A number of you have been emailing me asking about this:
The latest from Canadian Television (LINK ) on that story that a senior member of Sen. Barack Obama's campaign team had reached out to the Canadian Ambassador to the U.S. to tell him not to take seriously Obama's fiery anti-NAFTA rhetoric includes questions about a conversation on this subject between Obama senior economic adviser Austan Goolsbee and the Canadian Consulate General in Chicago.
"I don't think it's appropriate to go to Ohio and tell people one thing while your aide is calling the Canadian ambassador and telling him something else," Sen. John McCain, R-Ariz., told us yesterday as we flew from Houston to Dallas. "I certainly don't think that's straight talk."
Well, I certainly hope he's lying, because I think he's going to be the next president of the United States. But of course, as I've said before, I do not like it that politicians seem to feel the need to lie shamelessly to the electorate.
Is it okay to go bi?
Needless to say, I am quite disappointed that the main point on which Obama and Clinton seem to be competing is who can threaten the most drastic action on NAFTA. I expect that before we get to the March 4th primaries, we will have heard at least one promise to carpet bomb Mexico City. Pulling out of NAFTA will piss off our allies, severely disrupt several key industries (I'm looking at you, Michigan), and will not reverse the decline in manufacturing jobs. The Economist's blog, however, suggests that it might not be so bad:
The world is globalised, and an election in America does not make one's neighbours disappear, much as one might wish them to. Mr Drezner is correct to note that re-establishing respect for America's allies is a key plank of the Democratic electoral platform. It is awfully hard to square that with efforts to throw those allies' economic concerns out the window.
But perhaps we could avoid this discussion altogether. All the attention paid to a single tri-lateral trade agreement should remind us that trade agreements are a pretty subpar way to liberalise trade in the first place. That's the point made by Richard Baldwin at VoxEU today, who calls the tangle of overlapping and conflicting bi-lateral and regional trade agreements "the spaghetti bowl."
My former employer's opposition to bilateral trade deals was one of the few editorial lines of which I was not quite sure. In an ideal universe, obviously, all trade deals would go through the WTO. But if we cannot achieve a multilateral trade deal--as it seems we currently cannot--it's not clear to me that nothing is better than something.
Update Commenter Noah says:
...what? In an ideal universe, we adopt unilateral free trade, full stop. And if we really need to work out a free-trade agreement with another nation explicitly, the text should fit on a postcard.
Well, yes and no. I agree that unilaterally dropping our trade barriers would be good for America. But America is a big market, and there is a possibility that by using the lure of lower American trade barriers, it could get other countries to lower their trade barriers, thereby producing even more gains from trade than we'd get by just going to unilateral free trade.
Of course, it's not clear that this is the case, and given the stalled progress at the WTO, perhaps it would be a good idea to just go full monty rather than waiting for talks to restart. There's also the possibility that America could become a light to all nations--that we could make free trade so obviously awesome that everyone else would follow suit. So I'm not sure whether unilaterally lowering would be a net benefit or not.
All of this is politically moot, of course; at this point, we free traders are fighting just to hold onto the gains we've made. But it's interesting to debate the theory.
From skeptic to convert
Good profile of Ron Bailey in Doublethink. I do not say this merely because I am quoted. It takes a lot of courage to publicly change your mind on an issue like anthropogenic global warming, especially when your political compatriots still disagree.
What a headache
I have to say, when it started, I couldn't believe that the New York Times had an entire blog about migraines. How much is there to say about a bad headache? But it's actually kind of fascinating.
I have to say
Every time I go on television, I am amazed by how much makeup you can spackle on and still look natural on the screen. This only makes Tammy Faye Baker's achievement all the more amazing to me.
With the power of the presidency still firmly in Republican hands, the left-wing “netroots” is in ascendance. Conservative bloggers, and their readership, are demoralized. Meanwhile, the Intrade betting markets are predicting an Obama win, and the progressives are happily planning what they will do with control of Congress and the presidency. But this may be their happiest hour. Once Obama (or Clinton) has office, talk will turn from policy to politics: the dirty business of assembling enough votes to write your ideas into law. And the netroots, whose greatest asset is their fiery conviction that they are the voice of righteousness, will be faced with an unpleasant conundrum: power or principle?
Telecom immunity: a festival of the bizarre
The Economist points out the absurdity of the Bush administration's position on telecom immunity with a post headlined "If we punish lawbreaking, they might not break the law again". I listened to CSPAN yesterday while driving home, and I could swear I heard a Republican legislator make an even more bizarre assertion: that congress shouldn't use its investigative powers to go after the telecoms, because otherwise they wouldn't voluntarily cooperate with the investigation. Since this seemed to be made in response to claims that they were not cooperating with the investigation, I had a hard time understanding what we, the American people, would be losing by this.
Was HD-DVD done in by a dirty deed?
A casualty of the DVD wars has written up his experience for Slate.
While I freely admit my moronitude, I still believe the HD-DVD owner is an unfairly maligned creature. It wasn't dumb to jump on the HD-DVD bandwagon: Toshiba's technology was cheaper and more consumer-friendly than Sony's. It was dumb, though, to assume that the forces of good would triumph. In the end, the fight between Sony and Toshiba played out like some kind of bizarro sports movie: The bad guy won at the end by clocking the lovable underdog in the crotch with a baseball bat.
. . .
On the eve of January's Consumer Electronics Show, Warner Bros., which has the largest library of any home-video retailer, signed an exclusive pact with Blu-ray. With disc sales declining, Warner's president said, the company needed to "erase consumer and retailer confusion over dueling DVD formats." Warner's defection put five of the seven major Hollywood studios on Team Blu-ray. Just like that, nobody seemed to care that HD-DVD and Blu-ray movies looked and sounded pretty much the same or that Toshiba's players were way cheaper than their Sony counterparts. No, this war ended in the most annoying way possible—with a bunch of mega-corporations telling gadget buyers they didn't care which format was better. They just wanted it to be over.
At this point, Toshiba turned to a strategy that industry experts call "denial." After admitting he was "disappointed" with the Warner Bros. announcement, a Toshiba exec added, "Sales of HD-DVD were very good last year." This was a bit like the scene in The Naked Gun where Lt. Frank Drebin stands before an exploding fireworks factory and shouts, "Nothing to see here!" In the succeeding weeks, every entity that's capable of writing up a press release—Netflix, Best Buy, Wal-Mart, Sam's Club, the nomadic tribesmen of Outer Mongolia—announced it was going Blu.
As these HD-DVD disavowals hit the Web, I got sad ("This blows"), then mad. ("This blows!") All of these companies had been too lily-livered to pick between HD-DVD and Blu-ray when it could've made a difference; instead of having the guts to make up their own minds, they let Warner Bros. tell them what to do. Even worse, the Pittsburgh Post-Gazette and BusinessWeek reported that Sony, perhaps having learned its lesson from the Betamax debacle, paid Warner Bros. between $400 million and $500 million to go with Blu-ray. Sony hadn't won because it offered the HD-buying public any other tangible advantage. It took down Toshiba because it knew whom to pay off.
Every time there's a format war, the losers complain that the inferior product won through nefarious methods. During the Microsoft antitrust wars, Apple and Netscape dutifully trotted out the Betamax VCR and the QWERTY keyboard as examples of the way that network effects and switching costs could lock in an inferior format. This was always mostly myth, particularly in the case of Sony's Betamax format, which came out well before the VHS format that ultimately won. As with Microsoft, while Betamax may have pleased technophiles, for ordinary users it had serious drawbacks.
In the case of Blu-Ray, the "Sony paid off Warner!" story may have a pleasingly nefarious ring, but that's not quite the whole story. HD-DVD was already losing the format wars, as the author himself admits:
After three minutes of research on Engadget and Gizmodo, I decided this was clearly going to be a war of attrition. While Sony had the lead in disc sales, Paramount and DreamWorks had both announced they would release titles only on HD-DVD. Since a) neither side looked ready to budge, and b) I have no impulse control, it was time to make a decision. Blu-ray discs can hold more data than HD-DVDs, and more studios were behind Sony's format. [Emphasis mine] Still, Sony never had a chance to get my business. Wasn't it my duty as a shopper to back the cheapest option? For the $377 that Circuit City was charging for a Blu-ray machine, I could've bought two of Toshiba's players (14 free discs!) and had enough money left over to buy a Walkman and a rotary phone. I was casting my lot with HD-DVD. What could possibly go wrong?
Even before Warner made its announcement, Blu-Ray was already outselling HD-DVD. Warner may have delivered the killing blow, but it's very likely that all it did was alter the timing, not the final outcome. One could argue that it was a mercy killing, preventing more people from investing in a dead-end format.
What this really, shows, I think, is that storage is king. VHS beat Betamax, not because it made some shady deals, but because its discs could hold more. Blu-Ray players may be more expensive now, but when you're committing to a format for your movie library, you need to think long term. And if history is any guide, what we'll most care about in the future is more space.
Megan's right that I and a lot of my fellow nerds aren't very happy about this outcome, but she's wrong to say that "[e]very time there's a format war, the losers complain that the inferior product won through nefarious methods." I'm not sure that's a fair characterization. In this case I can admit that Blu-Ray is the technically superior standard. Many technologists didn't like it because it seemed a bit more DRM-laden, because it didn't seem worth the price premium, and because Sony has behaved very badly with respect to proprietary media formats in the past (Redbook/CD excepted, but of course that was a joint venture with Philips). I should say that I don't really have a dog in this fight — I don't own a drive from either camp, and tend to think that we'll only get halfway through this generation of tech before network delivery of video consigns Blu-Ray to a CD-like role (except less useful due to the aforementinoed DRM). But that doesn't mean I'm happy with the way things turned out for HD-DVD.
It's not so much that I think there were dirty tricks involved (although there may have been). It's just that it's frustratingly obvious that the factors determining a technology's success frequently have little to do with its capabilities, price, performance or other innate attributes. Rather, they're the result of quirks of the business environment into which the technology is born.
I understand what Tom’s saying, but I think he’s missing some key points. He wants to judge a technology in a “pure” world, outside the presence of the market conditions in which it will be sold and used, but you can’t do that. The utility of a technology is inextricably connected to the market conditions in which it will be sold and used. A Beta videotape might clearly be superior on most quality variables, but if a VHS tape is long enough to hold a full-length movie and Beta isn’t, well that’s important. Saying that length shouldn’t be as important as other variables is pointless; the market didn’t just want “Quality,” it wanted a certain quality.
Economist's View: Mortgaging the Nest Egg
Mark Thoma sees people borrowing against their retirement accounts and worries about the future:
This is why I wonder about the long-term participation rate in "opt out" retirement accounts that are being promoted as a way to deal with the retirement security problem. How many people will opt out of these accounts when economic conditions for the household deteriorate temporarily for some reason? And once they opt out, will they opt back in? People who are motivated enough to borrow against their retirement accounts - almost one fifth in 2007 - would also be motivated enough to opt out of an automatic savings plan. Many of the studies, at least the ones I have seen, do not track people over long periods of time where this type of deterioration would be present, and they do not follow people through a recession when the pressure to opt out would be greatest. I'm not saying we shouldn't have these programs, they do help some people save, and even if some people opt out at least they have a source of funds to use when times get tough. The point, though, is that the people most likely to opt out are the very ones we would like to see participate in savings programs so that they have more than just Social Security available during their retirement years. Because of that, we should be careful not to place too much emphasis on opt-out types of mechanisms for solving the retirement security problem. These accounts may not provide as much of a boost as we hope to key segments of the population.
The idea of making 401(k) plans "opt-out" by default, rather than "opt-in", is a good one as far as it goes. But it's not clear how far it will go. "Opt-out" is a milder form of forced savings--call it "fiercely encouraged savings". I myself have been known to advocate forced savings as an antidote to the moral hazard problem: even if we eliminated Social Security, the feckless and reckless would know that we will not let them starve in old age; therefore, they will go about their merry ways in the expectation that the rest of us will take care of things later.
But there's a big problem with forced savings: it's not clear that it works as long as people can borrow. This is probably less of a problem with social security benefits, but it's not zero; a surprising number of seniors enter retirement with a lot of debt. And obviously, we're seeing that 401(k)s have this problem in spades.
Incidentally
The other day I linked to the Assistant Village Idiot, but I forgot to post the nice note he sent me about pharmaceutical samples:
I echo the email from the public-sector psychiatrist, as I work with the same population. Samples Are All. Because different parts of the mental health budget come from different pockets, there is seldom a way to make the obvious tradeoff of $800/day in a hospital for $200/month for medications. If Big Pharma didn't make a whole lot of Consta and Zyprexa available for free, the states and Medicare would be out a whole bunch of money in increased hospitalization. (And crime. And preventable injury. And substance abuse.)
By the way, when you read the persistent poverty statistics - that 4% that is impoverished decade after decade (as opposed to the new immigrants and graduate students who are counted among the poor now) - half of that is the various mentally disabled. I see the temporary poor as sucking up a lot of resources that might have otherwise gone to my people.
Mark Kleiman questions whether they should be valued at the market price of the drugs, or the marginal cost of producing them. Well, this is an interesting accounting quandary. Pricing promotional products is tricky. Some of them will go to people who would otherwise have bought your product, and should therefore be priced at the full retail price, because that's what you lose every time they take one of your free pills. Some of them will go to people who would never have bought your product, and should therefore be priced at the marginal cost of production. The problem is, we don't have any way of sorting Group A from Group B.
We could guess, of course. But accountants do not like numbers that give people leeway to guess, because down that road lie the creative extravagences of Enron. Oh, they permit it when they really have to, for example in making allowances for bad debt. When banks make loans, they record the loans as an asset, but then record a corresponding liability of some percent of the loan value, to represent the people who will not repay them. Since we don't know who they are--if you did, the bank would hardly loan them money--or even how many of them there are, the bank's officers take a guess about how many people will default. A look at the current subprime crisis will tell you why accountants like to keep this sort of thing to a minimum.
So, accountants generally stick with the one price they do know. Assets are recorded at historical cost, even if they've appreciated--and free samples are recorded at the retail price of the product. Mark seems to think that the drug companies are, by recording the samples at retail cost, putting one over on the rest of us; they're just pretending that over half their marketing budget is free samples. But if the drug companies recorded the samples at the marginal cost of making the pills, rather than retail, their marketing expense would fall by about half, thereby depriving the pharma-bashers of one of their biggest sticks.
The intuition that companies ought to record the cold, hard cash outlay, rather than some airy fairy opportunity cost, is common. But it is not right. Giving free samples to customers who would have bought your drug costs you real cash: the cash he would have given you. More importantly, by reducing the value of the company, it costs the shareholders real cash; their stock is worth less than it otherwise would be. If Wal-Mart opened its stores and told everyone to take stuff for free, would their profits be reduced by only the value of the lost merchandise?
Obviously not. In general, accountants strive to be conservative, that is, to stick with known values rather than estimates. This usually, though not always, has the effect of making the book value of the company less than the "true" value, and both boosters and bashers can find something to quarrel with in that. But in this case, the pharmas aren't getting away with anything more than a lower EPS number to report to their shareholders.
February 28, 2008
Question for Ron Paul supporters
Does Ron Paul's fight for our most sacred constitutional rights really need to be defended with anatomical impossibilities and death wishes?
That's right: someday soon scientists may be working to develop a pill that can mimic the placebo effect.
Odd conundrum for the day
My first day at The Economist, I was treated to a lavish leftover lunch from some editorial meetings, and the sight of Hernando De Soto strolling casually through the office with a shopping bag in hand. As I walked through the door that evening, my father asked "How did it go?"
"Hernando De Soto," I told him excitedly, "shops at Rochester Big and Tall!" That being where my father bought many of his clothes . . . from which you may infer where I get my own magnificent height.
I was telling that anecdote to someone the other night (I can't remember why, and no, my life is not as spectacularly dull as this makes it sound). Suddenly it occurred to me to wonder why clothing for . . . er . . . the larger man . . . is almost always found bundled into "Big and Tall" stores. My father, who is quite slender, doesn't need extra accommodation around the waist; he just needs clothes that are long enough to cover his endless inseam. I wouldn't think there would be much overlap between the customer base.
The even deeper puzzle is why this is only true of men's clothing. The only women's clothes I can think of that are sold jointly to tall women and plus-size women are pantyhose (and I wish they weren't, as I need stockings that are longer, not wider).
But otherwise, plus-sized women have their own stores, and tall women have . . . well, frankly, a few mail-order places and the occasional "tall girl" boutique which, when you find one, is generally stocked with all manner of grotesquerie, presumably on the theory that women with few options will be glad to find a pair of orange-and-chartreuse bellbottoms as long as it covers our ankles . . . I'm sorry, are you still here? What was I saying?
Ah, yes . . . why the difference between Lane Bryant and Rochester Big and Tall? If there's some logic to bundling outsized men's clothes in one convenient location, doesn't it apply equally well to women?
The cult of the CEO
Young Ezra Klein complains that he never hears me talk about "the trouble with CEO's". Well, he is young, and can therefore be forgiven for not remembering this piece, along with several other opus magnii (she wrote, hoping that this was the correct latin construction, but very much fearing that it was not), on the principal-agent problem. Presumably he had better things to do, like learn to drive.
I too rue tendency of some conservatives to state, as if the thing were already proven, that anything done by a CEO is for the best because otherwise he wouldn't have done it. (I do note that this is not a vice limited to libertarians; I cannot count the number of times that I have heard some liberal "prove" that advertising makes people buy things they don't "really" want by arguing that if it didn't work, corporations wouldn't spend all that money on it. Corporations spend gargantuan sums of money on projects of little or no value all the time, for which management consultants should get down on their knees and thank God every day.)
Some CEOs really are nearly that brilliant; it's not an exaggeration to say that without Steve Jobs, Apple would currently be a not-very-profitable division of Xerox. Some are really dreadful, driving their companies into the ground while collecting a ton of money from the shareholders.
Here is an older post about how the U.S. incarceration rate compares to other countries. Here is Becky Pettit & Bruce Western’s (2004) ASR paper, with its frankly astonishing result that in the cohort born between 1965 and 1969, thirty percent of black men without a college education—and sixty percent of black men without a high school degree—had been incarcerated by 1999. Recent cohorts of black men were more likely to have prison records (22.4 percent) than military records (17.4 percent) or bachelor’s degrees (12.5 percent).Here is Bruce Western’s Punishment and Inequality in America, a superb analysis of how the prison system is now a key instrument not just of social control, but also social stratification, in America.
I don't exactly blame businesses for not wanting to hire ex-convicts--but that makes it very, very hard to stop being a criminal. i.e. to stop being poor, because the hourly wage for street crime is considerably below that on offer for popping chicken tenders into the deep-fry down at Burger King. This is a personal tragedy for the convicts, and a huge social cost for the rest of us, either in crime or additional prison terms. It's particularly sickening considering how many of those convicts are non-violent drug offenders:
Simple drug possession convictions make up about 5% of the federal prison population and about 27% of the state prison population, according to the federal government's own figures. Other nonviolent drug offenders were charged with nothing more than "sale or intent to sell" illegal intoxicants to willing buyers.
Update Greg Mankiw points to this talk from Jeffrey Miron on the drug war
Media alert
As you'll see if you go to the homepage, we've launched a new feature, Atlantic Current, which will be tracking news and opinion throughout the day. My first squib for it was on the Liechtenstein affair, and Ross has a smart summary obituary of WFB up today.
A nation of gun nuts
According to USA Today, "Nearly three out of four Americans — 73% — believe the Second Amendment spells out an individual right to own a firearm, according to a USA TODAY/Gallup Poll of 1,016 adults taken Feb. 8-10." Now all we need is five out of nine.
Apparently, someone is gunning for Ron Paul in the primary
To most American political fanatics, Ron Paul is just a goofy hobbit whose hilariously doomed online presidential campaign provided standout entertainment in a year that offered a wealth of hilariously doomed campaigns.
But to many of his constituents in Texas Congressional District 14, Ron Paul is just a blame-America-first attention whore who completely ignores the people who put him in office. There are no Democrats running in the 14th District primary next Tuesday — so if Ron Paul loses, he will have the honor of being a double loser in the eyes of his beloved constituents. With this in mind, Wonkette enthusiastically endorses Chris Peden for Congress.
To be sure, I'd probably be happier if more congressmen busied themselves proposing no-hope bills to make a point. But when your congressman is the only one doing it, while all the other representatives focus on piling up the pork, you probably begin to wonder if you aren't missing the main chance.
Improving America's image abroad?
Thank God we have the Democrats to mend fences with our erstwhile allies.
Mankiw's Ten Principles, Translated
Hilarious. Well, if you ever had to study econ, anyway.
A propos of my recent post on Montana's vague secession threats over gun control, I see that they don't like the new drivers license mandate much either:
The guide from my snowmobile tour in Yellowstone told me that at the point where the Rocky Mountains give way to the plains, somewhere around Billings, one can see all the way to Minneapolis—840 miles away—on a clear day. I wasn’t quite sure I believed that, but the scenery—and its emptiness—require no overstatement.
I saw more grazing cows than people in the vast flats, and those humans I did see were in a small number of tiny towns abutting the road. The towns usually consisted of little more than a post office, a general store, a saloon and, of course, a video-poker casino. People live out there to be autonomous, perhaps even alone.
Local officials love to invoke Montana’s immensity when blasting federal policies that aim to impose uniform standards on America’s states. A few days ago, Brian Schweitzer, Montana’s governor, did just that in an interview with me, during which he railed against the REAL ID Act, a federal law requiring every state to collect, verify and store basic data on its citizens when they apply for drivers’ licenses or identification cards.
Under the law, drivers’ licenses, which individual states issue, must also contain certain identifying information and employ common technological protocols. If states refuse to comply—as Montana’s legislature has already done—then federal officials, such as airport security staff, will not accept the non-compliant IDs after 2011.
These federal standards, Mr Schweitzer insisted, will force Montanans to drive for hours to the nearest city in order to get their licenses. Now, the state often issues drivers’ licenses from rooms in remote libraries or courthouses that might be open a couple of hours a month. Mr Schweitzer argued it would be uneconomical to outfit a small room with the sort of on-site security and equipment necessary to comply with the law in order to serve a handful of locals 12 days a year.
Mr Schweitzer also fretted about the movement towards a national identification card, fuming that Americans now need “walking-around papers” that will allow the government to “track you the rest of your life”. He compared what he saw as the law’s abridging of personal freedom to the 1918 Sedition Act, which outlawed anti-government speech. And he worried that so much personal data would be available to authorities in linked databases across the country, easily searchable and open to abuse.
I spent two summers on a ranch outside Cody, Wyoming, which is a little bit south of the Montana border. We were about thirty or forty miles outside of town--which was a two and a half hour drive on Wyoming's twisty, and more than occasionally unpaved, mountain roads. Looking at how far apart the major population centers are, this seems like a pretty major problem for both states.
February 27, 2008
No union for the unions
I know that my liberal friends and readers think of me as a union basher who just can't stand the thought of workers claiming a bigger share of the pie. I'm actually not particularly anti-union, and to the extent that I do have problems with unions, it is not because they seek higher wages and benefits for their members. Rather, it is because they introduce serious structural rigidities into the economy. Witness the problems that Delta is having merging with Northwest because they can't get the pilots--who are all in the same union--to agree on a seniority structure.
The Delta and Northwest pilot groups, who were asked by management to negotiate a seniority agreement before a merger deal could be announced, share a problem with their contentious colleagues: there is an age mismatch, with Delta employing the younger group.
On Tuesday, Delta’s chief executive, Richard Anderson, sent a memo to update employees on merger talks. Without mentioning Northwest, the memo said, “To date, we have not arrived at a potential transaction that meets all of our principles.” Among the principles Mr. Anderson listed was “that the seniority of our people is protected.”
Mr. Anderson said in the memo that Delta would “continue to look at strategic alternatives” while also pushing forward with the airline’s standalone plan. A spokeswoman, Betsy Talton, would not elaborate.
Douglas Steenland, chief executive of Northwest, also sent a note to workers Tuesday, and he, too, took a cautious tone in addressing a merger, while not naming Delta.
“We continue to believe that consolidation among the network carriers is inevitable,” Mr. Steenland said in the memo. Among other things, a merger would need to “provide greater long-term security and growth opportunities for our employees,” he added. “We continue to consider strategic alternatives based on these criteria.”
An age mismatch raises the stakes in any melding of seniority lists, with the potential for junior pilots to leapfrog more senior ones and take away more lucrative and attractive assignments. The lists are used to decide who is a captain and who is a co-pilot, pay rates, work schedules, how big an airplane a pilot gets to fly, and who is laid off first in a downturn.
“Seniority — it’s very sacred ground,” said Jack Stephan, who heads the Air Line Pilots Association local for the 2,700 pilots from the old US Airways side of that merger.
Even if union leaders at Northwest and Delta agree to a seniority plan, clearing a path for the largest airline merger ever, the deal could be scuttled months later if rank-and-file pilots decide the plan treats them unfairly.
Your housing news for the day
Fannie Mae has posted a fourth quarter loss of $3.6 billion. Luckily, the Office of Federal Housing Enterprise Oversight has just announced that it is lifting the caps on its portfolio, allowing Fannie Mae and Freddie Mac to lose money on an even more spectacular scale. Meanwhile, S&P states the obvious: more people missing their housing payments means lower credit quality on mortgage backed securities.
In which I try to write a headline about Argentina without mentioning Evita or the Tango
Meanwhile, Felix Salmon has a really excellent follow up to the discussion of how we can be fooled by the architecture of formerly wealthy nations:
I'd add that this effect has very real repercussions, well beyond touristic attitudes. My favorite example is Argentina during the 1990s, which went on a debt-fuelled spending spree. Every week one investment banker or other would fly down to Buenos Aires, put his team up at the Alvear Palace hotel, eat great food, drink great wine, enjoy a lively and vibrant culture, and pitch the finance ministry on a new bond issue. BA felt so prosperous and European (and, it must be said, white) that people ended up believing the evidence of their own eyes rather than the numbers in front of them.
