Megan McArdle: January 2009 Archives

Media alert

I'm on AM 1280 in the Twin Cities right now for anyone who wants to listen.

Media alert

Felix Salmon and I were on Marketplace today.

The labor movement takes its pound of flesh

Every time the White House changes hands, there is a flurry of executive orders regarding things like funding overseas abortions and labor rules for federal contracting. Substantively, their impact is pretty limited, but they have broad symbolic value.

Obama signed the changes to labor provisions today:

-Require federal contractors to offer jobs to current workers when contracts change.
-Reverse a Bush administration order requiring federal contractors to post notice that workers can limit financial support of unions serving as their exclusive bargaining representatives.
-Prevent federal contractors from being reimbursed for expenses meant to influence workers deciding whether to form a union and engage in collective bargaining.

As a matter of policy, it seems ridiculous to give federal contractors money to lobby against a union. On the other hand, taking down notices that workers have rights against the union seems to be frankly pandering. The rhetoric about unions always focuses on the workers, but an awful lot of the actual policy seems designed to enhance, not the power of the workers over their employers, but that of the union over the workers.

Jamie Dimon, Grim Reaper

From Clusterstock:

Let's talk about the JP Morgan Chase and Bernie Madoff story we mentioned yesterday. If we're following this correctly, it seems that starting in 2006 JP Morgan allowed investors to make bets on the performance of hedge funds that invested with Bernie Madoff. This basically means that JP Morgan was institutionally short Madoff, which is interesting in itself. What made JP Morgan think it could beat the guy who had over forty-years of steady results?
Even more interesting is the fact that JP Morgan initially hedged this bet against Madoff by investing $250 million of its own money with Madoff. And then, as late as last fall, it decided to take off this hedge. What happened in the fall of 2008 to make JP Morgan believe that the bets it had made against Madoff were now so safe that they didn't need to be hedged?
Perhaps the most tantalizing idea is that JP Morgan's withdrawal might have triggered the collapse of Madoff's fund. Recall that although Madoff claimed to be managing tens of billions of dollars, he actually had only a tiny fraction of those assets under his control. A seemingly small withdrawal the size of JP Morgan's $250 million could very well have left Madoff without liquidity to keep up his fraud.
We know that JP Morgan began to become very conservative with its assets last fall. It made collateral calls on Lehman Brothers and Merrill Lynch, requiring the investment banks to hand over billions. Those collateral calls more or less consigned those firms to death. So did JP Morgan also doom Madoff? It does look like Jamie Dimon's shop has played the role of the Grim Reaper all through this credit crisis.

All you have to do is believe . . .

Update: Welcome, DeLong and Krugman readers! Response here.

Ryan Avent writes about the possibility of an economic "placebo effect" from the stimulus.

But the underlying point is intriguing -- that much of the value of action may be psychological. Even if a government plan isn't directly contributing to public welfare, the idea that something is being done which will improve things will encourage people to spend, businesses to invest, banks to lend, and so on.
This gets at something that another participant, Robert Shiller, calls the "confidence multiplier," of which he says:
The focus has to get off of "what fraction of this stimulus will be spent" to "how does this stimulus affect confidence".
This is worth considering when we read that Americans are strongly in support of significant infrastructure investments. I know that I've been all over the map in terms of what the stimulus should include and how it should be structured, but it does occur to me that authorizing a plan to move forward on major infrastructure projects, even if we know those projects won't come online in the next year or two, could have strong, immediate beneficial effects for the economy (in additional to the long-term effects of the value added by the infrastructure). Critics may note that we'll wind up spending money after the economy has already recovered, but of course, that's less of an issue when you're building things that need to be built in any case.

The real question, I think, is how close the permanent income hypothesis is to being true. The basic idea is that people are forward looking, and they try to smooth their consumption over time. So if you give them a "temporary tax cut", they save most of it, knowing that eventually they will have to give the money back.

But of course, this should also be true of "temporary government spending"--if people think the money won't be there next year, they'll salt as much of the money away as possible. This is a topic very underexplored in the various estimates of the stimulus multiplier, even though consumers are massively overleveraged and will presumably save as much of their new income as they can.

Tax cuts give conservatives great confidence, of course, just as spending makes liberals with great faith in the power of the government feel all shiny and happy and optimistic. The question is how much faith others put in those nostrums.

GDP falls, deflation looms

The new 4th quarter figures from the BEA are so shocking not because they are surprising, but because one couldn't quite believe one's own expectations:

The U.S. economy contracted at a 3.8% annualized rate in the fourth quarter but the decline would have been worse except that the government counts an unwanted buildup of goods on store shelves as growth.

A clearer picture of the scope of the weakness in the fourth quarter, which excludes the inventory buildup, contracted at a 5.1% pace, the weakest in 28 years.
Even with inventories, the growth rate is the worst since 1982.
. . .
The economy has grown just 1.3% in the past year, the weakest growth rate since 2001.
The business cycle committee of the National Bureau of Economic Research said the recession began in late 2007. But this is the first two quarter decline in GDP.
Consumer spending fell 3.5% in the fourth quarter after a 3.8% drop in the third.

Of course, last quarter had a massive financial contraction. But the real resetting of expectations downwards is just taking place now, as layoffs hit and people begin to emotionally grapple with the fact that it's not temporary. I'm more pessimistic than most commenters about the possibility that we will emerge from the mire to any great extent over the next two quarters.

Especially not because we are apparently now eye-to-eye, toe-to-toe with deflation:

There was a sea-change in the inflation picture. The core price index (excluding food and energy) retreated to a 0.6% annual rate in the fourth quarter from 2.4% in the third, leaving the annual rate at a 2.2% gain.
But headline consumer inflation fell at a 5.5% annual rate, the biggest drop on record.
Given the drop in inflation, real disposable income rose 3.3% annualized in the fourth quarter, after falling 8.8% in the third quarter. The savings rate was 2.9% in the fourth quarter, up from 1.2% in the third.

This is one of the little ironies of a severe, deflationary recession: they actually increase the real income of most wage earners, because wages are sticky downwards. In strictly material terms, the Great Depression probably increased the purchasing power of people who were in work. It's just that it did so at the expense of a great deal of suffering on the part of the unlucky 20%, and the pervasive fear everyone else experienced. We'll probably see much the same over the next few years: if you can keep your job, it will become easier to buy a house, pay for fuel, go on trips. But no one is going to want to do any of these things, because they're too afraid of losing their jobs.

As a friend, another journalist, just told me, "I am slightly concerned that everything, here and around the world, really may go to some serious [expletive deleted] this year".

Dissecting the stimulus debate

There are really two quite separate debates going on over the stimulus, but they're being jumbled together into one gigantic ad hominem. My take on both--pardon for being perhaps a tad obvious, but I think the debate has had a tendency to wander off into the weeds, so it's useful to be a little general from time to time:

Question #1 Will a fiscal stimulus work?

Define "work". If the question is "Can borrowing money and spending it increase our measured GDP figure?" then yes, it is trivially true that stimulus "works". So why don't we borrow a zillion dollars and spend all of it? We could quadruple our standard of living overnight?

Because fiscal stimulus "working" is more than a question of increasing measured GDP. In every other context, liberals are all too aware of the limitations of GDP as a proxy for human wellbeing. In the context of the stimulus debate, however, all those reservations seem to fly right out of their heads.

When we ask "does it work" what we're really asking is "Will it increase our overall well-being?" And to answer that, I think you need to know a few things:

a) Are we increasing actual output, or only measured output? If you pay people to mow their own lawns, you increase measured GDP, but you didn't gain much. More broadly, if the economy is at full employment, increasing government spending definitionally crowds out private production.

Of course, we are not at full employment now. I think that Gary Becker's worries about how much of the stimulus will truly generate new jobs is well founded--many of the projects don't seem well designed to pick up labor in the markets that have been hardest hit, and certainly not right away. But it seems hard to escape the conclusion that we are probably going to reduce some unemployment by spending this money.

b) Are the increases permanent, or temporary? I'm shocked to see Paul Krugman complaining that people are assuming the jobs created by the stimulus will only last a single year in calculating the cost of creating them--back when the Bush tax cuts were proposed, he got very, very angry at . . . . people who assumed that the jobs created by the stimulus would last longer than a year.

There are two ways of looking at fiscal stimulus. One is to assume that the government is simply closing the output gap between what we could produce at full employment, and what we happen to be producing right now. The second is to assume that we are in a liquidity trap, and that we need a whacking great positive shock to jolt us out of a permanently lowered output level. You might think of the former sort of stimulus as a pacemaker, and the second sort as the ER docs grabbing the crash cart and shouting "Clear!".

The evidence for the former sort of stimulus is decently strong, though it's costly. The evidence that the latter sort of stimulus can actually produce a permanently higher level of output--what we need to believe if we are to accept the need for a huge spending package, and the possibility that our spending will create permanent jobs--is, as I wrote in the linked piece, practically nonexistant.

c) What are the costs? Right now, very little. The government is borrowing near zero interest rates, and the marketplace doesn't want corporate debt at practically any price, so I find it hard to see much evidence for "crowding out".

But in the future, things start to get costly.

i. The government will eventually have to roll over the debt, and the interest rates will not be 0% anymore. Taxes will have to be raised, or other spending cut.

ii. If taxes are raised, we'll see deadweight loss--people working/saving/investing less. Republicans tend to overstate these costs, but they are far from zero.

iii. Future government borrowing on this scale may well crowd out other private borrowing, meaning lower rates of investment.

iv. To the extent that these programs are not temporary--and many of them aren't (I'm looking at you, high speed rail!) they will incur ongoing operating costs. These, too, will require future increases in taxes or cuts in spending.

v. To the extent that the money is shoved out the door quickly, and in political ways, many of these projects will be badly designed, wasting resources and costing the government a lot of money to eithe rfix or end them.

The costs make it especially important to know whether we're getting a permanent boost out of this, or just a temporary tide-over. If we get a permanent boost, we'll recoup a lot of the wasted resources. If it's temporary, there are much more efficient and targeted ways to deal with the problem of unemployment, like temporarily topping up and extending benefits, or providing relocation assistance.

As I say, I'm skeptical that we'll get a permanent output boost. But let's assume we think it will, and that the boost is more than big enough to cover the cost.

Question #2: What sort of stimulus will best provide that boost?

I'm agnostic on the question of tax cuts vs. spending, which makes me an oddity among most econopundits. The complaint that spending is spent while tax cuts are often saved leaves me cold, because I think this focuses too much on that measured GDP figure, and not enough on welfare enhancements. Right now, most households that save $500 by putting it in the bank or paying down debt will gain a big boost in welfare, because they'll worry that much less about credit card payments, or potential emergencies.

On the other hand, given that the banks have really cut back on the credit they're willing to extend, it is worth worrying that that stimulus will stop dead with the consumer--it won't provide income to any other consumers who can then breathe a little easier. But that raises two further concerns: will we stay in a liquidity trap (I'm not sure we will), and if we do, will the people the government buys from spend their earnings, or save them? If the latter, the multiplier isn't too high.

What I'm not agnostic about--and neither should any serious proponent of stimulus be--is the difference between stimulus now, and stimulus two years from now. Spending may have a higher multiplier, but if you want an output shock, the immediacy of a tax cut far outweighs any possible benefit of a high speed rail project that's going to be built just as soon as we can design it, and get the EIS, and clear the public hearings . . .

So. It's time to admit what we already know: proponents of the stimulus are in favor of this package in large part because they favor a fairly large transfer of resources to the public sector, and the stimulus is a good way to achieve that. There is, in fact, nothing wrong with this belief, for all that I disagree with it. And most of the opponents of this package are opposed just as reflexively.

Myself, I'm agnostic. I am skeptical that the stimulus will result in a permanent increase in output or decrease in unemployment. However, I have also recognized that we are going to have a massive stimulus whether I like it or not, so I might as well view this as an interesting natural experiment, rather than get into a lather. Especially since it's quite possible that, as an empirical matter, I'm wrong.

On the other hand, I'd like to see the people favoring it commit to some empirical benchmarks to test their case in advance. If unemployment is still rising two years hence, for example, I think that will be a strong sign that stimulus does not work as well as billed. It's no good complaining that "It wasn't big enough", either, because where are the stimulus enthusiasts demanding that we front load the spending into a single year so that it will be big enough, rather than wasting half of it on weakly stimulative spending that is likely to have its biggest effect after the recession is over?

What will change my mind? I'm still trying to figure that out, idly considering exotics like the second derivative of the unemployment rate. For now all I have is a crude intuition: if things are dramatically worse in two years, then the stimulus will have failed as badly as monetary policy.

That sound you hear

Is a little piece of my soul slowly dying.

Trade Wars IV: The Democrats Strike Back

Dani Rodrik's been talking for a while about the political consequences of stimulus "leaking" into other countries. Well, the Democrats have apparently been thinking about that too:

A Senate version, yet to be acted upon, goes further, requiring, with few exceptions, that all stimulus-funded projects use only American-made equipment and goods.
Proponents of expanding the "Buy American" provisions enacted during the Great Depression, including steel and iron manufacturers and labor unions, argue that it is the only way to ensure that the stimulus creates jobs at home and not overseas.
Opponents, including some of the biggest blue-chip names in American industry, say it amounts to a declaration of war against free trade. That, they say, could spark retaliation from abroad against U.S. companies and exacerbate the global financial crisis.
The provisions also confront President Obama with his first test on trade policy. He must weigh the potential consequences of U.S. protectionism against the appealing slogan of "Buy American" and the jobs argument.

By the standards of Smoot-Hawley, this is paltry stuff. And by the standards of setting yourself on fire, sawing off your own leg with a nail file isn't so bad.

The proposals are meant to regenerate heavy manufacturing jobs in the United States by forcing government contractors to use domestic materials and equipment, even if they are more expensive. Yet U.S. industrial giants including Caterpillar, General Electric and the domestic aerospace industry are emerging as strong opponents.
The measures, they argue, could violate trade deals the United States has signed in recent years, including an agreement on expanding access to government procurements reached through the World Trade Organization. But most damaging, critics say, would be the "protectionist message" attached to imposing such barriers on foreign companies.

Nations including China and many in Europe are preparing to spend billions of dollars of taxpayer money on stimulus projects. American companies are angling for a piece of those pies, and retaliatory measures against U.S. companies, executives argue, could significantly complicate those efforts. This week, a European Commission spokesman threatened countermeasures if the Buy American provisions are approved.
"There is no company that is going to benefit more from the stimulus package than Caterpillar, but I am telling you that by embracing Buy American you are undermining our ability to export U.S. produced products overseas," said Bill Lane, government affairs director for Caterpillar in Washington. More than half of Caterpillar's sales -- including big-ticket items like construction cranes and land movers -- are sold overseas.
"Any student of history will tell you that one of the most significant mistakes of the 1930s is when the U.S. embraced protectionism," Lane said. "It had a cascading effect that ground world trade almost to a halt, and turned a one-year recession into the Great Depression."

Most of Obama's economics advisors have been strenuously implying--nudge, nudge, wink, wink--that he didn't really mean it about free trade. We're about to find out.

Ford's balance sheet no longer comes in black

The automaker reported a $5.9 billion dollar loss in the fourth quarter, hemorrhaging even more money than gloomy analysts had been expecting:

Ford Motor Co., which has already slashed thousands of jobs, will cut even deeper and draw on available credit lines after the auto maker burned through $5.5 billion in cash in the fourth quarter and posted its third consecutive annual loss.
For the fourth quarter, Ford recorded a net loss of $5.9 billion, or $2.46 a share, as its full-year loss ballooned to $14.6 billion compared with $2.72 billion for 2007.
Ford, which succeeded at easing its cash burn during the fourth quarter, now has $13.4 billion on hand to get it through 2009.

Keep in mind that this is the auto company in the best shape of all the US domestics. Whether through luck or wily strategy, Ford managed to mortgage everything but the little blue logo before the financial crisis hit. They're drawing down about $10 billion in credit to supplement the $13 billion worth of cash they finished up the fourth quarter with.

Meanwhile, back at the ranch, GM has announced that it's putting an end to the program that has annoyed anti-union forces more than any other: the jobs bank. About sixteen hundred workers are going to have to go on unemployment, which GM will top up to about 72% of salary and benefits. There's little realistic hope that those people will ever work as auto workers again:

The automakers instituted jobs banks at a time when they were modernizing their factories and needed to win labor support for innovations that would mean a loss of jobs.
The auto companies provided nearly all of an autoworker's pay and benefits when he or she was put into a jobs bank. UAW members went into a jobs bank if they remained laid off beyond 48 weeks.
Jobs bank compensation is different from the money the company pays workers who are laid off -- which is known as sub pay -- to offset government unemployment benefits.
"There's a huge difference in terms of what the supplemental unemployment -- the sub pay -- was doing and the jobs bank. The jobs bank was when they completely eliminated your plant and they had almost no hope of ever being called back," said Arthur Wheaton, a labor expert from Cornell University.
"Sub pay was: You're on unemployment and it's going to have all of the same rules and requirements, you're only allowed so long, and there's a big component in there to say, 'OK, you've got to go back and get some retraining or you've got to get some education or do something to get back to work.' "

The elimination of the jobs bank was one of the conditions that were placed on government money. Though I don't think the defenders of the UAW were correct to say that labor relations aren't a serious problem at the Big Three, they are right that cuts like this will not be enough to save the firm. The credit contraction has been catastrophic for auto sales--I don't believe, as some news reports claim, that no one with a sub-800 credit score can get a loan, but there's no denying that the cutoffs for credit quality are locking a major percentage of potential buyers out of the market.

How long until Ford has to step up to the government handout window, and start dancing to Uncle Sam's tune? They say they have at least enough money for a year, but I don't see how they make it. The folks in the finance divisions at Chrysler and GM have got to be talking seriously about the attractive prospect of a competitive bankruptcy to shed debt and contracts--they're only held back now because of warranty worries. And if they don't go to a bankruptcy judge, the signs are very clear that they'll be heading back to Uncle Sam. Even though its operations are in better shape, and its management has a much firmer tether to reality, Ford cannot compete indefinitely against free financing from the Feds.

Bad news, and the paradox of thrift

So, layoffs have come to the McArdle household, making this a depression by the most commonly accepted definition. The startup my housemate works for has gone out of business, and as we sat around last night talking about the financial implications of this, I pondered the Paradox of Thrift.

This is Keynes' famous argument that all spending is someone else's income. If we (hypothetically) decide to eliminate takeout from our menu and eat tuna sandwiches instead, we are saving money. But the restaurant loses it. By foregoing spending, we are pulling money out of the economy. This is the insight behind the liquidity trap--if everyone tries to hoard money by selling more goods and services while buying fewer, the total demand for goods and services will drop, and we will make ourselves worse off.

There's a problem with this crude, version, of course: it's only true if we hoard the money in the form of cash. If we put it in the bank and the bank lends it out, that money will be spent by whoever borrows it.

Now, in Keynes' time, this actually wasn't all that unreasonable. Lots of people did save money in the form of cash, especially after the big bank failures. Indeed, people who lived through the Great Depression often kept hoarding cash--my Grandmother once idly opened the teapot she was about to put in the church rummage sale bin, only to discover the $3,000 my grandfather had squirreled away there for a rainy day. And when you're dealing with an economy that largely skates along on cash, there are big delays in the translation of savings into lending. You have to physically put the cash in the bank. Someone else has to physically take it out. Then, after perhaps a delay of several weeks, they physically pay the contractor who upgraded their bathroom.

In the modern economy, of course, what happens is that we just leave the money in the bank longer than we otherwise would have. No delay. So what's the problem?

The problem is that the banks aren't lending. We're hoarding money, and they're hoarding it even more--they don't have to fix the transmission or buy antibiotics. So as in Keynes' example, the money really is just sitting there.

It's worth remembering that this is why the banks are at the heart of our problems. Even fixing underlying issues--like forcing write-downs of the home values securing recent mortgages--will not make them lend if they think they need higher capital to ride out potential storms. That's why even good liberals and Democrats are focused on rebuilding balance sheets, aka giving the banks free money.

Update: Sorry, let me be super clear that I still have a job. My housemate worked for a startup that got hit by the credit crunch.

Just in time

Looking for a job? You might want to think twice before hitting the boards at Monster, which just got hacked.

Those Wall Street leeches

The favorite activity of New Yorkers who are not in the banking industry is complaining about New Yorkers who are in the banking industry. I certainly joined in when I was a New Yorker. They outbid us for housing, they tipped too much, and in public places the younger ones often had a movie star's sense of entitlement without the easyness on the eyes, much less the ability to be consistently entertaining. Or so we used to whine.

Then there would be a recession, and everyone in New York would realize that all those overpaid weasels were, um, paying our bills. Bloomberg estimates that the cumulative tax loss to the city and state from the 2008 fiasco will be at least $33 billion--mostly in corporate income taxes, but $1.3 billion of that is just taxes on bonus income that evaporated in 2008. And if you think 2009 is going to be a lot better, would you be interested in putting a downpayment on a beautiful bridge linking Brooklyn to downtown Manhattan? No need to make a full payment until you get that bonus!

North of $50 billion seems like a better bet for the gap that the city and state are going to have to close over the next few years.

On the upside, it'll probably be a lot cheaper to get a nice condo on the Upper West Side. If you can find a solvent banker to float the loan . . .

More on Dick Fuld

Felix Salmon disputes Andrew Ross Sorkin's contention that Dick Fuld has been "practically exonerated" by a bankruptcy expert:

The blog entry is here, and the court filing therein is simply dispatched by Sam Jones:

It is disingenuity of the highest order to suggest that banks like Lehman were passive victims of a stormy market. Their actions created the stormy market in the first place. Dick Fuld's Lehman reaped what it sowed.

In fact, the filing actively celebrates all the risks that were taken by Fuld and Lehman in the years leading up to the collapse, talking about Lehman's "four consecutive years of record-breaking financial results" between 2004 and 2007, and citing with admiration Lehman's soaring share price.

Leave aside Fuld's strategic decisions, about which there will be long debate. Here's one thing you simply cannot excuse him for: by all accounts, he didn't bother selling out because that would have meant surrendering the executive office, and this he could not bear to do. Instead, he played chicken with the markets and the Fed. The result was a bankruptcy that wiped out the shareholders to whom he owed a fiduciary duty, touched off a massive financial panic, etc.

