Drug Wars

I'm supposed to be on holiday.  But everyone is linking to this post by Ben Domenech which, like, totally proves that I don't know what I'm talking about regarding pharma research, so I should probably point to this post by Derek Lowe, pharma researcher, which questions Ben Domenech's analysis.  It's true that I oversimplified both pharma and academia's role:  academia sometimes develops drugs, while pharma does basic research.  Such is blogging.  The broad point is that basic research and developing a working drug are two different activities, and neither is "real" innovation.  I don't want to stop government from funding basic research, and never said I did.  But producing drugs does not seem to be the government's core competence.

GDP Falls Less Than Expected

Woo-hoo!  GDP only fell at an annualized pace of 1% in the second quarter!  Pop the champagne!

Thoughts:

• Happiness is relative
• This number will be revised, probably downward
• Consumer saving continues to rise, and probably will for a while
• Employment isn't going to recover for quite some time

Environmental Concerns

So it seems that James Fallows and Marc Ambinder and I all agree that the increase in obesity in the American population is environmental, though they seem to think I disagree, despite my having made this point several times, and have thus spent a fair amount of time disproving a point no one has made.  The very point of the height example offered in my first post was to note how environment interacts with genes.

It still remains to figure what the environmental change in America is that has caused this:  whether the government is largely responsible, and regardless of that, whether the government can stop it.

As I've said elsewhere, I don't think the government is all that plausible as the primary source of the problem.  Obesity is rising everywhere, even in poor countries.  It seems to be rising fastest in the anglosphere, but then, most countries outside the anglosphere rely on self-reporting data, which produces lower estimates.  Eyeballing it, people in other countries are a lot thinner.  But there are also a lot more fat people in Europe than there used to be.

But leaving culpability aside, what can the government reasonably do to make us healthier?  We could change our road building and build denser.  But of course, as I pointed out elsewhere, while being rural is correlated with being fatter, it's also correlated with being healthier (though that advantage may be eroding).  It's impossible to tease out the countervailing effects, so which should we do?  Build up dense areas in which people will be thinner, but maybe sicker from the stress hormones of living in a noisier, more crowded area?  This might be liking taking up smoking to lose weight.

We can eliminate agricultural subsidies.  Great:  high fructose corn syrup won't be so cheap!  But total corn subsidies in the US are about $10 billion, or about $33 per American.  Even poor households spend many multiples of that per capita for food.  You're talking about a difference of less than a dollar a week per person in the food budget.  Meanwhile, what else happens when we dismantle our ag subsidies?  The price of sugar, which is kept high by that same farm policy, falls by about 30-40%.  Perhaps you wanted to get rid of the corn subsidies while keeping the sugar price supports?  But the politically impossible job of slashing corn subsidies (we've been trying since the Reagan administration) will become even more unlikely if you don't also cut the cost of sugar to keep corn syrup competitive. 

We could ban television advertising, a favorite of many public health types, and Marc.  But there's something interesting about that.  When I wrote this article, seven years ago (yikes!), everyone was very much up in arms about the problem of food advertising on television, particularly to children.  So I went looking for all the studies showing that advertising made people eat more junk food.  I couldn't find any.  Suspecting my google-fu was terrible, I enlisted the support of others.  No luck.  Ultimately, I called Eric Schlosser, whose book, Fast Food Nation, had argued against fast food companies largely on the grounds that their advertising campaigns turned children into helpless addicts.  At the end of the interview, I asked him for the studies he'd relied on.  He sounded confused.  He didn't have any studies indicating that fast food advertising spending made people eat more of the stuff. But, he argued, it stands to reason that if they advertise, it works.

Well, oddly, I have a little less faith in corporate America than a left-wing journalist.  Companies, even entire industries, do all sorts of idiotic things for surprisingly long times . . . investment banking and autos tend to spring immediately to mind right now.  And I still haven't found any evidence that advertising actually makes people consume more fast food.  It may make them eat more during the commercial, but there's no evidence that it even ups their overall food intake, much less sends them out to McDonalds.  Most of the studies of advertising I found show that it does a much better job at creating new product awareness or brand switching than creating new demand.

I mean, there's no evidence it doesn't make people eat more, and I don't think I'd get particularly worried if we banned food advertising on television, though I'm sure the networks would, since I"m not sure they'd be viable without it.  But the belief that this will help revolutionize America's eating habits is not very well supported.

We could change what's happening in schools: take vending machines out, make cafeteria meals healthier, and so forth.  Fine, but the kids are in school for six hours out of 24.  What's happening the rest of the time?  Child obesity increases most during summer vacation.

Marc goes into a lengthy paragraph about social capital and obesity:

The idea that anti-obesity activists think the problem will be solved by putting grocery stories in urban areas is kind of a myth. A grocery store is fine. Farmers markets are great. But food in them tends to be more expensive. Food companies don't advertise frozen vegetables because kids and parents don't buy them, but there is also evidence that kids and parents don't buy them because food advertising primes their hunger and increases their desire for bad foods -- foods that are constructed to make kids feel happy and energetic immediately.  Parents have less leisure time to shop. Kids are not encouraged to play outside because of crime rates. And poorer people with lots of material concerns don't have the  bandwith to pay close attention to the TV ads that saturate the lives of their kids. And lots of other things. We need to be careful about expectations setting; .everyone can process information the same way. But with an economic and social capital imbalance thrown in, it's terribly hard to blame anyone.  I'm harping on social capital because it does provide a different way of looking at the SES and racial disparities. Less social capital is correlated with more stress; there is also a relationship between social capital and the belief that things will get better in the future. The more capital you've got access to, the more optimistic you tend to be, and the more likely you are to think prospectively about health.