In fact, large swathes of Argentina - and even of Buenos Aires, outside the parts visited by foreigners - were desperately poor all along. And eventually Argentina ended up defaulting on a hundred billion dollars or so of foreign debt. If Buenos Aires had looked more like Sao Paulo or Manila, I doubt that Wall Street would have been willing or able to finance the unsustainable boom for as long as it did.
In other words, becaues Argentina used to be incredibly wealthy, back at the turn of the century, it still felt wealthy at the end of the century. Which sowed the seeds of the disastrous crash of 2001-2.
In the late 1990s, I was struck by the difference between the Argentina described by tourists, and the one described by the Argentinians I knew. The expats described a developing country with all the attendant annoyances. The tourists described a sort of Far Western Milan.
Prozac nation: the search for our true, true self
One thing I don't think I made clear enough yesterday is that I'm not arguing that people shouldn't take drugs if they're depressed or ADD or OCD or what have you, because that is their "true" self. I am all in favor of better living through chemistry, and a quick glance through accounts of early twentieth century mental institutions should be enough to convince anyone who thinks that the mentally ill should just tough it out and learn to look on the bright side of life.
Rather, I am disputing the notion that there is a true self, either au natural or chemically enhanced. Both the pre- and post-medication selves regard themselves as the "true" self, with, I think, roughly equally valid claims. For that matter, both Megan McArdle two hours ago and Megan McArdle now regard(ed) themselves as my "true" self, even though they are slightly different. People don't need to justify their decision to feel better by saying that the self that feels better is closer to some sort of platonic ideal of me-ness. It's enough simply to want to feel better. The best justification for medication is that the medicated self wants to keep being that way, while the unmedicated self wishes it were fundamentally otherwise.
Poverty and start-up costs
Andrew Samwick's experience of a Barbara Ehrenreich talk at Dartmouth highlights what I thought was an important and original observation in Nickel and Dimed, though I am not a big fan of the book as a whole: the fact that poor people without savings are often forced into higher-cost alternatives than middle-class people. If you don't have the deposit and first and last month's rent for an apartment, you end up in a residential hotel that costs more but will let you pay by the week. If you only have a small refrigerator, it's hard to be thrifty by buying in bulk. If you can only afford a battered used car, a lot of your paycheck may get eaten up in expensive car repairs. It seems to me that this is actually a fairly easy poverty intervention, one that I know is sometimes done by churches and other charity groups, but could probably stand a more systematic implementation.
Of course, we already do have one way to give the working poor small chunks of capital: the earned income tax credit. Because most people take it out in a lump sum, rather than getting it refunded to their paycheck every week, it gives them a large chunk of cash to use for things like a decent car or a housing deposit. This is no guarantee that it will get spent that way; in American Dream, one of the best books out there on poverty and welfare reform, Jason DeParle recounts his dismay at watching one of the women he was following decide to use her EITC check for nicer furniture instead of a reliable car that could take her to higher-earning jobs in the suburbs. But they often do go to these sorts of capital investments.
This is one of the reasons that being a middle-class person with a low income is fundamentally different from being born poor. Middle-class people generally have relatives that they can draw on for help with those kinds of upfront expenses. People who are born poor generally have social networks that are rich with mechanisms for surviving poverty, but rarely flush with cash.
It's not theft--it's whistleblowing!
You may not have been following the story, but a few days back, Germany announced that it was purchasing the names of 1,400 foreign account holders--presumptively tax evaders--at Liechtenstein bank LGT. 600 of those account holders were German, and many of the rest from other rich countries with whom Germany has been eagerly sharing the data. There turns out to be a fairly fascinating back story to all this:
Keiber worked for the division between April 2001 and November 2002 and had the job of checking documents that were being scanned and transferred into electronic databases.
LGT didn't know at the time that it hired Keiber that he had a dubious past. In 1996 he was involved in a real estate deal in Spain that he financed with uncovered checks. Since he hadn't been charged, he didn't have a criminal record at the time he joined the bank.
However, Keiber's dodgy Spanish real estate deal followed him to Liechtenstein. In 2001, he was fined 600,000 Swiss francs ($552,000) for fraud by the Liechtenstein judicial system.
Kieber left LGT and the country in November 2002, but before doing so, he created four DVDs containing the details of the client data he had been scanning. LGT said he had been hoping to use the data to blackmail Liechtenstein's legal authorities. "He was not disgruntled about LGT," a spokeswoman from the bank said. "He felt that he was unfairly treated by the legal authorities."
In January 2003, Kieber sent a letter and a tape cassette to Prince Hans-Adam of Liechtenstein, saying that he had been unfairly treated by the country's judicial authorities. He demanded help in solving his legal difficulties, including the issuance of two new passports, and threatened to pass on the stolen client data to foreign media and authorities.
Liechtenstein refused the demands and put out a warrant for Kieber's arrest, but LGT took a softer approach--it managed to make contact with Kieber and coax him back to the country to face the legal consequences by offering to pay for his legal counsel and his apartment in Liechtenstein. During the subsequent court proceedings, the four DVDs were returned to the bank and destroyed.
Or so LGT thought. Having pored over recent press reports about the data that was handed over to German tax authorities, LGT realized that Kieber had in fact kept copies. "We are sure as we can be that it was him," said the spokeswoman of the leak.
Having sent two more letters to Prince Hans-Adam, the last of which requested a pardon from his conviction for fraud, and was rejected, Kieber fled the country again in 2003. "LGT Group is not aware of HK's present whereabouts," LGT said Sunday. "According to reports in the media, he is living under a new identity in Australia."
Kieber seems rather sui generis. Nonetheless, this is a blow for tax havens like Liechtenstein, whose main industry is refusing to tell other countries what's going on in their banks. Tax evasion isn't only a bad idea on moral grounds--when you get caught, you end up paying a lot more than the original taxes in interest and fines. A 1% probability of having your secrets spilled to Uncle Sam decreases the expected value of a secret stash considerably. I'd bet that a lot of wealthy depositors at banks other than LGT are gulping hard and wondering if it's really worth it.
Still, I wonder if Germany and others shouldn't be careful what they wish for. People are more mobile than ever, especially rich ones; they may only succeed in chasing them out entirely, thereby losing all of their tax revenue, rather than just part.
Update Somewhat ironic that this comes just as the German high court decides to limit the government's power to spy on its citizens . . .
Podcast alert
Marc, Ross and I talk about Barack Obama, the race card, and Hillary's swan song.
Welcome!
I love the fact that when I go to Forbes.com, and am confronted with a full screen add, the link to close it reads "Skip this welcome screen". If this is the Forbes idea of welcome, one rather wonders how they see their guests out at the end of the night.
The definitional dispute over Cuban poverty
I'm fascinated by the comment section to this Brad DeLong post, in which many of the commenters struggle to redefine poverty so that it excludes Cuba. Most of the arguments are daft. I'm particularly floored by the people arguing that begging and prostitution are not a result of poverty, but rather of Cuba's currency controls--as if not being able to earn enough money to live on is somehow different and better if your plight is the direct result of a government edict.
Tyler Cowen at Marginal Revolution thinks it’s so hard to get people to change that he has predicted that the site will not succeed:
I’ve long predicted this won’t work; one group of potential customers doesn’t really want to change, the other group is unwilling to give up control. It’s not exaggerating to say that human nature is on the line here, and that if I am wrong this is probably the most important idea you will ever encounter.
But the good news is that the first returns are very positive. In a little more than a month since launching, people have given us $80,000 to help stickK to their goals. What’s more, most people are keeping their commitments and getting their money back.
People who really want to change are willing to give up some of their ex-post freedom. StickK not only helps you make credible commitments for yourself, it also lets you communicate that commitment to other people. Commitment contracts aren’t just for people who have trouble keeping their commitments; they are for anyone who is concerned about hearing some promise that just sounds like so much “cheap talk.” We’ve all been in the “Lucy holding the football for Charlie Brown” situation, where we’ve heard people make promises that we suspect are insincere, or we think the promisor one way or another isn’t likely to follow through. One of the coolest things about StickK is that it gives the rest of us a new way to respond to cheap talk. At last, we can demand that the promisor put some money where his or her mouth is.
I wonder how broad the applications of this are. It seems to me that there's heavy selection bias here--I might like to lose ten pounds and slip back into my high school clothes, in some vague sort of way, but I'm certainly not willing to bet on my willpower. This probably provides and additional boost to people who are close to mustering the necessary determination. But I wonder how close most of us are to being really determined to meet our various goals.
That said, I'm reading Supercrunchers, Ayres' book, and really, really liking it.
Debating the debate
I agree with . . . well, just about everyone . . . that Hillary did well last night, but it just wasn't enough. But I'm not sure why we're commenting on it. Was there really any possibility that she was going to deliver a sweeping blow to Obama with her spectacularly charismatic responses? The debates draw about 4 million viewers, most of whom are not in Texas or Ohio--indeed, as far as I can tell, most of them are wonks, journalists, or political operatives of one type or another, none of whom needed to hear what Hillary thinks about NAFTA in order to decide how they're going to vote.
February 26, 2008
Is this for real?
You'd think she'd say yes, and then tell him later . . .
Accentuate the positive
At AmSpec Blog, JP Freire makes a good point about the Republican framing of the health care debate:
Rep. Camp recited a good number of the talking points I've heard among the right regarding healthcare. The problem is that the debate is about a feel-good issue (the health of a family), and Republicans tend to highlight the negatives of the other side rather than emphasize positive points. Healthcare beat reporters want to hear the story of how you're going to help that little baby with medical needs, or the old lady who's putting aside surgery because she has to pay her electric bill.
Unfortunately, Rep. Camp stuck with the point that the "45 million Americans who are uninsured" is really an overblown statistic. It's worth mentioning, to be sure, but numbers won't change this debate (otherwise, no one would be talking about socialized medicine anyway).
Costume party
Just how stupid is this Obama in Muslim garb thing? James Joyner has the roundup. I always suspected George W. Bush was secretly asian.
Should we harvest organs from executions?
My colleague Graeme Wood suggests that we should harvest the organs of executed criminals. His argument is surprisingly persuasive, for all that I am against the death penalty. But in the end, I hesitate to give the state, or juries, a compelling additional reason to kill a man.
Berkeley bashers
I am second to none in my admiration for our troops. But this ad is one of the weirdest ads I've ever seen. It's running on Fox News in Washington DC:
I feel that my fellow Washingtonians are probably going to have little effect on the Berkeley city council, which has so far proven fairly well immune from stronger influences, such as reason. I also find it hard to believe that the marines lost a great opportunity when they were told not to recruit in Berkely. Nor that there is much danger that cities around America will follow Berkely's lead and suddenly start wantonly disrespecting America's armed forces. It's pretty amazing that real people spent their hard-earned money on this.
Pleasurable anticipation
I haven't read Daniel Ariely's new book yet, but I'm looking forward to it. His paper on subjective evaluations of happiness, titled My Pain, is very atypical of economics papers, but one of the most thoughtful treatments of the problem I've ever read. His book has stirred up a lot of passionate reviews: The New Yorker loves it. The Economist's Free Exchange hates it. Tyler Cowen sides with the New Yorker. What to think? The book is in the mail.
Solazyme is pursuing an unusual process for using algae to produce liquid fuels including biodiesel. In the Solazyme approach they keep the algae in the dark and feed it sugar.
This is not a new approach. Politicians have been doing this to journalists for years.
And, yet, it's not just the details of Obama's policies that suggest a behavioral approach. In some respects, the sensibility behind the behaviorist critique of economics is one shared by all the Obama wonks, whether they're domestic policy nerds or grizzled foreign policy hands. Despite Obama's reputation for grandiose rhetoric and utopian hope-mongering, the Obamanauts aren't radicals--far from it. They're pragmatists--people who, when an existing paradigm clashes with reality, opt to tweak that paradigm rather than replace it wholesale. As Thaler puts it, "Physics with friction is not as beautiful. But you need it to get rockets off the ground." It might as well be the motto for Obama's entire policy shop.
Sociologically, the Obamanauts have a lot in common with the last gang of Democratic outsiders to make a credible run at the White House. Like Bill Clinton in 1992, Obama's campaign boasts a cadre of credentialed achievers. Intellectually, however, the Obamanauts couldn't be more different. Clinton delighted in surrounding himself with big-think public intellectuals--like economics commentator Robert Reich and political philosopher Bill Galston. You'd be hard-pressed to find a political philosopher in Obama's inner wonk-dom. His is dominated by a group of first-rate economists, beginning with Goolsbee, one of the profession's most respected tax experts. A Harvard economist named Jeff Liebman has been influential in helping Obama think through budget and retirement issues; another, David Cutler, helped shape his views on health care. Goolsbee, in particular, is an almost unprecedented figure in Democratic politics: an academic economist with a top campaign position and the candidate's ear.
One major reason for these differences is the candidate himself. Cutler told me Obama is adamant about consulting bona fide experts. "The staff kept saying, 'What he wants to know is that he's really talking to experts in the field. When you go see him, you know, make it clear that you're an expert.'" When it comes to economics, it's very difficult to achieve expertise without an academic background. It's a field that prizes rigorous results, supported by reams of painstakingly sifted data. (Though Reich was labor secretary, he was trained as a lawyer, not an economist.) Cutler, for example, has made his name with a series of detailed econometric studies suggesting that, contrary to the conventional wisdom on the left, Americans actually have quite a bit to show for the trillions they spend on health care.
Given the New Republic's focus, it's not surprising that this is a compare-and-contrast of Democrats. The differences between Obama's team and McCain are also stark, but in a different way: his advisors are more technocrat than Ideologue.
If Obama's team has a fault, it is that they spend far too much time saying "Don't listen to him--listen to us!"
Mental models
Speaking of psychoactive drugs, this article from N+1 (hat tip--I'm afraid I can't remember who) on Adderall is really very good. One of the things that struck me was the language that pharmaceutical companies use to market the drug:
Adderall has been on the market since 1996. It is produced by the British drug maker Shire Pharmaceuticals, and is currently the 125th most popular clinical drug in America. The Shire website offers some vague information about ADHD, the disorder for which Adderall is prescribed, and warns that the consequences of untreated ADHD can include relationship problems, drug abuse, and frequent job changes. There is a link for people who are already taking Adderall. "Congratulations!" it reads. "By taking ADDERALL XR, you're showing your commitment to reaching your potential in all aspects of your life—and to being the person you were meant to be."
This is very similar to the language that people often use to talk about anti-depressants--I'm thinking particularly of Listening to Prozac, but it's a pretty common meme. This strikes me as wrong; any meaningful sense of "meant to be" probably does not rely on a physician prescribing you long-term pharmaceutical treatment. I'm trying to unpack why we have such a deep need to believe that we are accessing our truest self through drugs. Part, I assume, is social stigma; no one wants to think that the personality they came with is something that needs fundamental alteration, so instead we think of our ADD or depression or just suburban ennui as some sort of fallen state from which we have a moral duty to escape. For depressives, too, there's the uncomfortable fact that their depressed self is the more accurate self--depressed people generally see social relations, and their place in them, more accurately than the healthy, so seeking treatment is in some way a conscious decision to blind themselves to reality. Indeed, it's a form of self-murder.
But if you don't like the self you got, surely you're entitled to murder it and replace it with something better. Whether or not your true self is the sick one or the better one, you only have one life and limited scope for action; why should you fritter away your opportunities just because nature destined you to be scattered or sad?
Matthew Yglesias (February 22, 2008) - Alternatives to Palestine (Foreign Policy)
I really don't think it's viable to support independence for every ethnic minority group everywhere around the world. So why Palestine? What makes the Palestinians so special that they deserve their own country when the Catalans and the Québécois and all the rest don't have them? The answer is pretty simple -- the alternative to independence is citizenship. The Québécois don't have an independent country, but they are citizens of Canada. Catalans are citizens of spain. Flemish and Walloons are both citizens of Belgium. Komi are citizens of Russia. When you see legal discriminatory treatment against citizens -- as with African-Americans in the United States until very recently -- that's a problem. People are owed equal citizenship.
It's clear, though, that granting Israeli citizenship on terms of equality to residents of the West Bank and the Gaza Strip is incompatible with the idea of Israel as a Jewish state. Thus, Palestinian independence emerges as a reasonable, practical, and moral alternative. Basically, there are four things you could do with Israel-Palestine. One option is partition and independence. Another option is equal citizenship and the end of Israel. A third option is "transfer" and ethnic cleansing. And a fourth option is apartheid. I wonder which of the alternatives to Palestinian independence Peretz favors?
Unlike Matt, I'm quite happy with the notion of little polities getting to secede from the larger one. But I think in the next decade Israel is going to have to confront the fact that the occupation has gone on too long to keep calling it an occupation--i.e. a temporary solution. Unless Israel gets out of the West Bank, it's going to have to recognize that it is the government--and that it is therefore responsible for the health and welfare of the Palestinians. In a liberal democracy, that recognition is incompatible with the way things are currently run in the West Bank.
How much Cuban poverty could be eliminated by getting rid of economic sanctions? Would their economy grow as fast as China's?
No. The American trade embargo costs Cuba something, but they pretty much sell as much stuff as they can make (including tourism) to Europe and Latin America. Their problem is supply-side, not demand-side; a command economy just isn't very productive, particularly on a small island nation with nothing much in the way of natural resources.
Depressing news
What to make of the new meta-study purporting to show that SSRIs don't work? Ezra Klein summarizes the conundrum:
To get a sense for the dangers of taking large medical studies at face value, check out this comment thread over at Kevin's place. Kevin wrote up a new study that apparently proves Prozac and other antidepressants in the SSRI family are worthless. It's an interesting result, but a bit hard to believe for anyone who's ever seen a friend cycle through antidepressants till they land on the right pill and dosage and suddenly turn back into themselves. Many of Kevin's commenters, who've seen the same thing, begin instantly complicating the research, and by the end, it seems fairly certain that the research could be technically true but its result utterly misleading. It's worth reading through just to get a sense of how skeptically to treat this stuff.
On the one hand, the placebo effect is real. But like Ezra, I've watched people who'd been depressed for years cycle through medication until they hit the jackpot--maybe they just happened to spontaneously remit when the meds kicked in, but it seems to happen an awful lot. I've also seen anti-depressants stop working, which seems odd if they're not doing anything.
My theory is that depression is overdiagnosed--if you don't actually have a chemical deficiency, antidepressants aren't going to make you feel better. It's also a large basket diagnosis into which we throw a lot of conditions that probably have different underlying causes. The Times suggests that we may soon be able to pick out, genetically, the people who will benefit from antidepressants, similar to the way that we now target drugs to the genetic markers on certain tumors. Moreover, the meta-study seems to have covered a period of 4-8 weeks, when the effect can take months to kick in. Severe depression is sufficiently debilitating that it's probably worth trying, even if the effect isn't huge.
It also says something that none of the people pooh-poohing the effect are afflicted with depression. But I'm not sure what it says, exactly. Maybe depressed people are just deluded by the placebo effect--people with mental illnesses are perhaps not very good judges of alterations in their mental status. On the other hand, who would be better?
FT.com / Comment & analysis / Comment - We must curb international flows of capital
Dani Rodrik and Arvind Subramaniam have a very strange post at the Economists Forum in which they compare regulating capital flows to gun control:
If the risk-taking behaviour of financial intermediaries cannot be regulated perfectly, we need to find ways of reducing the volume of transactions. Otherwise we commit the same fallacy as gun control opponents who argue that “guns do not kill people, people do”. As we are unable to regulate fully the behaviour of gun owners, we have no choice but to restrict the circulation of guns more directly.
Naturally, this rests on the assumption that it is easier to control guns than to control behavior. I'd say that's rather in dispute. But I suppose it does make a good metaphor for the rest of the article, as they go on to point at the various hiccups in global capital markets, and urge us to staunch the flow of international capital:
What this means is that financial capital should be flowing across borders in smaller quantities, so that finance is “primarily national”, as John Maynard Keynes advised. If downhill and uphill flows are both problematic, capital flows should be more level.
Having noted that governments find it hard to manage international capital flows, they go on to recommend an even more unlikely international regulatory regime:
First, some variant of petrol tax in the main oil-importing countries (including the US, China and India) is essential to cut demand and reduce oil prices and hence the current account surpluses of oil exporters. That such measures should be taken for environmental reasons or that they would reduce the size of sovereign wealth funds only adds to their attractiveness. Second, some appreciation of east Asian currencies is necessary to reduce their surpluses. Even though undervaluation is a potent instrument for promoting growth in low-income countries in general, at this juncture self-interest on both sides calls for an orderly unwinding of current account imbalances.
This appreciation can be achieved either unilaterally or, if necessary, multilaterally through the World Trade Organisation, as a recent Peterson Institute paper has proposed.
Measures needed for when capital flows downhill are likely to take a different form. When appetite for emerging market debt is strong, neither prudential regulation nor macroeconomic policies does much to stem capital inflows. Developing nations need to rely on a broader set of instruments, targeting the capital account directly. Deposit requirements on capital inflows and financial transaction taxes are some of the tools available.
To really cut down on OPEC surpluses, that oil tax would have to cover most of the world--otherwise, the supplies will just flow elsewhere, reducing the OPEC curent account surpluses, but probably not enough to bring them into balance. It would also have to be very, very high--you may have noticed that $100 a barrel oil has had a surprisingly modest impact on American consumption. Not to mention, every time anyone even talks about raising the gas tax by even a tiny amount, Americans scream like Edith Piaf being vivisected. That's when politicians try to sell the tax on relatively popular grounds, like environmentalism or energy independence. Can you imagine a congressman trying to explain that we need a $2.00 a gallon oil tax in order to balance out international capital flows?
Given the chaos at the WTO, I am, to say the least, skeptical that it will be able to pull off a complicated revaluation of Asian currencies. Presumably, the east Asians will have something to say about all this.
And given the history of capital controls in the developing world, I'm pretty reluctant to urge more of them. Yes, Chile and Malaysia and a handful of other countries managed them all right. In most places, they are badly implemented--or well implemented, from the perspective of a rent-seeking bureaucrat.
Proposals like this might well work if the world were run by the Harvard economics department. Unfortunately, they're all busy being the Harvard economics department, and so the world is being run by politicians instead.
I found the most evident signs of Cuban poverty to be the unceasing supply of articulate and sometimes weakly sobbing mendicants, none of whom sounded like con men, all of whom needed money to buy food and clothes for their families. The most shocking part is what small sums of money they would ask for or be made happy by. Or the numerous women -- and I mean ordinary women in the streets -- who would offer their bodies to a stranger (handsome though I am) for a mere pittance. Yes in Cuba there is good access to doctors but anesthesia is in short supply and the health care system stopped improving long ago.
If you want to understand northern Mexico, get out of the Tijuana tourist strip and visit Hermosillo. Count the number of new housing developments, and then count how many of them are inhabited by fairly dark-skinned, previously dirt poor, Mexican mestizos. Put that number over the number of buildings in Havana that do not have serious maintenance problems and see if you can divide by zero.
It's quite possible that a lower middle class Mexican eats better food than you do, but there is no chance of that for anyone in Cuba except the top elite. Powdered milk is a luxury there.
A first for me. I often look up patients new to the MH system on the web to see what I can learn about them. The paranoid, angry, psychotic young woman we admitted this morning posted several videos of herself on YouTube two weeks ago. I don't know when the videos were actually made, however. She was friendly and laughing then, except the last two have an eerie edge.
Things like this are going to become more common, and more helpful to us. I hope they are helpful to her as well.
Does this mean in the future my doctors will pour through my twitters and facebook updates, looking for possible symptoms?
Record numbers of Britons are leaving - many of them doctors, teachers and engineers - in the biggest exodus for almost 50 years.
Skilled professionals, including doctors, are leaving the UK in record numbers
Over a quarter of qualified professionals who have moved abroad had health or education qualifications
There are now 3.247 million British-born people living abroad, of whom more than 1.1 million are highly-skilled university graduates, say the researchers.
More than three quarters of these professionals have settled abroad for more than 10 years, according to the study by the Organisation of Economic Co-operation and Development (OECD).
No other nation is losing so many qualified people, it points out. Britain has now lost more than one in 10 of its most skilled citizens, while overall only Mexico has had more people emigrate.
I assume this has something to do with the fact that it is very easy for Britons to go to wealthy, English-speaking countries, and also that there's a relative lack of migration opportunities in Britain. If you're American or Australian, you can always pick up and try another city, but in Britain, you mostly move to London or you . . . move to London. This is an exaggeration, of course, but there's nothing like the ability to say, "You know what, things aren't going so well in Boston, so I'm moving to LA." If the economy, or the job opportunities are bad in London, they're probably bad everywhere else in the UK too.
Naturally there's also the fact that Britain's a crowded island where things are very expensive; an engineer can instantly boost his standard of living quite a bit by moving this side of the pond. Standard of living is not everything of course (which is why they aren't all here), but it's something, and people who care about it will move.
Priceless
Hugh Laurie before he was House
How to lie (to yourself) with statistics
William Briggs has a nice piece on how easy it is to delude yourself into thinking you've found a connection between two factors:
To show you how easy it is to mislead yourself with stepwise procedures, I did the following simulation. I generated 100 observations for y’s and 50 x’s (each of 100 observations of course). All of the observations were just made up numbers, each giving no information about the other. There are no relationships between the x’s and the y2. The computer, then, should tell me that the best model is no model at all.
But here is what it found: the stepwise procedure gave me a best combination model with 7 out of the original 50 x’s. But only 4 of those x’s met the usually criterion for being kept in a model (explained below), so my final model is this one:
In classical statistics, an explanatory variable is kept in the model if it has a p-value< 0.05. In Bayesian statistics, an explanatory variable is kept in the model when the probability of that variable (well, of its coefficient being non-zero) is larger than, say, 0.90. Don't worry if you don't understand what any of that means---just know this: this model would pass any test, classical or modern, as being good. The model even had an adjusted R2 of 0.26, which is considered excellent in many fields (like marketing or sociology; R2 is a number between 0 and 1, higher numbers are better).
