Fish gotta swim, birds gotta fly

I take a break from packing to note that Yglesias has a very good point:

It's worth going back to first principles on markets, property rights, and air pollution. To have a functioning market, you need to have property rights. And property rights need to be defined in some way or other. This includes taking some view of the relationship between property rights and particulate emissions into the air. On one conceivable conception of property rights, the Sierra Club could buy up a field somewhere and then assert that its property rights over the field give it the right to exclude any form of air pollution from wafting into its field. On that definition of property rights, which is the one "the Greens" would favor if we really wanted Stone Age economic conditions, industrial production would swiftly become impossible. You couldn't so much as warm yourself with a fire before neighbors were accusing you of tresspassing for depositing microscopic soot particles in their lawns.

So obviously we don't define the property rights that way.

Another way would be to say the air is just a kind of free-for-all. You just dump however much of whatever you want into it and forget about it. This is, needless to say, convenient for people who are producing a lot of pollution. But it's not so convenient if there's acid rain falling on your roof. Or if smog is wrecking your view. Or if you develop asthma as a result of poor air quality. Or, indeed, if your gets drowned in a flood or your fields go dry or your drinking water vanishes because of climate change. A third way is a find a middle ground. You're allowed to emit some sulfur dioxide into the atmosphere so that industrial production can continue, but an unlimited amount so as to prevent the acid rain situation from getting out of control. The "green" proposal for carbon dioxide is essentially similar to this. It's important, economically, that we allow there to be some carbon emissions. But it's also important that we not have unlimited levels of greenhouse gases making the world hotter and hotter and hotter and hotter with all sorts of deleterious consequences for people's lives.

Libertarians frequently underweight the long evolution of institutional arrangements that allow us to function without government intervention.  And non-local pollution simply hasn't been around long enough for those institutions to evolve.  There is no such thing as a free market approach to air quality or water rights.

That doesn't mean we can't have freer market approaches, or that the lessons of markets aren't valuable.  But strict property rights simply don't function in those commons.

Shop online, you might save a life.

Public service announcement

I'm packing up the Stately McMegan McMansion this weekend, as the movers arrive on Monday and expect to find--all the stuff I haven't packed, packed.  So expect posting to be very light.  I'm going to try to get up the electronics gift guide at some point, but the recipes and books, as well as the actual, you know, commentary, will probably have to wait.  But if you're very, very good, there will be pictures of bullmastiffs, and me collapsing in exhaustion.

Anyway, Happy Holidays, everyone,  I have a lot to be thankful for this year; my family is safe and healthy, my dog is adorable and affectionate, my job is amazing, my friends are so great I occasionally suspect that I am actually in an indie film, and in the new year, I'll be taking up residence in a great new house in Bloomingdale.  All of my worries are the best sort:  the kind I can't do anything about, and therefore have no reason to fret on, beyond making emergency provisions.  I know a lot of you are probably suffering from the financial crisis, and others from the general tendency of life to hand you a lot of lemons and no sugar to make lemonade with.  But I hope that all of you have some good thing to be thankful for.

Let us now give thanks . . .

Alex Massie captures the true spirit of Thanksgiving.  He spent his last Thanksgiving in the US with my family, and I can testify that he captures it in person, too.

Meanwhile, I am remembering why it's called Black Friday--not because of some retailers' books, but because of what happens to my digestion.

Annual holiday gift guide: Kitchen Edition.

That's right, my little Chickadees, it's that time of year--the time when I tell you what to do.  No, wait, that's every day.  This is the time when I just suggest things you might like to do--for someone else.  Presumably.

Given everyone's economic worries, I've thought hard about whether to even recommend expensive old standbys like the KitchenAid mixer I harangue you to buy the baker in your life every year.  My decision:  some people may still be shopping in that price range, so I've added them.  But I'm working hardest at the lower levels of the list.  Which is always somewhat true, anyway, because you don't really need me to tell you that people like expensive electronics, while non-cooks probably really need to be persuaded that a $10 microplane grater makes a lovely addition to any kitchen.

So before you go cram into that mall with 250,000 of your closest friends, take a look here and see if I can't find you a few ideas.  I'm going to start with the inexpensive, and move to the expensive, with at least five in each price category.  And this year, in early December I'll be doing a special section on things you can bake that ship well.

Stocking Stuffers (Under $25)

Silvermark Butter Boat:  This is quite nice enough to go on the table, and it uses evaporation cooling to keep your butter at the perfect temperature--soft enough to spread, cool enough to keep from going rancid.  As long as you change the water in the bottom dish every three days, your butter should stay fresh on the counter for at least two weeks.  I'm buying another one this year, so that I can have both salted and unsalted out all the time.

Microplane grater: I know, I say this every year, but . . . there's just no other way to zest.  I used an old-fashioned ring zester at my sister's on Thanksgiving, and it took twice as long for much poorer results.  And there's no way to do any sort of citrus cooking without zesting; that's where the most intense flavor is.

This is not, to be sure, a super-sexy looking gift.  But if your favorite cook doesn't have one, I guarantee that within two weeks, they'll be telling you they don't know how they lived without it.  It's also a nice way to grate your parmesan cheese, chocolate, or other toppings right at the table, for perfect freshness.

Bodum Tea Press:  If you like tea, you should at least be able to use loose tea.  Not only are many nicer teas sold exclusively loose, but also, tea goes stale faster in  bags.  Bodum has a really nice line of tea presses that are on sale today, so if there's a tea drinker on your list, I highly recommend picking one up.

Fresh Vac Storage containers:  I was skeptical of these, but willing to try them because Costco had a good deal.  They do, in fact, keep things fresher longer--I've put guacamole in there and had it go days without browning.  It's not as good as a real vacuum sealer, but it's much cheaper, and most people don't want to fuss with all that equipment every time they put something away.  Besides, now that Ziploc makes sous vide bags, who needs a vacuum sealer?   Again, this is not a sexy gift.  But if you know someone who is setting up housekeeping, I highly recommend it, and you can't do better and cheaper for storing your coffee beans.

Pastry cutter:  if you want to make pie crust or biscuit, and you don't have a food processor, you must have a pastry cutter--unless you like your delicate breadstuffs to have the consistency of lead-laced chalk.  The warmth and oil from your hands toughens them, which is why professional chefs all use food processors or cutters.

Mini chopper:  Unless you have a mini food processor on your counter at all times, these are a life saver; they mince fine in seconds, with just a few pumps of the top handle.  I don't think I've cooked a real meal without using this since I discovered them.

Kyocera ceramic slicer:  Not quite as flexible as a mandoline--it only does straight slices, not crinkle or waffle (though there is a julienne version you can buy, which only juliennes).  On the other hand, I can count on one hand the times I've ever waffled or julienned with my mandoline; mostly what I want is beautiful, even, fast slices for salad or hors d'oeuvres.  And this does it beautifully.  It hangs out at all times on my pot rack, since I frequently grab it several times during meal prep.  There's an adjustable bar at the back that allows you to go from standard 3 millimeter widths for your salad cucumbers or potato chips, to paper thin.  And it's much, much faster than doing it with a knife.

Silicone oven mitts:  They really don't conduct heat--you can grab things out of boiling water as long as you don't pass the tops of the gloves.  I wouldn't be without them.

Krups Fast Touch coffee grinder:  If you're buying massive bags of pre-ground coffee, stop!  Coffee quickly goes stale and loses the oils that give it rich, perfect flavor after roasting.  Grinding it up, offering more surface area to the elements, hastens the process.  Given how cheap blade grinders are now, you have no excuse.  Burr grinders do an even better job, but they're four or more times more expensive than a blade grinder, and a blade grinder will make a huge difference.  Coffee should be consumed no more than two weeks after roasting, and ground just before brewing.

If there's a cook on your list who doesn't drink coffee, you might want to think about picking this up anyway, because there's another thing it's great for:  grinding your own spices.  (Except nutmeg, which is too hard; fortunately, you can buy it in a plastic grinder in the supermarket for $5).  Fresh ground spices, like cloves for pumpkin pie, make a really big difference in the flavor--think of the difference between using a pepper mill, or shaking that canned ground pepper over your food. 

Generous Gifts ($25 to $50)

Rabbit Corkscrew set:  I'm surprised that though these have been on the market for years now, many people haven't seen them.  Short of those electric jobs, which I haven't tried, this is absolutely the easiest way to open wine.  Aside from one friend, who has a bizarre prejudice cutting the foil before operating a corkscrew,  I have never seen anyone fail to open a bottle with this, much less break a cork.  Every time I have a party, at least a few people stare confusedly at it when it is handed to them--and then exclaim in awe as it effortlessly lifts the cork from the bottle.

Chemex coffee maker  These come in sizes from single cup to gigantic, but I like the six cup.  The Chemex is a cheap way to make a perfect cup of coffee--I'd much rather have one of these than a cheap automatic coffeemaker that ruins good beans, and indeed, this is what graces my office.  It's slightly fussy--you pour a little water over the grounds to make them "blossom", and then slowly stream in the rest--but I like a little ritual with my coffee, and this does a superior job to anything I've ever used except very expensive machines.

Silicone rolling pin  Get this for the older, gadget resistant baker in your life; she will tell you she will never use it, and then her baking output will suddenly, and for no apparent reason, increase 30%.  Silicone has a number of nifty features, one of them being that stuff doesn't stick to it.  That means you use less flour when you roll your cookies, pies, etc; and THAT means delicate, flaky baked goods.

Cuisinart immersion blender  I use this all the time for a strange reason; lacking the money or will for a cappuccino maker, I froth skim milk for homemade sort-of-cappuccinos--it takes about three seconds to get a beautiful froth.  For most people, it's main value will be in mixing breakfast drinks, and blending soups and sauces to a perfect puree.  It's also absolutely the fastest way to make whipped cream--indeed, in a tall, thin cup, you can whip whole milk and allegedly, even skim milk, if you're on a diet.  (I've done the whole milk, but I've never had the willpower to whip skim for a dessert).  Mine mounts on the wall, and I use it virtually every day for something.

Oxo Kitchen Scale  If you want to be a great baker, you really need a scale.  The same mass of flour, sugar, etc can vary greatly in volume depending on things like humidity and temperature, which means that a cup of flour on Wednesday may not be the same as a cup of flour on Friday, at least from your recipe's point of view.  I like the Oxo, but nearly any scale is good so long as it can measure down to a few miligrams, and will tare--meaning that you can leave the bowl on and reset the counter, so that it just measures the weight of the next thing you add.

Extravagent gestures ($50 to $150)

Capresso Burr Grinder I have been reluctantly persuaded that burr grinders do, in fact, do a better job on your coffee, regardless of what Consumer Reports says.  If you're moderately into coffee, I still think you'll be very pleased with the Krups--the flavor boost from switching from pre-ground to grinding yourself is much greater than the benefits of switching to a burr grinder from a blade grinder, especially if you're not buying very expensive coffees.  Nonetheless, if someone on your list is pursuing that perfect cup of coffee, this is a great gift.

Kyocera Ceramic Knife Set:  Ceramic knives are not for everyone.  The upside--you basically never have to sharpen them, as they arrive razor sharp, and stay that way.  The downsides are two.  First, most people aren't used to using sharp knives; they're used to cutting with very dull knives.  So you have to remember this when you are learning to use these, or you will cut yourself.  The second is that if you are very clumsy, they are not a good knife for you, because they will shatter if dropped from a high height.  I used mine for years very happily, and then sublet my apartment to my mother, who has a little more . . . dash . . . in her kitchen style.  They were both broken within three months. 

But if you are looking for a cook of average or less clumsiness (and really, it's VERY DANGEROUS to drop even steel knives off the counter--indeed, these are actually safer for you, because they're not heavy enough to penetrate), these make a great gift.

Calphalon One Infused Anodized frying pan:  I've selected the 12 inch, because that's the size I use all the time.  But they come in all sorts of sizes, as well as dutch ovens and griddles and so forth.

The idea of Calphalon One is to infuse the teflon directly into the aluminum rather than bonding it on.  The result is a pan that is not as non-stick as true non-stick, but that cleans much more easily than a standard anodized aluminum pan.  This is the only frying pan I have that looks basically as good as the day I bought it.

Why not just get non-stick?  Two reasons.  First, you can't use metal in non-stick, because once the non-stick finish is damaged, the pan is essentially useless--food will lodge in the crevices, and also, teflon isn't good for you.  The other reason is that sticking is what creates the fond--the dark, almost burned bits at the bottom of the pan.  Without these, you can't get a proper sear on your meat, nor full flavor in your sauces.  I use non-stick pans for exactly two things:  making eggs, and making parmesan cheese bowls for dinner party salads.  Other than those two items, they never cook as well as my Calphalon One.

They're pricey pans, but if wear thus far (I've had mine for about five years) is any sign, they last approximately forever.  You can get anything from saucepans to stock pots, including a very good looking full set, but the biggest value is in the frying pans, saute pans, and sauciers--the places where you get the most sticking.   Also, if you have a cook's outlet near you, you may well be able to find these at a steep discount--I bought my first one for $20 with a slight dent in the rim.

Kitchenaid Ice Cream Making attachment:  If you've followed my advice and bought a Kitchenaid, I highly recommend adding on this device.  It makes luscious ice cream, obviously--but it also makes delicious sorbet and granita, for those watching their calories.  One of the nicest things I've ever eaten was Cranberrry Orange and Thyme sorbet.  It is a bowl freeze model, but the mixer's engine is much more powerful than that on a standard ice cream maker, so you can make thicker blends without freezing the crankshaft.

Cuisinart Griddler:  I recommend this basically every year, and will until they discontinue it, because it is so. damn. useful.  I actually bought it mostly because I was dating a pancake freak, and I wanted to be able to precisely control the temperature of my pancakes (which cook perfectly at 350 degrees).  Now I use it for everything.  It grills tofu to perfection, as well, of course, as meats and so forth, and your classic cheese-based panini.  It does beautiful grilled vegetables.  And the pancakes are, indeed, perfect.  The nice thing is the dual controls, so that you can set the temperature of the griddle to exactly what you need.

Panasonic Genius Microwave:  I've had mine for several years now, and I just love it.  The sensor cook features actually work--we did green beans on the "fresh vegetables" setting yesterday, and they came out perfectly.  It's powerful, easy to use, and easy to clean.  My greatest fear is that the new house I just signed a lease on may already come with a microwave (like an idiot, I can't remember) and I'll have to surrender mine to some deserving friend or family member.

Spare no expense ($150 and up)

Capresso coffee maker  After the timer on my old Cuisinart internal carafe model died, I bought this with last year's Christmas amazon referral commission, and I couldn't be happier.  If you like coffee--and you spend any significant time at home--the thermal carafe is key.  But the initial brew is also great.  First of all, it's the fastest brew I've ever had, and in the McArdle household, that is a Very Important Feature--time-to-coffee from leaving bed cannot exceed fifteen minutes without fatal crankiness ensuing.  Second of all, the flavor is excellent--the water temperature is perfect, and the showerhead design works very, very well.  There are built in charcoal filters, and I confess I broke down and bought them, but you'll do just as well filling your pot from a Brita.  The only slightly fussy thing is that if you overfill the water reservoir, it WILL overflow.  But it's not a mistake you make twice, or in my case, once, because I was forewarned by the Amazon reviews.

KitchenAid mixer What else is there to say about it?  Every year, I tell you you need one.  I'm linking to the six quart only because Amazon is having a super special on it; for $70 less, you can get the white five quart that I have, which has been going strong for well over ten years.

Why get such an expensive mixer?  First, because it lasts forever--my mother's is going on forty years.  Second, because they're extremely powerful, which means you're done faster.  Third, because the mixer is designed so that the beater both circulates and rotates--in different directions.  This means you almost never have to scrape down the sides.  Fourth, because there are so many attachments that work with this--ice cream makers, sausage stuffers, meat grinders, pasta rollers.  The expensive part of any kitchen appliance like this is the motor; a powerful motor to which you can add attachments will save you money (and agony) in the long run. 

KitchenAid Ultra Wide Mouthed Food Processor:  Most kitchen appliances are bought with great hope; most end up on a shelf somewhere among the rotisseries and the breakmakers.  This is one of the few items that I feel as strongly about as the day I bought it, two years ago.  I'm still expanding my repertoire with this machine--I first experimented with grating cheese on the graters for macaroni and cheese and mincing onions in the little work bowl (brilliant), but now I'm slicing potato chips with the slicer blade, using the citrus juicer, and mixing chocolate mousse with the whip.  It is the most astonishingly versatile appliance I've ever owned.

Amazon has a fantastic deal right now on their non-wide mouth model, and if $140 is more in your price range, it's got almost all of the features of the model I linked.  If you can afford an extra $20, and will take it in white, however, I've really been loving the ultra-wide mouthed for things like potatoes, which cuts down on pre-prep a lot.  If money is no object, splash out on the brushed nickel 770 model (that's what I got back when there was no price difference), but really, the color is not the important thing about this machine.

Cuisinart convection oven  Needless to say, I thought long and hard before I plunged a couple hundred dollars into what looks like a big toaster oven.  And this is definitely not for everyone.  The convection model (you have to choose the option from the little menu) costs a small fortune.  But I use this thing every single day.  I bought it mostly because my tiny victorian windows won't take a full-sized air conditioner, so one little one in the kitchen was cooling my whole kitchen/living/dining area.  In the summer, turning on the oven made the whole place oppressive.  The convection oven did just what I'd hoped:  it meant I didn't have to use my full sized range.

But even now it's come to winter, I'm still using it every day; I rarely turn on my oven unless I'm making something big.  The convection oven heats quicker, keeps its heat better, cooks more quickly and evenly, and produces beautiful baked goods (which is what convection is especially good at).  With the bricks in, it makes really superior bread crust--and, I assume, pizza crust, but I've never tried to make my own.  It also makes surprisingly good toast, something at which toaster ovens generally fail.  It's not big enough to handle a full sized cookie sheet or two cake layers, but will do a single cake just fine, and has, repeatedly.  It's a must have for people in small kitchens that get hot, or for those in rental flats whose ovens leave much to be desired.

Shun onion chef's knife  Yes, it's worth it.  The balance is just beautiful, the edge is perfect, and the handle makes chopping a sheer pleasure.  It is not worth buying it just to sit around your kitchen and look expensively decorative--though in my opinion, this is true of all equipment, and people who don't like to cook should not be legally allowed to have expensive kitchens.  (Really, it's for their own good.)  But if you chop a lot, you will get a hell of a lot of use out of it.  And, of course, it *is* extremely decorative; it sits on my counter in its own little holder all the time.

Unhand that economy, villein!

Ta-Nehisi wonders:

I've been thinking about this for awhile. How much of this current crisis is just a manifestation of the American--indeed human--will? We're always talking about politicians deluding us and Wall-Street manipulating us, and predatory lenders conning us, into doing things that aren't in our own interest. But maybe we don't want what's in our interest.  Maybe we like our gas-guzzling, credit-card charging, second house buying when you can't afford it, commercial culture.

