Annals of computer error

So, the good news is that we found a house at the last minute, inked a lease yesterday, and are scheduled to move in on Friday.  The news so bad it is actually amusing is that Washington Gas denies that our house exists, and Comcast just informed me that they cannot schedule appointments in the new year because their dispatch hasn't yet released the schedule--at 3:30 in the afternoon on New Years Eve. 

Strange days when you develop warm, fuzzy feelings for Pepco, the only utility willing to actually take our money.

The problem with Israel-Palestine blogging

Everyone engaged in it is interested in proving that one side is righter than the other.  Since no action in the region has occurred without plausible provocation for 4,000 years or so, this requires constantly shifting the metrics by which you measure whichever side you happen to favor.  Point out that Israel is killing a lot of civilians and you are told that they had to do something in response to the Hamas rockets.  Point out that practically, the response they chose has absolutely no strategic or tactical benefit, and a huge potential downside, and you are castigated for your lack of moral outrage about Hamas's attacks on civilians.  Either Israel is doing this because it hopes to gain something, in which case the whole thing is hopelessly ass-backwards--they are strengthening Hamas and worsening their international political position--or it thinks that it's okay to kill boatloads of civilians purely for revenge against Hamas; revenge for attacks that have so far killed and injured almost no one.  This rather undercuts the argument of moral superiority, because guess what?  That's what Hamas thinks it's doing.

On the other side, there's a tendency to forget, or forget to mention, that whatever the provocation, a plurality-to-majority of Palestinians constantly and actively wish to kill large numbers of Israelis purely for revenge.  Gaza wants to be at war with Israel, and then hide behind the protections of not-quite-war, because they haven't the foggiest hope of winning anything like a real war.

I'm of Northern Irish descent, and I grew up in New York City in a mostly Jewish high school, and so as you can imagine, I've heard all the arguments about who's really to blame about a zillion times.  And all I get out of it in the end is that the whole thing makes me sick and sad.  I don't see any untainted victims.  I see a bunch of people who have been stomped on by history beating up each other in revenge for past wrongs that can't be righted, lashing out whenever they think they can get away with it without losing the foreign funding that allows them to continue the fun.  And I don't ever blog about it because one is not allowed to have an opinion on the matter--no matter what I say, I'll be excusing terrorism or, irrelevantly, the holocaust, or shilling for western imperialism. 

The saddest, truest thing that I've ever heard about the conflict is a friend who said that it seems to him like a stable equilibrium.  In that spirit, I'm turning comments off on this post.  Happy New Year.

Is buying bonds really a good idea?

Felix Salmon is doubtful:

As for the bonds, this could turn out to be a really bad time to move into fixed income -- possibly the worst in living memory. Two things we know for sure: interest rates are incredibly low right now, and recovery values given default have also never been lower. A third thing we can be pretty sure about: the number of defaults is going to go up substantially before it starts coming down. Yes, spreads are quite wide, but only arbitrageurs care about spreads. Retail investors care about yields.

Put all that together, and you have a bond market where the downside is vastly greater than the upside. Yields can't fall much further than they have already, and default rates can certainly rise. So why buy bonds? Stay in cash, and you get a very similar yield for much less risk.

How long 'til analysts start touting canned goods and ammunition?

Open Thread: New Years Resolution

What's yours?

Holiday break

Reader Lincoln McClain sent me these clips of the 1930s.  I'd say they're a good way to waste an hour, but it doesn't really seem like a waste.

Housing prices fell 18% in October

According to the Case-Shiller index.  Analysts think this will put pressure on the government to do something:

The latest Case-Shiller numbers provide more ammunition to Washington policy makers who want to do more to fix the housing mess, according to Jaret Seiberg, an analyst with the Stanford Group, the policy research firm.

"These data just add to the tremendous pressure on the president-elect and the Democrats to stimulate housing," he said. "That means more lucrative tax incentives and broad foreclosure prevention. All of this will likely be in the stimulus plan that Congress adopts in January."

Nicholas Retsinas, Director of Harvard University's Joint Center for Housing Studies, agrees. "Housing problems are at the core of our economic problems," he said, "yet, of the government interventions made during 2008, few were focused on housing."

With a new administration and Congress in place next month, he expects to see a renewed interest in stabilizing the housing market.

Stabilize how?  Give people a ton of money to prevent foreclosure and nifty tax breaks to make their mortgages more affordable.  What then?  There will still be no buyers, because lending standards just got a whole lot higher--like, 15% down and sterling credit higher, as the article itself points out:

And although interest rates are currently extremely low - the 30-year fixed-rate averaged 5.14% during the week of December 24, according to mortgage giant Freddie Mac (FRE, Fortune 500) - that's doing more to help people refinancing existing mortgages than it is to help new home buyers.

"Buyers still have to have a 20% down payment," said Newport, "and, in this environment, it can be hard to meet that criteria."

An 18% fall in house prices lowers mortgage payments a lot more than a similar fall in interest rates.  As long as the rent-to-buy calculation remains out of whack--and for most people, it still is--new buyers won't be coming on the market.   Besides, the lower the interest rate is already, the harder it is to generate new interest by lowering it.  A 20% drop in a 9% mortgage rate saves the buyer 1.8% of the price of the house every year; a 20% drop in a 5% mortgage, only a little more than half that.  With ARM rates low, the problem with mortgages is that the principal is too big, not that the interest rates have shot too high.

The housing bubble produced spectacular overbuilding.  The only way those houses can be sold is to lure new buyers into the market--which, for the reasons outlined above, is better accomplished by lowering the principal, not the interest rate.  The alternative is to keep prices high, but make markets illiquid--you don't have to take a lower price for your house, but it takes you a long, mortgage-paying year to sell it.  This is not an improvement.

 

Colombia Freezes Gas Prices

You usually see price controls on commodities when they're soaring on world markets.  But not in Colombia, which just slapped price controls on combustibles.  We live in surprising times.

Gazprom's woes

The Russian oil giant joins the ranks of national oil companies in trouble:

Today, Gazprom is deep in debt and negotiating a government bailout. Its market cap, the total value of all the company's shares, has fallen 76 percent since the beginning of the year. Instead of becoming the world's largest company, it has tumbled to 35th place. And while bailouts are increasingly common, none of Gazprom's big private sector competitors in the West is looking for one.

That Russia's largest state-run energy company needs a bailout so soon after oil hit record highs last summer is a telling postscript to a turbulent period. Once the emblem of the pride and the menace of a resurgent Russia, Gazprom has become a symbol of this oil state's rapid economic decline.

State oil companies are lovely cash cows when gas prices are rising.  But they tend, on the whole, to be very badly run as companies.  One often hears that government planning lets companies invest for the very long term, unlike the psychotic short-termism of the stock market.  But at least in the case of oil, this often seems to be reversed.  The government's priority is maximizing the size of the benefits available for its politicians to distribute now, not ten years ago when they'll be dead or out of office.  The private oil companies planned for the strong possibility that the price of oil would drop dramatically.  Meanwhile, other state-owned companies let the money run out as fast as it came in.  Venezuela and Iran notoriously diverted desperately needed investment funds into social spending, while Gazprom and Rosneft went on a buying binge, snapping up assets that now look overpriced even though the government leaned on the private sellers to offer them at steep discounts.  Now investors are fleeing the Russian firms, and I imagine that Hugo Chavez, whose chronic underinvestment caused Venezuela's output to fall in absolute terms, is wondering how to tell the Venezuelan people that there's no money for all their favorite programs.  At least he doesn't have nukes.

There are exceptions--I understand that Aramco, Saudi Arabia's secretive oil giant, is supposed to be very well run, and Norway is a model of how countries should handle the financial and business problem of using up a valuable resource.  Sadly, before Chavez, PDVSA was also known for being first class. But most national oil companies are both less efficient at extracting and finding oil, and less intelligent about handling the money it generates.  It's not just excessive spending on patronage programs when times are good, or the difficulty of building up sufficient reserves for down times.  As the Times article points out:

The company, meanwhile, says it will go ahead with capital spending to develop new fields in the Arctic, and continues to pour money into subsidiaries in often losing sectors like agriculture and media. It is also assuming, through its banking arm, a new role in the financial crisis of bailing out struggling Russian banks and brokerages.

Investors say an unwillingness to cut costs in a downturn is a common problem for nationalized industries, and another reason they have fled the stock. When oil sold for less than $50 a barrel in 2004, Gazprom's capital outlay thatyear was $6.6 billion; for 2009, the company has budgeted more than $32 billion.

Gazprom executives say they are reviewing spending but will not cut major developments, including two undersea pipelines intended to reduce the company's reliance on Ukraine as a transit country for about 80 percent of exports to Europe. Gazprom and Ukraine are again locked in a dispute over pricing that Gazprom officials say could prompt them to cut supplies to Ukraine by Thursday.

I don't see any reason that governments need to control the rents on their oil fields by actually operating the equipment that pulls the oil from the ground.  Most countries would be better off financially if they leased the fields and let someone else do the dirty work.

Quote of the day

Tigerhawk:

As Megan says, Americans need to get their heads above the debt. It would have been better if they had come to this conclusion gradually over the last 20 years instead of all of a sudden over Labor Day weekend, but there you have it.

Department of awful statistics

From a jeweler's trade

Headline:  "NJ survey: Holiday jewelry sales drop 80 percent"

Article:  "New York--Santa seems to have snubbed retail jewelers this year, with 80 percent of those responding to National Jeweler's annual post-holiday survey reporting that their same-store sales dropped for the November-December 2008 period compared with the same period in 2007.

According to preliminary survey results, the majority of respondents saw double-digit decreases in their holiday sales. The current breakdown of the ongoing survey reveals the following: 65 percent of jewelers saw same-store sales sink by more than 10 percent, 8 percent saw sales drop by 6 to 10 percent, and 7 percent saw sales dip between 1 and 5 percent. Another 5 percent said their sales were flat compared with 2007."

This is probably not the fault of the journalist; we rarely get to write our own headlines, and we've all had at least one that was gotten, unbeknownst to us, gloriously, hilariously wrong.  But this is the wrongest I've ever seen.

That explains a lot

Washington Mutual's innovative new lending style:

"I'd lie if I said every piece of documentation was properly signed and dated," said Mr. Parsons, speaking through wire-reinforced glass at a California prison near here, where he is serving 16 months for theft after his fourth arrest -- all involving drugs.

While Mr. Parsons, whose incarceration is not related to his work for WaMu, oversaw a team screening mortgage applications, he was snorting methamphetamine daily, he said.

"In our world, it was tolerated," said Sherri Zaback, who worked for Mr. Parsons and recalls seeing drug paraphernalia on his desk. "Everybody said, 'He gets the job done.' "

Two years ago, like many somewhat financially literate readers, I was perusing newspapers stories about crazy negative amortization  mortgages and exclaiming, "What are they, on crack?"  Now we have our answer.

Tall people are richer because they are smarter

Or so says much of the new research, including a new paper noted by Paul Caron.  The theory makes intuitive sense, of course, and dovetails with my empirical experience.

I only have one small question:  why do all these papers seem to be written by people at least one standard deviation above the mean in height?

Bad news for retailers, and credit card companies

Retail sales plummeted in November and December.



This is exactly what I, for one, expected--every time I went to a mall, the parking lot was full, but there were no lines at checkout.  This isn't only bad news for retailers, but also for credit card issuers, since one guess where the money that wasn't spent at Christmas is probably going.

But it seems to me that this is actually good news for consumers and, in the long run, the economy.  Americans are massively over their heads in debt, and have been consuming beyond their means for a long time.  The data shows them cutting back their spending to more reasonable levels, and cutting back the most in the most discretionary categories.  I feel bad for Hermes and all, but we couldn't keep propping them up forever.

The kitchen gear that wins Christmas

The newest addition to our family Christmas celebration shook his head in wonder as we opened presents.  "Do you guys give each other anything except kitchen gear?" he asked.

Well, I also got Guitar Hero World Tour.  But mostly, no.

This year, my sister got me a Rotato express.  For years, I've joked about buying one--in that not really joking way where you knew that some day, I was going to stagger home from a discount kitchen warehouse with a Rotato in tow.  My sister got tired of waiting for the inevitable denouement.

I am pleased to report that for an "As Seen on TV" product, the Rotato Express is surprisingly useful.  I do not honestly expect it to last all that long--the plastic construction does not exactly scream "heirloom quality".  But it was awesome during Christmas dinner prep, peeling an entire bag of potatoes about as fast as I could stick them on the bottom prongs, adjust the peeling arm, and press a button.  The vats full of scalloped potatoes traditionally consumed by my family at Christmas have never been so painless.  If anyone has any advice on prologinging the life of their Rotato, I will be an avid listener.

Fun facts about the Minneapolis Fed

I've read a lot of data and papers from them, but never knew a thing about their building.

Life imitates art

Amen

Best.  Craigslist.  Ever.  For reasons too complicated to go into, I'm back on the rental housing market, and it's basically impossible to find anything on Craigslist because of all the listings responding to, as far as I can tell, a surging demand that exists only in urban legend.

It's hazard, but is it moral?

Eric Posner makes a very common point:

If you have government-supplied insurance, then you have to have government regulation of people's financial activities. There is no way to avoid this conclusion. In a world without such regulation, banks would make excessively risk loans because they get the upside and the taxpayer bears the cost of the downside.

Indeed, I have made it myself.  But I wonder if it is actually true.

Almost everything in the world has negative and/or positive externalities.  But despite this, we do not intervene to subsidize everything with good negative externalities, or punish everything with bad.  That's because things with substantial negative externalities often contain sufficient punishment to deter the individual; likewise, things with positive externalities often carry enough reward to produce a socially optimal amount.  For example, if I am a bus driver, the negative externality of my suddenly jerking the steering wheel to the left and driving the bus off a cliff is much higher than the cost to me--many lives against my one.  But my own life is very valuable to me.  The threat of its loss is enough to deter such behavior 99.9999% of the time.

Bankers take risk in order to make money, and they control risk in order to avoid losses.  But the losses they are most interested in are not to their shareholders.  Rather, they are worried about the loss of their jobs.  As long as the bank regulators fire any managers who put the bank in receivership, I can see no difference between an unregulated private system without deposit insurance, and a system with.  That isn't to say that there is enough regulation in either situation.  But if there is a problem, it is that bankers have a socially less-than-optimal risk appetite, or that the punishment for driving a bank into insolvency is insufficient.  The moral hazard from deposit insurance doesn't much enter into it.

The moral hazard for depositors may be large.  But I doubt it.  Most depositors are not capable of determining whether a bank is faulty or sound, and they weren't in 1830, either.

The reason that desposit insurance requires tighter regulation is that the government wants to minimize the cost to itself--not society, for whom the losses would be the same whether the government or the bank paid them.  I think this is wise, for many reasons.  But not because of moral hazard.

And it came to pass in those days that a decree went out from Caesar Augustus declaring all the world should be taxed . . .

Despite a crazy kind of season, I'm having one of my best Christmases either.  I hope all of y'all can say the same.




Merry Christmas to all, and to all a good day . . .

Hypocrisy, or rationality?

Freddie accuses me, again, of a double standard on Detroit and Wall Street.  I don't know what not wanting to bail out Detroit is supposed to make me want do to Wall Street.  I don't have any ideological interest in saving Wall Street jobs, no matter how devastating that may be for the local economy of my beloved hometown.  I don't think the CEOs, or any of the financial workers, are entitled to a damn thing beyond two weeks' severance.  I don't want to save the banking industry, except insofar as we can't get along without it.

In my judgement--and the judgement of most economists--a massive banking industry failure has the potential to take down the real economy into a Great Depression like death spiral, and the failure of even a large single non-financial industry does not.  I am interested in saving banking only to the extent that this is true, and no more.  It is not a matter of deciding who is most deserving, or cutest, or most historic.  We need a semi-functioning banking industry, for reasons that I've gone into, at this point, about eighty times before.  We do not need an American auto business, and in fact old line industries have collapsed in America before (see Steel, Bethlehem and US) without wreaking the destruction that their CEOs also promised would inevitably follow.

I have a theory of government which says that the government should make these kinds of interventions only where they benefit society as a whole, not when they almost exclusively benefit the interests to whom the money is given.  (I make exceptions for those who are, temporarily or permanently, unable to care for themselves.  But that doesn't describe the autoworkers, except insofar as I think they should get unemployment insurance and relocation help.  And anyway, I digress.)

Now, I may be wrong about my judgement that the collapse of the financial industry will destroy the economy in a way that the collapse of Detroit will not.  But it's not some belief that I just cooked up yesterday to justify giving outrageous amounts of money to my friends on Wall Street while sticking it to the UAW--indeed, a year ago any left-wing development economist could have happily and easily enumerated all the countries where a financial crisis had far, far worse results than, say, the collapse of the national automaker. 

But given that belief, my stance on both bailouts is rational, not hypocritical.  And frankly, I think that anyone who believes that the collapse of even a large national industrial concern is on par with the collapse of a nation's financial system is obligated to provide multiple historical international examples of their theory.  Because I can name dozens to support mine.

Obviously, if you think it's the government's job to pick economic winners and losers, and ensure that rich people lose as often as possible, then my stance is horrible and hypocritical.  I will explain another time why I think that this is neither just, nor in the long-term interests of American society.

For now, Merry Christmas, bankers, autoworkers, and all.

Request

Can we hold off excusing Clinton's egregious pardons on the grounds of Bush's pardoning all of his subordinates for horrible crimes until Bush, y'know, actually pardons some subordinates for horrible crimes?  

Weird bailout rumor of the day

I just heard a plausibly sourced rumor that Chrysler is changing its name.  That sounds like a merger, but maybe they just want to put the past behind them . . . 

An extended metaphor

For the old new economy

Invidious comparisons, part II

This post by Hilzoy illustrates a bizarre meme that seems oddly pervasive in parts of the blogosphere:

* The financial executives helped cause the present meltdown. Auto workers did not.

* The financial executives run their firms, and are responsible for their troubles. Auto workers and their union, by contrast, just got themselves a good deal by bargaining with management. That's their prerogative. I don't see that they're any more to blame for the problems of the Big Three than people who accept unduly large cash back bonuses on their new cars would be, had the Big Three miscalculated and given away more in cash-back bonuses than they could afford.

* Financial executives have just destroyed a tremendous amount of value and ruined the global economy. Auto workers have been busy creating useful things.

* In exchange for destroying value, financial executives get paid a whole lot more than auto workers. Orders of magnitude more. They even get multi-million dollar performance bonuses when their firms lose money! And their benefits are a lot more cushy: not just good health care but private jets and chauffeurs!

* Punishing financial executives helps reduce moral hazard. Punishing auto workers does not.

She forgot to add:  financial executives have been fired in large numbers and taking pay cuts that reduced their income to a fraction of what was expected six months ago.  Auto workers have not.  Financial firms are in the process of laying off hundreds of thousands of their best paid workers (50,000 at Citibank alone); auto firms are not. 

The shrinkage of the financial industry, and the vastly reduced pay prospects of its workers, seem entirely reasonable to me, though of course extremely sad for people who put themselves through expensive rounds of schooling in order to secure luxe jobs on Wall Street which have now disappeared leaving them broke and trying to sell the houses and cars they can no longer afford into a panicked local market. But I am fairly sure that the auto workers do not want the deal, as a class, that those rapacious financial executives have been given, which includes horrifying job insecurity, massive paycuts at the discretion of their managers, and for many or most of them, the knowledge that they will almost certainly never again earn a tenth of what they had set their lives up to expect.  Believe it or not, having your life ripped up in front of you and your industry destroyed, and all the plans you made fifteen years ago to build a secure future evaporate, doesn't get magically more fun because you've got an MBA. 

The majority of people who are getting canned right now didn't even, as the UAW workers had, get some small vote on how they would effect the shape of their industry.  Structured finance and investment funds are only a small part of what investment banks do.  Strufin and the mortgage desk are out on their ass, of course--but so are lots of people in M&A; and various investment banking groups that specialized in equity and corporate bonds and wouldn't have known a CDO if it bit them on the ass; corporate and muni bond traders; cap markets guys, and so forth.  All their markets dried up because of a credit crisis that they cannot even arguably be credited with creating.  It's no more fair that they have to sell their house, move in with the in-laws, and try to figure out what the hell they're qualified for, than that autoworkers have to.  Less, maybe, because the autoworkers have had a lot of warning that their companies are on shaky ground.  What sort of moral hazard are we reducing by destroying their lives?

That'll teach them to play by the rules all their lives, get a lot of education, and go to work for a bank!

Apparently the message we want to send is "Don't go look for a high-paying job; get a picturesque one."