I'm sure he had no idea that Reserve Primary would break the buck, markets would lock, massive layoffs would ensue, and half the journalists in DC would be spending their evenings debating just how low you can turn the thermostat before the pipes freeze. But he certainly knew that he was risking the future of thousands of employees and the shareholders who employed him because he liked to see the letters "CEO" after his name. To add insult to injury, as I blogged earlier, he's now playing shell games with his assets, trying to ensure that the shareholders who sue him can't cut kick him out of the mansion he bought with their money.

Exonerated? Like OJ, maybe.

Strange accounting

I want to revisit the notion, now popular in my comments and emails, that mortgage cramdowns are good because they force banks to value the houses securing their mortgages at true market value.

This is very odd because, first of all, that's not really how mortgage accounting works--banks don't mark houses to market, and a very good thing, because their balance sheets would have been puffing up like blowfish for most of the decade. They very sensibly do not do this because in a rising market, they are unlikely to get their hands on a house in foreclosure to sell at a profit. So what they look at instead is the potential cash flow from the mortgage.

In a falling market, of course, they are much more likely to end up with the house, and the loss. But what matters is still not the absolute size of the change in the house's value; it's how that affects your future cash flow. We don't want to just write down every mortgage bond by how much the price of the underlying houses has fallen; we want to plug that change into our model, which will increase the losses we have to allow on each default.

But here's the thing: even if we get a more accurate picture of how much each default is going to cost us, we still don't know how many defaults we're going to have; that depends on a lot of other things, like whether the homeowner could ever afford the payments, whether they lose their job, and how willing they are to torpedo their credit rating in order to get out from under an overpriced mortgage.

Nonetheless, it wouldn't be a bad idea to get a better handle on the value of the houses securing these mortgages, forcing the bankers to increase the allowance for bad debts. But the other problem with this notion is that rewriting the bankruptcy code does not achieve that laudable goal. It writes down the value of only some houses--the ones where the owner is willing to declare bankruptcy fairly immediately. And it writes them down completely--new interest rate, new principal. We're not forcing banks to recognize the potential losses on these mortgages; we're forcing them to take the actual loss. Meanwhile, all the loans where the borrowers haven't declared bankruptcy remain on the books at their original value, representing a larger potential loss than our models currently allow.

Let's remember, too, that the possibility of a one-time-only cramdown of your underwater mortgage makes bankruptcy more attractive. That means we'll get more of them. Customers who might have surrendered the house in foreclosure will take them, but so, probably, will marginal borrowers who are simply struggling, who might have sent the wife back to work or gotten a second job. Suddenly, bankruptcy isn't just a way to get your monthly debt service down to a manageable level--it's a way to substantially improve the net asset position of the household, by tens or hundreds of thousands of dollars. People talk about feeling like they're idiots for not just mailing in the keys and walking away, but when you do that you end up with nowhere to live and a gigantic crater in your credit report. With cramdowns, you take a big ding on your credit report, but you get to keep a house, and any future appreciation, in exchange.

To sum up, the cramdown doesn't solve the problem of unknown risks lurking on the balance sheets. Meanwhile, it turns potential losses into real losses, and probably increases them, because Chapter 13 is now definitely a much more attractive option than foreclosure, and possibly a more more attractive option than continuing to make your payments. It forces us to recognize losses in the banking sector, yes--the losses you just created by government fiat.

Should we worry about government borrowing crowding out private investment?

This is one argument against the stimulus, but in the short term, it's pretty weak. Demand for anything other than government debt is practically nil--look at how much Pfizer is paying to acquire Wyeth.

Over the longer term, it has more bite. The government will eventually have to roll over all this debt, at which point it will undoubtedly be a) more expensive and b) more prone to crowd out private demand for funds. But the supporters can plausibly argue that if we get ourselves stuck in a liquidity trap, the investment climate will be even worse.

More on mortgage cramdowns

Some of the issues that were raised in the comments to my last post on mortgage cramdowns:

1. They will force the banks to write down the housing assets backing the mortgages to fair market value. Well, not quite. They will force the banks to write down the assets backing the mortgages to what a bankruptcy judge thinks is fair market value. Many of these assets are in illiquid markets where there is not currently enough turnover to assess the market value of the home. If you assume that we are in the acute phase of a crunch, and that liquidity will eventually return, you are giving bankruptcy judges a lot of leeway to write down the house to whatever the debtor can afford--with the debtor getting the upside if he sells at a better price.

2. But my car loan doesn't cost more than a housing loan! If you've got good credit, true dat--but your car loan is for 3-5 years. You pay extra for long fixed money.

3. The whole point of bankruptcy is to keep concerns going rather than shut them down! This is relevant to business law, but not so much to consumer bankruptcy, where we do not shoot consumers who cannot make their house payments and sell their estate to pay off the creditors. The point of consumer bankruptcy is to recognize the fact that people do not have the income to meet their current obligations, and have no reasonable hope of acquiring enough scratch to do so. Bankruptcy is an orderly wind-down of those obligations so as to fairly whatever the consumer can spare to the creditors.

Secured debt carries lower interest rates than credit cards precisely because it's, y'know, secured. Specifically, banks offered lower mortgage rates because they knew that their mortgages could not be written down in bankruptcy. (To be fair, they also didn't think that prices were going to fall much.) Now consumer advocates want to rewrite the rules in the middle of the game to benefit consumers who got in over their heads. They screamed bloody murder when the credit card companies got Congress to give them the same sort of gift in 2005, and with good reason. But this is a much, much larger unilateral gift than MBNA got during the bankruptcy reform, which didn't actually make bankruptcy all that difficult to get for individuals--a slightly more expensive pain in the ass, yes, but not this kind of massive transfer.

4. We're just returning to the pre-1978 standard! But pre-1978, consumer bankruptcy was harder to get, and therefore played a much smaller role in our credit markets. There have been a lot of changes to the bankruptcy code since then--you can't make one change and say we're just returning to the good old days of 1977. To note one enormous disparity, consumer bankruptcy was very rare in 1977, for a lot of reasons, including the fact that inflation had ensured that people didn't end up underwater on their mortgages, and of course that unsecured credit was relatively uncommon.

5. What we need is a slap in the face from reality: recognize all the losses at once and get it over with.

Three problems with this:

The markets are, as noted above, often illiquid, meaning we don't know what the houses are worth. There's a substantial risk we'll overshoot on the downside--which means a lot of banks with unnecessarily impaired balance sheets.
This is a better argument for marking to market than for arbitrarily writing down the mortgages of anyone who's willing to declare bankruptcy
The administrative costs of this are very, very high. Houses are the farthest thing from a commodity; figuring out what each of them might be worth is time consuming. Doing it in the middle of a bankruptcy proceeding is even more expensive--you're negotiating with a judge, the bankrupt, and any other creditors.

6. As Tanta says, this will encourage lenders to be more careful in the future. Several issues with this:

It's not clear to me how well this would have worked during the bubble--a cramdown is irrelevant if you don't think that prices are ever going to fall
I don't think that we need to worry that lenders in the immediate future are going to ignore the possibility of house price depreciation. It's not like they enjoy foreclosing on underwater mortgages.
How they worry matters a lot. If they require solid downpayments, great. If they decide not to lend in areas with house price volatility, it's much more problematic. And if they panic and overprice a risk that they haven't faced in forty or fifty years . . . well, that's going to push down prices further in a lot of areas, setting off a further cycle of cramdowns. Feedback effects matter.

7. We shouldn't be forced to pay for your urban renaissance! Fair enough--but that's not what we're talking about. Right now, buyers in marginal urban areas pay, by bearing a greater risk of price depreciation. With the cramdown, some of those buyers get a great deal, a lot of future buyers in those areas get stiffed, and probably everyone gets to pay higher rates to insure against price risk.

8. Cramdowns give homeowners skin in the game (since their future payments build equity) and may help halt the cycle of foreclosure sales. At the same time, it does make irresponsible borrowing somewhat costly, rather than simply rewarding profligacy.

I think this is true, and the best argument in favor of them. I also think the costs outweigh the benefits: whacking already fragile banks, giving homeowners who won't give up their homes in foreclosure incentives to declare bankruptcy, and all the associated overhead of same. I think there are better ways to do this--have the government guarantee a stop loss on foreclosure prices, say. More fundamentally, I don't think this is why most people are supporting them--they view it as a "free" way to give a lot of money to homeowners. That means that whatever reform we get is likely to be bad.

9. Oh, it's just FINE when your rich banker friends get a giveaway from the bankruptcy reform, but when HOMEOWNERS are getting one, suddenly you think it was a bad idea!

Check your assumptions, friend--I opposed the bankruptcy reform both at The Economist and my own blog on the sensible grounds that, first, it was changing the rules on borrowers in the middle of the game, second, easy bankruptcy was good for the economy, and third, there was no evidence that credit was too expensive or difficult to get.

If you want to reverse some of the bankruptcy reforms, I can name a number of good places to start--but rewriting the terms under which every mortgage in the country was written is not one of them.

10. Why is it bad that marginal people aren't getting easy money? It's not, exactly--but again, the devil is in the details. We don't want banks to lend irresponsibly--but we want them to pay more attention to ability to pay and sound lending practices, not redlining.

11. If Tanta were here, she'd wipe the floor with you! Maybe--I can't tell. She was certainly a formidable intellect. But her factual claims about bankruptcy, for which she offered no evidence, were, as far as I can tell, simply incorrect. They go against both the available studies, and what I repeatedly heard from bankruptcy experts when I was working on the issue--though of course, mortgages simply weren't a major issue in 2005.

12. We only give debt special bankruptcy exemptions for good and just public policy reasons. Why should housing be among them?

Because housing is treated specially by bankruptcy law. Houses are among the items that cannot be seized and sold to satisfy creditors (in most cases), even if they are unencumbered. This is certainly more justifiable than the student loan exemption, which only exists because Uncle Sam refuses to stand in line with other creditors. Arguably, it makes student loans cheaper--but it seems at least as desireable to make housing loans cheaper, since more people use them.

13. It must be possible to have a mortgage market with cramdown risk, since we did for a long time. Yes, we did. But the housing market is already contracting rapidly. Making demand contract further and faster is not exactly helpful. I mean, it's good for me, because I have okay credit and don't own a home. But I'm a minority.

14. How high can the administrative costs of a cramdown really be? Well, you've got a very lengthy legal process that involves a lot of negotiation over an asset with no fixed market price. It will be shockingly high for the same reason that foreclosure costs are.

Good. Fast. Expensive. Pick Two.

It is a commonplace among conservatives that liberals just want to spend government money, as much as possible on almost anything they can find. This is, of course, not true. Liberals want to spend money on projects that they think will be more valuable than the equivalent usage in the private sector.

This is presenting some problems now that the actual aim should, by the theory of Keynesian stimulus, to spend money as fast as possible on almost anything you can find.

It is very obvious, now that we have the stimulus plans, that the Democrats are using stimulus as an excuse to spend money on things they want to spend money on. Their demand for things like alternative energy programs is inelastic; it's just that it happens, right now, to be convenient to bill them as stimulus.

The problem is, that contra the Republicans, Democrats do care that money spent on these important projects is spent well. And spending a lot of money well takes time. It's an inversion of the old engineering aphorism: good. fast. expensive. You can only have two of the three.

Because the bill is massive, because it's focused on pre-existing Democratic spending priorities, it is going to be slow. Matt Yglesias defends it, saying:

With the whole thing done, it seems that two thirds of the funds will flow within 18 months of enacting the plan. Of course it's true that 100 percent would be better. And even truer that if we had passed a stimulus plan back last September rather than experiencing months of delay thanks to conservative intransigence this problem wouldn't be so severe.

But in the context of stimulus, eighteen months is a long damn time. Eighteen months is, in fact, about how long it takes a stimulus to work through the system. If for no other reason, that ought to be a little worrisome for progressives because that means the stimulus won't have even 2/3 of its full effect until after midterms. It is simply not "even truer" that conservative intransigence is causing worse delays than the focus on spending the money on massive new projects. It's not even as true. It's not true at all. No matter how you assess the relative benefits of spending to tax cuts, tax cuts could be 95% out the door in April. So could many other kinds of rapid government spending--preventing fare cuts on transit systems, sure, but also repainting all the faded yellow lines on highways, or repairing park benches, redecorating government offices, etc.

Why does speed matter so much? Because the primary argument for fiscal stimulus right now is not that we need to alleviate the pain of a temporary economic contraction--that's what things like beefier unemployment insurance, food stamps, and housing assistance are for (the first and the last are very good ideas, by the way.) The argument is that we're in danger of a liquidity trap--that we could end up at a permanently lower level of output, as described by Keynes and popularized by Paul Krugman in the story of the Capitol Hill Baby Sitting Collective. (Though it's worth noting that the ultimate solution was to double the money supply . . . )

The basic idea is that if everyone is afraid to spend money because they might be laid off, and sits at home in the dark, all the people who made money selling the things they used to buy will get laid off--and so will they, because they're part of "everyone". The government basically shocks us into a higher level of output by spending the money we're afraid to.

Though you wouldn't think it from the really quite shocking incivility emanating from the pro-stimulus side, the empirical evidence that this works in a large industrial economy like ours is basically nonexistant. The problem is, we have very, very few examples to test on: America during the Great Depression, and Japan in the 1990s. And neither America nor Japan managed to stimulate their way out of their troubles. You can argue--and many do--that this is because we, and they, didn't stimulate enough. That may be true. But unless you can forward test your theory, it's a just so story . . . as we just painfully found out about the "It was all the Fed's fault" narrative of the 1930s banking collapse. There is no excuse for calling people who question your highly theoretical model fools and charlatans.

What we've got, since Japan really never did emerge from its lost decade, is basically one fact: America entered World War II in a depression, and emerged from World War II without one. Hopefully, the relevant variable was the massive, massive amount of spending, rather than any of the other explanations one can plausibly build about the effect of Total War on depressions--like the slaughter of some of your excess labor force, or the substitution of more immediate fears of being killed for panic about the financial future.

But the amount of government borrowing during World War II was truly gargantuan--roughly half of GDP by 1943. All the relief dribbled out over the course of the Great Depression at best kept the Depression from being worse--unemployment was still in the double digits in the late 1930s. Moreover, much of the spending FDR did do was paid for by tax hikes, which cancel out the stimulative effect of the spending. It's hard to tell how much to credit even the improvement we did see to government borrowing, because of course the acute portion of a financial crisis does come to an end eventually even without government action, and by the time FDR entered office the thing had already been running for a good three years.

So if we're going to do stimulus, judging from our not-very-good best example, what we want to do is pack a massive wallop as quickly as possible, to shock those "animal spirits" back into a more normal economic rhythm. I am skeptical that this will work even if tried, for reasons I have outlined elsewhere. But if we are going to try it, we should be focusing less on the Democratic wish list and more on figuring out where money can be most quickly and effectively spent.

How OJ Simpson may help keep Dick Fuld from stiffing his shareholders

Paul Caron, the TaxProf, has a post on Dick Fuld's transparent attempt to shield his multimillion dollar home from any potential shareholder lawsuits by selling it to his wife for $10.

As you may or may not be aware, Florida is notorious among bankruptcy analysts because OJ Simpson bought a house there in the hopes of shielding his assets from the civil suit over the murder. Florida is one of the few states with what is known as an "unlimited homestead exemption". All states permit you to shield your primary residence from creditors in bankruptcy (though not from a mortgagor, as discussed in my previous post). As long as you keep making any payments on loans secured by the house, you can keep it. However, most states cap the value of the home you can thus shield. Not Florida. So OJ's strategy was, as far as we can tell:

1) Buy enormous house worth zillions of dollars and move into it
2) Wait until civil suit is over
3) Declare bankruptcy
4) Sell house for a zillion dollars; thumb nose at justice.

This probably wouldn't have any consequences, if he had not been so damn famous--though of course, many argue that if he had not been so famous, his primary residence at the time of the civil suit would have been the pokey. At any rate, his case so outraged Congress that at the time of the 2005 bankruptcy reform, they wrote in provisions designed to prevent people from using Florida's ridiculously generous homestead provisions to shield assets from civil judgements. You now cannot discharge debts incurred by court judgement from a willfully malicious action, and it's a lot harder to convert outside assets to protected Florida homesteads:

The legislation places limits on those who purchase new expensive homes within two years of filing bankruptcy, imposes a 40 month waiting period before those who relocate to a new state can avail themselves of the new state's homestead exemption, and finally, creates a 10 year reachback period to attack homesteads acquired to defraud creditors. Thus, whereas prior law permitted O.J. Simpson and WorldCom's Scott Sullivan to purchase mansions in Florida while leaving their creditors holding the bag, the bankruptcy reform legislation closes the most notorious homestead exemption loopholes.

The TaxProf post offers more details:

The new 2005 bankruptcy amendments may be an impediment to the Fulds' strategy. In the first place, Ms. Fuld might not be able to use Florida's homestead exemptions in bankruptcy. Under the 2005 amendments to the Bankruptcy Code, a debtor can only use a particular state's exemptions if the debtor has been continuously domiciled in the state for the 730 days immediately preceding bankruptcy. If the debtor was not domiciled in any one state continuously during the 730 day period, then the debtor would be eligible to use the exemptions from the one state in which the debtor was longest domiciled for the 180 day period preceding the 730 day period. 11 U.S.C. § 522(b)(3)(A). The upshot is that Ms. Fuld might not be able to use the Florida exemptions at all if she has been domiciled in New York rather than Florida during the relevant time periods.
In addition, even if Ms. Fuld was sufficiently domiciled in Florida to be eligible to use the Florida exemptions in bankruptcy, Section 522(p) of the Bankruptcy Code limits any increase in the value of an exemption acquired during the 1215 day period preceding bankruptcy to $136,875. If Ms. Fuld's bankruptcy is filed within 1215 days of the transfer, it appears her homestead would be limited to $7,136,875, allowing the trustee to sell the homestead to realize the additional $6,863,125 in value for creditors (assuming the mansion is really worth $14 million).
So it would seem that Ms. Fuld would have to live in Florida for the 730 days preceding bankruptcy and would have to avoid bankruptcy for more than 1215 days after the transfer, in order to get the full benefit of the Florida homestead exemption in bankruptcy.
However, this all assumes that Ms. Fuld ends up in bankruptcy. The Fulds may be trying to shield Ms. Fuld's new interest outside of bankruptcy under Florida law. The Fulds may be expecting judgments against Mr. Fuld and not Ms. Fuld. To get at Ms. Fuld's property if she is not personally liable on any judgment, they would have to bring a fraudulent transfer action to avoid Mr. Fuld's gift transfer of the half interest in the mansion. There is an interesting question whether this gift transfer could be avoided under Florida law.

It seems amazing to me that this is even possible--it's so clearly a fraudulent conveyance designed to let the Fulds live well no matter what the court decides they owe their shareholders. But Florida courts have been notoriously reluctant to change the system. No matter what you think about the 2005 bankruptcy reform, it made this abuse a lot harder to get away with.

What's the matter with mortgage cramdowns?

Why not make the cheeky bastards who run banks pay for their mistakes?

Axiom: There Ain't No Such Thing As A Free Lunch. If you make the bankers pay, they will make you pay.

There is a school of thought that says that it is wise to do the cramdowns pour encourager les autres: if bankers fear having their loans written down to the market price of the house, they will be more careful about lending. It's best exemplified by the sadly late Tanta at Calculated Risk:

In fact, I have some sympathy with the view that mortgage lenders "perform a valuable social service through their loans." That's why, when they stop doing that and become predators, equity strippers, and bubble-blowers instead of valuable social service providers, I like seeing BK judges slap them around. Everybody talks a lot about moral hazard, and the reality is that you're a lot less likely to put a borrower with a weak credit history, whose income you did not verify and whose debt ratios are absurd, into a 100% financed home purchase loan on terms that are "affordable" only for a year or two, if you face having that loan restructured in Chapter 13. If you are aware that your mortgage loan can be crammed down, I'm here to tell you that you will certainly not "forget" to model negative HPA in your ratings models, and will probably pay more than a few seconds' attention to your appraisals. You might even decide that, if a loan does get into trouble, you're better off working it out yourself, via forbearance or modification or short sale, rather than hanging tough and letting the BK judge tell you what you'll accept. That would be a major bummer, right?

There is something to this line of thought. But only a little something. Her proposal has a lot of problems.

For one thing, some of the premises on which it seems to be based--like that bankruptcy generally results in the loss of the house--are, as far as I know, simply incorrect. Bankruptcy is usually undertaken to make it easier to keep the house by shedding unsecured debt: distressed homeowners are often choosing between bankruptcy and foreclosure. A study from Delaware, the most notoriously creditor-friendly state in the nation (unsurprising, given how much of its political economy has been driven by credit-card companies), shows that most homeowners still owned their homes years after filing. Since most bankruptcy filings are Chapter 7, her premise that it's generally not possible to keep the house in liquidation is false. Of course, that may be different now, but I suspect that the choice between foreclosure and bankrupty remains; it's just that more people are probably choosing foreclosure these days.

Second, the idea that this will benefit bankers by stopping foreclosures can be, at best, only weakly true. To the extent that there really is a massive downward spiral in a neighborhood driven by foreclosure sales, yes, this might help by stopping the flood of sales. But that's only part of the problem banks face. There's a broad market depression driven by changing expectations, risk appetite, and credit availability.

Against the benefits of being stuck with homes in neighborhoods blighted by foreclosures, you have to set the costs the banks will bear. If you allow bankruptcy judges to hand people loan modifications of 10% or more of face, you will get all the people who would have been foreclosed upon declaring bankruptcy, plus a lot more. So instead of writing down the value of, say, a million homes in foreclosure, you suddenly write down the value of three million in bankruptcy. This will further impair bank balance sheets, contracting the credit market still further. Among other things, what that means is fewer mortgages extended, and thus, another fall in home demand.

Moreover, he administrative costs of workouts are very high. It is commonly noted that foreclosures can cost a bank 50% of the value of the property. Well, once you've added the cramdown to the administrative overhead of dealing with the bankruptcy court, cramdowns don't look so hot either. And as we noted above, you're going to get a lot of extra people applying for that cramdown bonus, meaning that the cramdown might cost the banks substantially more in overhead and loss of loan book value.