The thing I always liked about Bill Withers's "Use Me" was that it was a man's critique of a dysfunctional relationship. Unlike a lot of rappers, Withers doesn't blame the girl, he blames himself, going so far as to say, "It ain't too bad the way you using me, because I sure am using you to do that thing we do." In fact he laughs at the people trying to help him, much as one might picture people laughing at some lefty for telling them "they aren't voting their interest." In that respect, I think Bacevich's critique is a man's critique of another, very similar, dysfunctional relationship. It easy to think we've been conned into this current crisis. But what if this is the world as we want it? I think it's imperative to never forget that humans are animals. What if, in the words of Bob, we're just fulfilling the book? What if it isn't even dysfunctional? What if this is just who we are?

I too, have been thinking some of these thoughts for a while, though it probably goes down easier from Ta-Nehisi, who is not assumed to be a virulent shill for the credit card companies.  Apologies if this post wanders.  I have rather a lot on my mind.

In general, I think that we're approaching this crisis the wrong way when we look for a villain.  One of the things that has really surprised me--so far, anyway--is just how little criminal activity we've uncovered during this crisis.  There's an old accounting saying, "recessions uncover what auditors can't".  Enron, Global Crossing, and MCI were not the only companies that played funny games with their books in the late 1990s.  A number of technology companies played games with their books, but were able to grow enough to unwind their chicanery with little more than a slap on the wrist from the SEC.  Enron, et al. were simply the ones who got caught short when the music stopped.  I don't mean to say that all or most companies were guilty of this, because the overwhelming majority weren't.  But the problem wasn't unique to Enron, and had they been able to carry on with it longer, there's every chance that they might have been able to get out of their bad positions and stay solvent.

By contrast, so far the worst misbehavior I've seen has been the two Bear Stearns executives who told people their fund was okay the month before it went belly up.  This was a bad thing, and the people who did it no doubt richly deserve the jail terms they are going to get, and then some.  But on the scale of dishonesty generally uncovered during recessions, this wouldn't normally rank high enough to trigger more than a "You boys!!!" and a finger-wag.

This probably has something to do with just how tightly regulated financial companies already are; when the SEC wants to know about every transaction you do, it's hard to get too funny with the books.  Still, it's pretty impressive.

But no one wants to hear that.  Everyone wants a villain:  lefties want to hear that it was greedy bankers, or cold-hearted deregulators (or better yet, both!) who are entirely and 100% to blame; conservatives want to hear that it was poor people taking out loans they knew they couldn't pay off, and a pandering government that leaned on companies and the taxpayer to hand those irresponsible wretches free money. 

Nature is not a novelist.  Reality does not come packaged in narrative form, and rarely gifts us with either true heroes, or true villains.

It is safe to say that almost everyone involved in this mess, from the borrowers to the bankers, thought that they were getting away with something--at the very least, that they had found a way to get rich without working.  It is an old saw that no one can be conned unless they are willing to believe in something for nothing, and the best cons generally get the victim to believe that he is putting one over on the con man. 

It is trivial to observe that humans are imperfect; that is why institutions exist.  One of the most interesting things about the emerging fields of experiemental and behavioral economics is how they contradict, and complement each other.  Behavioral economics looks for all the ways that human beings do not act like the textbook rational value maximizers--and then experimental economics goes ahead and shows that when you stick them in a market, they go ahead and rationally value maximize.

These two things seem to contradict each other until you understand that a well designed institution creates things that are greater than the sums of their parts.  Of course, when a badly designed institution fails, it can create a bigger mess than the sum of the individual failures.  I think it was Daniel Davies, perhaps channeling George Orwell, who pointed out that unless you think that someone thrown out of work in a recession somehow deserves to be unemployed now, but did not deserve to be unemployed four months ago, you have to be at least somewhat skeptical of the rugged individualist school of economic advancement.

I'm actually not sure that what we had was bad institutional design; I'm not sure it's possible to design an institution that doesn't fail occasionally.  What we certainly have, however, is institutions that have performed badly in the current environment.

So while yes, part of this story has been simple greed, a willingness to believe that we could and should massively increase consumption no matter what, I tend to take this desire as a given.  The question is how you design an institution that channels those given desires into productive ends.  Markets, for example, channel self-interest into exchanges that result in gains to both sides; government lobbying channels that same self-interest into rent-seeking that makes society as a whole, and at least one major party to the exhange, worse off.

What I do not think is a major part of the story is that any simple change, or any handful of people or groups, somehow brought this on the rest of us.  Societies, and economies, cannot be brought down by a few people or a few bad decisions--elsewise we'd all still be living in hunter-gatherer tribes eating roast locusts for breakfast.  A failure this massive can only occur if massive numbers of people had their hands in it somehow.  If you want to find a villain, there's probably one handy at the nearest reflective surface.

Volcker to the White House

Paul Volcker, the man who finally whipped American inflation, has been tapped by Obama for a special White House advisory role.

Volcker is a very, very smart man.  It is probably heresy, but I wonder if the endowments, like steel gonads, needed to crush inflation with 20% short term rates, are the same endowments that make you good at battling collapsing credit markets.  The man and the moment have to combine correctly--Churchill was very good at battling Hitler, and very bad at peacetime tasks like running the Bank of England, or post-war Britain.

The other worry is, of course, that he is 81, and the workload may shorten the lifespan of a national treasure.  But if the national treasure is willing, who am I to disagree?

Finally, a bailout we can all support

Reason.TV highlights the fight to save our vital national sock puppet supply.

Deep bench?

I have to disagree with Ezra Klein:  Obama's got a much, much better economics team than Bush started out with.  I agree with his endorsement of Glenn Hubbard.  But Paul O'Neill wasn't exactly an a-lister even before he turned out to have fantastic(ally entertaining!) verbal impulse control problems.  And Larry Lindsay did not match up to Larry Summers in stature, though of course what he got fired for was not being incompetent, but telling the truth.  Bush's second term team has actually been pretty stellar, but his first term left a lot to be desired.  Unfortunately, Bush's second term team--and the incoming Obama team--have had a lot higher hurdles to jump.

Another way to think about Paulson

A friend IM's:  "For all those salivating at the thought of a second New Deal, this is what 'bold, persistent experimentation' looks like -- kinda  messy."  Indeed.  My question:  will consumer confidence be bolstered more by confident persistence (possibly in the wrong direction), or by a hypermanic government that seems willing to try anything?  Or will neither work, and we're simply hosed?

Save us, FDR!

In case my prior post was a little too cryptic, apologies: I was referring to the argument that Roosevelt saved capitalism from a violent communist revolution with the New Deal, and that therefore free market types should bow down in gratitude to Dear Leader.  This argument is, as far as I can tell, advanced entirely by people who also believe that its programs are a moral imperative. 

There are two problems.  The first is that a program that must give people money so that they will not kill/imprison/etc the donors may be practical, but it is also immoral.  This means, it seems to me, that you can either claim that the New Deal is a sort of broad spectrum Dangeld, or that it is a moral necessity, but not both.

The second is that this is not necessarily a good argument for New Deal programs.  If the concerns are merely practical, then perhaps the New Deal was the more cost effective way to buy peace; but perhaps not.  This could just as well be an argument for rich people buying bigger and better guns than poor people.  Even rich people are, presumably, entitled to shoot back. 

I think most of the people who make this argument are, in fact, being sophistic; they aren't particularly interested in saving American capitalism, but they think that the people to whom they speak might be persuaded by this remarkably stupid and amoral argument.  I have, obviously, a mixed opinion of the New Deal.  But I find this particular "logic" an unbelievably offensive slur against my country.

Damned if they do, damned if they don't

This morning, the Treasury announced yet another massive new spending program to buy AAA consumer loan securities.  This is probably less expensive than any of the other programs so far rolled out; consumers with long, sterling credit histories are the type of people who ferociously guard those histories.  Even if the downturn pushes some of them to the wall--and I assume it will--the securities in general should pay off.  If it's structured right, this will essentially be the most extensive carry trade play in history.

But of course, many of the reporters at the press conference pressed Hank Paulson to admit that the bailout wasn't working, to explain why he can't seem to get it right.  The reason he can't get it right, of course, is that no one understands what's going on well enough to guarantee the results of their activity.  Paulson looks like he's flailing because every time the facts change, he changes his mind.  And the facts are changing very, very fast.

The lack of consensus as to a program is actually kind of stunning.  Usually in an economic policy debate, the wonks settle on a couple of fairly fleshed out proposals.  Oh, sometimes they agree on one (trade); sometimes the number swells to three or four (taxes).  But there's a pretty solid menu of policy choices from which the politicians can choose before adultering it with their special (interest group) sauce.

But the only consensus at this point is so broad as to be completely useless.  Banks should deleverage.  They should lend more to people with sound credit.  The government should try to spur aggregate demand.  Puppies should bark, and kittens should go "meow".

Since September, I've been to a hell of a lot of panels, discussions, and interviews about the crisis.  Almost all of them feature prominent calls for tougher regulation by certified Very Smart Economists.  When pressed upon the details of this regulation, however, they tend to get rather vague.  "We need a stronger regulator".  Okay, and what exactly should he be empowered to do?  "The regulators need to watch the banks more closely."  Okay, yes, but what will they be watching for?  "The regulators need much more power to keep the banks from taking risk."  Yes, yes, thank you, Dr. Insight, and what specifically is the regulator going to do with this power? 

Further deponent sayeth not.

These are not journalists, mind you; these are PhD economists with a specialty in finance--the class of people whom we expect to regulate these banks.  The further left they get, the more strident they are in calls for regulation.  But they seem unable to come up with any actual, specific things that the regulators should do except . . . keep the banks from levering up to much and taking too much risk.  How much, exactly, is too much?  Why, enough that the banks start to fail, of course!

Similarly, there is broad agreement that the government should keep the good banks afloat and close the bad ones.  How do we discover which are the bad ones and which are the good ones?  What should be done about the various derivative asset classes that are in trouble?  Um, well, we should take care of that problem, quick.

This is, in fact, the entirely appropriate response to a situation that has a the very least severely damaged most of the longstanding theories about this sort of crisis.  Excessive certainty in the face of unknowns is politically attractive, but economically suicidal.

The Bush administration has long been criticized for sticking to its guns too long in Iraq, even when it became clear that what we were doing wasn't working.  Paulson isn't making that mistake--and is instead being castigated for changing tactics to fit changing situations.  Where did we get the idea that our regulators were supposed to be omniscient?

Never mind.  I can't believe I asked that.

What should Bush do now?

One thing that I haven't seen:  work more closely with Obama's transitional economics team than an outgoing president usually does.

Everything I've seen about Bush and the transition indicates that he has been entirely classy.  But right now, classy is not enough.  The more publicly he is seen to coordinate with the Obama team, the more reassuring it will be to markets.  And it's up to the Bush administration to push this--the Obama team can't do so without looking panicky, and spreading that panic to others.

Note

If you need to support your preferred wealth distribution model with a threat that, unless we give them money, the beneficiaries will riot and kill the people you want to tax, you are not making a good case for the moral worthiness of the recipients, or the justice of your scheme.  Just saying.

Department of non-leading indicators

So as I may have mentioned, I am soon to leave the Stately McMegan McMansion for a shared house.  One of the things you really notice on Craigslist right now is the number of ads bellowing "No credit check". 

These are not, as far as I can tell, a response to the notion that everyone has suddenly tanked their credit because of the crisis.  Rather, they seem to be pretty much entirely attempts to entangle people in rent-to-own schemes.

I don't know enough about rent-to-own to say whether it is ever, or never, a good idea.  But it's pretty much never a good idea to apply for something like a lease that advertises no credit check.  The adverse selection problem is enormous; the only people who apply are people with stunningly awful credit, or the very, very ignorant.

The supply of people with stunningly awful credit has probably gone up somewhat, but not enough to account for the explosion of no-credit-check ads, which seem to be about 20% of the total, at least in the price range that my housemate and I are shopping for.  But the supply of unsellable houses has ballooned, even in the relatively insulated DC area.

Robert Rubin

One of the problems that Obama is facing in staffing his economic team is that a normally deep bench, Wall Street, is essentially off the roster.  If Felix Salmon is on to something, the taint may be spreading into past administrations:

Up until now, I had a vague concept that Rubin's biggest mistake at Citi was to have spent too much time as a rainmaker, schmoozing clients, and not enough time sorting out internal problems. According to this story, however, Rubin was front and center in encouraging Citi's investment bank to take on more risk -- a strategy which had been hugely profitable at his former bank, Goldman Sachs. Did Rubin really think that he could turn Salomon Smith Barney into Goldman Sachs just by encouraging more risk-taking? I doubt it. But if Rubin wasn't spending much time on the trading floor, it's possible he was unaware of just how screwy Citi's risk management was

Rubin is one of the few icons of Wall Street who hasn't been stained with the fallout from the financial crisis--Republicans don't want to blame capitalist institutions, and Democrats don't want to imply that St. Robert of Clinton might not have miraculous economic healing powers.   He thus somehow managed to survive a really colossal lapse during the Enron scandal with his reputation nearly intact.  But it's looking less likely that he'll survive the Sack of the Citi.

iSpeedy

An iPhone app to avoid speed traps.  What's the over/under on the first government attempt to shut this down?

Geithner: too good for Treasury

Obama has named his economics team.  Marquee names:  Christina Romer at the CEA, Larry Summers to head the NEC, and Tim Geithner of the New York Fed for Treasury Secretary.

All of these people are sterling choices . . . except for Geithner.  And Geithner is wrong not because he won't be a good Treasury Secretary, but because he's such a very good president of the New York Fed.

Within the Federal Reserve system, New York is special.  New York has been the financial capital of the country as long as we've had a Federal Reserve, and its Fed chief therefore plays an extremely important role in the system.  All Fed presidents are equal--but one is a little more equal than the others.  You can make a convincing case that the power vacuum at the New York Fed that followed the death of Benjamin Strong in 1928 substantially impaired the response to the emerging crisis.

That makes this a pretty delicate time to lose your Fed chief.  I understand the counterarguments--having Geithner in at Treasury means he will hit the ground running.  That's why I'm not too worried.  Still, I wish that list had Summers at Treasury and Geithner right where he's always been.

Update:  Felix Salmon points out that the leaking could have been handled a great deal better.  Indeed.  The Obama team is unnecessarily (I hope) make it look like they're dithering, testing the waters for popularity rather than competence.

All of your toxic assets are belong to us

The US government agrees to bail out Citibank.

The federal government agreed Sunday night to rescue Citigroup
Inc. by helping to absorb potentially hundreds of billions of dollars
in losses on toxic assets on its balance sheet and injecting fresh
capital into the troubled financial giant.

The agreement marks a new phase in government efforts to stabilize U.S.
banks and securities firms. After injecting nearly $300 billion of
capital into financial institutions, federal officials now appear to be
willing to help shoulder bad assets, on a targeted basis, from specific
institutions.

I don't want to be a self-panicker; these things take time.  But I'm becoming increasingly convinced that the original theory of the bailout--that it would step in and provide a firewall to prevent future failures--has been proven wrong.  I still think it was worth trying, prospectively; there seemed to be at the time, a reasonable prospect that it would save money in the long run by forestalling the need for future bailouts.  But in hindsight, it hasn't worked. 

(I'm well aware that I am about to be slammed for supporting the bailout by a large number of people with shaky command of the concept of "uncertainty".  Hopefully, at least a few of them will pause to consider that confusing getting good results with having a good decision making process is exactly the cognitive error that brought us to this disaster in the first place.)

Where does it leave us, if the firewall has failed?  It's worth looking at what sort of seems to have worked during the Great Depression--I say "sort of" because the more histories of the era I reread, the more it becomes clear to me that economists and wonks drew far too firm conclusions from their study of the period, conclusions like "We know what happened, and therefore how to prevent it from happening again."  If you read the histories with an eye to gaping holes, there's a distressing amount of "Why the economy experienced [the 1930 consumption contraction/the second banking panic/insert your favorite adverse event here] is something of a mystery", after which the author darts, without further comment, to the part of the Great Depression he thinks he can explain.

But I digress.

What does actually seem to have worked in the Great Depression is not the second banking holiday, which was arguably something of a disaster on many levels, but what the Roosevelt administration did with the second banking panic:  sent auditors out to every bank in the country to ascertain whether they were solvent or not.

This process is more difficult now, because it seems to me that the instruments that 1930 banks were dealing with were basically understood.  There was supposed to be a steady stream of interest payments; if those payments weren't coming in, then you new the loan was in trouble.  Harder to know what the value is of a derivative where the underlying payment streams may or may not be impaired.

Nonetheless, I think it would make sense to take some of those laid-off bankers and put them to work under more experienced regulators, and try to develop some metrics for communicating the creditworthyness of the banks.  The ad-hoc nature of the response may have initially meant flexibility, but now it just means panic.

What else are we pretty sure worked?  The FDIC, which eased peoples' fears and stopped bank runs from taking down solvent banks.  Monetary stimulus seems to have worked somewhat, although less effectively than is usual. 

All else is more controversial.  Things like work relief programs may have done a good job at alleviating misery--and I find myself annoyed that palliative measures are being sold virtually exclusively as fiscal stimulus.  The stimulative virtues of extended unemployment benefits are not particularly exciting, but they are an excellent way to ensure that families hit hard by a recession do not suffer from want.  This is important--and so affordable, too!

The things we know, pretty much without a doubt, did not work?  Attempts to keep prices high through government fiat.  FDR tried just about everything you could imagine to halt the Great Depression, and several things that you couldn't, unless you were a very special sort of lunatic.  The attempts at price supports were the worst of the worst.  The National Industrial Recovery Act, which it is not too harsh to call quasi-fascist, probably takes first prize:  it involved creating gigantic cartels of industry and labor, which were intended to collude to keep prices high.  When the Supreme Court said (unanimously!) that the government wasn't allowed to do this, FDR tried to pack it with sympatico cronies like any cheap third-world dictator.  Only the intervention of some brave Democratic senators saved us from both a stunning erosion of American democratic institutions, and a barking mad price-fixing scheme that would have further prolonged the crisis.

The nation's farm subsidy scheme comes in a close second; the object was to keep commodity prices high in an era of general deflation.  Hence milk poured upon the ground and wheat fields burned when people in the cities were starving. This survived the Supreme Court to turn everyone in my mother's home town into permanent Republicans; they weren't economically sophisticated enough to understand why one should destroy food when needy people could have eaten it.

Probably not terribly harmful, but crazy expensive and awesomely lunatic, was FDR's scheme to buy gold.  Some bright boy on his staff had noticed that when the price of gold was high, the price of other commodities was usually also high.  Neatly reversing cause and effect, the government embarked upon a series of gold purchases in an attempt to make the economy grow.  They might more effectively have written to Santa and asked him for a good economy for Christmas.  Thankfully, this was so moronic that eventually even FDR's band of merry tinkerers noticed that it wasn't working, and also, that all the other central bankers were standing behind the privy, pointing and laughing.  It was rapidly abandoned, especially by the standards of the New Deal, which tended to pile program upon program until a sort of old-candlewax effect was achieved.