No one in the financial industry declared that their salaries and perks weren't on the table until some vague and unspecified date in the future, as the UAW has.  Actually, from what I understand, the CEO of Lehman tried to, and he was rightly told to go piss up a rope.  The executives of the failed banks had a huge portion of their net worth tied up in said banks, and have now lost most of their assets.

That is not to say that we should feel excess sorrow for them, or try to preserve their jobs, or the gargantuan sums that they were paid five years ago.  The financial industry was bloated, the salaries out-of-whack with any possible real economic value they could be argued to have provided to anyone, and that will have to change--but we don't need the government to ensure that, because the industry is contracting rapidly, and the worst-hit parts are exactly the places that were most out of line with economic reality.  We might like to go back and seize everything they made over the last five years, but for various practical and legal reasons (and arguably even moral ones), we can't, so the pointless fantasizing isn't getting us much of anywhere.

Any CEOs who tried to pay themselves bonuses out of TARP are cretins who should not have been permitted to do so.  But aside from John Thain, who didn't create the mess at Merrill--he took over in December 2007 to clean up the destruction, and lost his job less than a year later when he had to merge the bank with BofA to save it--I'm not aware of any CEOs who have been paid any bonuses out of TARP.  That's not to say that there aren't any.  But the AP's infamous report on outrageous compensation mostly seems to be 2007 funds that we can't claw back because, er, they lost it all in the collapse, or stock options that will only pay off if the firm does well. 

In short, if the Detroit were given the deal that the financial industry has actually gotten, rather than the deal that they got in the pervasive blogger fantasy world where everyone in the industry is using government funds to continue exactly as they were before, Ron Gettlefinger would hardly be a happy man.  And I think that most of the people who Hilzoy thinks of as picking on the auto workers would be willing to accept a deal in which the Big Three got some funds in order to put its balance sheet back together, then started firing people at will until they were small enough to make a profit again.

Madoff feeder fund: buyer beware

Apparently, one of Madoff's investors actually warned its clients he (or someone else) might abscond with their money:

Kingate Global, which channelled its money to Bernard L Madoff Investment Securities to manage, highlighted the risk of giving custody of its assets to its investment manager - Mr Madoff, although he was not named in the documents - and said they would not check the accuracy of statements he provided.

No doubt whoever wrote that disclosure is patting himself on the back for protecting his firm from the lawsuits that are undoubtedly about to ensue.  But I imagine at least one trial lawyer is rubbing his hands and asking, "What did they know and when did they know it?"

What's the real value of Harvard's endowment?

For years, financial journalists have been hearing about the extraordinary talents of the clever chaps who run Harvard's endowment.  In some way that is not quite clear to me, the vast and shadowy operations of the richest and most elitist university in the United States--quite possibly in the world--was supposed by many liberals of my acquaintance to be a rebuke to Wall Street, and capitalism more generally.

The admission, several weeks ago, that the endowment had lost a quarter of its assets, took down the icon a peg.  Harvard, it turned out, had not discovered some magic way to make a ton of money without risk after all.

Now Edward Jay Epstein suggests that it's not as bad as all that . . . it's worse:

Harvard University's admission that it lost $8 billion from its $36 billion endowment fund, as staggering as it sounds, may grossly underestimate the true magnitude of the loss between from July 1 through Oct. 31 2008. According to a source close the Harvard Management Corporation (HMC), which runs the fund for Harvard, the loss is closer to $18 billion if the losses on the fund's illiquid investment are realistically appraised.

To be fair, the fund managers may believe, justly, that since the Harvard Endowment (unlike almost any other fund) can guarantee that it won't need to sell any of its illiquid assets any time soon, their valuation is closer to "true" value than a massive write-down.  On the other hand, that's how we value funds--by what they could get now, not by what they might get at some unspecified point in the future.  And it seems to indicate that Harvard was getting its high returns just like all the other financial firms were:  by investing in risky, illiquid assets (including shares in hedge funds who did same).  Their ability to massively diversify--again, much more than most funds who have shorter time horizons and narrower mandates--made that almost always a winning strategy.  But as Brad DeLong has noted, in a financial crisis all correlations go to one.

Are we targeting the symptom or the disease?

You've heard me say here that many of FDR's schemes were lunatic and probably helped prolong the depression.  (If you're a liberal, you have probably spent more than a little time in the comments screaming that I'm a heartless and innumerate fool who wouldn't know good economic policy if it bit me in the aggregate demand.)  But of course, some of his policies actually helped the depression, like the FDIC.  Some of them did nothing about the Depression, but were good for other reasons, like (I'd argue) the WPA.  Some of them were possibly unwise, but not horrific; the TVA comes to mind.  And some of them were disastrous, like the NRA and the attempts to drive up the price of gold through open market purchases.

What distinguishes the worst programs?  Assigning a causal role to symptoms.  FDR's economists had noticed that when the price of gold went up, so did (generally), the price of other commodities.  Some lunatic suggested that one might raise the price of commodities which were currently in big trouble by driving up the price of gold, and FDR tried it. Gold and commodities tend to rise in tandem, of course, because demand for money (which gold then was), and for gold as an industrial and jewelry uses, expands when the economy is booming, as do demand for food and oil and all other good things.

Similarly, some bright boys in FDR's administration noticed that wages and prices tend to rise in boom times.  Hence, they decided that by keeping wages and prices high, they could bring back prosperity.  The National Industrial Recovery Act attempted to organize the economy into giant wage-and-price fixing cartels of industry and labor.

The result, in a time of contracting demand and deflation, was to create more unemployment and deprive consumers of goods. 

I wonder if the policy community's current fixation on propping up housing prices is not akin to these plans.    Prices of houses are contracting as a result of the collapse of a credit bubble--but are falling house prices a cause, or a symptom?  Europe's experience seems to suggest the latter.

Thus, I naturally wonder if fighting to keep the housing market from falling might, like the NIRA, actually make things worse.  I'm still thinking through the implications of exactly how it might disimprove our current nasty disequilibrium--though shutting out new homebuyers is surely part of it.  But it's something to worry about that no one I see is much worried about.  A lot of people are grousing that it won't work, but very few are complaining that the act of propping up prices might, by itself, worsen the housing market and the general economy.  Am I crazy?

Riding to the rescue!

The Washington Post cries "Dramatic Rescue follows massive watermain break!"  I watched this on CNN from my father's apartment in New York.  The most dramatic part to us was the fact that they seemed fixated on using boats to rescue people, rather than the obvious step of stretching ropes across the road and strapping the people to them to walk out.  Nor did anyone mention the seemingly even more obvious step of shutting off the water main for an hour, or at the very least, dropping sandbags over the break--though the Post claims crews found the water too turbulent to get to the valve.

Methinks the emergency responders may have had a lot of shiny new equipment, funded by the federal government's post-911 spending spree, that they wanted to try out.  But maybe there was something I was missing.

Kennedy yesterday! Kennedy today! Kennedy forever!

Let us mince no words:  the idea that Caroline Kennedy might be nominated to the Senate is embarassing.  I come from a state that has given its fair share of bad ideas to the world.  Punitive drug laws.  Pennies ground into a medal with the Empire State Building on it.  Rudy Giuliani for President.  But this goes beyond that into a zone previously occupied only by the inventors of Pepsi Clear.  We fought a whole war and everything to get away from political dynasties.  Why are so many brain dead boomers avid to reinstall the talentless byblows of their bygone youth?

Cranky Professor has some answers.  They are good answers.  But they are not satisfying.

Just say no to drug laws of all sorts

As a libertarian, of course, I just want to see drugs legalized.  So I'm something of a bystander to the argument between liberals and conservatives over the relative benefits of spending money on treatment programs, and spending it on prisons.

Here's some evidence, though:  treatment programs don't actually seem to work show much evidence of working.  So it's foolish to spend money on them.

On the other hand, prison doesn't really seem to do a good job of curing drug habits, and it also really screws up the lives of the people we sent there.  It's almost . . . why, it's almost as if the libertarians were right all along!

One thing I wonder is how much law enforcement favors drug laws for themselves, or whether they view them as a way to catch bad guys who are otherwise untouchable.  I think most people who favor criminalization genuinely mostly want to protect their children from the possibility of acquiring a drug habit--and don't much think about the price that poor kids, and their neighborhoods, end up paying for the laws that send the seller to prison and the user to treatment.  But I'm not sure that's how the professionals who support these laws view it, because they're presumably all too aware of how abysmally the laws fail to protect many peoples' kids.  I have spoken to three narcotics cops in my life; all three favored legalization, on the grounds that it was simply not possible to make any serious dent in the supply of drugs.

I wonder if instead these aren't the modern way of "getting Al Capone for tax evasion"--a convenient way to throw gangsters in the pokey for other crimes.  It is presumably easier to trace the transshipment of large quantities of cocaine back to the kingpin than the murder of one of his underlings.  If you believe--and I have heard quite plausible arguments that it is so--that the gangsters at the top are predators who settled on drugs as the most lucrative area for predation, rather than a product of the black market, than this is not entirely unreasonable.

I still think that it would not make sense to criminalize drugs.  I'm against "Getting Al Capone for tax evasion", and especially against the notion that we should create special laws to do so.  And it seems perfectly obvious to me that the ancillary human costs of these particular laws would be far too high even if I supported them in principle.  But it does suggest that libertarian arguments to the drug enforcement community may be addressing the wrong question:  we're offering devastating arguments to refute the notion that drug users are bad, or at least bad in a sense that can be justly or even usefully cured by prison.  If what they're asking is "Do these laws help me catch bad guys?" then our answers aren't really germane.

Unhappy results when God and Mammon meet

Churches turn to Chapter 11.

Home for the holidays

We're embarking on an extended haul to New York City and then Western New York, so blogging will probably be light today.  Gift guides to the right for those doing last minute shopping, and my sincerest hope that you don't get trampled at the mall.

Help us save our homes!

Glenn Hubbard calls for the treasury to refinance peoples' mortgages at low rates:

Raising the demand for housing makes sense now. While fundamental factors clearly played a role in driving down house prices that were at excessive levels two years ago, we have argued in a paper (to be published in the Berkeley Electronic Journal of Economic Analysis and Policy) that in most markets house values are today lower than what is consistent with the average level of affordability in the past 20 years.

Nonetheless, without policy action house prices are likely to continue falling, thanks largely to the meltdown in mortgage markets and the weakening employment outlook. Conversely, we see little risk that increasing the demand for housing will touch off another housing bubble. And indexing the mortgage rate to the Treasury yield could avoid this outcome in the future. While the economy is contracting, low interest rates would spur housing activity. When economic activity improves, the U.S. Treasury yield and mortgage rates would rise.

A 4.5% mortgage rate is not too low. The 10-year U.S. Treasury yield closed at 2.3% on Dec. 12, 2008. Hence a 4.5% mortgage rate is 2.2% above the Treasury yield, above the 1.6% spread that would prevail in a normally functioning mortgage market.

Some have argued that lenders should earn more than the average 1.6% spread, to compensate for the fact that housing is a much riskier investment today. We don't think so. Recall that a mortgage can be thought of as a risk-free bond plus two possibilities that increase risk to lenders: default and/or prepayment. Historically, the risk of default adds about 0.25% to the interest rate. The remaining spread of the mortgage rate over the Treasury yield represents the risk of prepayment and underwriting costs. With falling house prices, the risk of default could indeed add 0.75% or more for a newly underwritten and fully documented loan. But 4.5% would be the lowest mortgage rate in more than 30 years -- so the additional risk to lenders of prepayment would be almost nil. And low mortgage rates would substantially reduce the risk of further house price declines...

Brad DeLong seconds the motion.  Arnold Kling vehemently dissents.

I've been thinking a lot about this because I've been following rather closely Elizabeth Warren's attempt to broaden TARP's mandate from protecting the financial system to making sure that people don't suffer from falling house prices.  (See Economics of Contempt for an acerbic critique of that attempt from the center-left).  My recent foray into the housing market has exposed me to the tragedy of overextended landlords, and it is indeed tragic.  We've seen a lot of landlords who are clearly at the end of their financial rope.  Can we help them?

I'm pretty sure we can't, for several reasons.  The first is that a lot of economists (and me) think that the housing market has quite a bit further to fall--but perhaps Glenn Hubbard is right and they are wrong.  But the second problem is that I don't think what we're seeing is simply a matter of excessively high interest rates.  ARM rates (that being what the problem mortgages mostly had) are not high right now.

I think we're seeing a lot of problems that low mortgage rates won't fix:  a supply overhang, as Arnold points out, and people who need to sell in order to move or downsize after a job loss.  But mostly I think the problem is that the housing market, and homeowners, had not merely become dependant on easy credit, but on expanding credit.  House prices two years ago were founded on the implicit assumption that the homeownership percentage would keep rising, not merely stay steady.  And it can't rise any more, or even stay where it is, without putting a lot of people into risky loans.

Risky not because they necessarily have a high interest rate, but because when you own a house, you're very illiquid.  If you need to sell quickly, to move or downsize, you can end up in big trouble.  The way we used to protect against that illiquidity was to require big downpayments--traditionally, 20% of the house.  That way you could be virtually assured that you could, if you really had to, get out without involving the bank.

Some of the problems in mortgage markets are because of resetting interest rates.  But a lot of the problems are because people are hitting financial hardship, or they need to move for some other reason.  In the olden days, people in trouble could take out home equity loans to tide them over, or sell the house.  But with negative equity, they can do neither.  If someone has lost their job, lowering their mortgage payment from $1,000 to $850 is not going to help for long--and indeed, getting into that sort of program will probably take longer than they have.

The only way to really stabilize markets is to somehow build up home equity.  But such a program is both incredibly expensive, and politically ludicrous--are you really going to give people tens of thousands of dollars outright because they took out a mortgage they couldn't afford?

Beyond that is the problem of how the government manages all these loans.  They will, definitionally, be the ones to the borrowers most likely to default on even the newer, cheaper mortgage.  Foreclosure is said to cost banks 25-50% of the price of the house; it will not be cheaper for the government.

Whether or not it should, there are certainly situations where the government can prop up prices artificially.  But the housing market is too big, and too dislocated, for that to work at this point.  The supply curve and the demand curve will find each other--and given the overhang of new construction, I'd guess that in the near future, they'll meet at a point even lower than we're seeing now.

Big Three get a deal to save the day --but not the year

The White House has unveiled an auto bailout package:

The deal would extend $13.4 billion in loans to General Motors Corp. and Chrysler LLC in December and January, with another $4 billion likely available in February. It also would provide the government with non-voting warrants, although the exact amount was unclear immediately. Ford Motor Co. has said it doesn't need short-term assistance.

But there's a poison pill

The deal is contingent on the companies' showing that they are financially viable by March 31. If they aren't, the loans will be called and all funds must be returned.

There is no way that the auto companies will be financially viable by March 31st.  They haven't been financially viable for 25 years.

I've been thinking a lot over the last few days about the quarrel between liberals and libertarians over the bailout.  I will now attempt a fair rendition of how I think liberals think about this; if I fail, forgive me and explain my error.

The liberals who want to save the UAW think of it this way:  Detroit is in trouble because of some combination of economic downturn and unfair competition from southern plants or abroad.  There are a number of different ways to get back to profitability, but conservatives, who are ideologically opposed to unions, are only interested in making sure that the union bears as much of the cost as humanly possible, or in killing off the Big Three altogether so that the UAW will be destroyed.

I think this is mistaken, though if you don't follow the auto business, it's not necessarily obvious how this is mistaken.

I will now attempt what I think is a fair rendition of Detroit's history over the last fifty years.    In the early 1950s, for various reasons Detroit developed a cozy three-way oligopoly.  The UAW developed a cozy monopoly on supplying labor service to that oligopoly.  In some ways, the UAW helped sustain that oligopoly.  If you're a big company whose quality suffers, you have problems.  But if you have a union making sure that labor quality cannot vary across the industry, you don't need to worry that your competitors will make a better car.  Detroit competed on styling and power, not reliability or price.

During those years of oligopoly, the Big Three's first loyalty (after their loyalty to management) was loyalty to the union.  The worst thing that could happen to a Big Three manager was a strike.  Making a car that is reliable is only partly a matter of engineering; it's mostly a matter of extremely tight control over the assembly process.  That tight control is necessarily less pleasing to the workers than looser rules.  The unions could severely hurt a company with a strike.  Whereas the customers?  The customers could only go to another company where the same union was negotiating the same loose work rules.

(Yes, yes, I know that Toyota does it differently, with group responsibility.  But Toyota's system was developed in the absence of a strong union; the adversarial model that the UAW had developed along, however historically necessary, made the Toyota example completely unworkable in a Detroit plant.)

After the unions, for the Big Three, the government was the next most worrisome constituent, followed by the dealers, then the suppliers.  The customers were somewhere down there with the mayor of Youngstown, Ohio, in emotional importance to Detroit managers.  It's not that the managers in Detroit had anything against their customers, and I've no doubt that they had lots of meetings in which moving testimonials to the gosh-darned swellness of Chevy or Buick or Mercury buyers.  But the buyers had little power to punish them, and their other constituencies could make their lives miserable.

This showed in a lot of things:  yes, the luscious deals they negotiated with their unions, and the gold plated benefits promised on the theory that Americans would continue to buy their cars no matter what; but also their engineering, and management's willingness to ship cars with known defects, and so forth. 

Two things changed.  First, foreign automakers began to compete in the US; David Halberstam's The Reckoning, though I believe it is out of print, remains the best discussion of this process.  And oil prices shot up, which severely hurt the demand for cars--especially the larger models on which Detroit had historically made all its profits.

Detroit should have reacted, I'm sure, by making smaller cars.  But smaller cars were harder to make for Detroit.  Buyers thought of them as a non-premium product, which meant they wouldn't pay for the lucrative options packages.  And because they used fewer materials, the labor component became a relatively larger part of their cost.  Labor was where Detroit was least competitive.  According to the automotive analysts I've seen, Detroit still loses money on small cars like the Ford Focus, which are sold at a loss to help make Corporate Average Fuel Efficiency numbers come out.

Detroit needed to do a lot of things in the 1970s.  It needed to get better engineering, it needed to get control of its assembly process, and yes, it needed to lower labor costs.  But it did none of these things.  By the early 1990s, Detroit wasn't even trying very hard to make a profit on cars.  Detroit was making profits on light trucks, where the higher sticker price made it easier to hide labor costs (and which foreign companies were not, anyway, very good at making).  It's worth noting that Detroit's focus on light trucks was not merely a management decision; it was what the powerful unions wanted, because they knew the math as well as management.  Light truck plants were better for the UAW than more Ford Focus capability. 

But perhaps more importantly, Detroit turned from making money on cars to making money on financing.  Detroit didn't make a big profit by selling you a Ford Taurus.  It made money on financing your Ford Taurus; often, the car was sold at a loss in order to get the finance business.  The Big Three were banks manufacturing cars as a loss leader.

That's why they could afford to pay their workers above market wages.  They were not trying to make a profit on the manufacturing process.  The UAW wages and benefits were not compatible with profitability in the auto business five years ago.  Or ten years ago.  Or fifteen years ago.  The UAW is not being asked to bear the pain of returning the company to profitability in a tough market.  The UAW is being asked to get their wages back to where they would have been in the first place if they hadn't been subsidized by the now-unprofitable financing arms.  Detroit has spent decades buying labor peace with increasingly desperate ploys that have finally run aground.

It doesn't really matter who should have changed their ways twenty five years ago; most of those people are retired or dead now, and there's no just reason that either management or labor should pay for their sins.  Nonetheless, both will, because there's no one left.

It is probably true, as Bob Casey cries, that UAW costs are only 10% of Detroit's costs.  But like executive compensation, and bond obligations, those costs are 10% with room to cut.  Detroit has no room to cut the cost of the steel in its cars, because steel is bought on the open market.  Ditto glass, and so forth.   Aside from squeezing suppliers still further, Detroit has only three places they can claw back significant savings:  bondholders, dealers, and labor.

The bondholders can, and will, take a haircut.  But it is not really particularly just to drive their loss up to 100%, rather than the 70 or 80% they are now facing, in order to keep making unprofitable cars at premium wages--and if you make it clear that the government will intervene to confiscate their money and hand it to the workers, Detroit will face even higher borrowing costs in the future.  In a capital intensive industry, that is death.

Leave aside that you would be taking money from those who lent in good faith, violating a past agreed obligation, in order to satisfy a newly created future obligation to provide the UAW jobs.