Besides, as noted elsewhere, a substantial fraction of loan workouts don't work; a cramdown is just a variation on a workout. So in a large number of cases, after all the tsuris, the bank is going to foreclose anyway. Costing them whatever it was going to cost them before.

Then there are the social worries, even beyond kicking weak banks while they're down. The cramdowns may simply delay the inevitable, dragging out the crisis for years while those who can't realistically afford their homes inch towards default. Consider two things I haven't seen much written about:

1) After you declare bankruptcy, you can't do it again for several years
2) Market prices may not have bottomed

The early adopters of save-the-house bankruptcy may well end up with both a bankruptcy and a foreclosure on their credit histories. Unlike foreclosure, which mostly occurs on non-recourse loans (the lender can't go after you for more than the value of the house), bankruptcy requires that you have basically zero assets (beyond protected things like the car you drive to work and the house you live in). People in bankruptcy also can't discharge a number of debts--child support, alimony, taxes, student loans. There is no way around the fact that you've got a bunch of financially fragile people who are very vulnerable to a job loss or unexpected emergency, which means that some of them are going to fall behind on their house payments even on lower principle. If they took bankruptcy early, they will be upside-down on a mortgage that they can't discharge. Hello, foreclosure. Yes, you might say, but they would have faced foreclosure anyway! Ah, yes they would . . . but they wouldn't have the bankruptcy knocking another two hundred points off their credit score.

Finally, let's think about the effect on future loans. Tanta et. al. think it will be salutary, because banks will lend to fewer marginal people. Indeed they will. They will also charge everyone else higher rates to compensate for the risk of falling home prices. Want to know why your car loan costs so much more than your house loan? One, cars depreciate faster, two, they're easier to hide from the repo man . . . and three, after 2.5 years, the value of the loan can be written down in bankruptcy.

Most perniciously, factoring in the risk of house price depreciation will not focus bankers on whether lenders can make their payments; it will focus them on whether the neighborhood is likely to appreciate. Bankers will strenuously attempt to avoid lending into "marginal" neighborhoods, which is where, any real estate agent will tell you, prices fall farthest during a bust. That means some exurbs, and a whole lot of cities. The more they factor in home price risk, the less your qualities as a buyer matter--ultra-responsible yuppies buying in a gentrifying neighborhood still look like an awful risk if you know that house prices might fall, and your principal might at any time be written down by 10%. And, of course, that's a self-fulfilling prophecy--if banks won't lend on houses that have recently spiked in value, the value of those houses will fall back to the level where banks will lend.

It's hard, in fact, to imagine a deliberate policy that could more effectively halt the urban renaissance that has taken place in neighborhoods like mine. Subsidized crack in schools, maybe.

It's not that I feel sorry for the bankers, who, like their riskier borrowers, thought that they had found a simple formula for making money without working. Nor am I particularly worried about a policy that cuts into their greens fees. But I do not like complicated policies designed to disguise the costs of something. If you want to take money from banks, levy a tax on banks. If you want to bail out homeowners, put it in the budget. We will not get through this crisis by moving the massive losses in the housing market around to different balance sheets so that the numbers don't look so scary big. It's time to man up and take a true accounting.

One more step towards gender-norming

Now women have what I can only describe as a female version of Penthouse Letters.

Sheer genius

I can't tell whether this is an elaborate hoax, sheer genius, or the worst business model since "We're losing money on every unit--but we'll make it up in volume!!!"

The Printed Blog

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Mortgage cramdowns are a bad option

I greatly admire the work of John Carney. But I was bemused on Friday by his Clusterstock headline:

New Worry: Mortgage Cram Downs Could Set Off Huge Bank Losses

This seems to me to be a very old worry--I've been voicing it for months. Why do people want to do mortgage cramdowns? They want to bail out distressed homeowners. And because this will be very expensive, they want to do so in a way that does not involve a direct government outlay of cash. The normal way that the government gets what it wants without paying for it is to make a rule forcing someone else to shell out.

We're fundamentally having an argument about who should bear the systemic risk of a fall in housing prices. There is a sizeable constituency that wants to put the entire price on the banking system, both because they think bankers are ultimately responsible for the problem, and because they think of banks as rich corporations that won't be hurt the way ordinary homeowners or taxpayers would.

This belief seems odd to me, given that we're in this mess in large part because the banking system is in such parlous shape. Moreover, the history of financial crises amply illustrates that ordinary taxpayers and homeowners can end up in pretty dire straits when the banks are too screwed up to lend.

How bad might it be? Carney links to a post from HousingWire that lays out some of the potential pitfalls:

Mortgage insurance is concealing risks that won't get covered in a cramdown. In order to make highly leveraged mortgage backed securities more attractive to investors, bankers bolstered them with mortgage insurance. These mortgage backed securities based on bundles of mortgages that had a thin collateral margin were able to get higher ratings from credit agencies because of mortgage insurance. Banks could carry these on their books as less risky assets, and weren't required to reserve much capital against them. They haven't been written down as much as other MBS because the insurance was supposed to protect them from losses. But most mortgage insurance won't cover bankruptcy modifications. That means that assets on the books of banks could have far higher loss risks than they appear to on balance sheets. When the losses kick in, banks will once again have to raise capital.
Even the best, most highly rated paper will share in cramdown losses. Ordinarily, lower tier mortgage backed securities get whacked first by losses on the portfolio. High tier MBS with higher ratings can keep delivering revenues because they get the first claims on payments. But a good number of private-party MBS deals, pretty much every prime and Alt-A deal, have provisions that allow bankruptcy losses to be allocated among all investors. This means that highly rated paper, which has not been written down very much and is held on bank balance sheets at high levels could get hit. The capital reserved against these losses will be inadequate. You see where this is going, right?
Federal Housing Administration insurance does not cover bankruptcy. If you were a conservative banker who only bought MBS backed by FHU insurance, you probably think you're in good shape. Think again. The cramdown legislation will make those assets unsafe. "The reason is simple: FHA insurance does not reimburse servicers for losses on bankruptcy cramdowns on loans that are not in foreclosure. If servicers have been stretched thin already by this mess, the cram-down proposal currently being considered might serve as the final nail in the coffin for some," Jackson writes.

Think of these kinds of government cramdowns as doing it on the faux-cheap. It looks inexpensive, because the government isn't shelling out directly. But making things artificially cheap by hiding the pricetag from yourself encourages you to do things you oughtn't--just ask the current holders of "investment" properties purchased with "innovative" mortgages. In the end, the bill always comes due--and the accrued interest is usually a killer.

Euroskepticism is back in fashion

I've always been slightly more euroskeptical than most mainstream economics pundits. It's not that I thought it precisely probable that the euro would break down, but I thought it quite possible, given the internal tensions. As I wrote for The Economist many moons ago, the euro area is far from an optimal currency zone:

Even before the euro was adopted, in 1999, it was clear that neither the EU nor the 12-member subset that has joined the monetary union was an optimal currency area. Ideally, currency zones should be compact and homogenous enough to show little regional variation in business cycles--otherwise a one-size-fits-all monetary policy will leave some regions lingering in recession, while others grow so fast they overheat. Many argue that this is what is happening in Europe, where a few countries, like Ireland, are experiencing rapid growth while big economies, like Germany and Italy, stagnate.
There are ways to mitigate imbalances within big currency areas. Even America is not an optimal currency zone; its regions sometimes boom or shrink out of sync with the rest of the economy. But America has important features that temper the problems of unified monetary policy. Federal programmes act as automatic fiscal stabilisers, siphoning off tax revenues from booming areas and transferring them to ailing regions as unemployment insurance or health benefits for the poor. America's labour market is also highly flexible. This allows wages and prices to adjust downward, giving depressed regions a competitive advantage that can attract new companies and thus smooth out regional disparities. And workers in declining industrial towns frequently pack up and move across the country to find work; capital flows freely as well. Without these mitigating factors, people in depressed areas could easily be trapped in a cycle of stagnation.
In Europe, by contrast, few mechanisms exist to bring the euro area's widely divergent business cycles into sync. The ECB has been trying to chart a middle course between slow- and fast-growing countries while establishing its credibility as an inflation-fighter. The result has been a monetary policy that is too "hot" for some, too "cold" for others, and "just right" for almost no one.
The lack of adjustment mechanisms means that "ever closer union" is not just a glowing ideal; it is a matter of survival. Language and cultural barriers--not to mention wide differences in social insurance and retirement programmes--encourage workers to stay in their own country, no matter how bad the economy, closing off one of the easiest avenues of convergence. If Europe's economies do not drive forward towards a single market, with labour markets that are more flexible (and international), there is a growing risk that some of its members will eventually find the gulf between their economies and their monetary policies too wide to endure.
Unfortunately for euro-boosters, recent policy moves have all been in the wrong direction. Not only has the stability and growth pact, which was supposed to help force fiscal policies into rough alignment, been weakened. Progress has also stalled on measures to widen market access, such as the EU's services directive. And fierce public resistance to eroding generous worker and consumer protections has made governments unwilling, or unable, to implement the kinds of deep structural reforms that could help.

Those fissures have been deepened by the current fiscal crisis. Countries like Italy, Spain, and Greece benefited from their membership in the euro because they didn't have to pay a premium for currency risk. Italy, for example, used to use serial devaluations as an export stimulus, shoring up manufacturing industries like furniture and clothes. Unfortunately, while euro membership has lowered Italy's borrowing costs, and made some business transactions easier, its manufacturers have struggled to make themselves competitive with an appreciating currency.

Those sorts of difficulties are multiplying rapidly now:

Now, in the middle of the worst economic downturn since the euro's birth, a new view is emerging -- especially as the creditworthiness of Greece, Spain and Portugal, one after the other, has been downgraded. The view is that the balm of euro membership allowed these countries to gloss over serious economic problems that have now roared to the fore.
"Membership is not a panacea for a country's social and economic problems," said Simon Tilford, the chief economist at the Center for European Reform in London.
"In fact, there has been a huge divergence in competitiveness that shows up in massive trade imbalances," he said, comparing Greece with the wealthier euro countries. "While Greece may have been insulated from the risk of a currency crisis, there is also the risk of a credit crisis and a collapse of confidence in its solvency."
While sharing a currency with some of the mightiest economies in the world helped Europe's poorer nations share in the wealth, a boon during boom times, in hard times the rules of membership are keeping them from doing what countries normally do to ride out economic storms, including enormous spending.
So Germany, France and the Scandinavian countries are mounting billion-dollar stimulus plans and erecting fences to protect their banks. But the peripheral economies are being left to twist in the market winds.

If the global recession deepens, and both fiscal and monetary stimulus remain closed to the eurozone's problem children, eventually their governments are going to have to make a stark and ugly choice between leaving the euro zone, or standing idly by while their economies crater and the rioting spreads.

It will probably take only one exit to start a sizeable exodus. Much of the benefit of eurozone membership for those countries comes from the perceived integrity of the zone. Once one member has exited, creditors are going to take a long, hard look at the remaining members.

It would help the euro zone a lot if the commission acted more like a central government--stepping in to help floundering members before they're forced towards default or defection. But the systems aren't there for that kind of action--and the EU's ponderous structure is deliberately designed to prevent rapid central action.

I still wouldn't put anything like a 50% probability on a defection. But I'd say it's a lot more probable today than it was three years ago.

Department of non-leading indicators

When you care enough to send the very best:

The e-card, which allows the sender to select the disease involved and includes links to public health sites and services, is part of that strategy. "Notifying the person exposed to a sexually transmitted infection is the critical piece in preventing further spread," said Dr. Susan Blank, New York City's assistant health commissioner for sexually transmitted disease. "And as the reach of the Internet expands for use in finding instant sex partners, we're using that technology as part of the solution."

Along with eight other cities and three states, New York City has been working with inSPOT, the online partner notification system through which Steve, in San Francisco, received his syphilis e-card. (It is currently aimed at gay men but is expanding its audience to include heterosexuals, and plans to start a national site this year.)

The system was developed in 2004 by Internet Sexuality Information Services, a nonprofit agency in Oakland, Calif., with the support of health officials in San Francisco. Deb Levine, the agency's executive director, said two factors in San Francisco led to the idea: the rise in Internet use among men who have sex with men, and an increase in syphilis among that group.

On the one hand, it's not really a product you want--but on the other hand, it's a product you might need.

Don't just stand there, do something!

Tyler Cowen calls this, from Warren Buffet, the best argument for stimulus so far:

All you know is you throw everything at it and whether it's more effective if you're fighting a fire to be concentrating the water flow on this part or that part. You're going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they've been very, very wrong and most of them in recent years on this. We don't know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don't know how effective in the short run we don't know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again.

At least it's honest. And it may well be that merely being seen to be doing something is necessary--that aggregate demand will sag worse if the public perceives that there is no sheriff in town. But I keep coming back to one picture:

Henry Blodget, who originally stole this graph from the inimitable Yves Smith at Naked Capitalism, remarked:

Will "stimulus" restore the economy to perfect health? Not unless you think government stimulus will sustain the massive private debt mountain we built up over the past 25 years.

Crashing asset values and shrinking GDP just make the debt ratios worse, even as households delever.

The idea behind stimulus is basically that the government will step in and take up the responsibility for the borrowing and spending that was being done by consumers, except instead of a Wii we'll get a high-speed rail line between LA and San Francisco, and hopefully the potholes filled in front of my house. At 0% interest rates, proponents argue, plausibly, that this borrowing is hardly going to crush the taxpayer under its onerous weight.

But that 0% is not on 30 year bonds; it's on shorter term debt that will eventually come due. What will our interest rate be when it's time to roll that debt over? It won't be pretty if the government is still having to fill in the output gap with heavy borrowing.

Stimulus is supposed to be, as Conor noted below, a short term and temporary strategy. But while it can ease the pain of a slowdown (at least in theory), as Tyler Cowen has been pointing out, the actual empirical evidence that massive government spending can shock an economy the size of ours into a permanently higher level of output is . . . well, it's sort of hard to find a wittily apt description of something that doesn't really exist.

There's a lot of solid Keynesian theory that says it will be so. But not that long ago we had a lot of pretty good theories from very smart economists about how this sort of financial crisis couldn't really happen again in the first place.

GE: still bringing good things to life?

The original boom in consumer credit, the moment that credit nannies look back on with the first twinges of horror, was not in credit cards or subprime mortgages, but in large consumer durables. "Buying on time" for cars and radios was a major innovation, extending credit to a class of people who had heretofore had little access: landless urban workers.

That legacy left our major industrial giants with massive finance arms: not just the automakers, but places like GE, which was regarded as an interesting, even an innovative, place to get a finance job when I was in business school. GE never reached the same dependence on financing than GM did, which was often aptly described over the last decade as "a bank with a sideline in cars". But its profits were swollen by finance earnings . . . and now, like the other industrial giants, all that financial business is turning into a wee bit of a problem:

The conglomerate, which has industrial, financial and media operations, posted fourth-quarter net income of $3.72 billion, or 35 cents a share, down from $6.7 billion, or 66 cents a share, a year earlier. The latest results include $1.5 billion of restructuring and other charges, mainly related to GE Capital, but also a sizable tax credit.
Earnings from continuing operations were 36 cents a share, down from 68 cents the prior year. Last month, the company backed its downbeat view of 36 cents to 42 cents. Revenue fell 4.8% to $46.21 billion. Analysts polled by Thomson Reuters most recently expected earnings of 37 cents on revenue of $50.49 billion.
GE Capital turned in $383 million in profits, down 88%. Its revenue fell 18%. The unit said earlier this month that it would cut 7,000 jobs, or about 10% of its work force, according to a report on CNBC. GE hasn't confirmed the number of layoffs, which it had signaled in November in saying it would save about $2 billion this year as it shrinks the unit.

Of course, that's nt the only problem area:

The consumer and industrial business saw earnings plunge 86% as revenue fell 17%. Last month, the company called off a sale or spinoff of the unit, which includes light bulbs and appliances. The company affirmed a December projection that its industrial units would see sales growth of zero to 5% this year.

Many of GE's other products are dependent on consumer access to credit, even if GE isn't providing it. And the problems, especially at GE capital, are threatening GE's own AAA credit rating, which is a major strategic asset.

Politics hour

I don't have much time for politics right now, but let me just say that I'm as unmoved by Republican demands for more bipartisan gifts as I was by Democratic whining after 2004. They won the election. This gives them the right to govern in our system. It may be wise, as a matter of politics, to extend the olive branch where possible, and as a matter of principle, not to piss off conservatives just because you can. But they have no obligation not to do what they think is best for their party, and the country, just to make Republicans happy. If you want control back, build a coalition and win an election.

As an aside, I have, in fact, been pretty impressed with Boehner so far. He's doing a very good job of making the case for principled opposition, rather than simply being the chief spokesman for party of no.

Huh?

So Obama is banning lobbyists from his administration . . . except when he isn't:

The new president also moved to fulfill his campaign pledge to end the so-called revolving door, the longstanding Washington practice whereby White House officials depart for the private sector and cash in on their connections by lobbying former colleagues.
In what ethics-in-government advocates described as a particularly far-reaching move, Mr. Obama barred officials of his administration from lobbying their former colleagues "for as long as I am president." He barred former lobbyists from working for agencies they had lobbied within the past two years and required them to recuse themselves from issues they had handled during that time.
The Republican National Committee criticized the Obama administration for violating this new standard in some of its appointments. Mr. Obama's nominee for deputy secretary of defense, William Lynn, has been a lobbyist for the defense contractor Raytheon, and his nominee for deputy secretary of health and human services, William V. Corr, lobbied for stricter tobacco regulations as an official with the Campaign for Tobacco-Free Kids.
A senior White House official, speaking on the condition of anonymity, conceded the two nominees did not adhere to the new rules. But he said that Mr. Lynn had the support of Republicans and Democrats, and would receive a waiver under the policy, and that Mr. Corr did not need a waiver because he had agreed to recuse himself from tobacco issues.
"When you set very tough rules, you need to have a mechanism for the occasional exception," this official said, adding, "We wanted to be really tough, but at the same time we didn't want to hamstring the new administration or turn the town upside down."

Is he also going to end torture, except where it might yield useful information?

In practice, I suspect that this rule will turn out to be very, very difficult to stick to. I am second to none in my hatred of lobbying, but the fact is, lobbyists are usually the folks who a) know their subject matter really, really well and b) want to work for government salaries.

Nor is it any good to simply claim, as Obama is trying, that your appointees will recuse themselves from the issues they lobbied on. If you know what your boss wants, it's wise to give it to him, even if he never asks for it. One assumes that no matter how hard he strives to be fair, Mr. Corr will admire the pluck and good sense of any subordinate who agrees with him on all matter tobacco.

I can't say that I'm particularly perturbed by the prospect of Mr. Corr in office (though to be sure, I neither smoke, nor sell tobacco). It's just time to face up to the fact that we didn't actually enter magical unicorn fairyland on November 5th. And I'm pretty sure that most of the other sweeping campaign promises he made will also turn out to be more complicated than he thought.

For all that, I still prefer him to Mr. McCain; being a libertarian means accepting that your vote is always the choice between the lesser of two evils. That he will not fulfill most of his campaign promises does not mean that he still can't do a good job. But I confess to a deep curiosity about how closely the watchdogs who bashed Bush on principle will actually hold Obama to account for his promises.

Why is government IT so awful, Part III

Another reader, a government IT professional, emails:

The reader email you posted that mentions webdev in straight html is dead-on, specifically noting how buttons cannot be used because screen readers cannot interpret them. For more information on this specific situation you need to familiarize yourself with Section 508: http://www.section508.gov/
Basically it is a 1998 law that requires all web information be accessible by all people (I'm paraphrasing, of course). Because it was written before many gov agencies even had web presences it is terribly outdated. It also terrifies web developers and keeps sites looking plain and worthless. Talented web developers avoid gov work as a result, and IT pros who haven't updated their skill sets in over a decade have permanent job security.
At my agency we are not nearly as IT incompetent as other agencies. We all have new blackberries or iPhones, laptops with full remote capabilities, etc... I have a gov-issued blackberry and iPhone, Mac and PC laptops, and use the latest software for my work. But I'm not a web-developer, I'm a project manager.

Private web development is far--far, far, far, FAR--from perfect, of course. But government IT is worse than, IMHO, it has to be. It's not, as some conservatives would have it, that government professionals are inherently incompetent. It's that government systems treat them as if they are incompetent. That a) selects for the actually incompetent and b) insures that change or creativity are near-impossible.

This is because we treat every issue not as problems for agencies to work on, but something that must be covered by A RULE. You cannot trust the Social Security Administration to care whether disabled people have access, so you have to mandate it. And if that clumsily drawn mandate cuts off ten other features that would help people access social security information, well . . . DIDN'T YOU SEE THERE'S A RULE????!!!

Britain's economy definitely in recession

Britain's astounding economic run--no recession since 1991--is inarguably at an end:

Britain fell deeper into recession during the final three months of last year as the economy contracted by 1.5 per cent, according to new figures released on Friday.
The rapid decline in UK economic growth in the fourth quarter of 2008 was the worst performance since the second quarter of 1980, when the country was in the middle of steep downturn, and confirmed the economy grew at its slowest annual pace for sixteen years.
Fourth quarter growth was weaker than the 1.2 per cent decline economists on average had been expecting and follows a 0.6 per cent contraction in the third quarter. For the whole of 2008 growth was just 0.7 per cent.

Put up or shut up

It's bad enough to be an individual struggling to make payments on an underwater mortgage. Apparently, some builders are finding that sending that check on time isn't enough for their bankers:

Dave Brown, one of this city's best-known home builders, had kept his head above water through the housing downturn, not missing a single interest payment on his loans.

So he was confounded a few months back when one of his banks, spooked by the decline in his company's revenue, suddenly demanded millions of dollars in additional collateral to continue carrying loans on his projects.
He was unable to come up with the money, and in October, JPMorgan Chase foreclosed on five of his developments. Shortly thereafter, Brown Family Communities, 33 years in the business, decided to shut its doors.

Perhaps the details are other than described in the article, but whatever the circumstances, it's hard to see how a bank benefits from foreclosing on a performing loan in this housing market.