I don't think we're going to get anything quite that crazy.  But we'll undoubtedly get their mildly manic cousins:  minimum wage laws, stiffer unionization rules, and heavier corporate taxes, on the theory that if demand for something is falling, the best way to fix the problem is to make it more expensive.  There remain a few things that Obama's election has not changed, the tendency of demand curves to slope downward among them.  The effects of these efforts will thus be mixed at best.

We may well also get the automobile (or steel, or airline, or whatever) equivalent of the Farm Bill:  congress may cave into the notion that any industry which was once successful and lucrative, ought to be so forever.  Like the Farm Bill, it will not actually prevent the economy from changing, only make it phenomenally more expensive and less efficient.  But if that sort of thing were enough to stop our legislators . . . well, frankly, I'm not able to imagine such a world, so I can't even provide you a punchy example of what it might be like.

What a magical time of the year . . .

On CNN today, I heard Suze Orman answer the following question:  "We have no money and considerable credit card debt. Should we dip into our paltry emergency fund to pay for Christmas for the kids?"

What a sad commentary on our culture.  No, you should not spend money you might need for food on a transformer.  How do we live in a society where this is even a question?

I have no doubt that that parent is miserably thinking about how her kids will feel when all their classmates have new Christmas presents, and they have nothing to show.  What makes me mad is that we've created an environment where the most magical thing that can happen to a child is to be given a few pieces of plastic glued together in China.

I know that my parents expended a lot of precious money and time on my Christmas gifts.  But with a few exceptions (a certain Raggedy Ann and Andy Pen and Pencil Set comes to mind, along with my very own Beach Boys "Endless Summer" casette"), what I remember about Christmases is not what I was given, but the non-material traditions:  the food, the family, the snow angels and crackling fires.  This is true of basically everyone I know.  So why do we continue to think that the gifts are the most important part?

The only good thing that I can possibly think of about this financial crisis is that it may break the rat race of constantly ratcheting consumption, which has surrounded most Americans with nice things that don't really make them happy.  There's absolutely nothing wrong with buying whatever you want, when you have the money to afford it.  But when you start thinking that you need toys and television sets to have a happy life, we're all in trouble.

Update:  Dr. Boli, as always, for the save.

How much is a detroit autoworker really worth?

$70 per hour:  right or wrong?

Felix Salmon argues that this figure for GM's labor costs is deceptive.  Sort of, but it's actually quite apt at showing the core problem with GM.

Felix says that "the average GM assembly-line worker makes about $28 per hour in wages, and I can assure you that GM is not paying $42 an hour in health insurance and pension plan contributions. Rather, the $70 per hour figure (or $73 an hour, or whatever) is a ridiculous number obtained by adding up GM's total labor, health, and pension costs, and then dividing by the total number of hours worked. In other words, it includes all the healthcare and retirement costs of retired workers."

This is not quite right.  The reason that it is reasonable to include retirees in GM's labor costs is that the benefits paid to the retirees are still under negotiation by the union.  In other words, the price for employing the people who are still working is giving a bunch of stuff to people who used to work for you.

If I understand it correctly, and GM uses standard accounting principles, GM's pension payout  costs are only marginal contributors to the problem; the pension fund has to be advance funded, which means that most of the payout is covered by investment proceeds that are not accounted for as part of company profits.  Only where there are shortfalls due to investment losses or exceptionally long-lived retirees does GM kick in extra.

The real cost center is retiree health care, and as noted above, this is negotiated as part of the labor contract for the current workers.  Due, I'm told, to the UAW's slightly strange constitution, retirees have more voting power than current workers.  That's why GM's medical costs rose at such a staggering rate; they were sacred to the real power in the union.

So from the worker's point of view, it is true, they are not getting $70 an hour worth of value (unless they're very close to retirement).  They are making a large personal gift to the retirees in the union.  But from the company's point of view, giving all that health care to other people is indeed part of the cost of their compensation.  Likewise the "job bank" and other featherbedding provisions.

Now, you could argue that since the retiree cost is fixed, it shouldn't be calculated on an hourly basis.  But there are lots of other kinds of fringe benefits that exhibit declining cost to scale--health insurance, for example.  So I'm not sure that argument is quite right.

Goolsbee out at CEA?

I'm flabbergasted.  If true, this is a bloody embarassment:

Chicago economist Austan Goolsbee -- once the chief economic adviser to candidate Barack Obama -- may be less of a shoo-in to chair Obama's White House Council of Economic Advisers than his admirers once imagined.

The Obama transition team is interviewing to find a woman, perhaps a minority woman, to fill the CEA chair -- a Senate-confirmed position. Informed sources suggest the candidates on the CEA list now include Princeton University economics and public affairs professor Cecilia Elena Rouse, whose specialty is labor economics. The hunt for a woman, explained several sources close to the transition deliberations, is aimed at broadening the white-male cast of the White House team assembled to date (the current tally of announced picks is 3 women, 9 men).

Goolsbee, a respected University of Chicago professor, remains in contention for other administration posts, the sources added.

I take nothing away from Professor Rouse.  But she's a labor economist with a heavy, heavy specialty in returns to education.  Goolsbee, by contrast, focuses on taxation and capital formation.  Right now, I'd say the latter is our bigger concern.

More to the point, the worst financial crisis in seventy years is really not the time to see if you can brighten up the CEA offices with a nice, decorative matched set of X chromosomes.  Goolsbee has been advising Obama since the beginning; presumably, this is some sort of testimony to the esteem in which Obama holds his competence.  Throwing him overboard now makes this look like less of a "plus factor" and more like Obama is much less concerned with competence than painting a pretty picture for voters.  Given the stakes, that's more than a little irresponsible.

Needless to say, given that Obama's sterling choice of highest-caliber economic advisors was one of my main reason for supporting him, my regret is mounting faster than ever.

He's our president too

An odd meme has broken out all over:  "Obama is our president, for conservatives as well as Democrats."  This is, in some sense, trivially true:  any conservative who has gone around claiming that Barack Obama is not, in fact, the president-elect, needs to seek psychiatric assistance immediately.  It's really true, dude; it was on CNN and everything.

But beyond the tautological, what does this demand that conservatives recognize that Obama is their president mean?  Are they supposed to root for him to succeed?  One hopes that we are all hoping he will not run the country into the ground.  But since most conservatives believe that Obama's agenda will, in fact, run the country into the ground, it would not be reasonable to demand that they actually hope he passes it.

Are conservatives supposed to suddenly like Obama? Or at least give him the benefit of the doubt? As far as I can tell, precisely none of the liberals urging this on conservatives obeyed their dicta when George Bush was supposed to be the object of their affections.

I am really struggling to figure out what sort of deeper, richer, civic life is supposed to arise out of a unanimous recognition that the man who was elected president of the country has, yes, actually been elected president of the bit we happen to live in.  Can someone who speaks Blather explain it to me?

The financial crisis, summarized

Die Zeitung explains it all to you.  Thanks to Alex Massie, who sent this my way.

Culture matters

Tyler contemplates the resurrection of neanderthals and woolly mammoths:

The new claim is that a woolly mammoth could be regenerated for as little as $10 million.  The basic technique, as I understand it, is reconstructing the genome of the mammoth and modifying the DNA in the egg of a modern elephant and bringing the final-stage egg to term in an elephant mother.  It is noted that the same will be possible with Neanderthals, as it is expected that their genome will be recovered and sequenced shortly.

I'd be happy to see this done in either case--and not just because, as a commenter notes, having killed them off we maybe have an obligation to bring them back.  But what does it mean to "bring them back?"  Sure, I want to know what a neanderthal looks like, but I'm more interested in what a neanderthal acts like, how they think, what they have to say, if indeed they can talk.

But it's not possible to resurrect what a neanderthal was like, because a lot of what made them neanderthals was being raised by other neanderthals.  "Wild children" have a full complement of human DNA, but they're crippled as humans.  Imagine assessing humanity based on the behavior of a child raised by baboons--or, for that matter, by really intelligent aliens.

That's less of a problem, but still a problem, for woolly mammoths, or any creature that cares for its young.  Maybe we should concentrate on trilobytes.

Playing to type

I plugged my blog into Typealizer and it told me that I'm a Meyers-Briggs ISTP.  This is hilariously wrong, about me--I'm an ENTP, and anyone who knows me would be fairly shocked at the idea of me sitting home alone, quietly cultivating my orderly, detail-oriented project execution.  On the other hand, the person who sent me the link got a pretty good read off their blog.

How central are CDSs

Reader Seth writes:

Without going into details (my employer would not be happy), let me say that I work at a firm deeply involved in the CDS wing of the credit crisis.  And while I partly agree that CDS are a sign rather than a source of the current market ills, I think you would also agree that that's perhaps downplaying their role.  They've had an immense exacerbating effect, by prompting a lot of government action (like the AIG acquisition), and, most importantly, by hypercharging confusion, chiefly because CDS are so poorly understood.  As someone with a front-row seat to this crisis, let me say that there are people who trade CDS and do not understand crucial details of contract terms and bond seniority, and I've often seen trading by major banks that takes place in ignorance of recent, public and relevant corporate news.  Which is precisely what you'd expect from shops that use CDS for speculative and not hedging purposes, but still dismaying. 

The big point, though, is that if CDS insiders have occasional gaps in their understanding, then it's frightening to think of bank management and government regulators acting with even less understanding.  Moreover, street-side participants in CDS have realized that they are counterparties to obligations they often don't understand, and this has certainly played a role in both a) their unwillingness to extend credit and b) their inability to get credit from lenders who are uncertain of what their CDS obligations mean.  THAT is why Buffett called them "financial weapons of mass destruction" - not because they START a war, but because they have immense capacity to radically ESCALATE it.  They didn't start the credit crisis - all of us, collectively and naively overextending ourselves, did - but they have absolutely played a subsequent role in accelerating this from a crisis to a major crisis. 

And they did it quickly too: CDS turned this from crisis to major crisis in only 17 hours - from roughly noon on Sep 14 (when it became clear that Lehman would fail and I got a call to report for duty on a Sunday) to Sep 15 when it was widely reported that S&P had downgraded AIG due to its CDS obligations.  At that point everyone started worrying about collateral, and then discovered that they were not able to properly worry about collateral, since they did not fully understand derivative collateral requirements.  All they knew is that they were facing something big and scary, and so - once again collectively and naively - we all stopped lending just to be safe....which is sort of like movie victims who close their eyes when the monster is right in front of them: it's both the most intuitive and the least productive thing to do.

It's absolutely clear to me that we bailed out AIG because of its counterparty CDS risk, and that they're escalating other problems more generally.  But it's less clear to me that they're the main source of contagion in the financial markets.  And at this point, many, many, many things are escalating other problems.

I don't mean to downplay the role of CDSs.  I'm just not sure how they came to be the main villain of the piece, that's all.

Bagged

Laptop bags that you don't have to take the laptop out of at airport security.  I know what I want for Christmas.

Well, among other things, anyway . . .

Have we beaten the CEOs up enough?

Matt Yglesias and I are debating whether the CEOs of major financial institutions are walking away from the financial crisis laughing, or whether they have actually been punished by the failure of their firms and loss of their jobs.  Matt makes the standard liberal case for moral outrage:

Megan McArdle's made to me the case that the movers and shakers on Wall Street have taken a bath on all this and are plenty sad as is. But I don't think that's quite right. For one thing, if you had $20 million stashed away somewhere and lost 95 percent of that, sure you'd be pretty sad. But you'd still have a million bucks in the bank which is a lot more than most people. And what's more, during the fat years you'd been enjoying very high ongoing levels of consumption. Merely losing most of your savings doesn't come close to making the overall experience a negative one -- you'd need to be brought down to less than zero to make up for those years worth of high on the hog consumption slows. Specifically, to distinguish the issue at hand here from a pure quest for revenge, we need to ask ourselves what the current state of play make a titan of finance think about the way he's been running his business. What you want is for people to look back and say "well, I wished I'd managed the firm more responsibly at the margin." But I'm afraid the real retrospective analysis is "well, I wish I'd managed the firm less

responsibly and soaked up more leverage-laden profits back when the going was good -- after all, the whole thing was going to blow up anyway and I was going to come out ahead anyway."
I think this misses the upside of diminishing returns:  after some point, the CEOs of major institutions simply are not primarily worried about their consumption.

Matt is reasoning the way he or I would about a contract:  if the worst thing that can possibly happen to me is that I walk away with $5 or $10 million, then I'm pretty happy, and perhaps liable to behave irresponsibly.  But if I have, say $5 billion, walking away with that kind of money looks very different.  I don't primarily think of my earning as a way to keep a roof over my head and some food on the table; those wants are so well satisfied that they basically don't register.

I think it's important to note that if this weren't true, the social safety net really would be the sort of devastating economic and moral toxin that some nineteenth century theorists claimed.  If all people cared about was avoiding the possibility of outright starvation, then Sweden would be a country of wild risk-takers and epic slackers.  And indeed, on the margin, there are people who don't bother to invest anything in their lives once their most basic material needs are covered.  But most of us care deeply about not failing, even though we are unlikely to actually die of want should that failure take place.  If Matt or I lost our jobs tomorrow through spectacular malfeasance, our lives would immediately become uncomfortable and annoying in myriad ways.  But after radically downsizing our consumption, it's likely that both of us would survive, and neither of us would miss any meals.  Nonetheless, we show up for work, and avoid obvious risks like invective-laden rants about our employers.

(I pause to note that my employers are, in fact, gems of people.  That was just an example)

So I'm not sure how much extra incentive mileage we'd get out of taking all, rather than merely most, of the fortunes of CEOs who piloted their banks into the financial reefs.  Some, clearly, because everything matters on the margin.  But enough to prevent the financial crisis?  I doubt it.  CEOs, like the rest of us, are keenly interested in not getting fired and losing most of their stuff, which is the logical outcome of putting your bank into liquidation.  Note that this does not settle the question of whether we should take the rest of their money--justice might demand confiscation even if prudence doesn't.  It simply tells us on which grounds we ought to decide that question.

Now, I think a lot of liberals often mix up these claims with simple outrage that those CEOs are not, in fact, reduced to total penury.  But the justice and the incentive problems are separate problems.  It may well be totally just to take every last dime from them (and I imagine that shareholder lawsuits will do exactly that).  But that frequently morphs into a muddy complaint that if these CEOs had suffered more, we wouldn't have had the crisis.  The one does not follow from the other.  There are many injustices in the world; almost none of them cause financial crises.

I know that my trolls are already mentally penning long whines that I have entirely missed the point--that their wealth is outrageous, that justice is important!  Indeed it is.  But it seems to me that it is also important to settle the empirical question of how such excessive risk taking could be prevented in the future.  If we allow our outrage to convince us that taking every last dime from the bank presidents will help with that task, and this is not actually true, then we are simply setting ourselves up for more problems in the future.

Pirates!

The Indian navy is taking on Somali pirates.  The classic image of pirates is terribly, terribly romantic.  The reality is less compelling, as William Langewiesche outlined in a terrrific Atlantic piece that is, for some unknown reason, not available on our website.  Pirates are the muggers of the high seas; they prey on the helpless for personal gain, and generally don't particularly care who they're killing to do it.  To be sure, they're undoubtedly, many of them, coming out of difficult situtations.  But so are the crews from third world nations who patiently ride out boring journeys from port to port for paltry sums.

For India this isn't just an economic fight; it's a chance to flex their macho muscle on the world stage--much like the time a little former colonial power took on the Barbary Pirates, a feat still memorialized in the Marine Hymn.     It's nice when God and Mammon fight on the same side.

Buffeted by market forces

And I beheld when he had opened the sixth seal, and, lo, there was a great earthquake; and the sun became black as sackcloth of hair, and the moon became as blood;

And the stars of heaven fell unto the earth, even as a fig tree casteth her untimely figs, when she is shaken of a mighty wind.

And the heaven departed as a scroll when it is rolled together; and every mountain and island were moved out of their places.

And the kings of the earth, and the great men, and the rich men, and the chief captains, and the mighty men, and every bondman, and every free man, hid themselves in the dens and in the rocks of the mountains;

And said to the mountains and rocks, Fall on us, and hide us from the face of him that sitteth on the throne, and from the wrath of the Lamb:

For the great day of his wrath is come; and who shall be able to stand?

~Revelation, Chapter 6

Felix Salmon asks the unthinkable:  will Berkshire Hathaway lose its credit rating?  Yes, that's right:  Berkshire Hathaway, the Warren Buffet money machine, is in danger of being downgraded from AAA.  Surely, the hour of financial apocalypse is at hand:

Berkshire's market capitalization, at $139 billion, is still significantly higher than its book value, which was $118 billion as of June 30 and is surely significantly lower now, given the degree to which Buffett's investments in the likes of Goldman Sachs have eroded. In other words, the stock market is still pricing in growth and profits, even as the bond market is much more pessimistic.

All insurance companies have a certain amount of event risk. But for Berkshire Hathaway the event the company is most worried about isn't a hurricane or an earthquake -- it's a credit downgrade. Roger Ehrenberg asks the question on everybody's mind: "If the market continues to push against Berkshire's credit will a downgrade become a self-fulfilling prophecy?"

A downgrade could be very, very bad for Berkshire, depending on how its collateral agreements are worded. At some point, Berkshire's counterparties are going to be able to ask it to put up a lot of collateral against the derivatives contracts it has written -- not only the CDS contracts, mind, but quite possibly also the long-dated put options it's written on broad stock-market indices. Such collateral calls could be extremely harmful to Berkshire's business model -- and that's before taking into account the loss of business at its new monoline subsidiary.

A lot of wonks, undoubtedly ably abetted by NPR, have focused on the CDS market as the source, rather than the sign, of problems.  But the CDS market has not, as far as I can tell, caused many problems in and of itself.  AIG's problem wasn't some tricky issue with the CDS market; it was a ratings downgrade that forced them to put up more reserves.  Berkshire Hathaway faces the same potential issue.

To be sure, the regulatory arbitrage in the CDS market has allowed firms to essentially write insurance with inadequate reserves, which is a problem that should be corrected.  On the other hand, insurance companies do fail when their portfolios crash, even with "adequate" reserves.  RIght now previously safe-as-houses securities have suddenly become, well, as risky as houses.  And when that happens, the government ends up covering the loss, whether we describe it as bond insurance or a CDS.

But what we haven't seen, until now, as far as I can tell, is the kind of problems we've had in the CDO market, where contagion from massive changes in risk appetite seems able to bring down entirely solvent investors.  What Salmon's post suggests is that this is changing; that worries about Berkshire Hathaway's credit rating are, to coin a phrase, being the change we don't desire.

Viewed from afar, it's lovely . . .

One of the interesting things to me about talking to other wonks about the bailout is that the wonks who support the bailout are, almost without exception, outside the beltway.

All the analysts from left to right basically agree what should happen to GM, if there is a bailout:  it needs to get a lot leaner and a lot meaner:  slash the number of marques and car lines it makes, concentrating on a profitable core.  Smart commentators like Felix Salmon and James Surowiecki view the bailout as a way to give GM enough breathing room to accomplish that transition.

