed, the projections of its effect on global warming are entirely negligible.

So the reason to get this mad about Waxman-Markey is either that you think it provides a framework for future action, or that you think it will persuade China and India to get on board.  The latter is, I think, entirely wishful thinking on the part of American environmentalists.  China is not going to let its citizens languish in subsistence farming because 30 years from now, some computer models say there will be some not-well-specified bad effects from high temperatures. Nor is India.  Global warming isn't even high on the list of environmental concerns they'll want to attack as they get rich; local air pollution is far more pressing.  Thinking that we're somehow going to lead them by example is like thinking that poor rural teens are going to buy electric cars because Ed Begley jr. has one.

No, I think the argument has to rest on the notion that Waxman-Markey gives us a framework to advance.  And it might.  But then again, Europe's much-vaunted system has had multiple spectacular failures, and the only reductions it has actually achieved seem to come largely from controversial offsets with large auditing problems.

I don't say this happily; I take climate change seriously.  But I am a pessimist about the prospects for control; the coordination problems so far seem insurmountable.  Unless Waxman-Markey serendipitously leads to the development of some clean technology that makes carbon obsolete, I'm pessimistic about how much it will accomplish. 

Moving Towards Prosperity

It's customary to deride mainstream media outlets as simply "reprinting press releases" from their favorite interest groups.  Well, color me guilty today, because this, from Ball State's Center for Business and Economic Research, is pretty interesting:

Many Americans are mired in a housing gridlock: They can't afford to sell their homes because property values have fallen, causing millions of people to owe more on their homes than they are worth. And, many can't move to take new jobs until they sell their homes.
 
Michael Hicks, director of Ball State University's Center for Business and Economic Research (CBER), has found the migration of people from one part of the country has nearly ground to a halt. He analyzed data from a variety of sources, including United Van Lines (UVL) migration numbers.
 
Fewer Americans are moving now than in any year since 1962, when the population was 120 million smaller.
 
"The economy is playing havoc, since property values have dropped significantly in the last few years," Hicks said. "Many people simply cannot just pick up and move. They have a home they have to sell first. 
 
"It many cases, one spouse moves to another state to work while the other stays home in their main residence in an attempt to sell it. With the current market, homes are selling at thousands less than what people paid for them a few years ago. Some people may just be stuck for a while until the economy improves and homes begin to sell again."
 
Since 1977, UVL has tracked where the firm takes its customers in the 48 contiguous states. UVL says Michigan is the No. 1 outbound traffic state for 2008. Nearly 67.1 percent of all Michigan-related United Van Lines traffic was leaving the state. Despite large job losses in the manufacturing sectors, Indiana actually gained population in 2008.

One of the justly celebrated strengths of the United States economy is its labor mobility.  By this account, at least, our housing market has basically destroyed that critical asset.

A recession like this is the worst time to lose your labor mobility.  I am quite convinced by the argument that since the 1980s, recessions have been characterized by structural, rather than cyclical, unemployment.  Rather than temporary layoffs of workers during periods of slack demand, modern recession-driven unemployment tends to result from the destruction of jobs, firms, even industries.  That's why long-term unemployment creeps up, and skilled workers are having a harder time than they used to during downturns:  it takes longer to match a skilled worker with an appropriate position than to slot body into a low-skilled place.

In those conditions, workers need geographic mobility to offer them a wider variety of potentially appropriate jobs.  But this time around, they're tied down by overpriced real estate and underwater mortgages.

The article suggests that families may pick up the strain, with one spouse staying behind to sell the house while the other spouse moves.  But that's a very temporary, and a very bad, fix--at best, that means trying to support two households rather than one on family income.

Rogue Cancer Unit at the Veterans Administration

We often hear wonderful things about what the VA can do because it's not a private sector system.  I suspect this is also one of the things that can only happen at the VA:

For patients with prostate cancer, it is a common surgical procedure: a doctor implants dozens of radioactive seeds to attack the disease. But when Dr. Gary D. Kao treated one patient at the veterans' hospital in Philadelphia, his aim was more than a little off.

Most of the seeds, 40 in all, landed in the patient's healthy bladder, not the prostate.

It was a serious mistake, and under federal rules, regulators investigated. But Dr. Kao, with their consent, made his mistake all but disappear.

He simply rewrote his surgical plan to match the number of seeds in the prostate, investigators said.

The revision may have made Dr. Kao look better, but it did nothing for the patient, who had to undergo a second implant. It failed, too, resulting in an unintended dose to the rectum. Regulators knew nothing of this second mistake because no one reported it.

Two years later, in 2005, Dr. Kao rewrote another surgical plan after putting half the seeds in the wrong organ. Once again, regulators did not object.

Had the government responded more aggressively, it might have uncovered a rogue cancer unit at the hospital, one that operated with virtually no outside scrutiny and botched 92 of 116 cancer treatments over a span of more than six years -- and then kept quiet about it, according to interviews with investigators, government officials and public records.

The team continued implants for a year even though the equipment that measured whether patients received the proper radiation dose was broken. The radiation safety committee at the Veterans Affairs hospital knew of this problem but took no action, records show.

Not because hospitals are above covering up malpractice, or because doctors don't protect other doctors, but because any private hospital would have been terrified of getting sued.  The VA is very hard to sue because of sovereign immunity.

Fear of Failure

I'm a big proponent of the transformative power of failure.  Failure is nature's way of saying "Don't do that any more!", and is therefore a necessary part of achievement and innovation.  And so I'm inclined to like this speech very much. 

On the other hand, something niggles me about the end:

So here is the point:  you are going to meet the dragon of failure in your life.  You may not get into the school you want, or you may get kicked out of the school you are in.  You may get rejected by the girl of your dreams, or, God forbid, get into an accident beyond your control.  But the point is, everything happens for a reason.  At the time, it may not be clear.  And certainly the pain and the shame are going to be overwhelming and devastating.  But as sure as the sun comes up, there will come a time on the next day or next week or next year when you will grab that sword and tell him "Be gone, dragon."