The dealers will take some sort of a haircut, too; a lot of them are going to go out of business.  (And check out some of the nasty surprises Detroit has recently handed its already struggling dealers in order to conserve its cash.)  But dealers are not quite as useless as is generally supposed by people who fancy that we should all order our cars the way we order computers from Dell.  I'm not saying such a thing is impossible--franchise laws have made it impossible to attempt that business model.  But that business model is not as flawless as it seemed back when I was a newly minted MBA.,

As I now understand it, thanks to the helpful folks at McKinsey who explained it to me a while back, dealers are a way of handling the fact that auto manufacturing plants break even only at very high capacity usage; you cannot profitably make only 50 cars in a 500 car plant if demand is slow this week, because of your fixed costs (including labor!)  Dealers take non custom inventory and craft deals that make it attractive to their local buyers.  In other words, they haggle.  We hate it--but if we didn't have it, our cars might either have fewer features, or be a lot more expensive, because of the scale problems.

They also provide capital for selling cars.  Dealers have their own independent credit lines, which they use to buy cars, advertise, and so forth.  Dealers may be parasites on the body public 95% of the time, but right now, they're probably helping keep the Big Three out of bankruptcy by carrying unsold inventory, not pushing them deeper into it.

Nonetheless, the consensus is that Detroit needs to trim dealers, to whom it also extends a great deal of credit, and consolidate operations.  But even if we got rid of the franchise laws, getting rid of the dealers wouldn't get Detroit all the way.

Detroit could lean on its suppliers, of course, but that just pushes the bankruptcy--and the UAW job losses--back one level.  Supplying Ford is not exactly a license to print money these days.  And the rest of its components are bought on the open market.

What about management?  I hear you cry.  Management's salaries can (and are) being cut, for the same reason that labor's may be:  they're not set in a perfectly competitive market.  But they're not a big part of Detroit's overall cash problem.  With a burn rate of $4 billion a month above revenues, getting all of Rick Wagoner's cash back, and making him buy his own coffee to boot, will run the company for about a minute.

Most of the rest of management is boring, middle class folks who are not magnificently remunerated:  purchasing managers and payroll supervisors, sales executives and engineers.  Their salaries will be cut, and a lot of them will lose their jobs.  But a fair number of them make less than the UAW, and there are a lot fewer of them.

The really miserable thing is that even a total bankruptcy may not be enough.   Wipe out the shareholders, cut the bondholders to the bone, shuck the gold-plated medical benefits, toss out the UAW contracts, close the dealers--and we still may be left with companies that cannot make a profit without a now-defunct financing business based on ever-growing loans to ever-poorer credit risks.  The Big Three, with the help of the UAW and all their other partners, has spent 25 years building a reputation for poor reliability and ugly cars.  Brands matter.  Once destroyed, they're very hard to repair in the best of times.  These are not, quite, the best of times, are they?

All the quibbling about whether people will buy a car from a bankrupt manufacturer seems to me to be largely beside the point.  If people think the companies can't make it, they will act as if they're bankrupt, whether we use the "B" word or call it "Splendiferous Corporate Reorganization and Restructuring For Most Excellent People's Automotive Concerns".  And right now, they've got very good reason to think that the Big Three can't make it.

Bet Ron Gettlefinger is kicking himself

Bush weighs "orderly bankruptcy" for the Big Three.

This is the option that's always seemed to make the most sense to me.  The "Car Czar" didn't really seem to be much different from a bankruptcy judge, except perhaps in allowing all three to collude to beat up on either consumers or suppliers.  We have a very, very good system for taking distressed companies back to profitability--to be sure, it doesn't always work, but it works better than anything else anyone's ever tried.

The biggest concerns about bankruptcy are two:

1. How will the Big Three obtain Debtor-in-Possession financing in a credit crunch?
   
2. How will they convince people to buy their cars if there's a risk that the warranties will be no good, or Detroit will fail and hence stop making parts?

The government is in a pretty good position to answer that question; it can be the lender of last resort, and if necessary, it can guarantee the warranties, and loan Detroit the money to build a "parts bank" to insure customers against liquidation risk.

Sheer genius

Credit Suisse is paying its top executives in illiquid mortgage-backed securities.  I've no doubt that someone, somewhere, will find a way to complain that it's not fair, but it strikes me as a very good idea.  If the things really are any good, they make money; if not, they take a bath along with the rest of us.  

Oil falls below $40 a barrel

The stock market isn't looking so hot either.  Both are essentially guesses about the economic future.  And the guess is pretty grim.

Medical prime

Ezra asks how we can make it more attractive to become a primary care physician:

The problem they're responding to is real. We're about to face an epic shortage of primary care doctors -- we're talking 44,000 or 45,000 too few docs -- which will ensure massive disruption for patients. The problems for primary care are basic: Fewer graduates, more patients. As I understand the issue, there are two problems here. The first is lifestyle. Primary care doctors have too many patients, too little time, too much paperwork, too much administrative hassles, too little satisfaction. The other is money. Primary care doctors make far less than specialists, even though they go through a similarly expensive and rigorous training process. It's no surprise, then, that most doctors opt to become specialists, where they have better incomes and more control over their lifestyle. The famous stat here is that the highest MCAT scores are now to be found among dermatologists. Great money, nice lifestyle.

The money fix being proposed comes on the payment side. How can we make it lucrative enough to be a primary care doctor? The answer is increase the pay of primary care doctors. And there's an argument for this: More primary doctors would probably make the system cheaper, even at higher reimbursement rates. Specialist medicine is expensive. But you could also examine the problem on the training side: How can we make it cheaper to become a primary care doctor?

It's not quite true that there's no relationship between training and earnings in medicine:  surgeons go through the most gruelling residencies, and also tend to make the most money (it does depend on the specialty).  But the relationship between the two is out of whack.

The relationship is out of whack because there's no real market for these services.  A shortage of primary care doctors should send a price signal that we need to pay them more, or make their lifestyle more attractive.  But both Medicare and private health insurance have thoroughly stupid reimbursement policies for their physicians.  Doctors make money off procedures, not visits or health, which means that critical specialties like primary care and geriatrics are woefully understaffed.  Medicare could fix this by giving a bonus to primary care physicians and geriatricians, raising the reimbursement for their office visits.  But it can't, for several reasons:  it's already out of money, and trying to cut, not spend more; and the powerful medical lobbying groups that "help" set Medicare reimbursements are dominated by surgeons.

The insurance companies have just as little incentive to fix the problem.  After all, if it's hard to find a doctor, and your doctor makes you wait a long time for your appointments, you use less healthcare.  Brilliant, eh?

Ezra suggests opening up the field to nurse practicioners.  I don't know enough about primary care practice to comment one way or another (I'm sure my readers do, and will).  Anecdotally, however, I will say that every time I've had a nurse practicioner rather than a physician, I've ended up very, very happy with my experience.  I can think of two or three doctors in my lifetime who have given me the kind of personal, attentive care that I've gotten from every single nurse practicioner who has ever taken care of me.  I presume this is a cultural difference between medical school and nursing school, which has been described to me thusly by a midwife (nurse practioner):  doctors learn how to treat diseases; nurses are trained to take care of patients.

A modest proposal

Time for a ban on short selling oil?

Now look, look, don't get us wrong... we're all for free markets here. In normal times, the market is the best way to set prices. But in extreme times when the market stops behaving orderly and the prices make no sense, the government must, unfortunately, intervene. The first step is a ban, or at least an uptick rule, on shorting oil.

Holiday Gift Guide: Girl Stuff

Believe it or not, I'm something of a girly girl.  I like high heels, makeup, and loving rituals involving gentle exfoliants and moisturizer.  Having been told that this makes me look unserious, I have refrained from putting up this sort of guide in past years.  But applying makeup is no more unserious than playing video games, and, one might argue, is at least as much fun.  So:  the official Megan McArdle guide to girl stuff.  If nothing else, the trolls will enjoy sniffily declaring that this doesn't belong in the same magazine that published Mark Twain, (you know, the one who wrote lengthy essays about serious topics like cigars).

Makeup is probably my area of greatest expertise. [Insert obligatory comment on how badly I need it]  Makeup is interesting stuff; some of it is worth paying for, and some of it you might as well just buy from the drugstore.  Unfortunately, the latter category doesn't make very good gifts; people tend to look at you strangely if you hand them a plastic snap-box of Max Factor eye shadow.  Save that for yourself and pick from these:

Foundation:  The Bare Escentuals Get Started Kit.  Do not pay any attention to the founder's blathering about the miraculous properties of the earth, which she seems not to realize is, like all other makeup, composed of chemicals.  This makeup nonetheless works really well, particularly for people with (like me) extraordinarily sensitive skin.  I'm allergic to chemical sunscreens, so this makeup, which is based on one of the metal oxides, is the only thing I can wear on my face for sun protection.

This foundation works best, however, with a decent exfoliator and a lot of moisturizer, because it plays up rough skin more than liquid.  On the plus side, it doesn't streak, doesn't run, and doesn't look caky.  Overall, almost everyone gets great results with it, but make sure you're properly moisturized before you start.

Lips:  Never buy lipstick for anyone; you simply can't judge what it will look like.  Even women don't have a very good idea of what will look as good on their lips as it does in the tube, which is why most of us have a drawer full of once-used drugstore lipsticks.  What you can buy, if you're of a mind, is a set of lip gloss.  Because they're sheer, almost all lip glosses look okay on almost everyone, and chances are she'll find a few she really loves.  The great gloss trend is over, and gloss is on its way out, but you're still safe this year.  This Stila set provides really good colors in small sizes at a really good price.

Cheeks:  I just don't see the sense in paying good money for expensive blush.  The stuff from the drugstore is the same damn stuff at half the price.  If they must have their blush in a pretty, expensive container, buy them a gift card and let them pick it out themselves.

Eyebrows:  Eyebrows make a dramatic difference in a face, but almost no one pays attention to them, and when they do, it's to draw horrible thick lines through them.  For those who have had to cut back on the eyebrow waxes, a brow kit is a nice gift, and Sephora has a very affordable one.  It includes stencils and tweezers, and more importantly, the right kind of brow color.  Brow pencils are a travesty; what you should use is powder, wax, and gel to get gentle color and to hold stray hairs in place.  The Sephora kit has them all. 

Mascara:  Another product that is just as good in the drugstore.  However, right now there is a reason to trade up.  Mascara should be used for a maximum of three months, because of the risk of eye infection, and ideally much sooner.  The tubes we all buy last much longer than that.  Sephora currently has a kit composed of best-selling mascara samples, which will last just about as long as they should before being thrown out.  They give your giftee an opportunity to try out a bunch of different styles to see what she likes, and also a way to vary her look.

Eyeliner:  You simply cannot beat Smashbox cream eyeliner, which combines beautiful color with flexibility, accuracy, and staying power.  For a green-eyed girl, you can't beat this set, which has three green-friendly colors and an applicator brush.  Otherwise, I suggest this mini starter palette, or a neutral brown.  It's important to get a set that has the right brush in it, because the applicator makes a big difference.

Eyeshadow:  This is the kit I'd recommend hands down.  It's got a solid breadth of colors, both subtle and strong, which is the important thing when it comes to eyeshadow; if you're locked into one combination, you're boring yourself and not looking your best.  As I said elsewhere, drugstore eyeshadow is just fine, but most people wouldn't give it for Christmas. 


Perfume  Most people don't realize just how intensely personal scent is.  It interacts with the chemicals in your skin, so perfume that smells divine on one person (or in the bottle) can smell horrid on another.  I have a friend who swears by the Philosophy line of scents, which make me smell like I've been ripening for decades in a nursing home.

My personal favorites are the Ralph Lauren scents; any of his perfumes smell good on me.  But unless you have that kind of intelligence, you can't hope to guarantee a good match for your darling, because she won't even know whether it really works until she's worn it around for at least twenty minutes.

This year, Sephora has a great scheme:  you buy a box with eight or nine samples in it, and your giftee can try them all, then bring in the enclosed voucher and get a full sized bottle of whichever one of the eight she likes best.  There are three kits:  the new classics, the trendsetter, and the best sellers.  (There's also one for him) My personal pick would be the classics, which contains several of my favorites, but it's also $20 more than the other two.  How to choose between best sellers and trendsetters?  The name sort of suggests it.  The best sellers tend to be lighter, somewhat more girlish fragrances; the trendsetters are edgier, and IMHO, sexier.  You know better than I which your lady would prefer.

Bath  For my money, if you want to give a lovely bath gift, you really can't beat L'Occitane en Provence.  Their products are beautifully formulated and last forever, and the fragrances are light and classic.  I suffer from hideously dry skin in the winter, and their shea butter products really do do a superior job of banishing dry skin.  I can't afford them all the time, but I often get a gift box for Christmas, and I love them to death.  Top picks are their Verbena bath salts,   the Shea body cream,   and this Verbena bath kit.


Face  My pick for face cleaning and moisturizing is the Philosophy line, which is gentle and effective.  Their "Makeup Optional Kits" come in different formulae; I use sensitive skin,  but they also make a regular version, as well as one for people with breakout problems.   This should be paired with an exfoliator, but you're better off letting your loved one select this, as they can go very wrong if not picked carefully.   About all my skin can stand is a gentle rub with baking soda.  Everyone swears by this new gadget, which apparently really does produce superior results, but I can't bring myself to invest; as it is, I still get carded in DC.

Hair  I don't believe in expensive shampoos.  Don't buy at the very bottom of the market, but the Nexxus, or Infusium, or for that matter, Pantene, all do just fine.  Plus, you don't know whether your loved one wants color protection, maximum volume, or bouncy curls.

Tools  One lovely gift that's almost never given is a really good set of makeup brushes.  Those really do make a difference, and they're available in nice kits.  In my opinion, Smashbox and Bobby Brown make the best brush kits, but Sephora makes good ones; I like this one for mineral makeup (aka Bare Escentuals) and this as an all-rounder. 

Sorry to put you through that, but I've been wanting to gush about makeup for a long, long while.

The Madoff infinite loop

Apparently, the Madoff fun is just getting started:

A hedge-fund manager friend called last night to talk about Madoff. He wanted to talk about just how ugly the unraveling of the Madoff saga was likely to get. And if the first name on his lips was (obviously) Madoff, the second was Bayou. Bayou was a fund that blew up and was revealed in 2005 to be a fraud with some $450 million in investor losses. Bayou is memorable for two reasons. One is founder Samuel Israel III's staged suicide. (He eventually rose from the dead and turned himself in after prosecutors went after the girlfriend who helped him disappear.) The other is a legal precedent set in the Bayou case that should scare the heck out of anyone who once invested with Madoff but who managed to get out safely in the last few years: Any investors who managed to take out profits from a fund like Bayou before the fraud was revealed had to give the money back.

On the face of it, the Bayou ruling (which stories in the Wall Street Journal and Forbes have, to their credit, noted) seems reasonable: If some early investors made outsized gains, doesn't it make sense for them to pay back the money to those who lost everything? But, as this fund-manager friend pointed out, it has some pretty extreme implications.

The obvious consequence of Bayou is that a country-club friend who'd given his money to Madoff and then gotten suspicious can't just take his money out and then go to the cops. If he reports his suspicions, he's likely to be asked to repay any of those 10-percent-a-year "profits" he'd accumulated for a decade. This is bad enough. But there's more to it here.

Much of the money that Madoff managed came from people who'd written a check not to Madoff directly but to so-called "funds-of-funds": hedge funds that had raised money from investors. A few of these funds-of-funds, such as Fairfield Sentry and Tremont Group's Rye Investment, had billions of dollars invested with Madoff and teams of auditors to track it. These companies should have wised up to what was going on much earlier.

Thanks to the Bayou court decisions, however, the moment Madoff was revealed as a fraud, any money that these funds-of-funds would have managed to take back would become gains that have to be given back to be redistributed among all the losers in the Madoff scheme. Now, this sounds bad enough, but ... again, there's more. There's no time limit on the gains they'd have to give back, so any fund that outed Madoff could be on the hook for any profits it had gained from its Madoff investments for years back. So, as my fund-manager friend puts it, "The question people have to ask is not, 'Do I have money in a fund that has exposure to Madoff now?' but, 'Do I have money in a fund that that has ever invested with Madoff?' "

At this point, the complexity of the situation should be clear. But maybe not the whole potential for absurdity. Imagine that Rich Folks Capital Management--RFCM--placed its money with Madoff 10 years ago and then decided, five years ago, that something didn't feel right and pulled it out. Well, now RFCM is on the hook for any of its gains from the time before the fraud was discovered. But what happens if the people who'd invested with RFCM 10 years ago aren't the same as the people who invest with it now? Tough noogies. RFCM's current investors are probably responsible for paying back gains in the RFCM fund that they never even saw. Or, possibly, RFCM needs to go after its own former investors. No one's really sure.

The technical Wall Street term for this is a nightmare. The Bayou precedent means that the discovery of a huge fraud leads to a whole chain of liabilities that stretches back for years and may hit investors who hadn't dealt with Madoff in a decade. A few folks who think that they've lost everything may, at the end of the process, get back some portion of their money. But many others who thought they'd escaped, or didn't even know they had any link to Madoff, will turn out to have huge losses.

Holiday gift guide: DVD/Blu-Ray edition

This year, I've outsourced this feature to the inimitable Peter Suderman, whom you may recall guest-blogging last May.  He's offered a quick-and-dirty guide to what you should watch on your new Blu-Ray player, or your old DVD player if you're lacking some of these.  Says Peter:

2008 is the year that Blu-ray won the format wars. If you're a movie buff, you've probably upgraded already. If you're a gamer, you might have a PS3. Even if you're a casual movie watcher, the sub-$200 price points on Blu-ray players are starting to look extremely attractive. 

But once you buy the player, you'll need to stock up on films. That in mind, here are a couple of Blu-ray releases (not all from this year) worth picking up:

The Godfather: Coppola Restoration Gift Set - Even with a limp third installment, it's still the greatest trilogy of all time. The DVD box set, while nicely packaged, was criticized for its middling picture quality, but on Blu-ray, Coppola's masterpiece finally gets the visual treatment it deserves.

Blade Runner: Five Disc Collector's Edition - Ridley Scott's breathtaking dystopian vision is now more than 25 years old, but it's still the most stunning portrait of the future ever put on film. The recent restoration is among the best I've ever seen, and the alternate versions of the film are a must-have for obsessives.

Bottle Rocket: Criterion Collection - Wes Anderson's debut isn't the sort of film the demands Blu-ray's ultra high-quality picture, but it's a gem of a movie that deserves every bit of the care and attention to detail that went into the Criterion Collection's release.

Point Break - May be Keanu Reeves's finest moment, which isn't saying much, but the movie, which follows a surfer cop on the trail of thrill-junkie bank robbers, is a delightful romp anyway, and the Blu-ray transfer is surprisingly sharp.

Wall•E - The only thing better than a great film-to-digital transfer is a great digital-to-digital transfer, and Wall•E, in addition to being one of the year's most endearing movies, has one of the best.

The Adventures of Robin Hood - Errol Flynn's 1938 adventure is one of cinema's grandest, and it's also one of the best ways to show off Blu-ray's capacity for making old films look new.

Transformers - Michael Bay's ludicrous, juvenile giant-robot movie is an exercise in blockbuster purism, thunderously dumb and wondrously entertaining. If nothing else, it's a great way to show off a home-theater system.

The Assassination of Jesse James by the Coward Robert Ford - Andrew Dominik's transfixing, melancholy depiction of the mythic outlaw was overlooked in 2007, but it's one of the most uniquely beautiful movies in recent memory.

The Dark Knight - Director Christopher Nolan shot several of the action setpieces in the IMAX format, and the difference in detail can only be seen on Blu-ray.

Mad Men: Season One - The greatest show on television? Maybe, maybe not. But it's certainly one of the most immaculately crafted.  Stylized societal repression never looked this good.

I'll add some Box Sets I have Loved: 

• The Complete Monty Python's Flying Circus,
  
• The Wire (yes, it really is the best show ever)
• The complete Twilight Zone
• A Bit of Fry and Laurie:  Hugh Laurie before he was House, and Stephen Fry, who is even funnier than Hugh Laurie.
• Jeeves and Wooster, the complete set:  Four years of BBC dramatisation of Jeeves and Wooster, with Laurie playing Bertie Wooster, and Stephen Fry playing the inimitable Jeeves
• The Horatio Hornblower Collector's Edition:  The finest television movies ever made.  Seriously.
• Alfred Hitchcock's Signature and Masterpiece collection box sets.

The brazenness of it all

An exchange with a reader reveals that what he got from this post was not the possibly interesting theory that blatant fraud maybe harder to uncover than envelope pushing, but that I'm excusing the SEC.  I'm not.  It's early days yet, but I'm going to go ahead and assume that at least several people at the SEC deserve to be fired for their pitiful oversight.  Similarly, I think it was perfectly just to fire Howell Raines over Jayson Blair.