Whither the New York Times? Whither journalism?

A few days back, Henry Blodget posted a plan to fix the New York Times that drew withering criticism from Felix Salmon. Blodget's plan to fix the New York Times:

Our Plan To Fix The New York Times
Cut costs 40% by 2010.
Continue to raise print subscription prices
Explore charging an online subscription fee

In other words, fire a bunch of people, especially editors, charge more for the product, and wall off your front page.

Felix says this is daft:

Got that? If you don't have the "click data", fear for your job! If you snark about the president, or how to analyze your husband "the way a trainer considers an exotic animal", then you're probably fine. If you're an investigative reporter who spends months at a time uncovering secrets, not so much. And if you're a war correspondent putting your life on the line to cover important conflicts around the world, well, remember to include lots of pictures of kittens to boost that all-important click data.
"Yes," says Blodget, "some sections that some readers love might disappear". But those kind of fluffy, feature-driven sections -- the ones that might be cut -- aren't expensive: by contrast, they're profitable. That's why they exist: they subsidize the important news hole, which is less attractive to advertisers.
Next, Blodget decrees that "management needs to make certain that printing and distributing papers is a highly profitable business". Never mind that printing and distributing papers has never been a highly profitable business for any newspaper: Blodget seems to think that the selling-news-to-readers business model, which has never worked in the past, can somehow manage to supplant the selling-readers-to-advertisers business model on which newspapers have always historically been based.

Perhaps I'm biased, since I got my start in journalism at The Economist, which calls itself a newspaper, and never sells a subscription at a loss. And my current company owns properties like the National Journal, which certainly make a profit selling subscriptions--and how.

The fact is that lots of magazines and newspapers tried that "boost your circ figs by any means necessary" on the print side--and lost a ton of money. USA Today got an impressive circulation boost from distributing its papers practically free to half the budget hotels in the country. But advertisers are not interested in people who carry the paper around under their arm for a while before chucking it. They're interested in actual readers. Preferably readers in a demographic they'd like to sell into.

On the web, of course, you're only paying for actual readers--but the demographic problem not only persists; in some ways it's magnified. In theory, the web allows heretofore undreamt of targeting ability. In practice, privacy concerns and fear of regulation have held it back. The New York Times used to know at least two things about its readers: they lived in New York, and they could afford a daily paper. That made things like local retail advertising a big profit center for them. But no one wants to pay to tell a brand new reader in Bangkok to come on down to 48th and 9th for a terrific deal on cameras.

Quantity, in other words, is not the only thing papers need to make a profit; they also need quality. As Blodget points out:

NYTimes.com currently has a vast glut of inventory, so much so that it is selling ads at a reported $5 CPM. This excess inventory devalues the per-unit prices the company can command.
Much of this inventory would remain if the company maintained search engine and third-party link access to the site.
The unit rates on remaining NYTimes.com ad inventory would rise as the inventory became less scarce
NYTimes.com would be able to charge more for ads served against known, paying subscribers (the company would have some demographic info).

The glut of web advertising inventory is the central problem. Most business stories about the media lament the fact that advertisers won't pay for web as much as they would for print, but of course the very costs that Felix is talking about made print advertising a (relatively) scarce commodity.

That said, I'm not quite as sanguine as Mr. Blodget that the web can be made to pay just by putting things behind a subscription wall. The Wall Street Journal is different from the New York Times in two important ways. First, there's less competition in business journalism than general political news, in part because journalists would rather cover the government than boring old companies. And second, many--maybe most--of the people who pay for the Wall Street Journal have to read it for work. They are thus fairly price inelastic.

And Felix is right on when he points out that for a long, long time, articles on swinging into spring with patent leather have been subsidizing coverage of less-popular-yet-more-vital topics like foreign policy and the Department of Agriculture. The web is rapidly disaggregating the readers, and hence the subsidy. And that's a big problem for society. One for which so far, no one has proposed any very satisfactory solution.

John Thain ousted at Merrill Lynch

The FT reports:

John Thain was ousted on Thursday at Merrill Lynch, just three weeks after the brokerage firm was acquired by Bank of America. Mr Thain's departure came in a meeting with BofA chief executive Ken Lewis, who flew up to New York from Charlotte, North Carolina, for a face-to-face meeting.

This can hardly come as a huge shock to Mr. Thain. It certainly isn't shocking to anyone who's ever spent more than five minutes in a corporation, or for that matter, a meeting of the Altar Society. Someone had to go. And if it wasn't Mr. Thain, it was going to be Ken Lewis.

I've actually developed quite a bit of sympathy for Mr. Thain. After all, he didn't create the mess at Merrill Lynch; rather, he was brought in to clean up after Stan O'Neal's MBS binge led to predictable results--all over the trading floor. Given the situation in the markets, and the balance sheet he was handed, I'm not sure how anyone could have expected Mr. Thain to do better at the core mission he was hired for: taking care of his shareholders and employees.

Nonetheless, you could hardly expect BofA managers or shareholders to take a happy view of his doings, given that much of his hard labor ended up costing them money. Besides, Ken Lewis needs someone to throw to the wolves running close behind the sleigh.

Most people I've talked to think that regulators made Lewis an offer he couldn't refuse to get him to take on Merrill's toxic assets: push the thing past shareholders, and he could be sure of the support of Treasury and the Fed in the coming financial chaos. More than a few people of my acquaintance have suggested that taking this deal was not quite bright, knowing as he did that Treasury was very likely about to change hands. But when the two most powerful men in American bank regulation come to you with a request, it's got to be awfully hard to say no, sorry, I'd really rather not. Lehman, after all, shows what happens to those who didn't have Bernanke's and Paulson's backing when the chips were down.

But "making the best of a bad situation" is rarely enough to save CEO jobs. I suspect that neither a good excuse, nor a substitute victim to feed shareholders, will provide Lewis much protection in the long run--if the shareholders don't get him, the nationalization probably will.

Question of the day

How come progressives opposed to TARP II are very, very worried about the cost to the taxpayer, but not worried at all by the cost to the taxpayer of a massive fiscal stimulus, a lot of which is nearly guaranteed to be wasted by virtue of the speed with which the money must fly out the Treasury's door? And where are the conservatives taking the equal and opposite stance?

Atlantic Business!

So this is the project that I alluded to this morning: Atlantic Business. It is, as the name suggests, a new Atlantic website focused on business. One of the main features is a group blog on which most of my Asymmetrical Information content will be appearing. There are also special features, like the interview with Michael Lewis we've got up. We've also got something that a lot of you (and me!) have been wanting for a while: registered comments. Eventually they'll be migrating over here, too, but for now, I hope commenters will stick with the new page.

On the dole

The unemployment news continues to be unremittingly grim. According to the Department of Labor, seasonally adjusted initial jobless claims rose again, to 589,000. But the more worrying number is the continuing benefit numbers, which have marched steadily upwards in recent months and now stand at 4,607,000. But don't worry, says the DOL; it's less of a spike than an inability of our systems to handle the current claim load:

Continue reading "On the dole" »

Annals of awful advertising

I am in receipt of the following suggestion in my email box, from Bed, Bath & Beyond:

Whether you're engaged . . . know someone engaged . . . or hope to give your partner a little nudge--Bed, Bath & Beyond promises to make wedding planning as simple as saying "I Do".

I know that times are hard for retailers. Every day seems to bring an increasingly desperate missive from Banana Republic, Crutchfield, or Burpee seeds promising fantastic savings, free shipping, and if I choose the option at checkout, the firstborn son of the Marketing Director. But this . . . well, it quite takes my breath away. The desperate leading the desperate, so to speak.

I'm no game theorist. Or psychologist. And a business site is not quite the right venue for dating advice. But I'm pretty sure you cannot overcome a reluctant suitor merely by going ahead and registering for the wedding without him. Seriously. Just ask Lehman Brothers.

It's so . . . stimulating

The Obama team has made much of the fact that the stimulus bill will not contain any earmarks. But the prohibitions are getting weirder by the minute, as Tim Carney points out at Culture 11:

Continue reading "It's so . . . stimulating" »

Assessing Obama's stimulus

Professors from my business school, including the man who first taught me macro, discuss Obama's stimulus.

TurboTax denies responsibility for Geithner's mistakes

If you're an executive at Intuit, which makes a substantial chunk of change filing people's tax returns, you probably don't want to anger the future head of the Treasury--which, of course, contains the Internal Revenue Service, the ultimate consumer of your output. On the other hand, you don't want to imply that your product is capable of screwing up peoples' tax returns.

Continue reading "TurboTax denies responsibility for Geithner's mistakes" »

Public service announcement

I'm starting a new project for The Atlantic, about which, more shortly. The result, however, is that most of my posts will be broken up into a main post and below the fold. I know that some of you will object, but there are design considerations that make this absolutely impossible to get around. Please bear with us.

In a political vacuum, no one can hear you scream

Caroline Kennedy withdraws her name from consideration for Hillary's senate seat, presumably because Paterson wasn't going to give it to her. This is the reason she wasn't qualified in the first place. Kennedy was given much and did . . . not alot. She never did anything big enough to risk failure. This is the culmination of a career spent retreating from the arena before she could be marred by dust and sweat and blood, much less error.

Why is government IT so awful, part II

Sister publication Government Executive offers some answers.

Settled?

Most people agree that a settlement freeze in the West Bank is a minimum precursor to any sort of a peace deal. Except the Israeli government, that is, which has gone right along expanding the settlements since the beginning of Oslo. In the early 1990s, there were something like 100,000 people in West Bank settlements; now that number is nearing 300,000, plus several hundred thousand more in annexed East Jerusalem, and growing:

The failure of slow-motion diplomacy can be told in numbers. In 1993, when the Oslo process began, 116,000 Israelis lived in the Gaza Strip and the West Bank (excluding Israeli-annexed East Jerusalem). Seven years later, when negotiations collapsed, the settler population had risen to 198,000.

Watching this steady march, Ehud Olmert, then Ariel Sharon's deputy prime minister, stunned Israelis in late 2003 by renouncing his lifelong commitment to keeping Gaza and the West Bank under Israeli rule. "We are approaching a point where more and more Palestinians will say: 'There is no place for two states between the Jordan and the sea,'" he warned. Instead, he said, they would demand equal rights in a single, shared political entity--one person, one vote. The only way to preserve a Jewish state was to withdraw, he argued. By then, according to the Israeli Interior Ministry, there were 236,000 settlers.
Olmert's declaration presaged Sharon's decision to withdraw from Gaza. In 2006, Olmert was elected prime minister. Despite the Gaza evacuation, the settler population was then more than 253,000.
Last year, when Olmert resigned and elections were announced, the number of settlers in the West Bank had passed 290,000, living alongside 2.2 million Palestinians. (Another 187,000 Israelis lived in annexed East Jerusalem, next to 247,000 Palestinians.) By the time the next prime minister takes office, more than 300,000 Israelis are likely to be living in the West Bank, with the number continuing to climb.

There's a large and fascinating public choice literature on how politicians attempt to lock future politicians into their choices. A good example might be the FDR's famous remarks about Social Security. According to Luther Gulick,

Henry Morganthau showed no interest in the proosals and repeated all of the regular arguments on the sales tax ignoring the fiscal policy considerations arising at a time of high incomes and commodity shortage. I, therefore, discussed the problem with FDR when he asked me how I was coming with the Treasury study. He said to go ahead and explore the idea with Harold Smith, Marriner Eccles, and others.
In the course of this discussion I raised the question of the ultimate abandonment the pay roll taxes in connection with old age security and unemployment relief in the event of another period of depression. I suggested that it had been a mistake to levy these taxes in the 1930's when the social security program was orgiginally adopted. FDR said, "I guess you're right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren't a matter of economics, they're straight politics."

So far, FDR has proven absolutely right.

Those who favored expanding the settlements have proven similarly able to lock Israel in. The more settlers there are, the harder it is for the government to reverse its settlement policy, and the more the settlements grow, which makes the whole thing even more impossible. It's hard to see, now, how Israel's fractious government can reverse itself. Whatever the policy wisdom, it's political suicide. There's another public choice lesson here: while all Israelis have a stake in the settlement question, the people most affected are the settlers, and hence policy is very likely to follow their wishes.

I'd argue that this is not good for the State of Israel, for reasons others have exhausted. Israel hasn't the political will for ~~genocide~~ ~~all-out war~~ forcible transfer, nor the support of the US, without whose military technology their formidable edge would erode. But they can't simply occupy the West Bank forever. After a certain point, they will be forced to recognize that they are the government of the West Bank. And either give the Palestinians the vote, or decide not to be a Western democracy. Either would destroy the conception that most hold of the State of Israel.

I think the time for a two state solution has probably already passed--I don't know anyone who gives a convincing rendition of a viable Palestinian state on the remaining territory. The issue of water rights alone seems to be impossible. All of the scenarios where everything works out sort of okay seem, to this outsider, to rest on some pretty big dose of fantasy: one in which the settlements are pulled back, or Jordan agrees to take the bits Israelis don't want, or where the Palestinians, I don't know, kind of, just aren't there any more.

Do's and don'ts

Andy Levy at Big Hollywood has a list for conservatives.

Grad days

Dan Drezner asks which years are more formative: grad school or undergrad?

There's something else about this essay that gnaws at me, however -- why is graduate school now the formative experience for presidents? I bet more people know that Clinton went to Yale law school than Georgetown as an undergrad. That holds double for Obama's matriculation at Harvard law school, which overlooks his time at either Occidental or Columbia.
Speaking for myself, I undoubtedly learned a lot at my graduate school. If pressed, however, I suspect that my truly formative years were spent at this place. I also suspect that this is true of more professionals than not.
I put it to (well educated) readers, however -- what matters more in your biography, your undergraduate years or your graduate years?

Myself, I vote for grad school. The second semester of my senior year, David Slavitt, who was by far one of my favorite professors, asked my creative writing seminar a question that we all should have asked ourselves a lot sooner: "Why is it that most of you spend all your energies getting as little as possible for your $100,000?" In grad school, I was less aimless. Or at least, I wasted a lot less time writing truly dreadful novels.

A little confused

Everyone's hailing Obama's decision to suspend all Guantanamo trials for 120 days. But I thought the problem with Guantanamo was the people being held without trial. Khalid Sheikh Muhammed was being tried by the UCMJ, which as far as I know, is what you're supposed to use on enemy combatants accused of war crimes. Doesn't this just further prolong the incarceration of anyone who might be innocent?

Update: I'm informed that KSM is not being tried by the UCMJ, though the major procedural objection is less that than that he's been tortured.

That is, of course, a major procedural, as well as a moral, objection. But is Obama really going to let him go rather than use that evidence at trial? That's a serious question. The American public polls in opposition to torture--but I'm willing to bet that it polls in even more serious opposition to releasing confessed terrorists. He must be hoping hard--as indeed we all are--that KSM decides to stick with the guilty plea. As Mark Ambinder says, the current orders buy peace now by kicking the can down the road.

In general, I agree with Glenn Reynolds and Jonah Goldberg that the exclusionary rule is a terrible substitute for civil servant accountability--but that's what we've got.

The main question I raised in my post--whether delaying the trials isn't an issue--clearly is a big problem, at least for the defendants lawyers. Or so says the Politico.

While Obama staffers may be hoping to conduct a more leisurely policy review, lawyers for some detainees are determined to move much faster in cases pressing for their clients' release. And already one federal judge on Wednesday ordered the government to explain its definition of "enemy combatant" within one week, a timeline which seems sharply at odds with Obama's planned review. "We'll vigorously oppose any delays in the habeas cases," a Chicago attorney representing several prisoners, Lowell Sachnoff, said yesterday. "If they said they could do it in a week, I'd give them a week, but I don't think they would ever say that." Sachnoff, who was in Washington to attend the inauguration, scoffed at Obama's recent pronouncement that closing Guantanamo will be "more complicated" than many had thought. "It's no more complicated or less complicated than it was many, many months ago," Sachnoff said.

Thanks to everyone who emailed, and sorry for the delay. Unfortunately, this isn't my regular beat, and I was busy with the site launch.

Meet the new boss . . .

Will Wilkinson nails my dissatisfaction with the speech:

Strategically, the speech was a commonplace effort to reduce resistance to a political agenda by generating a vague sense of uplifting cohesion and casting any possible opposition as outmoded, small-spirited, and immature. Politicians take this tack because it works, and Obama's really good at it. People liked it. Obama worked the perennial rhetoric of transformative politics expertly, but if you were expecting something truly transformative, beyond the transformative fact of a black president, then you've got to be a bit disappointed.

Partisanship, explained

A McCain-hating, reasonable conservative explains yesterday's emotions:

"I'm happy that McCain is not president. But I'm unhappy that the people who booed Bush are happy. It's not enough to win. They have to gloat. Some of their happiness is just that conservatives, their enemies, are unhappy. So part of me can't resist wanting to return the favor."

Ths does not bode well for post-partisanship.

America's drinking problem

For obvious reasons, I'm a huge fan of Glenn Reynolds' policy suggestion for Barack Obama:

I will make one policy proposal. Some of my fellow libertarians hope that the Obama administration will put an end to the drug war. I hope so too, but I'm not too optimistic. Instead, I propose a smaller step toward freedom -- eliminating the federally mandated drinking age of 21. This mandate was a creature of Elizabeth Dole (who is no longer in the Senate to complain at its abolition), and it has unnecessarily limited the freedom of legal adults, old enough to fight for their country, to drink adult beverages.
What's more, as the 130 college presidents of the Amethyst Initiative have noted, rather than promoting safety, it has largely created furtive and less-safe drinking on campus. As a former professor of constitutional law, President Obama knows that the Constitution gives the federal government no legitimate role in setting drinking ages. Returning this decision to the states would be a step for freedom, a step toward honoring the Constitution, and a step away from nannyism. It would also be a particularly fitting act for this administration. Barack Obama received enormous support from voters aged 18-21. Who better to treat people that age as full adults again?

A drinking age of 21 is an embarassment to a supposedly liberty-loving nation. If you are old enough to enlist, and old enough to vote, you are old enough to swill cheap beer in the company of your peers.

The problem is, the main constituency of this initiative is small. I remember sitting through the alcohol education class that the Commonwealth of Pennsylvania required me to sit through in exchange for clearing my sentence. The lawyer teaching it allowed that the drinking age might well be--indeed, probably was--unconstitutional in various ways. So why did the law still stand?

"Because when people turn 21," he explained patiently, "they stop caring."

It strikes me that this might be a golden opportunity for the Republicans, though. The news post-election was filled with commentators pointing out that the first few times a person votes tend to seal their political identity. Well, a president coming out strongly against the drinking age could put the next generation in Republican pockets for decades.

Why is government IT so awful?

A reader emails:

Maybe I can provide a little insight. I used to work for one of the cabinet agencies (to keep from embarrassing them I'll not say which one) and I had one experience with IT which was, frankly, one too many. I had to help re-design the office intranet site, which didn't sound so bad because it wasn't very intricate.

In any event, it took me *five days *just to hear back from IT about the plan. They were noticeably reluctant for such a minor task. To try and speed things along, I volunteered to design the site myself so all they had to do was upload the thing and be done with it. Out of curiosity I asked what program they use - i.e. Dreamweaver, Fireworks...hell, even Frontpage.

The response? HTML. Yup, straight HTML. As in, writing in each line of code and checking it a bazillion times over to make sure you didn't leave an open bracket somewhere.

Is it any wonder why they were so reluctant to do anything? At the same time, this procedure was complicated by the fact that government websites have a whole host of additional regulations that they must adhere to. For example, you can't have buttons on websites (at least, back when I worked for them) because the software that helped the visually impaired detect text on a website couldn't understand a button. Needless to say, that forces the design of the website itself to be much more Spartan than private-sector sites.

Whitehouse.gov gets a makeover

In addition to the sun rising in the west, and my dog declaring his intent to become a vegan, Whitehouse.gov has gotten a facelift. Naturally, I immediately went to the Office of Management and Budget, a site I use very often, and which is nearly legendary in its ability to hide any piece of information that anyone outside the OMB might want to lay their hands on, like fr'instance historical budget data. The ability to quickly lay hands on OMB information is a skill that has taken me years to hone, and provides substantial professional advantage.

The site was also uglier than a warthog in velour.

You'll be pleased to know that the new site is very smart looking. Unfortunately, that sleekness has been achieved by tucking even more of that unsightly information out of the way, where it won't mar the vista.

Why is government IT so awful? It seems like the first thing people are going to want, when they go to the Office of Management and Budget, is, like, to look at the Budget. Yet the budget isn't even on the OMB servers, apparently--it's hosted at the GPOaccess site. I have, to be sure, seen private websites that were this awful. But not that many, and the companies that had them usually either redesigned them right quick, or went out of business. Instead the government has preserved all the problems with the old site, added new ones, and given us in exchange . . . a glossy photograph of Barack Obama looking solemn.

I am sure that there is some stupid bureaucratic logic behind putting the budget information elsewhere. But I'm not sure my heart can stand finding out what it is.

EMERGENCY BROADCAST SYSTEM: Substitute Inauguration Poem

The poem is as bad as the speech was good. I humbly offer a substitution for those who are in need of an uplifting, good poem:

I HEAR America singing, the varied carols I hear;
Those of mechanics--each one singing his, as it should be, blithe and strong;
The carpenter singing his, as he measures his plank or beam,
The mason singing his, as he makes ready for work, or leaves off work;
The boatman singing what belongs to him in his boat--the deckhand singing on the steamboat deck;	5
The shoemaker singing as he sits on his bench--the hatter singing as he stands;
The wood-cutter's song--the ploughboy's, on his way in the morning, or at the noon intermission, or at sundown;
The delicious singing of the mother--or of the young wife at work--or of the girl sewing or washing--Each singing what belongs to her, and to none else;
The day what belongs to the day--At night, the party of young fellows, robust, friendly,
Singing, with open mouths, their strong melodious songs.

Speech! Speech!

Will Wilkinson liveblogs so you don't have to.

I was disappointed by the beginning of his speech, which seems to have consisted of saying: "There are no tradeoffs, and the people who tell you there are are just big fat HATERS, okay?" He is delivering it beautifully, as he always does, but the words do not really say much about how we will weather the dark storm on the horizon.