Nobody, or very very few, would notice that this model is completely made up. The reason is that, in real life, each of these x’s would have a name attached to it. If, for example, y was the amount spent on travel in a year, then some x’s might be x7=”married or not”, x21=”number of kids”, and so on. It is just too easy to concoct a reasonable story after the fact to say, “Of course, x7 should be in the model: after all, married people take vacations differently than do single people.” You might even then go on to publish a paper in the Journal of Hospitality Trends showing “statistically significant” relationships between being married and travel model spent.
And you would be believed.
I wouldn’t believe you, however, until you showed me how your model performed on a set of new data, say from next year’s travel figures. But this is so rarely done that I have yet to run across an example of it. When was the last time anybody read an article in a sociological, psychological, etc., journal in which truly independent data is used to show how a previously built model performed well or failed? If any of my readers have seen this, please drop me a note: you will have made the equivalent of a cryptozoological find.
Incidentally, generating these spurious models is effortless. I didn’t go through 100s of simulations to find one that looked especially misleading. I did just one simulation. Using this stepwise procedure practically guarantees that you will find a “statistically significant” yet spurious model.
This sort of thing is why we're barraged with studies showing that almost everything will kill you--no, wait! they'll make you live forever!
IBM introduced the hard drive (RAMAC) in 1956; it stored 5 MB in an enclosure the size of a refrigerator, and cost $150 thousand. In the next 45 years, hundreds of companies entered the industry and went tits up or were bought out as new formats drove out the old; by 2000 only a handful of companies were in the business. IBM soldiered on, responsible for almost every significant breakthrough (including giant magnetoresistance, for which Stuart Parkin was unjustly denied the Nobel in physics in 2007. But it was losing money on every unit an industry with razor-thin margins and huge capital costs. I was long gone from the Valley by the time Hitachi bought it out, and I don’t know why they thought they’d could make money at it. Turns out, they couldn’t.
So, today you can get a 1 TB drive for $300 . Per MB, adjusted for inflation, that’s about a billionfold improvement in value—and that’s not accounting for huge improvements in data-transfer rates, power consumption and, umm, portability. (That’s an IBM-developed hard drive in your 80 GB iPod you listen to on the plane; here’s a RAMAC being put onto a plane.)
The “end of the hard drive” (when data density reaches its physical limits) has been five years away, for the last fifteen years. It still is. At IBM Almaden, while I was basically a grease monkey working on disks and motors, my data-storage colleagues were working on holographic materials and atomic-force microscopy. The HDD guys are gone, but the mad scientists are still there, and I’ll bet that one day you’ll have them to thank when you have the MGM Films library, in fully-immersive 3-D, on your 1 PB iPod.
February 25, 2008
The logic of collective action
Will Wilkinson asks whether it's useful to refrain flying in order to prevent global warming. Answer: no. Any one consumer's demand will not impact the level of carbon emitted, just as no consumer who refrains from eating meat will actually cause the amount of meat consumed to fall; the random mismatch in the supply and demand in your local market for chicken will far exceed the number of chickens you might have eaten for any time frame you choose.
So why do it? To create a cultural norm about carbon emissions, or chicken eating, says Will. I have a different intuition, which is that if you want everyone to do something, you are morally bound to do it whether or not they follow suit. I am rethinking that--but I have a sense that those sorts of illogical bourgeois committments to virtue are precisely what allow us to overcome collective action problems without coercion.
It's action--but is it collective?
I suppose I should clarify again--isn't web debate grand?--I am not denying the existence of public goods or collective action problems. (I dispute that all publicly provided goods are genuine collective action problems; there's a great deal of rent-seeking, log-rolling, and sheer stupidity in there.) When I say that your decision to pay, or not, into the treasury voluntarily, is not a collective action problem, I mean that your behavior is not in any way a solution to whatever collective action problems may exist. In the case of a Wal-Mart, it genuinely makes sense to shop there if everyone else does, even if you'd rather not have the Wal-Mart there. I don't think this holds for increasing tax revenue. There is no strategic benefit to doing so in a large polity; it is simply too big for you to have any observable effect on other peoples' committment to taxation.
So while I do understand, quite well, the theory behind which the provision of public goods is a collective action problem, I simply don't think that in practice, as an individual matter, you can decide how much to give to the government/charity on those grounds.
I'm leaving!
How did I miss this? Montana threatens to secede if the Supreme Court hears Heller and rules that there is no individual right to bear arms. I am . . . cough . . . somewhat doubtful . . . that they will actually attempt to make good on their threat should the Supreme Court defy them. The benefits of being part of the United States are extremely large, particularly for Montana, which is, IIRC, a big net beneficiary of Federal largesse. But it's nice to see the secession space taken over by someone besides neo-confederates.
Marketing gone mad
I defend the pharmaceutical companies a lot here, and with good reason; they produce lifesaving drugs. More please! Nonetheless, one criticism I don't see made enough is that pharmaceutical companies don't seem to realize that they can't sell pills the way you sell detergent. For starters, the things do have side effects that could kill people, so you shouldn't try to persuade people to take drugs they don't need. But from a purely selfish perspective, any company that is seen to be mixing the profit motive too closely with our health care will eventually get sentenced to death by the court of public opinion. Derek Lowe has more:
I agree that Merck is still doing some excellent science, as they always have. And they still have a lot of good people there, as they always have. Those aren’t the problems. And they’re still introducing some innovative drugs, arguably more than a lot of other companies, and that’s not the problem, either. These are all are admirable things.
And Vioxx, as I said here at the time, was not, in my opinion, necessarily a bad drug. It and the other COX-2 inhibitors have a real place in the pharmacopeia. The problem is that Merck – or, to put the usual face-saving perspective on it, Merck’s marketing department – oversold the stuff. The prospect of an aspirin-sized market was too much for them to resist, so the company pushed Vioxx just about as hard as they possibly could.
Yep, Vioxx was for all kinds of patients, all kinds of pain, all the time – and under those conditions, whatever side effects were there were finally revealed. It’s the company’s bad luck (not to mention the bad luck of their patients) that those effects were as potentially severe as they were. Even so, the increased risk of a heart attack with Vioxx use is extremely small in any absolute sense. For people with severe pain who can’t get relief with other drugs, I think a COX-2 inhibitor is absolutely worth it.
I confess, I've never really understood the appeal of figures like Ralph Nader and Ron Paul. I vote for candidates who can't possibly win--but only when I am genuinely unable to muster a preference between the major-party candidates. Ralph Nader voters clearly have a preference for Democrats over Republicans, and Ron Paul voters, at least those who have graduated from college already, probably mostly prefer the reverse. So why vote for the guy you know can't win?
I know, I know--you want to move the party in the direction of Truth, Justice, and the American Way. But this is wishful thinking. The reason that those of us on the fringe--libertarians, Greens, socialist workers, or what have you--do not have more representation in government is not because there is some structural problem with the American political system, like a lack of IRV or minority party candidates. The reason we don't have more representation is that most people just don't agree with us. Oh, I know you can find a poll that says that voters want national health care, a guaranteed income, a carbon tax, or lower government spending. But voters like lots of things in the abstract. When you get down to the specifics of raising their taxes and restricting their choices, they tend to get balky. The Democrats cannot move significantly closer to Nader, nor the Republicans to Ron Paul, without losing more voters in the center than they gain on the fringe.
That's not to say that you should have a preference between Democrats and Republicans--frankly, these days, it feels a lot like "So, by which of the plagues of Egypt would you like to be consumed?" But if you do, you should vote for that candidate, rather than making an expressive vote which could put your last choice into office.
Greener-than-thou
John Tierney suggests that a car trip may be more environmentally sound than walking, or taking a pedicab; after all, human beings have to consume fuel, too. I'm inherently sceptical of these sorts of claims; my impression is that they usually count all of the greenhouse gases emitted in growing and transporting the food, but calculate only the actual carbon emissions from burning the gasoline. Gasoline, however, has to be extracted and transported, too. Obviously, it's more energy dense than food--otherwise, we'd burn apples in our engines. But for all of the moralizing about Guatamalan raspberries we don't ship all or even most of the food we eat from across an ocean. Also, they seem to be very dependent on how many passengers you carry--full cars with high mileage are relatively energy efficient, but they're also relatively rare. Most of the cars I see on the road have a single occupant.
That said, what his numbers do point to is that the net benefit is probably much closer to zero than most of us would suspect.
What the heck is happening to the Lancet?
Apparently, it is now publishing articles like this:
Rich countries are poaching so many African health workers that the practice should be viewed as a crime, a team of international disease experts say in the British medical journal The Lancet.
The provision of health services in poor countries is a huge problem that the international community should worry about. But not by declaring medical personnel the property of the state, and their migration therefore a form of thievery. There's been a lot of talk recently about the right of entry for poor people, but even more important is the right of exit. There's a reason that places which require their citizens to get permission to migrate are generally dreadful places to live.
Make me a million
I'm working from home this morning, and the cable news channel is crammed with E*Trade ads along the lines of this one:
It just occurred to me how odd it is to see ads in the style of the late 1990's "Make a fortune in the stock market with [insert financial services firm here". The Dow is in the doldrums, and more to the point, you would think that people would be tired of get-rich-quick schemes based on rising asset prices. But perhaps they never do.
Is poverty in the eye of the beholder?
Incidentally, there's a pretty interesting discussion in the comment thread of Tyler Cowen's Cuba post at Marginal Revolution. Tyler says:
A simple checklist would start with the question of whether an apologist has visited both the Dominican Republic and Cuba. And a non-communist Cuba could have done much better than the DR. It is a fascinating place for visitors, but right now the quality of life in Cuba isn't close to that of the DR or for that matter Honduras, the second-biggest Latino mess in the hemisphere. While we're at it, let's not forget northern Mexico or even central Mexico. It's time to stop apologizing for communist dictatorships; are you really so taken with the idea of confiscating property as to overlook decades of tyranny, impoverishment, and human misery? Yes I am familiar with the UN social indicators; I say you need to visit each of these countries, preferably speaking Spanish, and then report back to me.
A couple of commenters claim that they have visited Cuba, and it looks a lot better than Northern Mexico. It's pretty unambiguously clear to economists that quality of life is higher in Northern Mexico, which is the richest part of a country that has a per-capita GDP three times higher than that of Cuba. So why the difference?
Possibilities:
1) Sample error: they visited the nicest parts of Cuba, and the nastiest part of northern Mexico.
2) The economists are wrong: per-capita GDP is missing important components of quality of life; a more egalitarian distribution of a little income makes people, on average, better off than a much higher GDP unequally distributed.
3) Deep poverty is much more picturesque than moderate poverty. Poor countries have their old colonial buildings still standing, because no one had the money (or the reason) to tear them down and put up something bigger. The countryside is dotted with adorable houses made out of natural materials and natives wearing colorful traditional garb. Animals graze in verdant fields, besides teams of sowers and reapers. Middle income countries are smoggy, and almost everything looks like a cheaper, shabbier version of what you get in the US. Scenic landscapes are despoiled by cinderblock buildings with hideous tin roofs, or trailers; cities are choked with boxy modern buildings that look something like our housing projects. The genteel decay that looks gothic and intriguing on an old Victorian mansion just looks seedy when it's eating away at badly poured concrete. Affluent Americans underestimate the utility value of things like having personal space, or an automobile.
4) Cuba was relatively wealthy in 1959; it therefore has more of the markers, like old majestic buildings, that we associate with wealth.
Obviously, 2 is true to some degree, but not enough to explain why you would think Cuba is better off than northern Mexico. Northern Mexico could be a lot more unequal than Cuba and still provide a better standard of living to its citizenry. Especially since a lot of big improvements in third world poverty come not from transfer payments, but from fixed infrastructure like electricity, sanitation, and decent roads; higher per-capita GDP simply provides more of those things. I'd put a lot of emphasis on 4, and especially 3; I have no idea what role 1 might play.
Mahalanobis
I wanted to blog something about Cuba last week, but frankly, I was too stunned. "Castro-supporting leftist" is one of those stereotypes that I doubted could be found in the wild any more--until Castro stepped down and the Castro apologists crawled out from under their rocks. "Okay, dictatorship bad, but--universal health care! And he really stood up to Uncle Sam, which is, like, totally awesome!"
Leave aside the extreme dubiousness of the proposition that Castro has, in fact, made his countrymen better off. This is like listening to those conservatives one occasionally encounters in the darker corners of the movement who drop gems such as "Well, I don't excuse Pinochet, but Chile wouldn't have a privatized social security system without him." I've never managed a snappy comeback to this because my jaw is always too firmly glued to the floor. Chile's Social Security system is really pretty great. But it's not so fantastic that it's worth purchasing via a reign of terror. Neither is universal health care--particularly when the free clinics are short of medicine and equipment, making them worth about what you pay for their services.
Even more bizarre were arguments along the lines of "Well, Cuba only has about a hundred political prisoners . . . " Only? That's a lot of prisoners of conscience for a small island nation. Moreover, it fundamentally misunderstands the problem with dictatorship. The Cuban government doesn't need to use force to punish any but the most glaring and vocal dissenters, because it has widespread powers of economic coercion. As a Russian co-worker once told me, "Americans have a silly idea about communism. It wasn't that if you told a joke about Brezhnev, the secret police would arrest you--it was that you'd lose your job. And in Russia, there were no other jobs." When the government controls your paycheck, your housing, and your ration card, it doesn't need to put you in jail; you are in jail.
Nor is it much of an excuse that Bautista was awful; dictatorships almost never follow stable governments with sensible leaders who command the support of the majority of the population. Allende was a disaster who was rapidly driving his country down the road to economic ruin--and yet, still not a good reason to staff up the secret police and make his supporters disappear. There are some things for which there is no excuse. Pinochet's regime was one of them. Castro's is another.
At any rate, I was reminded to deliver this rant by Mahalanobis, which has a good post on life in Havana.
Much obliged
One of the many interesting thing about the debate on collective action problems is that while liberals usually claim (with some justification) that it is the libertarians advancing simplistic models that bear no resemblance to the real world, in this case a lot of liberals were making arguments that rest, I think, on a fundamental mischaracterization of how the American government actually works.
The collective action problem is a very elegant idea, and easy to state simply, which is why it has become sort of the liberal equivalent of the tragedy of the commons. The basic idea is that there are certain equilibria which are better for everyone, but because every individual can make himself better off by cheating, the group can't get there. The solution usually proposed is a tax or regulation, but it doesn't have to be; you can, for example, sign an agreement that only kicks in if a sufficient number of people comply--much like what was done with Kyoto.
This is the basic premise of Mark Kleiman's response to me about collective action problems: Mr Kleiman is, he says, willing to give up $300 in tax money if you take, say, $20 million from a bunch of other taxpayers and add it to his $300 to fund scientific research. He is willing to purchase $20,000,300 of science with his $300, but not $300.
Now, in a simple model where there are 2,000 of us deciding whether to purchase a swathe of land in order to turn it into a fur-bearing trout refuge, this may be a moderately accurate description of how this all works. But in the real world, this just doesn't track legislative reality.
For starters, for this model to work you have to assume that the other people providing your $20 million are made better off by the new research. They might not think so. At that point, you have not a collective action problem, but a simple form of rent-seeking: Mr Kleiman using the power of the state to take money from people and spend it on things he values.
The bigger problem is, though, that tax revenues just don't track programs this way. You don't raise everyone's taxes by $300 in order to boost funding for the NIH. Taxes aren't earmarked. Even if you raised taxes this way year one, by year two economic and legislative variation would have erased the connection between the tax increase and the spending program.
But in fact, this doesn't even work year one. You get your taxes raised (or cut) by some politically desireable amount, and then in a very separate process, enormous bundles of programs--some of which you like, some of which you don't--are jumbled together and haphazardly kind-of-sort-of matched to the amount of expected revenue. Consider the three biggest fiscal actions of the Bush administration: the tax cuts, the war in Iraq, and the Medicare prescription drug benefit. In what way do these match up to the model proposed by Mr. Kleiman? Nor are Democrats better. All of the Democratic candidates have proposed, essentially, to raise taxes as much as they can on as many people as they can--which turns out to be repealing the Bush tax cuts only for the wealthiest recipients. The spending prescriptions are then vaguely tailored to the revenue, in the sense that everyone lies and says that their programs will cost just about what the tax increases will raise, though not in the sense of being actually in any way related to the tax revenue that purports to pay for them. This is pretty far from Mr Kleiman's suggestion.
This makes a big difference. If you could actually say "I only want to pay more taxes if I can use them to buy more scientific research", and everyone wanted scientific research, then this would be a valid example of a collective action problem that imposes no moral obligation on you to spend more now. But if what you are saying is "The government should provide a lot more stuff" then, well, you can purchase more of the stuff it already produces, such as early childhood education, roads, and so forth, right now. And no voter in America almost ever has the opportunity to peg their taxes to the services they receive in turn.
Moreover, whatever the protestations of some of my more sheltered commenters, there are a lot of people in this country who complain that rich peoples' taxes are too low, full stop. There are a lot of people who view the tax code as not only a vehicle for purchasing services, but an instrument of income redistribution. To the extent that you think "George Bush cut taxes on the rich" is a fact with some moral valence, then you are not merely concerned with getting the money to pay for necessary services. Nor am I--I favor a progressive income tax. But if you think that having a fair amount money imposes some sort of obligation to share with those less fortunate, then it seems to me that the correct moral response is to take whatever money you think you should pay in higher taxes and give it a good charity. You cannot seriously argue that there is nowhere in the country that could deploy, say, $5,000 on some more worthy cause than a kitchen renovation or a new car.
If you do not include yourself in the class of people who should pay higher taxes, then obviously you have no such moral obligation. But then we are back to my initial argument: most people mostly worry about raising taxes on other people.
Incentives Matter
Oakland's gun buyback didn't work out quite as planned: "Fortunately the buyback did manage to get some guns off the street, too bad they were turned in by a bunch of senior citizens from an assisted living facility. "
February 23, 2008
Is it worthwhile to save regional languages?
Confessions of a Language Addict: "I don't know whether Breton will hang on, though I'm not overly optimistic. And if it doesn't, I'm certainly not prepared to shrug my shoulders and mouth platitudes about the progress of civilization and how it's all for the best. On the other hand, it's not all for the worst. Truth be told, without the nationalization and globalization that threaten Breton culture and even make people uneasy about the status of French culture, a kid from rural Michigan would never have seen the Breton culture to mourn its passing - or gone to Brittany to study French!"
Swinging from their own petard
As longtime readers of the blog know, I'm related to the Swing Voter, aka my mother. Her vote is an infallible indicator of who will win the general election. We had dinner last night, and somewhat to my surprise, The Swing Voter is completely outraged by the New York Times story--she vows to no longer take the Times, nay, not even for the Sunday crossword. She is also now thinking seriously about voting for McCain just to spite the New York Times.
I found myself offering a tepid defense of what really is a pretty indefensible story: to wit, that reporters in cases like this usually know more they can tell, because so many sources refuse to go on the record. The Swing Voter was unmoved. She feels like the Times, and the sort of people who staff the Times, feel that they are entitled to manipulate the election in order to get teh "right" results--that such a story would never have run about a Democrat. No doubt the folks at the Times would strenuously disagree--but it matters that people feel that way. I seriously doubt my mother is the only one.
February 22, 2008
Clarification
The debate over whether people want higher taxes on themselves is, I think, slipping back and forth between two debates: a normative and a positive one. I started out with a positive claim:
What most of us are really in favor of is higher taxes on other people. If we wanted higher taxes on ourselves, we'd give the money to charity.
This is simply observationally true. People do not voluntarily give money to the government; polls show that most people support raising taxes on only a small fraction of the electorate. (Yes, yes, they're rich. Okay, and? The observation still holds: most people want other peoples' taxes raised, not their own. Whether this desire is justified is irrelevant.)
Henry Farrell, and others, stepped in to complain that I, like, totally didn't understand that people behave different collectively than individually. This does not, in fact, negate my point; it supports it. Most people are not concerned with remedying the injustice of their own high income; they want large public goods that can only be secured by taking a lot of money from other people. They are willing to kick in their own money if they have to in order to secure the coalition, or because they think this is fair. But they are primarily concerned not with their own contribution, but with that of others. This will not be a surprising observation for anyone who has ever lived in a group house.
This does, however, raise an interesting normative point, into which I have now been sidetracked without quite noticing: should you, if you think that your taxes are too low, voluntarily give that money to the government? The answer, I think, is yes, for reasons that I've laid out in previous posts. But that is separate from the positive observation I stand by: people are more interested in levying taxes on others than they are in paying taxes themselves.
Crooked Timber » » McMuddled
Henry Farrell fires back with the delightfully titled McMuddled:
Umm, no. I sent her Tom Slee’s book, which uses the analogy of shopping at Walmart to demonstrate that vulgar revealed preference arguments do a very bad job of capturing situations of interdependent choice. This is something that is quite clearly laid out in the extended Alex Tabarrok description of Slee’s argument which I quoted in my original post. What’s at stake here isn’t shopping; it’s interdependence. When choices are genuinely interdependent, behaviour doesn’t necessarily tell us anything about the ‘true’ preferences of the actors in question. What it does tell us about, (if we think that actors are behaving rationally) is what actors think the best reply to other actors’ strategies is in a given strategic situation. I’d like it very much if Megan – and others who use similarly poorly-thought-through arguments – would read about and absorb this basic lesson of game theory. It complicates the analysis of social situations in some very useful and fruitful ways.
We seem to be talking at cross purposes. Henry seems to be treating tax revenue, rather than the things it purchases, as the collective action problem.
I concede that there is a collective action problem in providing actual public goods, like the military and statues of politicians on horseback; that is why I am not an anarchist, or even a minarchist. There is also a collective action problem in setting up a tax system in the first place; people will not participate if they think other people are not participating. This is one of the many problems with the budget of Eastern Europe.
But if you think that you have more money than is fair--money that the government should, by rights, be using for some more noble purpose--then there is no collective action problem. You can send the money to the government. They will spend that money on either actual public goods, or things that you think should be paid for out of the common weal. (Or at least, they will do this to exactly the extent that they would if you plus 20 million of your fellow citizens were forced to send them money via a new tax bill.) There is no strategic value to withholding the money from the government; your fellow citizens are not going to say to themselves, "Oh, Henry's paying extra, so I guess it's okay if I vote for McCain." There is no interactivity here. You, alone, can secure more public goods by putting your extra dollars in the treasury--exactly as many public goods as your dollars will secure if you vote for a politician who extracts that tax money, plus the same amount from other similarly affluent people, via the tax code.
I suspect that Henry is trying to get, not at an actual collective action problem, because there isn't one, but the moral intuition that we appear to have evolved in order to resolve these collective action problems at the small group level. We refuse to contribute unless everyone else does out of the sense that it's unfair for us to do it alone. But it seems to me that if you believe that there are serious distributional injustices in our society that your extra tax dollars ought to be out there resolving, then those distributional concerns should override your resentment at those you feel are shirking their duty. There is simply no strategic benefit to withholding your extra taxes when the tax base numbers in the millions. Essentially, if you think your taxes should be higher, but won't contribute unless everyone else also does, then you are saying you are willing to punish the neediest members of society for the sins of its more affluent members.
Which just takes us back to where I was before: people aren't interested in increasing their own taxes; they're willing to pay to increase other peoples' taxes. These are not the same thing.
Regrets . . . I have a few . . . but then again . . . too few to mention
A reader sends along a link to this article from Cato's Michael Tanner on Obama, saying "As a fellow 'libertarian tepidly for Obama', I ask myself more and more if it's a sound position. This latest Cato makes me cringe a little more . . . "
Obama's rhetoric about trade, and his insanely bad economic "patriot act" have certainly given me pause. But do I have buyer's remorse? No. For starters, I clearly prefer Obama to Hillary as president; on the assumption that there's a very good chance that Generic Democrat will win the election, the primary outcome suits me.
In the general? I might not vote for Obama; I will not vote for McCain. There are some things more important than the economy, and free speech is among them. Yes, I don't like Obama's stance on the Second Amendment, but the difference is, the president has little wiggle room right now on the second, while McCain might do serious further damage to the first, or the fourth. I dislike the steps Obama is willing to take in order to achieve his goals of economic equality. But these are as nothing to the notion that citizens have to be protected from information because Big Daddy John thinks we'll get bad ideas in our heads.
Moreover, Obama is running left right now to try to win the nomination. I expect he will tack right in the primaries . . . and he will probably have to govern as the fellow in the general election, because that will be his actual mandate.
Colt Haugen, a 22-year-old student at the University of Colorado and waiter at Ruby Tuesday, was working at the restaurant last month when he saw a man pull a pill from his pocket and put it in his date's glass when the woman got up from the table. "I almost dropped the food I was holding. I couldn't believe what I was seeing," Haugen says. "I talked with the manager. I told her, I said, 'I saw this plain as day. And if we don't do something about this, something's going to happen to this woman.'" The police were called and when the drink was tested, it was found to contain Valium. Nancy McGrath, the woman at the table, was on a blind date and considers Haughen to be an "angel." "He saved my life," she says.
A few months ago, I got an attack of vertigo in a bar, so bad that I couldn't walk. (It happens every few months) As I staggered out of the bar, having to stop and put my head between my legs every few steps in order to overcome the waves of nausea, I dimly realized that the friends I was with (both male), were informing everyone in the bar that I had vertigo. When I stopped being so sick, some hours later, I started being embarassed; I must, I thought, have looked like I was vilely, humiliatingly drunk. Was it very embarassing, I asked one friend.
"It wasn't because you looked drunk," he said; "You looked like the roofies had kicked in too soon."
Thank god for interested bystanders.