That outright fraud is hard to detect doesn't mean that it's okay to let it go undetected for decades.  It's hard to know exactly what one could have known, in another's place; hindsight bias is damn-near overpowering.  But I'm going to go ahead and say that both the SEC should have known that a firm with a tiny audit firm and no outside custodian needed a very hard second look.

So it's not by way of excusing the SEC or the fund managers who didn't pick it up; not at all.  I'm just interested in the theory that it might actually be harder to detect outright fraud than "aggressive" accounting or financial structuring.  The aggressive have to work with the stubborn material of relaity, and there is a limit to how far they can bend it to their will.  The fabulist, on the other hand, can cut "reality" to suit.

Consider some of the most famous frauds of the last few years.  Compare Michael Bellesiles to Stephen Ambrose and Doris Kearns Goodwin, for example.  It was much, much harder to convince people of Bellesiles' guilt--in part, yes, because he was closer to the establishmen than Ambrose and Goodwin, but also in part because it was so hard to check his sins.  Ambrose and Goodwin had text that was easily compared with other texts.  Bellesiles had counts that only he had ever done of often imaginary archives located in out-of-the-way places.  Indeed, had he confined his fraud only to imaginary archives, he might never have been caught.

Or think of Jayson Blair, Stephen Glass, Jack Kelley; the latter two got away with their crimes for years.  As long as they faked their notes, there was no one to complain.  The longest and most successful fraud was committed by Jack Kelley, who was also the most total fabulist--but careful to make the "events" he wrote about occur in remote, hard-to-check locales, with sources and quotes that were just slightly too good, rather than outright unbelievable.

Think of Worldcom, with its outright fraud.  Some analysts could, and did, think there was something wrong about Enron--its off balance sheet activity was multiplying too fast.  Enron was brought down by those fears, which trashed its credit and thus destroyed its ability to trade. But Worldcom didn't get fancy with special purpose vehicles; they just flat out claimed that their operating expenses were actually investment, like you classifying your electric bill as an investment in the electric utility.  They created an entire reality with their estimates that internet usage was doubling every nine months.  They were brought low not by crack outside investigators, but because the holes in their cash flow became too big to hide, and their own internal auditors spotted the problem.

It seems to me that Madoff falls into that same category, and that he was so successful because, like Jack Kelley, he kept his fraud modest.  He didn't produce spectacular returns--he underperformed the market when it had a good year.  What he did was produce unbelievably steady returns.  His fund was just slightly too good to be true.  And because he was in a position to create, with his trading firm, a complete alternate reality for investors, it took a long, long time to catch him.

There were red flags; that doesn't mean that the fraud couldn't be detected.  It just meant that it was less likely to be detected before serious money was lost.  Which is probably a valuable guide to making this sort of thing less likely in the future.

Where's the indignation?

As I wrote the last post, I found myself pondering the fact that I haven't yet written something indignant blasting Bernie Madoff.  I'm spectacularly indignant about the fund managers who plowed their money into Madoff's hands without doing elementary checks on things like the auditing firm.  And I think that Madoff deserves to go to jail for a very long time.  So why no jeremiad?

I'm not the only one, either.  There's much more making fun of the money managers who invested with him than Madoff himself.  Journalists looking at Madoff are less inclined to sarcasm than to rest their chins on their hands and say "How?  Why?"

Perhaps it's because the end is so odd--a defeated man giving up on the scam he'd kept going for decades.  It doesn't fit into our models of what con men act like.  And Madoff has offered no sufficiently theatrical declarations onto which to hang our calumny.  He's--well, we don't know whether he's contrite.  But he's not denying anything, lashing out at others, or claiming that he was somehow justified.  He's taking all the blame, no excuses.

But mostly, I think, it's because the thing is so mind boggling that we can't identify with Madoff enough to get really, thoroughly, angrily indignant.  That what he did is wrong, that it cost a lot of needy people a lot of money along with Madoff's rich clients, is so universally agreed that it defies extensive comment.  But it's hard to imagine yourself, or any of the many people in your past life who still push your emotional buttons, getting into a position where they could run a decades-long Ponzi scheme that took investors for $50 billion.  It's not really like anything in our ordinary experience.  And so it's hard to relate to emotionally, while Nicola Horlick's self-serving attempts to pin all the blame on someone else are all too exactly like any number of bullying, blame-shifting weasels we have worked with.

Horlick's memory hole

One of the most embarassing spectacles of the Madoff scandal has been watching British fund manager Nicola Horlick, who lost a bundle, complain about American regulatory laxity.  This is not a defense of the SEC, which should be forced to sit in a corner and wear a "dunce" cap for the next twenty years.  But Horlick's home, London, made quite a business out of competing for American business by regulating its financial firms much more laxly than their American counterparts.  For a British fund manager who thrived in that environment to get her knickers in a twist now is more than a bit rich--it's like two sugar-coated sticks of butter strapped together, doused in egg yolk, and frosted with lard.

What takes this from self-serving to embarassing, however, is that the red flags the SEC should have picked up on were right there for Ms. Horlick to see, had she bothered to actually do any of the due diligence she promised her investors.  The audit firm was a three-person shell, one of the three being a secretary, another being a retired senior partner, and the third, a shadowy figure who dropped in a few evenings a week to check that their office space hadn't actually burned down.  The value of Madoff's claimed options trades far exceeded the volume of options actually traded in the fairly thin markets he allegedly exploited.  And he never had a down month. 

I am willing to extend some sympathy to fund managers who are properly embarassed at having been rooked.  Not any money, to be sure, but some sympathy.  Once you know there is a fraud, it is easy to find the evidence, but the human brain is systematically bad at disconfirming what it expects to find. 

But the fund managers who bluster that it's all someone else's fault, that no one could have reasonably expected them to call up the bloody auditors and make sure they were, y'know, auditing?  Such willful and spectacular blindness deserves exactly what I expect it will get:  a stampede of investors out of the indignant manager's funds.  Ms. Horlick is now editing her website to erase the claim that she did good due diligence.  If the rest of us were as willing as Ms. Horlick to trust their money to any old moron on their say so, this might actually work.

Farewell, Google Transit

Talks have broken down between DC's transit authority and Google over displaying system information on Google Transit.  The magnificent Tom Lee explains it all.

L'audace, l'audace, toujours l'audace!

I've made this the comment of the week, because it's exactly right:

The SEC is very good at rooting out sophisticated fraud, especially in accounting gimicks. But they, like most human beings, are simply not that good at identifying accounting statements that are simply made up out of whole cloth. Hindsight is 20-20 though and I'm sure plenty of people will be calling for heads to roll.

The brazenness of the fraud was, in some part, the reason it was easy to keep going.  The SEC is looking for people pushing the envelope.  It is not looking for people who have set fire to the envelope and substituted a piece of old newspaper recently used to wrap fish.

It's actually easier for someone committing outright fraud to slide under the SEC wire, because when you're making up financial statements out of whole cloth, it's not hard to make them conform to SEC regulations.  Similarly, Stephen Glass and Jayson Blair and Jack Kelley were able to get away with their frauds precisely because they fabricated things out of whole cloth.  If you misquote an actual person, or misreport something that really happened, there's a strong risk that you'll be caught.  But manufactured sources never complain that you spelled their name wrong or twisted their words.

In the long run, of course, such fraud guarantees that you'll be caught.  But as Madoff shows, the long run can be long enough for someone entering old age to hope to beat the law of averages, Keynes-style. 

On a somewhat related tangent, here's the question that really bothers me about Blagojevich:  what if the reason that he thought he could get away with it is that a lot of other politicians he knows about have? 

Did Madoff have help?

Felix Salmon:

I suspect that quite a lot of accomplices will emerge in coming weeks and months, possibly including Madoff's own family. The large amount of detail in Madoff's trading statements is itself circumstantial evidence of conspiracy.

First person Madoff

Robert Chew, a Madoff investor, on his losses:

It was all very secretive and tough to get into, which, looking back, was a brilliant strategy to lure suckers. Unlike the usual Ponzi mechanics, the fund even stopped investments into accounts a few years back, at least in our network. There were the usual warnings prior to investing -- we all knew it was a risk, we were told to make sure we were diversified, blah-blah -- but, my God, it had been going strong for so long and with such fantastic returns, we had to get in. The Securities and Exchange Commission even gave Madoff a clean bill of health several years ago, we now find out. Well, maybe not a clean bill, but it didn't shut him down either. In the topsy-turvy world of investment, we were quietly, richly safe. Until the call. (See the top 10 worst business deals of 2008.)

I think everyone knew the call would come one day. We all hoped, but we knew deep down it was too good to be true, right? I mean, why wasn't everyone in on this game if it was so strong and steady? We deluded ourselves into thinking we were all smarter than the others. When it came to the investment game, we had it figured. And what was the game anyway? The way it was vaguely described to us was that the "New York people" had a system whereby they placed a series of instant trades -- at once with futures, currencies and stocks -- and out of this magic recipe fell a tiny 1% guaranteed, no-risk profit for the group. You do that 20 times a year, take away management fees and, voilà, a steady 15% return. Man, these guys were good.

But of course the call did come, as it always does with such things.

How did Bernie Madoff get away with it?

The preferred explanation of many of my interlocutors, that this was somehow a result of Bush's deregulatory mania, won't do, and not just because there's not really all that much evidence of Bush's financial deregulatory mania.  Tax cuts and financial regulation, however tightly coupled they may be in your mind, are neither substitutes nor complements.

Madoff's activities were not the sort of gray-area thing that might be slipped in among a newly lax attitude towards SPEs and SIVs.  It's straight out old fashioned fraud, of the sort that no one, no matter how keen they are on deregulation, thought was okay.  The SEC did not give a pass to Madoff because Bush, or anyone else, had told them to go easier on Ponzi schemes.

Somehow, even though everyone agreed that this was the sort of thing the SEC should be aggressively rooting out, and the SEC has perfectly adequate resources to investigate high-profile fraud at a 20-person operation, the SEC dropped the ball so hard it's probably even now still falling through the Earth's mantle towards China.

The market failed as badly as the government.  The people he bilked weren't unsophisticated consumers of the sort that we assume need regulatory protection.  They were extremely rich people, many of them with backgrounds in finance.

The market failed.  The government failed.  Leaving us with a big WTF?  We cannot fix this either by new rules--the SEC hardly needs new rules to make it clearer that you shouldn't fake financial statements while paying current investors out of the funds invested by new ones.  Nor by better reliance on private institutions--it's hard to argue that super rich people with considerable financial savvy were somehow blinded by some badly designed government intervention.  Everyone just screwed up.

We can send Madoff to jail, and I presume we will (and I shall want to know a very good reason why if we don't).  But that's not very satisfying, is it?

CPI fell in November

Talking heads on CNN are solemnly discussing the possibility of deflation.  This remains, however, just a possibility.  The fall in the CPI was driven almost entirely by energy prices, without which the price index was flat.

This is still good news for households that will be paying less for their energy, at least until OPEC gets its act together.  But it does not necessarily herald a general fall in the price level, which is what creates the deflationary traps economists worry about.

Quote of the day

The problem with Acacia is a problem that a lot of genre fantasy has: it too often reads like the detailed notes of a Dungeons & Dragons' gamemaster about his campaign world rather than as a work of narrative fiction.

From Timothy Burke

Preach it, Brother Sanchez

Julian points out that authoritarianism isn't some exclusively Republican vice:

Failing to funnel billions to a failing business is a form of authoritarian punishment. As an alternative, we're offered the proposition that we "want affordable, safe, fuel-efficient, environmentally sound cars built by committed workers who are rewarded for undertaking this task on our behalf."  I think it's a lot more revealing to contemplate the sort of mindset that insists on seeing every economic outcome as a political "reward" or "punishment."

This whole familial frame seems to amount to an inverted Gospel of Wealth: Where the 19th century claimed that financial success was a reflection of moral worth, the function of public policy in the 21st century will be to create that symmetry.  The only question is whether workers in a particular industry are naughty children who need to be sent to the corner for a time-out, or well-behaved children who should get a gold sticker for effort.  This is, as I hope goes without saying, a pretty authoritarian frame on either side.  It also seems like a manifestly awful way to make economic policy choices. Barring some marvelous Lebnizian coincidence, the answers to questions about the moral desert of workers in particular sectors are unlikely to consistently match the answers to quesitons about what's in the long-term interest of the economy as a whole.

The notion that this bailout is primarily a matter of virtue is not helpful, as I'll go into more a little later.

Grim tidings for the news biz

The Detroit News and the Detroit Free Press are expected to announce this week that they're cutting back home delivery to three days a week.  A friend from Detroit says this is suicide; people in Michigan simply will not get into their cars and go to a newsstand to get their papers.  Another way to put it is that they're like those patients with terminal cancer who try crazy alternative remedies based on obscure Mexican plants--sure, it won't work, but if you're going to die anyway, why not give it the old college try?

James Surowiecki has a great article in the New Yorker this week on the problems in the newspaper industry.  Felix Salmon says print subscribers aren't so great anyway, because they're expensive to get and maintain--few publications cover the cost of printing and distributing all those papers and magazines.  The problem is that while the subscribers themselves are expensive, so is the advertising.  So far, no one has found a way to monetize online readers the way that print publications once monetized their distribution.

There are multiple reasons for this.  Part of it is the quality of the distribution--papers have a goodish idea of who reads them (and therefore advertisers have a good idea of how many people in their target audience each ad will reach), while God knows who's clicking on your web page.  There's also the fact that a lot of advertising is brand enhancement, and that doesn't work very well on the web.  Those tiny spaces alongside web pages are good for advertising specific goods, but not so good at putting an elegant gloss on the image of Singapore Airlines, which is why Google is so far the biggest winner in web ads.

Then there are the readers.  People either like, or don't care about, print ads.  On the other hand, they hate web ads.  The more an ad intrudes on their consciousness, the more they hate it, which is something of a conundrum for the brand builders.  And no one's yet found an effective service to strip all the ads out of a print publication.

Still, part of it is just irrational.  In a lot of ways, web advertising is superior:  much easier to track both views and response.  But so far, advertisers will only buy it at a steep discount.  Unless that changes, the future of the American newspaper is grim indeed.

That said, it takes a while to figure out how to make advertising work in a new medium.  The original television ads were simply transplanted radio ads, and they were dreadful--just as the original radio ads consisted of someone reading a print ad, which didn't work very well.  We may just be waiting for our advertising revolutionary who can show us how to make webvertising work.

Why won't Blagojevich resign?

It's not as if there's any hope of his staying in office, after all.

Presumably, he's just holding out for a better deal.  But from whom?  Fitzgerald has him dead to rights, by all accounts.  He loses nothing by an impeachment.

Conspiracy theory of the week

Did the White House fake out Gettlefinger?  Get him to turn down a somewhat unattractive deal from Corker by signalling that they were ready to tide GM over, and then pull the deal?  I don't know that bankruptcy will destroy the UAW, but they probably won't have a lot of members and money left to campaign for Democrats in 2010.

What remains to be seen is whether GM really can't make it to January 21st without a cash infusion, or whether that was just a negotiating tactic.  I tend to think they meant it, but these sorts of pleas are usually exaggerated to get the best possible deal, so it's impossible to know.

What every administration should know about drugs

Mark Kleiman offers the Obama team a primer.  If we have to have a "drug czar", why not someone like the professor, who actually understands them?

Holiday Video game guide

This is distinctly a guide for fogeys.  Do not use this to judge what the favorite child in your life would like.  These games are for boring, thirty-or-forty-or-fiftysomething you.

Guitar Hero, Legends of Rock (Wii)   I have my eye on the World Tour bundle, which apparently opens up the possibility of drums and singing.  But this is the staple that has kept an untold number of bloggers mesmerized for hours.  The idea is simple:  there are five buttons, which correspond to notes on the screen; your job is to hit the notes in time with the display, and the song.  But the game is almost too fun; I actually developed tendonitis in my index finger at one point, trying to master a song.  This is what it looks like if you get really, really good:




But don't worry; if you're over twenty-five, you will never get that good.  There's a beginner level that uses fewer keys and goes a lot slower.  I recommend investing in a second guitar, because your friends/spouses/children will definitely want to play.  Or you could also get the World Tour bundle, which comes with one.

Mario Kart (Wii)  I was actually too old/female for original Nintendo, so I'm fresh to this, but it's embarassingly fun.  You drive around in circles.  You fall off things.  Your three year old nephew beats you, repeatedly.  It's like the distilled spirit of Christmas.

The game comes with one Wii wheel, but I recommend getting at least one more for multiplayer; we have four.  

Dance Dance Revolution (Wii)  The most aerobic game available for Nintendo.  It sure beats staring forward on an elliptical trainer for forty minutes. 

Okami (Wii)  Weirdly beautiful, weirdly entertaining game from Japan.  It's hard to describe--"Myst with a Paintbrush" isn't a bad stab at it from a hooked friend.

Civilization IV (PC, Mac)  Years after it came out, I'm still playing.  It's simply the best world-builder out there.  War, science, religion . . . I'm not sure it's ever come up to Civ 2 for me, but it's still light-years ahead of any other competition.

 Railroad Tycoon III (PC, Mac)  This is the other game that I go back to year after year.  I'm a rail buff, so of course, I would love this game, but even people who don't care about trains find it deeply satisfying to build a working company, and see towns grow up around your railroad.

Holiday Gift Guide: Electronics edition

Well, it's hard to find cheap steals in electronics, so I'll just go ahead and recommend them, and you can view it as a nostalgic symbol of better times:

1.  Wii Yes, it really is that great.  See the post that will follow immediately for a list of video games, but yes, even a 35 year old woman (albeit, one whose electronics fetish has won her a description as a "bewitching combination of yuppie and 14-year-old-boy) can be very, very glad she owns it.  If you have a family, or entertain at all frequently, you'll want to order a couple of extra remote controllers and nunchucks so that four can play at one time.

2. Wii Fit  The Wii Fit is both surprisingly fun, and a surprisingly good workout.  It won't challenge you if you're a real gym rat, but for the rest of us, the strength and yoga exercises especially are actually pretty good at increasing strength.  And the balance work is good for nearly everyone, because unless you're a dancer or a gymnast, that's a skill most Americans never work on.

Many of the included games, like ski jumping, are actually fun, but the Wii Fit also opens you up for games like cheerleading, which is on my wish list for this Christmas.

3.  Sony Blu-Ray Player  My housemate, who is a massive film buff, owns this, and I was somewhat surprised to find that even for a casual filmgoer like me, the quality really does make a difference.  Films like Blade Runner are astonishing on a Blu-Ray player and a good television.  If you're sure you'll never want 7-channel surround sound, you can buy the cheaper model, the S350, which offers most of the other features for $100 less; you'll still get the crystal clear picture and sound.

You don't want this player if your television is smaller than 40 inches; the housemate, and several electronics publications, aver that you won't be able to see much difference. 

4.  Panasonic Viera 50-inch television  This is the TV that is gracing my housemate's crazy media room in the new place.  It remains CNET's second best-rated HDTV (the first best, Pioneer's Kuro, is by all accounts the best HDTV out there for any money.  It also retails for $4500.  Even my housemate isn't that crazy.)  The picture is beautiful, and the features are not only actually useful, but easy to use, which is a plus when your housemate likes to fiddle with colors and aspect ratios while muttering.  Fair warning:  if you want to wall mount it, or put it on a stand, you'll need something fairly substantial, because these weigh quite a lot.

5.  Tivo HD  I know--I'm like a crazy broken record, telling you that you want to spend hundreds of dollars rather than just get the DVR that your cable company rents you for $5 a month.  But now the better recording features, simpler menus, and superior search and recommendation technology are not the only things recommending the Tivo.  Now TiVo lets you download content from Netflix and Amazon Video On Demand, which makes it a vastly superior value proposition.  It can also handle podcasts, and your music and photos, making it a pretty good stand-in for a media server.

I used to recommend the higher end models, but I no longer think it's worth investing in them, because you can attach external hard drives to the TiVo to get extra storage space.  (Warning--you can't use the external hard drive for anything else; TiVo formats it for its own use).  That's a lot cheaper, and more flexible, than buying a pricier TiVo.

I do recommend, unless your television happens to sit next to your ethernet, investing in a TiVo wireless adapter, which will let you hook it into the wireless network.

All TiVos now let you use cable cards, giving you dual tuner capability--you can watch on one channel, and record on another.  You can also transfer content between TiVos, which I dream of doing when I finally become a two-TiVo family.