Most of that may be true, though one stat, which I too have heard from public health obesity researchers, simply isn't; leisure time has increased at the bottom of the income scale, as the relationship between income and working hours has inverted over the past half-century:  wealthy people now work more hours than poorer people.  This is probably multi-factorial:  more disability, better welfare benefits (since 1959), decrease in relative wages, slight increase in real wages.  But while the poor and working poor are certainly not enjoying lives of plenty and ease on the public dime, it simply is not true that they have less time for grocery shopping or cooking than they used to. They, like the rest of us, simply have more opportunity and income not to do it.

The other problem with this cluster of social ills as an explanation is the problem with a lot of other explanations:  it hasn't increased in recent years.  Kids weren't encouraged to play outside during the crack epidemic, either.  They watched a whole bunch of television. And their mothers were very stressed and had fewer emotional resources to supervise their children's activities.  These are perfectly fine explanations for the difference in obesity between 1955 and 1985.  They are not good explanations for the change between 1999 and today, when crime is going down and leisure is going up.

The bigger problem is that we don't have good examples of programs that make significant changes in these areas.  You can get very modest persistent changes from a high-quality early-child intervention:  fewer high school dropouts, fewer arrests. But those results don't turn poor people into middle class people; they turn poor people into the working poor.  They're hard to scale up:  pilot programs almost always work better, because of selection effects on both the workers and the subjects.  And they are fantastically expensive.  The Perry Pre-School Project remains the gold standard in early-childhood intervention studies; it took place in the late 1960's, and cost about $25,000 a head in today's dollars.

Which brings me to the last question:  even if all these things would work, could we do them?  Let's make a list of some of the ideas that come out of this:

• Reeingineer America's urban infrastructure to discourage car transit
• Eliminate all agricultural subsidies
• Ban television advertising
• Change the schools
• Massive intervention into low income families
• Solve the crime problem

When Marc says, essentially, "We're doing things that make us fatter, so can't we undo them?" he makes it sound like these are small changes.  But the political opposition these actions would face is absolute enormous.  Americans were not blindly seduced into an auto-based lifestyle by the paver's union; they voted for lots of roads because they like their cars.  Every president since Reagan has wanted to eliminate farm subsidies, and every president since Reagan has thoroughly, utterly, entirely failed.  Similarly, the food and entertainment industries are not going to stand idly by while you do away with 10% of advertising revenue.  "Fix the schools" and "fix crime" are two agendas that society is currently aggressively pursuing, with limited success.  And I'm skeptical that you're going to find something north of $30 billion a year for the kind of early-child interventions that really seem to make a difference.

I'm all for spending money "for the children".  But let's look at the actual record of Federal education policy before we start making big promises for obesity reduction on a national level--and the even more dismal record of poor school systems before we assume that schools that can't teach math or prevent 30-80% of their high school students from dropping out can somehow take on the job of preventing their students from getting fat.

It would be nice if we lived in this world with a super-competent bureaucracy that isn't constrained by special-interest politics . . . but we don't.  At this juncture, I will be accused by at least three (3) commenters and one (1) other blogger of blindly accepting--nay, endorsing--the status quo.   This is petulant nonsense.  I don't have to like something to recognize that I don't know how to fix it.  And I don't know how to fix this.  Moreover, I don't think anyone else knows how to fix it either.  They think it should be fixed, and that this ardent and well-meant desire somehow translates into the ability to do so, if only the rest of America will join them in really getting serious about the problem.  In my experience as a pundit with a jaundiced view of the likely success of any given government program, every single problem in America, including obesity, can be directly traced to our national frivolity. If only we'd get really serious, we could fix anything and everything.

I am skeptical, too, about the benefits of this seriousness, especially since at any given time, we're supposed to really get serious about at least a dozen problems, and there has to be a limit to even the vast untapped resources of our Federal seriousness reserve.  Since I don't know how to fix childhood obesity, I'm certainly not going to advocate that we, say, assume that we can fix it while pondering a national health care plan, or that obesity is among the prime avenues we should explore to lower our national health costs.  Nor, when all these efforts fail, as I am pretty sure they will, will I join the public health advocates in moving towards the increasingly coercive measures that they have started advising, like stiff taxes, to curb this "problem".  Unlike the public health advocates, I do think that there are worse things for a nation than being fat.

More on Obesity: Is the Government to Blame?

Marc Ambinder, who has done a great deal of research on the subject, takes issue with what I have written about obesity.  Since he wrote carefully, I think it deserves a careful response.

McArdle approaches obesity as if it were a Foucauldian construct: a category invented by the government to justify an exercise of power. The government has no business intervening on the level of individual choice and it shouldn't get into the business of behavioral suasion because it always fails. She's right to note that information about health risks associated with overconsuming fat and sugar and salt are saturated throughout society, even supersaturated. Everyone knows how bad this stuff can be. For her, that's the end of the argument. Government can help to provide information about how to make better choices, but it cannot and should not try to persuade people to make better choices. Indeed, the push for people to make better choices produces the stigma that makes the bad thing bad in the first place.