Farewell forever
Like most Irish Americans, I have a sort of vague sentimental notion that the conversion of Ireland to an English-speaking nation is a linguistic and cultural tragedy. Like most Irish-Americans, I also would not want to actually live in a non-English-speaking nation. What I really want is to have learned Irish from my Grandmother, and be able to impress friends by ordering drinks in my ancestral tongue while on holiday. This is the sort of thing that makes my Irish friends complain--justly--that Irish-Americans would really like to see the whole country preserved as a sort of Colonial Williamsburg with shamrocks and twee wool caps.
This is not just a question for the Irish. Language Log is meditating on how we should feel more generally about linguistic loss:
Serious questions about the benefits (and perhaps the losses) of having an assortment of distinct native languages within one national society should be addressed through research that objectively determines and assesses the effects, not through emotional appeals to imagined cultural riches not vouched for by the language users themselves, or self-serving demands that aboriginal tongues be kept alive (by poor people) for (comparatively wealthy) linguists to study.
Something like half the world's languages are supposed to go extinct in the next century. I find it hard to believe that the bad outweighs the good here--it is a good thing that more of the world's people will be able to communicate with each other. Still, with each language that dies, something goes out of the world that can never be rekindled.
Credit where credit is due
I often rant about bad customer service on my blog, so it seems like I should credit good customer service when I get it. Yesterday I received a collection notice for an AT&T Wireless account. This struck me as strange, because I've been a Verizon customer for almost six years. Also, I have never seen a bill for this alleged account; only the collection notice that says I owe them $160. I called AT&T to inquire, and it turned out this was for a 30 day free trial I got from Cingular Wireless--a Cingular Wireless card came with my old laptop, but the service was slow, and anyway, the Atlantic uses Macs, so I cancelled the service when the trial period was up. Some computer in the depths of AT&T's billing system, however, hadn't realized it was a free trial; hence the outstanding balance.
The operator was courteous, asked me only one question (Had I returned the equipment? There wasn't any, I explained; the card was hard wired into my laptop.) Then she went off to her manager, leaving me on hold, and reversed all the charges. The whole thing took twenty minutes, which is annoying, but it's the first time in a long time that I've interacted with a customer service line that did not make me feel as if I was a presumptive criminal trying to put one over on the company. I'm suddenly a lot more likely to buy an iPhone when my contract with Verizon expires next August.
What do voters want?
The most trenchant observation of journalistic culture I've seen in a while, from Time Magazine:
The funny thing is, the reporters the blogosphere hates the most (exhibit A: Broder) are the ones who spend the most time talking to voters, while the ones they lionize never come out from behind their keyboards.
The problem is, voters bore journalists. Not because we're elites and they're proles, or we're smart and they're stupid, or however you want to frame it. Voters bore journalists because we are supposed to find out what they think about policy--and they don't, much. We, on the other hand, spend all of our time immersed in this stuff. Talking about politics with your average voter is, for most journalists, like an engineer trying to explain to his mother how a television set works. You love Mom, and there's no reason she should know--but just the same, this is for most engineers a less than fascinating conversation. Now imagine that the dialogue consisted, not of telling Mom how a television works, but nodding sagely while she--the doyenne of the County General obstetric nursing staff--tells you.
I know, with great certainty, that tax cuts do not increase revenue in the near term. But do I wish to discuss the matter with my Republican relatives in western New York? Frankly, I find this prospect only slightly more appealing than being slow-roasted over Al Gore's new eco-friendly water-heater. Uncle Leon is not going to wade through the five hundred pages of prep material he'd need for us to start out on the same page. And the alternative--that my relatives sit with fixed smiles while I, The Great Journalist, Tell Them How It Is--sounds, if anything, even worse.
Unfortunately for us, voters know a lot that we don't. They know, for starters, what it is like to live as something other than a financially fragile, hyper-educated wordsmith. This is valuable information that we're missing because no one wants to spend time with people who don't share their passion for political arcana. Instead, ordinary voters get used as quote farms to spice up the pieces whose general themes were mentally typeset long before the reporter got to the rally.
I think the message here is that if you keep having children with empty, improbably round eye sockets, you should probably consider tubal ligation. On a more uplifting note, we really need more billboards reminding us that we’re just a few days removed from total annihilation.
Every time I hear someone refer to Singapore as quasi-Fascist, I kind of cringe and think "Do we really need to drop the F bomb here?" Then I see things like this, and I begin to think yes, yes we do . . .
Megan McArdle had a post up last week about whether or not people willingly pay taxes. (link when I'm not so tired). I'm willing to pay the higher taxes in New Jersey. I'm getting things for that money -- better schools, a home that holds its value, access to better paying jobs, proximity to New York City, access to grandparents. Taxes aren't always about money for other people; it's also about services for you.
The first question is "higher than what?" New Jersey taxes are lower than those in New York City, which Laura moved out of. Higher than Alabama? Even if she weren't particularly willing to pay them, she wouldn't have much choice, because her husband's job is tied to New York's financial services industry. In that sense, I am willing to pay the higher taxes of the United States in order to avoid living as a stateless person in some refugee camp somewhere, but that's not really a very helpful guide to how I feel about the general level of my taxes.
Does Laura think that her property taxes should be raised? Very few people do . . . and those who do seek an increase in their property taxes are almost always looking to fund large increases in spending on the services they use, like the schools, in the knowledge that many of the people who do not use them will be forced to kick in. This goes to the heart of the argument I heard over and over again: that it's perfectly rational to think that you should pay higher taxes, but only if other people do, because taxation is somehow a collective action problem. A collective action problem, if you're not familiar with the term, is one where there is a potential equilibrium that makes everyone better off, but it's hard to get to because of incentives to defect. Think casual Fridays: most people prefer not to wear suits and ties, but unless there's some sort of enforcement mechanism, the hyperambitious will ruin it for everyone by showing up in a suit. Next thing you know, everyone's back in a Brooks Brothers sweat sack, because they don't want to look less serious about their job than those around them. These problems generally require the creation of some enforcement mechanism--including, but not limited to, a formal law--to punish defectors.
Henry Farrell, for example, compared paying taxes to shopping at Wal-Mart. Far be it from me to criticize anyone who sends me free books, but this does not really work. Leave aside my questions about whether people really prefer downtowns to Wal-Marts, which is hard to agree upon empirically--I say I care deeply about poverty in Africa, but if that's true, how come I bought a new iPod instead of sending the money to Chad? Collective action problems generally apply to situations where the outcome is binary: either you have a Wal-Mart nearby, or you don't. Tax revenue is not binary--it's an upward sloping line. Some of the things the government spends the money on are binary--but given the existing level of tax revenues, this is simply not a reasonable objection to sending the government additional money. People who say they want higher taxes on themselves generally think the government does not have enough money to do the things it is already doing; as long as you think the government has a better (in some moral sense) use for the money than you do, then you have a moral obligation to send it in.
(As an aside, I am afraid that Henry made a common mistake in referring to me as an economist. I am but a lowly MBA, and have never claimed otherwise, but for some reason a lot of my readers are confused.)
But most people do not appear to think that the government (or anyone else) has a morally salient better use for their money than they do; otherwise, they would give that money to the government (which will take it even if there is no "tax me more" fund) or charity. Perhaps you'll argue that people's norms about fairness are so strong that they will not give away their money unless other people do. My response would be to ask: is the unfairness of your paying more than other similarly affluent people greater or smaller than the distributional unfairness that you want the government to rectify? Nor is it plausible to believe that you can, by withholding your extra contribution, force other people to kick into the kitty; your contribution is a drop in the budget of any political entity to which you belong.
[Gotcha! You cry. My money alone won't make a difference! Sorry, but if that were true then you'd be morally justified in cheating on your taxes. The small sum you send them is spent on something you presumably think we need more of.]
Or you might argue that since money is a positional good, it's not reasonable to ask you to reduce your income unless everyone else at the same level does, too. So now positional goods races are an acceptable way to spend your life? So important that they should override your moral concerns about distributional justice?
Perhaps you claim that you don't want to send the government extra money because God knows what they'll spend it on. Well, welcome to the libertarian movement. Your subscription to Reason should arrive in four to six weeks.
No, I simply cannot grant that people really believe that they pay too little in taxes. It seems more like they think the government has a better use for everyone else's money, and should therefore take it. They believe this so strongly that if they have to pay some of their own money to rectify the situation, they will do so. In other words, they don't so much want higher taxes on themselves, as to purchase the good "State coercion of other affluent people". That is not the same moral intuition as "I have too much money, and the government should take it away", however much nicer it would be if that were true.
These objections might hold if we were attempting to establish a tax system from scratch, against a background of no previous taxation. If the number of potential taxpayers were small enough, you might then convincingly argue that you need to withhold your taxes until everyone else pays in in order to avoid the free rider problem. But against the background of our current, already extremely large and well-funded tax system, no one who actually thinks that their taxes are too low has much of an excuse for refusing to fork over.
Q&A
Readers who have questions about the Times' McCain story--like "Huh?"--can apparently email them to the editors:
A recent New York Times article examined a number of decisions by Senator John McCain that raised questions about his judgment over potential conflicts of interest. The article included reporting on Mr. McCain’s relationship with a female lobbyist whose clients often had business before the Senate committee led by Mr. McCain. Since publication of the article, The Times has received over 2,000 comments, many of them criticizing the handling of the article. Editors and reporters who worked on the article will be answering questions on Friday. Please send yours to askthetimes@nytimes.com.
During the debate, Dan Drezner suggested to me over IM that Hillary Clinton was plagiarizing Primary Colors. He backs it up on his own blog:
Hillary Clinton, February 21, 2008 debate with Barack Obama: "You know, lifting whole passages from someone else's speeches is not change you can believe in, it's change you can Xerox." Hillary Clinton, later on in the same debate: "You know, the hits I've taken in life are nothing compared to what goes on every single day in the lives of people across our country." Jack Stanton speech, in Primary Colors (New York: Random House, 1996), p. 162: "Y'know, I've taken some hits in this campaign. It hasn't been easy for me, or my family. It hasn't been fair, but it hasn't been anything compared to the hits a lot of you take every day."
Meanwhile, Chris Beam at Slate picks up on another instance:
Hillary, however, pivots in a way that evokes, of all things, her Diner Sob. Only this time, she sets herself up: “People often ask me, ‘How do you do it? How do you keep going?’ ” That’s the exact same question asked by Marianne Pernold Young at the Café Espresso in Portsmouth, New Hampshire on the eve of the primary. Clinton then goes into a colorful anecdote about a medical center filled with people injured in Iraq. She doesn’t exactly tear up, but it’s a deliberately emotional moment. (We see Chelsea looking teary afterwards.) At the very end, she borrows a line that John Edwards used toward the end of his campaign. "We're going to be fine," she said, referring to herself and Obama. (Edwards always said it about himself and Elizabeth.) "I just hope we can say the same thing about the American people."
Obama looks like a Roman senator. Hillary looks like a guest star in Star Trek: The Next Generation.
Update 8:35 p.m.: A friend corrects me. More like Chronicles of Riddick.
Hail, Hillary
The emerging consensus: this was a good debate for Hillary Clinton . . . but not good enough. I think she probably picked up a lot of votes with that closing speech, but getting more votes in Ohio and Texas will not be enough; she needs to get nearly all of them.
Obviously, I'm not a Hillary supporter. But now I have that feeling of sympathy that often wells up when an opponent is defeated; once we can afford to be generous once they are no longer much of a threat. And one can hang one's hat on the fact that she was possibly undone simply by bad timing. Not having been much of a primary hound the last time around, I've been repeatedly struck by how path dependent this all seems to be. If the primaries had been run in a different order, mightn't she have emerged as the front runner . . . and wouldn't that be a pretty bitter thought for any of us to live with?
Liveblogging the debate
8:08 Hillary is looking chipper and trim; she's clearly one of those people who thrives on soul-crushing defeat. Her speech, however, sets my teeth on edge. She compares being uninsured to being racially discriminated against. Having diabetes is all kinds of awful--but not the same kind of awful as being a black kid in Selma ca. 1946. Nor are the remedies even remotely similar. One can make racial discrimination illegal; how is she planning to end "discrimination" against people on the basis of health? Being sick will still suck, and the government will, like insurance companies, deny some sick people treatment because it's too expensive to provide
8:17 Obama comes out with bold, transgressive statment: not so much liberty in Cuba
8:18 All right, Obama is suggesting ending the travel ban. Not quite bold and transgressive, but refreshingly sensible.
8:21Vader in a pantsuit: this is how one of my debateblogging companions just described Hillary's look. Yes, it's not fair that she gets her clothes commented on and the guys don't. So might I point out that Obama is suggesting reconciliation with Cuba while wearing a red tie?
8:27 Anchor sensibly asks Hillary if, as she says, she is ready to take charge day one, what she would do differently on day one from Obama. Her answer is a litany of silliness, showcasing her terrible, horrible, no good, very bad mortgage plan.
8:30 Hillary also apparently wants to end the Republican war on science. I say a winner never quits and a quitter never wins. What we need is not an end to the war, but an Iraq style surge.
8:32 Clinton is calling for "comprehensive" immigration reform. Comprehensive is, in Texas, apparently a code word for cracking down on employers while easing up on the workers.
8:33 For the second time tonight, a candidate opens up by acknowledging that he essentially agrees in most respects with his opponent on policy, before diving into some niggling details where they differ. This underscores, for me, how little daylight there has been between candidates on either side of this race on the major issues; until we get to the general election, the question is personality, not policy.
8:37 The candidates are on the spot: moderator asks flat out whether they would finish the fence or undo it. Hillary tries to dodge by changing the topic to Canada. No, seriously. The Canadian hordes with their ice guns and their exaggerated "oo" sounds will not violate the territoriality of this great nation on Hillary Clinton's watch. 54°40' or fight!
Anyone who might have thought that Hillary Clinton had, like, voted for the fence was mistaken. She was voting for possibly considering the fence.
8:40 Once again, Obama agrees with HIllary. Why is he running against her again?
He goes on, however, to make a sensible point. There are just too many people here to deport.
8:50 Hillary breaks out the "all hat and no cattle line" first deployed so successfully by Ann Richards against George Bush's father in 1988, IIRC.
8:53 DC journalistic establishment consensus, based on a completely unscientific sample of two journalists in my livingroom plus some internet chatter: this debate is boring. Surprisingly so, considering that you've got Hillary Clinton, a pretty formidable debater, in a fight for her life.
8:55 Barack Obama complains that earmarks and other wasteful spending are sucking up money that could be spent on things like early childhood education. This is a nice sentiment, but it is not really true. Early childhood education costs a lot of money to get relatively small, if worthy, gains; earmarks, while repulsive, aren't actually that big a fiscal drain. They're offensive because they perpetuate a political culture of special interests and insiderism, not because they'd put tons of extra money in our pockets. Most government spending goes for things that give money to a whole lot of voters, like Social Security.
9:03 Is it just me or does Obama look like he's trying to let down Hillary gently? He doesn't seem like he's really desperate to defeat her.
9:04 Hillary criticizes Barack Obama's plan because it will leave out fifteen million people. Not mentioned: the difference she is talking about is that Barack Obama's plan has no mandate. In other words, what he's "leaving them out" of is forcing them to buy health insurance in order to subsidize older and sicker people.
9:07 A journalist who has just returned to these shores asks why they're sitting next to each other, rather than standing at podiums. I hadn't registered the change, but it does take some of the charge out of the debating.
9:10Why is the food talking? This is how one of my companions describes the way Hillary is looking at Obama when he talks.
9:14 Dan Drezner, via Google Chat: "Jesus, shouldn't it scare people that her political idol is LBJ?" To be sure, "Mistress of the Senate" doesn't have quite the same ring, does it?
9:16 Best line of the night so far comes form the very nice, very frustrated moderator sent by Univision: "Let me try again, and not in Spanish, okay?"
9:17 Hillary seems to be blaming George Bush for Kosovar independence and the resulting riots. Am fascinated to ponder what she might have done to stop the Kosovars from voting to separate . . .
9:20 A huge portion of this debate has consisted of Hillary bashing Obama about the lack of a mandate in his health care plan. As readers know, I don't want more government involvement in the health care system. Nonetheless, even if you do, it's worth pointing out that, as Austan Goolsbee explained to me a while back, the mandate just doesn't matter that much. Barack Obama has arguably the best health care economist in the country on his team; if David Cutler doesn't think that mandates are necessary or useful, then it's probably not worth spending a ton of time debating.
9:22 Unscientific sample indicates that international relations community also thinks this debate is boring. If you've lost the journalists, and you've lost the wonks, who's watching this thing?
9:24 Hillary says that she will start withdrawing troops within 60 days. One of the journalists in the room looks puzzled "Can you move a brigade in a month?" Another journalist suggests a follow-up question: "How many troops in a brigade?"
9:32 Moderator asks Obama how come, if he's so against earmarks, he still provides them; he is near the bottom of the pack, in terms of earmarked funds, but still, if you think they're a bad idea, surely the number should be zero (as it is for McCain). I'm slightly flabbergasted that he manages to ask this without mentioning that HIllary is near the head of the pack, with about $350 million in earmarks, compared to Obama's sub-$100 million figure. (Update: he just asked her). This is a good question. Obama's defense: he'll be happy to provide the details of his earmark programs to anyone who cares. This is a silly answer, but brilliant, because I'm betting that no one in America cares enough about Obama's earmarks to actually get off the couch and risk spraining a finger dialing the Obama campaign.
9:35 Someone in the room says the two candidates look suspiciously healthy. Where are the husky voices and haggard brows? Could it be . . . steroids? And if so, should whoever wins get an asterisk after their name on the presidential roster?
9:37 Another IM from Dan Drezner: Tax cuts = wasteful speding????!!!!
Well . . . have you seen the crap some people buy?
9:42 Dan again: I swear to God, did she just plagiarize Primary Colors???!!!!
9:43 Is she gonna cry? Is she?
9:44 No. That was a nice little speech Hillary gave, saying that whoever gets elected, "we'll" be fine. I suspect that the folks inside Hillary's campaign who were pushing for a new "likeability" strategy won a big argument this afternoon.
9:51 David Gergen calls that last Hillary speech the most effective moment of her campaign in a long while. I agree . . . but I suspect that it came way too late. It felt more valedictory than like a reasonable attempt at a comeback.
10:11 Friend points out that Chuck Hagel's name has been spelled "Chuck Hagen" on the CNN newscrawl for about twenty minutes. Less philosophy, more ice cream. That's a platform we can all get behind . . .
The New York Times may have just done for John McCain what he has not been able to do for himself: unite the Republican voting base behind him. The note of complaint in the Drudge headline - "Now that he's won the nomination ..." may gain an echo on talk radio and on Fox. Nothing like being attacked by the ultimate enemy - the detested liberal media!
And yet .. if the story is true, isn't it a huge and appalling problem? (Allegedly) delivering government favors to a woman one is (allegedly) sleeping with? Pretty bad, in my book.
So before we rally round - how about a reality check? Is the story true? Is it part of a pattern of behavior? These are things voters are entitled to know, and the Times was not wrong to investigate.
Meanwhile, conservatives wondering how this story got run may find their answer at the New Republic.
Clinton campaign in chaos?
FOXNews offers confirming evidence for what I've been saying for months:
If American voters were casting their ballot today, Democrat Barack Obama would have a slight advantage over Republican John McCain in the race for the White House, while McCain would narrowly edge out Hillary Clinton, according to the latest FOX News poll.
Meanwhile, The Huffington Post paints a dark portrait of the Clinton Texas operation:
Although the Clinton Campaign has been telling the press that they have the ground operations to pull off a win in Texas, those ground operations have not been in evidence when I've traveled to small towns to see how Bill Clinton is doing on the Texas stump. Wednesday evening in Victoria, down in the southeastern part of the state, incipient chaos threatened to overwhelm the "Early Vote" Rally precisely because there was no ground operation. The well-oiled, beautifully constructed state-level HRC campaign machine, focused and determined in Iowa, Nevada and California, is beginning to break down.
"It's a clusterfuck! Just a clusterfuck!" the Corpus Christi producer for a local news affiliate shouts into his cell phone. He's telling his boss that there will be no coverage of Bill Clinton's visit to Victoria for the 6 o'clock news. "Who's running this campaign anyway?" the producer asks, of no one in particular. "And now five hundred people have stomped away mad." He shakes his head. At that moment, twenty well-dressed elderly and middle-aged dignitaries and politicians exit the back of the local arts center and walk slowly for the intersection of Goodwin and Main. Presumably, they are Hillary Clinton supporters; however, given their dazed faces, they look more like commissars who have been turned out by the NKVD and cannot believe how suddenly their fortunes have changed.
On the other hand, I didn't think she could win in New York. On the third hand, perhaps she wouldn't have, if she'd been playing against the varsity. At any rate, it certainly doesn't sound good.
Lessig is more
Julian Sanchez interviews Larry Lessig regarding a possible run for Congress:
One simple means of reducing the political power of campaign cash, Lessig says, "could be done tomorrow." He wants to ban legislative earmarks, those juicy morsels of targeted federal funding legislators direct toward pet projects and political supporters. Lessig also hopes to encourage more robust public financing of campaigns, noting the salutary effect such policies appear to be having in states like Maine and Arizona. Most immediately—and perhaps most radically—Lessig says he will swear off contributions from lobbyists or political action committees, and he hopes to bring grassroots pressure to bear on other candidates to follow suit. (Prospective opponent Jackie Speier, he notes in passing in his online video, does accept such contributions.)
Larry Lessig and I do not see eye to eye on many issues, but one certainly can't object to the prospect of more serious thinkers, and fewer professional politicians, in Congress. And earmark reform, however trivial its fiscal impact, is indisputably a blow for better government.
There's millions in it!
I'm going to be interviewed today by satellite for a Rochester-area station; the subject is my Atlantic article on what happens to America when the baby boomers retire, which was partially set in my mother's hometown in western New York State. In the process of setting the details of who does my makeup (answer: me), Evan Dawson, who will be interviewing me, sent this observation about life in the glamorous world of television news:
As an aside, the first time your girlfriend asks to borrow your bronzer, it's embarrassing. The second time, not so much. The third, and you begin to wonder if you could make a fortune by inventing "Cover Guy" to compete with the heretofore monopolizing "Cover Girl."
The Smart Set: Mengele in Paraguay - February 5, 2008
My colleague Graeme Wood has been hunting the memory of Mengele in Paraguay:
New Germany would have been Mengele's kind of town. It was founded in the 1880s by Elisabeth Nietzsche (sister of Friedrich) and her husband, the noted anti-Semite Bernhard Förster. This couple had tried to whip their countrymen into a Jew-hating frenzy, but apparently not even 19th-century Germans were anti-Semitic enough for them. Disgusted, the couple packed off to Paraguay with a few other families and tried to establish a pure Aryan colony, a place to preserve the master race.
The colony failed utterly, ravaged within two years by parasites and the unfortunate realization that the Aryan volunteers' European farming experience hadn't prepared them to grow the local manioc and yerba mate any more than it had taught them to ranch llamas or stalk yaks. The anti-Semitic colonists came to hate the Försters, and began to wonder whether they had picked the wrong Jew-hating loons to follow into the jungle. Those who didn’t die of lockjaw or hunger left; a few stayed, and decades later, their children and grandchildren fought for the Third Reich. By now, anyone who had papers to return to Germany has already gone — unless, of course, they had reason to stay away.
New Germany is tiny, and when I arrived it felt so quiet that the whole town could hear my footfall on the main street. The red mud sucked at my boots with each step, and children — some blond — peered from windows at the noisy stranger. The afternoon swelter, ungodly and oppressive compared to the breezy heat of Encarnacion, kept everyone indoors, under fans and fighting a losing battle against the mosquitoes and biting flies that feast constantly on every man, woman, and mange-ridden hound in the region.
In 1979, not long after Mengele supposedly drowned, a visitor arrived in New Germany. He called himself Friedrich Ilg, and he bragged of a Nazi past. Mentions of the Jews sent him into a rage. He lived for five years in a little house on Nueva Alemania Street, and he received few visitors. But everyone knew he kept an arsenal of guns, much like Mengele, who packed heat at all times.
Alberto Risso, a town historian and statistician at the Public Health Center, thinks Ilg may well have been Mengele in disguise. He introduces me to Mario Neumann, the owner of New Germany’s restaurant, who agrees. Mario speaks no German (his mother was the last in his family who did), but over a plate of schnitzel he recalls a deranged lunatic living among them whose last act before fleeing to Asuncion was to accuse Herr Stern, a mechanic, of ratting him out to the Jews. In Asuncion, they say, he lasted only months before diving under the wheels of a bus.
No one shares Ilg’s enthusiasm for the Nazis — no one here seems to know what a Jew is, let alone why they might hate one — but oddly many seem to like the idea that Mengele might have walked among them for a few years. They take a strange, solemn pride in their Nazi: The Mengele legend connects their country to the world. Paraguay's big neighbors, Argentina and Brazil, get so much attention. Here is a confirmed connection to the most important event in modern history, and it belongs not just to Paraguay, but to one of Paraguay’s most remote and obscure settlements, a sizzling steambath and open-air entomology lab abandoned by even its own Fatherland.
Marguerita Hofmann lives in the countryside, a half hour by motorcycle from New Germany, in a poor colony called Tacuruty. The dozen or so families who live here all still speak German by preference, and they all knew Ilg. She invites me to sit in the shade of her dusty farmhouse, next to an antique sewing machine.
“There was a rumor, but no one knows,” Marguerita says. She calls Ilg “Federico,” and sighs when talking about him. “I think he had an accident during the war, because I could hardly understand what he was saying. He was not right in the head.”
Her husband Fritz comes in from the fields, where he farms manioc. He fans himself with a sweaty straw hat. They have never been to Germany, and all this talk of Nazis makes them wonder why they would ever want to go. "There is more freedom here," he says. "It is not Germany. You wake up when you want."
As he speaks, the flies suck sweat from my neck, and a mosquito drills through the fabric of my shirt and into my shoulder. The pinch of the mosquito bite brings me a perverse instant of secret joy, though: If Mengele really did spend five years here, he didn’t entirely escape punishment.