But no one inside the beltway, left to right, thinks that this kind of pseudo-LBO in any way resembles what is actually going to happen.  The entire motivation for the bailout, which is reportedly quite unpopular outside the midwest and the labor movement, is to keep GM from precipitously shedding jobs.  And every marque you shut down, every line you slash, means closed plants and layoffs.

Mind you, I'm talking about the supporters of the bailout.  They view the thing as half Hail Mary pass to shore up a profitable sector of the labor movement, half fantasy bid for a green car that none of them has the faintest idea how to build (memo to Josh Marshall:  try strapping a car seat--or a working class salary--into a Tesla roadster.  Then try charging it in the natural market for such a car, the urban, street-parking environment).  They emphatically do not view it as an orderly means to let GM shed 2/3 of its union workforce, which is one of the sunnier figures I've heard for a profitable firm.

The opponents, meanwhile, are considerably more cynical.  They (we) think that even if Congress allows substantial layoffs, they will do so in a way that will cripple the firms; plant/brand closures will be decided based on where the cars are produced, rather than their profit margins.

By far the most optimistic estimates in the financial community come from the people who have virtually no dealings with Congress.  Anyone who does, recognizes that this is not going to be bridge financing towards a massive restructuring.  I'd wager even the supporters in the DC area would admit that GM is probably going to be back for more within the year.  The company has the capacity to produce 17 million cars, a little more than it sold two years ago.  Projected sales next year are under 12 million.  Their cash burn rate right now is $2 billion a month, which could well get worse.  Unless GM starts slashing jobs, closing plants, and shuttering venerable marques like Buick, $25 billion is about a year's worth of lifeline.

Should WebMD be illegal?

What most of us already knew . . . reading about drug side effects makes you sick.  So does reading about diseases.  But as long as it's there, we won't be able to resist checking whether that brain tumor is acting up again.

The inauguration cometh

As many as four million people may crowd the mall at inauguration.  That sound you hear is 600,000 DC residents dialing Travelocity to make travel plans elsewhere.

Meanwhile, the exciting local question is:  do you or don't you rent out a room, or your whole house?  The answer for me is easy:  my landlord would kill me.  But those in larger buildings or houses can attract hundreds of dollars a night for their room--it looks to be pretty easy to make a couple of month's rent during inauguration week. 

Finally, someone has a kind thought for the journalists

Typepad is apparently offering a bailout package for journalists:  a free Typepad Pro account, and access to their ad network.  This is a brilliant way to buy talent on the cheap for them, and possibly reap rewards for years to come.  And yet, also a good deal for the journalist--one of those win-win voluntary exchanges that free market types are always nattering on about.  So if you're a print journalist in trouble (and who isn't--a local wag recently suggested that the New York Observer ought to change its name to "The Daily Layoff") it might be worth checking out. 

No email?

I occasionally fantasize about going off on vacation somewhere without email, phone, or what have you.  This is inevitably vetoed by my fellow travelers, who point out that, mostly being employed on the web, they can't really just jet off without electronic contact.

But even I quail at the thought of eight years without email, which is apparently what Obama is facing.  This drives home, as nothing else could (at least for me), just how lonely and isolated the president must be most of the time.

The fight for the pooling equilibrium

DC schools chancellor Michelle Rhee is proposing a new compensation plan for DC teachers:

Ms. Rhee has not proposed abolishing tenure outright. Under her proposal, each teacher would choose between two compensation plans, one called green and the other red. Pay for teachers in the green plan would rise spectacularly, nearly doubling by 2010. But they would need to give up tenure for a year, after which they would need a principal's recommendation or face dismissal.

Teachers who choose the red plan would also get big pay increases but would lose seniority rights that allow them to bump more-junior teachers if their school closes or undergoes an overhaul. If they were not hired by another school, their only options would be early retirement, a buyout or eventual dismissal.

The problem for the teacher, of course, is that if you join Plan Red, you pretty much automatically signal that a principal should think twice before hiring you.  And even under the red plan, principals no longer have to hire you.

I think Rhee is right about tenure:  it's great for adults, but it's hard to argue that making it impossible to fire a teacher is good for children.  The cases of beleaguered teachers being attacked for their ideas are mediagenic, but most teachers are fired for more prosaic reasons . . . and indeed, the theatrical cases of teachers egregiously abusing their tenure at the expense of their children seem to be much greater in number.

On the other hand, I also think that teacher tenure is a class Public Choice problem of diffuse costs and concentrated benefits, and I'll be surprised if Rhee actually succeeds:

Ms. Rhee and Mr. Klein are hardly the first public officials to inveigh against tenure, but few have succeeded in weakening it. Gov. Roy Barnes, a Democrat, persuaded Georgia lawmakers to repeal the state's teacher tenure law in 2000. But two years later, angry teachers helped elect Georgia's first Republican governor since Reconstruction, who promptly restored job protections for teachers.

If Rhee's plan goes down, it will indicate that a majority of DC's teacher's think that they're incompetent.  Which does comport with the data coming out of DC schools . . .

More on Rhee from our very own pages.

What's sauce for the goose . . .

Dan Riehl asks why, if card check is good enough for union elections, it isn't good enough for deciding Joe Lieberman's fate.  I'd say we have a lot more vested interest in seeing how our representatives vote . . . 

Amateur hour

So the post below made me think about "sin industries", the classic countercyclicals.  Until now, that is.  Vegas is crashing hard, and not just because of its real estate bubble.  Can porn and malt liquor be far behind?  Is this the moment that amateur porn has been waiting for--just as people have more dinner parties and less dining out during downturns, will people start making their own, er, fun at home?  I know I'm a heck of a lot more likely to take $20 to a friendly poker game than $100 to Atlantic City.

Quote of the day

"If it's good for The Atlantic, it's even better for Playboy.  Or at least, that's what we think."  Over to you, Ross.

Monday morning eye-opener: of finance, poetry, and the unseen

Conor wrestles with Bastiat Beasts.

Conservatives and libertarians sometimes face a disadvantage in policy
arguments. We're attuned to the indirect effects and unintended
consequences of certain policies, whereas our liberal interlocutors
concern themselves primarily with direct effects. Why is this a
disadvantage? Because the liberal can say, "Look at David from Detroit,
who is going to lose his job, and his home, if GM goes bankrupt."
Whereas the best conservatives and libertarians can do is to say,
"Somewhere in America there is an unknown person who will lose their
job, and their home, if the automakers are bailed out, due to the
inevitable effect of egregious economic inefficiencies that will course
through the financial system."....

The person who is hurt in the
liberal narrative and the one hurt in the conservative narrative are
both real human beings. But the fact that the former is identifiable is
often used by liberals as an emotional bludgeon.

Freddie responds.

I'm still struggling with whether I think the tyranny of the specific hard case makes conservatives systematically worse off in argument; I think it does, but I'm not ready to commit on that yet.  Surely on taxes, for example, it works the other way around.

While I'm maundering, I offer you the poem all this wrangling made me think of:  The God Who Loves You, by Carl Dennis.

It must be troubling for the god who loves you

To ponder how much happier you'd be today

Had you been able to glimpse your many futures.

It must be painful for him to watch you on Friday evenings

Driving home from the office, content with your week--

Three fine houses sold to deserving families--

Knowing as he does exactly what would have happened

Had you gone to your second choice for college,

Knowing the roommate you'd have been allotted

Whose ardent opinions on painting and music

Would have kindled in you a lifelong passion.

A life thirty points above the life you're living

On any scale of satisfaction. And every point

A thorn in the side of the god who loves you.

You don't want that, a large-souled man like you

Who tries to withhold from your wife the day's disappointments

So she can save her empathy for the children.

And would you want this god to compare your wife

With the woman you were destined to meet on the other campus?

It hurts you to think of him ranking the conversation

You'd have enjoyed over there higher in insight

Than the conversation you're used to.

And think how this loving god would feel

Knowing that the man next in line for your wife

Would have pleased her more than you ever will

Even on your best days, when you really try.

Can you sleep at night believing a god like that

Is pacing his cloudy bedroom, harassed by alternatives

You're spared by ignorance? The difference between what is

And what could have been will remain alive for him

Even after you cease existing, after you catch a chill

Running out in the snow for the morning paper,

Losing eleven years that the god who loves you

Will feel compelled to imagine scene by scene

Unless you come to the rescue by imagining him

No wiser than you are, no god at all, only a friend

No closer than the actual friend you made at college,

The one you haven't written in months. Sit down tonight

And write him about the life you can talk about

With a claim to authority, the life you've witnessed,

Which for all you know is the life you've chosen.

Got several hours to waste?

I give you:  puppycam.

Getting creative

New strategies for dealing with our debt problem.

Fascist swine

I must once again ask people to please, please refrain from sending me emails describing some activity of a private entity, or even our current government, as "Fascist".  Fascism is an actual thing, not merely a synonym for authority you dislike, or even authority you believe is being abused.  Boycotts are not fascist, no matter how bad the cause.  Neither is firing an employee for having odious beliefs.  Roving wiretaps are not fascist.  Overzealous enforcement of petty laws are not fascist.  Barack.  Obama.  Is. Not. Fascist.

That doesn't mean that the things of which you disapprove are right.  But calling something fascist, when it does not really pertain to the totalitarian ideology which gripped various states during the early-to-mid-20th-century, does not add to the conversation.  It's an attempt to short-circuit logic by employing a word with a very, very high negative indice.  I'm more than willing to listen to your argument about how awful . . . well, whatever you're complaining about is.  But shouting and name calling are not arguments. 

Placebo, yes or no?

Sally Satel says a whole lot of physicians prescribe placebos.  Not actual sugar pills or saline, but things like vitamins, Tylenol, or antibiotics that don't actually treat the conditions.  In the case of antibiotics, which build up resistance, this strikes me as clearly immoral.  But what about the other kinds?

I was actually prescribed a placebo once, after I showed up at the emergency room with a cluster of bizarre symptoms like tingling hands and roaring blood pressure.  The ER people clearly thought I was having a panic attack.  (I wasn't.  Before, after, and during the attack, I was perfectly calm, except for a moment when I realized that my symptoms sounded a lot like those described in the brochure on heart attacks in women that the ER had helpfully provided for me to peruse while waiting.)  They told me my potassium was low and gave me some pills.

Unfortunately, I was somewhat familiar with the symptoms of potassium deficiency; mine weren't, mostly, among them.  Also, the intern was an incredibly bad liar.  I left the ER feeling indignant and not at all improved.  Much, much later I found out that tingling hands and high blood pressure are symptoms of thyroid disease, which I do have.

But if I hadn't known, the placebo might have improved me--the mind is a marvelous thing.  Here's the thing though:  it really wouldn't have been a good idea for me to walk around thinking that an actual medical problem was a potassium deficiency, because then I wouldn't have gone to other doctors to get it treated.  Instead, I would have walked around popping potassium pills every time I felt funny. 

Doctors give placebos to people they're having a hard time diagnosing.  But doctors aren't God.  The reason you can't diagnose someone may be that their problem is transient, or imaginary.  But it might also be that you've missed something.

Keep bailing . . .

Felix Salmon complains, justly I think, that the bailed out financial firms are using the funds to keep their operations going rather than restructure them:

The NYT also, however, has a pointed column from Floyd Norris, who notes the double standard being applied here: while the government is disinclined to give Detroit any help at all, it's much more well-disposed towards companies like AIG and Fannie Mae which are coming back for second helpings of bailout money, after having made clearly insufficient changes the first time around.

It strikes me that this is another problem with a potential auto bailout:  we don't have any good blueprint for what we want them to do.

The financial industry is one of the most heavily regulated industries in the country, indeed, the world, and while we don't know how to collectively get out of this crisis, we do know generally what we want the banks to look like at the end of it:  less leverage, better risk management, and probably a better compensation system that calibrates earnings to multi-year and systemic performance.  I don't want the government to run the banking system for any number of reasons.  But I do think that the government has a roughish idea of what a good bank should do.

What, by contrast, should we demand from GM in return for our largesse?  I don't think we have any legislators or regulators with the experience and flair to design new cars or oversee the marketing program, manage the dealer network or decide which lines to cut or gut rehab.  We'll have to depend on management to do this.  And the management that will be in charge is going to be, in essence, the same management that screwed things up. 

Oh, we can replace the people at the top, if we want (it would probably be a good idea, but I don't know how it would play politically).  But American business writing considerably overstates the value of a CEO.  Not that being a CEO is easy, or that they don't do valuable work; I venture to say that 100% of the commentators who think that running a major company is a matter of riding around on the corporate jet and stealing from the workers and shareholders would be surprised at how quickly the company sank under them if they were thrust into that cushy sinecure.  But while a bad CEO can ruin a good company, it is not necessarily the case that a good CEO can save a bad one. 

Big organizations are like ocean liners; they turn slowly, if at all.  Corporate culture is simply an amazingly powerful thing, almost always beyond the ability of one man (or woman) to change.  I have spoken to people at organizations that replaced two thirds of their staff in a buyout, and nonetheless found the old culture running the place rather than the new, dynamic environment they'd hoped to create.  A very small cadre of old workers can perpetuate the old culture surprisingly well, because they're united, while the new people coming in have no common culture to bring against the old guard.

Too, CEOs at failing companies are often operating under more legacy constraints than they are given credit for.  One often hears people rail against the UAW when talking about the auto industry; more rarely do you hear about the supplier network, the dealer network, and the politicians at local, state, and federal levels, all of whom exert considerable leverage over Big Three CEOs.

Congress, or some regulator, has no ability to fix the corporate culture that failed in the first place.  No matter how many executives you fire, the middle management, the engineers and marketers and purchasing agents and sales force, will stay the same.  We don't have anywhere else to recruit a whole new workforce from, even for a stripped down company.  Even if we were going to go outside the industry and get new people, how on earthy would you persuade them to move to Detroit?  Maybe you could do it by throwing money at them--but can you imagine the reaction from Congress if the new Big Three leadership proposed raising management salaries by 30%?

Indeed, a bailout will mute the one thing that sometimes does turn around dysfunctional management:  the shock value of failure.  Failure is nature's way of saying "don't do that anymore!"  We're whiting that out and replacing it with "Keep going!"

The only thing that the Federal government could even theoretically oversee fairly competently is downsizing:  choose which plants to shutter, which workers to lay off.  But avoiding mass layoffs and plant closings is precisely the reason that Congress wants to give Detroit a bailout.  And even if Congress had the political will to cut deep, in practice it would fall apart.  The decisions about plant closures and layoffs would become a political football akin to base closings in the nineties, with Congress working hard to ensure that any such decisions were made on the basis of whose senators and representatives had more power, rather than which plants are least efficient.  The Big Three have a fantastic burn rate; at current rates, a $10 billion infusion into GM would be gone in a few months unless the economy magically turns around.  Raise your hand if you think auto demand is going to improve to 17 million cars a year in the next two or three years. 

Yes, Mr Wagoner, you can sit down now.  The rest of us are skeptical.

My prediction:  we will get an auto bailout, probably as soon as Obama is sworn in, though possibly sooner.  It will not involve the kind of massive job cuts and plant closings that most analysts who do not work for GM (or the UAW) believe are necessary to make the company viable again.  Possibly the company will go into bankruptcy, burning the creditors, but any planned bankruptcy will involve shielding union contracts from a serious cramdown.  Top management will be fired, and the rest will have their salaries cut or frozen, causing the most talented workers to flee for other industries.  The company will burn through the money, and be back asking for more from Congress before Obama's first year is out.

The best case scenario for GM, and the worst case for the rest of us, is that the bailout involves the government assuming many of its legacy obligations at enormous ongoing expense.  This will help, but not erase the fact that Detroit has capacity to build at least 50% more cars than anyone is currently willing to buy.

The good <strike>old</strike> new days

One story that has caught my eye:  Sears has brought back layaway after ending it twenty years ago.  They're doing it in response to strong customer demand for K-Mart's program, which has been advertising its own layaway program heavily.  (Sears owns K-Mart, as several commenters have emailed to point out; I've edited the post to make this clearer) 

This may speak as much about credit constraints as anything else that has happened in the last few months.  The moral panic about the increase in credit card use has mostly overlooked the fact that to a large extent, credit cards replaced earlier, less convenient and flexible forms of credit:  personal finance loans, pawnshops, buying "on time", local loan sharks, and yes, layaway.  As credit gets tighter, we're seeing consumers fall back to those older institutions; the local news here in New York was running a story on pawnshops crammed with furs and other luxury goods that they don't usually handle.  One business, at least, is doing well out of all of this.

Blogging will be light

I'm at the CFR's annual term member meeting today, so blogging will be light while I learn where they park the black helicopters.

Right to work

Freddie wants me to talk about the human costs of not having the auto bailout.  That's easy:  they're terrible.  Lots of people will lose their jobs.  Those that don't will have their expectations for an upper-middle class life crushed.

Am I glad to see this?  No.  Am I rooting for the demise of the UAW?  No.  I don't buy American cars.  I don't work for an American car company.  I could care less about the UAW.

I do think that the UAW is perhaps the grossest example of something toxic about what a lot of American unions have turned into.  I don't care, particularly, whether unions use their power to wrest higher wages and benefits from companies.  Even if they kill the company with excessive demands--hell, they're the majority of the workforce, they can destroy their jobs if they want.   I feel bad for the non-union workers.  But I don't want to, say, legally prevent unions from forming or negotiating.  (I don't want to legally encourage it, either.  I think the government should be neutral, unless companies use physical force.)

What bothers me is twofold.  First, after the unions have put companies into an untenable position, they come to the rest of us looking for a handout to continue the unsustainable levels of pay and benefits.  Almost everyone I know makes less than an autoworker, and has a whole lot less job security.  Why should they pay autoworkers for the privilege of making cars no one wants?

I also really loathe and despise the way the unions use work rules and featherbedding to make their companies and industries less productive than they otherwise would be.  Salary and benefit negotiations seem to me to be neutral; there's a zone of possible agreement, and I don't care if the unions claim all or most of the value in that zone.  But the way economic growth happens--the way we become a richer, more productive society--is to produce more stuff with the same amount of people.  The union goal is to keep the number of people at least even, and if possible increase it, regardless of the level of production.  Hence the fight between the west coast port operators and their unions, who wanted to keep exactly as many jobs loading ships as they'd ever had, even when there were vastly more productive ways to do things.  I don't think any thinking liberal should support this.

Nor am I a fan of seniority rules and job protection.  Most of us function perfectly well without these, and I don't think that advancement solely by time-in-grade, or protecting everyone who does not actually set the plant on fire from being sacked, is either reasonable, or economically desireable.  I understand that people want these things, but I would also like to be able to force other people to buy me dinner at will; this does not mean that I should be given that right.  I too, would enjoy being protected from ever losing my job no matter what, and having all my raises based on my ability to keep my butt in a chair.  But I don't think this would be good for my employers, my readers, or for that matter, me.