6.  Kindle  Still love it.   The machine is expensive, but the books are cheap--and they no longer threaten to crowd me out of house and home.  Seriously, I've probably saved the cost of the Kindle in forgone paper books and new bookshelves to hold them.  And for travelling, there's nothing like it.  If you, like me, are used to hauling around a huge pile of books on vacation, this will save your back, your temper, and your excess baggage charges.   It's also great for people like my mother, who's on a so-far unrequited quest for the perfect reading glasses.

7.  iPhone  Yup, it's great.  I never knew before that I wanted to read my Google reader in taxicabs and get my email on the train.  But I do.  It's also a good enough phone that my mother, who is technophobic, got one.

Two weird things that might hold you back (besides the price):  My mother's fingertips tend to be very cold, an artifact of all the chemicals she used to refinish our house.  It took her a while to get the hang of making the screen work, so if you have diabetes or something, it might not be a good phone for you.  Also, it's delicate.  Both my mother, and Peter Suderman, with whom I waited in line for the phone, managed to break theirs pretty early into their ownership.

If you do get one, a couple of recommendations:   buy AppleCare, and a good case.  I have the Griffin Wave, but there are a ton of great cases out there.

8.  Shure noise cancelling headphones  Anyone who flies frequently, or commutes by train, shouldn't be without these.  They have three advantages over those famous ones sole by Bose: 

1)  They're smaller, which means that you can sleep in them, and also that no one will mistake you for an air traffic controller trying to land cargo planes in World War Two Borneo.  Also, a lot easier to carry--you'll use these for every day.

2)  They're several hundred dollars cheaper.

3)  They work better.  Rather than using white noise, these block your ear canals so sound can't get in.  It takes a while to get used to the sensation, but after you do, they not only give you better sound quality, but also actually protect your hearing from excessively loud noise.

For obvious reasons, do not wear these while driving or riding a bike. 

9.    Olympus digital voice recorder  This is a gift for people who use a PC.  It is not a sexy gift, to be sure, but for a journalist, a good voice recorder is indispensible.  This one delivers really sterling sound quality--I've recorded interviews in the middle of very crowded rooms, and gotten every word.  Possibly the best feature is that the device itself is a USB key that you just plug into your laptop, so there's no wondering where you put that cable

10.  Logitech laptop headphones  After more than a year, these are still indispensible.  I use them not merely for Bloggingheads, but for nearly all my phone interviews; a $14.95 plug-in for Skype allows me to record my phone calls without expensive equipment.  They're also extremely good, and comfortable, headphones.  And they're designed to work either with or without USB (there's a little adapter) which makes it easy to switch computers, or plug them into my iPod, as I've done more than once.

11.  Western Digital Passport drive  Bigger than a USB key, smaller than a massive external, this is what I travel with for backups.  If you're lazy about backups, you should have one of these in your laptop bag, making it easy to  back up on a whim.  It's easy to use, good looking, and most importantly, it fits neatly into a laptop pocket.  I also found it useful when my music maxed out the hard drive of my laptop; I just moved it to the external drive.

12.  Western Digital One Terabyte external drive  Now that they're less than $150, every family should have one for centralized backups; your pictures are worth more to you than a couple of shifts at McDonalds.  You can also use one to expand your TiVo's capacity, much more cheaply (and more storage) than buying a bigger TiVo.  Or turn an old computer into a media server attached to your television, with the drive holding music and movies.

13.  Verizon wireless modem   This is a deductible business expense for me, but I highly recommend this for anyone who moves around a lot.     It's taken the place of expensive wireless purchases at airports and Starbucks.  I work on the train, in libraries with no wireless--basically anywhere I can get a cell phone connection.  While I get my cell phone with AT&T, I'm still loyal to Verizon's superior network for my data card.

14.  Logitech Harmony Universal Remote  If you are going to have a TiVo, a Blu-Ray player, perhaps a decent stereo, you are going to need a universal remote, or a prescription for powerful antipsychotics.  This is the mid-range model, and I'm on my second one (the first having been tragically crushed in the Flight From New York).  The setup is slightly tedious, but once you've set up your activities (watching movies, listening to music on the media server, etc), it vastly simplifies your life--you can even control the lights with it, if you have the right sort of dimmer. I particularly like this one because it's rechargeable.  The only downside is that I now can't cannibalize its batteries in extremis.

15.  Sony Cybershot H3  This is the camera I bought two years ago for some professional work; it's still plugging along.  It takes beautiful amateur photos with a variety of settings that are pretty easy to use.  Most importantly (to me) it has a 10X optical zoom, which gives you a great deal more flexibility than most point-and-shoots.  It's elderly now, and I'm sure has been replaced by something even snazzier.  But frankly, at this point, the upward ratchets in megapixels are counterproductive for most amateurs--what you gain in pixelation, you lose in the fussiness of the picture-taking requirements.  (Among other things, the more pixelation, the more exacting the lighting requirements).  I'm hard put to think of a feature this doesn't have that I'd want.

16.  iPod connector cables  I find these much more useful than a sound dock--you can connect your iPod to any stereo, rather than spending extra to get a connection to just one, usually inferior, system.  These cables also let you connect any iPod with video capability to your television, and power up at the same time with the attached USB jack.  I use mine all the time, and take them with me when I travel.

17.  Brother Multifunction Printer  I cannot overstate how great it is, in a multi-computer house, to have a multifunction printer with built-in networking.  The biggest problem is that I am now the most popular person among my circle of friends and family, as everyone stops by to do a little printing, a little faxing, and drink my coffee.  Luckily, I am very social, and have a big coffeemaker.

A note from the housemate, who is, er, a little obsessive about electronics right now:  the best time to buy a television will apparently be next weekend, when most videophiles think the LCD market will bottom with the pre-Christmas sales.  Manufacturers overproduced in August for a Christmas season that has turned out to be considerably less merry than expected.  So if you're going to buy a flat panel, wait a week.  I know you may want it under the tree, but a picture will be nearly as magical.

Thesis and antithesis

Google's mission statement is "don't be evil".  Meet the company bold enough to shorten that by one word.

On the grounds that there's always another side to the story, I have been struggling to think of something positive to say about this company.  So far, I've got nothing. 

Invidious comparisons

If I'm so fond of workers taking haircuts, why not at AIG and the banks, huh?  huh? 

Ummm . . . .

For starters, I am not trying to punish the UAW.  I am thinking about how the company can be made profitable.  The company cannot, in my estimation, be made profitable with higher labor costs than the competitors. 

Labor costs are not the issue at banks, or AIG; balance sheet impairment is.  Labor costs are a much smaller portion of their financial burden than at an automaker.  Cutting their compensation will not return the balance sheets to full strength.

However, in fact, workers in the banking industry are taking a massive hit.  CEOs were forced to take huge paycuts, and if their bank is in trouble, they've already lost the greatest portion of their personal net wealth.  The banks are firing huge numbers of people, and the ones who are left can count on their paychecks looking pretty anaemic this year.  I know that many of you would like to see every single one of them have their paycheck reduced to that of a Nissan line worker, but it doesn't work that way.  The good people at those banks have better alternatives than being a Nissan line worker, and have usually invested substantial amounts of time and money in building human capital, rather than hitting the line after high school.  If you cap their pay there,  they will leave to pursue those other opportunities, leaving you a firm staffed with the rejects who can't work elsewhere.  Given that we are trying to save the banking industry, not destroy it, that's not a good idea.  A UAW worker, on the other hand, has alternatives that are generally much worse than the wages on a Nissan line.

But workers at banks face a stark choice that GM's line workers don't:  if they are not providing value to the firm in line with their salary, they will be asked to leave.  As hundreds of thousands of them have, or will be over the next few months.  That is precisely the deal that the UAW is resisting.

There's also the unfortunate fact that collective bargaining means collective wage reductions--what you gain on the swings, you lose on the roundabouts.  For AIG to actually go through and negotiate wage reductions with every executive, every secretary, every claims adjuster, would be too time consuming and expensive, in administrative labor, to make it (probably) worthwhile.  Not so with the UAW.

Finally, in the case of AIG, there's a misperception of where the costs lie.  There are very few industries where executive compensation makes up the bulk, or even a very noticeable chunk, of the wage bill--sole proprietorships, some tech companies, law firms and some financial firms, and a few consultancies.  In most places, however, the law of large numbers dictates that most of the wage bill is spent on the folks that all of us could agree are not wealthy by any stretch of the imagination.  That means that you can almost never achieve really major cost reductions by messing with the pay of the best compensated--it's the same reason that a decade of rising inequality still left the rich with barely a third of national income.  It may be wise to do so for justice reasons, or pour encourager les autres.  But it does not get us any further towards our goal of a healthy insurance company or auto manufacturer.

Just desserts

I'm hearing the truly bizarre argument that the UAW didn't scuttle the negotiations; it was the Republicans unreasonable insistence that they cut their wages to levels comparable to that of their competition.  After all, the UAW was perfectly willing to negotiate their compensation package--in 2011, when their current contract expires.

And I think that's perfectly reasonable.  We'll just wait until 2011 to give them the money, then.

If you know why that's stupid, then you know why the other argument is stupid, too.  GM is losing money now.  It needs to cut its labor costs (and its other costs) now, not in 2011.

This seems so elementary to me that I cannot even believe we are arguing about it:  the reason Gettlefinger needs to take a haircut along with everyone else, is that if he doesn't take a haircut, GM will be back in 6 months asking for more money.  There is absolutely no way whatsoever that GM has any hope of profitably making a car with labor costs higher than their competitors.  Their labor costs should be lower than their competitors, because they have to sell their cars at a steep discount.  Even if we somehow magically revolutionize the management tomorrow and get them steep discounts on their debt, it is going to take them years to rebuild their brand to the point where they can charge comparable prices to Japanese cars.  GM cannot afford to pay its workers more than the competition in that situation.

This is not a question of what would be nice, or what would make the workers happy, or indeed what, in a platonically ideal universe the workers should be paid.  It is an empirical fact:  if GM does not get substantial labor concessions right now, then it will either come back for more money, or end up in bankruptcy anyway. 

In the second case, the $15 billion is a stupid temporary giveaway, substantially to his members, while producing cars less valuable than their component parts.  In the first case, the US is essentially offering an ongoing wage subsidy to the UAW, in which case, it's totally reasonable to cap that subsidy at a generous, but not lavish level.  I don't see why poorer workers, or for that matter even richer workers, should be taxed in order to ensure that Ron Gettlefinger's members get more than $40 an hour in total compensation.  That's a very solid living, particularly in the Rust Belt.

I don't think there's anything wrong with Ron Gettlefinger asking, but I'm pretty firmly opposed to acceding to this request.  And if Gettlefinger wants to hold out for more, I will feel little sympthy for him, or any members who supported him, when they face the bankruptcy judge and see what's left.

The death of a bailout

I am in receipt of an email yesterday, asking that conservatives and libertarians recognize that the unions have, indeed, made concessions in order to make the bailout work.  Sadly, I had not had time to write a post about this before the UAW tanked the Senate bailout.

The concessions that the UAW has made, as far as I am aware, are to accept some equity instead of cash for VEBA, the fund set aside to pay retiree costs.  Since if a bankruptcy occurs, those same workers are going to get told by a bankruptcy judge to get some damn Medicare like everyone else, or get in line with the other creditors, color me less than impressed.

I do think that liberals are right to point out that labor is far from Detroit's only problem.  The dealer network, for example, is a creaking dead weight around the industry's neck, protected by cozy state laws written by legistlators who like the prospect of extracting value for their own state from Michigan.  They have management problems.  They have bad engineering.  They have a crippling debt problem.

I think it's entirely fair to fire Rick Wagoner, but firing Rick Wagoner is a symbolic gesture; it is not going to make GM either more or less profitable unless you know where we can get some fantastic auto management talent that wants to lash itself to the mast of a sinking ship.  And all the other stakeholders have agreed to take massive hits.  The shareholders are taking cramdowns, the bondholders are taking a 2/3 haircut, and so forth.

What are the auto workers being asked to do?  Set a date for accepting wages comparable to those paid at other auto plants in America.  Now, we can argue about how much of a role labor costs play in the Big Three's problems.  But I think most people should be able to agree that a company on the verge of bankruptcy, which is losing a ton of money on every car it makes, cannot afford to pay its workers substantially more than the competition*, particularly when there is no indication that this labor is any more productive than the competition.

Gettlefinger, predictibly, is decrying this as "union busting".  But I don't really think there's anything particularly unreasonable about asking the UAW to accept a competitive wage while the company gets back on its feet.  No one's asking them to accept minimum wage here; the average compensation for a non-union auto worker in America is well north of $40 per hour.  And I think that there is, in fact, something particularly unreasonable in auto workers demanding that Americans, most of whom make less than either UAW workers or non-union auto workers, give up their hard-earned dollars to subsidize his members' wages.

I understand that it's his job to demand this.  But if it's his job to scuttle a very generous bailout that most Americans don't want in order to avoid making any concession at all on hourly wages, then as far as I'm concerned, it's his job to preside over the gutting of his contracts by a bankruptcy judge as America tells him and his workers to go to hell.


*  I know, there is some argument over how much more US auto workers actually get paid.  But if the wage differential is small, then the auto workers aren't really being asked to give up much, are they?

Criminal non-conspiracies

A reader sent me this, regarding the post about how few crimes have so far been uncovered:

Well, since that post was written, we've found out about a potential $50 billion fraud at Bernard Madoff, a mere $100 million alleged fraud by Marc Dreier, and some dude in Miami who was rewriting the value of mortgages to make the associated securities more valuable. And that's just in 2 weeks with the limited resources that the FBI and SEC have to find this stuff relative to the total scale of what was going on.

Various things went wrong to produce the current financial shambles. But one of them was an "if it feels good, don't stop it" regulatory ethos that came straight from the top of government. That ethos attracts particular kinds of people.

This is convenient, since I was about to write a follow-up post on the same topic.  The recession is uncovering a lot of shenanigans, as recessions usually do.

Nonetheless, I beg to differ about his interpretation.  First of all, all of these things, while nasty, are sideshows; the economy would have fallen exactly as far and fast without them.  P. O'Neill is confusing correlation with causation.  The normal amount of fraud that pervades society is easier to uncover when bubbles collapse and con men are left short.  The more interesting sort of fraud, which we may or may not find, will come out of the big banks and Frannie Mac.

Second of all, all of the stuff detailed in this post is very, very illegal.  It isn't something that regulators nod and wink at. It isn't the kind of thing that Bush directed his SEC to go easy on.  No one, at any time, in any regulatory agency, changed their opinion about the virtues of counterfeiting securities and impersonating pension officials.

Tracking TARP

Elizabeth Warren, the bankruptcy specialist who issued a report on where the funds are going, did an interview with Terry Gross yesterday.   Warren is basically a consumer advocate, and so much of the interview expressed her indignation that the fund is focusing on keeping banks afloat, but not attending to the problem of foreclosures.  Warren is eloquent, if somewhat hyperbolic, about the tragic consequences of a wave of foreclosures on both the foreclosees and their neighbors.

How easy it is to address foreclosures, however, depends on what the reason is for the foreclosure.  Are people missing payments because changed circumstances mean that they can't afford them, or are people missing payments because they don't want to make payments on a house that was worth $500,000 when they bought it, but is now worth $300,000?

That's actually a complicated question, because many people bought a house they couldn't really afford on the assumption that rising markets would give them the equity to refinance into a mortgage they could afford.  This turned out to be a bad bet.

But people with ARMs are not, by and large, actually in the position of having suddenly seen their interest rate jump by double-digits.  They're in the position of having seen their interest rate go from a low teaser to a still pretty low adjustable rate.  The interest rate indices generally used to set ARM payments are actually quite low right now, though of course, the rates are often lagged.  Still, the problem is not that people got caught out by surprisingly high rates.

That leaves us with two questions:  how low a rate are we willing to provide in order to produce a workout?  And what if the problem is, as even some liberal commentators are arguing, that people don't want to make payments on a house where the value has dropped by half?

I don't think that the US government can provide price protection against falling home values, for several reasons.  The first is the moral outrage.  It's one thing to help people who got caught out by bad life circumstances by reducing a crushing interest rate, especially when the government has, as now, such low borrowing costs.  It is quite another thing entirely to simply give someone tens of thousands of dollars in home equity on an unaffordable house they bought without any substantial downpayment.  Are those people going to be allowed to profit from their heavily subsidized houses if the market recovers?

People who bought homes they could afford, or people like me who rented because they thought housing was in a bubble, won't stand for it.  Especially since propping up those peoples' home values will not only require substantial tax contributions from me, but also make it harder for me to buy a house. 

But the other reason I don't think the government can deal with the falling equity problem is the sheer magnitude of it.  Check out this graph, which I stole from this site:
The dotted green line is my contribution.  It suggests that there's a small rising trend since 1975, but that if houses revert to (optimistic) trend, the average price needs to fall back towards and inflation-adjusted $175,000.  That means at least another 15% price drop is in order.

Now for a less optimistic assessment:  look at house prices since 1890
Again, the green lines and the associated commentary is mine.  What if we assume that the last major innovation in the housing market was the long-term amortizing mortgage, and that prices have to return to that trend?  That suggests an average of around $125,000.  Which means that house prices need to fall by about 40% to get back to their normal value.

Is that crazy?  Well, let's ask this question:  what happened in 1997 to make housing worth so much more?  You can't even blame credit scoring and securitization, which became big trends earlier in the decade.  It looks like a big, fat, credit bubble.  And while the government can manage the decline of a bubble, it can't keep us all collectively insane forever.

But say that credit scoring and securitization did make our houses worth somewhat more--say, $150,000 by enabling mortgages to new borrowers and thus expanding the market.  Let us further assume that the financial reforms we are being promised do not involve effectively outlawing securitization. That still leaves us with a long, long way to go.

Is the government going to guarantee approximately 70 million owner-occupied homes in America against a 25% price drop?  No, because that's $3.5 trillion dollars, if my mental arithmetic serves.  Or is it only going to give the money to the least responsible homeowners:  the ones with small (or no) downpayments, houses they could only afford at short-term teaser rates, and a long string of missed payments?  The numbers, and the political arithmetic, don't add up.  Indeed, any such program would positively encourage people to default, in order to get the government to cram down their loans. 

Perhaps the government could work out some program that allows shared participation in price appreciation after a cramdown, but I fear that would simply encourage people to get the cramdown, then sell into the down market--creating exactly the cascade that people are worried about with foreclosures. We may have found an industry that's too big not to fail.

Holiday gift guide: Cookbook edition

These are the cookbooks that I think should be the foundation of any kitchen.  Those who don't eat meat: hang on for the special vegan section at the end

Omnivores:

1.  The Way to Cook by Julia Child.  I have Mastering the Art of French Cooking, and it's marvelous, but this is the book I open most often.  This is the guide to cooking the things almost everyone wants to make, perfectly.

2.  Essentials of Classic Italian Cooking by Marcella Hazan.  There are newer, hipper Italian cookbooks out there, but when all's said and done, I turn back to Marcella.  There's something about her seventies sensibility that I actually find very soothing; her recipes are neither showy, nor designed to be made in ten minutes between IPO teleconferences.

3.  I'm Just Here for the Food and I'm Just here for More Food by Alton Brown.  Oddly enough, I don't particularly care for most of his recipes.  So why do I own both of his books, and recommend them to everyone?  Because Alton Brown explains food better than anyone.  His books go over the chemistry and explain the concept of what you're trying to do, which equips you to go out and deploy (or modify) your own favorite recipes more successfully.  One small example:  he's the reason I bought an electric griddle to cook pancakes at exactly 350 degrees, which produces a perfect pancake every time.

4.  Fast Food My Way and More Fast Food My Way by Jacques Pepin I cannot overstate the excellence of these books.  They stand alone in the genre of "Things I can make quickly after a long day of work".  Most 30 minute meals are designed to be consumed in front of a television in five, and could as easily replaced by triscuits and low-fat Alouette with a Pop-Tart chaser. Jacques Pepin's recipes are not merely things you can make, but things you should make, and will make even when you have time to kill.

5.  The Betty Crocker 1950 Picture Cookbook  is not merely a fine bit of kitsch.  It is actually a pretty reliable guide to cooking American staples, from meatloaf to macaroni and cheese.  My mother, who turned herself into a pretty reliable gourmet by way of classes with folks like John Clancy and Craig Claiborne, and actually did a stint as a caterer, cooks a surprising number of meals out of this book.  It's ordinary American cooking, really well done, from an era before salad oil replaced butter, and health replaced flavor.

6.  The Gourmet magazine cookbook  I've never been able to get into The Joy of Cooking; somehow, it's sensibility of comfortable shoes and stuffing olives into the gaping maw of Midwestern ennui oppresses me. The Gourmet Magazine cookbook fills the role in my cupboard that Joy fills for many other folks:  there's a recipe for damn near everything.  And I haven't found a bad one yet.