Ise, Ise baby . . .
Mark Kleiman links to the AP story on John McCain, which has more detail on what, exactly, McCain is supposed to have done wrong.
In late 1999, McCain twice wrote letters to the Federal Communications Commission on behalf of Florida-based Paxson Communications — which had paid Iseman as its lobbyist — urging quick consideration of a proposal to buy a television station license in Pittsburgh. At the time, Paxson's chief executive, Lowell W. "Bud" Paxson, also was a major contributor to McCain's 2000 presidential campaign. McCain did not urge the FCC commissioners to approve the proposal, but he asked for speedy consideration of the deal, which was pending from two years earlier. In an unusual response, then-FCC Chairman William Kennard complained that McCain's request "comes at a sensitive time in the deliberative process" and "could have procedural and substantive impacts on the commission's deliberations and, thus, on the due process rights of the parties." McCain wrote the letters after he received more than $20,000 in contributions from Paxson executives and lobbyists. Paxson also lent McCain his company's jet at least four times during 1999 for campaign travel.
Kleiman asks "Is it routine for a Senator from Arizona to pressure regulatory agencies on behalf of companies based in Florida?"
Fox News has these details, and is making it sound like this is not a big deal, because the senator did not press for an outcome, but only a speedy resolution. But regulatory uncertainty is very costly for firms; just getting your case jumped to the head of the line could be a pretty valuable special favor. It doesn't cost the rest of us much, of course--unless we happen to work for the company whose case was delayed while everyone dropped everything to deal with the senator's request.
That said, I don't have a good sense of how much impact this sort of thing actually has, and I suspect it's (sadly) rather common.
Brookings: Income mobility is not what it used to be
“The American dream of opportunity is alive, but frayed,” said Isabel Sawhill, another author of the report, “Getting Ahead or Losing Ground: Mobility in America.” The report is at economicmobility.org
“It’s still alive for immigrants but badly tattered for African-Americans,” said Ms. Sawhill, an economist and a budget official in the Clinton administration. “It’s more alive for people in the middle class than for people at the very bottom.”
The report and planned studies constitute the most comprehensive effort to examine intergenerational mobility, said John E. Morton of the Pew Trusts, who is managing the project. It draws heavily on a federally supported survey by the University of Michigan that has followed thousands of families since the late 1960s.
A chapter of the report released last fall found startling evidence that a majority of black children born to middle-class parents grew up to have lower incomes and that nearly half of middle-class black children fell into the bottom fifth in adulthood, compared with 16 percent of middle-class white children.
That is a shocking statistic. It's easy to understand why poor black kids have trouble getting ahead: a combination of social capital, culture, racism, and lack of resources. It certainly is possible to succeeed if you're poor--the difference is, if you're poor you have to do every single thing right, while the rest of us have some margin for error. But middle class kids have parents to model and enforce successful behavior; they also have resources to ride out life's storms. Nor is racism a particularly plausible explanation. Racism may depress the earnings of middle-class blacks--but not to poverty level. The returns to education are actually higher for African-Americans than for whites (though in part this is because they're starting from a low base).
Eliot Spitzer is doing
Eliot Spitzer is doing what he does best--threatening regulatory interventions of dubious legality, in order to strongarm banks into donating money to his pet causes. In this case, that cause is the municipal bond authorities of New York State. Nicole Gelinas of the Manhattan Institute points out the problem with this:
State and local leaders across the country (and investors in their muni bonds) complain that they're being punished for something that's not their fault. Yes, there's always a risk to issuing bonds whose interest rates "reset" frequently - but one can hardly blame municipalities for not foreseeing this strange situation.
Spitzer and his insurance regulator, Eric Dinallo, think they have a solution. If big banks don't immediately pump billions into the bond insurers to make the market happy (or if the insurers don't capitulate to billionaire Warren Buffett's offer to simply buy out their muni-bond insurance business at a dear price), Spitzer and Dinallo say, they'll use their regulatory powers to let the insurers break up - that is, split their business in two, with "good" muni bonds in one company and "bad" mortgage bonds in the other.
But there are a few problems with that.
First, the state has a conflict of interest. It's a regulator, but also stands to lose money as an issuer of insured muni bonds. New York and its authorities have nearly a fifth of their outstanding debt in about $4 billion of "insured" bonds whose interest rates reset frequently - all of which could face millions in higher rates in even short-term turmoil.
So splitting the bond insurers into "good" and "bad" firms may make investors wonder if the state is thinking of itself, rather than thinking of all insurance clients as a regulator should. And some investors will likely sue.
After all, it's unlikely that the "bad" insurance company would survive after a split. That is, the firm that gets the mortgage bonds won't be able to pay out on its claims. People and institutions that bought subprime mortgages only because they, like muni bonds, came guaranteed with a AAA rating, will lose.
The rich really are different
They have more social conflicts. Few people realize how hard a wealthy socialite works. But Cookie mag has apparently launched a new investigative series that reveals the gritty underside of life in the jet set:
Only just last month, she was forced to choose between a trunk show, the Guggenheim Young Collectors Council's annual Artist's Ball, and a dinner party at a hedge-fund manager's lavish home! Horreurs. Happily, she made the right decision and went to the trunk show. "At the event I saw rising It girl Chessy Wilson," she relates in her inaugural column, "who regaled me with a story about her handbag catching fire earlier that day when she accidentally dropped a lit match into it." Hahahahaha — barf. But it's not all clinking and chortling for this real housewife. There is a dark side. "The problem with the New York City social scene is that it sucks you in," she writes. What, like Michael Alig? Will Tatiana's addiction to nightlife end in blood and guts and jail?
Early in Senator John McCain’s first run for the White House eight years ago, waves of anxiety swept through his small circle of advisers.
A female lobbyist had been turning up with him at fund-raisers, visiting his offices and accompanying him on a client’s corporate jet. Convinced the relationship had become romantic, some of his top advisers intervened to protect the candidate from himself — instructing staff members to block the woman’s access, privately warning her away and repeatedly confronting him, several people involved in the campaign said on the condition of anonymity.
When news organizations reported that Mr. McCain had written letters to government regulators on behalf of the lobbyist’s client, the former campaign associates said, some aides feared for a time that attention would fall on her involvement.
Mr. McCain, 71, and the lobbyist, Vicki Iseman, 40, both say they never had a romantic relationship. But to his advisers, even the appearance of a close bond with a lobbyist whose clients often had business before the Senate committee Mr. McCain led threatened the story of redemption and rectitude that defined his political identity.
It had been just a decade since an official favor for a friend with regulatory problems had nearly ended Mr. McCain’s political career by ensnaring him in the Keating Five scandal. In the years that followed, he reinvented himself as the scourge of special interests, a crusader for stricter ethics and campaign finance rules, a man of honor chastened by a brush with shame.
But the concerns about Mr. McCain’s relationship with Ms. Iseman underscored an enduring paradox of his post-Keating career. Even as he has vowed to hold himself to the highest ethical standards, his confidence in his own integrity has sometimes seemed to blind him to potentially embarrassing conflicts of interest.
McCain strikes me as a fundamentally honorable guy . . . so honorable that he doesn't realize when he's getting himself in a mess. Most politicians would do the risky things, but take more care not to get caught. I'm not sure whether this is a feature or a bug.
For more on McCain's erstwhile iconoclasm, I highly recommend you watch/listen to Will Wilkinson interview Matt Welch, the editor of Reason magazine and the world's greatest living libertarian expert on John McCain. His book on the topic is a highly interesting read.
Update: The McCain campaign is apparently responding. It's a pretty wan non-denial denial, but I hear there's more substantive rebuttal to come. CNN notes "This may end up being a story about the New York Times as about John McCain." One does kind of wonder why they're breaking an eight year-old story now.
Information wants to be free, but medical care doesn't.
"YIKES". Marginal Revolution points to a problem in Britain's National Health service. Patients have been paying extra for treatments not covered by the NHS, while still getting the majority of their treatment on the government's dime. Now the NHS is cracking down.
"Patients “cannot, in one episode of treatment, be treated on the N.H.S. and then allowed, as part of the same episode and the same treatment, to pay money for more drugs,” the health secretary, Alan Johnson, told Parliament."
The article is about an important problem for public health systems: politically, they find it very hard to tolerate any inequality of access to treatment, but even harder to finance all the treatment people might demand, or to forbid rich people to take life-saving actions. But it hints at another problem for Europe's health care systems. It strikes me that for a long time Europe managed to keep its health care costs down because patients had relatively little information. Governments therefore found it fairly easy to set the standard course of treatment using some sort of crude cost-benefit analysis. But differences in systems, plus the internet, mean that cancer patients now know there is an Avastin--and you will have hell to pay if you deny it to them. Browbeating the pharmas will not generate enough savings to finesse this trend.
Making it
Get Rich Slowly interviews Adam Shepard, a young guy who set out with $25 in his pocket to see how far he could get in a year. In it, he hits on the central problem with Barbara Ehrenreich's Nickel and Dimed:
Well, first of all, I’ll say that Ehrenreich is a very talented journalist. From the point of view that she writes well, Ehrenreich is okay with me.
But the thing about Nickel and Dimed that is so depressing is Ehrenreich’s attitude. Forget politics and economics for a moment. She had an agenda, and she wrote along those lines. She had a point to prove and she proved it. (Of course, the same can be said for my side of the story, although I’d like to think I went down to Charleston with a little bit more of an open mind.)
She wrote about how tough and depressing poverty is. Really? Tough and depressing? Of course it is! I wanted to believe that there were people living in these tumultuous circumstances who weren’t living the life of cyclical misery that Ehrenreich was writing about. So I sought a discovery of my own with this project.
The economics side of Ehrenreich’s story didn’t make sense to me from the beginning and she never proved her point. To me, anyway. She lived in a hotel, ate out, didn’t look for ways to really save money.
In the end, I discovered that both Ehrenreich and I have valid points. But there is a stark difference in her attitude. She postured to fail, and she did. I postured to succeed, and I did.
If you set out to prove you can fail, you will generally find it is not that hard. That failure is therefore not good evidence of the impossibility of success. The problem is even more pronounced in her follow-up, Bait and Switch, in which Ehrenreich attempts to land a mid-career job in PR despite the fact that she has not worked in PR before. Ehrenreich spends most of the book acting like a total lunatic. Journalism is a career that is highly, highly dependent on networking and self-promotion, yet in the book she comes across as someone who has never mastered the rudiments of personal contact, like not gratuitously insulting people with whom you are trying to secure employment. It doesn't help that her contempt for the business world seems to have convinced her that it ought to be easy for someone with absolutely no experience to secure a well-paying job in a competitive field. The book mostly serves as a poignant reminder that yes, there really are intellectuals so provincial that they seriously believe the business world is run something along the lines of the presidency in Dave.
It's fair, of course, to be skeptical about Shepard's story. Playing poor is not the same thing as actually having to spend the rest of your life in a housing project; and didn't his social capital help out a great deal? But Shepard makes a convincing case that he acquired most of his survival skills from the real life low-wage workers around him:
Of course it’s easy for me to say it was easy. I had a goal. I was out to prove a point. I had the mentality and I knew what I had to do to get the results I wanted.
But what surprised me most, and what makes my story so fascinating, is that so many people around me were doing the same thing. It was most prevalent in the shelter (where some people had spent a lifetime learning from their mistakes), but it was just as prevalent outside of the shelter with guys like Derrick Hale, who emerges as the hero of my experience in Charleston.
Derrick was a guy I was working with at the moving company. He had come from rural Kingstree, SC, and he truly knew what poverty was like having grown up in a world of bologna and pickle sandwiches and maybe the lights will turn on, maybe not. And there he was in Charleston, saving his money just like I was. Actually, that’s cocky of me to say, since I was learning so many lessons from him.
Derrick was unique in that not only did he have a goal, but he had a vision for achieving that goal. There’s a monumental difference, and I really learned that throughout the course of my time in Charleston. Everybody knows what they want (nice house, car, vacation money, etc.) and many people know what can get in the way of achieving those goals (see poor spending habits above). But! Some people really struggle with the discipline of their vision. Derrick wanted a house, and near the end of my time in Charleston, he moved into a brand new 3-bedroom, two-story house, with a patio and a fenced in yard for his daughter and dog to play. He was 25 and he worked as a mover, but he knew how to handle his money.
So, is it realistic to set goals and save your money and make worthy investments? Of course it is! Are people doing it? Of course they are, just as there are people that are squandering their money to bad habits.
. . .
I was complaining about my woes in the workforce one night with a couple of the guys at the shelter. One of them, Phil Coleman, and I had a pretty colorful exchange where he essentially told me that I needed to be a whole heckuva lot more assertive. “You think managers are going to call here, eager to hire a homeless dude?”
So, he gave me the secret. To paraphrase, he told me to go to these managers and tell them who you are, that you are the greatest worker on the planet and that it would be a mistake not to hire you. If they take you on, great. If not, move on down the line. By day’s end, you’re gonna have a job.
So I did. The next day, I went to see Curtis at Fast Company, a moving company where I’d already applied. “Curt!” I said. “I’m Adam Shepard, and I’m the greatest mover on the planet. It would be a mistake for you not to hire me.” He looked at me across the table and smiled, knowing I was lying like hell to him. But he liked my attitude – especially after I offered to work a day for free – so he hired me on the spot.
Again, it’s interesting that I needed a boost from a comrade at the homeless shelter. I would have gotten a job eventually, but Phil Coleman gave me a hand up.
Ouch
"He's here to defend Barack Obama and he had nothing to say. That's a problem." I'll say:
More people have personally seen or felt the presence of a ghost than approve President Bush's job performance. Which is in the basement. Where the ghosts live.
Typical liberal garbage. George Bush's approval ratings, however abysmal, are still higher than the number of people who have actually seen a ghost.
I met a pollster from an antique land,
Who said--"Two vast and trunkless legs of stone
Stand, one in Texas...., one near Canton,
Half sunk a shattered visage lies, whose brow, and wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The electorate that mocked them, and the press that fed;
And on the pedestal, these words appear:
My name is Hillarymandias,
Look on my resume and campaign fundraising, ye fellow Democrats, and despair!
Nothing else remains. Round the decay
Of that colossal Wreck, boundless and bare
The lone and level sands stretch far away. Heh.
Memo to the DNC: You are fielding two lackluster candidates here. What’s more, they will get weaker, as the Clinton-Obama scrapping knocks coats of paint from off both of them between now and August. No doubt John McCain will trip over his tongue a time or two, but he won’t be doing any scrapping. Doesn’t need to. Within his party, he’s a winner. Everybody likes a winner. Are you guys worried yet? You should be.
For a sample of the weaknesses, just a sample, let’s look at the résumé issue.
Hillary: U.S. Senator (7 yrs). Wife of president (8 yrs). Wife of state governor (12 yrs). Amateur, but sensationally successful, trader/investor (2 yrs). Wife of state attorney general (2 yrs). “Rainmaker” lawyer (on and off). Law school, lawyering.
Obama: U.S. senator (3 yrs). State senator (8 yrs). Lawyer on behalf of community groups and discrimination claims (4 yrs). Part-time lecturing (12 yrs). Community organizing (2-3 yrs). Office work (2 yrs). Law school, lawyering.
Compare:
John McCain U.S. senator (21 yrs). U.S. congressman (4 yrs). Businessman (2½ yrs). U.S. Navy (22 yrs, including 5½ yrs as a prisoner of war).
I'm not sure why being a prisoner of war is supposed to qualify him for being president. It qualifies him for being undoubtedly one of the bravest people in the country; I'm quite sure I couldn't survive it. (I'm also quite sure I wouldn't make a good president, but that's another discussion.) But physical bravery is not what we require in a president, any more than we need him to be a good pilot. I don't say this means he isn't the best candidate; I just don't think it should affect our decision, one way or the other.
But then why not use a LLC business organization? That would protect the owner from the unsecured debts of the business, would it not?
So is it really a question of how bankruptcy law informs peoples business organization decision?
This goes back to what I was saying earlier about supply and demand. Anything that makes it easier for consumers to discharge unsecured debts will decrease the supply of credit, while increasing the demand for it; anything that makes bankruptcy more difficult will increase the supply, but depress the demand. The empirical question for economists is which effect dominates.
In this case, that level of liability shielding effective shuts off the supply of credit. No bank will lend money to a brand new LLC unless the founder has a pretty serious track record, and some pretty serious assets in the corporation. As a result, new entrepreneurs without massive sums of capital have two options: find an "angel", or use their personal credit to secure business loans. This can take many forms, from a personal guarantee on a business loan, to "Bridge financing by MasterCard". But unless they've got deep pockets, almost all of them resort to some form of personal finance. And that means that if the business fails, they are personally liable for its debts.
Lunar Eclipse tonight
Depending on your location, you may be able to see a red moon. Unfortunately, my location will be on at my desk in DC, working.
The pellet with the poison's in the vessel with the pestle . . .
Regarding my musings on Obama and trade, former co-blogger Mindles H. Dreck writes:
Well, watch what they do, not what they say, and all that. Yet I'm not sure how many layers of this kind of kremlinology is required to determine whether you support a candidate.
Yeah, me neither. Who's keeping an eye on the LP nominations?
Guest blogging
I'm guesting at Instapundit this week; I'll be cross-posting all my Instapundit content here, however, as well as the wonky stuff that only appeals to my more . . . exclusive . . . readership.
Mayor's climate aide gets $160,000 a year
The city of San Francisco has just created a highly paid job called the "director of climate protection initiatives". I am hard put to imagine what the city of San Francisco imagines it can do, all by its lonesome, to halt global warming--the nature of international oil supplies, and fixed infrastructure investment, mean that any energy not used in San Francisco will simply be purchased by someone else at a very modestly lower price. The San Francisco Chronicle's commenters are apparently as flummoxed as I am--only they're also mad, because it's their money being spent.
Housing: a blessing or a curse?
Thanks to commenter Fred who pointed me to this oldie but goodie from Holman Jenkins:
A wisp of memory came to mind last week. Then-Fannie Mae chief Franklin Raines visited The Journal years ago and entertained himself by mocking editorial writers who assume that establishing that a policy is economically inefficient is enough to establish that it's unwise.
He yukked it up quite a bit, in fact, noting that voters are perfectly entitled to assert values other than those of the market, namely that homeownership is a social blessing and should be encouraged with subsidies. And so we've done with tax subsidies, lending subsidies and a concerted set of policies by Bill Clinton's HUD to move low-income people out of rental units and into homes they own. His goal, which was achieved, was to lift the homeownership rate from 64.2% to 67.5% of households.
But a home financed by a mortgage is not just an asset. It's also a liability. We owe thanks to Carolina Katz Reid, then a graduate student at University of Washington, for a 2004 study of what she dubbed the "low income homeownership boom." She considered a simple question -- "whether or not low-income households benefit from owning a home." Her discoveries are bracing:
Of low-income households from a nationally representative sample who became homeowners between 1977 and 1993, fully 36% returned to renting in two years, and 53% in five years. Suggesting their sojourn among the homeowning was not a happy one, few returned to homeownership in later years.
Even among those who held on to their homes for 10 years, the average price-appreciation gain was 30% -- less than if their money had been invested in Treasury bills. This meager capital gain was about half that enjoyed by middle-income homeowners.
A typical low-income household might spend half the family income on mortgage costs, leaving less money for a rainy day or investing in education. Their less-marketable homes apparently also tended to tie them down, making them less likely to relocate for a job. Ms. Reid's counterintuitive discovery was that higher-income households were "twice as likely to move long distance if they're unemployed."
Almost needless to add, the great squarer of circles for middle-income homeowners, the mortgage-interest deduction, won't turn a house into a paying proposition for those with little income to shelter.
Bottom line: Homeownership likely has had an exceedingly poor payoff for millions of low-income purchasers, perhaps even blighting the prospects of what might otherwise be upwardly mobile families.
America cherishes a national delusion that homeownership is the secret route to wealth and prosperity. Yes, housing has performed very well over the last few decades, but a lot of that increase stems from a serious of idiosyncratic factors that will not be repeated:
The rise of the long term amortizing mortgage after World War II, which pegged prices to monthly incomes
The long fall in nominal interest rates after Paul Volcker got serious about inflation
The increase in the value of the mortgage income tax deduction
Ever-rising demand from the baby boomers as they move through their life cycle--a trend that is about to halt, if not reverse
Nonetheless, I still see finance gurus urging everyone to buy a house, ASAP! Homeownership may be a fine idea, but the flexibility of renting has its advantages too; neither solution is right for everyone.
Morally bankrupt
For those who would like to see the evidence I mentioned that bankruptcy enhances entrepreneurship--well, the Economist article I linked (UPDATE--sorry, link was broken, now fixed), which appears to have been written by a correspondent of unusual depth and perspicacity, is a good place to start. Some other suggestions:
Legislators in Europe have recently sought to promote entrepreneurship by reducing the harshness of the consequences of personal bankruptcy law. Yet at the same time, US legislators have been seeking to make it more difficult for individuals to declare themselves bankrupt. Whilst there is an intuitive link between bankruptcy law and willingness to take entrepreneurial risks, little attention has been paid to the question empirically in the international context. We investigate the link between bankruptcy and entrepreneurship using data on self employment over 16 years (1990-2005) and 15 countries in Europe and North America. We compile a new indices reflecting how 'forgiving' personal bankruptcy laws are, reflecting the time to discharge and other aspects of bankruptcy laws. These measures vary over time and across the countries studied. We show that personal bankruptcy law has a statistically and economically significant effect on self employment rates when controlling for GDP growth, MSCI stock returns, and a variety of other legal and economic factors. The results have clear implications for policymakers.
This paper considers bankruptcy law design in a setting that is appropriate for entrepreneurial firms. These firms are characterized by a dependence on an owner-manager who is essential to the firm and must be given incentive through an ownership stake to maximize the value of the project. The relationship banks that fund entrepreneurs cannot capture the gains from providing the entrepreneur with this stake and this leaves the entrepreneur emerging from bankruptcy with a larger debt burden than is socially efficient. In this setting, a fresh start bankruptcy policy provides greater debt relief than the bank would approve voluntarily, and this generates greater social surplus. The results shed light on the ongoing debate over a separate small-business bankruptcy chapter resembling the current Chapter 13.
Homestead exemption is defined as the level of home equity that a household declaring bankruptcy can keep. This exemption level varies across states in the United States. As entreprenurial activities are risky, small business owners value the insurance the bankruptcy law provides. In their empirical study, Fan and White (2003 find that a probability of homeowners running a business is 35\% higher if they live in the states with unlimited rather than low homestead exemptions. Moreover, Sullivan, Warren and Westbrook (1999) estimate that about 20\% of bankrupts had debts from a failed business. As this numbuer is higher than the fraction of households who own a small business, an unproportionally high fraction of small business owners declare bankruptcy. In this paper, we ask the following question. What are the effects of reducing homestead exemption on entrepreneurship activity, bankruptcy rate, homeownership and welfare? We build a general equilibrium model with uninsurable idiosyncratic risks, where the agents make entrepreneurial, housing and bankruptcy choices. In the model, house is defined as a good that people derive utility from, has frictions in buying and selling, people can borrow against, and the government has special regulations on. The model also features a distinction between unsecure debts and secure debts. The unsecure debts are subject to a waiver when declaring bankruptcy while the secure debts are collateralized by house and not waiverable. We calibrate the model to the US economy and study the effects of eliminating homestead exemption on entrepreneurship activity, bankruptcy rate, homeownership and welfare. Our preliminary findings suggest that, when homestead exemption is eliminated, there will be a decrease in entrepreneurial activity, a decrease in bankruptcy rate and a decrease in home equity but no change in homeownership rate.
In this paper, we investigate how personal bankruptcy law affects small firms' access to credit. When a firm is unincorporated, its debts are personal liabilities of the firm's owner, so that lending to the firm is legally equivalent to lending to its owner. If the firm fails, the owner has an incentive to file for personal bankruptcy, since the firm's debts will be discharged and the owner is only obliged to use assets above an exemption level to repay creditors. The higher the exemption level, the greater is the incentive to file for bankruptcy. We show that supply of credit falls and demand rises when non-corporate firms are located in states with higher bankruptcy exemptions. We test the model and find that small firms are 25% more likely to be denied credit if they are located in states with unlimited rather than low homestead exemptions.
The U.S. personal bankruptcy system functions as a bankruptcy system for small businesses as well as for consumers. When firms are non-corporate, debts of the firm are personal liabilities of the entrepreneur/owner. If the firm fails, the entrepreneur has an incentive to file for bankruptcy under Chapter 7, since both business debts and the entrepreneur's personal debts will be discharged. The entrepreneur must give up assets above a fixed bankruptcy exemption level for repayment to creditors, but future earnings are entirely exempt. Exemption levels are set by the states and they vary widely. We show that higher bankruptcy exemption levels benefit potential entrepreneurs by providing partial wealth insurance. This means that the predicted relationship between the probability of owning a business and the exemption level is positive at low exemption levels, but may be either positive or negative at high exemption levels, depending on whether higher bankruptcy costs outweigh the gain from additional insurance. We test this prediction and find evidence that the probability of owning a business is about 28% higher if potential entrepreneurs live in states with unlimited exemptions rather than low exemptions. We also find evidence that families are significantly more likely to start businesses if they live in states with high or unlimited, rather than low, bankruptcy exemptions. They are also more likely to organize their businesses as non-corporate rather than corporate if they live in states with high exemptions.
Congress is again attempting to reform federal bankruptcy law by making bankruptcy less favorable for households whose incomes are above the median level. Whatever the merits of that legislation, it would have a negative impact on small business and on U.S. workers who receive their income from such businesses. Among the proposed reforms are limits on the current "fresh start" provision that protects bankrupt individuals' future earnings. Data show that small business growth is more vigorous when bankruptcy laws offer more protection of entrepreneurs' assets. That suggests that, if "fresh start" reform is adopted, it could dissuade risk-adverse potential entrepreneurs from starting new businesses.