. . . which have not made any noticeable dent in the behavior they were trying to change.  Now, if there were great misapprehension out there about the downsides of being overweight, the government might make a difference . . . though dieting is tougher than quitting smoking for most people.  But I don't think there are a lot of people in America who are under the illusion that being overweight is in any way desireable.

Of stigmatizing fat, Mark says:

This assumes that the stigma itself is misplaced. It isn't. Fat stigma is bad and harmful, and it ought to be reduced. But reducing fat stigma doesn't reduce the incidence of obesity; it actually seems to increase it in certain populations. What produces fat stigma is not a government or culture that hectors people to lose weight and exercise and then excoriates them when they can't; it's a government that expects individuals to lose weight on their own (which is next to impossible) while making policy that keeps people fat. The discrepancy between expectations and reality is cruel, especially for children.

I'm not sure what this means.  The stigma against fat people dates back into at least the early nineteenth century among the upper classes, and the late nineteenth among poorer people--writing diet books was a popular and lucrative pasttime in the 19th century (it is to that nascent movement that we owe many of the cereal companies of today).  Fat children have been brutally teased for decades.  I don't see this as primarily a result of government policy.

It's undoubtedly true that US government policy contributes:  lack of P/E in school, ag subsidies, etc., as Marc points out:

Labeling obesity a "problem" isn't a behavioral intervention: it's a social structure intervention. And here's where the individual model really breaks down, even for those who don't blame obese people, per se, for their obesity. Obesity is highly correlated with socioeconomic status. And it is a most acute problem among young minorities: African American women, Mexican-American boys, and Native American children have much higher rates of obesity than white children do. Poor kids tend to be more obese than wealthier or middle class children. The reason for these disparities are both obvious and counterintuitive: in general, people tend to eat what they can, which means that they buy the food they have access to. Wealthier people and people living in suburbs have access. Geographic location often correlates with lifestyle; history and social norms tend to be different, too, among ethnic groups. 

McArdle is right that it it's not fair for government to lecture people about weight loss and exercise, but she's right for the wrong reason: policy choices -- ag subsidies, zoning laws, education and budget priorities -- create a flow that, absent any intervention, are sweeping many young kids, particularly poorer kids of color, into obesity. Government's role isn't to scold; it's to make better policy choices. She's wrong about the interventions, too: some, like a physical education project in Somerville, Mass., seem to be working. Taking fast food vending machines out of schools and weighing children at least once a year has arrested the obesity growth rate in Arkansas.  Nationally, the obesity growth rate also seems to be be slowing.

As for interventions:  lots of interventions work over short periods of time.  The problem is twofold:  1) they usually don't scale--educational projects with top notch researchers working with motivated families often run aground when they're rolled out into the real world and 2) the effects often go away as soon as the program ends.  Moreover, that last sentence seems to contradict everything else Marc is saying, since I'm aware of no significant changes in government policy that should be having any effect on the national obesity rate.

I'm not disputing that the environment has changed in ways that seem to make people get fatter--indeed, you'd have to be a total moron to dispute this.  Nor am I disputing that some of this can be laid at the door of government, like our ridiculous agriculture subsidies, and even our zoning laws.  On the other hand, it's also true that people really liked riding around in cars even before zoning--unless the landscape makes car ownership prohibitively expensive, people tend to embrace it, which is why car ownership is increasing so fast even in places like Europe.  Either way, this cannot be the only reason.  US government policy and bad zoning is not making people fat in Britain or Australia. 

Marc adds:

Lo and behold, government policy has helped ensure that the raw foodstuffs that go into all the starchy, sugary foods that we eat are much cheaper. And when compared to the consumer price index, fruits, vegetables and healthy foods are more expensive than they were 30 years ago. If government policy influences diet on a macro scale, and if there is evidence that the diet is harmful, then, in theory, there would be no additional intervention if, say, Congress began to subsidize tomatoes in the same way it subsidizes corn, just a change in policy.

None of this argues for a soda tax, or a tax on sugar, or a ban on, say, food marketing to children. It's just to say that if the obesity epidemic was nurtured by policy -- and it clearly was -- perhaps it can be undone by policy, too.

I think this is really, really optimistic.  First of all, while it is true that produce has outpaced snack foods in the CPI-U, there's reason to think that this is a statistical artifact of the way that CPI is calculated.  We have more fresh food available than ever before--year round raspberries, seventeen kinds of lettuce--and a lot more value-added products such as baby carrots and pre-washed lettuce.  When people pay more for unseasonable produce or prepped vegetables, this shows up as an increase in the rate of cost inflation.  If you look at the aggregate figures, we see that since the early 1980s (the time period from which the per-capita increases are usually quoted), per-capita consumption of fresh produce, particularly fresh vegetables, has increased dramatically.

The problem with all these sorts of theories is that they do an okay job explaining the latitudinal data--we're fat, we're subsidizing roads, we're subsidizing corn, so that must be making us fat!--but they don't explain the trend.  I have not done an exhaustive survey, but I've been unable to find any study that even attempts to establish in any sort of rigorous way that Americans have become more sedentary in, say, the last twenty or thirty years. 