But that doesn't mean I don't understand how awful and terrifying it is to have expected a certain life, and have it stolen away from you by a fate you do not very well control.  In June 2001 when I graduated from business school, I had a management consulting gig that was scheduled to pay over $100,000 a year and had just moved back to New York.  Two months later, two planes crashed into the World Trade Center, killing a number of people I knew and leaving the rest of us traumatized.  Four days after that, I was working at the World Trade Center disaster recovery site, trying to come to grips with what had happened.  Four months after that, the consulting firm, having pushed back my start date twice, called my associate class and told all of us that our services would not be required. 

For the next eighteen months, I struggled to find a job, in the teeth of a recession that kicked MBAs especially hard.  It was awful in a way that is difficult to describe to anyone who hasn't been unemployed long term; the thing makes you question everything about your life.  I remember going to see Avenue Q on a date, and writhing in humiliation, thinking that my date must be identifying me with the aimless failures on stage. I was 29 years old, and living at home.  I had money--I always managed to work.  But as far as I could tell, I had no future.

When I finally did get a job, with The Economist, it paid about a third of what I'd been expecting as a consultant. I  had about a thousand dollars in loan payments, and of course, I had to live in New York, where my job was.  For the first time in my life, I understood what Victorian novelists meant when they described someone as "shabby".  Over the years since I'd had a steady income, my clothes had stretched out of shape, ripped, become stained, gone out of style.  I couldn't afford new ones.  And I wasn't one of those whizzy heroines who can make over her own clothes.  Instead, I frumped around in clothes that never looked quite right, and felt the way my clothes looked.

It took me a long, long time to crawl out of that hole.  I'll never make what I expected to make as a consultant.  I'll never have the job security that I had learned to expect in the pre-9/11 world.  The universe will always seem a potentially malevolent place to me, ready to unleash some unknown disaster at any moment.

I was in a better position than auto workers in many ways; I didn't own a home in a dying area, or have children who needed to be educated.  I'm not trying to claim that I managed to overcome with hard work and pluck, so why can't they?  What to do with a fifty year old who pegged his future to a failing industry is a real question.

Nor do I think it's funny to see autoworkers who lived quite a bit better than most of America get their comeuppance.  It really doesn't matter what you make; losing everything, most especially your dreams and your sense of security, is one of the worst things that can happen to a person.  Laid-off consultants don't starve, of course, but neither will laid-off auto workers.  They'll just be forced several rungs down the economic ladder.  It will be humiliating, difficult, and it will sour a number of them permanently on life, and their country.  If I could stop that from happening to people, without making some other aspect of life much worse, I would.

But whatever your feeling about government intervention in the economy, or the correct level of income inequality, I think there's one thing we can all agree on:  for the world to get better, things that don't work have to fail.  We cannot keep alive every company, every car and every job that someone once liked, because that way lies stagnation and death.  Places where production decisions are made based on how much labor they can consume, rather than how much value they can produce, make everyone in society worse off in the long run.

So while I fully understand the human cost (I think), it has to be borne, for the same reason we couldn't save all the folks who loved their gentle home-weaving traditions, or their jobs making buggy whips.  This is, of course, easy to say, when I am not bearing it.  But I'm not against helping the auto workers transition to doing something else; I think unemployment assistance is a good idea, and should be extended during this crisis to at least 52 weeks.  I would be fine with a job training program, if we could find one that works (so far, government training programs seem to run from useless to actively harmful).  I'd be happy to take some of the money we aren't using bailing out auto companies, and offer relocation assistance to people who are trapped in factory towns.

I understand that this is not what the auto workers want; they want their jobs.  But while I am happy to help the auto workers, I am not happy to help them manufacture undesireable cars at massive social cost.  I too, would have liked to keep my job as a management consultant.  But I didn't have a right to have the job I wanted merely because I liked it.  And it wouldn't have been good for America if I had.

The trouble with bailouts

As we ponder bailing out auto manufacturers, I can't help but think of this classic from Tom Lehrer:

Lots of industries are going to be in trouble over the next few years.  Airlines, for example; everyone cuts back on travel when times are hard.  Housing, of course.  Appliance manufacturers.  Hotels.  Construction.  Computers.  Indeed, every company that depends on someone buying something from them--which is to say, every company--is going to be hurting as consumption contracts.

Are we going to bail out all of them?  Where will the money come from to do this?  And if not, how do we justify just bailing out GM.  There is a rationale for bailing out the financial industry, and no one else:  financial collapses have brought on collapses in the real economy (ok, arguably, RBC people), while it's hard to think of a large, diversified economy that has been driven into depression by a single industrial failure, no matter how big the company.

Then there's our nation's most vital business of all:

More importantly, what about the journalism industry? What about us - my friends and co-workers, and friends of friends and co-workers of co-workers, who've spent the last five years watching our business slowly circle the drain? Doesn't America need the New York Times as much at it needs the Chevy Cobalt? Isn't the Star-Ledger as important as the GMC Savana? Sure, GM employs roughly five times as many people as all all of America's newsrooms combined - but that just means that we'd be much, much cheaper to bail out! GM needs $25 billion, but we'd settle for, I dunno, five billion? Pocket change, in other words! And we'd be so, so grateful. If you think your coverage couldn't get more lovey-dovey than it already is, Mr. President-Elect, the magazine and newspaper editors of America stand ready to prove you wrong - and all for a fraction of what it took to bail out those ingrates on Wall Street.

Now, you know that normally, I'd take the libertarian side and argue against this.  But the news business is special.  Without us, you wouldn't know anything.  Besides, it provides millions of low-paying, insecure jobs to overeducated yuppies who are going to move back home, into your basement, if you don't do something, quick. 

And the news business is the other industry that can, all by itself, send the real economy into a tailspin.  You think you're worried about a depression now?  We could make you really depressed.  I'm not threatening, or anything; I'm just saying, it's a nice country you've got here.  It would be a real shame if someone convinced consumers to stop buying Blu-Ray players and shift their savings into canned guns and ammunition.

Which reminde me of another Tom Lehrer classic:
 

Markets in everything

The take home pay of a high priced call girl.  Apparently, you can't write off eightballs of blow as a business expense.

The forgotten war

We interrupt this financial crisis to point out that things really are going much, much better in Iraq.  I used to check the Iraq Index like one of those rats in a lab experiment that gets cocaine every time they press a button.  But recently, I've been a little distracted.  So it's worth pointing out that so far, the gains from the Surge seem pretty durable.  

The war on spammers: The Washington Post wins the Battle of the Bulge

Wow:

The volume of junk e-mail sent worldwide dropped drastically today after a Web hosting firm identified by the computer security community as a major host of organizations allegedy engaged in spam activity was taken offline, according to security firms that monitor spam distribution online.

While its gleaming, state-of-the-art, 30-story office tower in downtown San Jose, Calif., hardly looks like the staging ground for what could be called a full-scale cyber crime offensive, security experts have found that a relatively small firm at that location is home to servers that serve as a gateway for a significant portion of the world's junk e-mail.

The servers are operated by McColo Corp., which these experts say has emerged as a major U.S. hosting service for international firms and syndicates that are involved in everything from the remote management of millions of compromised computers to the sale of counterfeit pharmaceuticals and designer goods, fake security products and child pornography via email.

But the company's web site was not accessible today, when two Internet providers cut off MoColo's connectivity to the Internet, security experts said. Immediately after McColo was unplugged, security companies charted a precipitous drop in spam volumes worldwide. E-mail security firm IronPort said spam levels fell by roughly 66 percent as of Tuesday evening.

Spamcop.net, another spam watch dog, found a similar decline, from about 40 spam e-mails per second to around 10 per second. (See their graphic representation here.)

Officials from McColo did not respond to multiple e-mails, phone calls and instant messages left at the contact points listed on the company's Web site. It's not clear what, if anything, U.S. law enforcement is doing about McColo's alleged involvement in the delivery of spam. An FBI spokesman declined to offer a comment for this story. The U.S. Secret Service could not be immediately reached for comment.

Also unclear is the extent to which McColo could be held legally responsible for the activities of the clients for whom it provides hosting services. There is no evidence that McColo has been charged with any crime, and these activities may not violate the law.

Mark Rasch, a former cyber crime prosecutor for the Justice Department and managing director of FTI Consulting in Washington, D.C.,. said Web hosting providers are generally not liable for illegal activity carried out on their networks, except in cases involving copyright violations and child pornography.

In the case of child pornography, providers may be held criminally liable if they know about but do nothing to eliminate such content from their servers. For example, in 2001, BuffNET, a large regional service provider in Buffalo, N .Y., pleaded guilty to knowingly providing access to child pornography because the company failed to remove offending Web pages after being alerted to the material.

Rasch said liability in such cases generally hinges on whether the hosting provider is aware of or reasonably should have been aware of the infringing content.

"It's a little bit like a landlord who owns a building and sees people coming in and out of the apartment complex constantly at all hours and not suspecting their may be drug activity going on ," Rasch said. " There are certain things that raise red flags, such as the nature, volume, source and destination of the Internet traffic, that can and should raise red flags. And to have so many third parties looking at the volume and content from this Internet provider saying 'This is outrageous,' clearly the people doing the hosting should know that as well."

Global Crossing, a Bermuda-based company with U.S. operations in New Jersey, which was one of the two companies providing Internet connectivity to McColo, declined to discuss the matter, except to say that Global Crossing communicates and cooperates fully with law enforcement, their peers, and security researchers to address malicious activity.

Benny Ng, director of marketing for Hurricane Electric, a Fremont, Calif., company that was the other major Internet provider for McColo, took a much stronger public stance, upon receiving information about this investigation from washingtonpost.com

We shut them down," Ng said. "We looked into it a bit, saw the size and scope of the problem [washingtonpost.com was] reporting and said 'Holy cow!' Within the hour we had terminated all of our connections to them."

Tom notes:

Snark aside, this really is a pretty impressive accomplishment for a journalist. Brian Krebs' reporting led directly to a major spam colocation facility getting knocked offline by its upstream bandwidth providers. The result is reportedly a staggering 75% overnight drop in net-wide spam. That won't last, of course, but it's still awfully impressive. (Incidentally, this isn't the first time that the Post has caused trouble for botnet operators.)

Not to diminish Krebs' accomplishment, but the ease with which this was done -- a civilian making some phone calls, basically -- also hints at the lameness of our law enforcement agencies' online efforts. This was a U.S. company that was plainly harboring illegal activity. Krebs spoke to some security researchers who let him know about it, then he called the folks providing the malefactors' network connections. Those providers said "wow! you're right!" and pulled the plug. It took time, initiative, and cleverness (the threat of Krebs' bully pulpit helped, no doubt), but it didn't take any warrants or indictments.

Meanwhile, the people nominally charged with prosecuting these sorts of crimes are -- what? Posing as sexy teens in chatrooms?

This actually doesn't bother me particularly.  Killing spammers at the host level is the sort of thing that the private market is actually pretty good at; no upstream provider can afford to be known as the Official Webhost of the Spamming Community.  US law enforcement has a lot more procedural hurdles than the Washington Post, which may make them less efficient at fighting the sort of crime that sunlight pretty instantly disinfects.

And law enforcment is limited by the same problem that I imagine is about to face the security community:  they have no power in countries that don't care about stopping spam.  I'm sort of surprised that the webhosting was not only so concentrated, but located in the US.

Why can't American firms make small cars?

Answer:  They can.  Meet the bestselling cars in Europe:

1st: Peugeot 207 (437,505, +105.5%)
2nd: Volkswagen Golf (435,055, +4.5%)
3rd: Ford Focus (406,557, -7.5%)


4th: Opel/Vauxhall Corsa (402,173, +41.7%)


5th: Opel/Vauxhall Astra (402,044, -7.9%)


6th: Renault Clio (382,041, -11.5%)
7th: Fiat Punto (377,989, -5.9%)
8th: Ford Fiesta (300,566, +0.6%)
9th: Volkswagen Passat (300,566, -9.4%)
10th: BMW 3 Series (295,312, +2%)

In other words, four of the top ten cars in Europe last year were small cars made by an American company (Opel is GM's European marque).  People who criticize Detroit for insisting on making only gas guzzlers have to ask themselves:  why weren't these cars made here?

Manhattan no more

I am--to no effect, but still--demanding a moratorium on the use of the phrase "We need a manhattan project for [energy independence/renewable energy/global warming]."  I submit the following observations:

1. The Manhattan Project had a relatively simple goal, blowing things up.  We knew this goal was possible, because the sun was already doing it.  
   
2. At that, it consumed approximately 100% of the top physical science and engineering talent in the United States.
3. The primary problem of renewable energy is finding a transmission/storage mechanism that is efficient enough to time-shift, or location-shift, somewhat unreliable energy sources that tend to be most powerful in places that no one wants to live because they are very windy mountaintops, or 100 degrees deserts.  While the light battery we all ardently desire may exist somewhere out there in the platonic engineering ether where new devices waiting to be born, it also may not.
   
4. Even if we found some magic device that would let us live without foreign oil, we would still be affected by changes in price of same because our trading partners use it.
5. Energy independence and environmental soundness may be inversely correlated; the fastest and surest way to achieve it would be to convert our economy back to running on coal.
6. The Manhattan Project was dedicated to producing a product of which the government was the only natural consumer, few other large capital aggregators being in the market for a device that would allow them to incinerate tens of thousands of potential consumers in one convenient dose.
7. The spending of huge amounts of money on researching something does not actually guarantee that you will get the desired product out of your research.  You wouldn't think it, to listen to various activists, but often all you get out of research is proof that something you hoped was possible, isn't.
8. If we could, merely by being willing to spend unlimited sums, guarantee the production of the desired useful product, then we should stop messing around with renewable energy, and start researching a perpetual motion machine, which would cut our energy consumption by 100%.
   

If we only had socialized medicine . . .

I'm getting a lot of comments claiming that the real problem is the lack of universal health care in the US.  How can GM and Ford possibly compete with German and Japanese companies whose employee healthcare is paid for by the government?

Well, you're right, they can't.  That's because there are no German or Japanese auto companies whose employee healthcare is paid for by the government.  Both countries have a government-regulated system of employer-provided healthcare.

Moreover, this ignores the fact that insofar as health care is the fundamental problem here, the problem is with retiree health care, not health care for current workers.  In other words, with people who are already mostly covered by America's universal healthcare system, Medicare.

Why have the Big Three provided extremely expensive health benefits for retirees for decades, when there was a really very generous government program available?  Because that's what the union wanted, and it had enough muscle to get it.  Unless you actually do as Canada has done, and make private health plans illegal, there is nothing in a system of universal health care that prevents employees from asking for more generous benefits than the government provides.  Which means that moving to universal health care will do exactly nothing.  If the union can extract value in the form of expensive health benefits, it can extract that value in the form of cash, job security promises, beefier pension funds, or whatever it thinks the membership wants most.

Qualified opinion

Reader Dave Zigas, who works for BNY Mellon, writes in re real estate:

I think the old saw was "drive til you qualify." My impression is that the net distances have stayed the same; houses are sure getting more affordable, but qualifying for that loan is getting a tad tougher.

Proposition No

Mormons.  The theater.  Two great tastes that do not seem to taste great together.

(Note to Mr. Whitless:  I luuuuuuuuurve your musical.  And your blog.  I would love the latter so much more if it had permalinks, though.)

Save the Rust Belt!

A few heartfelt pleas from native Michiganders who don't want to see their state destroyed.  Several emails and comments complaining that I'm a heartless, effete New York type who doesn't understand that if the Big Three go down, some darn fine folks and a beautiful way of life will be destroyed.

I am a New York type. Heartless, you have to judge.  But I actually have a pretty deep connection to the Rust Belt, because my mother's from deep in the heart of it.

Not the part you've ever heard much about, though.  Michigan and Ohio get a lot of attention from journalists looking to write stories about the sad decline of our nation's industrial stock--Michigan, because the auto industry is so central to the 20th century American mythos, and Ohio because those people often decide who our next president is going to be.

My mother grew up in the Other Rust Belt--the one journalists have no reason to go to.  In a farm town nestled between Syracuse and Rochester, her father's gas station nuzzled right up on the mighty, mighty Erie Canal.  It was one of those small-town childhoods that was probably much more annoying than it sounds, but it sounds idyllic.  The town was so small, clean, and safe that when she was still in single digits my grandfather used to give her the week's take, in cash--maybe $10,000--and have her carry it four blocks down the street to the bank. 

Newark, NY is just about midway between the two cities, a forty five minute drive to either.  Back then, both were the kind of small cities that towns hoped to be when they grew up:  prosperous, bustling, content.  Indeed, Rochester was so self-satisfied that author Curt Gerling dubbed his 1957 book about the city "Smugtown USA". 

The Kodak Building, Rochester, Courtesy of Flickr user sailorbill

Just as the auto industry made (and broke) Detroit, Rochester was the creation of Eastman Kodak.  Kodak bonus day was like Christmas without the tree:  celebratory dinners at the local restaurants, shopping trips at the Midtown Plaza, which locals claim as America's first enclosed mall.

Then in the 1970s, it all began to change.  Smaller companies filed antitrust suits.  Fuji and Polaroid nibbled away at their film business.  In 1997, Fuji started a price war from which Kodak's stock price has never fully recovered.  And the advent of digital cameras has been devastating.  Kodak has made up some of the lost ground by making cameras, but this is a fiercely competitive business much difference from the old core business of selling the cameras cheap and the film dear.  At its peak, Kodak employed 60,000 people in a city of perhaps 300,000.  Now the city's population has dropped to 210,000--but Kodak employment has fallen to less than 15,000.

Syracuse is slightly more fortunate, because it wasn't so heavily dependent on one firm.  Nonetheless, its population now stands at less than 140,000, down from 220,000 in the 1950s.  And the story is replicated in almost any town you can name in upstate New York.  Utica.  Elmira.  Buffalo.  Troy.  These were major industrial towns, once.  Now they are slowly collapsing in on themselves, surrounded by the discarded shells of once prosperous factories.

There are any number of candidates to blame.  Cold weather. The Saint Lawrence Seaway, which destroyed the Erie Canal as a viable economic channel.  New York's business-unfriendly environment, which has gotten worse and worse as power has shifted towards New York City and the financial industry which is not much affected by the various work rules its employees like to vote for.

But it doesn't matter.  These vital towns, where generations of people lived happy lives and raised fat, burbling babies to a middle-class adulthood, are all dying.  Should the government save these places too?  Shall we support Eastman Kodak indefinitely, whether or not it can produce a product anyone wants to buy?  And Xerox, and Carrier, and a thousand companies you've never heard of?  Shall we make it illegal to make a better product than American corporations?  Why not just ban new products that make old ones unprofitable?

To do that, we'll have to take the money from other people, in other cities.  Other businesses will not get the capital that we give to dying firms, so they won't expand.  Some other families, not yours, will lose their homes because their business failed, or have to move away from home in order to get jobs because their area is in the doldrums.  Meanwhile, everyone in the country will be slightly worse off, because we've shifted limited economic resources towards products they demonstrably do not want.