Overall, the expert with the most work on this is Michelle White, who effectively has a specialty in bankruptcy. Her work is vastly more rigorous than that of Elizabeth Warren, the more famous bankruptcy figure, who is an expert on the law, not empirical method. The important thing to remember is that while these results are not morally intuitive for most of us, they are economically entirely unsurprising. The only real economic issue to be resolved was an empirical question--does the decrease in the supply of credit from easier bankruptcy outweigh the effect of the increase in demand for it? The answer is pretty clearly no: while supply decreases somewhat, overall, easy bankruptcy increases entrepreneurial activity. This, too, should not be surprising. America has always been a nation of entrepreneurs--and it has always been the nation with the most generous bankruptcy laws. We should not find it so hard to swallow that the prudent bourgeois virtues have economic costs--as well as great benefits.
Suicide kings
One commonly hears about suicide among the young, and the elderly. But the CDC suggests that midlife suicide is becoming the bigger problem:
A new five-year analysis of the nation’s death rates recently released by the federal Centers for Disease Control and Prevention found that the suicide rate among 45-to-54-year-olds increased nearly 20 percent from 1999 to 2004, the latest year studied, far outpacing changes in nearly every other age group. (All figures are adjusted for population.)
For women 45 to 54, the rate leapt 31 percent. “That is certainly a break from trends of the past,” said Ann Haas, the research director of the American Foundation for Suicide Prevention.
By contrast, the suicide rate for 15-to-19-year-olds increased less than 2 percent during that five-year period — and decreased among people 65 and older.
The question is why. What happened in 1999 that caused the suicide rate to suddenly rise primarily for those in midlife? For health experts, it is like discovering the wreckage of a plane crash without finding the black box that recorded flight data just before the aircraft went down.
Experts say that the poignancy of a young death and higher suicide rates among the very old in the past have drawn the vast majority of news attention and prevention resources. For example, $82 million was devoted to youth suicide prevention programs in 2004, after the 21-year-old son of Senator Gordon H. Smith, Republican of Oregon, killed himself. Suicide in middle age, by comparison, is often seen as coming at the end of a long downhill slide, a problem of alcoholics and addicts, society’s losers.
“There’s a social-bias issue here,” said Dr. Eric C. Caine, co-director at the Center for the Study of Prevention of Suicide at the University of Rochester Medical Center, explaining why suicide in the middle years of life had not been extensively studied before.
There is a “national support system for those under 19, and those 65 and older,” Dr. Caine added, but not for people in between, even though “the bulk of the burden from suicide is in the middle years of life.”
Of the more than 32,000 people who committed suicide in 2004, 14,607 were 40 to 64 years old (6,906 of those were 45 to 54); 5,198 were over 65; 2,434 were under 21 years old.
By itself, that last is not necessarily particularly worrisome; the Boomers are so much bigger than any other generation (didn't somebody around here just write an article on this?) that it's not surprising that they account for so many of the nation's suicides. This initially made me skeptical of the rest of the results, but with caveats that the data changeover in 1999 makes the study period unhappily short, they seem surprisingly robust. The middle aged really are killing themselves more than they used to.
Why would that be? Fractured social networks or better reporting (there's less stigma than their used to be--so medical examiners may be more willing to call a death a suicide.) Or are we just witnessing the collective despair of a generation that thought that they would be forever young with the world all before them? One odd possibility that occurs to me is that fewer children, and better social safety nets, may make suicide less costly--perhaps previous generations were only held here by the fear that they'd be leaving their children to starve. But to be sure, this probably doesn't match up very well with any time period we can study, so we'll probably never know whether it was a factor.
The article suggests that more widely available prescription drugs are the culprit, but this seems most unlikely. Most completed suicides are not by overdose, which is why women, who favor pills, commit suicide so much less frequently1. Nor do I know of any evidence that suggests that Viagra causes suicidal ideation--unless it somehow triggers the realization that no pill will make you seventeen again.
1This is not, as is commonly believed, because women don't "mean it"; the female preference for poison is global, and in places where very effective poisons are commonly available, such as most of the developing world, the suicide rates are often much closer. Rather, it probably has a lot to do with female fear of disfigurement--yes, even in death, though it's irrational.
Measures of inflation surge
Consumer price inflation was surprisingly high last month, coming in at a worrying 0.4%. The headline figure was driven by rising oil prices, to be sure--we hit $100 a barrel yesterday--but now core inflation, at 0.3%, is keeping a close tail on the headline number. Whether this represents the long-awaited trickling through of higher oil prices into other sectors, or excessive liquidity from the Fed, one can be sure that the central bankers are worried. For the first time in a long time, the central bankers may really have to choose between recession and dangerously accelerating inflation.
When I interviewed him last month, Austan Goolsbee pointed out that after Greenspan stepped down, and Bernanke was tapped for the chair, you saw a lot of monetary economists on our nation's more famous campuses who were clearly thinking "Why wasn't it me, God?" Now they're more likely to be thinking "Thank God it wasn't me." This is the time when central bankers start feeling, in the immortal words of Tom Lehrer, "about like a Christian Scientist . . . with appendicities."
Why be against bankruptcy reform?
One of my commenters has asked me to explain my assertion that the bankruptcy reform bill was a bad idea. I think this is an interesting question, even though it's a little bit of ancient history, so I'm going to answer it.
For readers who were not following along at home, the bankruptcy reform bill passed in 2005 made it somewhat harder to discharge one's debts.
If your income was above the median in your area, you had to file for Chapter 13 (which requires that you cut your budget and go on a payment plan, rather than simply discharging your debts.)
Everyone was required to provide more documentation of their income and assets in order to file, particularly tax returns.
It altered the procedure for writing down loans somewhat, which some advocates argued would have the effect of making car loans senior to child support payments.
Bankruptcy lawyers were required to certify their filings, which forced them to charge higher fees--both to cover insurance, and to do more due diligence.
It outlawed specific abuses that virtually no one is willing to defend--serial filings of Chapter 13 in order to stave off foreclosure or eviction; the practice of buying large houses in states with unlimited homestead exemptions in order to shelter assets from pending civil judgements. (This latter was made famous by OJ Simpson, who bought a mansion in Florida to shelter his money from the Goldmans.)
I covered this for the Economist, which consisted of being ranted at by two groups:
Credit card issuers, who claimed that the steady march upwards in the bankruptcy rate was due to consumers having, suddenly and for no apparent reasons, deciding en masse to become deadbeats. Backed up by amusing but entirely anecdotal "research", they argued that the real problem was fraud, or strategic behavior by consumers who ran up debts knowing full well that they were never going to pay them back.
Consumer advocates, who claimed that the steady march upwards in the bankruptcy rate was due to the predatory behavior of lenders, and the cruel, cruel realities of America's heartless economy. Backed up by less amusing, but not much more rigorous, "research", they argued that the real problem was skyrocketing medical bills, or strategic behavior by banks who lent money knowing full well that consumer would never be able to repay it.
Neither of these explanations were particularly plausible. Research into the causes of bankruptcy, and the amount of fraud therein, is all pretty much . . . what's the word I'm looking for? Well, I can't use that word, because this is a family blog, but the research is pretty much all garbage. Bankruptcy is one of the most shameful things that can happen to you in American society, and the first rule of survey research is that people lie about the things they are ashamed of. They certainly don't confess that they used their credit cards to have a nice shopping spree before the bank came and took it all away. Moreover, untangling the cause of a bankruptcy is often like trying to untangle the reason for a marital fight--the proximate cause is usually only the straw that broke the camel's back. For example, most Americans don't save that much. Most Americans get away with not saving that much. But those who don't are vulnerable to a sudden event--a job loss, a divorce, an illness<sup>1</sup>--that brings their income below their house/car/student loan payments. Was the cause of the bankruptcy the divorce, or the fact that they were living up to the edge of their income before the divorce?
To be sure, there was evidence of strategic behavior on the part of the consumers--but a lot of that seems to have consisted of people running up credit card bills so that they could keep paying the mortgage, not a massive conspiracy to defraud lenders. And there was evidence of strategic behavior by some borrowers--but only a lunatic would lend money that they were sure wouldn't be repaid. Both sides were advancing justice claims, when there was no real justice claim to be made. Lenders lent the money voluntarily; borrowers borrowed it voluntarily. Both of them knew the rules when they entered into the transaction--or should have. Most of the consumer advocates seemed to regard easy bankruptcy as a way to advance social justice--but credit card companies are not in the business of social justice, nor should they be. If we want poor people to have free money, we should dig down into our own pockets and give it to them, not demand that MBNA do it for us.
Ultimately, the best explanation of the rise in bankruptcies was not some sea change in either banker greed or consumer culture. Though I find it plausible that there was some easing on the stigma of bankruptcy, making it less psychologically costly to borrow, the best fit with the data is simply the fact that starting in the 1970s, it became easier to borrow. The invention of credit cards gave consumers access to something that had previously only been the province of the wealthy: substantial revolving credit. And the improvements in credit information, and the subsequent advances in credit scoring, made lenders much more willing to lend. And that, in turn, meant that consumers for the first time had substantial unsecured debts that could be discharged in bankruptcy. It's hardly shocking that we got a lot more bankruptcies.
This is not a bad thing. Contra Elizabeth Warren et. al., there's no evidence that this was, on net, bad for the poor, who used to have to get their revolving credit at loan sharks, or take out a secure loan from a pawnbroker. It certainly wasn't bad for the banks, who made a whole lot of money on the transactions. And it was good for us. I'll take on the critics of fractional reserve banking some other day--but suffice it to say that one of the many reasons that the American economy grows faster than most of the rest of the developed world is that we have better and deeper credit markets. Yes, even now--check out the Northern Rock nationalization if you think we've got problems.
There is also substantial evidence--good, solid research, not awful surveys--that easy bankruptcy is one of the hidden strengths of the American economy. American bankruptcy law offers an interesting natural experiment; the code, meaning the rules under which debts are discharged, is national, but the details of what is exempt from bankruptcy are done at the state level. Researchers consistently find that the more generous the exemptions are, the higher a state's rate of entrepreneurship. When failing is less risky, people are more willing to try.
Given that, my question for the bankruptcy reformers was: what problem does this change solve? It solves a problem for the credit card issuers, to be sure--but it does so by essentially allowing them to rewrite the terms under which they lent money, which was at least as unjust as any unjustice we might have been trying to rectify. The economic benefit of tighter bankruptcy restrictions is that they make banks more willing to lend, but this was hardly a problem for the economy in 2005. And the economic cost is that people are more afraid to take risks with their income.
Bankruptcies are down substantially since 2005, even despite the subprime crisis and the economic slowdown--giving lie to the consumer advocates who claimed that everyone declaring bankruptcy had no other choice. But I suspect that the change has cost the rest of us a lot more than it saved the banks.
<sup>1</sup> Contrary to popular belief, illness often brings on bankruptcy not through high medical bills, but loss of income to pay other bills.
Update Typo regarding Chapter 13 fixed.
How can I say I love you if you won't shut up?
My estimable colleague, Clive Crook is digging deeper into that which concerns me about Barack Obama. The good senator is now proposing an "Economic Patriot Act" which attempts to prevent outsourcing by giving tax subsidies to companies who don't employ a lot of workers overseas, while levying taxes more heavily on firms with a lot of foreign profits. This is, as Mr Crook notes, "radical--and, on its economic merits, remarkably stupid." It is basically unenforceable--all you will succeed in doing is encouraging companies to divest foreign subsidiaries and do business at arm's length, thus sacrificing whatever residual influence you had over them. America's corporate income tax is, to the great surprise of the majority of people who think of us as the "pro-business" society, one of the highest in the developed world. We also, strangely, try to collect taxes on foreign earnings from workers and companies alike, which strikes the rest of the developed world as thoroughly ridiculous. Hence, companies and people are going to work hard not to have any foreign earnings subject to tax.
Does Obama mean it? It's hard to tell. We're going to be seeing a lot of this at least through March, because rusty old Ohio is where Hillary Clinton is trying to reverse her campaign's decline with a major win. As Daniel Drezner remarked to me yesterday, the sad fact is that a lot of swing states are in the rust belt, which means that you can expect to see protectionism on the agenda over and over again through November. It's very possible--given who his advisors are, and what they say--that Obama is just proposing these never-never policies to shore up his political base in the old industrial states.
But does that even matter? After all, one might argue, if he runs on protectionism, he'll have to deliver in office. Well, actually it does. George Bush promised to protect the steel industry when he ran in 2000, for the same reason Obama may be sounding so anti-trade; he needed the swing states. In office, he delivered--but in a particularly stupid way that was thoroughly unlikely to withstanding a WTO challenge. Looked at that way, the very stupidity of Obama's plan may be a feature, not a bug; it signals voters that he cares, but signals policymakers that he's not really going to do much.
Of course, "I support my candidate because I'm sure he's lying" is hardly a stirring rallying cry. And there remains the disturbing possibility that he's serious about all this.
February 19, 2008
Strange facts of the day
The Bank of England has a handbook on deposit insurance. It is written by someone named Ronald MacDonald. And it is available in Spanish and Russian.
I hate to see people get all caught up in national elections. The Presidential election is, as CNN puts it so well, a Ballot Bowl, analogous to the Super Bowl. It is a marketing extravanganza for centralized government.
"Even the libertarians . . . "
Every libertarian gets it: "even Megan McArdle doesn't support the bankruptcy reform bill. . . " or some variant thereof. This is supposed to prove that the idea being attacked is so malignant that even libertarians, who are normally opposed to all that is right and good, can't stomach it. Annoyingly, I almost never get this for voicing an opinion that is actually outside the libertarian mainstream. It's generally in response to something--like abortion, or the proper method for liquidating unpayable debts--where no obvious answer is dictated by libertarian theory. People are so wrapped up in their own irrational bundles of ideas that they seem unable to conceive of any bundle that isn't
a) theirs
b) the exact opposite of theirs
And since I don't agree with them on national health care, naturally I must disagree about every single other thing they hold dear, from foreign policy to the eternal question of whether thank you notes may properly be started with the words "Thank you"1. This becomes downright maddening when someone says "even the libertarians . . . " about people who are voicing the conventional libertarian line. And Tim Lee has had enough:
On the one hand, I appreciate the link from Crooks and Liars to my recent C@L blogging on the FISA issue. But on the other hand, the implications of the “even the CATO Institute” comment stings a little. The implication, I guess, is that it’s surprising that Cato scholars would be in favor of civil liberties. Which is a little strange. Here is my colleagues Gene Healy and Tim Lynch attacking the president’s civil liberties record in 2006. Here is Cato’s 1999 books attacking Pres. Clinton for his poor civil liberties record. Here is Cato’s 2006 amicus brief opposing the president’s stance in the Hamdan case. Here is Cato’s brief in the Padilla case. Here are the dozens of pro-civil-liberties op-eds Cato scholars have written since 1991. Here are the op-eds of my former colleague Radley Balko, who wrote extensively about police misconduct and the futility of the drug war and gambling bans.
And yes, we occasionally have Cato scholars take what I would regard as the anti-civil-liberties position. Cato’s doesn’t tell its scholars what to think, and as a result they sometimes reach what most of us regard as the wrong conclusion. But the overwhelming majority of Cato’s work in this area has been on the side of civil liberties and the rule of law. And so the idea that we should be surprise that “even the CATO Institute” (and please note that “Cato” is not an acronym”) is opposed to the president’s agenda on this issue is a little silly.
Unfortunately, partisanship seems to have so poisoned our political culture that people have trouble wrapping their brains around the idea that not everyone falls neatly onto the left-right spectrum. Because Cato scholars take “right-wing” positions on taxes, spending, and regulations, it becomes disconcerting when we take “left-wing” positions on civil liberties, war, immigration, or other social issues. I suppose this is helpful to the extent that it makes right-wingers more likely to take our views on civil liberties seriously (and hopefully left-wingers will take a second look at what we have to say about economic policy). But it’s also frustrating.
1 The answer, obviously, is "Hell, no, what on earth could you be thinking?
I’ll state my question first: to what extent did people believe, in the 30’s and early 40’s, that capitalism was doomed?
I’ve been reading James Burnham, The Managerial Revolution (1941). And I would like to propose (but I am happy to be corrected) that he was the anti-Fukayama of his day. Just as everyone violently attacked Fukayama’s bestseller as speculative and rather wishful prophecy, while basically agreeing that, yes, it looks like liberal democracy and globalization will be dominant for the foreseeable future; so it seems lots of people attacked Burnham’s bestseller as speculative and even wishful prophecy, while basically agreeing with his major premise that capitalism and liberal democracy were on their last legs. (In case you don’t know, Burnham is one of those who started as a Trotskyite and ended by writing for National Review.)
To a first approximation, everyone in the 1930s and 1940s seems to have believed that capitalism, and quite possibly democracy, were headed for the ashbin of history; the hope (or fear) appears in the writings of everyone from Orwell to Hayek. The question I have is, given this near-perfect consensus, how did we manage to snatch victory from the jaws of defeat? Or did we? We are, it seems, gearing up to nationalize an industry that accounts for 16% of national output--and even libertarian bloggers have been known to speak out in favor of that most socialist of institutions, the Federal Reserve.
Cuba libre!
Daniel Drezner and I did an impromptu podcast late this morning on the topic of the Cuban embargo. Apologies for the heavy breathing; this was a spur-of-the-moment foray into Skype, and my microphone turns out to be rather sensitive. Anyway, give it a listen. It's a trim ten minutes, and well worth your time.
Famous last words
Thanks for those who helped out with my last minute bleg last night. It went into this round for my pub trivia team last night.
Update I should have clarified that I was asking the questions, not answering them. Wonderland bar, where my team plays, rotates hosting among willing teams.
Cuba libre
So Castro is stepping down in favor of his brother, Raul. Everyone from left to right seems to be hoping that this will provide an opening for greater engagement with Cuba. Color me unconvinced. Raul is not all that much better than Fidel, from the point of view of US foreign policy. Yes, experts like to say that he's more pragmatic and flexible than his brother . . . but these assertions have a wan quality. Until recently, he was known as the hard core communist to his brother's wishy-washy centrism. The reasons behind the embargo have not substantially changed.
Those reasons are, I should point out, not that it enhances the welfare of the great American public. One might plausibly have argued that the US had a strong national interest in bringing down the regime when it was an instrument of Soviet influence located very close to our shores. But now that Cuba is the communist bloc, it's probably less threatening to the health and safety of Americans than a strike at the Cheez-Its factory in China. We embargo Cuba because a small, but highly motivated bloc of voters in a swing state wants us to.
The embargo should go; it is an embarassing relic. But it almost certainly won't, because domestic policy dictates otherwise. And even if it did, it's not clear to me that it would do much good. The devastating effect of the embargo on the Cuban economy is highly overstated; Cuba's problems are supply-side, not demand side. The benefits of lowering the embargo will probably be not much more than the transportation savings from shipping what little they produce to Florida rather than Europe. It's not even clear that the Cuban government even wants that much more trade. Daniel W. Drezner had an excellent post on this a while back:
As someone who can plausibly claim some genuine expertise on this issue, I'm mildly in favor of lifting the embargo. First, it's clear that forty years of the embargo has not succeeded in overwthrowing Castro. Given that record, trying the engagement track can't make things any worse.
Second, anyone who thinks that engagement will have a dramatic effect on the situation is fooling themselves. The difference between Cuba and China is not just one of size -- it's also a difference in regime. What I wrote earlier this year in reference to North Korea holds with equal force in dealing with Cuba.
This gets to the distinction between a totalitarian and an authoritarian state. China or Singapore fall into the latter camp -- political dissent is stifled, but in other spheres of life there is sufficient breathing froom from state intervention to permit the flowering of pro-market, pro-democratic civil society. North Korea is totalitarian, in the sense that the state control every dimension of social life possible.
In authoritarian societies, the introduction of market forces and international news media can has the potential to transform society in ways that central governments will not be able to anticipate. In totalitarian societies, reform can only take place when the central government favors it. These societies have to take the first steps towards greater openness before any outside force can accelerate the process. Usually, such societies turn brittle and collapse under their own weight....
For the past decade, the DPRK [and Cuban] leadership has been completely consistent about one thing -- it prefers mass famine and total isolation over any threat to the survival of its leadership. Uncontrolled exchange with the West will threaten that leadership. I have no doubt that Pyongyang [and Havana] is enthusiastic about the creation of segmented economic zones where foreign capital would be permitted -- so long as the rest of North Korean [and Cuban] society remained under effective quarrantine.
Another thing to remember is that Raul is himself 76. What effect does this have on negotiations with him?
Obamarama
Obama? Really? The Economist's Free Exchange sums up the discomfort that my commenters, and indeed I myself, have with Obama:
As Mr Crook observes, Mr Obama is far from a centrist. His voting record suggests that, if elected, Mr Obama would be the most economically left-wing American president since ... well, it's hard to say. Richard Nixon? In any case, that the junior senator from Illinois is such a skilled negotiator and conciliator bodes rather ill for those who wish to see less rather than more government involvement in the economy, I conjecture.
Unlike Hillary Clinton, Mr Obama will not inspire venomous, high-spirited obstruction from the Republican congressional minority. On the contrary, an Obama victory will be cast as such a triumphant watershed moment (and quite reasonably so) that we should expect an especially drawn out and sunny honeymoon. Republicans will be anxious to take off the kid gloves, but will be much constrained by the prevailing spirit of celebration and hope, which may leave the charasmatic young president seeming untouchable, at least for a time. Add to this Mr Obama's much-touted skill for diplomatically forging consensus, and it seems we could end up with an American economic policy rather further to the left than seemed politically possible even a few month's ago.
How, then, can I support him? Allow me to channel my former Economist colleague, and now co-worker at The Atlantic, Clive Crook:
My perspective as a pro-market egalitarian condemns me to be perpetually disappointed by politicians. Mr Obama may prove no exception. Last week, in a speech at a General Motors plant in Wisconsin, he unveiled an economic plan. It mainly gathered previously announced ideas, spun to appeal to the “working Americans” in Mrs Clinton’s base. Indeed, the Clinton campaign accused him of plagiarism. Costed (conservatively) at more than $140bn a year, it includes comprehensive reform of healthcare, subsidies for alternative energy, investment in infrastructure and tax cuts aimed at the low paid. Unwinding some of the Bush tax cuts, together with unspecified increases in other taxes on companies and the higher-paid, would pay for it all, he said.
The goals are worthy. The US healthcare system is long overdue for reform. The country’s infrastructure has suffered years of increasingly apparent neglect. The Bush administration’s tax cuts worsened inequality at a time when economic forces were already pushing strongly in that direction.
But American corporate taxes are already high. Post-Bush, top marginal rates of tax on personal income are not low, when you take state and local taxes into account. Mr Obama’s proposal to restore top rates to the levels of the 1990s, and then lift the cap on social security taxes as well, constitutes a swingeing rise in the highest rates. Very high rates applied to a narrow base is bad tax policy. A more broadly based and (above all) far simpler tax system with a moderately progressive structure of rates is the way to combine increased revenues, a more equal distribution of post-tax incomes, and tolerably efficient incentives. No sign of this in Mr Obama’s proposals. It is also a great shame that Mr Obama, like Mrs Clinton, has adopted a populist stance on trade. He attacks her for having once supported the North American Free Trade Agreement, which he blames for “exporting jobs”.
Perhaps, for a Democrat, this position is a political necessity. It is a badge of economic ignorance, nonetheless.
Elsewhere, though, one sees flashes of an independent intelligence in Mr Obama’s economic pronouncements. He is no knee-jerk anti-capitalist: he lauds the “free market that has been the engine of America’s great progress”. He is cautious about mandates and other forms of dirigisme – which is why some party liberals still view him with suspicion.
Mr Obama is a paradox, as yet unresolved. His plan and his votes in the Senate show that he is a liberal, not a centrist. And he is no wavering or accidental liberal. His ideas are of a piece. He sees – or convinces people that he sees – a bigger picture. And yet this leftist visionary is pragmatic, non-ideological and accommodating of dissent. More than that, in fact, he seems keen to listen to and learn from those who disagree with him. What a strange and beguiling combination this is.
So how can I support the man? Well, I wouldn't, if there were better alternatives. But my choices are Hillary Clinton and John McCain, whose goals may be slightly more moderate, but whose instincts are for regulating the hell out of any market outcome they don't like. McCain is not a classical liberal; he's the product of an intensely hierarchical honor culture that he seems to think would substantially improve the rest of us if we adopted more of its values. I have no shortage of respect for the military, and their willingness to place their own lives between the rest of us and war's desolation. But that doesn't mean I think America would be a better place if we had a more martial state. His record bespeaks little respect for spontaneous order and individual freedom. What free-market instincts he evinces seem to have come as part of the conservative ideas combo-pack he bought because it was cheaper than buying the parts individually--all he really wanted was the national greatness and the moderately conservative social structure.
As libertarians go, I'm not a tax nut; I think deadweight loss is relatively low, and taxation is among the least intrusive actions the state can take. I'm far more concerned about regulation. The economic cost tends to be higher; it lacks the natural limits imposed by citizen resistance; and it doesn't so extensively accustom the citizenry to taking orders from the state.
I have the terrible feeling that for both Hillary and McCain, that last is a feature of regulation, not a bug.
Faced with that, I'm betting on the advisors. Obama's economic advisors are some of the smartest economists working in the field today, and they're people I deeply respect. I rest on the hope that they say something about the man who would choose them.
As The Washington Post reported on Saturday, John McCain's campaign struck a canny deal with a bank in December. If his campaign tanked, public funds would be there to bail him out. But if he emerged as the nominee, there'd be no need for public financing, since the contributions would come flowing.
It's an arrangement that no one has ever tried before. And it appears that McCain, who has built his reputation on campaign finance reform, was gaming the system.