7.  Julia's Kitchen Wisdom  by Julia Child  This is an odd little book; it's basically her tips and tricks in the kitchen.  But it's invaluable.  From who else would you learn to simmer rice in a tomato soup, and then puree, to get cream of tomato soup without the fat?  Or hardboil an egg absolutely perfectly, every time?  I especially recommend it for the new cook, but almost everyone will learn something.

8.  The Union Square Cafe Cookbook and Second Helpings from the Union Square Cafe by Danny Meyer  These are my hip, new millenium, granite-counters-and-stainless-steel-appliances books from the owner of my favorite restaurant in New York.

9.  How to Cook Everything by Mark Bittman  The New York Times food writer is an absolutely gorgeous cook, and I can't recommend his books highly enough.  Like the Gourmet cookbook, it covers enormous ground, but with more explanation as it goes, and usually, much simpler recipes.  And like the Gourmet cookbook, I haven't yet made something I didn't like. 

As you can see, I'm basically a Europe/American focused gal; I don't do a lot of Asian or Indian, though I'm hoping to learn this year.  Readers who do know those cuisines are heartily invited to offer suggestions in the comments

For Vegans, or people trying to use fewer animal products:

Vegan with a Vengeance and Veganomicon by Isa Chandra Moskowitz.  These are, by far, the most fun vegan cookbooks I own.  The recipes really are delicious, easily enough to recommend them to non-vegans.  I've made brunch for non-vegans a ton of times who never recognized that they were having a vegan meal.

The Joy of Vegan Baking  Indispensible.  Vegan baking is tricky--it turns out eggs are really, really useful.  This book explains what it's doing and why, and incidentally, produces some pretty amazing desserts.  The tofu chocolate mousse is the fastest, easiest, most elegant dessert you can whip up on absolutely no notice.

How to Cook Everything Vegetarian by Mark Bittman  If anything, even better than the original omnivore book.  Not all the recipes in here are vegan, but many are, and they're clearly marked.  A number of others are veganizeable.    But really, don't think of this as a book for vegetarians; it's a book for everyone who eats vegetables.

Books that aren't really cookbooks, but about food:

Appetite for Life  It's the biography of Julia Child.  'Nuf said.  Don't miss it.

Miriam's Kitchen:  A Memoir by Elizabeth Erlich  This is a really beautifully done book about a woman, her mother-in-law, and how she and her husband gradually moved back into keeping kosher.

The Omnivore's Dilemma by Michael Pollan  There is much to be annoyed about in Pollan's brand of smug coastal foodyness.  But the book itself is the clearest map I've yet found of exactly how our food chain works in America.

The Gallery of Regrettable Food and Gastroanomalies  by James Lileks.  Most humor books don't make me laugh.  These produced a laugh-out-loud moment every few pages.  Basically, Lileks takes horrible recipes from those old cookbooks lying around everyone's attics, the kind of recipes that make you wonder whether the average American in 1950 lived entirely on Spam, ketchup, and lard.  Worth every penny you spend on them.

Salt:  a World History by  Mark Kurlansky  It's a book about . . . salt.  Salt, it turns out, is incredibly cool.  No, seriously, I can't explain it; just buy it.  You will not believe you could be so fascinated by the stuff you just sprinkled on your steak.

   

Welcome to the jungle

Surviving the European tourist experience.

Entirely too glib

I don't understand what Mark Kleiman is trying to get at here, either by labelling Glenn Reynolds a "Glibertarian", or by this:

So what's a good glibertarian to do when it turns out that the free market has been flooding the environment with de-masculinizing chemicals? Support regulation? Support tort lawsuits?

As Tom Lehrer said in a different context, they have a hard problem, like a Christian Scientist with appendicitis.

Never fear: There's no problem so large that a real, manly glibertarian can't pretend it has a "free-market" solution. Didn't Ronald Coase prove there's no such thing as an externality?* Self-organizing complexity uber alles!

I don't think I've seen Instapundit argue that there was a free market solution to feminizing chemicals.  Indeed, the post didn't say anything at all about what we should do; it just pointed out that it might be happening.

There is often an operating assumption that failing to vigorously suggest regulation, or to preface/postface any post about a problem in the world with a sarcastic remark about how if it weren't for all the jerks who don't vote for Democrats, this never would have happened, is actually equivalent to stating that anarchocapitalism works. 

The failure to have a knee-jerk reaction is not, in fact, evidence of a knee-jerk reaction in the other direction.  Personally, I haven't posted on this, but if I did, I probably would have posted about what Glenn did.   I would have done so not because I think the government won't ultimately be involved in solving the problem, if it gets solved, but because I assume it will be solved in the standard boring way already in place, which is that the EPA will regulate the emission of these chemicals.  There are some potentially interesting issues in how you do a cost-benefit analysis on loss of masculinity, but I don't have any ideas on that front.

I also really, really wish that liberals would drop the "Glibertarian" label.  First of all, I don't like any variation on political labels designed to insult, and I doubt that Mark thinks the use of "Dimmocrat" reflects well on the person who employs it.  And second of all, on the internet the label is usually deployed by liberals who have taken it upon themselves to define what a "real" libertarian is, i.e. a libertarian who has never publicly much disagreed with said liberals.  We don't go around writing people out of the progressive movement, or putting block quotes around "progressive", no matter how foolish we think the people are, or how badly we think their stated positions betray the true goals of the movement.  Why not put aside the juvenile name-calling and engage the arguments?

In this context it particularly makes no sense, because trust me, if anything "Glibertarians" like Glenn and me are closer to you on this issue than most of the "real" libertarians, who are a lot closer to anarchocapitalists or minarchists.  The question is not "what's a Glibertarian to do", but "What's a libertarian to do".  In my case, the answer seems easy: regulate it with as close to a market-type mechanism as you can.  But you see, that's why I'm not a 'real' libertarian.

Fuel efficient or market efficient?

One thing is clear about the bailout:  congress intends to use it to push GM et. al. into manufacturing more fuel efficient cars.  This means cars that are either a) smaller, b) more expensive, or both.

When gas prices were high, a lot of people blamed Detroit's troubles on the fact that they hadn't learned to make awesome small cars.  But Toyota isn't so successful in the US because of the Yaris and the Corolla; its core business, like Honda's, is American-sized sedans, station wagons, luxury cars, and so on.  The Japanese and Germans have not, it's true, been as successful as Detroit in the SUV and Minivan markets, though Toyota has a sizeable truck business, and Honda makes some fairly successful minivans.  But they're not making their money on gas-sipping hybrids and compacts, either.  They, like Detroit, are making their money by selling cars that will need a pretty big refit to pass the new CAFE standards.  The top selling cars in the US last January (midway through the price spike in oil, before the financial crisis):

1. Toyota Camry: 31,601
2. Honda Accord: 23,957
3. Nissan Altima: 21,635
4. Honda Civic: 20,993
5. Toyota Corolla: 20,736
6. Chevrolet Impala: 17,544
7. Chevrolet Cobalt: 17,310
8. Chevrolet Malibu: 14,105
9. Pontiac G6: 13,942
10. Ford Focus: 11,600

The Impala gets about the same MPG as the Camry, the Accord, and the Altima--actually, slightly better (32 rather than 31 highway). 

It is true that when gas prices rose, there was a temporary surge in the prices companies could charge for hybrids and small cars, but though I think that the memory of recent price spikes will offer some support to the smaller car market, I also think we'll see that market head back down along with oil prices.  In short, the small, fuel efficient car market is still not some sort of gold mine that the Big Three have stupidly overlooked.

The question is, when the desire to make the companies refocus on fuel efficiency conflicts with the desire to make them profitable, which way does the Car Czar go?  Because those goals are only reconcileable if oil prices shoot back up and stay there.

Markets in everything

As Robert and I discussed last night, Blagojevich's offerings were disappointingly old-school.  There was not even an attempt to take advantage of advances in auction technology that are by now well established.  Perhaps we were wrong. 

A bad joke that someone needs to make

I think our Energy secretary's a great guy and all, but he's no rocket scientist.  Oh, wait . . . 

Chuck Colson: should there be second acts in American life?

Hilzoy is mad that he's getting the Presidential Citizens Medal.  She offers a highlight reel of his offenses during the Nixon administration and then concludes:

The one episode that will always sum up Chuck Colson for me is his plan to firebomb the Brookings Institution. Imagine: a Special Counsel to the President of the United States actually proposing to firebomb a centrist political think-tank.

When I think of "U.S. citizens who have performed exemplary deeds of service for the nation", Chuck Colson is not exactly the sort of person who leaps to mind. But then, when I think of "good judges of people's exemplary service", George W. Bush doesn't exactly leap to mind either.

This seems, perhaps, just a trifle incomplete.  This biography ends in 1975.  Surely, Chuck Colson has been up to something since then?

Well, just experiencing a genuine jailhouse conversion, and spending the rest of his life building an enormous prison ministry that has done amazing work on prisoner rehabilitation and prison reform.  I don't share his faith, but I recognize that the guy has dedicated the larger portion of his life to helping the most reviled members of society.

Memo to colleagues

Do not, repeat NOT, tangle with Terry Teachout.

Of shoes and ships and sealing wax, of cabbages and kigs

Robert Wright and I discussed ever so many things yesterday in a Bloggingheads video.

Taking a bath on the Kindle

Matt and Brad DeLong complain that you can't read ebooks in the bathtub.  Au contraire, ma frere--simply apply one (1) Zip-Loc baggie, and Bob's your uncle.  Indeed, it's actually better, because the Kindle doesn't get all soggy.  My Kindle remains one of my favorite pieces of equipment. 

Full disclosure

The State of Illinois issues an interesting addendum to a bond offering.

An offer we can't refuse

Alex Massie on the bailout:

The perception that GM and Ford and Chrysler build crappy cars is just another obstacle to recovery. And of course it's a perception that, even if out of date, is predicated upon the bitter memories of the crap cars they really did build. Turns out it takes a while for that perception to fade. One more reason why you shouldn't crap on your own brand. So the current crisis, driven by poor management and stupid unions, is also built upon the junk they spent years selling to gullible consumers taken in by the faux-patriotism of "Buying American".

That's one thing the "Car Czar" can't fix:  the perception that the company apparently needs nearly unlimited access to government funds in order to prop up its failing operations is hardly going to restore America's faith that its automakers make good cars.

On the other hand, maybe people will buy them just to stop the tax drain.  If they're going to take the money one way or another, you might as well get a car out of it.

Number Five is alive

My guess seems to be vindicated:  Candidate Number 5 is allegedly Jesse Jackson, Jr.  This was not based on any personal animus towards JJjr, but rather my estimate of who was most likely able to lay their hands on the $500,000. 

Who told on the Blagster?

The latest rumor is that Rahm Emmanuel is the one who narc'd on Blagojevich.  Clive Crook makes a point I hadn't thought of:  given that we know that Blagojevich demanded pay for play from them, it had better be someone from the Obama campaign who snitched, or it's going to look very, very bad for the President-Elect:

Obama has said he did not talk to the governor about his vacant Senate seat. David Axelrod had to withdraw an earlier statement which said otherwise. There was presumably communication at some level between the two sides, even if it was just the exchange of demand and curt refusal. (Otherwise, Blagojevich would have had no grounds for calling the president-elect a motherfucker.) But the person receiving that demand was under an obligation to do more than just refuse. Perhaps he or she did do more than that. In due course, maybe, we will find out.

Amen

Ross on the possibility of Caroline Kennedy being appointed to Hillary's senate seat:

This is, of course, a pretty good distillation of the case against dynastic politics: Namely, that it transforms the business of republican self-government into a soap opera, in which the public/audience thrills to the "intriguing subplots" involving a President's daughter, a President's wife, and a Governor's son who happens to be the President's daughter's sister's ex-husband ... and sighs, enraptured, at the "fairy tale ending" when the President's daughter grows up to have a Senate seat handed to her as a reward for having endorsed the President-elect. This sort of politics is entertaining to write about, which is one reason why fantasy sagas and Shakespeare are generally more interesting than Washington novels. But after twenty years with the same two families in the White House - which nearly became twenty-four (or twenty-eight) - for a political columnist to endorse a pointless escalation of dynastic politics because it fulfills the fairy-tale mythos her generation spun around a mediocre, tragically-murdered President and his good-looking family isn't "girly"; it's an embarrassment.

I take a low view of politicians, even (perhaps especially) senators.  But even I think that the twin feats of being born, and not getting caught committing a felony, are insufficient qualification for the office.  Or rather, if they are, I want to throw my hat in the ring.

The Big Picture

I am, of course, a huge fan of Barry Ritholtz.  But it's come to my attention that there is another Big Picture blog, which is also awesome.

I come not to bury CDS markets, but to praise them

Felix Salmon defends the CDS market:

Dizard says there are only "three possible defences for treating the CDS market as a going concern"; in fact, there are more than that, and he misses out the big one, which is that the CDS market has allowed investors, for the first time ever, to hedge their credit exposure. Yes, there's a downside to that -- which is that it becomes easier to simply buy credit protection than to do the hard work of fundamental credit analysis. But CDS by their nature are more liquid than bonds, and it will always be easier to buy credit protection than to sell a bond.

What's more, CDS prices are a much better indication of credit risk than bond spreads are, for many reasons including the tax treatment of bond coupons and the fact that many bonds simply don't trade. In other words, not only are they more liquid, they're also more transparent. These are good things.

Oh, Rod. Oh, humanity!

The talk in Washington last night was, of course, Blagojevich.  The general sentiment was sheer incredulity at the blatant, cartoon villain quotes.  Most of my friends are libertarians, and hence tend to assume that this sort of quid pro quo is in fact how people get appointments.  But we thought it was done with some subtlety, a nudge and a wink, not full frontal demands for payola.  As PJ O'Rourke once said, "If I made this scene up, I'd be drummed right out of the Subtle Fiction Writers League".  There's something really sad about having gone so far that your indelicacy actually amazes the folks who want to legalize prostitution and open air drug markets.

The other source of amazement was the speed of the thing; some of the conversations in the indictment took place less than a week ago.  Presumably, the Feds wanted to move before he actually appointed someone who had to be awkwardly arrested and frog-marched out of the Senate.

In a nutshell

The Bailout.  Coming this January.

Markets in everything

What is one to say about the fact that the governor of Illinois conspired to sell off Obama's Senate seat?  One's tempted to say "throw the bums out", but his predecessor also left office under the corruption cloud.  Who's left?  What the hell is wrong with Illinois?

On a more serious note, now what happens to the Obama succession?  I think it's safe to say it will be under a lot of scrutiny.  I presume Blagojevich was turned in by the low bidder.

Apologies to Linda Hirshman

First, for spelling her name wrong in the previous post, and second, because someone impersonating me has been incredibly rude in the comments.  I've deleted the comments and banned the commenter.  Sorry on both counts, Ms. Hirshman, though if it makes you feel any better, you misspelled my name in one of your replies.

Where are the bankers of yesteryear?

I had the great good fortune to spend a summer in Merrill Lynch's technology investment banking group.  That was 2000.  I had remarkably little talent for banking, but even if I had been more adept, there would have been nothing for me to do.  The primary activity in the group was looking busy--staying at your desk until at least 11 at night in order to give the false impression that you might actually be working on something.

It took Wall Street a while to catch on.  There was a long, haunting period when everyone tried to pretend that things might be just about to get better, rather like living with a terminal cancer patient who won't face their diagnosis.  Then, layoffs.  More false cheer.  More layoffs.

Eventually the patient went into remission, but this rather vivid piece from the Wall Street Journal makes it clear the disease is back, and worse than before:
 

"An entire generation has worked for 20 years, lifted up their heads, and it's all gone 'poof,' " says one Goldman Sachs banker. Indeed, last Friday J.P. Morgan quietly laid off a passel of Bear Stearns bankers. They thought they had found a safe harbor after Bear imploded early this year.

For now, the coping is taking the form of prolific meeting-taking. Ten of 11 people interviewed described, with unexpected eagerness, how now is a good time to "connect with clients" or "build relationships." One boasted of spending just two days a month in the office, while another ex-J.P. Morgan employee boasted of two breakthrough meetings -- just hours before he was fired.

The bankers say that the most substantive conversations are, surprise, those with companies in urgent need of cash. These companies will listen to anyone who may have a creative idea or two. With markets frozen, there is little work to actually complete. "What's your definition of business?" snapped one Merrill Lynch executive.

Often these conversations devolve into discussions about the fate of Wall Street itself, and whether the bankers' employers will survive or not. "You do that for a little while and you run out of things to talk about," says one Citigroup banker.

These conversations give some macabre cheer to another emerging group of Wall Streeters. These are the ones who have largely given up on their current positions, and feverishly chart layoff rumors and bonus chatter. These types are more likely found among a bank's younger ranks, where employees have less ability to win business or differentiate themselves. They are vainly hunting for new jobs.

"They watch CNBC all day and surf the Web," says the Citigroup banker. "Investment banking had this boisterous vibe. Now they're completely beaten down."

This would appear a moment of natural self-reflection. Perhaps the time to consider a career move out of New York, or pursue an abandoned passion. Oddly, few of the senior bankers seemed to be able to accept the basic reality of their own profession: that an overleveraged world created an excess of bankers, too.

I suspect that the patient isn't going to bounce back this time, at least not to the former robust good health.  Banking needs to be much smaller, which means a lot of overeducated people, many of them with crushing student loan bills, are going to have to radically downsize their expectations.  Having gone through it, I can testify that it's not fun.  But it's not the end of the world, either.  The denial, the need to play along, is the hardest time for everyone.

 

Women's work

I've always thought that Linda Hirshman had a tenuous grasp on reality, but not this tenuous.  Dan Drezner catches her bolstering her call for gender equity in stimulus funds by claiming that women's unemployment is now rising just as fast as men's.  This is, how do you say it?  Not true.

There's a word to describe Hirschman's argument here.  I think the word is "wrong," since it's based on a faulty premise:

Men are losing jobs at far greater rates than women as the industries they dominate, such as manufacturing, construction, and investment services, are hardest hit by the downturn. Some 1.1 million fewer men are working in the United States than there were a year ago, according to the Labor Department. By contrast, 12,000 more women are working.

This gender gap is the product of both the nature of the current recession and the long-term shift in the US economy from making goods, traditionally the province of men, to providing services, in which women play much larger roles, economists said. For example, men account for 70 percent of workers in manufacturing, which shed more than 500,000 jobs over the past year. Healthcare, in which nearly 80 percent of the workers are women, added more than 400,000 jobs.

"As the recession broadens, the gap between men and women is going to close somewhat," said Andrew Sum, director of the Center for Labor Market Studies at Northeastern University. "But right now, the sectors that are really getting pounded are intensely male."

Click here for more background information on the data provided above. 

Now, maybe this is unfair -- maybe more women have entered the labor force, and therefore their unemployment rate has risen as fast as men. 

Nope, that's not it.  Monthly data from the Bureau of Labor Statistics shows that Hirschman's assumpton is a flat-out falsehood.  Immediately prior to the start of the recession (November 2007), the unemployment rate for men was 4.7%; the rate for women was 4.6%.  As of November 2008, the unemployment rate for men has increased to 7.2%, while the unemployment rate for women has only risen to 6%. 

So, to sum up:  there is no way to spin this data to support the assumption that drives Hirschman's op-ed.

Girls will be girls, I guess. 

Drezner asks for suggestions as to how Hirshmann could have gotten it so totally, bizarrely, utterly, I-know-why-don't-I-save-time-by-blow-drying-my-hair-in-the-shower? wrong.  If you figure it out, please do let me know.

And now, for some actual good news

A partially effective malaria vaccination that reduces incidence in children by over half.

This is a game changer for Africa.  No, it will not give them stable governments, good roads, or accessible ports.  But it's hard to overstate the impact of disease burden on sub-Saharan Africa.  This sort of vaccination also has big external benefits--by reducing the pool of infected carriers mosquitoes attack, it will significantly cut down on the overall incidence even among those who aren't vaccinated.  It's still got a ways to go through trials, but if it works, this will do more for Africa than all the development money of the last decade.

New York Times to mortgage its building

Henry Blodget's fears about the company's cash flow may be sounder than first thought.  The company is raising over $200 million by mortgaging its share of the brand new Eighth Avenue headquarters.  That seems to indicate that they're anticipating a cash flow problem next year.

Sign of the times

Another bit of Depression nostalgia makes its way back into the real economy:  apparently, a few neighborhoods are starting to flirt with scrip, aka local currency.