I love western New York, which may be the most beautiful place on earth.  I love the old cities, the Victorian shells that whisper of much happier days, and the broad, rolling hills, and the broad flat accents of the people who live on them.  I love waterfalls softly falling downtown and the Buffalo City Hall.  I love the place as you can only love somewhere that your family has been living for 200 years.  I would save it if I could.

But I can't save it.  Pouring government money in has been tried . . . and tried, and tried, and tried.  It props up the local construction business, or some company, for a few more years, and then slowly drains away.  Western New York has been the lucky recipient of largesse from a generous federal government, a flush state government, and not a few self-made men with happy memories of a childhood there.  And still, it dies.

Moreover, it wouldn't be right to save it by destroying someone else's business, killing someone else's town.  That's the choice we are facing.  At its heart, economics is not about money; it is about resources.  Every dollar sent to Detroit buys a yard of steel, a reel of copper wire, an hour of labor that now cannot be consumed by a business that actually produces a profitable, desireable product.  It's not right to strangle those businesses in order to steal some air for the dying giants of an earlier day.

And while a financial intervention at least holds out the possibility of creating value for all of us, a bailout of Detroit is definitionally guaranteed to destroy value for the rest of us.  Yes, the Big Three and their suppliers will be better off.  But we will have taken a limited store of resources and spent them on something that the rest of us value less than the alternative uses for steel, copper, manpower, credit, and so forth.

I grew up in New York; you could say that our local industry is Wall Street.  Certainly, without Wall Street (and its tax base), New York would be a much less prosperous town, more likely decaying than growing.  Should America give Wall Street cash because some of my family lives there, because my friends work there, and because I love the vibrant city of my childhood?  Or perhaps because the industry's tax dollars prop up the failing cities of western New York?  No, no--a thousand times, no.  America should give Wall Street money if it makes the country as a whole better off.  Maybe the bailout doesn't.  But that was the only argument in favor of it that I, for one, would accept.

Labor's love lost

One of the things you hear over and over again from critics of Detroit, especially ones from the left, is that their current woes are all management's fault because they kept making big cars.

Management has made a lot of mistakes.  But making big cars wasn't one of them.  That's because they couldn't profitably make small cars in the United States.  And the reason they couldn't is that their labor costs were too high.  All in, Detroit was paying about $30 more an hour than other companies to make cars.  At that kind of differential, you have to concentrate on large cars with big profit margins, not economy cars where consumers fight to save $15 on the headlight bezels.

That has changed, as Freddie rather vigorously points out in the comments.  But corporate culture is a powerful thing.  One of the fascinating things about mergers is just how resistant corporate culture is to change; you can fire nearly everyone, and as long as there is still a core of old workers, they will fight to the death to keep doing things the old way.  30 years of complacence followed by 30 years of worrying how to meet the UAW's bill left a corporate culture that was not geared towards innovation, nor towards making small, efficient cars. 

Moreover, there was no good way to recruit new talent who might have changed things to a sinking ship.  Very few people set out to work for Detroit these days unless they're serious gearheads, or happen to already live there.  Working for the Big Three magically combines vast corporate bureaucracy and job insecurity in one completely unattractive package.  Even the car freaks would often rather do something else--write about cars, or work for the NHTSA.

Into this mix you have to throw the dealer network, which has as much of a stranglehold on Detroit as the UAW.  As I understand it, until gas hit $4 a gallon and the bottom absolutely dropped out of the market, the dealer network continued to pressure GM and the others to concentrate on high margin SUVs with lots of extras.  Libertarians who get all huffy about the UAW should be even more revolted by the dealers, which have browbeaten state legislatures into giving them ridiculous powers over the auto makers.

The entire thing is a toxic mess, left over from the days when interlocking oligopolies contentedly conspired to suck every last dollar out of captive consumers to whom Detroit would happily have given Flintstones cars if they could have figured out how to do them in two-tone vinyl.  But things that look like lunatic mistakes on the part of management were often quite rational responses to intolerable pressures.  I'm still not clear on why the cars had to be ugly, and all of the indicators cunningly hidden behind the wheel where they wouldn't distract the driver, of course.  Management did many stupid and inexplicable things.

Having driven the companies right up to the verge of bankruptcy, the conceded literally only when it became clear that the union members were about to get their contracts unilaterally rewritten by a judge,  lose their health benefits, and possibly get their pensions crammed down by the PBGC, which maxes out somewhere slightly north of $40K per annum.  Then the unions ever so generously agreed to cut health care costs by 30% in exchange for job security guarantees.  And now that their game of collective bargaining chicken has resulted in the obvious disaster, they want us to pay to save their jobs, at a cost of over $300,000 per.

It seems to me at least as plausible to believe that the unions were behaving like morons in the belief that the government would bail them out, as that the big bankers were.  What is the prudential reason for the rest of us to encourage this sally into the land of moral hazard?  If GM goes bankrupt, my Mini will not suddenly stop working. 

Bailing out the auto industry offers no net gain to society.  It is a straight transfer of resources from one sector to another:  we tax money, or borrow it from a finite pool of capital available to the nation, and spend it on auto workers.  The people who pay the taxes, or the people who would have borrowed that investment capital, now have less to spend.  Whatever they would have bought goes unbought; whoever would have made it goes unemployed. To coin a phrase, what is made on the swings is lost on the roundabouts  We have the illusion of a gain only because that other group of people is invisible.  Even if we don't bail out GM, they will not be visible--we will never know who didn't lose a job or a business because we declined to spend one squillion dollars saving the Chevy Cobalt.

But let's say it was all management's fault.  What's the argument for bailing them out then?  Does someone have tens of thousands of auto engineers, marketers, and senior management buried under a rock somewhere, waiting to replace the incompetent managers?  Because it seems to me that we're just pouring money into the same deep hole that will periodically reward our efforts by coughing up the Pontiac G6.

Invidious comparisons

Why bail out Wall Street and not GM, demand many people.  Why do we care about bankers and not ordinary folks?

I think this misses the point of the financial bailout.  Whether or not it works--and I sure hope it will--I don't think very many people wanted to bail out the financial industry because we were so moved by the plight of those plucky traders on the mortgage desk.  We bailed them out not because they deserved it--they didn't--but because if we didn't, there was a very big risk that they would take us down with them.

This is not generalizeable to other industries.  Money is weird.  Finance is weird.  There is no other industry that is, first, so tightly coupled, and second, severely affects every other industry in the country.  Moreover, there are few other industries that are so vulnerable to panic.  Strategic injections of capital can actually salvage operations that are otherwise sound.

GM's operations are not otherwise sound.  They have been headed for this moment since 1973.  Conservatives blame legacy costs, and liberals blame management.  They're both right.  GM's legacy costs are crazy.  So is the UAW leadership, which, goaded by the retirees, is knowingly driving the company into bankruptcy rather than negotiate clearly unsustainable deals.  Those legacy costs would probably not be supportable by any company in a competitive environment; the UAW's expectations were created in an era of comfortable oligopoly, when all costs could be directly passed on to the consumer.  And the poor quality control on American cars is, from all reports, the responsibility of the union, which maintains downright silly work rules that not even the most ardent liberal could defend in both the Big Three and their various parts suppliers.  My favorite was the supplier plant that was forced to work in english measurement even though they had to sell parts in metric.  But the examples are legion.

But too, management doesn't seem to be trying much harder to keep themselves out of bankruptcy court.  The company could have limped on for longer if it had, y'know, made cars anyone wanted to buy.  That's not the UAW's fault.  GM's management seems to have a positive genius for making horrible cars, as if they'd deliberately sat down and asked themselves how they could best combine ugly, inconvenient, and unreliable into one expensive package.

What is government money going to fix?  Will GM's management be so grateful to America that they decide to make an attractive, reliable vehicle as a thank-you gift?  Will the unions realize that they owe the taxpayers a little more flexibility at collective bargaining time?  Oh, hear that hollow laugh.

Merging with Chrysler doesn't solve anything.  It's like two alcoholics deciding that they could maybe quit drinking if they got married.  Everything that's wrong with GM is wrong with Chrysler, in spades.  Adding the chaos and expense of a merger will not improve the toxic rot of horrible labor relations and muddled management.  They can't even save money in the traditional way, by streamlining operations, because it costs them so much to lay anyone off.  They'll save on steel and electricity from cutting car lines.  But they can cut those car lines right now.  And steel and electricity are no longer the major costs of auto manufacturing.

GM can't be saved.  It needs to go into bankruptcy, which is the only possible way I can see to adjust its legacy labor problems, and possibly provide sufficient shock to the corporate culture to allow the company to make a competent car.  Even that may not work.  And it's going to involve a whole bunch of pain for everyone.

But unless we're willing to essentially nationalize three auto companies, that pain is going to come, sooner or later.  And if we want to keep auto workers from feeling pain, then we should just up and give them money.  There's no reason to waste steel on a lot of crappy cars.

Credit crunch? What credit crunch?

The New York Times is about to test the proposition that the credit markets are just-fine-thank-you-very-much:

The New York Times Company's 10Q (NYT) contains more details on the company's cash crunch.

Specifically, the company must deliver $400 million to lenders in May of 2009, six months from now.  The company has only $46 million of cash on hand, and its operations will likely begin consuming this meager balance this quarter or next.  The company has been shut out of the commercial paper market, but has a $366 million short-term credit line remaining that it entered into several years ago, when the industry was strong. It has not yet drawn this cash down, and given the current environment and the trends at the company, we would not take for granted that it will be able to do so.

The New York Times is in discussions with its lenders about the May payment, and management thinks it will be able to work something out ("We expect that we will be able to manage our debt and credit obligations as they mature." Note the use of the word "manage" as opposed to "meet.")

Blodget goes on to note that "Given the current circumstances, if we were that bank, and we were as strapped and scared as most banks are these days, we would certainly be reading the fine print to see what sort of 'material adverse change' clauses the contract might include".  Not a good time to have Rupert Murdoch gunning to replace you as America's premier national newspaper.

The New York Times is, in part, a victim of its own success.  Its web operation is awesome.  It also sort of makes it unnecessary to subscribe to the paper.  And so far, no company has figured out how to monetize web page views sufficiently to pay for an operation of the NYT's scale. 

One might ask if the same doesn't apply to my employer.  Well, not really.  We don't have massive overhead like the New York Times does; we commission articles, not staff them.  Obviously, everyone in media worries about ad sales and how to monetize the web, but we're not trying to run a massive newsgathering operation.  Besides, people are much more attached to physical magazines than to newspapers (except for the Sunday Times, which occupies its own iconic slot in yuppie life.)

Over the last decade, the New York Times has tried to grow its way out of the obvious problems facing the print media:  new sections, more pages, more distribution, more web operations.  It looks like that strategy is now hitting the wall.

Time after time

I just assembled a pair of boxes from Ikea for putting paperwork in.  Like all Ikea products, they are superficially fetching, nearly impossible to assemble correctly without taking them apart at least once, and too flimsy to survive more than one household move.  My life's ambition is to never again put together an Ikea product.  I have not yet reached that halcyon plane of existence, and perhaps never will.  And so I am doomed to ask myself the same question every time I pull out one of those wordless instruction manuals:  how did nature, or nature's God, manage to produce an entire nation full of industrious people who assess the value of their own time at $0?

Lies my teacher told me

Apparently, the tongue is not really divided into four areas for four separate tastes.  I feel so betrayed.

Who's in at Treasury?

Everyone seems to think it's down to Larry Summers or Tim Geithner.  I'd be happy with either, though the left wing of the Democratic Party seems to be gearing up for a hate-fest on Summers.  The previous two sentences may, of course, be related.

Economics of Contempt wishes for Geithner, but thinks we'll probably get Summers because now is a lousy time to go switching out the president of the New York Fed.  I think this attributes too much sense to politicians, but he may well be right.

Whoever we get--Geithner, Summers, or a dark horse--I think it will have to be someone who's either very risk-loving, or doesn't care about his reputation.  I've talked to quite a few smart economists with specialisations in various aspects of the crisis over the last few months, and the conversation usually goes a lot like this.

Megan:  So, the financial crisis.  What the hell?
Smart economist:  Yeah, that's what I'm titling my next paper.

The lack of understanding, much less consensus, on what is happening and what to do next, would seem to indicate that there's a not insignificant chance that the crisis will get worse and the Obama administration will not be able to do anything about it, making them look (unfairly) completely incompetent, and giving generations of future economists something to smugly criticize.

So taking the job is a gamble unless you're someone who's already wrapped up in the mess.  For Summers, it might be worth it to ensure that the Harvard debacle is not the coda to his public career.  But I suspect anyone else would think long and hard about how much they wanted to risk for the chance of glory.

Location, location, location

Since I'm planning to move this winter, this new coinage is particularly amusing:

I have several friends who are hunting for new homes and houses in D.C. Picking a neighborhood is tricky, especially in a rapidly developing city like Washington. Not many of my friends have kids, so schools aren't really an issue. Instead, it's the usual single-professional litany: crime and coffee shops, kitchens and subway stops. In the suburbs, the old maxim was:"Start at your office. Then drive till you can afford it." In the city, it's: "Start at your favorite bar. Then walk till you can afford it."

Of course, in DC, you need to do a leetle crime stats mapping to make sure you don't accidentally walk into a turf war between drug dealers.  Or worse, between agricultural lobbyists.

I'd like to vote Republican again, someday

A lot of libertarians are feeling a little frisky nowadays.  We sent the Republican party a message that we couldn't be taken for granted.  Now isn't it time to press our claims, get rid of the social conservatives once and for all?

Rod Dreher says no:

Let me make a point that's going to be overlooked among secular conservatives of Reformist impulse: no conservative movement that hopes to be successful can do so without religious conservatives. It will be very easy for secular Reform conservatives to sell op-ed pieces to newspapers, in which they argue that the GOP will not be revived until and unless it cuts itself free from the Religious Right. It'll be easy for them to sell that point because it suits the prejudices of the kind of secular liberals who run the media. But it's quite wrong.

As a tactical matter, I think he's correct.  There are not enough fiscal conservatives/social liberals, or even fiscal conservatives/who cares? to make a party.

Where does that leave the libertarians, though?  Since the end of the cold war, when our military policy was at least arguably explicitly pro-market, the libertarians have been slowly unbinding themselves from the embrace of the Republican party.  Can we live with a party that embraces socially conservative goals?  Should we go to teh Democrats?  And if we stay with the Republicans (in broad sympathy, if not in votes, etc), then how do we build an acceptable common platform?

Federalism is helpful.  If you take the position, as I and, I think, most libertarians do, that there is no explicitly libertarian position on abortion*,  then it makes sense to demand that the federal government take no stance on that issue.  Even gay marriage can be finessed, I think; in five years, conservative Christians facing social change may well be ready to support getting the state out of the marriage business.

But federalism will not get us the whole way.  If the Republicans want not merely grudging, but enthusiastic support from libertarians, I think what we need is in many ways a more minimalist platform, one refocused on having the government do as little as possible.  We'll probably still end up electing a lot of pro-life congressmen who want to do something about that.  But if the Republicans stop making it an issue for the party as a whole, they'll pick up more votes in the northeast and the west coast.

Is it worth it for them to change to woo us?  I don't know.  I don't share the libertarian confidence that we are going to achieve massive new affirmative steps in our direction; a lot of the things we want, like a simpler tax code and privatized social security, are actually issues that the Republican leadership agrees with us on, and the greater American public does not.  But perhaps it's worth trying to prune the party platform back to the common ground, and then build from there.



* the belief that there is an explictly libertarian position is held, as far as I can tell, almost entirely among liberals furious at pro-lifers.  Persons have a right to be protected against the initiation of force, and libertarianism has no basic principles that answer the question of when personhood begins.

Shlaes and the Depression

It's taking me longer than usual to get together my thoughts on Eric Rauchway's response; sorry for the delay.  But there's sort of a side issue that's relevant to that, which is what to think of Amity Shlaes'a The Forgotten Man.

The thesis of the book, for those who don't know it, is that government intervention made the Depression worse by heightening uncertainty.  Obviously, this is an explanation much in vogue with conservatives.

Nor do I think it entirely untrue.  Certainly, the reports that I'm now hearing from Wall Street of firms sitting on the sidelines until they figure out what the *#&! the government is finally going to do, bolster the plausible belief that if

a) the government is flailing around doing a lot of stuff
b)  all of that stuff has a major potential to affect your returns on investment

You will get less investment.

The problem is that Shlaes way, way, way overstates her case.  There is an academic argument that the National Recovery Administration prolonged the Great Depression; I'm on the run right now, but will find the link later.  But the Great Depression is complicated, and it's hard to make the case that government intervention was the main problem with the economy.  As economic history, the book is interesting if one sided.  But as an argument, it leaves a lot to be desired.

Dorothy, get in the storm cellar! Open thread on belt-tightening

So if you're like most of us in America, you're feeling a little it like . . . a Christian Scientist with appendicitis.  Whether your job seems particularly threatened, the declines in the stock market and the housing market, and the collapse of consumer demand, make it feel like we might be in for a long bad spell.  The economists can scream about aggregate demand all they want, but we're looking for ways to do less.

Like Tyler, I'm not sure this is bad.  I think the government should palliate the consumption collapse--make sure that the supportive services and unemployment benefits are there for people whose consumption falls below acceptable levels.  But we've been living on borrowed money for a long time.  Eventually, we're going to have to spend less to get our balance sheet back in balance.

So here's an open thread:  what are you doing to cut back?  My partial list:

1)  Considering giving up my apartment for a shared house
2)  Street parking my car
3)  Eating and drinking at home instead of U Street's many fine dining estalishments
4)  Buying cheaper food in bulk.  Luckily, I really like PB&J and ramen
5)  Cancelling my gym membership.  The Wii Fit turns out to be surprisingly effective.  At least if, like me, you're in terrible shape and hate excercise.
6)  No new clothes this year.
7)  Getting serious about freelance income.

Yes, this is a list that screams "middle class single professional".  I'm sorry.  I can't help what I am.  I was born this way.

And no, I'm not worried about my job, for those of you who are worried (or hopeful).  Really. But the downpayment I wanted to put down on a house just got eaten by the stock market crash, which means that if I ever want to experience the many joys of homeownership, (like . . . er . . . 20% price declines) I need to tighten my belt something fierce.

What about you?  What are you worried about?  And what are you doing to make yourself financially more secure?

Credit crunch? Your intrepid correspondent tests the waters

I've heard directly a great deal about the effect of the credit crunch on businesses, mortgages, and car loans.  Car loans are apparently unobtainable with a credit score of less than 700; mortgages have been pulled merely for the crime of having a large percentage of your assets in (unmortgaged real estate).  Corporate credit lines have been cut or exhausted.

What I haven't heard about is how this has trickled through to the credit card companies.  Six months ago, some nice banking experts from the FDIC and other government agencies made a credible case to me that the credit card industry really is different, because default is much easier to see coming.  The initial extension of credit is scary, of course, but it tends to be advanced in small amounts, and built up as your relationship with the credit card company goes on.  And when they see you missing payments or getting overleveraged, they can lower your credit limit to stop their losses.  Indeed, in theory they can call the revolving loan, though in practice, this would cause problems.