Federal funding of elections has suffered some body blows this season; first Obama went back on his pledge to accept public funding, and now John McCain has discovered that public funding can serve as a loan guarantee for the banks. I suspect this will not be the last time we see this sort of arrangement; public funding is becoming a fallback for losers, rather than a credible committment for front-runners.
February 18, 2008
The Bellows » More Housing, cont.
Over at The Bellows, Ryan Avent is still trying to pull apart local variations in the subprime problem:
Calculated Risk notes that Georgia’s problem loan rate is higher than Florida’s, despite the fact that Atlanta’s home price trajectory looked downright anemic during the boom. What’s with that?
One reason might be that Georgia led the nation in Interest Only loans. Another might be that lenders are able to foreclose quicker in Georgia..
Ok, but why so many interest-only loans? Given the (relatively) low prices in the state you might expect that fewer buyers would need or choose the IO option. But then, there doesn’t appear to be much correlation between prices and IO percentages across the nation. Looking at some of the nation’s more expensive markets, you see that the Bay Area has a huge IO problem, while the New York area is on the low end of the scale. Weird. I’d love to see an explanation of the underlying forces here.
My guess at the primary reason behind the difference is that mortgage brokers are regulated at the state level. States with laxer regulations (or as conservatives would have it, better regulatory capture) got more low-quality loans. This dovetails with the fact that many of the most problematic loans hit trouble even before their teaser rates reset, meaning that there was never any realistic possibility that the borrower would repay the money.
Bleg
I can't find my copy of the Motorcycle Diaries. Does anyone know the last line?
Clearly I need to watch more TV
I just encountered the Snickers Feast commercials for the first time. This is possibly the oddest of them:
But they're all strangely absorbing. Too bad I'll never get to eat a Snickers again; turns out that nougat contains (non-humane) gelatin.
Separate and increasingly unequal
Reihan Salam is guest-blogging for Andrew Sullivan, and he's just put up a typically thoughtful post on inequality:
It often seems as though right-wingers are trying to make light of inequality by pointing to consumption inequality, and that left-winger take inequality seriously by zeroing in on income and wealth inequality as meaningful metrics. I think, emphasis on think, that this is the wrong way of looking at things.
In The End of Equality, Mickey Kaus drew an insightful contrast between "Money Liberals," focused on income and wealth, and "Civic Liberals," focused on our shared institutions. His basic take was that while money inequality was a lost cause, we could create excellent schools and an excellent public healthcare system that all would be proud to use. These institutions, in turn, would serve as engines of mobility and opportunity. It's an attractive vision, though I can't say that it's my own. I suppose I'm more skeptical about the ability of even the best-run bureaucracies to adapt to fast-changing circumstances. But Kaus's framework is worth keeping in mind.
What exactly are the consumptionists telling us? My sense is that they are telling us that material deprivation isn't a pressing problem in the United States. This point, very narrowly understood, isn't very controversial. But it also doesn't establish that inequality is not a problem. Far from it. Consider the ever-present danger that a wealthy elite will use its disproportionate political power to entrench its privilege. Though I'm pretty optimistic about American life, and though I cheer lustily for the market economy, it seems clear to me that something like this state of affairs already exists. Of course, my view is a little idiosyncratic, e.g., I tend to see things like, say, the tobacco settlement or a cap-and-trade system or Wal-Mart agitating for ostensibly "progressive" labor market regulations as examples of this kind of oligarchic self-dealing, etc. Other views can just as easily fit this framework. Inequality isn't a problem because the hell of Anglo-Saxon capitalism is leading to people dying on their feet: it could be a problem "merely" because it corrupts our democratic institutions, a corruption that has corrosive effects on our life chances. That is, Money Liberalism could be an essential instrument for achieving Civic Liberalism.
Again, I don't actually think this view is right, but it's at least somewhat persuasive, which is more than can be said of the view that the economic immiseration of half or a third of Americans is the central fact of our time.
I also disagree with the notion that the concentration of wealth is a large political problem. Europe is, if anything, even more elite-dominated than America, despite radically less income inequality. And while the wealthy certainly have the ear of politicians, and also give a lot of money to those politicians, it's not clear to me how tightly these things are linked on matters of broad national policy. It's clear and obvious that people who give campaign contributions get favors that are large to them, but small from the perspective of the nation: a $14 million tax break for Florida loggers, or what have you. But the president of GM makes no campaign contributions; I bet he still gets his phone calls returned by politicians, especially if they happen to be from Michigan. I think that if there is a problem, it is that high concentrations of economic power may make the current distribution of wealth intergenerationally self-sustaining. I don't mean because they lobby for the repeal of the estate tax; the tax falls hardest on the lower tier of wealthy people, which is not where inequality is increasing the fastest. Also, the increase in inequality seems more linked to job earnings than to assets. But in America, money buys access to things, particularly education, but also opportunities like unpaid internships, that make it easier to get a high-paying job. This may be more worrisome than big wealth concentrations. Wealth is eroded over time, either by lazy heirs or the sheer multiplication of descendants; hence the phrase "shirtsleeves to shirtsleeves in three generations". But if the rich start passing on, not money, but the habits, skills, and social capital to make your own money, the result could be an aristocracy more deeply entrenched than any ever seen in America. Conservatives might rejoinder that this elite might be more entrenched, but less effective, since much of what it is handing its descendants are positive endowments such as virtue and education; endowments that can't be realized without a substantial amount of work by those descendants. I don't think that's right--our education system daily gives lie to the notion that America nurtures any sort of equality of opportunity--but even if it were, we'd need to think hard about the character of a nation with a hereditary educational aristocracy.
The lobby that dare not speak its name
Daniel Drezner has excerpted his essay on The Israel Lobby from the Chronicle of Higher Education. The full article is subscriber-only, but the snippets are meaty enough:
There is no doubt that Mearsheimer and Walt have captured a disproportionate meas-ure of criticism because they have targeted a high-profile dimension of American foreign policy. The public reviews of their work have been scathing, and some of them have been unfair. Nevertheless, in terms of methodology, The Israel Lobby has earned much of its criticism. Some of the criticism, however, applies not just to Mearsheimer and Walt, but to the discipline as a whole.
A number of readers have urged me to read the book, either to critique it or to endorse it. Foreign policy is not my area, so it's pretty low down the huge pile of books sitting unread on my shelves. But I have read most of the reviews, and what strikes me is how much of the objection seems to be to the simple fact of acknowledging that there is an Israel lobby.
I was at a conference a few years back, and in the course of a spirited and entirely friendly discussion on differences between European and American foreign policy, someone asked why their Israel policy should be so different. The answer seemed obvious to me, and without thinking particularly hard about it, I said "Europe doesn't have many Jewish people any more." Several people around the table cringed, and so did I as soon as I heard myself.
But it is hardly controversial to state that ethnic groups press the interests of their groups with the government. In no other area of US foreign policy is it controversial simply to say that politicians tend to vote their ethnicity, and more importantly, the ethnicity of their constituents. No Arab-American I have ever met is either surprised or offended when you note that the Michigan delegation in Congress is the only substantial geographical opponent to America's Israel policy; indeed, they wish they had this power in other states. Irish Americans don't accuse you of conspiracy-mongering when you note the way the late Senator Moynihan happily handed out vastly disproportionate numbers of visas to the Irish. I'm not sure why, in a group of people who are presumptively not anti-semitic, it is socially frightening to point out that regions with lots of Arabs and few Jewish people will tend to be more hostile to Israel than regions with lots of Jewish people and few Arabs--particularly when Jewish people are so central to American intellectual, cultural, and economic life. I don't think there's anything wrong with this, though I also don't think that there's any reason your fellow citizens should take particular cognizance of your desires unless you can prove they benefit the nation as a whole.
I do understand why this special taboo exists; no one persecutes Arabs on the grounds that they are running a secret conspiracy to rule the world. To some extent I'm sympathetic to it, much as I understand why research into race and IQ has been left largely to wingnuts with not-so-hidden agendas. But it worries me, because that response seems to have dominated more interesting critiques, such as the one offered by Daniel Drezner:
What [Mearsheimer and Walt] do not do, however, is systematically compare Israel to similarly-situated countries in order to determine if the U.S.-Israeli relationship really is unique. An alternative, strategic explanation for the bilateral relationship would posit that Israel falls into a small set of countries: longstanding allies bordering one or multiple enduring rivals. The category of states that meet this criteria throughout the time period analyzed by Walt and Mearsheimer is relatively small: South Korea, Taiwan, Turkey, and Pakistan.
Compared to these countries, the U.S. relationship with Israel does not look anomalous. All of these countries have been designated as major non-NATO allies (except for Turkey, a NATO member). Mearsheimer and Walt acknowledge that Turkey receives its aid in a similar manner to Israel; the New York Times recently revealed that Pakistan has received favorable terms as well. In the past decade the United States orchestrated IMF bailouts of South Korea and Turkey that dwarf annual aid flows. Sizable numbers of U.S. troops help to guard the demilitarized zone against North Korea, and the United States Navy takes an active interest in the Taiwan Straits. All four countries have prospered economically in recent years, and they have all frustrated the Bush administration in policy disputes. Despite this, the United States has demonstrated a willingness to expend blood and treasure to provide security for all of these countries – despite the wide variance in the strength of each country’s “lobby” in the United States.
I'm not sure how well this works--we give Israel an awful lot of money, and to some extent it seems to me that the regional rivalries are the product, rather than the cause, of our Israel policy. On the other hand, I'm no expert, and Dan is, so I'm probably wrong. But at any rate, it's a much more provocative thought than most of the writing I read on this book--and that's the bit that got cut out of his essay for lack of space.
How to lose money in subprimes without really trying
If you're still a little confused about the subprime crisis, this will explain it all to you.
Thanks to the reader who sent it to me.
February 15, 2008
I'm in ur convenience store, enslaving ur kidz
Apparently, the lull in the market for anti-drug hysteria has created a new product. Or rather, revived an old one:
Dire warning to all adolescents: You can get “hooked from the first cigarette.”
That is the headline in the December issue of The Journal of Family Practice. In the report that follows, Dr. Joseph R. DiFranza, a family health and community medicine specialist at the University of Massachusetts Medical School in Worcester, states that “very soon after that first cigarette, adolescents can experience a loss of autonomy over tobacco.”
Dr. DiFranza, who studies tobacco dependence, described a typical teenage smoker — a 14-year-old girl who smokes only occasionally, about three cigarettes a week. She admitted to having failed at several efforts to quit. Each time she tried, cravings and feelings of irritability drove her back to smoking.
“We have long assumed that kids got addicted because they were smoking 5 or 10 cigarettes a day,” Dr. DiFranza said in an interview. “Now we know that they risk addiction after trying a cigarette just once.”
I'm sure I'm not the only person who read that and thought of this:
For the record, I loved smoking with a passion seldom found in one so young. But the hard part of quitting smoking is not the nicotine withdrawal, which passes very quickly; it's the association of smoking with everything you love to do. And kids who say that they're suffering from addiction after one drag are not addicted; they're trying to assume the mantle of addiction out of the mistaken belief that it will make them look cooler. These are the same kids who used to say they were avid smokers, and then sit there dumbly holding a match to the end of their unlit cigarette, because they didn't know they had to inhale to get it to light. One expects this sort of thing out of fourteen year olds. One does not expect to see adults taking it seriously.
Indeed, they're not even being a mildly irrational actor. If you'd prefer to sniffle your day through work and use a sick day to take a long weekend, then doing so is perfectly rational. That's not an impulse an employer will ever be able to squelch. Additionally, as a friend just noted to me over IM, if you come in when mildly sick (and contagious), you build up lots of credibility for the day when you're really sick and need to stay home for a bit. That's the American way: We have to leverage working through our mild illnesses to feel justified in taking time off for major sickness.
You could, of course, change this calculation in the margin if all workers got paid sick days and sufficient vacation leave such that they didn't feel they needed to make a zero sum choice between staying home for a cold and being a good worker, or staying home for a cold and going to Tahiti.
There is probably some truth to this. But it bizarrely seems to assume that there is some steep demand in decline for long weekends after you've had three or eight, which is not, in my experience, true. The problem is, whether you call it sick leave or vacation days, a day off is a day off. Many people in America (and the rest of the world) already view their sick leave as a sort of backup vacation, which means that the temptation to hoard them by coming in when you're sniffly is intact. (This is why people in lower-skilled jobs are frequently put through the indignity of having to bring in a doctor's note.) If, as for most people, work is somewhere you'd rather not be, then when given the opportunity not to be there, you won't.
Social and cultural rules can control this to some extent, but they seem to break down over time, which is why the Scandinavian countries, with their generous sick leave policies, are having increasing problems with absenteeism. The problem is worst in Sweden, but it seems to be a concern anywhere that has generous leave policies.
[A] study showed 40 percent believe it is enough to feel tired to stay home and draw benefits.
A survey of 1,002 Swedes by the board also showed 65 percent believed they could go on sick leave if they felt stressed at work and 41 percent thought a conflict with their boss or workmates was a good enough reason.
One fifth thought a strike at the child care center also made them eligible for the benefits and 71 percent said family problems entitled them always or sometimes to sick leave.
Stag + flate = uh oh!
Economics journalist have been bandying about the S-word for quite some time, but usually in a speculative, "could it happen again?" sort of way. Now the Wall Street Journal's Afternoon Report suggests, yeah, it could, and it is.
Inflation and sluggish growth haven't joined in that ugly brew called stagflation since the 1970s. They may not be ready for a reunion, but they are making simultaneous threats to the economy and battling one might only encourage the other.
Among a batch of economic readings today, the Labor Department reported that import prices jumped 1.7% last month. The data included troubling signs that consumer products, many imported from China, have caught the inflation bug. The signs pointing to slowing growth included a sharp deterioration in consumers' mood, as measured by the Reuters/University of Michigan Surveys of Consumers, and a worsening outlook for manufacturers, revealed in the Federal Reserve Bank of New York's Empire State Manufacturing survey for February. The government also reported that U.S. industrial production only increased slightly during January, as colder weather elevated utilities output and offset sharp declines in the auto and housing sectors. If indeed inflation is teaming up with slower growth, it means big headaches for policy makers, in particular Ben Bernanke. The Federal Reserve chief in congressional testimony yesterday suggested that he is willing to keep lowering interest-rates if the economy stalls. But, naturally, he will have less room to do so if those lower rates would accelerate inflation to unacceptable levels.
There's long been a pretty compelling argument that the stagflation of the 1970's was basically a productivity shock from the two oil crises. But until now, it's been kind of hard to test. Seeing creeping stagflation paired with oil prices in the 1990s would tend to bolster that theory.
Piracy: a symphony of spontaneous order
There's an old joke that I used to hear occasionally on British television shows: "It's not theft--it's socialism!" I couldn't help but think of it repeatedly as I read this paper on self-organizing institutional arrangements among pirates, which bears some disturbing similarities to an hours-long anarcho-capitalist bull session.
∞ degrees of separation
Unless you've been holed up in your hut in Idaho for the last thirty years, slowly working your way through your stockpiles of canned goods and ammunition, you've undoubtedly heard of the famous 1967 experiment by Stanley Milgram in which he handed envelopes to a bunch of people with a name and address on them. The object was to get that envelope to the target by passing them on to someone they knew personally who seemed likely to be closer to that person, and asking them to do the same, attempting to advance the envelope with each connection. Milgram's finding that it took an average of six people to reach the target is the basis for the famous "Six degrees of separation" theory that later turned into an award-winning play and movie.
It seems, however, that the experiment was not quite as decisive as you might have thought:
When Kleinfeld began sifting through Milgram’s original data at Yale, she was surprised to find how much that data seemed to conflict with what Milgram had reported. Only 3 of the 60 envelopes in the original study had reached the divinity student’s wife—a completion rate of just 5 percent. The second study reported a completion rate of only 29 percent. Moreover, Milgram recruited subjects for two of his studies by buying mailing lists, which tend to be biased in favor of high-income people with high numbers of connections. Other sociological work has shown that low-income people are generally able to reach other individuals with low incomes, but not those with high incomes.
But how most of those chains failed may be even more interesting than how the minority succeeded:
In 2003 Watts published the results of an e-mail version he did of Milgram’s experiment. He set up a Web page and recruited 18 targets in 13 countries. In the end, 61,168 starters signed on, and 24,163 chains were begun. Of those, only 384 were completed. Those who finished their chains did so within slightly more than four links, on average. Watts, unlike Milgram, included a survey with his study, and one of the questions asked people who hadn’t finished to give the reason why. Less than one-half of 1 percent of respondents said they had failed to pass the e-mail on because they didn’t know who to send it to. Watts believes the majority failed because of other problems, such as e-mail spam blocks that diverted their requests. Other times, he suspects, chains failed because the people who received an e-mail weren’t as interested in continuing the chain as the people who’d started it.
Lack of interest, Watts says, points to the underlying complexity of networking. The question is not just whether we are closely connected, but how we navigate those connections—and whether we choose to do so at all. “People can find these paths as long as they’re motivated to do so and able to motivate people to help them,” he says. “But no matter how motivated you are, you have to be able to motivate the other person, who can put you in touch with the next person, and the next person has to do it too.”
Some people will respond with something like, "OK, I don't either, but that doesn't mean it wasn't a bubble; that just means there's a Bernanke put on home prices: there was a bubble, and the Fed is now going to ratify the results of the bubble." But that's not right. The Fed is not actively causing inflation in order to bail out homeowners and their creditors. The vast majority of professional forecasts call for the inflation rate to fall over the next few years. The Fed is just doing its job -- trying to keep inflation at a low but positive rate while maximizing employment subject to that constraint. The ultimate concern of the Fed is to avoid deflation, which becomes a serious risk if the US housing market has a total meltdown. It's very much as if the Fed were passively defending a commodity standard, with the core CPI basket as the commodity.
The ultimate source of the housing boom is the global surplus of savings over investment. That surplus is what pushed global interest rates down and thereby made buying a house more attractive than renting. And that surplus is still with us. If anything, it appears to be getting worse, as US households begin to reject the role of "borrower of last resort." And it is that now aggravated surplus that threatens us with weak aggregate demand and the risk of economic depression in the immediate future -- a risk to which the Fed and other central banks will respond appropriately. Until the world finds something else in which to invest besides American houses, the fundamentals for house prices are strong -- not strong enough, probably, to keep house prices from falling further, but strong enough to keep them well above historically typical levels.
During my interview with Austan Goolsbee on Radio Free Megan, I asked him if the Fed should take asset prices into account. Maybe that was the wrong question; since the Fed clearly is taking asset prices into account, maybe we should be asking "how much should they count"?
'Tax Me More Fund' raises little revenue - - The Washington Times, America's Newspaper
RICHMOND — State lawmakers can rule out Virginian's offering up more of their hard-earned money to fix the $1.4 billion budget shortfall Gov. Tim Kaine announced this week.
At least that is what a peek at the so-called "Tax Me More Fund" suggests.
Since its inception in 2002, the fund has collected a total of $10,217.04.
This is what economists call "revealed preference". What most of us are really in favor of is higher taxes on other people. If we wanted higher taxes on ourselves, we'd give the money to charity.
Department of professional gibberish
For some reason, I've always loved professional in-jokes that I don't understand:
The safety people always tell you that if you’ve used up one extinguisher and the fire still isn’t out, to head for the door rather than reach for a second one. That’s probably good advice (although I’ve seen it disregarded), and I’d advise you to take it. Actually, I’d advise you never to have that decision to make at all, but that’s not always up to you. You may be doing nothing but adding sodium sulfate to a bunch of dichloromethane today, but who knows? The guys next door might be gearing up for Trimethylaluminum Fiesta Days. You never can tell.
Trimethyaluminum fiesta days! Don't forget to try out the sports package!
Marginal Revolution: Simple theories of the business cycle
No one made homeowners treat rising asset values to be the same in value as accumulated monetary savings. But many of them did. And the mechanism may be this: in private terms people treat accumulated money and rising asset values as the same. But in social and macroeconomic terms the implications of those two forms of savings are very different. In particular the social risk of saving through asset values is higher, given the correlation of market values and returns. Nor are their liquidity properties the same if everyone needs to "rush for the exits."
Insofar as you think people are tricked by "savings that aren't really there," asset values are the most likely the relevant mechanism. This idea has played a surprisingly small role in business cycle thinking over the last century, although it has been floating around since at least the 1930s.
Right now everyone in London is wondering if a real estate bubble is about to pop. Or does UK tax law, combined with greater international mobility, mean the new prices are more or less permanently high?
The UK may turn out to be a very special case. Its real estate values are largely driven by London, which has a huge fraction of the population in and around it. So far London, like New York, has resisted price declines; analysts in both places think that this may be because international demand is supporting the market.
I'm still pondering the savings question, which has certainly been folk wisdom among journalists and some analysts, but as far as I know, has never been rigorously tested. Do people in places where the bubble didn't reach, like the rust belt cities, save more than their counterparts in bubblier territory?
The King of Wrong?
Like Ezra, I loved King of Kong. And perhaps we were had:
What I'm saying here is that a good percentage of what makes the documentary "good" are made up conflicts, inaccurate reporting, smoothed-over narratives that are meant to make you root for one side or hate the other, when in fact reality doesn't hold up to these allegations. The whole point of the narrative is that Steve is wronged, denied his rightful place in the record books because of internal machinations. But he had the championship for 3 years! He had played Billy one-on-one. Billy was not on this campaign to cut Steve off at the knees at every turn so to humiliate him and dismiss him, to his own aggrandizement.
(Feel free to check out this collection of statements by Walter Day, head of Twin Galaxies, which is an excellent succinct review of inaccuracy in the film. There are notable amounts of others.)
If you're going to point and laugh at a subculture, hold up real people like pelts to be sneered at and dismissed as this documentary most obviously does, why even go further and make crap up in editing? Why even be in that business?
The director, Seth Gordon, is hard at work at a screenplay for The King of Kong, which he will then sell to have a fictional movie made. Or, as I am saying, a second fictional movie, but one where he can see 100% of the profits of the picture without having to cut in any of the people whose lives he just took a galactic dump on. Let me be clear: he fucked these people. He couldn't have fucked them worse than if he strapped them across a air-hockey table and sodomized them with a Wico Command Control Joystick. He interviewed them, had them retrieve archival footage and materials going back decades, recorded them at their homes, their places of work, and at events that they put up at their own expense and time, and then he painted them in clown makeup and threw pies at them for an hour and 19 minutes.
And by doing this, he fucked me, too. Doors that were open to me and my production are slammed shut, people who would have been interviewed by me freely and happily are now rightfully suspicious, and there are places I can no longer hope to go. Maybe, just maybe after I am deep in my production and I show people footage and where I'm going with it I might get some folks to open up, but the damage is pretty goddamn severe. A documentary that rips entire groups of good-hearted people as shadowy, conniving scumbags with razor-thin morality hurts the scene being portrayed and hurts the people themselves. All this effort, just to turn reality into a faked up drama worthy of a dime store pulp. Yes, I am saying the movie is so bad that it has actually sucked my future movie into darkness as well.
When I sit with people to interview them, I always say the same thing: I never want them to regret letting me into their lives. I never want them to watch my film and feel a cold shiver of realization that they were had. Maybe they're surprised at how their context is with other interviews, or that they fit into the film in unusual ways, but to make someone's life worse for having given you the gift of their time and story... dude, that's some high-octane bitchslap. I don't play that way.
I was always uncomfortable with an element of derision in the film. The subculture it portrays seems to have a lot of severe Aspergers running around, which is clearly very funny to the director, but it isn't to them--and the laughter is too often in a laugh-at rather than laugh-with kind of way.
But this goes rather beyond that. Reality very rarely makes a good narrative, which is why the best stories usually have a certain . . . poetic license. The problem is, the very medium inherently makes a strong truth claim--we're just not equipped to disbelieve our own lying eyes. So when it's manipulated, it's incredibly powerful. That's what makes Michael Moore so successful--he tells a great story, even when it's not there.
That said, I'd argue that the opening of that last paragraph is as inappropriate coming from a documentary maker as it is from a journalist. Obviously you should not deceive people, much less manipulate their words to present a substantively false image of them or reality. But if you sit down thinking that no one you interview should ever be unhappy with the result, you are committing to a project just as dishonest as the filmmaker who starts out with a narrative and trims the facts to fit it. Probably the hardest thing about being a journalist is disputing the truth claims of nice people who have spent hours of their valuable time talking to you about their issues. But that's your job.
Mrs. Clinton’s aides said she could still pull out a victory with victories in the biggest primaries still to come, including Ohio and Texas next month. But Mr. Obama’s clear lead in delegates allocated by the votes in nominating contests is one of a number of challenges facing her after a string of defeats in which Mr. Obama not only ran up big popular vote margins but also made inroads among the types of voters she had most been counting on, including women and lower-income people.
Should the cracks in her support among those groups show up in Ohio and Texas as well, it could undermine her hopes that those states will halt Mr. Obama’s momentum and allow her to claim dominance in many of the biggest primary battlegrounds.
With every delegate precious, Mrs. Clinton’s advisers also made it clear that they were prepared to take a number of potentially incendiary steps to build up Mrs. Clinton’s count. Top among these, her aides said, is pressing for Democrats to seat the disputed delegations from Florida and Michigan, who held their primaries in January in defiance of Democratic Party rules.
I find it hard to believe that Clinton really entertains the notion that she can win by seating those delegates. One might be able to offer an argument for Florida, even though it would cause some party unrest. But if she manages to get delegates counted from a state where Obama wasn't even on the ballot, Obama's supporters will believe, rightly, that she stole the nomination. Even as she energizes the Republican turnout machine, this move will, at the very least, suppress turnout on the Democratic side.
When Hillary Clinton fixes the housing market, she really <i>fixes</i> it.
I meant to blog about Hillary Clinton's subprime mortgage plan last week, but I got sidetracked. Luckily, Matthew Yglesias is talking about it, which reminds me that I really ought to say something.