I've blogged before about the tendency for groups to manufacture money out of whatever happens to be closest to hand.  Considering how long the human animal evolved, even in tribal groups, without money, this apparently universal tendency among those who have been exposed to money is kind of an inspiring testament. 

Scrip was not uncommon in the early 20th century in company towns, where unscrupulous owners used scrip to force people to buy from their stores, rather than the new competition from Montgomery Ward.  Or so it was always explained to me.  But during the depression, quite a bit of it sprang up during the bank holiday, when no one could get their hands on US currency.  The various scrips made a fascinating study in monetary policy, and free banking; some of them had classic hyperinflations, others ran into institutional reputational problems.  Many of them had interesting features designed to vastly accelerate the velocity of the money.  There are some accounts of miraculous turnarounds in depressed areas based on successful scrip.  (Unfortunately, many of those accounts come via the purveyors of the scrip).

But scrip certainly seems to back the notion that the Great Depression was rooted in monetary contraction; money has to be pretty short before people start trying to mint their own.  If more scrip plans get going, that will tell us something about the success of Bernanke's attempts at monetary expansion.  When you push on a string, you produce scrip.

The end of an era

So I should preface my holiday cookbook guide with perhaps unstartling news:  I've been told by my endocrinologist that it's time to give up being a vegan.  One of the major reasons that I have, as you have possibly noticed, been sick for months, is that my thyroid has been in parlous condition.  This wasn't exactly unexpected, because I have an autoimmune disease called Hashimoto's Thyroiditis that slowly kills your thyroid.  Because of that, I was very careful about supplementing my soy intake with iodine, because soy can interfere with thyroid hormone.

In my case, the supplementation wasn't enough.  I should stress that this is not a problem for normal people; your thyroid just ups its production a little.  My thyroid, however, couldn't cope.  My blood levels of thyroid-stimulating hormone shot up, I gained fifteen pounds in four months, my voice dropped half an octave, and I could barely get out of bed in the morning--I literally had to take naps two hours after waking up.  I've had to cut my soy intake way, way down.  Like, to "amounts so small they're not on the label". 

After a little over a month, it's clearly working--I'm almost back to normal, though I'm still tired.  (And I still can't fit into any of my clothes.)  But it's not really possible, at least with my job, to be a vegan without consuming soy; almost all the meat substitutes are made with it, and in DC, there are basically no restaurants serving seitan.  I tried to go on soy-free, but I was getting sicker, unsurprising since I was basically living on Fritos and peanut butter every time I left the house.  So, the year-long experiment with veganism is at an end.

No doubt people who have resented my veganism will point to this as proof that a vegan diet is unhealthy.  This is triple-distilled balderdash.  It's unhealthy for me because I have, essentially, a soy allergy, just as eating a mediterranean diet is unhealthy if you're gluten intolerant.  For most people, it's at worst no less healthy than any other diet.

At any rate, I'm back to eating certified humane animal products.  And no doubt, many of my vegan readers will get angry.  All I can say is that I did my best, and if I could figure out a way to make it work without spending hours every single day cooking, or consuming soy, I would.  I'm a moderate on animal rights; I believe in animal testing, and the reason that I support veganism is that I think it's possible to do in a healthy way for most people.  But I do value human life and health over animal life, and that includes mine.  I'm now looking into things that I didn't have much need for months ago:  buying milk from a local dairy, for example.

At any rate, please don't turn this comment thread into an excuse for vegans to yell at meat eaters, and meat eaters to gloat over me.  I've actually been really sick for the last five months, though I didn't blog about it, and I'd appreciate not having that used to make a political point.

Schadenfreude

Publius accuses me of schadenfreude about liberal discomfiture with Obama's appointments.  Schadenfreude?  I supported the guy for president.  I would personally be pleased to see Ingrid Newkirk appointed to head the USDA.

I belong to another small movement that is disproportionately politically active, and also, frequently toys with the lunatic belief that if only there were some structural change in the world, they'd finally get the opportunity to enact their agenda.  Libertarians tend to moon over proportional representation and transparency initiatives.  Right now, progressives are into cabinet appointments. But the underlying belief is the same, which is that if one could only get hold of some talisman, politicians would listen.

Politicians don't listen because they, unlike activists, know that polls lie.  People say they want national health insurance.  They also say they want lower government spending.  But confront them with changing their insurance (with which they are, overwhelmingly, satisfied), or cutting Mom's Medicaid, and they change their minds.  They will still tell you that they want national health insurance and lower government spending, but, you see, not that way, where "that way" is any feasible way to deliver their stated goal.  

Politicians don't listen because progressive and libertarian activists are not pushing minor schemes to benefit themselves greatly at small cost to everyone else.  They are pushing for radical change that will require radical fiscal medicine to effect.  That fiscal medicine will not pass unnoticed, and hence, it does not happen.

This does not make me happy.  It does not make me happy that I can't privatize social security and eliminate the corporate income tax, and it does not make me happy that I can't have radical agricultural reform and a stiff carbon tax.  But the universe is not here to please me.

Was Nazi science good science?

Orac makes a disturbingly persuasive argument that it was.

It's not spending, it's an investment

Being that I have recently purchased a car, lost half my retirement savings, and rented a house, I feel poor right now.  And yet, like the rest of America, I am feeling the powerful lure of the ridiculous sales our nation's merchants are putting on.  Yesterday, my housemate suggested that flat screens are so cheap, we might want to get another one.  Between the two of us, we already have five televisions (including one that, bizarrely, comes with the house, being affixed to the bathroom ceiling.  No, I'm not kidding.)  But they're SOOOOOOOOOOOOO cheap!!!

I don't think I'm the only one who's noticed the pathetic desperation of the sale come-ons in my email box.  In years past, Christmas sales were a way to steal your custom from more rapacious rivals.  Now it just seems like Macy's is begging. "Please, take this unsalable crap off my hands!  I'll throw in a toaster!  Okay, okay, how about a toaster, free shipping, and a coupon for a half priced entree at Fridays?  What about that?  No?  Pleeeeeeeeeeeeeeaaaaaaaaaaase."

And I suspect that this is shaking loose some of the money that has frozen up.  Because even though I feel poor, it almost seems like losing money to pass up these deals.  As Ta-Nehisi said on Black Friday:  My e-mail was deluged with deals, and I almost bought 42" flat-screen for like $500. And then I got to thinking. Why? Was I even shopping for a TV? Or was I just enticed by the possibility of getting over?"  There's some part of our brain that treats bargain items, even bargain items we don't need, as an investment rather than an expense.  Okay, you've spent $500, but you've got $1000 worth of television!

The problem with this is that utility is a relative, not an absolute.   The market price is (sort of) an average of the item's utility, not a measure of its utility to you.  For us, the utility of another flat screen television is almost certainly less than almost anything else we'd spend the $400 on.  We didn't get the television.  But I still feel kind of like I'm missing out.

But you can't base an economy on this feeling (though Lord knows, we've tried!)  I'm sure all the bargains and loss leaders are generating some consumer spending.  But I'm still willing to bet that most retailers will report horrific margins and a terrible year for profits.

Tribune considers bankruptcy

More bad news in the media industry; most young journalists I know are wondering if they haven't lashed themselves to the mast of a sinking ship.  The problem at the Tribune papers is most accute; they company did an LBO last year that has weighed it down with debt payments during a period of revenue decline.  But there are rumors that even the venerable New York Times is going to have some debt problems in the spring (though, to be clear, no real reason to fear an NYT bankrutpcy). 

The employee ESOP looks primed to take the biggest hit, since they own all the remaining equity in the company.  I'm sure there's a special place in hell reserved for Sam Zell, the genius who took it private and made his own debt senior to the ESOP.  On the other hand, DealBook reports that the pension fund is actually overfunded:

Tribune's ESOP is separate from the pension plans for Tribune workers that existed before the buyout. It is not clear how those pension plans, which Tribune has said are actually overfunded, would fare in a bankruptcy case.

In the months leading up to the deal, David Hiller, the publisher of the Tribune-owned Los Angeles Times at the time, reassured employees that "existing pension plans and 401(k)s" were "fully protected," according to an e-mail cited the lawsuit.

What happens to an overfunded pension plan in the event of a bankruptcy?  The major news stories tend to focus on underfunded plans whose parents lack the cash flow to bring back to par.  Do overfunded plans see the excess doled out to creditors, or do they get to keep the extra booty?  And does that suggest a strategy for employee owned firms in trouble?

Update:  Yup, it's official.

M&A: No M, no A til at least 2010.

When I was interviewing for jobs in investment banking and consulting, way back in the wilds of 2000, I was assured that I didn't need to worry about any recession.  Consultants were as valuable telling companies how to downsize as they were explaining how to expand.  Bankers explained that while IPOs might fall off during down years, M&A activity would pick up as companies snapped up new bargains.

This was horse hockey, and after accepting a management consulting job to start in fall of 2001, I was rewarded with 18 months of unemployment.  Banking turned out to be just as recession-prone as everything else.

So naturally when I read that Bernstein is predicting at least another year of down M&A activity, I wondered how many MBAs are ruing the day they bought the same stupid line I did in 2001.

Pardon me?

Henry Farrell ponders whether we should reform the pardon power of the president:

Looking more closely at what Nadler is saying, it seems to me that there are two distinct elements. One is the suggestion that the President not be allowed to pardon members of his/her own administration. This, I suspect, is the bit that Josh is leery of - I imagine that his thinking is that in a country where the prosecution is highly politicized (as in the US), the benefits of having the President able to overturn politically-driven prosecutions may outweigh the benefits. This, I think can be argued either way. But I can't see any very good argument against the second, admittedly more tentative element of Nadler's proposal - that the President's power to pardon be restricted during his/her final months in office.

It seems to me that what we want out of a pardon is to allow someone with no political accountability the opportunity to undo injustices.  A lot of people get convicted in this country because there was a prosecutor with the public breathing down his neck to DO SOMETHING. 

Empirically, it is an open question whether the pardon power is used that way or not.  But if we're going to ensure it's only going to be used when the voters can express their wrath, then we might as well not have the pardon power at all, it seems to me.

What about Marc Rich?  Or Nixon?  Taking the last first, that pardon would have passed both of Jerry Nadler's tests--Nixon was not Ford's subordinate, or in his administration, nor were any of the other conspirators.  Pardoning Nixon may have been a bad idea, but I tend to think not--the country would not have benefitted from a lengthy trial, especially since I think it very likely that the defense would have managed to get quite a bit of testimony on Johnson's behavior, which I've heard credibly argued, at least equalled, and inspired, Nixon's own.  Arguably, the reason the Democrats made so little fuss is that they knew they could not further destroy Nixon's name without also destroying Johnson and the Great Society.

As for Marc Rich . . . okay, so a terrible, horrible, no good, very bad idea.  But on a social level, so what?  Are rich people going to commit more tax fraud because they might, after more than a decade of living abroad as a fugitive, be able to donate a chunk to the Presidential library and thus secure a pardon?  What about this cries out for remedy beyond recrimination?

Save the children

I read this article on NICE a little while ago.  What jumped out at me was just how low a value the Brits place on human life:  about $22,750 for every six months of life.  That implies a total value on human life of under $3 million, which is less than half of what American regulators derived from analyzing how much more people must be paid to take on risky jobs.  And people got mad at them for placing the figure too low.  That's also how, at least in theory, we calculate the losses in things like wrongful death lawsuits.

Even in PPP terms, British GDP is about 75% of America's, not half.  Why do they value their lives so much lower?

Well, one possibility is that they don't--when assessing environmental threats, which is where that cost-per-life-saved was developed for the US.  But this makes no rational sense; a life saved by environmental regulation is no more alive than a life saved by surgery.  The difference is, of course, that in one case, the government actually has to spend money, while in the other, the government is simply halting economic activity, or forcing a private actor to spend money.  While economically, these are no different, they seem very distinctive indeed to people with tax budgets.

Winterspeak noticed an even uglier irrationality:

But this makes no sense:

Britain's National Health Service provides 95 percent of the nation's care from an annual budget, so paying for costly treatments means less money for, say, sick children. Before NICE, hospitals and clinics often came to different decisions about which drugs to buy, creating geographic disparities in care that led to outrage. (Such disparities are common in the United States, even for federal Medicare patients.)

Sick children provide excellent return on investment for treatments. A positive intervention in a child can yield years of benefits. Why don't children always win?

After consulting a citizens group, the institute decided that the nation should spend the same amount saving or improving the life of a 75-year-old smoker as it would a 5-year-old.

Ah, that makes sense. It is also highly informative about the value of consulting citizens' groups.

So, so far the salutory effects of this laudatory public works project are to undervalue all human life, but especially that of small children, because the seniors kicked up a fuss.  The moral logic of this is appalling.  In these liberated days, "women and children first" has sensibly changed to "children first", but I hadn't realized that we'd gotten so advanced that we'd abandoned even that elementary moral calculus.  I've never seen it made so starkly clear that the job of any senior's lobby is to cannibalize the future in order to pay for their past or present.

Some progressives apparently shocked to discover that they elected a politician, not (awesomely wise secular teacher!) Jesus. Clip at eleven.

I don't understand why these articles keep getting written.  Moreover, I don't understand why they can keep getting written.  Did progressives really think they'd woken up in Sweden on November 5th? 

Liberals are growing increasingly nervous - and some just flat-out
angry - that President-elect Barack Obama seems to be stiffing them on
Cabinet jobs and policy choices.


Obama has reversed pledges to immediately repeal tax cuts for the
wealthy and take on Big Oil. He's hedged his call for a quick drawdown
in Iraq. And he's stocking his White House with anything but stalwarts
of the left.


Now some are shedding a reluctance to puncture the liberal euphoria at
being rid of President George W. Bush to say, in effect, that the new
boss looks like the old boss.


"He has confirmed what our suspicions were by surrounding himself with
a centrist to right cabinet. But we do hope that before it's all over
we can get at least one authentic progressive appointment," said Tim
Carpenter, national director of the Progressive Democrats of America.


OpenLeft blogger Chris Bowers went so far as to issue this plaintive
plea: "Isn't there ever a point when we can get an actual Democratic
administration?"

Not if you define an "actual Democratic administration" as one that is closer to OpenLeft than the median voter, no.  Take comfort that we're probably not going to get an "actual Republican administration" either, for the same reason. 

For a movement that grew out of the anti-corruption campaigns of the late nineteenth century, and was nurtured in the hothouse built by domestic Communism and Socialism, modern progressivism seems curiously unwilling to think about, much less cope with, institutionalist models of politics.  Enacting legislation is not a matter of getting a president and a fillibuster-proof majority, unless you happen to have a congress filled with career-suicide bombers.  It is a matter of getting a fillibuster-proof majority and a bill that either no one cares about, or is supported by close to a majority of voters.  (Actually, it's much more complicated than that.  But as a general rule, this simple model is much more effective than believing that shortly before electing Barack Obama, America collectively read Gunnar Myrdal and shifted about 20 points to the left.)

Occasionally, you can get politicians to buck the will of the voters when the matter is serious enough, as with the bailout.  But this is very rare.  And when you do buck the will of the voters in order to do something that most economists agree is vital to the health of the nation, apparently, many progressives get mad and say ridiculous things:

Liberals are growing increasingly nervous - and some just flat-out
angry - that President-elect Barack Obama seems to be stiffing them on
Cabinet jobs and policy choices.



Obama has reversed pledges to immediately repeal tax cuts for the
wealthy and take on Big Oil. He's hedged his call for a quick drawdown
in Iraq. And he's stocking his White House with anything but stalwarts
of the left.



Now it's Obama's Cabinet moves that are drawing the most fire. It's not
just that he's picked Clinton and Gates. It's that liberal Democrats
say they're hard-pressed to find one of their own on Obama's team so
far - particularly on the economic side, where people like Tim Geithner
and Lawrence Summers are hardly viewed as pro-labor.


"At his announcement of an economic team there was no secretary of
labor. If you don't think the labor secretary is on the same level as
treasury secretary, that gives me pause," said Jonathan Tasini, who
runs the website workinglife.org. "The president-elect wouldn't be
president-elect without labor."

He also wouldn't be president-elect without the drivers who piloted the campaign bus, but this is not a reason to make bus drivers the central concern of his new administration.  Frankly, the knowledge that there are such lunatics out there, but that Obama is ignoring them, has heartened me greatly.

Mostly, though, it's just dire warnings that he couldn't have been elected without progressives, so he'd better not bite the hand that feeds him.  This sort of ridiculous posturing pervades every post campaign let down.  Oh, yes, Barack Obama couldn't have been elected without progressives.  He also couldn't have been elected without lower-middle class Moms who like to drive to Wal-Mart in their SUVs to buy enormous flat-screen televisions for the family room.  Guess which group is larger? 

First rule of politics:  small groups get favors from the politicians they support only to the extent that it does not annoy large groups who voted for those politicians.  Check the progressive agenda.  See which bits do not annoy large groups who voted for Obama.  That is what the progressives are going to get.

The other group who is in denial, of course, is the conservatives.  While the progressives are shocked, shocked that Obama hasn't made Bill Ayers attorney general and Ingrid Newkirk Secretary of Agriculture, many of the conservatives who were mad about my supporting Obama continue to assure me that he is making card check and confiscatory taxation the centerpiece of his administration.    Maybe the hard conservatives and the progressives should be consoling each other.

Google Reader ninja mode

Okay, this is cool.  Go to the new Google Reader and do the following:

Press the "up" arrow twice
Press the "down" arrow twice
Press the "left" arrow once
Press the "right" arrow once
Press the "Left" arrow once
Press the "right" arrow once
Press the "b" key
Press the "a" key

That sequence, again, is

up up down down left right left right b a

Enjoy the weekend!

Lost in translation

The essence of a talking head show, finally captured in one short clip.

Give me an S! Give me an M! Give me two O's . . . !!!

Dani Rodrik writes:

Now suppose that we had a way to raise the multiplier by more than half, from 1.8 to 2.8.  The same fiscal stimulus would now produce an increase in GDP of $2.8 trillion--quite a difference. Nice deal if you can get it.

In fact you can. It is pretty easy to increase the multiplier; just raise import tariffs by enough so that the marginal propensity to import out of income is reduced substantially (to zero if you want the multiplier to go all the way to 2.8).  Yes, yes, import protection is inefficient and not a very neighborly thing to do--but should we really care if the alternative is significantly lower growth and higher unemployment?  More to the point, will Obama and his advisers care?

Prompting Tyler Cowen to add:

Am I totally out of line in asking him to add the sentence: "The fact that this is the worst policy idea floated in recent memory suggests that the underlying theoretical apparatus is deficient"?

It will be interesting to see if the Keynesian multiplier becomes the Democratic Party economist equivalent of the Laffer Curve, namely a "free lunch" claim used to justify many kinds of preferred policies.  Have I mentioned that having their party in power was very bad for Republican economists too? 

If I read him correctly, Dani Rodrik is suggesting that Smoot-Hawley made the New Deal more effective.  But of course, Smoot-Hawley was part of an ongoing round of trade contraction to which it both responded and contributed.  If we tried the same trick again, we'd destroy the WTO, which would make global GDP shrink, not grow. 

That it is stupid, does not mean that the government will not do it.  But if Obama's team wants to raise tariffs in the name of enhancing the effectiveness of their stimulus package, I doubt they're going to be dissuaded by the possibility of possibly cutting an expensive side deal with every country in the developing world in order to get them to go along.  Even if this were economically correct, it's politically tin-eared.

Apply for the AFF College Blogger Contest

The America's Future Foundation is having a contest for college bloggers again, with awesome prizes for the winners.  Once again, I've agreed to be a judge. If you're a college or graduate student with a blog, please think about applying.

Bleg: Adventures in mechanics

It looks like I need to replace a heated passenger mirror (I think it's heated) on a 2006 Mini Cooper.  Sadly, I can't figure out what the right part is, or how to install it.  Anyone know the answer off the top of their head?  If you tell me how to do it, I'll post pictures . . .

Update:  Perhaps I should explain why I, who am not known for my mechanical skill, am attempting this.

Well, there's been an ongoing adventure with the State of Pennsylvania, which finally consented to follow their own damn laws after I called the press department and asked for an explanation of their policy, which seemed to be in clear contravention of the existing law.  During this saga, which was finally rectified in late November, two things happened:

1)  My temporary tags expired
2)  My mother ran into my car and cracked the right passenger mirror

The car is now parked in my sister's garage, from which it cannot be legally removed except to take it to inspection.  When I did so last Saturday, I was informed that the mirror is cracked, and therefore I could not pass inspection.  When I requested new temporary tags so that I might take the car to have it fixed, I was informed that it is District of Columbia policy never, ever to give out temporary tags.  The nearest Mini dealership, I explained, is a long, illegal drive from my house.  The DC answer is that I should pay several hundred dollars to get it towed.  After all, if I hadn't . . . well, they're sure that this must somehow have been a malevolent or lazy mistake on my part, so go to hell.  The woman at the desk claims that the computers are set up to lock if you attempt to issue a second set of temporary tags.