Anecdotal reports of credit card offers flooding the mails intrigued me.  Were these simply the legacy of already-paid-for direct mailing campaigns?  Akin to my experiment last year, where I called my credit card company and asked them to double my limit just for the hell of it (a request that was approved within fifteen minutes), I applied for a credit card.  Actually, I accidentally applied for three, which goes to show that you don't have to be too bright to be a blogger.  Be careful on those credit card deal aggregation sites, is all I can say.

Result:  Instant new credit of about 10% of my annual income from the two that approved me within two minutes.  American Express very sensibly makes you wait a few ways for your exclusive Costco membership card/Amex, and when they notice that I seem to have a sudden interest in acquiring large amounts of new credit, I imagine they might just turn me down.  The terms on both cards were attractive, with a 0% one year introductory APR, collision liability waiver for car rentals, and other perks that might tempt someone who already has way too many airline miles.

Then I realized that in addition to being too stupid to figure out a fairly simple web page, I had managed to ding my credit score with new credit applications just as I started house hunting.  I'm hoping to spin this to them, and you, as a sort of adorable absent-minded-professor dedication to my research.  With has the benefit of being sort of true.

Anyway, what to make of the fact that banks are still apparently handing out credit cards like candy?  I have several theories

1)  The credit card market is contracting unevenly.  I have good credit, marred only by a moronic dispute with the New York State tax authorities which drags on despite their admission that they were completely and thoroughly mistaken.  I make a middle class income, albeit journalist-middle-class, not corporate-lawyer-middle-class.  Aside from a 5% car loan and student loans carried at 2.25%, I am not overburdened by debt.  Perhaps the average joes like me are still doing fine, while people who have more trouble with their bills are finding the doors slamming closed.  If so, those people should show up in the bankruptcy statistics soon.

2)  The credit card market isn't contracting.  So far their models are actually working, and their business model remains more reliable than other industries.  That should show up in next quarter's earnings numbers.

3)  The credit card market needs to take on new customers because people are frantically paying down their high-interest credit cards.  I know a fair number of people who have decided that their credit card balance is Public Enemy #1.  That's already showing up in the consumer spending numbers.

4)  The credit card market needs to take on new customers because they're on the verge of going bust.   They're just playing out the Great Countrywide Ponzi Scheme in 2009.  That doesn't explain, though, why they're giving me credit cards with 0% introductory APRs.

5)  Alex Tabarrok is right and the credit crunch is underwhelming.  I'm skeptical, because of all the other problem credit markets.  The Fed data on bank credit is interesting, but that's not really where the action in the credit markets is today; you could have increasing bank loans, and nonetheless, decreasing credit supply.

Thoughts? 

The housing bubble: Dean Baker needs to get out more

Dean Baker claims:

No one will lend me $1 billion, that's how bad the credit crunch has gotten. There are probably reporters at major news outlets who would print that.

The news media almost completely missed the housing bubble. They relied almost entirely on sources who either had an interest in not calling or attention to an $8 trillion housing bubble or somehow were unable to see it. As a result they did not warn the public that their house prices were likely to plunge in future years.

Having dismally failed in their jobs to inform the public, reporters are still relying almost exclusively on sources that completely missed the housing bubble. As a result, they are still badly misinforming the public, first and foremost by attributing the economic downturn to a credit crunch.

Ryan Avent does an ample job of demonstrating why this is silly.  Yes, people are probably spending less because their house has gone down, reducing their assessment of their position in the lifetime savings cycle.  That's a wealth effect, and I don't think any journalists are denying it.

But I do have to pile on a little, because denying that we're having a massive credit crunch is bizarre, like having lunch with someone who thinks the earth is flat, or doesn't believe in marriage.  Seriously, I've seen it--hell, my parents were married.  It's out there.  And frankly, it's scary as hell.

One hopes that one has similarly misunderstood Baker's post.  But it does seem, on its face, very certain that the credit crunch is a minor diversion from the real problem of consumers impoverished by falling house prices.  But Mr Baker . . . well, seriously--it's out there.  I've seen it.  A money market fund really did break the buck and spur a massive run in the commercial paper market.  Libor spreads really did start acting like your Cousin Becky when she comes for a week at Christmas and forgets to pack the lithium.  Several major banks were forced to sell themselves at fire sale prices or liquidate because their credit had dried up.  These things really happened.  If you think the teevee might have faked them the way they did the Moon Walk and Ronald Reagan's presidency, there are a variety of other sources you could check with.  But unfortunately, it wasn't all just a bad dream

The popping of the subprime bubble undoubtedly precipitated the crisis, much as the 1929 stock market crash became the focal point for the financial crisis that followed.  But given what's happening to banks abroad, it's getting harder to argue in good conscience that the housing crash caused the financial crisis; the system simply seems to have been in such a state that some adverse market movement was destined to take it down.

I don't know why Dean Baker seems not to have noticed these things.  I also don't know why he seems not to have read the financial press, which is talking to plenty of people who predicted the housing bubble.  Indeed, it's hard not to, because most people in the finance community thought the more exotic subprime mortgages were pretty creepy, and most economists were pretty sure it was going to crash.  Unless I were allowed to rely exclusively on David Lereah (until recently the permabullish economist for the National Association of Realtors) I would be hard put to find one economic expert who had completely missed the housing bubble, much less write an entire article consulting no one else.  I wish Dean Baker had provided a link to some of the overwhelming number of journalists who have managed to do so, if only so I can track down their sources for the obligatory idiot quote.

If what Dean Baker means is that we're relying on sources that didn't see the housing bubble causing a liquidity crisis in the banking sector that triggered worldwide chaos, well, no, we're not interviewing any of those, because AFAIK, there aren't any.  There are people, like Nouriel Roubini, who called a US financial panic, but saw it coming from the dollar (among other things--the trigger tended to change, though his prediction of panic did not), not the housing market; the dollar is actually strengthening right now.  (To the shock of a lot more people than just Nouriel Roubini).  There are people like Robert Shiller, who predicted moderate-to-enormous problems when the housing bubble collapsed.  But those predictions were along the lines of what Baker bizarrely insists is the actual case:  a wealth effect cutting into consumer spending.  Even Robert Shiller does not think this is the whole, or even the greater part, of what is happening, which Baker or his readers could discover by listening to the many, many interviews he has given.  I particularly recommend his one hour podcast with Russ Roberts.  I've interviewed Shiller about the housing markets for stories several times, and Russ Roberts really drew out some interesting observations.

Ouch

Alex Tabarrok takes Eric Rauchway to the woodshed and spanks him so hard my butt hurts. As a general rule, it is a bad idea to title an exceptionally misleading and/or ignorant post "Stop lying".  

Rahm Emmanuel

I've heard two superficially plausible and, I think, completely contradictory narratives of what the Rahm Emmanuel appointment means.  One:  that Barack Obama is taking his administration in a more pragmatic, less ideological direction.  Two:  that Barack Obama is looking for a hatchet man to beat the snot out of the Republicans.  Which is true?  I'm not enough of an insider to even hazard a guess.  But it's interesting how the same piece of information can plausibly tell two utterly different stories.

Things can only get better . . .

Clive asks whether Obama's campaigning genius hasn't left expectations impossibly high.  I've been wondering if what I saw on television on election day was the normal process of transitioning to a Democratic presidency, or something different: the product of economic insecurity, or Obama's stunning personality.  Because some of the stuff I saw was crazy.

Being a libertarian, I naturally think that people are too optimistic about the government.  But there were people on CNN declaring that Obama was going to lower the price of gasoline and pay their mortgage if they couldn't afford it, lower their tax bill and raise their wages, and presumably, make them taller, smarter, and get the chickweed out of their hair.  I'm not exaggerating:  there were voters who seemed to think that about three weeks after Obama took office, all their budget problems would be solved.  Not that Obama would eventually make things better, or help them get past the rough spots; they were expecting an immediate influx of really quite a lot of money, as well as a rapid and permanent increase in base wages and housing prices.

I don't recall Republicans engaging in this kind of magical thinking in 2000.  They, too, seemed to have an unreasonable belief that George Bush was going to improve America a great deal (unreasonable even before 9/11), but as I recall, this was concentrated on intangibles like restoring honor to the white house, not putting an extra $3,000 in everyone's pockets.

I was eighteen when Clinton was elected, and I don't remember if this sort of thing is simply typical of Democratic victories.  But the expectations I saw in those "man on the street interviews" were not fulfillable by any president--at least, not until Santa agrees to stand for election. 

I don't mean to suggest that all, or even most of the Democrats are filled with impossible dreams of glory.  Well, I think they are, but impossible in the ordinary sense that anyone who believes a politician will make their lives substantially better needs to tell me where they get their drugs, because I've never been able to disconnect from reality that completely.

But some number of voters seem to be engaging in truly magical thinking about what is possible from a president.  What happens when they get a $500 increase in the child tax credit and military operations in Pakistan instead of fairyland?

How moving

For those of us who live in cities, this new Google widget (new to me, anyway) is pretty great:  it lets you plan your trip by public transit.

Spreading leprosy and joy wherever they go . . .

My first internet bon mot was Jane's Law:  the devotees of the party in power are smug and arrogant.  The devotees of the party out of power are insane.

Red State offers proof positive.  Because you know what the Republican Party is missing?  What the electorate really wants from conservatives?  Secret police.

I've been impressed by the way a lot of thoughtful commenters have avoided the nuthatchery that followed 2004, whereupon the activists denied that Bush had kicked their ass halfway to Texas, and alternately blamed Republican dirty tricks, an American electorate full of bigots and boobs, and their excessive moderation.  A lot of commentators yesterday and today have written articles on how exciting it is to have the first black president, and how yes, the Republican party needs a gut rehab.

But of course, every time any movement suffers a major defeat, there are the folks who decide that the biggest priority is to form a circular firing squad and hunt out the members of the fifth column that destroyed the party from within.  To be sure, the McCain staffers trying to hang the whole debacle on Sarah Palin's narrow shoulders have not exactly covered themselves in glory.  But honestly, guys, they're not your main problem.

No one here but us chickens . . .

Today really, truly, will be budget day here at Asymmetrical Information, the last one having been derailed by a five hour doctor's visit.  One thing that struck home last night, as I was sitting on a dinner panel about the next four years, is that their huge majority, combined with budget constraints, actually poses one big problem for the Democrats:  no one to torpedo their electoral promises for them.

The Democrats right now are divided into deficit hawks, who think that the nearly $1 trillion deficit headed down the pike means they can't afford any big programs, and the big spenders, who say to hell with the deficit, let's spend as much as we can to make it look like we're really doing something.  More on this later.  But one wrinkle that hadn't seemed as important as it now does is that the Democrats do not have the luxury of proposing unpassable legislation in order to look like they're doing something.  They can't make good on Obama's electoral promises about global warming by putting up a program the Republicans hate enough to take down, because there aren't enough Republicans to credibly blame for the bill's destruction.  So they either have to actually pass a carbon bill that will be massively unpopular when it raises energy prices, or explain why Obama didn't really mean it.

That almost certainly means, at least according to the crack political team on the panel with me, that we will not get any sort of cap and trade--an outcome that probably could have been predicted when gas hit $4.  But it makes even potentially popular things like Obama's health care plan and middle class tax cuts problematic.  The middle class tax cuts are, as far as I can tell, already stillborn; in today's revenue environment, even reversing the Bush tax cuts on the wealthy probably wouldn't pay for them.   But once the electorate finds out that the Democrats will not be handing out free money, not because the Republicans stopped them, but because they stopped themselves, they're going to find themselves mired in a very difficult discussion.  Interest rates, sovereign debt problems, and the debt substitution effect do not make good sound bytes.

Are there any adults left in the room?

Perhaps I'm getting too testy.  For the past two presidential elections, I've voted for the winning candidate.  For the past two elections, I've experienced near-immediate buyer's remorse.  And for the past two elections, I've been saddened and appalled to watch the people who voted with me display behavior they would be ashamed to find in their three year old in any other context.

I don't mean celebrating their win.  I mean celebrating their opponents loss.  I mean taking more obvious enjoyment in the fact that the people they disagree with are unhappy, developing fantasies of being the boot stomping into those peoples' faces--forever.  Four years ago (or was it six?) I told my commenters to stop gloating, only to be dismissed as a nannying concern troll.  They'd earned it, you see.  After years of abuse from the other side, they deserved to take joy in the disappointment of others.

How'd that work out, guys? 

Every time we have an election, the partisans confuse the fact that the independents disliked the opposition candidate, with the idea that the independents joined their party.  The independents did not want to stomp the Democrats in 2004, and they do not want to stomp the Republicans now.  They are not interested in advancing the electoral fortunes of the Democratic Party, any more than they were preparing to hand the Republicans a "permanent majority" in 2004.  And when the various parties act as if it is so--as if the independents had actually voted to join their power-hungry two-minutes-hate, rather than voting for the guy they thought would best shelter them from the vicissitudes of fate . . . well, for the last few elections, they've had their asses handed to them on a silver platter two years later.

I don't begrudge my fellow Obama supporters an excitement I certainly do not feel about the many exciting projects that may be undertaken with a large Democratic congressional majority.  But I'm kind of ashamed at the meanness.  The election of the President of the United States not a sports match, or a schoolyard battle for who's the biggest, meanest bully on the block.   I wish so many Obama supporters were not acting as if it was.  I especially wish they weren't doing so after complaining so bitterly that it wasn't fair four years ago.  If Obama gets blindisded by an intractable financial crisis, those people will deserve every bit of nastiness that gets heaped on them two and four years hence.  And the undoubtedly equally repulsive Republican gloating from people who really ought to have learned better will be no less nauseating for all that.

Note to Democrats

If the country is so progressive, how come Bush won the popular vote four years ago?  Did all the center right people die?  Or are American voters somewhat mercurial?  Also, how come Bush had no mandate four years ago?  Did the American voter get more mandative?  Would John McCain have had a mandate if he'd achieved these kinds of numbers?  Or would that be entirely different?

No need to answer.  The rest of us already know what the answer is.

I am struck by the memory of a seething Democrat four years ago, watching Republicans gloat about their "permanent majority":  "They don't bother me.  All their gloating will just make their tears sweeter when they finally lose."  I'd be more worried about the permanent majority if I hadn't just checked the Democrats' congressional approval ratings.  If they don't pick up soon--and now there are no Republicans to blame for anything that goes wrong--I estimate the life of this mandate at about three months.

How much have voters really change?

I'm not discounting the possibility of a major Democratic realignment, not at all.  But I feel compelled to point out that many of the people excited by massive voter shifts are confusing a) serious Bush hatred during a once-in-a-generation financial crisis and b) massive black voting turnout to vote for the first black president, a definitionally unrepeatable happening with c) actual permanent demographic change in the electorate.  

The people have spoken

I confess, I didn't see this coming:  California votes yes on Proposition 8.  I do think, though, that the success of anti-gay-marriage initiatives reinforces something I strongly believe:  the issue was pressed too quickly, and in the wrong venue.  Using the courts to establish a right to gay marriage made opponents feel threatened, and railroaded.  If socially conservative voters hadn't felt they needed to protect themselves from activist judges, we wouldn't be seeing these provisions written into state constitutions.  Few of them would probably have bothered to vote out legislators who voted for gay marriage five years from now.  But with it on the ballot, in front of them, and worries that judges would make the decision unless they did, they shot it down even in California.

In general, courts are the wrong place to press these sorts of claims.  The courts were appropriate for civil rights because blacks were literally denied the right to participate in the legislative democratic process.  And on a practical level, they worked becaus a majority of people in the country were more than happy to force civil rights on an unhappy white southern minority.  Unfortunately, too many groups have decided that the success of civil rights can be widely applied to circumvent the electorate on issues where there is no public consensus.  Now widespread gay marriage seems quite a bit less likely for the near term than it would have been had we attacked the issue legislatively.

Is it 1932?

I heard that a fair amount last night, and over the past few days.

This is faulty economic history.  It is not 1932.  It is 1929.

Outside of the economics profession, the FDR mythos is strong among Democrats:  Hoover did nothing, and then FDR came in with his magic Keynesianism, and through the mighty power of massive government spending and a huge increase in the social safety net, got America moving again.

Economic historians know better.  You can argue whether FDR, on net, helped a lot, helped a little, or mildly hindered recovery.  But you cannot argue that if FDR had gotten into office on January 20th, 1930, America would have avoided most of the pain of the next three years.  The progression of the bank panics and industrial slowdown throughout the next two years is well described, but not well understood.  But the problem was clearly not merely a lack of government activity, or fiscal stimulus.  Hoover was, contra popular myth, fairly active.  It's just nothing he did worked.  Neither did most of the things FDR tried.

FDR did some things right, don't get me wrong--and I think some of those really made a difference, notably bank audits and the creation of the FDIC.  But he also benefitted tremendously from stepping in just as the banking system, and hence the economy, were bottoming out.  By the time of the second banking panic, the system really didn't have much of anywhere to go but up.

Obama has the benefit of better economic theory--but not nearly as much better as we thought six months ago.  There is no economic consensus--or even a revolutionary school like the Keynesians--with a coherent program for getting us out of the crisis.  The happy, utterly wrong narrative of Democrats striding in and boldly reversing Republican errors with stiff regulation, an expanded safety net, and massive fiscal stimulus, is wrong when applied to FDR.  It won't save Obama either.

If the crisis is as bad as some people fear, Obama will have no magic bullet to fire at it.  The very best he can hope for is a fairly successful process of trial and error.  To the electorate, that will look like bumbling as Rome burns.

Now, the worst may not happen; and even if it does, Bush, not Obama, may get the blame.  But Obama is not in nearly as strong a position as FDR was in 1932. 

How . . . stimulating

Are there any sweeter words in the English language than "The election is over?"  Starting tomorrow, I can turn my attention to things like budget deficits, and stimulus packages.

About which, I'm already confused.  Everyone, except me, seems to think that a massive stimulus package will improve things.  But as I learned it, the theory behind stimulus is that it expands aggregate demand by tapping into excess savings at home.  Instead of fruitlessly chasing too few investment opportunities, savings is helpfully channeled into consumption, smoothing the business cycle.  Else it expands aggregate demand by bringing in foreign savings that are not needed elsewhere.

But for the first time in, well, ever, we're flirting with an actual decline in global production; we will not be beseiged with flush foreigners looking to park all those nuisance profits.  And I don't think anyone believes that America has a problem with excess savings.  Given that, a stimulus package seems more likely to move money around into slightly different kinds of consumption than to actually expand aggregate demand.  One economist friend suggests that it might increase velocity--but that seems a rather slender thread upon which to hang one's hopes for economic stimulus. How large is the problem of money accumulating under metaphorical mattresses? 

But clearly, I must be missing something, because almost all the smart economists disagree with me.

Democrats kick butt in early Senate returns

Hagan, Shaheen, Warner, all picked up.  It's going to be a long, long, looooooooooooooong two years.