Now one thing to note about this is that a bit contrary to campaign stereotypes, if you take this literally it betrays a certain naiveté about the way Washington works. Were a president to submit a stimulus plan with these kind of provisions in it to congress, it'd be bad news. You'd end up delaying legislative action on the overall package, and delays are a big problem with fiscal stimulus. You'd also open the door to all kinds of not-strictly-stimulus measures that various members of congress want to tack on. What Barack Obama proposed -- a much cleaner, more streamlined stimulus package that really just focuses on juicing short-term aggregate demand -- is a much better idea.
But that's if you take it literally. Things being what they are, both campaigns stimulus plans were really just smoke and mirrors, with Obama signaling that he can play grown-up technocrat and Clinton signaling that she's got a solution for every problem in her swiss army knife-like arsenal of policy measures. And while it's probably not a good idea to link the foreclosure freeze proposal to a stimulus package per se the underlying idea does seem like a pretty good one. As I wrote in my article on foreclosures there are a lot of neighborhood externalities associated with foreclosures, so it's really worth taking action to minimize them.
It may well be, but only if those measures are not actually completely insane. The good senator is proposing a temporary mortgage holiday, followed by a five-year freeze that will keep at least all subprime mortgages, and possibly all ARMs (there is some disagreement on this) at their teaser rates.
This is a terrible, horrible, no good, very bad idea. Yes, multiple foreclosures can be bad for urban neighborhoods, and it would be nice if there were some way to prevent this. But the way to prevent it is not to have the government unilaterally rewrite the terms of mortgage contracts massively in the favor of the borrowers. The teaser rates these people got can be lower than the rate on a prime fixed mortgage. This is, of course, very nice for the people who bought more house than they can afford. It will not be so nice for anyone who wants to get a subprime mortgage in the future, since this move will probably destroy that market for at least a decade or so to come. It will, of course, be very bad for anyone who happens to be a mortgage lender--aka the people the rest of us want to borrow money from in order to buy houses. This move will leave them with a lot less money to loan out to anyone else, so hello, higher mortgage rates. Higher mortgage rates, for those following along at home, generally mean lower house prices, which means that the problem of negative equity will get worse.
In other words, Senator Clinton would like to destroy the mortgage market in order to save it.
I see this problem as roughly the same problem of pharmaceutical price controls. Yes, we can help some people now, but only at the cost of hurting a lot more people in the future. Those people, of course, don't vote, either because they aren't born, or don't know who they are yet; hence, politicians often ignore them. But that's no reason that the rest of us should follow suit.
If there is one lesson, it is taken from the cooking of Megan: for most of you frozen cherries will, for cooking, be tastier than non-frozen cherries which in fact are not so fresh at all.
This is actually a very important lesson. Unless you are shopping at farmstands, when it comes to berries, cherries, or peaches, buy frozen for cooking. The difference in texture will not matter, and the difference in flavor is profound. Frozen fruit is picked ripe and flash frozen near the farm, whereas "fresh" fruit is picked while green (the better to survive transnational shipping) and then ripened through a combination of time and chemical assistance. The result, as you've probably noticed, is thoroughly unsatisfying. This is also why you should use canned tomatoes for your soups and sauces in the winter; indeed, any frozen vegetable will make better soup than fresh unless it is in season.
The biggest lesson I took away from this year's BloggingChefs was: don't rewrite your menu from scratch at 10 am the day of the cookoff.
Sen. Hillary Rodham Clinton helped secure more than $340 million worth of home-state projects in last year's spending bills, placing her among the top 10 Senate recipients of what are commonly known as earmarks, according to a new study by a nonpartisan budget watchdog group.
Working with her New York colleagues in nearly every case, Clinton supported almost four times as much spending on earmarked projects as her rival for the Democratic presidential nomination, Sen. Barack Obama (Ill.), whose $91 million total placed him in the bottom quarter of senators who seek earmarks, the study showed.
Sen. John McCain (Ariz.), the likely GOP presidential nominee, was one of five senators to reject earmarks entirely, part of his long-standing view that such measures prompt needless spending.
I'm not sure that the comparison between Hillary and Obama is entirely fair; she is vastly more powerful than Obama, and her husband is a key fundraiser for many senate Democrats, which Obama is not (yet). But it's nice to know that McCain has rejected earmarks; though they are far from the main fiscal issue facing the country, the principle is important.
He is concerned with a deep problem. Those of us who are "minarchists," meaning that we favor government that is limited to adjudicating conflict, have no reliable mechanism for restraining government.
His point is that government can use its rule-making power to remake any rules that were used to create it. Certainly, we have seen this in the United States, where I would say that the original Constitution lies in shreds.
He concludes that only irrational standards or taboos can constrain the power of government. I tend to agree. If there is no taboo against government interference with activity X, then as long as it is in the interests of the governing coalition to interfere with activity X, that will happen.
This really seems like a special case of a larger problem that anyone who favors any restraint of government has to deal with. I've heard basically this argument advanced in favor of anarcho-capitalism, but of course one of the biggest problems with any anarchism is that unless you can secure unanimity (in which case you had better not imagine a polity where n>1), some form of coercion seems to be required in order to prevent people from forming governments. Even with strong taboos, has there ever been a society that actually succeeded in controlling the size and shape of its government in the way that libertarians imagine?
The trouble with house prices
Dave Wessel has a good piece at WSJ.com on the difficulty of telling how much your house is worth. There are two main housing indices, the Ofheo index, and the Case-Shiller, but recently they've diverged.
Wessel explains why:
The Ofheo index relies on data collected by Fannie Mae and Freddie Mac, which Ofheo regulates, so it excludes loans too big for Fannie and Freddie to guarantee (those exceeding $417,000) or too shaky (the riskiest of the subprime). Case/Shiller includes those, but its data are limited to 20 major markets because it relies on the costly process of going to local property records for data. One of Mr. Calomiris's complaints is that house prices in these markets may be doing worse than those in other places.
Last year at the annual meeting of the American Economics Association I saw Ed Glaeser give a very good talk on real estate economics. His focus was on just how hard it is to do really systematic empirical or theoretical work in the field; probably the most memorable (and once you've heard it, blindingly obvious) point was that we don't even have a good model for land. Every single house is a unique object; even in communities stamped out with the regularity of a Levittown, views and proximity to the main road vary, and once the houses are old enough to be resold, how well it has been maintained, decorated, and renovated start to matter. The Case-Shiller index is the first attempt to systematize the entire market, and even there, it is geographically limited.
We complain about the insufficiencies of various national accounting measures: GDP doesn't take externalities, leisure, or home work into account; inflation measures are inaccurate; payroll and housing surveys increasingly tend to offer different pictures of the labor market. We forget what a luxury it is to have reasonably accurate figures gathered by a reasonably intelligent method, and compiled into data series that span decades. Reporting on the housing market is a great way to understand just how titanic an achievement was the work of Simon Kuznets.
Iron Chef Bloggers: The Rematch
Last year, Spencer Ackerman and I engaged in one of the weirdest contests ever: a cooking contest and political debate. Well, we've done it again, and it is now up on Bloggingheads.tv. Bon appetit . . .
No he will not transform politics. He won't abolish our problems. He won't eliminate our enemies. He won't disappear partisanship. That's not the point. He's a decent, reasonable human being prepared to tackle these problems outside the depressing template of Morris-Rove politics. One way he can begin to do that is to bring a wave of support with him, to appeal beyond Washington to Americans who know this country is in a terrible mess and want to fix it. That's what Reagan did. He wasn't perfect. But we still remember the difference.
Look, I support the guy. He's the only major presidential candidate in the field that I'd even consider voting for, and that's been true since the inception of the race. That wasn't a criticism of Obama as much of a criticism of a political system that relies at least as much on completely empty promises as on actual likely policy prescriptions to choose its leaders--which is to say, all of them. The American system is not special in this regard. Nor is Obama. Everyone is going around promising that the transformative action of their posterior upon that big chair in the Oval Office will in some way bring about a New America. I wish they wouldn't. I pick on Obama precisely because as of now, he's my guy, so I'd like to hear something less fantastical.
February 13, 2008
Department of non-leading indicators
Morgan Stanley just announced massive layoffs at its residential mortgage business; it's shutting down the UK end altogether. One suspects that more than a few senior managers are thinking wistfully of the Glass-Steagall days. The Dean Witter merger was . . . well, the less said about that, the better; now their attempt to diversify into the Savings and Loan business has met a similar fate. Stand by for corporate retreats in which highly paid management consultants are brought in to lecture the executives about core competencies.
Your Vegan news for the day
A friend emails to say that he was watching the Roger Clemens testimony while working today, and one of our beloved legislators asked Mr Clemens (for what reason I cannot imagine) if he was a vegan. Confused, Roger Clemens replied that no, he wasn't, and what's more, he had no idea what a vegan was.
Update: My friend informs me that there was a reason behind the question:
FYI, The reason Clemens was asked if he was a vegan was because Clemens had claimed that he had received/given himself injections of vitamin B-12 rather than steroids or HGH, and a skeptical Congressman was trying to establish why Clemens would have needed to receive B-12; that question was one of a series of questions in which the Congressman asked Clemens if he had been diagnosed with anemia, Alzheimer's (really - though given his testimony today, that might be plausible), was a vegetarian, etc. Clemens' answer was that his elderly mother had recommended that he take B-12.
There is much more about the relationship between B-12 and steroids, but that was why the question was asked.
Outside the box
Will Wilkinson wants to know whether climate change worriers are as interested in abatement as they are in prevention:
Also… from Warren Meyer I see this: “[Some climate scientists] claim now that man-made sulfate aerosols and black carbon are cooling the earth, and when some day these pollutants are reduced, we will see huge catch-up warming.”
Has anyone in the Pigou Club advanced the argument for subsidizing sulfate aerosols and black carbon (and whatever else has cooling effects)?
That's a good question; there's no reason that global warming has to be fixed through conservation, and in part the focus on conservation has a lot to do with what the environmentalists would say is a broader worry about outstripping the planet's sustainable carrying strategy, and what their critics would call an aesthetic fixation on a low-consumption lifestyle. Me, I think it's probably a little bit from column A, a little bit from Column B. But either way, using AGW as a stealth way to advance your other agendas is a little bit disingenuous.
As to the particulars of Will's question, however, I certainly hope no one's arguing in favor of subsidies for suflate aerosol emission, since we just implemented a massive emissions trading program to remove the damn things from the atmosphere. Sulfate aerosols are what cause acid rain.
The clear implication of the chart is that normal prices are around an index value of 110, the value that reigned for nearly fifty years (circa 1950-1997). So if the massive run-up in house prices since 1997 was a bubble and if the bubble has now been popped we should see a massive drop in prices.
But what has actually happened? House prices have certainly stopped increasing and they have dropped but they have not dropped to anywhere near the historic average (see chart in the extension). Since the peak in the second quarter of 2006 prices have dropped by about 5% at the national level (third quarter 2007). Prices have fallen more in the hottest markets but the run-up was much larger in those markets as well.
Prices will probably drop some more but personally I don't expect to ever again see index values around 110. Do you? If we don't see the massive drop back to "normal" levels then the run up in prices should be described as a shift to a new equilibrium - much as happened during World War II - see the chart. (It's an important question to ask what changed and why?). In the shift to the new equilibrium there was some mild overshooting, especially due to the subprime over expansion, but fundamentally there was no housing bubble.
What bothers me is that I don't understand why we should have shifted to a new equilibrium. I think I understand the reasons that the equilibrium values shifted between 1940 and 1950:
Developments in rail and construction techniques in the 1910-20 brought huge amounts of land under development, and pushed urban buildings rapidly upward, at a time when population growth was slowing, depressing prices
The Great Depression kept them low
This massive pent up demand translated into a boom in housing demands as incomes recovered
The FHA, and then the Veterans administration, basically introduced an entirely new product: the long term amortizing mortgage. Previously, mortgages had been short-term affairs with balloon payments at the end; five years was a very standard term. The long-term amortizing mortgage, especially when helped along with government subsidies, massively increased the amount a couple could pay for their house.
Housing demand was then sustained by high rates of real economic growth and population growth, which caused housing demand to skyrocket.
Prices leveled off as the automobile brought new land into housing, but since the mortgages kept demand pegged to incomes, they never actually fell
The post-1970 fluctuations are money illusion, responses to changes in nominal interest rates.
I find it hard to name a comparable equilibrium changing development in 1997. I am fairly well convinced Ed Glaeser's argument that high coastal real estate prices are due at least in part to the fact that local interests are increasingly effective at blocking new development. But that's been going on for decades; it didn't suddenly change in 1997. One could argue that this was when credit scoring models started getting much better, making more credit available, and indeed homeownership rates soared--but they soared from 64% to 69%. (By contrast, between 1940 and 1950, they went from 43% to 55%.) Also, it turns out that credit scoring wasn't that much better, as proven by rising default rates.
Alex's theory is supported by the fact that housing is bubbling up all over--the US, in fact, experienced rather modest appreciation. I'm tenatively willing to believe that this represents a real expansion of credit availability--but I still wouldn't buy a house right now without a hefty downpayment to cushion the downside risk.
Stupid move
Right now, Hugo Chavez reminds me of that famous quote about US foriegn policy: "You never make simple stupid moves, only complex stupid moves that make the rest of us wonder if we might be missing something." As threatened, Petroleos de Venezuela SA, the Venezuelan state-owned oil company better known as PDVSA (pronounced "PedeVEHsa"), has cut off supplies of oil to ExxonMobil. This is in retaliation for ExxonMobil's legal victory regarding the nationalization of its Venezuelan fields last year, which authorized the company to seize Venezuelan assets abroad.
This move is all kinds of stupid.
1. It's too small--50,000 barrels a day is not going to scare anyone.
2. Oil is a fungible commodity, which is why the Arab embargo of America failed so miserably. If Venezuela sells the oil to someone else, there's nothing stopping them from turning around and selling it to the US. Unless Venezuela pulls the crude off the market entirely, this will at best achieve a minor reshuffling of suppliers to American refineries.
3. Venezuela is further poisoning its relations with the only country that is set up to refine its low-quality, extremely sulphurous crude.
4. If Venezuela does pull the oil off the market, the IEA and the US will simply open up their rather lavishly stocked strategic reserves. They can almost certainly dribble out 50,000 barrels a day for longer than Chavez can stay in power with falling oil revenues.
It's probably good political theater at home--but for the first time, Venezuelans are going to have to pay actual cash money for Chavez's anti-US theatrics. It will be interesting to see what their demand curve looks like, now that his tactics have an explicit price.
Department of unintuitive economic findings
Greg Mankiw has pointed to an old post of his on the deadweight loss of taxation that at first blush, sounds confusing:
The normally astute knzn is confused. In a comment on the previous post, he questions one of my assertions:
“according to standard theory, the distortionary effect of taxes depends only on the substitution effect”
Maybe I need a refresher course in public finance theory, but this doesn’t quite make sense to me. Suppose you have a large income effect and a large substitution effect, and the two are precisely offsetting, so that labor supply is perfectly inelastic. In that case, changes in labor taxation will not affect the quantity of labor supplied or the pre-tax wage. So in what sense can there be said to be a distortion?
Here is the logic:
Case A. No taxes. Andy earns $10 an hour and works 40 hours a week, for income of $400.
Case B. The government now levies a tax at 20 percent to fund a war. There are offsetting income and substitution effects. Andy still works 40 hours, now earning before-tax income of $400 and after-tax income of $320. The government collects $80 to pay for the war.
Now you might say the tax has no distortion, because hours worked remain the same. But you would be wrong. Consider another situation:
Case C. The government funds the war with a lump-sum tax of $80. Andy faces the same income effect as Case B (which makes him work more), but no substitution effect (which previously offset the income effect). Andy works 45 hours, for after-tax income of $370.
Notice that welfare must be higher in Case C than in Case B. How do I know? Because in Case C Andy could have chosen to work 40 hours, earning $320, the same outcome as Case B, but he chose not to. (By contrast, in Case B, if Andy had chosen to work 45 hours, he would have earned income of only$360.) Thus, Andy is better off under the lump-sum tax than under the income tax that produced the same revenue. The difference in welfare between Case C and Case B is the deadweight loss of the income tax.
This is not intuitive to most people. Most people would assume that the deadweight loss of a tax is the reduced work output that results from taxing labor. In this case, it is appropriate to consider both the income effect (if you cut income tax rates across the board, people will tend to work less because they feel richer, and want to consume more of that luxury good, leisure); and the substitution effect (people want to consume less leisure, because the lower marginal tax rates effectively raise their pay, meaning that they now have to sacrifice more consumption of other goods in order to secure an hour's more leisure.) The argument over the effect of marginal rate cuts on output is, in essence, an argument over whether the income effect outweighs the substitution effect--or whether they are both trumped by factors like labor market rigidities.
But1 the issue is not that people have less money and therefore have to choose a different consumption bundle; what causes the deadweight loss is that the market is not clearing as efficiently as it could. There are, at current income levels, utility enhancing deals that would be made under a lump-sum tax that are not being made because of the substitution effect.
1 Edited to make it clearer
More transit talk
Daniel Hall listened to our transit podcast and sums up the highlights, along with some thoughts of his own, at Common Tragedies, an environmental economics blog.
I'm kind of fascinated by the strategy of politics--by the way that Hillary seems to be ostentatiously trying not to be seen campaigning in the states she is going to lose, because the campaign would rather have the media reporting that she's conceded a given state, than hand Obama another "surprise" victory.
But deep down there's something wrong with all this. One can debate whether many things are permissible, or even vital, to democracy, even down to massive campaign contributions and backroom deals with politicians. But I think we can all agree that elections should not depend on your skill at manipulating the media, or garnering the support of the local activists with the best logistical skills at organizing things like election-day carpools.
Obamarama
Obama killed in Virginia, carrying an overwhelming majority of the black vote, but also splitting the white vote right down the middle. I'm watching his speech now, and it's inspiring. But it's also saddening, because deep down, I don't believe that Obama is going to change Washington, eliminate lobbying, etc. I wish he wouldn't tell me things that I can't possibly believe--and moreover that I can't really understand anyone believing. He might be the best president; he might even make Washington work a little better, though I kind of doubt it. But he isn't going to transform American politics in the utopian way his speech implies. No one who has dried out behind the ears could reasonably believe that he has this power. So why is he saying he does?
Hillary, meanwhile, looks kind of sad and tired. A few weeks ago, I remember commenters remarking upon how fresh and vigorous Clinton looked, while Obama seemed to be wilting; now those roles are definitely reversed. Apparently, being the front-runner agrees with one.
I've blogged before about the ads for Freecreditreport.com, the newest of which is less creepy but even stupider. The primary problem with all these ads is that knowing your credit score doesn't really do you much good unless there's an error--and most people's credit problems stem, not from errors, but from the fact that they have borrowed too much money, or don't pay their bills on time. The first commercial actually offered a situation where you could do something: prevent a hacker from stealing your identity. The second painted a situation where you might arguably do something--ditch your fiancee because she has bad credit--but only if you were a complete creep. The third one doesn't even offer that consolation:
If he'd known his credit was bad he could have . . . thought harder about the color choices on the crap car he can afford. He wouldn't have actually been able to buy a more expensive car. So what's the point of using their service, again?
GM Loses Big
GM has posted the largest loss in automaker history, $38.7 billion for 2007. Almost all of that is a writedown of deferred tax assets--a masterpiece of big bath accounting. On a cash flow basis, the company seems anemic, but not fatally wounded.
Once again, the company is hoping to reduce costs by offering buyouts to more of its union employees. It's astonishing how lavish these buyout packages can be, and yet still save the company money--early retirement plus $45,000 is apparently cheaper than keeping them on the line. It's a sign of something deeply out of whack in the labor market when companies are consistently this desperate to shed workers--how can the UAW swing enough clout to keep the automakers tottering in and out of unprofitability? Is it good for anyone if they push the company into bankruptcy? Yes, yes, American automakers have a lot of problems, but their labor costs are by far the biggest and least tractable ones. You can't enhance your productivity and slash costs if you have to find some way to keep tens of thousands of extra workers occupied all day.
I'm sure that conservatives will claim this is a matter of labor law, but that doesn't offer a very good explanation; most other unionized industries are nowhere near this bad, and the other one that is (airlines) has some unique pathologies due to value-claiming by multiple unions that the auto industry shouldn't display. The UAW's behavior seems irrational enough, though explicable: it's essentially a cognitive bias problem, excess loss aversion. Faced with the certain loss of tens of thousands of jobs, the union is gambling that they can push the company to the edge of bankruptcy without going over. One assumes that other sorts of public choice problems also come into play: members who are likely to get laid off are probably more motivated voters than members who aren't.
But the company's behavior seems inexplicable. All three of the automakers are crippled by their deals with the union, not just because of wage and benefit costs, but because the union tends to strongly resist productivity enhancements that might cost jobs. Yet none of the automakers has taken any sort of stand. The company and the union are like two skydivers trying to share a small parachute--locked in each other's arms as they hurtle to their death, because neither wants to be the one to let go.
Amen
The Passport lists ten things that won't change after the election. Most of the items on that list sadden me, but I agree they're off the table, so we might as well talk about something else instead of focusing on empty promises.
Eat your vegatables!
Mark Bittman, the food critic, now apparently has a blog on the New York Times. My mother just got me his new book, How to Cook Everything Vegetarian, and though I haven't tried any of the recipes in it, they look absolutely fantastic--and also, not insanely complicated. The idea is simple, interesting combinations, rather than "start two days ahead and skin your leeks with a razor blade . . . ".
I came to it through this post on trying to disguise "healthy" foods for your children. Bittman, I think, is spoiled by having children who were relatively adventurous; my mother is a hell of a cook and a serious foodie, but my sister nonetheless refused to eat anything except roast chicken and pizza for years. She's still relatively conservative about food, and I suspect it's genetic.
But I agree with him that trying to disguise healthy foods as other things is stupid. Children will rarely let themselves starve, nor even go without vital nutrients, and disguising spinach as brownies sends the message that it's okay to eat nothing but brownies. I suspect that Bittman hits the nail on the head when he says "This does a real disservice to kids and — not that this is my bailiwick — is evidence that today’s parents will do anything to avoid a confrontation." When you work a full day and then start the second shift at home, who wants to spend that time screaming about eating your asparagus? (Sorry, Mom).
February 11, 2008
Nature vs. Nurture
The inevitable . . . er . . . spirited discussion brought on by the veganism posts features a lot of people trying to justify their choices by claiming that they are really the "natural" choices. Leaving aside the fraught question of what "natural" means--is agriculture natural? How about using fire and tools?--both sides make factually incorrect claims. No matter what the vegans say, we are evolved to eat meat--but no matter what the carnivores say, we aren't evolved to eat anything like the quantities that we currently consume, and in any timeframe that you might be imagining as "natural", the normal diet of the overwhelming majority of people involved very, very little muscle protein.
The bigger puzzle is why everyone is treating "natural" as a synonym for "good" or "right". Death in childbirth is natural; so is rape. These are not a good guide for either our behavior or our standards of living.
Monday recipe-blogging: quick and dirty vegan food
I'm a little under the weather today, so rather than go out, I whipped up lunch from the rather lean contents of my cabinet:
1 box Near East Lentil Pilaf Mix
1-2 tablespoons olive oil
1/4 cup shallots
handful of pine nuts
Pepper (fresh ground)
1/2 tsp red pepper flakes
1/4 tsp cumin
1/4 tsp ginger
handful of Craisins
Saute pine nuts and shallots in olive oil for five minutes. Pour in 2 cups of water and the spice packet; bring to a boil. Add rice and lentils, a TON of fresh ground pepper, and the rest of the spices. Reduce heat to low and cover. Cook for 25 minutes. Toss Craisins on top and cook for an additional 10-15 minutes. Mix together with a fork and stir. Total prep time: 10 minutes. Not having to leave the house: priceless.
Say what?
I keep waiting for Portfolio not to be a terrible, terrible magazine, and I keep being disappointed. It's supposed to be aimed at the high-end financier, but it reads more like it was written for women who want to date high-end financiers, and need a little cocktail party chat to keep things going until they can invite him back for some cognac. I bought one in Florida, on the assumption that it really couldn't be as bad as I remembered, but there you are--when you assume, you make an ass out of you and me both. The first half of the magazine is basically New York poorly repackaged via some tenuous connection to business (art criticism is really financial journalism, because heck, people pay money for paintings). The second half is filled with dull and out of date articles about trends that were interesting three years ago. This editorial, though, is probably the worst of the lot:
No one knows what will happen with the case in the Roberts court, but I know what I would do. I have no personal interest in guns, and I'm agnostic as to whether gun bans really do anything to prevent crimes like the one that ended Tim's life. Obviously, the law in D.C. did not save Tim; it seems to have served only to disarm the law-abiding. I believe the District's ban is draconian: It holds that just current and retired police officers can own handguns. You can own a rifle, but it must be disassembled, making it impossible to use for self-defense. It seems crazy that the named litigant in the case, Dick Heller, who carries a handgun for his job as a guard at a courthouse, can't have one in his home because security guards are technically not police officers. It's one thing to regulate gun sales, but a flat-out ban seems like bad policy in terms of its effectiveness and whom it affects.
Still, I hope the court upholds the ban. It's overwhelmingly popular here; no D.C. council member wants it repealed. I'm not a lawyer, let alone a scholar, but I see no reason to interpret the Second Amendment as forbidding a jurisdiction from banning a particular weapon, whether it's an assault rifle or a handgun. As Linda Singer, D.C.'s former attorney general, told me, "Banning one particularly dangerous arm does not mean banning the right to bear arms." She notes that handguns are by far the predominant weapon used in murders and suicides in Washington and elsewhere. In 1976, the District's second year of autonomous home rule, the gun ban was one of the first laws passed, in part because all of the city's rapes in 1974 that involved a firearm were committed with a handgun.
In the wake of Tim's murder, it would be easy to give a knee-jerk liberal or conservative response: We need more gun control; we need less gun control. But the most important thing, to me anyway, is who decides. That ought to be the people of D.C., like Tim's grieving family, through their elected