The data is even less persuasive for other candidates.  Corn, and simple starches more broadly, have been the cheapest part of the American diet for centuries.  As a child, my mother didn't get any fresh vegetables at all eight months out of the year, because they simply weren't available.  She got frozen or canned, but their two winter staples were sugared homemade applesauce and butternut sqaush, both of which are basically pure simple carbohydrate.  Lean chicken was pricier than beef, but fatty pork was cheaper than either.  Look in a cookbook from the thirties or fifties and you'll find that recipes for some sort of mostly starch dish are at least 65% of the book.  And those weren't healthy whole grains, either.  They were white flour, or rice, richly laced with fat and sugar.

With the possible exception of corn subsidies (I don't have good data on the relative penetration of corn into the food supply chain), almost every alleged deficit that is "causing" our obesity epidemic, from highways to bad urban grocery stores, is either basically the same as it was fifteen years ago, or somewhat better.  So I find them deeply unsatisfying as a causal explanation for the sudden uptick in overweight people now.

To me, government behavior is at best an incredibly incomplete explanation of what's happening.  A better fit is simply that food--all food--has gotten much cheaper.  People spend less of their income on food than they did thirty years ago, despite consuming a lot more of it.   Stopping them from doing so will require a great deal more than subsidizing tomatoes.

Don't get me wrong:  I'm all for ending our moronic farm subsidies and unjust zoning laws.  But I'd be willing to bet that if we did, we wouldn't even see a blip in the broader trend.

Thining Thin

A typical dialogue on diet goes something like this:

Expert:  We don't have any known way to make obese people thin except gastric bypass surgery, which has a 2% mortality rate by itself.

Thin person:  But I am very thin!

That's about 50% of the conversation in the comments to the Paul Campos interview. It's about as useful as the following exchange:

Expert:  We don't have any known way to make short people tall, except for extreme surgeries and hormone injections.

Megan:  But I am 6'2"

Let's explore the possible rejoinders to this:

1.  Obesity is increasing in the population, so it can't be genetic.

Well, average height is also increasing in the population.  Does that mean that you could be as tall as me, if you weren't too lazy to grow? 

Twin studies and adoptive studies show that the overwhelming determinant of your weight is not your willpower; it's your genes.  The heritability of weight is between .75 and .85.  The heritability of height is between .9 and .95.  And the older you are, the more heritable weight is. 

2.  Height doesn't have anything to do with health. 

Actually, it may. Being taller puts a greater strain on your circulatory, cardiovascular, and musculoskeletal systems.  Tall people are prone to all sorts of problems at higher rates, especially in their back.  That doesn't make it any more sensible to suggest that we need a public health campaign to help tall people shrink.

3.  We don't have any good way to make people shorter, but we do know how to make them lose weight.

Actually, this is rubbish:  we don't know how to lose weight.  Some of the things Paul Campos is saying about obesity are controversial, but this isn't.  Every single study which has attempted to make overweight people get thin without very risky surgery has failed completely and utterly.  Fewer than 1% of patients ever keep the weight off.

Highly educated people who have managed to get their body weight down 5-10% from where their body naturally wants to be confuse what they are doing with what someone obese enough to cause significant medical problems would need to do, which is get their weight down 50% or more from where their body apparently wants it.  They are not the same thing.  The amount of weight loss that these sanctimonious slenderizers have achieved has no statistically significant health benefits.  Let me repeat:  losing twenty pounds will not make you healthier.  If you have diabetes and high blood pressure, there is an extremely modest improvement in test results.  Unfortunately, it's even harder for diabetics to lose weight than the rest of us.

Fat tissue makes people want to eat--it sends out for takeout.  And hunger is a signal on par with thirst or pain.  You can ignore it, if you have sufficient willpower.  But just as most people can't withstand torture (a minority can), most people can't ignore the constant demand from their body for food.  Gina Kolata's Rethinking Thin describes it thus:

Every time the result was the same.  The weight, so painstakingly lost, came right back.  But since this was a research study, the scientists looked at more than just weight loss . . . they measured metabolic changes and psychiatric conditions and body temperature and pulse.  And that led them to a surprising conclusion:  fat people who lose large amounts of weight may look like someone who was never fat, but they are very different.  In fact, by every measurement they seemed like people who were starving.

On every count, the weird, bizarre, almost depraved behavior that Ancel Keys reported when he studied young men who were deliberately starved in his experiment during World War II was just like what Hirsch observed among the formerly obese subjects at Rockefeller University Hospital.  Something ws driving these people to regain their weight, and it was not a deep-seated desire to be fat.

Their metabolisms, for example, had changed so that they hung onto, clung to, every calorie that was consumed, making it harder for them to stay thin.  Before the study began, the fat people had a normal metabolism--the number of calories burned per square inch of body surface was the same as for people who had never been fat.  That changed substantially after they lost weight, with fat people burning 24% fewer calories per square meter of surace area than were used by people who were naturally thin.