Strange days

This is a strange election in another way--it's not really close, but people are watching it as if it is.  In 1996, my office had to use a point spread, and post a hefty premium, to get people interested in betting on the Clinton-Dole matchup.  We've all known for a while that Obama was going to win, wistful dreams notwithstanding.  But everyone's watching as if this were the seventh game of a tied world series.

Me, I was hoping that Obama would win, but without much boost in Senate support or a large vote mandate; I like me some hamstrung politicians.  Wan hope, now dashed.  I'll just have to take solace in Being There While History Is Made.

The times, they are a changing

I'm blogging from NPR headquarters tonight, at least until I leave to go be on BBC World Radio around 10 PM EST.  I'm struck by how different it is to cover the election from just four years ago.  Four years ago, I was watching CNN, compulsively refreshing blogs, digging into Florida returns on the website.  This time around, it's all RSS and Twitter; the news is coming even faster than what seemed then like amazing speeds.  In 2012, presumably we'll be using direct brain links--or smoke signals.

Realignment

The opening paragraph from Galbraith's The Great Crash of 1929

Some years, like some poets and politicians and some lovely women, are singled out for fame far beyond the common lot, and 1929 was clearly such a year.  Like 1066, 1776, and 1914, it is a year that eeryone remembers.  One went to college before 1929, was married after 1929, or wasn't even born in 1929, which bespeaks total innocence.  A reference to 1929 has become shorthand for the events of that autumn.  For a decade, whenever Americans have been afflicted with doubt as to the durability of their current state of prosperity, they hav asked:  "Will it be 1929 all over again?"  And even afte ra quarter of a century, this is still a year with a singular political personality.  Just as Republican orators for a generation after Appomattox made use of the bloody shirt, so for a generation Democrats have been warning that to elect Republicans is to invite another disaster like that of 1929.  The defeat of the Democratic candidate in 1952 was widely attributed to the unfortunate appearance at the polls of too many youths who knew only by hearsay of the horrors of those days.

I wonder if we won't be hearing the same again, in years future . . .

The Sanchez Blog Empire expands

Julian has a new politics and policy blog over at Ars Technica

Department of non-leading indicators

The Sarah Palin sheitel at Sheitel.com is on deep discount.  Even money says it drops at least another hundred in price tomorrow morning.

Big Day

This is a pretty great day to be living in a heavily black neighborhood.  Obviously, a lot of people are excited about this election.  But being here is a lot like what I imagine my relatives experienced being in West Roxbury in 1960.  There's a holiday festivity to the area that I doubt I'd be seeing even on my own beloved Upper West Side.

Whether or not you are for Obama, the candidate, I think you have to admit that there is one pretty exciting thing happening today:  we will never again live in an America where a black man can't be elected president.   It's a great day for all of us--the thought really does thrill me every time I think it, even though I know I'm going to hate an awful lot of his policymaking.  But it's especially great for those who were, in earlier days, barred from that sort of achievement.

In the 1920s, Al Smith ran for president and lost, because America couldn't have an Irish Catholic president.  Irish Americans made a lot of strides away from "No Irish Need Apply" and 19th century images depicting us as drunken apes.  But Kennedy's election was The Moment; that's when we knew we'd won.  No, anti-Irish and anti-Catholic prejudice didn't suddenly disappear one fall day in 1960, but we, and they, knew that the holdouts were ceasing to matter.  And in the early 1990s, when a doddering customer at a hotel I worked at changed my name to "Millie" because I reminded her of her childhood maid, and told her friends that (I swear I'm not making this up) "the Irish don't care about their names like we do" it was a hilarious anachronism, rather than a slap in the face.

Black history in America has had a lot more Big Moments than the Irish did.  But this is a shining one.  That's a beautiful silver lining even if you think a liberal Democrat in office is a pretty gloomy cloud.

Who will make the stock market perform better?

There's been a bunch of ridiculous blather about whether Obama is good or bad for the stock market.  Conservatives argue he's pushing it down.  Democrats retort that if so, he seems to be making Europe even worse than America.  Conservatives rejoinder that yes, indeed, the US president affects more than local stock markets.  Democrats scream that anyway, the markets go up more during Democratic administrations than Republican ones.  Conservatives point out that this can probably be explained more by fiscal and monetary stimulus, or sheer luck, than wise, long term policy.

I think the entire thing is mostly nonsense; the data points are too few; they are not independent of each other; and the labels (D) and (R) do not mean the same thing over time--Nixon is more credibly called a Democrat on anything that ought to affect GDP or the stock markets, except that he was far too left wing for today's Democratic party.  So before any returns come in, let me make the obvious, fearless prediction:  no matter who gets elected, the stock market is going to go up next year, and GDP is going to go down, not because Democrats are good for the market or bad for the economy, but because they can hardly do otherwise.  If Obama or McCain finishes his first term at brisk growth levels in stock prices and GDP, it will not be because of his party's peculiar genius for running things; it will be because even a dead cat will bounce if you drop it from a far enough height.

Vote, though it pains you . . .

Unlike many libertarians, I'm a believer in voting for major party candidates.  Voting is, of course, expressive behavior.  On the other hand, so is not voting.  Voting is basically a free rider/collective action problem, and if libertarians think these can be solved via private initiative, they have an obligation to demonstrate that it is so.

Besides, not voting seems like a way of trying to shuck responsibility for having a preference.  Most of the libertarians I know who do not vote are for Obama, or at least, against McCain.  But by not voting for him, they can disclaim responsibility for any results.  The problem with voting for the winning candidate is that you can never see the counterfactual, so almost by definition, libertarians are going to end up regretting many of the results of their choice.  If you pretend not to have had a choice, you don't have to admit that you willed, in some sense, the bad outcomes.

I'm not voting because I forgot to register.  But that doesn't absolve me from whatever happens next, because I wanted Obama to win.  I may not have effected the outcome, but I did believe it was preferable to the alternative.  Now if he's even more of a cluster**** than I expect, I'll have to admit I was wrong.

(Of course, I can always say McCain would have been even worse, just as many disappointed Republicans argue that Kerry would have been even worse.  And it's possible that they're right; until we invent inter-multiverse transport, we'll never know.)

All of which is a long way of saying that unless you really cannot generate any preference at all between McCain and Obama, you should probably vote.  Yes, it's a pain in the ass.  But that's civil society for you.

A welcome distraction

Sheer genius.

Money on the side

I can't prove that cops are ticketing more in order to make up other revenue shortfalls, of course, but it certainly seems true from anecdotal evidence.  This raises a larger question:  what to cut, and what taxes to raise, when recession hits?  States could avoid having to deal with this problem by building up reserve funds during the good years, but that's so obviously ridiculous that we won't talk about it.

To state the obvious, it is hard to cut spending during a recession--in some ways, harder than during a boom.  In good times, your laid off state workers can find jobs.  Now, no matter how useless their particular job may be, there will be outcry if you axe them.  Similarly, states find it easier to play around with things like speeding fees than to raise taxes. 

But it's not like speeding tickets are countercyclical; that money hurts as much as money taken out of the income tax.  And while it is politically easier to step up enforcement of rules no one has ever heard of than to have an onerous debate about the budget, it is corrosive to civil society to make people feel that they can be randomly and unfairly hit up for extra cash.  The nature of modern American law is such that no one can know, or obey it, fully; things like stop sign waits and emergency vehicle passage vary from state to state, and time to time, so that no one ever knows exactly what the law is.  Cracking down on trivial violations invades the safety zone that allows us to rub along without too much disrespect for the law.

Whither conservatism?

Ross ponders the future of conservatism and comes away depressed:

I think the deeper reason for my political gloom has to do with something that Jonah Goldberg raised in our bloggingheads chat about conservatism - namely, the sense that the era now passing represented a great opportunity to put into practice the sort of center-right politics that I'd like to see from the Republican Party, and that by failing the way it did the Bush Administration may have cut the ground out from under my own ideas before I'd even figured out exactly what they were.  As I said to Jonah. I have all sorts of disagreements with the specific ways President Bush attempted to renovate the GOP, on the level of policy and philosophy alike. But the fact remains that the renovation Bush attempted was an effort to respond to some of the political, social and economc trends that Reihan and I discuss in Grand New Party - and those of us who want a reformed conservatism have to recognize Bush's attempt, and reckon with his failure.

This is by no means a new insight, but it's one that's been brought home to me by the looming end of the Bush Era and the struggles of the McCain campaign. Conservatism in the United States faces a series of extremely knotty problems at the moment. How do you restrain the welfare state at a time when the entitlements we have are broadly popular, and yet their design puts them on a glide path to insolvency? How do you respond to the socioeconomic trends - wage stagnation, social immobility, rising health care costs, family breakdown, and so forth - that are slowly undermining support for the Reaganite model of low-tax capitalism? How do you sell socially-conservative ideas to a moderate middle that often perceives social conservatism as intolerant? How do you transform an increasingly white party with a history of benefiting from racially-charged issues into a party that can win majorities in an increasingly multiracial America?  etc.

Watching the McCain campaign, you'd barely even know that these problems exist, let alone that conservatives have any idea what to do about them. But there were people in the Bush Administration who did understand the situation facing the Right, and set out to wrestle with these challenges - and as a result, George W. Bush had a real chance (especially given the political capital he enjoyed after 9/11) to establish a model for center-right governance in the post-Reagan era. That he failed is by no means the greatest tragedy of the last eight years, but it is a tragedy nonetheless - for conservatives, and for the country.

I'm not counseling despair here: There were people in 1976 who thought Richard Nixon had irrevocably squandered the chance to build a new right-of-center majority, and looked how that turned out. But for now, as America goes to the polls, I find myself stuck thinking about the lost opportunities of the last eight years, and the possibility that they may not come round again.

A lot of my liberal friends seem to taste a giant realignment, the reversal of the Reagan Revolution.  Are we there yet?

Maybe.  By 1980, the Democrats had one answer for everything:  spend more money!  Now Republicans seem to think that tax cuts cure everything from economic malaise to trenchmouth.  Maybe conservatism has simply run its course.

On the other hand, four years ago people were talking about an era of permanent Republican hegemony.  The worm can turn pretty quickly. 

Obama is almost certain to disappoint in big ways; he doesn't have the money to pull an FDR, or even an LBJ.  He will have to fulfill their committments before he can look to his own, and the tax situation is looking pretty dire.  Obama may turn out to be the president of tax increases and spending cuts, which didn't work out so good for the first George Bush.

But for me, I think one thing is clear:  the Republican party cannot survive without some time in the wilderness.  Look at this election:  what do Republicans have to say, except "I'll cut your taxes and pay for it by cutting spending on some entirely fictional person who lives nowhere near you?"  and "Pointy headed liberals with fancy degrees are looking down on you!  Are you going to stand that?"  That's not a platform.  It's barely worthy of a drunken 3 am rant.

I don't like most of Obama's ideas, but at least he has some.  If conservatives really want smaller government and so forth, they need to step up their game.

Obama's grandmother just died

What a tragedy.  He can be glad that she must have died in little doubt of the outcome.  But while it's awful to lose someone you love at any time, it must be even worse to have it happen when you should be filled with the thrill of victory.  At least his victory is secure enough that he doesn't need to have divided attention at a horrible moment.

Twitterific

In case you haven't noticed, The Atlantic has a special feature on the home page:  our crack reporting staff is twittering the election.  The entire feed, including me, Josh Green, Marc Ambinder, and soon James Fallows and Ta-Nehisi, as well as some names you may not be as familiar with, will be Twittering for the next three days, so check early and often.

Meanwhile, you can follow my public twitter feed at Asymmetricinfo, if you want me permanently in your twitter feed. 

Why isn't it a good thing for bankruptcy judges to write down mortgage debt?

Well, look at how much you pay in interest on your credit cards.  Then look at how much you pay in interest on your auto loan.  Then look at how much you pay in interest on your home loan.

The credit card is what you pay for unsecured debt, all of which can be wiped out in bankruptcy. The auto loan is what you pay for a secured loan that can be modified in bankruptcy.  The mortgage rate is what you pay for a loan that can't be modified in bankruptcy.

There are other differences, of course; autos depreciate faster than homes, and they're easier to hide from the repo man.  On the other hand, they're usually a lot more liquid, shorter term, and represent a smaller chunk of income. 

You can't get around the fact that if bankruptcy judges can write down mortgages, lenders will demand to be compensated for the potential losses.  That means everyone who doesn't end up in bankruptcy pays more to subsidize those who have, and also, it will be even harder for higher default risks to get mortgages.

There's also the fact that you're going to encourage a lot more bankruptcy.  This will be bad for an already very fragile financial system, and it won't necessarily be better for the bankrupts.  Generous bankruptcy is one of the better innovations that America has come up with, and we're still a world leader there.  But by late 2005 it was clear that people were taking it too often; if you can get by without declaring bankruptcy, you're almost certainly better off not doing so.

Predictions are hard, especially about the future

From Greg Mankiw:

Monday, November 03, 2008

Galbraith on Mainstream Economics

I was struck yesterday by an excerpt from an interview with economist James Galbraith:

But there are at least 15,000 professional economists in this country, and you're saying only two or three of them foresaw the mortgage crisis?

Ten or 12 would be closer than two or three.

What does that say about the field of economics, which claims to be a science?

It's an enormous blot on the reputation of the profession. There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless.

Which is why the field of heterodox economics has done so much better at predictions.  Just look at how prescient The New Industrial State turned out to be . . .

Alas, Holtz-Eakin . . .

What is with the liberal economists suddenly discovering, in wide-eyed shock, that economists who are attached to political campaigns spin things to favor their candidates?  I don't like Doug Holtz-Eakins' candidate, nor for that matter, campaigns.  But he's conducted himself with integrity and a fair amount of civility throughout this campaign.  I've seen much nuttier economic pronouncements by Robert Rubin, like his extravagent attempts to claim virtually all of the 1990s economic boom for the Clinton tax hikes.  I've certainly seen Austan Goolsbee say things that I'm pretty sure he would not be saying if he were attached to a campaign.  Welcome to politics.  I am skeptical that Brad De Long and Paul Krugman have never noticed the phenomenon before.

Distinctions with a difference

Julian Sanchez has an excellent post up about the sophistic notion that there is no reason to draw a distinction between different types of government redistribution:

I've also been a little astonished to see progressives acting as though opposition to "redistribution" is just some bizarre incoherent notion, because duh, almost all government programs redistribute money in some way. At first, I thought this was just a cute bit of sophistry, on par with claiming that all government programs are "faith based initiatives," because Congress must have "faith" that the program will accomplish its goals. After all, the past half century of political philosophy has been occupied with debates over whether and to what extent it's appropriate for the state to redistribute income, and all the parties to that debate at least seemed to acknowledge that they had a real disagreement about some intelligible question. But the argument appears to be offered in all sincerity. So maybe it's helpful to consider a few different types of distribution.

At the very least, most government programs that require spending tax revenue will involve what I'm going to call incidental redistribution. Take the least controversial government functions, like national defense or courts.  These are textbook cases of public goods requiring public provision--they're supposed to benefit everyone, but in such a way that people can't be individually excluded from the benefit provided. Hardcore libertarians will probably disagree, but a similar case can be made for public subsidy of general education in a democracy.  Now, given that people vary widely in their ability to contribute tax revenue for such goods, even a flat tax means that people are going to kick in different amounts for these goods. So certainly there's a sense in which one might say provision of public goods involves "redistribution": People who can't afford to pay much, or anything at all, toward them at a given time nevertheless benefit from the funding provided by the better-off.

It's not especially helpful to talk about this as "redistribution" in the context of the historical debate over the idea. The justification for these programs is that they are a net benefit to everyone (or almost everyone) in society, including those who foot a disproportionate chunk of the bill for them. In terms of the Doctrine of Double Effect, most familiar from just war theory,  we can say that redistribution is an inevitable consequence of the provision of public goods, but not the reason for which programs providing public goods are enacted. Redistribution of a sort occurs, but it is not the point.

Now there are two other kinds of redistribution, and here I think it may be helpful to reference an excellent paper by Joseph Raz on distributional equality, about which I hope to have more to say in a future post. First, we have what I'm going to call altruistic redistribution. What I'm talking about here is transfer programs aimed at helping the badly off, where the justification for the program is specifically the benefit to the worse-off, and not centrally any benefit to the people footing the bill. Obviously, both justifications may be in play with respect to a particular type of transfer.  You may believe that all citizens in a democracy, including the very wealthy, benefit on net from public subsidy of education. But you may also believe that, quite apart from this rationale, we have a moral duty to ensure that the children of the poor have access to some threshold level of education, and that this would be the case, even if doing so were not a net benefit to the folks paying the bills.

Finally, we have what I'm going to call egalitarian redistribution, which is the view that resources should be transfered from the rich to the poor and middle class because economic equality is a good in itself.  The idea here is not simply that we have a duty to provide folks who can't afford it with some basic minimum quality of life--say, by ensuring that they have things like health care or education or food--but that fairness independently requires a more equal distribution of resources, above and beyond whatever duty we might have to promote the welfare of the badly-off in absolute terms.

Now, I think Raz argues pretty persuasively that the argument for distributional equality as an intrinsic good is very weak. And indeed, I've argued on this very blog (though I'm not finding the post just now -- update: found it, link added) that most people who argue against income inequality don't really do so on the basis of the intrinsic-value egalitarian argument, even if some of them think they do. Still, this sort of argument does get made, so it makes sense to include it, because it's arguably the most pure rationale for redistribution--an argument for redistribution as such, independent of any particular benefit to which we might think the poor are entitled.

Within mainstream political discourse, just about everyone accepts the need for the first type of (incidental) redistribution. Most people are also on board with some level of altruistic redistribution, though there's obviously a pretty broad gradient here, especially as egalitarian redistributive arguments get thrown into the mix. You can probably make a "now we're just haggling price" move here against people who support only minimal altruistic redistribution, but there are probable plenty of points within the "altrustic" rubric where you can reasonably draw a line and say that redistribution beyond this threshold goes too far, even if political campaigns are poor fora to dive into the weeds and establish the precise location of that line.

So I'm just not terribly impressed with arguments that move from incidental redistribution, or even low-end  altruistic redistribution, and proceed to the conclusion that it's somehow nutty or incoherent to deploy rhetoric that's skeptical of a "redistributive" philosophy of the role of government.

It seems to me that if you can see the difference between the Soviet leaders losing 10 million Russians in World War II, and the Nazis killing 11 million "undesireables", you ought to be able to tease out the distinction between redistribution as a goal, and redistribution as a side effect.

Heads up, Virginia

Apparently, if you pass a stopped emergency vehicle (including a trooper on a traffic stop) without pulling into the left lane, you can be liable for a huge ticket in Virginia.  DC area drivers, take note; they can pull you over even if you're going to the limit and not endangering the trooper.  I don't know about other parts of the country, but around here governments are partially dealing with their revenue shortfall by upping their traffic enforcement to outrageously persnickety levels; my sister got a ticket the other day for stopping at a stop sign for three seconds instead of the apparently requisite five.  There were no other cars around--except for the cop who handed her a gigantic ticket.