The second half, on the other hand, is beautiful. I do not know that glad embrace of the duties of citizenship, as well as the benefits, will fix our economy, but it might fix many other things that are wrong with our country. If he means it.

The libertarians will hate it, I predict. But voluntary embrace of duty is the health of a small state--it's when people won't care for the collective that the government starts making them do it.

Notes of hope

My housemate and I made pancakes to watch the inauguration. My housemate is a libertarian too cynical to vote; I supported Obama with misgivings even as I did so, and no expectation that he would change the world.

Watching Yo Yo Ma and Yitzhak Perelman play Aaron Copeland's quintessentially American pice, both of us are borne up by the beauty of it. I admit to feeling a few moist drops tugging at the corner of my eye. I am rooting for Obama to succeed, and if he does, I will look back happily on this moment as a promise of better things to come. And if he doesn't, I will look back wistfully on that one moment when everything seemed all right.

Only the lonely

The big reveal is spectacular on HD, as Obama walks out of the darkness into the full light of the sun and the adulation of a massive crowd. All I can think of is how lonely it must be to become president--to reach your dream and suddenly realize that no one can share either the honor or teh burden with you.

Cui Bono?

Barack Obama is promising an increase in government grants for college education, presumably to help people like Tracy Kratzer, who was interviewed by Forbes about her crushing student loans:

Tracy Kratzer, 27, enrolled in the International Academy of Design & Technology in Orlando, Fla. in 2003. With visions of making big bucks as a Web designer, she didn't give much thought to the interest rate on her loan from Sallie Mae (nyse: SLM - news - people ), the Fannie Mae (nyse: FNM - news - people ) of student lending. Kratzer didn't know it at the time, but she was part of an experiment that has proved disastrous for borrowers and shareholders of Sallie's parent, SLM Corp. It's called "nontraditional" lending.
"That's not a sociological term," Albert Lord, chief executive of SLM Corp., told an audience of financial analysts last fall. "It's basically kids and parents with poor credit who are at the wrong schools."
Sallie Mae was set up by the government in 1972 and began privatizing its ownership in 1997. It began nontraditional lending in the easy-money heyday of 2002, when it cut deals with dozens of trade schools to become their preferred subprime student lender. Over the next four years Sallie doled out about $5 billion to people like Kratzer, waiving the credit scores and cosigners formerly required for its loans.
The bill arrived last year after nontraditional borrowers began entering the workforce. Of the half no longer studying, Sallie had written off 15% of loans by last June, the most recent period for which it has released figures; another 24% were delinquent. Among traditional loans for four-year universities, writeoffs ran 2% and delinquencies 4.9%.
SLM set aside $884 million to cover these bad loans in 2007 and posted its first loss. It expects nontraditional-loan writeoffs to peak this year. SLM's stock has lost 80% since the beginning of 2007, wiping out $15 billion in value. Lord, who was unavailable for comment, is a 28-year company veteran. He made $72 million as chief executive in 2007 by unloading SLM stock before it tanked. Sallie largely abandoned nontraditional lending last January.
That's little consolation to Kratzer. Shortly after graduating with an associate of arts degree, she discovered that the high-paying jobs she'd hoped to qualify for go to people with bachelor's degrees and years of experience. After a bout of unemployment, when she lived off credit cards, Kratzer recently found an hourly job as a clerk at a magazine, where she earns less than the average high school grad. In the meantime her $14,000 student loan has mushroomed to $27,000--more than she makes in a year--and continues to accrue interest at 18% a year. She says collection agents for Sallie and others hound her to hit up relatives for the money she owes.
"My mom works in a restaurant. My stepdad is in prison," says Kratzer. "There are so many people like me out there. They don't get seen. They don't get heard."

The question to contemplate is who benefitted from making it easier to pursue degrees that don't get you very far? Not Ms. Kratzer, obviously, but not the "greedy" loan company, either. No, the beneficiaries are the schools that take peoples' money in exchange for worthless degrees.

Back in my day, Sallie Mae wasn't so free with her money, but I nonetheless had a substantial brush with the seamy world of gray market education. Having been laid off from two jobs (in my twenties I had a pretty remarkable gift for picking companies that were just about to go out of business), I ended up, miserably, as a secretary at a nonprofit. Shortly thereafter, I decided to learn to be a network administrator, which I'd enjoyed doing briefly at my previous firm, before the venture capitalists had shut off the money spigot.

I don't know how I ended up at Career Blazers (yes, I cringe myself at the name). It was like one of those plucky, poor-but-honest people you read about in Victorian novels--everything clean, freshly painted, and nonetheless falling apart. But I was too desperate to get out of that secretary's chair to be picky. I gave them something like $5,000, in 1995, to teach me to be a Certified Netware Engineer--an administrator of Novell's corporate networking software.

The technies in the audience are wincing, and believe me, I am too. As I found out after I'd wasted thousands of dollars and three months, a CNE was a necessary, but not sufficient, credential to get a job in IT. The minute anyone tells you that he has one (or an MCSE, the Microsoft equivalent), any seasoned professional will bar that person from touching his equipment. Anyone who would actually mention his CNE is definitionally too ignorant to be useful, and just knowledgeable enough to be dangerous. Of course anyone competent usually had the credentials--but all the credentials proved, by themselves, was that you could breathe and answer a multiple choice test.

As far as I know, out of my class of fifteen people, a lot of whom were harder up than me and using the last of their severance to "retrain", two ended up with jobs after "graduation". I was one of them, lucking into a half-administrative, half-technical position. When that company too, was shut down four months later, I was now blessed with just enough experience, in the booming mid-1990s, to get a job and a 30% pay rise.

At any given time, that company was running two or more of these classes. And we were the ones at least arguably learning marketable skills. Downstairs, day and night other less fortunate people labored over Microsoft Word, Microsoft Excel, "computer" classes, typing--all financed by a combination of credit cards, much-needed personal savings, and government subsidies. The best off of them were having their useless lessons paid for by the taxpayer, merely wasting valuable time they might have spent finding a real job. I have no reason to believe that their placement rates were any better than those of my class.

It's easy to be horrified by these fly by nights--but what's the difference between these classes and half of what goes on at many campuses with libraries and gyms? It is perhaps not quite so blatant, and some of the kids do all right. More of them, however, waste a few years and then end up doing something that doesn't require a college degree. They are, of course, better off if the taxpayer picks up the tab. But then the taxpayer isn't. Tuition has still been wasted. And no one ever yells at the schools--or the presumption that we should shoehorn every eighteen year old into college, rather than structuring an economy that comfortably accomodates those who are not academic.

Bus thoughts

I'm working from home today, which is a holiday at the Atlantic, and MLK and civil rights are pretty much on nonstop loop on CNN. This morning I was thinking about the white man who tried to take Rosa Parks' seat. What was he thinking?

I've been trying to picture really fairly alien thoughts. Being a white person in Montgomery, Alabama in the late 1950s, tired from a very long day at a job that probably wasn't very interesting--the people with the easy jobs, one presumes, were already driving themselves. A long dull day in an office or workshop, a wait for the bus on your way to a little house across town where your wife was making a modest dinner. Seeing that overcrowded bus pull up to your stop and thinking, with resignation, of standing for twenty minutes while the bus chugs fitfully across town.

We've all been there--tired, harassed, and isn't it always just one more damn thing?

But then . . . getting on the bus, feeling your feet hurt and your back ache and your eyes wanting to close a little . . . and then lighting up a little.

Thank God! There are still black people sitting down!

Who was a man who would walk up to a seamstress in her fifties and demand that she give up her seat so he could take it? I mean, we've all fantasized about being able to do it, on a bad day--to somehow steal a seat from someone who couldn't need the rest as much as our puffy feet. But who could actually exercise that power? Thousands of people across the south every day, and they can't all have been actually evil people. So how did they do something so evil? How did they treat human beings as if they'd found a dog on the couch?

Carbon caps=EPIC FAIL

I'm caught on the horns of a dilemma. On the one hand, I genuinely want to see us enact a stiff carbon tax to prevent global warming. On the other hand, I have long been extremely skeptical that any solution to the problems of global warming was possible, and have been yelled at by progressives who demand to know what my solution is, then--as if the belief that no political solution would be forthcoming were some sort of a stalling tactic.

Now I see progressives coming around to my point of view,

Yglesias writes:
Long story short, my best guess is that Obama's climate proposals are too ambitious to be enacted and too timid to avert catastrophe.
I have become increasingly pessimistic about our ability to address the climate change crisis. The dynamics are simply deadly -- the most dangerous effects begin arriving after it's too late to do anything about them -- which leaves as our great hope the chance that a strong enough intellectual argument can be made to convince us all to challenge thousands of entrenched interests (among them our own) and significantly change the path of policy. Frankly, there's nothing in our history that suggests this is possible. Time and again, slow-burning environmental crises have emerged to devastate civilizations. That we're smart enough to see it coming and understand the mechanisms involved only renders our failure more tragic.

I'd be gloating about it if it didn't involve, y'know, celebrating an utter disaster. The most I can muster is an extremely grim satisfaction in the accuracy of my analysis.

The politics of global warming are simply dreadful--not merely because, as Ryan notes, it's tempting to wait and see, but also because there's a massive free rider problem. While George Bush was in office, progressives (or so I mote) deluded themselves that the problem was one of evil leadership that didn't care about the environment. Now that Barack Obama is coming in, that belief has become insupportable. Either Barack Obama, too, is evil and doesn't care . . . or it is not politically possible for any American leader to take serious action on global warming.

(Nor, as yet, any European leader, before we start whining about selfish Americans--I've been listening to EU ETS proponents tell me that the system had finally ironed all the bugs out and was really going to start reducing emissions for years now. )

Where does that leave us? We've focused on reducing emissions because that seemed like the easiest engineering problem, which may well be true. But the best engineering solution may not be the best economic solution, and it certainly isn't necessarily the best political solution. It seems like it might be wise to focus more energy on carbon sequestration, which may be technically much more difficult, but is politically worlds easier.

Home, sweet home

It's only been two years since I left New York. But it's already hard to get into a mindset where a $700,000 two bedroom is a bargain.

Here in DC, despite all the assurances that population pressure would keep prices steady, they're falling, and the newer the gentrification, the faster the decline in market value. Not that you'd necessarily know it from the listings--there are still a lot of flippers who bought at inflated prices two years ago, and can't bring themselves to believe that they are going to have to take a substantial loss on their house even after they put in bamboo floors, mid-range bathroom fixtures, and a whole new countertop. But the days on the market tell the story. A three bedroom house in Bloomingdale is not worth $600,000, no matter how nice the fixtures, unless you assume that the neighborhood will keep gentrifying and you'll see substantial appreciation. And no one is ready to assume that right now. Even if the neighborhood that does keep gentrifying, it's hard to see how recession incomes are going to support a steady upward march.

Life, liberty, and the pursuit of property

Bob Herbert describes the agony of Zimbabwe:

Life expectancy in Zimbabwe is now the lowest in the world: 37 years for men and 34 for women. A cholera epidemic is raging. People have become ill with anthrax after eating the decaying flesh of animals that had died from the disease. Power was lost to the morgue in the capital city of Harare, leaving the corpses to rot.
Most of the world is ignoring the agony of Zimbabwe, a once prosperous and medically advanced nation in southern Africa that is suffering from political and economic turmoil -- and the brutality of Mugabe's long and tyrannical reign.
The decline in health services over the past year has been staggering. An international team of doctors that conducted an "emergency assessment" of the state of medical care last month seemed stunned by the catastrophe they witnessed. The team was sponsored by Physicians for Human Rights. In their report, released this week, the doctors said:
"The collapse of Zimbabwe's health system in 2008 is unprecedented in scale and scope. Public-sector hospitals have been shuttered since November 2008. The basic infrastructure for the maintenance of public health, particularly water and sanitation services, have abruptly deteriorated in the worsening political and economic climate."

It's hard to think of a collapse this sudden and complete--perhaps Ukraine in the 1930s, or Mao's Great Leap Forward. A few years ago, Zimbabwe was the bread basket of Africa. Now it's literally a horror story.

The media typically blames this on Zimbabwe having a bad, unresponsive government. But lots of places have bad, unresponsive governments; those governments are unresponsive and bad, but they still don't give rise to famine and cholera. It takes a very special sort of bad, unresponsive government to make things this awful.

The reason Zimbabwe is horrifying, rather than merely awful and repugnant like other dictatorships, is spectacularly terrible land reform. It turns out that land rights are the absolute linchpin of a functioning agricultural economy.

This is not, as some would have it, a brief against land reform. There have been lots of good land reforms. And in fact, no matter how efficient giant white-owned farms may be, they represent an ongoing legacy of colonial injustice. But successful land reform is gradual, works hard to preserve property rights even as it passes them on to someone else (which means, among other things, compensating the former owners), and focuses on putting control of the land into the hands of those who worked it. If you have been following the horrors in Zimbabwe at all, you know that this is the opposite of how Mugabe has handled this redistribution, using violence to kick white farmers off their farms and hand them over to his cronies who have no idea how to run a farm. Since many of the disposessed white farmers bought their land in the post-colonial era, this has massively undercut the justice of the redistribution. Having destroyed the principle that a clear title represents a solid claim on the future output of that land, Mugabe can hardly be surprised to find that no one wants to invest any time or capital in making the land yield.

Property rights are neither sacred nor absolute. But they are very, very important. And we're in an era when the temptation to arbitrarily violate them "For the Greater Good" is growing stronger.

International shipping plunge to near nothing

That's right: it is now basically free to ship your goods from some ports:

Shipping journal Lloyd's List said brokers in Singapore are now waiving fees for containers travelling from South China, charging only for the minimal "bunker" costs. Container fees from North Asia have dropped $200, taking them below operating cost.
Industry sources said they have never seen rates fall so low. "This is a whole new ball game," said one trader.

This is, of course, a reflection of international trade, which has cratered. China's economic growth, and its political stability, would seem to be in real danger.

I have a dream

The capitalist age gap

Matt says to lay off the post office:

As for the US Postal Service, at the end of the day it does a pretty darn good job. Want to send a letter somewhere? Put it in an envelop and stick it in a box, and it'll go where you wanted it to go. They'll pick the letter up from your house if you want it, and hand-deliver it to the destination. For not much money! Anywhere in the country!What you can say about the Postal Service is that in the modern day it's not clearly necessary to have a public agency guaranteeing the availability of this service in the way that it was before phones and email. But for quite a long time this was a really mission-critical element in our communications infrastructure and it still works just fine.

I suspect that the real problem here is that Matt does not remember what the Post Office was like before FedEx and email--before, in short, the salutary effects of capitalist competition had made it clear that the organization had better shape up if anyone who worked for it wanted to continue enjoying their dizzyingly boring, but steady and lavishly benefitted, jobs. Or what the phone company was like before there were cell phones and long distance competition.

These references to the post office are a bit of carryover from a worse era. But importantly, they're a bit of carryover from a worse era in which government was bigger and had more power over the market. This is worth remembering in a discussion about expanding government's brief--if we're old enough to remember.

First pancakes in the new house!

Big weekend breakfasts are what makes a place feel like home--my home, anyway. Time to drag out the perfect pancake recipe and the electric griddle, and nest like the wind.

Deadbeats be not proud

This is appalling. Lots of people have trouble paying their bills right, and I have great sympathy for them, even when it makes other peoples' lives harder. But stiffing people and refusing to talk to them, is reprehensible. And doing it when someone depends on that money to keep the heat flowing is beyond poor. After I post this, I'm going to hit Mona up by paypal; I hope you'll do the same.

Update to Times of London question

I just received the following from someone identifying himself as Mike Harvey of the Times of London, though it comes from a "Googlemail" address:

Dear Megan,

Your second guess in your blog post was the correct one.

The article on Steve Jobs's health was written and bylined by David
Rose but the passage you highlight was inserted by me at the last
moment just before publication. I added the paragraphs (and made a few
other editing changes) in the middle of writing another major piece
for the newspaper against a very tight deadline. (The perils of
writing for a London newspaper from the West Coast.)

It was done in a real hurry and I meant to put the proper attribution
in but failed to do so before I pinged the email off. It was a mistake
made in haste and my thanks to you for pointing it out. As a blogger
and technology writer I know the importance of sourcing and linking to
sources and rightly feel aggrieved when it does not happen.

The paragraphs are being removed for the avoidance of doubt.

all best wishes

Mike Harvey

There's also someone in the comments claiming to be David Rose, and castigating me on the grounds that it was a wire piece, but his IP address resolves to a German pharmaceutical company, and also, it wasn't a wire piece. Curious what some people get up to.

GM lowers its sales forecasts

When I said last month that GM was too screwed up to be helped by a temporary cash infusion, I was called an anti-union hack who just wanted to see good union jobs destroyed so that all the workers would have to become footmen in the houses of my rich patrons.

This did not make me any less right about GM being too screwed up to be helped by a temporary cash infusion, apparently:

In a presentation to analysts Thursday, GM executives said it is now planning on total vehicle sales of 10.5 million cars and trucks in the U.S. this year. That's down from an earlier forecast of 12 million vehicles that GM gave to Congress in early December when it first sought federal assistance to keep it out of bankruptcy.
GM President Fritz Henderson said that volatility makes any forecast for sales very difficult, and it is for that reason the company is now using more conservative estimates for sales.
The lowered outlook is important because it could be a sign that GM believes it will need more money in order to make it through this downturn. When GM submitted its turnaround plan to Congress last month, the company said that sales of 10.5 million vehicles in 2009 was a "downside scenario."

The CNN article goes on to speculate that the fine folks at GM may be lowballing their expectations in order to a) get more money from Congress and b) hand analysts a nice surprise at the end of the year. But it seems to me that if they ask for any more money, they should get a long, hard grilling by Congress about why their forecasts changed so drastically in a month.

They won't get such a grilling, of course; more like Harry Reid will roll over on his back so Rick Wagoner can scratch his belly. But they should.

Turnabout fair play?

Radley Balko has a question about the BART shooting:

That said, there seems to be a mob-fueled rush to pin a murder charge on this guy. Given the videos, it just doesn't seem warranted to me. Speaking as a journalist who has reported on plenty of aggravating stories where bad cops got off scot-free, Mehserle shouldn't have to suffer the accumulated anger of all of those stories. He should be charged for what he did, nothing more.
At the same time, I'd pose this question to the Mehserle defenders I've seen on police forums and bulletin boards: I'm sympathetic to the argument that in the heat of the moment, Mehserle inadvertently reached for the wrong weapon. But Mehserle had training. He had other cops there backing him up. If we're going to be sympathetic to him, where's the sympathy for people like Cory Maye or Ryan Frederick?
Why should we assume good intentions when a cop with training, wide awake and conscious, with other cops all around him makes a mistake that ends with a fatality, but assume the worst when a civilian is awoken by the sound of police breaking into his home, and in the heat of the moment, fires a gun after mistaking them for criminal intruders?
Seems to me you can't simultaneously argue that trained police officers should be forgiven for nervous mistakes made in the heat of the moment, but ordinary people should be expected to show impeccable judgment and restraint, even under unimaginably volatile and confrontational circumstances.

Times of London plagiarizing?

Check out these two passages:

Doctors fear return of Steve Jobs's pancreatic cancer by David Rose, Times of London, January 15th, 2009

In 2003 Mr Jobs learned that he had a malignant tumour in his pancreas - a large gland behind the stomach that supplies the body with insulin and digestive enzymes. The most common type of pancreatic cancer - adenocarcinoma - carries a life expectancy of about a year. Mr Jobs was lucky; he had an extremely rare form called an islet cell neuroendocrine tumour that can be treated surgically, without radiation or chemotherapy.

Mr Jobs tried various alternative therapies for nine months before the tumour was taken out in July 2004, at the Stanford University Medical Clinic in Palo Alto, near his home. "This weekend I underwent a successful surgery to remove a cancerous tumour from my pancreas," he wrote in an e-mail to Apple's staff the next week.

It is thought that his surgery was a variation on the Whipple procedure in which surgeons typically remove the right-most section, or "head," of the pancreas - as well as the gallbladder, part of the stomach, the lower half of the bile duct and part of the small intestine - and then reassemble the system in a new configuration.

The severed surfaces of the stomach, bile duct, and remaining pancreas are stitched to the small intestine so that what is left of the pancreas can continue to supply insulin and digestive enzymes.

Why Does Steve Jobs Look So Thin? by Philip Elmer-DeWitt, Fortune, June 13th, 2008

In 2003 Jobs learned that he had a malignant tumor in his pancreas - a large gland behind the stomach that supplies the body with insulin and digestive enzymes. The most common type of pancreatic cancer - adenocarcinoma - carries a life expectancy of about a year. Jobs was lucky; he had an extremely rare form called an islet cell neuroendocrine tumor that can be treated surgically, without radiation or chemotherapy.

As Fortune reported in a March 5 cover story, ("The trouble with Steve Jobs"), Jobs tried various alternative therapies for nine months before the tumor was taken out on July 31, 2004, at the Stanford University Medical Clinic in Palo Alto, near his home.

"This weekend I underwent a successful surgery to remove a cancerous tumor from my pancreas," Jobs wrote in an e-mail to Apple's staff the next week. "I will be recuperating during the month of August, and expect to return to work in September."

The Fortune article reported - and Apple has not disputed - that his surgery was a variation on the Whipple procedure, or a pancreatoduodenectomy, the most common operation for pancreatic cancer.
Nobody who has a Whipple is ever quite the same.
The Whipple procedure, named for Allen Oldfather Whipple, the American doctor who perfected it in the 1930s, is a complex, Rube Goldberg-type operation in which surgeons remove the right-most section, or "head," of the pancreas - as well as the gallbladder, part of the stomach, the lower half of the bile duct, and part of the small intestine - and then reassemble the whole thing in a new configuration. The severed surfaces of the stomach, bile duct, and remaining pancreas are stitched to the small intestine so that what's left of the pancreas can continue to supply insulin and digestive enzymes.

I came across this totally randomly--linked to the Elmer-DeWitt account to explain his 9 month dalliance with alternative therapies, then googled for updated news, and thought: "Wait a minute, I've read this somewhere before". It's possible that this is not plagiarism--that David Rose is actually Philip Elmer-DeWitt's alter ego and thus owns the copyright to that passage, or that Mr Rose meant to attribute the passage and the html somehow got screwed up. But it certainly doesn't look good. I've emailed the Times for comment, and will report as I get any information.