The Rockefeller subjects also had a psychiatric condition that had been termed "semi-starvation neurosis".  Hirsch's patients dreamed about food; they fantasized about food, or breaking their diets.  They secreted food in their rooms.  They daydreamed about food.  And they binged . . . eventually more than fifty people went through the months-long process of living in the hospital and losing weight, and every one of them had the physical and psychiatric symptoms of starvation.

If when eating a normal 2,000-2,500 calorie diet, you do not spend significant amounts of your day fixating on food--fantasizing about it, binging, hiding it, strategizing how to procure it--you do not have anything interesting to say to someone who is struggling with obesity.  You do not have better willpower than they do. You do not "care about myself" more.  You are not more "serious about a healthy lifestyle" because you took off the eight pounds you gained at Christmas.  You are no more qualified to lecture the obese on how to lose weight than I am qualified to lecture my short friends on how to become tall.  You just have a different environmental and genetic legacy than they do.  You're not superior.  You're just somewhat thinner.

To put it another way:  I have NEVER had a BMI above the normal range.  How much more awesome am I than you?  30%?  After all, you have to work at it.  My willpower is apparently 100% natural.

I fearlessly predict that more than one person will respond with some variation on "there were no fat people in concentration camps/but I told you, I totally lost 20 pounds last year by taking up marathon running!"  Yes, we could solve America's obesity problem by putting everyone in the country on sawdust bread and cabbage soup.  We could also just shoot anyone whose BMI is over 28.  Are these good solutions?  Because short of that, we don't have much.

4.  Then we need to intervene with the kids, so they don't get fat in the first place

Schools have tried this; so far, it's no more successful than adult interventions.  You can get a very small effect over the short term, but eventually, the kids start eating again. Yes, school meals are crap.  I assure you, they were also crap thirty years ago, and sixty years ago.  Yes, P/E has been cut in some schools, but there's little evidence that exercising makes you lose weight by itself. Unless you control their access to food completely--and you can't--those kinds of environmental interventions don't work.

5.  So why is America getting fatter, Miss Smartypants?

Some combination of the following:

1.  Hyperpalatability of food:  the Seth Roberts/chain restaurant haters hypthesis.  The processors have perfected combinations of fat, salt and sugar that addict us, causing us to eventually swell up like a balloon. 

But French restaurants have been doing this for over a century, and for most of that century, thinness has been inversely correlated with poverty.  Your body doesn't care whether it gets its fat and sugar from a Ho-Ho or a Chocolate Eclair.

2.  Increasing prevalance of corn in the supply chain:  the Michael Pollan/Cato hypothesis.  Maybe:  corn doesn't seem to be very good for you.  But I'm skeptical of monocausal hypotheses.

3.  Calories are getting cheaper.  Self explanatory.  In my view, the dominant reason.  People eat more calories because they like it, and can afford to.

4.  Animal fat. Eh, maybe.  We sure eat a lot more of it than we used to.  But we eat a lot more of everything.  And without controlling for socioeconomic status, it's hard to tell whether vegetarians are thinner.

5.  Larger portions.  Special case of "calories are getting cheaper".  I think it's less persuasive than many people think.  It's true people will eat a great deal at a sitting if you give them a great deal.  But if people were so easy to fool, long term, about their caloric intake, we'd all weigh eight zillion pounds. 

As I pointed out elsewhere, a simple error of 50 calories a day--half a slice of Pepperidge Farm All-Natural Whole Wheat Bread--would make us gain five pounds a year apiece.  Given inherent calculation error, no one is watching their calories this carefully.  Our appetites are doing the work for us.  Maybe you eat an extra 2,000 stealth calories at dinner, but you're not so hungry the next day.  Conversely, try dining on Macaroni Grill's new 390 calorie scallop salad. Unless you're on a permanent diet, I bet you feel peckish before bed.

6.  We're getting older.  It is normal to gain weight as you age, unless you are in a fairly calorie-deprived environment.  An aging demographic will naturally produce a fatter population.  This does not account for the growing number of super-obese people with BMIs over 40, even over 50.  But it accounts for at least some of the central shift.

7.  We quit smoking.  Smoking makes you quite a lot thinner, particularly after 25.  Now that fewer adults smoke, more adults are gaining weight.

Reasons we aren't getting fat:

1.  We don't know how many calories are in the food we're eating.  I'm pretty sure my great-grandmother didn't either.  She still knew that pound cake made you fat, and lettuce didn't.

2.  We exercise less.  We haven't gotten noticeably more sedentary in the past decade or so, but the weights keep shooting up.  Also, there's no evidence that exercise makes you lose weight--ever discussed dieting with a long distance runner or ballerina?

3.  Poor people don't have access to good groceries.  They had even worse access ten, thirty, fifty years ago.  Using starch and cheap sugar as substitutes for vegetables and lean meat is not a recent invention--George Orwell discussed it in the Road to Wigan Pier.   Frozen vegetables are very good for you, and within the budget of everyone.

4. We're eating too many empty carbs.  Processed carbs entered--and dominated--the American diet in the second half of the nineteenth century.  Working people at the turn of the century ate virtually no meat, little fat, and few vegetables; their diets were mostly beans, white flour, polished rice, pasta, and potatoes, washed down by sugared coffee or tea.  Folks who want to blame the "food pyramid" should read a cookbook from 1950.  Grandma didn't need a food pyramid to rely mostly on carbs; carbohydrates were what she could afford.