This seems like a pretty safe bet when you're talking to Buckley students, who have an ample safety net underneath them to allow them to bounce back from nearly any failure.  But would he really say this to, say, a 55 year old man who'd just been fired from his sales job?  Bad things--persistent bad things--happen to good people, and while it's comforting to think of them as merely a waystation, for lots of people that isn't really true.   It only seems true to people who have been spectacular successes, because for them every failure actually just one more step towards the happy place they enjoy today.  Sure, you can always rise over adversity.  But a significant number of people will never again rise to the level they previously enjoyed.

Regulating Risk Systemically, But Not Systematically

Kevin Drum responds to Tyler Cowen's post on the Fed as systemic risk regulator:

It's true that the Fed is the agency with the brute force to make things happen in an emergency.  But I'm not sure that's the relevant thing to think about.  What we want is some kind of body that works to prevent emergencies.  That requires credibility and influence, but it doesn't necessarily require a trillion dollar balance sheet.

I guess the model I have in mind here is the Congressional Budget Office.  The CBO is unknown to most people, but despite its small size and low public profile it has a remarkable amount of power.  This power comes from two sources.  First, it has institutional credibility.  I honestly don't know how it's managed to keep this credibility in the face of what must be enormous partisan pressure, but it has.  It's widely considered an honest broker and its budget estimates are taken seriously by everyone.

Second, although the CBO itself doesn't have a huge staff or control of a huge budget, Congress has agreed to abide by its cost estimates for legislative programs.  This means that CBO analysts have considerable indirect control over a lot of money.  And in Washington, money equals power.

So my question is: could we create an agency like the CBO, but charged with monitoring systemic risk in the financial system?  It would have to be nonpartisan and independent.  It would need to have risk management baked into its DNA as its primary mission, rather than being #7 on a list of ten goals -- with everyone knowing that only the top three get any real attention anyway.  Its director would need the kind of credibility that makes people listen when he warns that other agencies are allowing too much giddiness on Wall Street.  And, finally, it would need the right mix of authority, either direct or indirect, that's enough to force people to take it seriously when its mere credibility isn't quite enough.

But here's the incoherent part: I'm not quite sure how you'd construct such an agency or what authority might be sufficient for it to do its job without getting it hopelessly at odds with other regulatory agencies.  One way or another, though, I feel that giving this mission to the Fed is simply a waste of time.  Right now, virtually every impulse -- both at the Fed and in the private sector -- works in the direction of either ignoring credit bubbles or actively cheering them on.  If we're going to put a brake on this, we need to think about institutional priorities and balances of power, and figure out what it would take to get systemic risk established as a bureaucratic turf with a built-in constituency dedicated to protecting it over the long term.

My thoughts:

• In finance, the power to stop crises is often the power to prevent them.  The FDIC stops a hell of a lot of bank runs from ever happening because people know their deposits are insured.
• More broadly, attempting to build systems that can't fail have generally . . . failed.  Such systems tend to be brittle--a single failure is catastrophic.  In general, we should seek ways to let systems fail gracefully.  I.e.  no matter how strongly you try to ensure that nuclear power plants can't overheat, you also build them so that if they do, there is no critical mass to create a bomb-like nuclear blast.
• A systemic risk regulator outside the Fed would spend a lot of time at war with the Fed.  It would probably lose.  And if it did not lose, the result might be ugly.  A regulator that is only focused on preventing downside will be too conservative.  Right now, that seems like a good thing.  But inefficient capital allocation also has a high cost.  Whether the systemic risk regulator won or lost, the battle would create great instability in financial markets at a time when we don't need more of it.
• A systemic risk regulator will probably have a harder time staying independent of Congress than the Fed, because the inflationary history of fiat currency puts a high cost on Congressional meddling.  The systemic risk regulator will have no such insulation, making it less effective at its job.
  

Can GM Become Competitive?

The other day I was at an event with a representative from a foreign car company, who pointed out that with all the explicit and implicit subsidies from the bailout and bankruptcy, GM and Chrysler were getting a major market advantage handed to them.  "How can we compete?" the car exec asked rhetorically.  Everyone else in the room responded, nearly in unison, "You make better cars."

Still, at some price point, the GM/Chrysler cost advantage gives them a compelling value proposition.  Have the various subsidies gotten them to that point?  Well, I kind of doubt it.  On the other hand, their sales are apparently doing surprisingly well in bankruptcy. 

One of the biggest fears of a GM bankruptcy filing -- a collapse of revenue -- appears to not be as prominent an issue as originally thought.

Car buyers appear undaunted by GM's bankruptcy, assuaging one of the auto maker's biggest fears heading into Chapter 11. Early signs point to stable demand for GM cars and trucks since the company filed for Chapter 11.

Mr. Henderson said June retail sales are tracking higher than May. "June sales are moving along just fine," Mr. Henderson told reporters at a summit in Detroit. Sales to rental and other fleets are down from last month, he said. "We're very gratified for the support of dealers and customers that we've received through this."

Perhaps people are taking their patriotic duty to go out and buy an American car seriously. 

DNA Test=FAIL

Okay, can some legal genius explain to me, using small words and maybe some charts, why denying convicted felons the right to DNA tests that might prove their innocence is not a gross miscarriage of justice?  It's not that I think that every good thing is therefore a constitutional right.  But the basic outline of the rules for determining guilt and innocence is right there in the constitution.

What's even more depressing is that libertarians like me can't even count on getting a better result on things like this from our new liberal judge.  Reputedly, she's very pro-prosecutor.