Update Mike Harvey emailed to explain.

Steve Jobs health is in peril, and Apple's

I am not a doctor, nor do I play one on the internet. But what seems more likely? That Steve Jobs is suffering from a "hormone imbalance" that has sent his weight plummeting and requires a leave of absence, or that his delay in treating his pancreatic cancer while he messed around with woo "alternative therapies" for nine months gave it time to metastize? Pancreatic cancer is nasty, nasty stuff. I don't think we're going to see another comeback this time.

Those are terrible words to write. And terrible news for Apple, which has never been able to prosper long without its founder. Apple's management works very well--obviously--but it's far too centered around one man. Steve Jobs has never managed--or from what I understand, even much tried--to build a robust corporate culture that could be self-sustaining without his presence.

There's a perennial debate in management theory over how much CEOs matter--whether the company would chug along much the same with almost anyone in charge. I suspect it depends a lot on the company. All CEOs make some difference, of course, but much of the success and failure we attribute to them is probably actually exogenous. Nonetheless, at a company like Apple it's very clear that fortunes generally rise and fall on Jobs, and the corporate culture is built around that fact. I don't think it's any accident that the help desks in Apple Stores are called "Genius Bar".

The problem is, there aren't that many geniuses of Steve Jobs' caliber around. Frankly I'm surprised that Apple's stock has fallen so little, just a couple of points on a price in the 80s.

Stimulate us!

A few days ago, Obama was promising that 95% of working people would get a tax cut. The House has scaled that back to make it more affordable. It will be interested to see how the burgeoning young professional class that disproportionately supported Obama--the folks who are making good money, but living in expensive cities and still struggling with rent and loans--will take this.

The rest of the bill is about what you expected--a lot of probably useless green energy spending that I fairly confidently predict will come to nothing, some stuff we should have done anyway, and a bunch of pandering, porky highway spending. The better the projects are, the less likely they are to be stimulative, because they're complicated and time consuming, like healthcare IT and high-speed rail. If we do them on a stimulus timeframe, we'll screw them up, waste an enormous amount of money, and likely make American voters worse off in the long term by locking them in to bad solutions--we won't get a second bite at high-speed rail between LA and San Francisco. Mostly, Democrats took their wish lists, called them "stimulus", and look set to inflict them on the American people in badly done drag.

Now, what does that remind me off? Rhymes with Whoosh Max Butts, I think . . .

Plane crashes in Hudson, all passengers safe

Damn. I'm never going to neglect those little seatback cards again.

Speaking of hucksterism

An old piece by Malcolm Gladwell on the Jedi Master himself, Ron Popeil.

Product of the day

All right, so I'm kind of an infomercial freak. I can't explain why the raw hucksterism so appeals to me, but there's something in the combination of honest greed and mutually acknowledged prevarication that is deeply compelling.

Continue reading "Product of the day" »

Who's next?

Economics of Contempt has the rights of it:

Now we know why the Obama administration asked President Bush to go ahead and request the remaining $350 billion of TARP funds: Bank of America needs another bailout. No details are available yet, but everyone's assuming that the BofA deal will be roughly similar to the deal Treasury struck with Citi in November. The Treasury has already committed the first $350 billion of TARP funds, so it's essentially committing money that it doesn't have yet. They'll get the money eventually, of course, though with tighter restrictions on its use.

This episode just goes to show that Treasury and Fed officials have to be really careful about what they say and do in public. Ever since the Lehman/AIG failures, there have been Treasury and Fed officials at every major bank, constantly monitoring their books. Everyone in the market knows this. So when the Obama administration asked President Bush to go ahead and request the second half of the TARP funds, rather than waiting until Obama is sworn in on Jan. 20, the market was seriously spooked. Everyone interpreted the move to mean that one of the major banks was in trouble again, and will need another bailout to survive. Since everyone knows that Treasury and Fed officials are constantly monitoring the major banks' books, the move to request the second half of the TARP funds sent a signal to the market that something is wrong at one of the major banks, and the problem is urgent (otherwise why not wait until after the inauguration to request the funds?).

As soon as Obama had Bush request the funds, the race was on to figure out which bank was in trouble. At first everyone thought it was Citi, since it had just announced plans to raise capital by breaking itself up, including spinning off Smith Barney in exchange for $3bn from Morgan Stanley. To give you a sense of the fear that gripped the market after the Obama administration's ominous move, CDS spreads on Citi jumped an unheard of 100bps today (spreads don't usually move more than 5-10bps in a single day). Deutsche Bank's announcement this morning that it had lost $6.3 billion in Q4 just added fuel to the fire.

Now we know that the bank that's in trouble is BofA, not Citi. It's now clear that the BofA Bailout 2.0 is the reason Obama had Bush request the rest of the TARP funds, but that just confirms that the market was right to interpret Obama's move as a signal that one of the major banks was in trouble.

Felix Salmon is calling for nationalisation:

I can't see a solution to this problem short of nationalizing both Citi and BofA, and summarily firing the hapless Vikram Pandit along with the overambitious Ken Lewis. Lewis thought he could buy his way out of trouble, by acquiring Merrill Lynch; instead, he was simply tying his own already-troubled institution to an even more troubled institution. Pandit, it's worth noting, tried the same hail-Mary technique, when he put together a deal to buy Wachovia, but that didn't last long.
Citigroup, at $3.50 a share, simply doesn't have the time to implement its new plan to get smaller slowly. And Bank of America, at $7.75 a share, doesn't have the capital needed to absorb Merrill Lynch. Both are now trading at option value: on the hope, essentially, that somehow equity holders won't be wiped out entirely. But they should indeed be wiped out, as part of a nationalization, along with preferred shareholders, including the government. TARP will show an immediate loss on its investments, which will serve as a salutary reminder for whoever's in charge of disbursing the second tranche.
Nationalization is a messy solution, and one which will make no one happy. But it's better than desperately trying to kick the ball down the field until the banks come back in a few weeks for even more money.

I'm tempted to agree. One of the most valuable institutions to come out of the Great Depression was the FDIC, which is possibly the best regulator in the world at orderly winding up failed banks.

The problem is, the FDIC was born in an era when branch banking laws meant most banks were very small, and grew up in an environment of small banking, and mostly stable banking. It's good at dealing with failures, even big failures, in an environment of overall stability. But what to do with gigantic bank failures in the current situation? The FDIC's standard actions--wrap up the worst operations, sell off the remaining pieces, pay off depositors out of government coffers--are hard to pull off here. Who is there with the capital to absorb the struggling operations of BofA and Citigroup?

That leaves nationalization, or liquidation. And a fire sale of two of the country's biggest banks would be, she said with dramatic understatement, very bad for the health of the financial system. It's simply not strong enough to absorb the losses.

In the past few days, I've spoken to a few economics people who are feeling a little perkier about the economy's prospects. I tend to think we're in a lull before the storm gets a second wind.

The Irish connection

I was going to respond to Ross's rejoinder that for all the Irish American sympathy towards them, the State Department listed the IRA as terrorists. True, to their credit. But Alex Massie wrote better and more thoroughly what I would have: that whatever the nominal practices of the State department, in sentiment and practice, the United States was on the side of the nationalists--i.e., on the side of the terrorists*.

And in the 1990s there's no denying that Washington generally shared the (Irish) Republican analysis of the state of play in Ulster. Indeed the Clinton administration viewed itself as a kind of backstop looking after Sinn Fein's interetss and point of view. Crucially, that's how the Republican movement saw the Americans too. They were there to provide support and ballast for the nationalist viewpoint, countering the presumed pro-Unionist bias of the British. That is to say, Dublin and Washington would, together, counter the Brits in Belfast and London. It's peace, of a sort, but it's not a result that was supposed to happen. Nor is it one that many people would have found acceptable back in, say, 1994.
Sure, Clinton made plenty of phone calls and a visit or two. But when push came to shove he refused to put additional pressure on Sinn Fein and the IRA. Consequently the Good Friday Agreement was signed despite there being a crippling ambiguity on the question of decommissioning terrorist arms. The failure to resolve that problem would cripple the peae "settlement" for years, helping to hollow-out the centre of Northern Irish politics, leading us to the present happy state of play: government by bigots and murderers.
This wasn't, obviously, all Clinton's fault. Nontheless one reason Tony Blair lost faith in the american president was Clinton's habit of promising to lean on the Republican movement and then signally failing to follow his promises with, like, actual action. The State Department may have been hostile to the IRA -it opposed giving Gerry Adams visas to enter the US - but the rest of the US government, including the likes of Tony Lake at the National Security Council was entirely sympathetic to the "cause" of Irish Republicanism.

Nor does almost anyone in the United States put the IRA, or its cause in the same mental basket as that of the Northern Irish. Imagine, if you will, a blockbuster film being made about a plucky Arab terrorist leader finally winning freedom for his people by slaughtering large numbers of Israeli/British/French soldiers, along with, of course, any informers or traitors in his own organization. In Irish, it's known as Michael Collins.

Ross is wrong to think of my posts as aimed at criticizing Israeli policy. I'm aiming, for the nonce, at something which has to be resolved before one can usefully critique Israeli policy, which is best summed up by George Orwell in his Notes on Nationalism, which has been making the blog rounds lately during this debate. An excerpt:

All nationalists have the power of not seeing resemblances between similar sets of facts. A British Tory will defend self-determination in Europe and oppose it in India with no feeling of
inconsistency. Actions are held to be good or bad, not on their own merits, but according to who does them, and there is almost no kind of outrage--torture, the use of hostages, forced labour, mass deportations, imprisonment without trial, forgery, assassination, the bombing of
civilians--which does not change its moral colour when it is committed by 'our' side. The Liberal NEWS CHRONICLE published, as an example of shocking barbarity, photographs of Russians hanged by the Germans, and then a year or two later published with warm approval almost exactly similar photographs of Germans hanged by the Russians. It is the same with historical events. History is thought of largely in nationalist terms, and such things as the Inquisition, the tortures of the Star Chamber, the exploits of the English buccaneers (Sir Francis Drake, for instance, who was given to sinking Spanish prisoners alive), the Reign of Terror, the heroes of the Mutiny blowing hundreds of Indians from the guns, or Cromwell's soldiers slashing Irishwomen's faces with razors, become morally neutral or even meritorious when it is felt that they were done in the 'right' cause. If one looks back over the past quarter of a century, one finds that there was hardly a single year when atrocity stories were not being reported from some part of the world; and yet in not one single case were these atrocities--in Spain, Russia, China, Hungary, Mexico, Amritsar, Smyrna--believed in and disapproved of by the English intelligentsia as a whole. Whether such deeds were reprehensible, or even whether they happened, was always decided according to political predilection.

[Note: The NEWS CHRONICLE advised its readers to visit the news film at which the entire execution could be witnessed, with close-ups. The STAR published with seeming approval photographs of nearly naked female collaborationists being baited by the Paris mob. These photographs had a marked resemblance to the Nazi photographs of Jews being baited by the Berlin mob.(Author's footnote)]

The nationalist not only does not disapprove of atrocities committed by his own side, but he has a remarkable capacity for not even hearing about them. For quite six years the English admirers of Hitler contrived not to learn of the existence of Dachau and Buchenwald. And those who are loudest in denouncing the German concentration camps are often quite unaware, or only very dimly aware, that there are also concentration camps in Russia. Huge events like the Ukraine famine of 1933, involving the deaths of millions of people, have actually escaped the attention of the majority of English russophiles. Many English people have heard almost nothing about the extermination of German and Polish Jews during the present war. Their own antisemitism has caused this vast crime to bounce off their consciousness. In nationalist thought there are facts which are both true and untrue, known and unknown. A known fact may be so unbearable that it is habitually pushed aside and not allowed to enter into logical processes, or on the other hand it may enter into every calculation and yet never be admitted as a fact, even in one's own mind.

To me, the impossibility of debating Israel/Palestine is that it the argument is dominated by nationalism on both sides. There are probably more thoughtful critics of Israel than of the Palestinians, but almost no one seems to be able to hold in the middle for very long--in order to critique the one, he becomes blindly nationalistic about the other, making ludicrous excuses for their behavior that they would not tolerate for a moment were they advanced by the other side. We haven't even gotten around to having a decent debate on morality, or the sensible policy possibilities, because each side is far too busy developing their own set of facts from which it can only be proven that they are right, and blameless.

The reflexive tendency to believe in the goodness of whichever group you most identify with is probably evolutionarily necessary, and at any rate, it's there, and I much doubt that we will abolish it any time soon. But like other evolutionary heuristics, it can do us at least as much harm as good in many circumstances, and I think it needs to be acknowledged before we can even discuss right and wrong.

* Well . . . some terrorists. There were, of course, Protestant paramilitaries operating in Northern Ireland as well.

Faux Marx

Laura of 11D says this quote is making the rounds of Wall Street.

Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalised, and the State will have to take the road which will eventually lead to communism.

Karl Marx, Das Kapital, 1867

It's been fifteen years since I read Das Kapital, and I'm not sure how much I retained even when I was young and hale. But it immediately set off my fake alarms. First, because it doesn't sound remotely like anything I remember Marx saying--his core thesis was that falling wages would immiserate the working class, not that they'd be done in by their overdrafts. Second, because I do remember Marx spending huge chunks of Das Kapital grousing about the inadequacy of the housing supply for the working class, in very tedious detail. (I now appreciate, as I didn't then, how valuable this is as a historic record. But it's quite something to wade through.) And third, because no one in 1870 imagined the working class having access to bank credit. Poor people might get some time from the landlord, or a few weeks at the butcher, or they might run arrears and pay on account, but they did not buy substantial goods on credit. The first mass extension of credit to people who did not own land was the boom in installment buying that came in the 1920s.

Also, at least as I recall it, socialism was supposed to come 'round through violent revolution of the starving proletariat, not bank nationalisation. But as I say, it has been a long time.

Also, the quote just doesn't feel right--it doesn't sound like Marx. I can't put my finger on why, exactly, especially since I've only read Marx in translation. I can say that it feels, like most of these hoaxes, a little too a propos, as if Marx were writing from the CNN green room.

And indeed, searching all three volumes for "houses" and "homes", which are a pretty straight one-to-one translation, yields nothing that sounds remotely like this.

Every time I see one of these things, I wonder. Who the hell makes them up? And why? What do you get from passing your mediocre musings off as the work of a long-dead revolutionary?

"Sometimes I sing and dance around the house in my underwear. Doesn't make me Madonna. Never will." ~ Joan Cusack, Working Girl

The Laffer curve of the Democrats

From Paul Krugman's website, a commenter asks an incisive question:

Is it just me, or is this argument for government spending starting to sound just a bit like the Democratic version of the Laffer Curve? i.e. more borrowing means more tax revenue, instead of lower tax means more tax revenue !

The tendency to attribute outright magical powers to government spending has gotten slightly out of control. It's appropriate to ask the same question that should have been asked of Republicans in 1980: if all this is so marvelous, why don't we just do it indefinitely--slash tax rates to zero, borrow and spend forever?

The answer is that there are declining returns to all of this. At some point, the Laffer Curve maximizes, and any further cuts cost the government money. Similarly, the trillionth stimulus dollar probably isn't nearly as effective as the first.

I'm becoming extremely concerned about the stimulus, for the following reasons:

1) Where is the strong evidence that the kind of truly massive stimulus people like Krugman are pushing for will do anything but provide a very temporary respite before the economy slumps back, more indebted and no better off than before? The chief complaint about the two historical examples we have, the Great Depression and 1990s Japan, is that such stimulus was not sufficiently tried.

2) What about the permanent income hypothesis? If we make the stimulus spending temporary, I presume we have the same problem we do with tax cuts--rational consumers will save most of the extra income. If we make it permanent--that's a different, but bigger, problem than we have now.

3) We are a nation of net dissavers, which contributed greatly to the bubble. Can we really prolong this?

All politics is interest group politics

Is the Obama administration delaying the DTV transition with the "help" of an executive whose company stands to gain competitive advantage from doing so? Julian Sanchez has the story:

Last week, President-elect Barack Obama's call for a delay in the Digital TV transition, long scheduled for February, sent tech and telecom firms into a tizzy. Both Verizon and the Consumer Electronics Association have been pushing back hard against any postponement of the move from analog to digital broadcasting, while AT&T has joined the Consumers Union and several prominent Democratic legislators in supporting the call to give the troubled transition more time. Among those with a vested interest in the debate over a DTV delay is Clearwire, which has been racing to deploy its 4G WiMAX networks ahead of competitors wedded to the LTE standard. And Ars has learned that Clearwire Executive Vice President R. Gerard Salemme has been playing a key advisory role on the DTV changeover within the Obama transition team.
. . .

It's not clear whether Verizon would really be able to make good on its plans to begin deploying its LTE network by the end of 2009. Most analysts believe that a relatively short postponement, on the order of three months, would have little effect on 4G deployment--provided it did not set the stage for further delays, as Verizon clearly fears it might. Such a delay might also avoid a spate of homeowners sliding off icy rooftops as they struggle to install new antennas.
But a longer, more disruptive delay might provide some breathing room for Verizon competitor Clearwire. That company is seeking to build market share for its own WiMAX network, a joint venture with Sprint, before LTE is ready for prime time. Clearwire has boasted that it remains years ahead of the competition, but while WiMAX networks in Portland and Baltimore are already up and running, scheduled expansions to other cities have been delayed until late 2009, even as Verizon has bumped up its own schedule. The company's stock has now been in free-fall for months, and several major backers recently announced they would take major write-downs on their investments in Clearwire. (The roster of large investors in Clearwire includes Obama-ally Google.) A toxic negative feedback loop in investor confidence could leave it unable to finance its promised buildouts for 2009. With any transition delay certain to push the spectrum handover into the next quarter of the fiscal year, if not further, the attendant uncertainty could also factor into investment decisions as Wall Street--and equipment makers--decide which standard to back.
A conflict of interest?
Enter Gerry Salemme. A telecom industry veteran; former lobbyist; and Clearwire executive vice president for strategy, policy, and external affairs, Salemme has also been a generous Obama supporter. Early in the primary season, Salemme gave the maximum $2,300 to Obama for America, and then in August threw in another $10,000 to the Obama Victory Fund, a joint fundraising committee that accepts large contributions and carves them up between the party and candidate. (An apparent typo in the OVF's FEC filing credits this donation to "R. Gerard Salemine." OpenSecrets shows the cash as split into $5,400 for the Democratic National Committee's Services Corporation and two contributions of $2,300 to Barack Obama, which on face would seem to exceed Salemme's cap for the primary and general combined.) Once the race to the White House was won, Salemme scrounged another $5,000 for the transition effort.
As of this writing, Salemme is not mentioned anywhere on the Change.gov site--which lists members of the Obama transition's staff, policy working groups, and agency review teams--nor has there been any public announcement of his involvement with the presidential transition. A spokesman for his company says that Salemme "remains in his position as Executive VP at Clearwire." But Ars has learned that Salemme has been on leave using accrued vacation and acting as a key advisor to the Obama transition team on DTV issues.

It is unfortunately true that the people with the greatest expertise in any issue are usually the people with the greatest interest in how it turns out. But the appearance of conflict of interest here is simply too large. The Obama team should never have let Salemme get this involved.

Sign of the times

Mortgage equity withdrawals have plunged.

Beyond stupid

Apparently, Chuck Grassley is very, very concerned with the immigration status of Tim Geithner's former household employees. Because what matters is not the quality of the economists dealing with the biggest financial crisis in 80 years--it's making sure Mexicans don't clean their floors without the right permit.

Oh that the salvation of Israel were come out of Zion!

Two thoughtful meditations on Zionism.

Simplify as far as you can, but no further

A friend sends along this review of Walt and Mearsheimer which points out that it was not a very good book. And indeed it was not. But plenty of bad foreign policy books have been written before by famous people. Most of them committed the same error of vastly overstating the influence of whatever group they were describing. Few are as vilified as Walt and Mearsheimer, or as often facilely dismissed with insinuations of bigotry. I think that's a real problem. You cannot have a serious policy discussion if you are obliged to pretend that only one side has all the interest groups.

This is something that conservatives find maddening when liberals do it--pretending that Exxon is a lobby while Sierra Club is a bunch of rationally disinterested observers. I think that conservatives should appreciate that part of the contribution. On the other hand, the meat of Walt and Mearsheimer's argument does something that properly drives conservatives and libertarians nuts, which is to grotesquely oversimplify the way that lobbies work. I think they were out of their depth dealing with domestic lobbying, and simply projected their own understanding of IR onto domestic politics. But inter-state politics is very, very, very, very, very different from intra-state politics.

In some ways, the Israel lobby is more powerful than Walt and Mearsheimer posit, because like most muckrackers trying to expose the influence of powerful groups, they tend to assume conspiracy where affinity is a better explanation. Environmentalists excoriating the environmental lobby, for example, gloss over the fact that it is Detroit's union jobs, not its CEOs, that Michigan representatives labor so mightily to protect--that votes are usually a better explanation for politician behavior than campaign contributions. Similarly, Walt and Mearsheimer are prone to overestimate the Israel lobby's ability to snap its fingers and get its way, and vastly underestimate the public choice reasons for its success, much less the simple possibility that they consistently win because many Americans strongly agree that they should.

The problem is that W&M's critics often bypass useful criticism of their work, and try to put everything they say into the "lunatic conspiracy theorist" box. The accusation that someone secretly believes in an international Jewish conspiracy is nearly uniquely powerful in American culture, and merely hinting at it ends an argument.

Now, Walt's thought experiment may not be a good one, and I'm sure we could have a rousing argument about what a perfectly just counterfactual would be. But Ross didn't raise any of those issues. His retort is, simply, that Walt thinks there's an Israel lobby, and his book isn't very good. Both things are true. But they don't make Walt's questions any less useful, or urgent.

What is the Israel lobby?