There is a really, really deep resistance to the idea that appetite is as powerful a modulator as it appears to be.  I can't help but believe that at least part of this is simply that thinness, especially for women, is tightly correlated with socioeconomic status and urban living, and nice upper middle class people who have been on a slight diet for most of their adult lives just cannot believe that a) this isn't making them healthier and b) it isn't making them better people.

But while a lot of what Paul Campos says is controversial, this isn't.  You can find the same results yourself by reading any study of weight loss:  outside of gastric bypass surgery, no system has ever produced any significant long-term weight loss.  None.  As Paul remarked to me once, "We've run this experiment approximately 220 million times and the result is always the same.  Why can't anyone believe it?"

His controversial assertions are about the correlation between weight and health, and the benefits of gastric bypass surgery.  I'll leave those for another day.  But even if he's entirely wrong about those things, we're still left with the core fact:  we have tried, and failed, for more than fifty years, to find a way to make people thinner.  Arguably, we should stop.  Certainly, we shouldn't count on any cost savings from controlling obesity to fund our future health efforts.  It is much more likely than not that obesity will stay the same, or get worse. 

America's Moral Panic Over Obesity

With health care in the news, everyone's looking for magic bullets to save money.  Obesity seems to be a growing favorite:  wouldn't it be great if we could make everyone look like Jennifer Anniston, and be cheaper to treat?  There are a lot of holes in this theory--the morbidly obese are very sick, but die young, while lower levels of overweight/obesity aren't so well correlated with poor health.  But still, the idea's power seems to be growing every day.

This week, Health Affairs published a new study showing that--quel surprise!--obesity accounts for an ever growing share of our health care costs.  They put the number at about 10%.  So I decided to ask Paul Campos, the author of The Obesity Myth, what he thought.  The book, which everyone should read, argues that the health benefits of losing weight are largely imaginary; that we are using "health" to advance our class bias in favor of thin people, particularly thin women.

Megan:  The CDC is sponsoring a conference on obesity this week. In conjunction with this, the journal "Health Affairs" just published a study showing that almost 10% of US medical costs may be due to obesity. As we're debating the costs of a public health care plan, controlling obesity is moving even further to the forefront of the American public health agenda. What should we think of this?

Paul: It's a terrible idea on all sorts of levels. There are three big problems with attempting to control health care costs by reducing so-called "obesity." First, it's a fake problem. Second, the solutions for the problem are non-existent, even assuming the problem existed. Third, focusing on making Americans thinner diverts resources from real public health issues.

Megan: Let's start with the first. If there's one thing that everyone in America knows, it's that being fat is really unhealthy. Why do you call it a fake problem?

Paul: The correlations between higher weight and greater health risk are weak except at statistical extremes. The extent to which those correlations are causal is poorly established. There is literally not a shred of evidence that turning fat people into thin people improves their health. And the reason there's no evidence is that there's no way to do it.

So saying "let's improve health by turning fat people into thin people" is every bit as irrational as saying "let's improve health by turning men into women or old people into young people". Actually it's a lot crazier, because there actually are significant health differences between men and women and the old and the young -- much more so than between the fat and the thin.

Megan: So why is the public health community so set on this issue as the major driver of our health care costs?

Paul: Because we're in the midst of a moral panic over fat, which has transformed the heavier than average into folk devils, to whom all sorts of social ills are ascribed.

Megan: Aside from rising health care costs?

Paul: Well according to the obesity mafia our kids are all going to die sooner than their parents, which sounds like a moral problem as well as one of health care costs. It's all complete nonsense. 

Megan: Do you think being overweight is a proxy for things that DO make a difference, like fitness?

Paul: It's a weak proxy, but yes it has some marginal significance. It's good to encourage people of all sizes to be active and avoiding eating disordered behavior (like dieting), but this isn't because lifestyle changes will make fat people thin people. They won't. I'd like to talk a little about the statistics if I may. 

Megan: Please! We're all about statistics here.

Paul: OK, the CDC honchos and the authors of this study you referenced are in hysterics because the obesity rate, so-called, has roughly doubled in the last 30 years. But let's consider what that actually means.

Obesity is defined completely arbitrarily as a body mass index of 30 or higher (175 pounds for an average height woman). Now body mass follows more or less a normal distribution, whiich means if the the mean body weight is in the mid to high 20s, which it has been for many decades now, then tens of millions of people will have BMIs just below and just above the magic 30 line. So if the average weight of the population goes up by ten pounds, tens of millions of people who were just under the line will now be just over it.

This might be meaningful if there was any evidence that people who have BMIs in the low 30s have different average health than people with BMIs in the high 20s, but they don't. At all. So the "obesity epidemic" is 100% a product of tens of millions of people having their BMIs creep over an arbitrary line. It's exactly as sensible as declaring that people who are 5'11 are healthy but people who are 6'1" are sick.

Adding to the absurdity of all this, people with BMIs in the mid to high 20s actually have the best overall health and longest life expectancy -- ,more so than those in the so-called "normal" BMI range.

Megan: So we can't save billions of dollars by making people thinner?

Paul: Consider the methodology of this study. It tried to calculate changes in health costs if everybody with a BMI over 30 had a BMI under 25. But leaving aside the preposterous assumption that all increased health risks associated with a level of body mass are caused by that level of body mass, the idea that somehow we could make fat people into thin people is bizarre.