I would very much like not to pay several hundred dollars to tow my car to Sterling, Virginia.  Moreover, Sterling, Virginia's Mini dealership can't fix my car until sometime in the New Year, because apparently, being the only dealership in the area keeps them pretty busy. 

This leaves me with two choices:  spend hundreds of dollars and leave my car parked for at least another month, or fix it myself.

Fun, huh?  This is what my whole month has been like, friends.  It's just one damn thing after another, and funnily enough, almost all of it the product of some useless bureaucratic innovation designed to convenience the designer at the expense of a "customer" they don't care about.

Bargain hunters

Consumer groups are launching a campaign on EBay to get around the Supreme Court's 2007 ruling making minimum price agreements between retailers and manufacturers once again illegal (sorry).  Predictibly, this is being at least partly astroturfed by the retailers, who want to be able to compete on price.

I have a bunch of thoughts on this, but no firm conclusion as yet:

1.  I'm not sure how much this will actually affect the final price of the goods.  It may just push the competition back to the manufacturer level.  On the other hand, one could argue that since there are relatively few companies in a given category of good, they'll be able to collude more effectively than the relatively fragmented retail industry.

2.  Allowing agreements in restraint of trade is generally a bad idea--but unlike, say, deals between Standard Oil and the railroad trust, these don't actually impact third parties.  I'm not sure there's a principled reason to forbid entities from writing a minimum price for the product they make into a private contract.

3.  This may actually broaden the distribution of some products.  Bose won't sell their products with any discounting, though they've been weakening that slightly lately with a few coupons here and there.  So if they can't set a minimum price--indeed, a price--they won't deal with a distributor, but pull back into their own stores.  That makes it harder for consumers to find their products.

Of course, I know many of my audiophile friends would argue that this is a feature, rather than a bug.

4.  The groups behind this are itching to prove that this has raised prices by commissioning a study.  Expect that study to be very, very, VERY carefully timed to capture the broad inflation earlier in 2008, while neatly slicing out the price collapse in goods like LCD televisions that followed the financial crisis.

5.  Distributors used to love agreements like this, which let them compete on customer service rather than price.  What's changed?  I presume we're seeing a fracture between high-end/bricks and mortar retailers, who are happy to end price competition, and internet vendors.  I'd also wager that Mom-and-Pop stores like the minimum price agreements, while Best Buy et. al. want to use their massive purchasing power to crush smaller competitors.  Still, I'm a little surprised.

Exurban living

Everyone here in DC is talking about whether to rent out their house, or rooms in their house, for the inauguration.  I knew the fever had spread to Baltimore.  But I didn't know it had gone this far.

Doctor, doctor

This New York Times article suggests that doctor arrogance is a significant cause of medical error.  I certainly wouldn't be shocked if this were true.  Still, given the thinness of the data, I have to wonder:

A survey of health care workers at 102 nonprofit hospitals from 2004 to 2007 found that 67 percent of respondents said they thought there was a link between disruptive behavior and medical mistakes, and 18 percent said they knew of a mistake that occurred because of an obnoxious doctor. (The author was Dr. Alan Rosenstein, medical director for the West Coast region of VHA Inc., an alliance of nonprofit hospitals.)

The observation that some people are jerks, and that jerkiness does not enhance performance, is not exactly surprising.  What I want to know is whether disruptive doctors actually account for a notable percentage of medical errors.  I'm sure if you surveyed doctors, 20% or so could report an error caused by a lazy LPN, incompetent PA, or pigheaded nurse.  But I'm skeptical that "nurse pigheadedness" is actually a major problem that America's healthcare system needs to address.

Take this cup and drink it . . .

A major setback for an Australian magazine:

More than 130,000 inflatable breasts have been lost at sea en route to Australia.
 
Men's magazine Ralph was planning to include the boobs as a free gift with its January issue.

The cargo is worth about $200,000, which is another blow for publisher ACP's parent company PBL, which is already in $4.3 billion of debt.

A spokeswoman for Ralph said the container left docks in Beijing two weeks ago but turned up empty in Sydney this week.

Perhaps the crew used them for a bailout . . .

Blegs

After scrubbing my house from top to bottom after the move, the skin is literally peeling off my hands from all the chemicals.  This has made me think about getting a steam cleaner, maybe one of these.  I like the idea of cleaning without chemicals, and I've used a handheld one long enough to know that if you get the pressure up, they really seem to do the job.  Since I'm moving to another Victorian house with elderly tile, etc., and I'm kind of obsessed by cleaning things like baseboards, it's very tempting.

On the other hand, it seems very pricey--how much can I really save on soap with one of these?  And do they actually work, or just look good in the commercials?  Can anyone comment?

Second bleg is for a friend, who wants a nice digital camcorder that can double as a webcam.  Not super-extravagent, just solid and easy to use.  Any suggestions?

GM goes nuclear

So GM wants $18 billion just for itself.  Words fail.  Or rather, I don't think I can print the words that immediately come to mind. This is a family blog. 

Somewhat to my surprise, the political types tell me this polls very badly outside of Michigan--indeed, the New York Times seems to have found some people IN Michigan who think it's not so hot.  So overall, the political prospects for a bailout aren't looking so great.  Republicans don't carry Michigan, or autoworkers, anyway.  They are not going to help out the UAW out of any sense of self-preservation, their base in right-to-work states is going to be livid if they ship tax dollars up to Detroit, and ideologically, few of them think the auto industry should be kept on indefinite life support.  I doubt the Senate can move any bailout past a filibuster by outgoing Republicans who are not feeling kind towards the labor movement, and I'm positive they don't have the numbers to override a presidential veto.

GM says it needs $4 billion this month, or it goes into bankruptcy, and the same again in January.  Given the electoral math, that puts a pretty high probability on bankruptcy.  The White House and Pelosi are engaged in some sort of strange game of chicken, where the White House , says to take the loans from the $25 billion already committed to help the automakers retool for higher CAFE standards, and Pelosi insists on taking it from TARP.  Since the White House is probably actively rooting for the crash, this is just posturing.  But it seems like pointless posturing; two years from now, no one is going to be able to run, or even fundraise, on the question of CAFE v. TARP.

The real question is whether creditors are willing to ride out uncertainty until the Democrats can craft something.  If GM and Chrysler need to draw down more than half of that $25 billion in the next two months, how much float will their creditors be willing to give them until the Democrats can bail them out?  And If their burn rate is $4 billion a month, how long will even a Democratic congress be politically able to carry them?  I think it's safe to say that their sales are not going to turn around in the next year, and the union's idea of a giveback so far seems to be "just barely enough to stave off bankruptcy for another two months".  No one's going to finance them on those terms.

Harvard's endowment loses the GDP of a small country in 5 months

According to the Journal, it's dropped 22% since June 30.  I assume this puts the kibosh on their plans to offer free tuition to everyone except the very affluent.

Consumer carpet bombing

A reader points me to this Consumerist post on how to get a response from a recalcitrant company; the comments are priceless.  As always, the point is not to do this until you've really been abused, not merely when you want something fixed NOW and they can't do it for two days.  I mean, if you're talking about a leaking sewerage pipe, fine, but otherwise, it's not unreasonable to expect slight delays and occasional mistakes.

Memo to parents: double check that homework.

No, seriously.

Black Friday: Not so black after all

I was going to do a post on why we shouldn't get excited about Black Friday's 3% increase in sales year-over-year, but Jim Manzi beat me to it, and did it better:

The biggest problem with this, of course, is that we don't know how much discounting had to be done to generate this sales growth. Anecdotal reports are that it was massive, and sufficient to reduce total profit even after the increase in unit sales.

There are other problems with even taking the top line sales numbers as an indicator of likely good sales growth for the season. First, there are only 27 shopping days in the buying season this year vs. 32 last year, because Thanksgiving is so late. While buying tends to be concentrated at the front-end and back-end of the buying season (because retailers have trained consumers to play a game of chicken, waiting for last-minute sales), and this ameliorates the effect somewhat, this is a huge difference in that there are about 15% fewer days, so the average day should be a lot higher this year than last to get same aggregate sales for the season. Second, Black Saturday is not as big a shopping day as Black Friday, but it is one of the big days of the season, and it was down vs. last year. Third, e-commerce sales for the four weeks of November through Black Friday actually declined vs. 2007, which is the first time this has ever happened. comScore forecasts flat online sales for 2008 vs. the 2007 season, which would be hard to reconcile with much growth for in-store shopping.

The evidence so far is that this shaping up to be an even worse Christmas shopping season than most informed observers anticipated even a week ago. The S&P Retail Index went down substantially more than the market yesterday, as it integrated the data from Friday and Saturday.

One other thing to point out, of course, is that these figures are not adjusted for inflation.  And we had substantial inflation earlier in the year.  So even without the fact that every store I saw was offering massive, massive discounts to get those sales, they wouldn't be that exciting.

The Atlantic explains it all to you

I helped put together a fun little graphic section on Iceland's woes.

Sears on my mind

I see in today's paper that Sears lost money in the third quarter:

Sears Holdings Corp. swung to a fiscal third-quarter loss on falling sales and margins, notably at namesake domestic stores, as the sales woes worsened the past two months and prompted the company to pull its earnings forecast for the year. . .

Many retailers have struggled for some time, but Sears's challenges go beyond the economic environment as the retailer's namesake and Kmart stores have been plagued by a reputation for shoddy customer service, high out-of-stock levels and poor presentation. Those factors in recent years have made it hard for the company to stem customer losses to more focused rivals.

Sears has also seen significant turnover in its executive ranks and is still looking for a replacement for its interim chief executive, W. Bruce Johnson.

This resonates particularly with me because today is a very special day.  Today is the day when a private company actually succeeded in giving me customer service as bad as that of a government agency.  And not just any government agency.  I'm talking about TSA-levels of sophistication*.  I used to think that only the government was able to achieve the soul-crushing indifference to human suffering with which Tamerlane's smiling hordes piled the skulls of their victims outside the gates of broken cities.  Surely it must have taken the kind of massive research program that only a government could afford to have utterly perfected that exact combination of witless and ironclad which could neatly, and perfectly, frustrate all normal human desire.  No, thought I, the market would not permit it.  If you want customers to keep enduring that kind of towering ineptitude, that kind of pointless proceduralism, that smugly bovine disinterest in their simplest rights, you have to have recourse to violence.  Otherwise, if you can't shoot them, they'll just up and walk away.

As we round the corner into my second month of dealing with Sears customer service, I can only conclude that the company has some secret strategy.  Either it is refocusing on the presumably profitable "retired masochist" segment.  Or they are waiting for the guns to arm their staff to work their way through the company's byzantine parts ordering system.  Perhaps both.  I just don't know.

I invite you to guess how many days I have now spent at home waiting for the man from Sears customer service to come fix my washer.  Answer below the fold, for anyone who is willing to wade into yet another rant about the appalling state of American corporate relations.

Continue reading "Sears on my mind" »

When business models go bad

Please tell me there's no market for these.

Jindalmania

In a post titled "A Bad Sign for Bobby Jindal", Ta-Nehisi writes:

Or maybe just political journalists:

Last weekend, 18 days after Barack Obama decisively defeated their candidate for president, a mostly Republican crowd of self-described conservatives received their first introduction to someone many prominent members of the GOP think could be the party's own version of Obama.

You don't say. Obama was the next Kennedy. Then he became the next McGovern. Or was that the next Stevenson? Now he's the next FDR. And Jindal is the next him--because he's, you know, swarthy. The thing about Obama that people, apparently, still don't get is that thus far he has proved himself a damn good politician. He is not simply the eloquent black dude who won--although he's that too. He's the dude who reinvented campaign fundraising, who pioneered the use of social networking, who won Virginia and North Carolina, who ended 50 plus 1.

Obama's also the dude who's turned universal healthcare, massive public works projects, and an office of urban policy into the machinations of a centrist or a center-right Democrat.  But most importantly Obama opposes dogma. He is a progressive pragmatist trying to tackle issues by creating the broadest coalition possible. Jindal meanwhile..

...social conservatives like what they have heard about the public and private Jindal: his steadfast opposition to abortion without exceptions; his disapproval of embryonic stem cell research; his and his wife Supriya's decision in 1997 to enter into a Louisiana covenant marriage that prohibits no-fault divorce in the state; and his decision in June to sign into law the Louisiana Science Education Act, a bill heartily supported by creationists that permits public school teachers to educate students about both the theory of "scientific design" and criticisms of Darwinian evolutionary concepts.

So let's see we have, covenant marriages, outlawing abortions--no exceptions--creationism, and banning stem-cell research from the public sector. Sounds pragmatic to me and exactly the sort of  issues to build a broad coalition around. Why not resurrect Terri Schiavo while we're at it. This dude isn't Barack Obama. He's George W. Bush--he's a more competent George Bush.

I think that oversells Obama's centrism.  Just to take an example that Ta-Nehisi uses, did Obama make some compromise on the Democratic Party's no-restrictions-on-abortion-at-any-time-no-shut-up-I-CAN'T-HEAR-YOU-LALALALALA platform?  Because as far as I know, he's still toeing the party line there.  And that's just about as extreme, as far from the average American's opinion on abortion, as Bobby Jindal's. 

On the other side, I don't see anything wrong, or "EXTREMIST", about Bobby Jindal being a devout Catholic who wants to enter into a covenant marriage.  He hasn't indicated any plans to stop Ta-Nehisi and I from living with our partners without benefit of the marital sacrament, or from getting married, should we choose, the good old-fashioned way, with its 50% divorce rate.  I think the option for covenant marriage is a good thing for the government to provide, but then I'm a libertarian.  I like people to have as many choices as possible, as long as those choices don't hurt others.

Besides that, I'm willing to bet that Ta-Nehisi has never seen Jindal in person.  I have.  And while "swarthy" may play a small role in the Obama comparisons, it's mostly along the lines of thinking that the Republican Party's first non-white candidate would help heal the party's image a bit.  The reason that they're comparing Jindal to Obama is that, in person, he comes off a lot like Obama.  He's extremely positive, he's personally charming, and he's kind of skinny and his ears stick out.  Like Obama, Jindal is something of an odd duck; he looks like the president of the Paramus, New Jersey High School Chess Club, and talks like a good old boy with a plantation somewhere back in the Bayou.  The combination is disconcerting for northern journalists, and a little bewitching.

But once you're past that, well, the guy just has skills.  His message, like Obama's, is one of hope and actual change; he tends to emphasize the work he's done reforming Louisiana's notoriously corrupt political culture.  And like Obama, he has the charisma to put it over.  Nearly all prominent politicians are extremely charismatic.  Being in a room with them is like being in a room with the sun; you can't really look anywhere else.  But some have it more than others, and Jindal has a lot of it.

He's also a really good political organizer, which is how a Republican carries Louisiana (to be sure, the Democratic governor's monstrously incompetent performance during Hurricane Katrina helped quite a bit.)  And on the other metrics by which Obama stands out--his academic chops, his meteoric rise--Jindal actually betters Obama.  The guy was accepted to both Harvard Medical School and Yale Law School, but decided to go for a political career, and accepted his Rhodes Scholarship instead.  At 25 he was appointed Lousiana's Secretary of Health and Hospitals; at 28, he became the youngest-ever president of the University of Louisiana system. 

You can say many things about him--he's written some nutty things about Protestants, and participated in an exorcism, which means he's gonna have some 'splaining to do if he runs for President.  But he is not George W. Bush, or John Kerry, or Al Gore, or any of the other range of uninspired sons of the gentry who have graced our political landscape recently.  He is phenomenally smart, and phenomenally talented, and phenomenally likeable.  And I'm sure that complacent Democrats dismissing him as a goober with a God complex suits his current plans just fine.

Epic FAIL

Tyler Cowen is doing a book club on Keynes General Theory, which everyone should read.  I'm not sure if this is the start, or just a teaser, but at any rate, worth pondering:

When unemployment is present, lower wages for some workers can stimulate renewed employment and -- depending on elasticities -- possibly greater purchasing power as well or at least not proportionally diminished purchasing power.  (Each worker earns less but there are more workers employed.)  There won't in general be much of a deflation.  The hiring of some workers can also lead to an upward spiral in production, employment, and again purchasing power, as outlined by W.H. Hutt in his books on Keynes.

Krugman and others wish to argue that the New Deal years were ones of recovery; that is fine but it increases the chance that the Hutt scenario and not the Keynes scenario would apply at that time.

The simplest version of the Keynesian argument on money wages also relies on labor as the primary source of marginal cost (true in many but not all sectors) and lack of market power for retail prices, among other assumptions about market structure.  Yet another scenario is that some nominal wages fall and entrepreneurs (with some market power) invest more in response and hold retail prices relatively steady.

I believe Keynes's "falling nominal wages-falling prices-constant real wages-constant unemployment" scenario does hold for some of the 1929-1932 period and indeed I have argued as such in print.  But once we get into the Roosevelt era, we have government propping up some wages above market-clearing levels and thus higher than necessary unemployment.  Note that the Roosevelt policies applied only to some workers and by no means to all or even most workers, which again suggests the Hutt analysis is more relevant than the Krugman/Keynes analysis.

Roosevelt's lunatic cartelization schemes could have been better executed than they were, but even perfectly executed, they would have failed, because it is not possible for the government to prop up all wages and prices; even Soviet Russia didn't manage it.  If the nominal price of labor is too high, much of it will move into the black market.  It was even harder for Roosevelt, because he lived in an era where record keeping was somewhat slapdash--I was just reading a travel memoir from the fifties where the author goes to apply for a passport and finds he has no birth certificate.  Now, if they really wanted to, the government could send someone to the address last associated with your social security number and inquire what you were doing with your days.

Which is a disturbingly good argument agains the most prominent relic of the New Deal.  But I digress.

Order in the court! (of public opinion)

The Broken Windows theory of crime states that in an environment of disorder, people will be more willing to commit crimes.  If you allow jaywalking and urinating on the street, the reasoning goes, people will feel licensed to further offend against the public order.  The theory was first popularized in our very own magazine, and became a favorite of Rudy Giuliani's police department.

It's fallen somewhat out of favor these days, as a lot of people question its empirical grounding.  But the Economist reports on an experiment that seems to show some support for it:

The most dramatic result, though, was the one that showed a doubling in the number of people who were prepared to steal in a condition of disorder. In this case an envelope with a EUR5 ($6) note inside (and the note clearly visible through the address window) was left sticking out of a post box. In a condition of order, 13% of those passing took the envelope (instead of leaving it or pushing it into the box). But if the post box was covered in graffiti, 27% did. Even if the post box had no graffiti on it, but the area around it was littered with paper, orange peel, cigarette butts and empty cans, 25% still took the envelope.

Interesting to think that "too pretty to steal" might be an actual defense against crime.  Kottke goes further, and wonders if there isn't a broken windows theory of internet trolling:

Much of the tone of discourse online is governed by the level of moderation and to what extent people are encouraged to "own" their words. When forums, message boards, and blog comment threads with more than a handful of participants are unmoderated, bad behavior follows. The appearance of one troll encourages others. Undeleted hateful or ad hominem comments are an indication that that sort of thing is allowable behavior and encourages more of the same. Those commenters who are normally respectable participants are emboldened by the uptick in bad behavior and misbehave themselves. More likely, they're discouraged from helping with the community moderation process of keeping their peers in line with social pressure. Or they stop visiting the site altogether.

Unchecked comment spam signals that the owner/moderator of the forum or blog isn't paying attention, stimulating further improper conduct. Anonymity provides commenters with immunity from being associated with their speech and actions, making the whole situation worse...how does the community punish or police someone they don't know? Very quickly, the situation is out of control and your message board is the online equivalent of South Central Los Angeles in the 1980s, inhabited by roving gangs armed with hate speech, fueled by the need for attention, making things difficult for those who wish to carry on useful conversations.

There's definitely an imitative component, because I get waves of trolls who repeat each other, presumably mimicking some ur-troll I haven't seen.  This is most readily apparent when, as happens about 50% of the time, the ur-troll has (deliberately?) misread the post in a totally unsupportable way, and his minions make asses of himself repeating the accusation without themselves reading it. 

So how much of it is monkey-see, monkey-do?  And how much of it is a spontaneous outflowing of nonsense?

Who are you gonna believe: me, or your own lying eyes?

The world's saddest tech support forum thread.

Moving day!!!

Still packing.  Talk amongst yourselves.