Stephen Walt, of The Israel Lobby fame, launches into the blogosphere with a bang:

Here's a thought experiment:
Imagine that Egypt, Jordan, and Syria had won the Six Day War, leading to a massive exodus of Jews from the territory of Israel. Imagine that the victorious Arab states had eventually decided to permit the Palestinians to establish a state of their own on the territory of the former Jewish state. (That's unlikely, of course, but this is a thought experiment). Imagine that a million or so Jews had ended up as stateless refugees confined to that narrow enclave known as the Gaza Strip. Then imagine that a group of hardline Orthodox Jews took over control of that territory and organized a resistance movement. They also steadfastly refused to recognize the new Palestinian state, arguing that its creation was illegal and that their expulsion from Israel was unjust. Imagine that they obtained backing from sympathizers around the world and that they began to smuggle weapons into the territory. Then imagine that they started firing at Palestinian towns and villages and refused to stop despite continued reprisals and civilian casualties.

Here's the question: would the United States be denouncing those Jews in Gaza as "terrorists" and encouraging the Palestinian state to use overwhelming force against them?

Ross replies:

The odd thing is that by Walt's own account, the answer would seem to be "Yes," since presumably the rump Orthodox Gaza - run, perhaps, by Verbover Jews - wouldn't have an all-powerful lobby shaping U.S. policy and public opinion to its specifications. Or am I missing something?

If the implication is that minus the current state of Israel, there would be no "Israel lobby", then yes, I think Ross is missing quite a lot. There managed to be an "Irish lobby" for decades in this country which survived not on the support of the Republic of Ireland, but on the support of Irish politicians, and Irish voters in heavily populated areas. The lobby existed independent of the state itself, and indeed kept right on going on Northern Irish issues even though the territory was part of Great Britain. As long as there is a largish population with a strong desire for a state, and an interest in the fate of that state's nationals, there will be a lobby for it.

I share the discomfort with noting the obvious fact that Jewish Americans, like every other hyphenated-american, actively seek the benefit of their ethnic compatriots by influencing US policy. Other hyphenated Americans don't have the same history of accusations that they are engaged in a virulent conspiracy to run the world for their benefit, and thus we have no need to pretend that all the Turks just happen to take a different position on the Armenian genocide than all the Armenians do--nay, not even the Turks and Armenians themselves bother to claim this. For that matter, I've spent a fair amount of time around members of organizations like the ADC, and I've never encountered any particular hostility when pointing out the obvious fact that their members identify with the Palestinians in part because the Palestinians are Arabs.

But though I understand why statements like this have to be made very carefully, if at all, the strenuous efforts to avoid making them have become cancerous. The reluctance to state the obvious allows Israel's partisans to duck the undeniable fact that AIPAC and so forth do actively attempt to influence American policy, and frequently succeed. Questions about whether this is really best for America, or the world, can be countered with more-or-less sly insinuations of anti-semitism. In part because almost the only people who will state the obvious are looney-tunes anti-semites who think that there's a Jewish conspiracy, rather than . . . Jews acting boringly just like every other ethnic group to ever hit our shores. Or Arabs with tin ears who come off as mostly mad because they're way behind in the ethnic lobbying sweepstakes.

It will not do my career much good to say it, but here goes. America has an influential Israel lobby in large part because of ethnic affinity. Not just Jewish ethnic affinity, I hasten to point out. Yes, we have a large number of Jewish people--many more than we have Arabs. And those Jewish people mostly strongly identify with Israel in the conflict. Europe, which has more Arabs, and decimated its Jewish population 60 years ago, has more natural sympathizers with the Palestinians, and this probably influences their political and media coverage quite a lot.

But America also has an influential Israel lobby because it has a much larger group of people who identify, quasi-ethnically, with Israel: evangelical Christians who think of themselves as in some way descended from the ten tribes of Israel. (Not to mention the lunatic fringe who hopes that the Israelis can in some way hasten the End Times. As if God could be influenced by a sufficiently robust foreign policy.)

And then most of the rest of us, because almost all Americans see Israelis as sharing a common European cultural heritage that the Palestinians do not. (I believe Al-Qaeda agrees.)

Such identifications are, I'd wager, rooted deeply in our genes--our selfish alleles want to advance alleles more similar to them, which is why we tend to side with our family against our nation, our nation against foreigners, and foreigners against sabre-toothed tigers. Those ties are not all-powerful, of course, which is why mothers don't let their children kill all the other children on the block. But they are often decisive in complicated situations like the one in Gaza.

So we are the Israel lobby, to a greater or a lesser extent--all Americans who think of themselves as more like the Israelis than the Palestinians. If the state of Israel were to vanish tomorrow, the lobby would remain. It might not be as vigorous as it is now--the peace accords in Northern Ireland (and the Republic's prosperity) have left the Irish groups with a lot less to do. But where issues concerning that territory, and those people, came up, that lobby would still spring into action.

I think there is nothing wrong with having an Israel lobby. In a multiethnic society, there needs to be a great deal of tolerance for the fact that various ethnicities will still care about what happens in the Old Country. And even if I did think ethnic lobbies were evil, I'd be out of luck, because they're inevitable. If your relatives are in a country, you are going to care what happens to that country. Until we allow unlimited robot immigration, we're stuck.

What's wrong isn't the Israel lobby, but the attempt to pretend that there isn't an Israel lobby, or that it consists of the nice folks at the Israeli embassy.

One of the great strengths of conservatism is the recognition that all politics is interest-group politics, and all interest groups have more or less explicit ulterior motives. It's not an insult to farmers to note that there is a powerful farm lobby--and we're not going to get good farm policy if we deny this obvious fact, much less demand that anyone who points it out prove that they don't hate farmers.

Oh, Slanket!

My housemate derides my slanket (indeed, initially attempted to ban it from the house), but I say: anyone who thinks a slanket is silly has got the heat on too high in these hard times. Our 1895 row house is more than a tad drafty, and the slanket is superior to any alternative I've tried for watching television, reading, or working on the couch.

No, really. It retains heat better than a sweater (because it shares all your body heat, not just the bits under your sweater or jeans), yet lets you do everything you need to. Yes, I know I sound like I'm acting on an infomercial. That's because the slanket is actually as awesome as they claim. Also, it sounds like a Tudor insult. Add me to the ranks of the proud slanketeers.

A nickel's worth of free advice

Like most personal finance writers, I think Suze Orman leaves something to be desired when it comes to investing. But like most personal finance writers, she's good at the basic stuff, which is living within your means. Her "2009 action plan" is available as a free download from Oprah until the 15th of January, and I recommend that anyone who is--like most of America--trying to get onto sounder financial footing this year check it out.

Product of the day

I give you: the quilt with matching tote. How many times do we ladies say to ourselves, "I wish there was a way that I could feel feminine, and yet still match my bedroom set." Search no more! Our hour is at hand.

If John Judis is right, we really are hosed

Judis on whether Obama is doing enough:

There's much to like in Obama's plan. But there are two important ways he may have to go further. Most economists agree that what finally pulled the U.S. out of the Great Depression was military spending for World War II. Some liberals argue that if the Roosevelt administration had not abandoned a Keynesian stimulus strategy in 1937-38, the U.S. might have gotten out of the depression without a war. But in 1936, unemployment was still at 16.9 percent; by 1942, after two years of war spending, it was 4.7 percent, strongly indicating that it was war spending that did it. I am not suggesting that the United States start a world war in order to solve the world's economic problem. But I am suggesting a strategy that could be called the fiscal equivalent of war.
It would consist not merely of updating or repairing the nation's infrastructure, but in undertaking massive new investments that would expand the scope of American industry, and address other urgent problems in the process: global warming, over-reliance on petroleum, and the need to revive America's domestic manufacturing capabilities--not just to provide jobs, but also to provide tradeable goods that can reduce the country's current account deficit.
One area that is ripe for such investment--and that is not, from what I have seen, a declared priority of the Obama administration--is high-speed rail. Amtrak's Acela trains--the closest thing we have to one--average less than 100 mph between Washington D.C. and Boston, whereas trains in Western Europe and Japan go more than twice as fast. Many of them also run on electricity. They would be the most energy-efficient and quickest means of getting between places like Boston and New York, or Los Angeles and San Francisco. But they would require a massive investment. For instance, installing high-speed rail in the Northeast corridor could cost about $32 billion, while California's high-speed rail system would require up to $40 billion. A system that would address the other areas of the country could easily raise the cost to the hundreds of billions. The House transportation and infrastructure committee has currently proposed $5 billion in stimulus funds for intercity rail--not even a down payment on what it would cost to convert the U.S. to high-speed rail.

Here's the problem: by 1942, the war had more than doubled government outlays, increasing the fraction of GDP spent by the Federal Government from 9.8% in 1940 to 24.3% in 1942. The next year brought it up to 43%. Much of this was paid for by not-quite-forced-savings like War Bonds and rationing.

Even if Obama wanted to spend this kind of money, where would he get it? Americans used to save approximately 8-10% of their household income. Now they save . . . nothing. That's only just reversed itself, and much of it is going not into loans, but to building up the balance sheets of the lenders they're repaying.

Nor do I see high speed rail as a great place to absorb huge numbers of unemployed. In construction, yes, some, though even those jobs aren't perfectly fungible--pavers and crane operators and steel workers are not much used in residential building, and many of the residential construction workers are illegal aliens who will not be applying for Davis-Bacon jobs. But what does a mortgage bond trader do on a high speed rail project, other than read the Wall Street Journal and bitch about the quality of Amtrak coffee?

Capitulation

I have heard arguments, which I want to be persuaded by, that bottoming out this recession is less a matter of government brilliance than simple market capitulation. Once people really believe the worst, and prices adjust accordingly, we'll be ready for growth again.

I find this attractive in part because there's reason to believe that we are getting closer to capitulation--for all that a trader of my acquaintance used to pull on his hair and shriek "If you think the market has capitulated, it hasn't capitulated, by definition!" whenever anyone suggested such a daft thing. Housing prices in DC are falling off a cliff, and while the homeowners I know regard this as rank injustice and a horrible economic sign, to me it's a signal that maybe I could actually buy a home of my own in a couple of years.

(No, I'm not looking to make a killing in real estate; I'm looking for a place to live that I can have just as I please. Yes, dodgy water heaters and leaky roofs and all.)

But I can't quite convince myself that it works this way. There's a genuine overhang of homes, and a housing market that seems to have frozen up (which is why prices are tumbling over those cliffs--the desperate have to keep on lowering their prices to lure buyers). Americans genuinely, desperately, need to pay down debt, which means buying fewer goods and services that other Americans make their living off of. And I think that Arnold Kling is right when he identifies a massive structural unemployment problem. The financial and housing sectors were grossly bloated, and being a mortgage broker or a structured finance associate does not actually prepare you for much in the fields that are still growing, like health care and bankruptcy law.

No, though I think that people are finally ready to believe the worst, we have not yet seen it. This recession or depression or whatever we're now calling it is not ready to let its teeth out of us yet.

Walkable/drivable errands

Ryan Avent says suburban "convenience" isn't all it's cracked up to be:

On the subject of errand running, I've often been mystified by the notion that drivable suburbanism is the superior developmental pattern for getting things done quickly. Obviously a big trip to the grocery or hardware store is more easily done with a car, but when taking many small trips, rather than one big one, I think walkable neighborhoods win out more often than people think. Going from (say) the doctor, to the pharmacist, to a restaurant for lunch, and back to work is maddening in a car in a place like Raleigh. But when I was working in downtown Washington, it was fast and refreshing to walk the few blocks from each spot to the next.

The difference, obviously, is kids. If you are a towing a child (and his gargantuan supply of diapers), it is much easier to bind him tightly into a car seat than manhandle him onto the bus. And indeed, whenever I write anything at all in praise of city living, I am contemptuously informed that I only like it because I don't have kids.

But this is not, really, a very good argument against city living. Most people spend the majority of their lives these days neither being nor having small children. And small children are the ones that make suburban living preferable. Older children are much easier to deal with in a city, because after age eleven or so, they no longer need to soak up hours of Mom's time being ferried around.

Not to mention the fact that there are many people who choose not to, or can't have, children at all.

That's not to say that we should force the suburbanites into the city, either. To each his own. But the mere fact that something is not convenient for toddlers, or their guardians, does not ipso facto mean we should discard it in favor of something that better pleases the Playskool set.

Eight reasons why we are in a depression

Tyler Cowen, too, uses the "D" word. Neither of us has yet been tempted to prepend the "great" appellaton.

My reasoning for thinking of this as a depression, rather than a recession: roughly, that we don't understand how to get in or out of it. The recession of the early 1980s was very deep, but we knew pretty much what caused it, and hence how it would end. Even the 1970s slump had an obvious proximate cause in the oil shocks. This kind of perfect financial storm is a rarer bird, and no one has plausibly claimed to have mapped the way out yet.

Here's hoping I'm wrong . . .

How to get deep into debt without really trying

A memorable missive from the last boom.

Car success!

Several commenters are eager to know what happened with the car. The answer is that I finally succeeded in registering it . . . yesterday. That's right, I did indeed purchase it August 3rd.

Sequence of events:

1. Megan buys car

2. Megan goes to get temporary plates in order to drive car back from Florida. DC DMV informs her that she cannot get a driver's license (a necessary prelude to temporary plates) because she is a wanted woman in the Commonwealth of Pennsylvania for a 16-year-old underaged drinking offense that in no way involved a motor vehicle.

3. Commonwealth of Pennsylvania tells her that she may, at her leisure, mail in a check for the privilege of serving her three months license suspension for the underaged consumption of alcoholic beverages. No one in the Commonwealth of Pennsylvania appears to find the prospect of a 35 year old having her license suspended for drinking underaged the least bit odd.

4. After much begging, she is granted temporary tags by DC. She picks up car in Florida.

5. Attempts to rectify situation with Pennsylvania without serving a three months license suspension met with much righteous indignation from Commonwealth employees.

6. Car accidentally driven through red light in Logan Circle.

7. Mother manages to pick car out of all other cars on 15th Street to swerve into and crack side view mirror.

8. Day after mirror crackage, temporary tags expire. Car, which now cannot legally be driven on streets, put in garage of kind sister, whose own car is too big to fit.

9. Several months of unsatisfactory wrangling pass with Commonwealth. Angry DMV employees stick to guns, claim that attempts to bypass system are sheer egotistical requests for favoritism.

10. Red light ticket, her first moving violation ever, is paid.

11. After receiving six emails from people in the same plight, Megan actually researches relevant statutes. These seem to indicate that in fact, the Commonwealth is in violation of the law, which gives them no power to suspend the license of non-drivers in the event that they ever get one; rather, it allows them to prevent non-drivers from getting a learner's permit. Livid, she writes a snotty letter to both the DOT and their press office, inquiring as to the reasoning behind their actions.

12. The suspension is quickly reversed, leaving only a $25 reinstatement fee. The reply from the staff lawyer indicates that there is no reasoning, and that everything she has been told by PennDOT employees is clearly wrong. Rather, it simply seems to be easier to screw people and fix the illegality if the person they're screwing turns out to be important, and/or a member of the press who can broadcast their illegal actions. (Consider them broadcast).

13. Fine is paid. To be sure, it adds insult to injury, but it's not worth fighting about.

14. Car is driven to the DMV, where she is informed that she cannot register it because New York now has a hold on her license.

15. Inquiry reveals that the hold is related to the Logan Circle ticket. Presumably, the check was received late and the fine doubled, causing the DC DMV to reject the check. Ticket is paid; proof is faxed to New York. Car waits in sister's garage for another five days while notice clears their system.

16. Thanksgiving

17. Car flunks inspection because of cracked mirror.

18. Megan begs DC DMV employees to give her another set of temporary tags so she can drive car to nearest dealership in Sterling, VA (near Dulles) to fix it. DMV employees tell her that head office believed that local DMV managers were being too promiscuous with tags, and have now set up computer to reject any and all requests for a second set of temporary tags.

19. Dealership is called. Next available appointment is after New Year's.

20. For $30, a glue on mirror is ordered from the Internet.

21. Christmas

22. Glue-on miror arrives.

23. Moving.

24. New Year's.

25. Glue-on mirror attempted and found too small.

26. Car taken to dealership. Mirror repaired. Car driven to DMV, where it is discovered that half the supporting documentation is out of date.

27. Running around city getting copies of new lease, etc.

28. At 2:30, Megan emerges triumphantly from DC DMV, car registered a scant five months after initial purchase. Comforts self with thought of all the equity she has built up, making payments while it sat unused in sister's garage.

Update: To those somehow convinced that this is all my fault because I let my temporary tags expire/ran a red light/ordered the wrong sized mirror, let me clarify. The reason my tags expired is that temporary tags in the district run for one month, and the Commonwealth of Pennsylvania refused, during that time, to release the hold on my driver's license. In the District of Columbia it is not--or so I was repeatedly told--possible to register a car with an out-of-district license; and due to federal regulations, they could not issue me a license while Pennsylvania still had a hold.

The red light I plead guilty to, but that particular light is a longstanding problem that DC has so far failed to rectify--it's badly placed, and consequently a lot of motorists, including me, miss it. The failure to fix the problem suggests to some that this is less an attempt to manage traffic than an attempt to manage revenue.

As for the mirror, I ordered the mirror specified for the make and model of my car. I'm not sure how a vendor supplying the wrong mirror is something I could have fixed.

Reading is fundamental

A reader sends me this piece and asks if this is how I read. I wish. According to web software, I only read about 600 words a minute, which is in the "above average, but not particularly impressive" range--though in fairness, I have a hard time taking those tests without thinking about how I'm reading, which makes it impossible to, y'know, read.

As a youngish adult, I read about a book a day, maybe a little more. But over the last few years, things have crept up on me. I spend a lot more time on the web, and going to panels and events than I used to of an evening. I don't always commute via train, which is prime reading time. And for the last few months, I've been in constant moving frenzy. Now I spend my days unpacking and contemplating the placement of approximately 60% more books than a four-room house can hold. Far too many of them are books I've been just about to read for three years; the housemate reports the same. Frankly, there ought to be a law about journalists living together.

The upshot is that since the first of the year, I've actually completed exactly four books: The Billionaire's Vinegar, Diary of a Real Estate Rookie, The Subprime Solution, and Of Human Bondage. By my count, that means I'm on track to read perhaps a hundred books this year. My New Year's Resolution to become better read already looks like a bust. On the other hand, I think I may well complete the expert level in Guitar Hero.

You stay classy, Rush

Apparently Rush Limbaugh has developed a parody song about Barney Frank called . . . Banking Queen. Because you know what makes Frank such a piss-poor bank regulator? That's right, obviously it's who he sleeps with when he's not in Congress.

If Alan Greenspan's wife had been a swimsuit model, we probably could have avoided this mess altogether.

Washington real estate blues

No sooner do I find a place than I am beseeched for help from a friend planning to move into town with the Obama people. The inauguration rental ads in the wrong place on Craigslist are still going strong, but they've been supplemented by clearly fraudulent ads aimed at the Obama folks. I came across this myself during our house hunt, when I randomly discovered that someone was advertising my mother's place for rent, at a ridiculously low price. A friend suggested we try to play the scammers, which would have been fun and instructive, but immoral, given that other people on Craigslist might be taken in by the ad.

I doubt that any current residents are being taken in, because we know that a $1400 2br in Georgetown, or $895 1br in the heart of Dupont, do not exist. But I'm sure that there are people coming in from out of town--for the administration, or just because they're graduating from school or what have you--who are getting taken in. What to do for these people? Isn't there some sort of charity one can subscribe to?

If you are a potential newcomer, and you are reading this, here's my short, useless stab at explaining what to look for. The gentrified neighborhoods in lower Northwest are: Adams Morgan, Kalorama, Georgetown, Dupont, Logan, Foggy Bottom, West End, Chinatown/Gallery Place, Penn Quarter, U Street, and Columbia Heights. The more adventurous may try Shaw, Bloomingdale, Eckington, LeDroit, or Petworth.

In Georgetown, Dupont, or Logan, you should expect to pay at least $2,000 for a one bedroom that you can turn around in; and similar in the others if you want to be above ground. Each additional bedroom should cost you $300-600. The standard deviation is about $150-$250 per bedroom, depending on the degree of gentrification; if you are 3 standard deviations from the mean, you are dealing with, on the expensive side, a busted house-flipper who is pricing the house to their mortgage payment rather than the market; and on the cheap side, a scammer. This led to the odd sight, during my house search, of people asking more for a narrow, badly renovated row house on fourth and Elm than for a bigger place at 9th and Florida, which was farther from the ambulence run and closer to both bars and transportation. You can guess which one we chose.

In the edgier neighborhoods, $1400 is about the bare minimum for a 1 bedroom you'd want to live in, unless you don't care about light, in which case, you can get a smaller basement in the $1000 to $1200 range.

Apartments that sound glorious--newly renovated, plenty of light and outdoor space, at least two bedrooms, and priced well under $2000--do not exist in any of the neighborhoods you have probably targeted. It is not New York, or even San Francisco. But it isn't exactly Smalltown USA.

Kitchen reductions

Right before Christmas, I told you what to add to your kitchen. Now Mark Bittman suggests things you can get rid of. My top ten:

1. Jar tomato sauce: takes five minutes of prep, 40 minutes of no-stir simmering, to make your own, which keeps for weeks: cheaper, better, and only a trivial amount of extra effort. Incidentally, for the fellow who asked: the large tomato cans referred to in that recipe are indeed 28 ounces. But I'm flirting with a switch to Pomi, which don't have that metallic taste. Home canned are best, of course, but not economical unless you grow your own or live in farm country.

2. Preground parmesan: forget the lack of fresh taste; the damn stuff clots and wastes half the jar. Try a microplane cheese grater and a block of fresh cheese from Costco or another warehouse club.

3. Bottled water: Distilled water has some uses for cleaning. Bottled water for drinking, however, is a total waste of space and money. It is tap water, just tap water you've paid someone to pour and transport. I repeat, most bottled water comes out of a municipal water system somewhere. If your tap water tastes funny, buy a Brita filter.

4. Mystery frozen things: They were on special 6 months ago. You got an amazing deal so you bought an extra pack and popped it in the freezer. Now you can't find a recipe for "mystery meat with a two-inch-thick crust of ice". Unless you have a deep freezer, the natural lifespan of frozen meat is six months. Throw it out. Then resolve not to buy and freeze anything you don't have an actual plan to consume. You will save money in the long run, and also, right now.