A study like this isn't talking about turning 180 pound women into 165 pound women, which at least in theory might actually be possible. It's talking about turning 200 pound women into 130 pound women, on statistical average. The success rate for such attempts is about .1% Even stomach amputation does not turn fat people into thin people.

So even if it were true that we knew it would be beneficial to turn fat people into thin people (which we don't) it's not something we have any idea how to do. The statements in the study indicating that there are known methods for doing this are simply lies of the most egregious sort.

Now lets talk about excess health care costs. if you look at the study, nearly half of the excess health care costs associated with being fat are from higher rates of drug prescription. But why are fat people being prescribed more drugs than thin ones? Largely, because they have the "disease" of being fat, which is then treated directly and indirectly by prescription drugs!

For instance, statins. Statins are a multi-billion dollar business, but there's very little statistical evidence that they benefit the vast majority of people to whom they're prescribed. Basically the only people who have lower CVD [cardiovascular disease] mortality after taking statins are middle-aged men with a history of CVD.

But the heavier than average are prescribed statins at higher rates simply because they're heavier than average, even though there's no evidence this is beneficial for them. And of course this doesn't touch on the costs of all the treatments for "obesity" itself, which are uniformly ineffective.

Megan: You're saying that increased risks from being heavy come from--what? Having gained weight in the first place? Bad genetics? Or dieting?

Paul: As for where the increased risks associated with being heavy come from (such as they are), many of them come from weight cycling, which is clearly bad for people, and which is the outcome of 98% of diets. Others come from the stress and social discrimination generated by having what's considered an inapproprirate body in this culture. Others come from diet drugs, eating disordered behavior, poverty -- all things strongly associated with higher than avberage weight.

Megan: What about gastric bypass? The quoted figures for gastric bypass seem pretty impressive when doctors talk about them on television.

Paul: Gastric bypass is surgically induced bulimia. People starve for the first few months so of course their blood sugar levels go down. At five and ten year followup the average weight loss from these procedures is about 10% to 15% of body mass (it's actually less than that since lots of people drop out of the studies) which means most of these people end up still "morbidly obese." And they can never eat normally again.Why do you think you never see the actual stats for weight loss from stomach stapling? If they were good they'd be on billboards 50 feet high.

Megan: Those shows on TLC that basically invite the audience to gawk at fat people usually say they'll lose fifty percent of their excess body weight

Paul: If you put people on starvation diets, which is what these methods do, of course you'll get huge amounts of weight loss. Then most or all of it will be gained back, which among other things is a recipe for congestive heart failure. I'd love to do a "reality" show on the contestants on shows like The Biggest Loser three years down the road. But that would probably be a little too much reality.

Gastric bypass is the most radical method available for weight loss, and it basically doesn't work. Everything else is even less successful, though usually not quite as dangerous.

Megan: Over the last five years or so, I've noticed that public health efforts about obesity are not just amping up the volume, but exploring increasingly coercive methods to induce weight loss: taxes on junk food, lawsuits against fast food companies (which are basically a tax on junk food), and so forth. Does that match your analysis?

Paul: It's the classic pattern of moral panics. As public concern about the damage being done to the fabric of society by the folk devils increases, increasingly intense demands are made on public officials to "do something" about the crisis, usually by eliminating the folk devils.

That of course is the strategy for this crisis. If fat people are the problem, then the solution is to get rid of them, by making them thin people. The most amazing aspect of this whole thing, for me, has always been the imperviouusness of policy makers, and even more so people who consider themselves serious academics and scientists, to the overwhelming evidence that there's no way to do this.

I mean, there's no better established empirical proposition in medical science that we don't know how to make people thinner. But apparently this proposition is too disturbing to consider, even though it's about as well established as that cigarettes cause lung cancer. So all these proposals about improving public health by making people thinner are completely crazy. They are as non-sensical as anything being proposed by public officials in our culture right now, which is saying something.

It's conceivable that through some massive policy interventions you might be able to reduce the population's average BMI from 27 to 25 or something like that. But what would be the point? There aren't any health differences to speak of for people between BMIs of about 20 and 35, so undertaking the public health equivalent of the Apollo program to reduce the populace's average BMI by a unit or two (and again I will emphasize that we don't actually know if we could do even that) is an incredible waste of public health resources

Megan: The idea I'm hearing now is that we need to change the environment, but of course, if losing a great deal of weight actually makes you unhealthier, that might not save us any money. The other idea I'm hearing a lot more these days is that we have to Save the Kids: intervene when they're young so they don't get fat in the first place

Paul: So the strategies that have failed so spectacularly with adults -- tell them to exercise more, and eat less, and shame them about their weight -- will work with children. Because if there's one thing fat kids need, it's to be made to feel bad about feeling fat.

The current stigmitization of fat kids is essentially child abuse as government policy, and the people behind it are, as far as I'm concerned, either incredibly stupid or very evil or in some cases both.

