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.
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.
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.
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.
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?
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.
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.
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.
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.
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?
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
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.
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.
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.
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.
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.
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.
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.
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.
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 . . .
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.
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.
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.
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).
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.
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.
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!"
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?
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.
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