5. The crepe maker. The quesadilla maker. The margarita machine. The fondue pot. Used each of them twice, didn't you? If you haven't used an appliance or a pan in the last nine months, give it away, to a friend, relative, or goodwill. Exception: Christmas cookie cutters, ice cream machines that get heavy use three months out of the year, wedding gifts from immediate family. Do not let your fantasy kitchen take up more space than your real cooking.

6. Expensive cooking wine, "cooking" sherry: Anyone who tells you they detect a difference in the quality of wine used to cook is lying: the things that make expensive wine taste like expensive wine are denatured by heat, which is why you don't store your '62 Yquem in the closet next to the boiler. "Cooking" wines are a stupid waste in another direction: loaded with salt and priced higher per ounce than a decent table wine. Go to the liquor store and buy the cheapest bottle they'll sell you, dry or sweet as per the recipe.

7. Brownie mix: Brownies take ten minutes to make in one bowl: microwave the butter and chocolate together on low, then add the other ingredients, stir, and pour into a cooking plan. There is no excuse for wasting money on subpar baked goods.

8. Winter tomatoes, asparagus, etc: There are plenty of vegetables that it is fine to consume in winter, because they travel well (and inexpensively) from happier climes. Green beans, for example, or broccoli. But it is not worth it to pay the kind of money that is asked for crunchy, flavorless tomatoes, or something that tastes like a ghost of an artichoke. Better to dress up frozen (or, if you must, canned) during the winter months and save your money for a produce orgy come spring. You can make a spectacular, springy tasting soup by simmering frozen peas in a little broth with fresh tarragon, and stirring in buttermilk and fresh ground pepper at the end.

9. Bad frozen dinners: there are actually quite a number of things that are good frozen--I'm currently enjoying frozen onion soup from Costco, and I'm a big fan of the frozen pea. Frozen puff pastry sheets are a dinner-party life saver when your souffle dies. But how often do you actually enjoy a Swanson's salisbury steak that you could have produced in five extra minutes with a packet of Knorr onion soup mix and a cheap bottle of red wine? (Mix the onion soup mix into the hamburger. Shape. Pour a little wine mixed with soy sauce over the steak and broil until the outside is crispy brown).

10. Potato buds: With the Rotato on the market, there's just. no. reason. Use the rotato to peel some actual, cheap potatoes (kids love this). Cut into 1-inch chunks. Simmer until tender in skim milk, whole milk, or cream, depending on the condition of your budget and waistline. Especially delicious if you throw a clove of garlic or two into the pan. Then pour off half the milk and all of the garlic, and mash. Took you five minutes of prep time, and saved you infinite taste bud agony.

My biggest new years resolution for the kitchen, and one I commend to readers, is not to let the perfect be the enemy of the good in your endeavors. If you can't whip up crepe suzettes, that doesn't mean you have to resort to box brownies; try baked apples or use frozen puff pastry sheets and fruit to make a quick strudel. If you are worried about animal welfare, but can't give up meat, or afford the humane stuff, try having one or two vegan meals a week, or splurge on pastured beef once in a while. If you're too tired to cook, try to find a recipe that takes an extra five minutes and one dish over heating a frozen dinner, like simmering chicken breasts in barbeque sauce for half an hour (or sticking them in a 400 oven in a baking dish with same for 50-60 minutes). If you're too tired to spend five minutes cooking, you're too tired to eat. And better to have a good tuna sandwich that tastes like a tuna sandwich should than a frozen "pizza" that could just as easily be the plastic one from the store display.

Media alert

I'm going on the BBC World Service's Newshour program around 3:30 EST to discuss Obama's speech.

Department of awful statistics

Apparently, NBC thinks everyone in America is going to work for the Chicago Tribune in 2009. Liz Wogelmuth catches a headline apparently claiming that the economy is going to shrink more than 200% next year. That's right, not only will we produce absolutely nothing in 2009, but we'll take an axe to a substantial plurality of the nation's assets.

Why not some government mergers?

In the Wall Street Journal, Scott Gottlieb of AEI excoriates Medicaid's wacky reimbursement strategy, which seemingly consists of lowballing everything until the only people who will accept Medicaid patients are Medicaid mills that make up the deficits through fraud*.

One study published in the Journal of the American College of Cardiology (2005) found that Medicaid patients were almost 50% more likely to die after coronary artery bypass surgery than patients with private coverage or Medicare. The authors suggest this may be a result of poorer long-term, follow-up care. Like other similar studies, this one tried to control for the other social and medical factors that are believed to influence patients' clinical outcomes.
Another study in the journal Ethnicity and Disease (2006) showed that elderly Medicaid patients with unstable angina had worse care, partly because they were less likely to get timely interventions or be treated at higher quality hospitals. Three other recent studies showed that Medicaid patients presenting with heart attacks or unstable angina received cardiac catheterization less often than Medicare or private paying patients. This procedure to open blocked heart arteries has become standard care, with ample evidence showing it improves outcomes.
The same trends can be observed in other diseases. For example, a study of adults with cancer published in the journal Cancer (2005) found that patients on Medicaid were two to three times more likely to die from the disease even after researchers corrected for differences in the location of the tumor and its stage when diagnosed.
The federal and state governments are equally culpable for the program's troubles. The federal government matches state Medicaid spending, paying an average of 57% of costs. States expand enrollment in order to qualify for more federal aid. Insurance coverage has become the end itself, with states spreading resources widely but thinly -- without enough attention to the quality of care, accessibility, or whether coverage was actually improving health. States have no obligation to rigorously measure health outcomes in order to qualify for more federal money.

It seems to me that there is no good reason for Medicare and Medicaid to be two separate programs. Housecleaners are surely no less deserving of decent medical care than Palm Beach retirees, yet we arduously separate the two programs so as to lavish extra care on the more affluent class of beneficiaries. It's no good saying that the Medicare recipient earned theirs through contributions, because they didn't--people in the system now are net beneficiaries, not contributors. It's just that on average they're whiter, they speak better English and their subsidized lifestyles are considerably better upholstered. I'm not sure why any of these entitles them to a better grade of publicly provided healthcare.

* One of my favorite doctors was running a Medicaid mill, which I faithfully patronized when I was uninsured. She was charming, caring, and merrily full of ways to help me milk the system, which I had to politely turn down and pay her in cash. Given the reimbursement schedule Medicaid offers, I couldn't blame her a bit.

See no evil, hear no evil . . .

Meet Meaghan Cheung, the SEC investigator who missed the Madoff scandal. The friend who IM'd me says: "I almost feel sorry for this woman. ALMOST."

I feel sorry for her the way I feel sorry for everyone who does spectacularly stupid things, but it's hard to muster any special sympathy given her extensive whine that the Post ought to pick on someone else:

"Why are you taking a mid-level staff person and making me responsible for the failure of the American economy?" an upset Meaghan Cheung, with eyes tearing up, told The Post.

No one's blaming Ms Cheung, I hope, for the collapse of the entire American economy, but it's hardly crazy to blame her for the failure of the Madoff investigation, given that she signed off on it. The Post's implication that this was some sort of payoff deal is overblown and almost certainly wrong--I imagine it's more a matter of being awed by his persona and reputation, plus some sort of colossal internal screw up. But she was the head of the New York branch that ordered the investigation. Who does she think should take responsibility for its utter failure?

The end of property

So it looks as if iTunes will be largely DRM-free by April. Will that save the music industry? I'm still not seeing a great deal of evidence that younger people who group up in an era when they didn't have to pay for music will start paying for it like those of us who grew up when the only way to get good sound without paying was to . . . er . . . steal it.

I am assured by Larry Lessig fans that the bands will just make it up on concerts, and anyway, this is good for the smaller indie bands that right-thinking people like. I will be more convinced when I see an actual increase in the number of quality musicians who don't have to supplement their art with a job delivering pizza.

Economists beat philosophers on list of top jobs

Or so says the Wall Street Journal. Those long, flowing beards itch.

It's not your father's stimulus

Arnold Kling offers a very good explanation of the problem facing would-be stimulators:

Another structural issue that I have discussed in previous lectures is the nature of the unemployment that exists. The standard recession of the post-war United States found the economy with excess inventories of durable goods, and most of the unemployed were production workers temporarily laid off from manufacturing facilities. More recently, it seems to me that a lot of our imbalances are structural. In financial services, most of the people who are leaving jobs related to mortgage origination and securitization are not coming back. In autos, some of the decline in production is cyclical, but worldwide there is too much capacity in the industry, so that many unemployed auto workers are also not coming back.

I doubt that I would want to apply the same multiplier analysis to structural unemployment that I would to cyclical unemployment. To my knowledge, neither the old-fashioned macro engineers nor the modern academics have addressed this issue.

I see an additional problem: FDR entered 1932 with a country that had saved a lot. Barack Obama faces a country already drowning in debt. The collapse in aggregate demand doesn't merely reflect the wealth effect of falling asset prices or a credit contraction; it reflects a large underlying debt load that was only sustainable with rising asset prices. Until that debt load is worked off or inflated away, households are not going to be in a position to spend.

That's why the complaints that tax cuts are bad because consumers will save them instead of spend them seem very, very off to me. We are not looking at a small contraction in aggregate demand because of excess inventories or too-tight money. We're seeing consumers come to grips with the massive hole in their household balance sheets. Call me crazy, but wouldn't a nation of taxpayers saving $500 put us that much closer to sustainable growth in aggregate demand? Doing otherwise just seems to kick the can a little ways down the road. If our fiscal policy even has the strength to do that much.

Almost 700,000 jobs lost in December

Clusterstock has the goods. I recently realized that over the past few weeks, without really noticing, I've slipped quite naturally into referring to the current crisis as "the Depression". I also realized that no one I've spoken to has challenged that description.

Discovery of the day

Last night I was out with a friend, attempting to have a serious analytical discussion about the ~~adult video~~ porn industry, and various recent challenges to its business model.

We gave up after realizing that there is no way to have such a discussion without constant double entendres. This was amusing, especially after the second gin-and-tonic, but more than a little distracting.

Death be not proud

One of the most surprising arguments in John Kenneth Galbraith's book on the 1929 crash is his assertion that one of the most iconic images of the era, the stockbroker jumping out a window, doesn't seem to be entirely reality-based. This time around, it seems to be all too real. Adolf Merckle, apparently despondent over the fate of his family's overleveraged German business empire, has thrown himself under a train.

I wonder if what Galbraith saw in the unusually low suicide statistics for 1929 was the confounding effect of crisis. Suicide tends to fall during crises--they take peoples' minds off themselves. So perhaps everyone outside of Wall Street was too busy watching the stock market collapse to think about the mess of their own lives--but suicide rates leapt for those on center stage. Certainly, there have been quite a few highly publicized suicides so far that can be directly attributed to the declining markets, and sadly, I doubt we've seen the last.

Explicit costs, hidden benefits

A couple of days ago, Glenn Reynolds linked to an article he wrote in August on vaccines. As longtime readers know, this is a particular cause of mine; parents who don't vaccinate their children are able to do so only because most parents do vaccinate theirs. (No, really, I promise--if there were polio running around wild, as there would be if all parents acted like the anti-vaccinationists--then the people taking "personal belief" exemptions would almost all be lining up at the doctor's office begging to her to give little Tinkerbell the magic shot).

But there's a deeper point to be made about how the human brain, and society, treats risk:

Of course it is the very success of modern vaccines that makes this complacency possible. In previous generations, when epidemic disease swept through schools and neighborhoods, it was easy to persuade parents that the small risks associated with vaccination were worth it. When those epidemics stopped--because of widespread vaccinations--it became easy to forget that we still live in a dangerous world. It happens all the time: University of Tennessee law professor Gregory Stein examined the relation between building codes and accidents since the infamous 1911 Triangle Shirtwaist factory fire in New York and discovered a pattern: accident followed by a period of tightened regulations, followed by a gradual slackening of oversight until the next accident. It often takes a dramatic event to focus our minds.

The problem is that modern society requires constant, not episodic, attention to keep it running. In his book The Escape from Hunger and Premature Death 1700-2100 Nobel Prize-winning historian Robert Fogel notes the incredible improvement in the lives of ordinary people since 1700 as a result of modern sanitation, agriculture and public health. It takes steady work to keep water clean, prevent the spread of contagious disease and ensure an adequate food supply. As long as things go well, there's a tendency to take these conditions for granted and treat them as a given. But they're not: As Fogel notes, they represent a dramatic departure from the normal state of human existence over history, in which people typically lived nasty, sickly and short lives.

This departure didn't happen on its own, and things don't stay better on their own. Keeping a society functioning requires a lot of behind-the-scenes work by people who don't usually get a lot of attention--sanitation engineers, utility linemen, public health nurses, farmers, agricultural chemists and so on. Because the efforts of these workers are often undramatic, they are underappreciated and frequently underfunded. Politicians like to cut ribbons on new bridges or schools, but there's no fanfare for the everyday maintenance that keeps the bridges standing and the schools working. As a result, critical parts of society are quietly decaying, victims of complacency or of active neglect.

That argument could be made, and perhaps should be made, just as well about financial and regulatory infrastructure. Though I'm not sure that there is any way to prevent 70-year events like the current mess, there are nonetheless decisions that seem lunatic, in retrospect. Why were Goldman, et al, allowed to lever up 30-to-1? Why, for that matter, did they want to? Well, because if you've gone for a long time without any problems, all you can see about the safeguards is that they're costing you money.

The problem is that it simply won't do to say that we ought to be institutionally risk averse. All of these arguments could be applied just as well to gay marriage or abortion law or universal health care, if you lean that way--it's no good just saying that it hasn't hurt Sweden, because the deluge might still await.

Libertarians, conservatives, and progressives all need a better metric for distinguishing between the areas where we're improving on problems, and areas where we're simply eating our institutional and cultural seed corn. Unfortunately, trial and error may turn out to be the best we've got.

It's the thought that counts

Think you got shafted this year? I point you to this. Count your new white cotton underwear, and your blessings.

Patient, heal thyself

I don't find it surprising when studies of American/European health care consumption show little relationship between consumption and health outcomes. After a certain point, after all, iatrogenic morbidity and mortality has to outweigh the benefit of marginal treatment. But I confess I am shocked that studies show the same thing in the developing world:

2,194 households containing 2,592 Ghanaian children under 5 y old were randomised into a prepayment scheme allowing free primary care including drugs, or to a control group whose families paid user fees for health care (normal practice); 165 children whose families had previously paid to enrol in the prepayment scheme formed an observational arm. The primary outcome was moderate anaemia (haemoglobin [Hb] < 8 g/dl); major secondary outcomes were health care utilisation, severe anaemia, and mortality. At baseline the randomised groups were similar. Introducing free primary health care altered the health care seeking behaviour of households; those randomised to the intervention arm used formal health care more and nonformal care less than the control group. Introducing free primary health care did not lead to any measurable difference in any health outcome. The primary outcome of moderate anaemia was detected in 37 (3.1%) children in the control and 36 children (3.2%) in the intervention arm (adjusted odds ratio 1.05, 95% confidence interval 0.66-1.67). There were four deaths in the control and five in the intervention group. Mean Hb concentration, severe anaemia, parasite prevalence, and anthropometric measurements were similar in each group. Families who previously self-enrolled in the prepayment scheme were significantly less poor, had better health measures, and used services more frequently than those in the randomised group.

Obama goes the extra bipartisan mile

Ryan Avent asks why Obama would want to get more votes than he needs to pass his stimulus plan.

That's easy: insurance. If you ram through a stimulus package that makes Democrats happy while causing Republicans to scream bloody murder, you run the risk that the plan will not work, and the Republicans will dance on your grave all the way to a convincing victory in 2010. I deduce from Obama's surprisingly aggressive bipartisanship that he fears there is a good chance that his stimulus package will cost a lot of money, and we will still be deep in the economic doldrums two years hence.

This seems like a very reasonable fear. We're in uncharted territory here; anything could happen. Wise, then, to ensure that whatever does happen has the opposition's fingerprints on it, too.

They say the lights are always bright on Broadway . . .

One of the staple film tropes of the 1930s was the difficulty of being a kid in the theater with all the shows closing.

Stage Door is possibly the most famous, but the same idea entertained audiences from the start of the Great Depression to the finish.

Even in good times, shows close, of course. But in hard times, they close a lot faster:

Yet the prospect of darkness and days off came with a different meaning this past Sunday night, as nine Broadway productions -- including "Hairspray," "Young Frankenstein," "Boeing-Boeing," "13" and "Grease" -- closed for good, some as scheduled, and some as a result of declining audiences in grim economic times.
And so after the shows there were parties, of course, with a good deal of laughter and tears here and there, and a lot of white wine and hard-to-identify canapés. But there was also a sense of heavy reckoning -- over the high price of Broadway tickets, over the future directions of theater actors' careers, and over the real sadness that can accompany a production marquee dimming for a final time.
"For me, it feels like putting a pet to sleep, but not because it's sick -- because you can't afford dog food," Marc Shaiman, who was the composer of the music and the co-author of the lyrics for "Hairspray," said during its closing-night party at the club Arena. "So I can't make peace with it -- if I had seen it sick and dying, I could make more peace with it."

Anyone selling an expensive luxury is going to find themselves putting a lot more of their pets to sleep in the next few months.

Open thread: making good on that New Year's resolution

So one of my New Years' resolutions is to better track and budget my spending. For that purpose, I'm playing with Mint.com, a free web service that lets you import your credit card and loan accounts and track what you spend. It's not quite as great as, say, Quicken; on the other hand, it's free, and works on a Mac.

I offer this space for two open threads:

1) What steps so far have you taken to act on your New Years Resolutions?

2) Any free or low-cost tools you recommend for weight loss, financial management, and so forth?

Build-your-own-credibility

Nice little piece on the bubbliness of the art market recently. (Hat tip--er . . . one of the many blogs I read. It's been that kind of a morning). For some reason, it puts me strongly in mind of the book I've been reading: The Billionaire's Vinegar by Benjamin Wallace. Perhaps because both involve rich people spending outrageous sums of money on something that we proles will never get close to.

The book--which I highly recommend, as it's gripping--involves possibly the most elaborate hoax pulled before Bernie Madoff became a household name, the counterfeiting of bottles of old wine allegedly from Thomas Jefferson's Paris cellars. The way Wallace tells it, you can't help but notice the fraud--and wonder how everyone else didn't. One guy makes all of these amazing finds of hidden oenological gems, but no one wonders how come Christies or Sotheby's never managed to beat him to the punch? Why didn't people realize it was too good to be true?

Because success is self-reinforcing. If you believed the first eight amazing finds, the fact that Rodenstock had found the ninth actually made it more believable that the find was real. After all, it was Rodenstock.

It's easy, in hindsight, to see that we should have stuck with the tried-and-true wisdom; but there's a reason that evolution has trained people to overweight recent experience. If you didn't, you'd be in big trouble when the situation changed. And the situation did change. There were genuine hoardes of old wines found before the Rodenstock frauds by a few amazing wine conoisseurs who specialized in unearthing them; Broadbent of Christies was the genuine article.

Similarly, housing markets really did change, thanks to things like zoning and environmental regulations that dramatically slowed the pace and scope of new development on the coasts. Credit brokers really did get better at assessing credit risk. it's just that housing didn't get as difficult to build, or credit risk as easy to assess, as recent experience showed.

Because we overweight recent experience, we overshoot on the bubbles. But if we didn't overweight recent experience at all, it would take us 100 years to notice that FICO scores were pretty good--or that many treasured innovations in liberal governance hadn't actually caused society to implode.

Is there some way to make us weight only, always, the right things, to never go too far in rewriting what we know about the world? Somehow, I doubt it.

Apologies for the light blogging

So the good news is, I moved over New Years, and am finally neither homeless nor uncertain about the future. The bad news is, my new housemate lived in a fourth floor walkup, and I discovered, painfully, a rich expanse of virgin muscle during my forty or so trips up and down them carrying heavy items.

Hence the Friday-Sunday hiatus. But now, onto a happy New Year for all of us--or so I lightheartedly hope. Normal blogging resumes now.

January 2009 Archives

January 31, 2009

Media alert

January 30, 2009

Media alert

The labor movement takes its pound of flesh

Jamie Dimon, Grim Reaper

All you have to do is believe . . .

GDP falls, deflation looms

January 29, 2009

Dissecting the stimulus debate

More questions about the mortgage cramdown

That sound you hear

Trade Wars IV: The Democrats Strike Back

Ford's balance sheet no longer comes in black

January 28, 2009

Bad news, and the paradox of thrift

Just in time

Those Wall Street leeches

More on Dick Fuld

Strange accounting

January 27, 2009

Should we worry about government borrowing crowding out private investment?

More on mortgage cramdowns

Good. Fast. Expensive. Pick Two.

How OJ Simpson may help keep Dick Fuld from stiffing his shareholders

What's the matter with mortgage cramdowns?

January 26, 2009

One more step towards gender-norming

Sheer genius

Mortgage cramdowns are a bad option

Euroskepticism is back in fashion

Department of non-leading indicators

January 23, 2009

Don't just stand there, do something!

GE: still bringing good things to life?

Politics hour

Huh?

Why is government IT so awful, Part III

Britain's economy definitely in recession

January 22, 2009

Put up or shut up

Whither the New York Times? Whither journalism?

John Thain ousted at Merrill Lynch

Question of the day

Atlantic Business!

On the dole

Annals of awful advertising

It's so . . . stimulating

Assessing Obama's stimulus

TurboTax denies responsibility for Geithner's mistakes

Public service announcement

January 21, 2009

In a political vacuum, no one can hear you scream

Why is government IT so awful, part II

Settled?

Do's and don'ts

Grad days

A little confused

Meet the new boss . . .

Partisanship, explained

America's drinking problem

January 20, 2009

Why is government IT so awful?

Whitehouse.gov gets a makeover

EMERGENCY BROADCAST SYSTEM: Substitute Inauguration Poem

Speech! Speech!

Notes of hope

Only the lonely

Cui Bono?

January 19, 2009

Bus thoughts

Carbon caps=EPIC FAIL

Home, sweet home

Life, liberty, and the pursuit of property

International shipping plunge to near nothing

I have a dream

January 17, 2009

The capitalist age gap

First pancakes in the new house!