Here's an idea: Stop harrassing people about their weight. Because it appears that focusing on the idea that being fat actually makes people fatter. At least there's an extremely strong correlation there. I bet if we stopped demonizing fatness people would actually be a bit thinner. They'd certainly be happier and healthier

Megan: What should we do instead if we want to reduce health care costs? Here are some proposed ideas I've heard:

• Taxes on soda
• New urbanism (make people walk more)
• Bring back physical education in schools
• Make gym memberships tax deductible
• Menu labelling.
  

 Will any of these make us healthier, if not thinner? And if not, what will?

Paul: Some of those ideas may have merit independent of whether they'll make people thinner (they won't). It's good to encourage physical activity, but NOT if the purpose of encouraging it is to try to make people thinner. Then it's counter-productive. People will be healthier if they're more active and don't smoke and if they avoid eating disordered behavior (like dieting in particular.

But Americans are actually very healthy and getting healthier all the time, despite the massive inefficiencies and dysfunctions of our health care system.

Megan: The problem is, almost no one actually does "healthy" activities to be healthy. If burgers made you thin, but clogged your arteries, I think 95% of the "healthy" eaters I know would consume one every day.

Especially since those people are generally young people with poor grasp of their own mortality. Eating "healthy" and then taking up free climbing doesn't make much sense.

Paul: Oh that's certainly true. The idea that people pursue thinness primarily for health reasons is laughable.

Megan: They often actually claim they don't care about being thin. It's just a happy side effect of their drive for health. Indeed, I'm sure I've made that claim myself more than once while on the quasi-permanent diet of the Upper West Side woman.

Paul: It's pretty much the opposite though. I know for a fact (because they've told me) that some public health officials engage in what they think of as a noble lie about the effects of physical activity on weight, because they know people won't become more active just to be healthier.

Megan: Is there any evidence this works? Don't people just stop going to the gym when they notice they haven't lost any weight?

Paul: Of course. People aren't dumb. They do the experiment, the experiment doesn't work in the vast majority of cases, so they quit until they get desperate again. Or (llke the upper West Side women) they stay on a permanent restricted lifestyle that the vast majority of people don't have the combination of willpower and social privilege to maintain. There's an important class angle here. Thinness is a sign of social status, and is to some extent a product of it, which is one reason -- probably the main reason -- why it's so prized, especially among women.

Megan: An economist recently pointed out that we don't encourage people to move to the country, even though rural people live more than three years longer than urban people, and the diffefence in their healthy life expectancy is even more outsized. Nor do we encourage people to find Jesus or get married. We target "unhealthy" behaviors that are already stigmatized.

Paul: Right, as Mary Douglas the anthropologist has pointed out, we focus on risks not on the basis of "rational" cost-benefit analysis, but because of the symbolic work focusing on those risks does -- most particularly signalling disapproval of certain groups and behaviors.In this culture fatness is a metaphor for poverty, lack of self-control, and other stuff that freaks out the new Puritans all across the ideological spectrum, which is why the war on fat is so ferocious -- it appeals very strongly to both the right and the left, for related if different reasons.

Megan: And now a convenient scapegoat for our health care costs: if we can just eliminate the folk devils, we can have a new national health care program, and more room on the bus, for free!

Paul: Yes it's a low-calorie free lunch.

Megan: If you were put in charge of reducing the costs of the new plan that we may or may not get, is there anything you would do?  Preferably instead of lecturing people about their avoirdupois?

Paul: One thing I've learned over the past 20 years of studying about four issues in great detail is that it takes an enormous amount of work to have a meaningful opinion on any complicated issue. I don't have anything useful to say about what sort of health care policy we ought to have, because I don't know enough about the subject. So I don't know what we should do in general. I do know what we should do about fat, which is to stop talking about it. If I were emperor I would ban scales from all homes (just kidding -- sort of)

Megan: Probably have a hard time getting that past Obama's proposed health commission.

Paul: Or anybody else's. I do want to mention that I think a huge factor in all this stuff is the desire to get the next generation of diet drugs through the regulatory pipeline. That's the goose that will lay the golden eggs for so many interested parties.

Megan: Well, here on the east coast, it's lunch time, so I'll let you go. Thanks for talking with us.

Incentives Matter

Does health insurance make you fatter?

Department of Awful Statistics

News flash:  Bill O'Reilly is not very bright.

Last night on the O'Reilly Factor, Bill turned to the audience letters. From Peter in Canada: "Has anyone noted that life expectancy in Canada under our health system is higher than the USA?" Bill wasn't phased, but he did use some creative math to answer. "Well Peter, that's to be expected," he said, "we have ten times as many people as you do!"

There is actually an interesting point here:  up to a certain point, population density decreases your life expectancy quite dramatically.  But I'm pretty sure that Bill O'Reilly was not making that interesting point. I'm pretty sure he was saying something incredibly innumerate.

Real Estate Moment of the Week

A 3 bedroom 2 bath house with "rehab potential" in a fringe area, listed for $1,000,000.  Shockingly, it's stayed on the market for nearly a year!

Mental Health Break

Things you can learn on an ER rotation.

Stay away from people named "Some Guy" or "This One Dude", because they for whatever reason, just punch someone in the face or hit them with a crowbar and run off. If I see them on the street, I cross the street to get away from them.

never leave your last refill of percocet in plain site after your docs office closes if one of these 3 friends is coming over for dinner:

1. some dude
2. my friend
3. that bitch

A Long, Long Post About My Reasons For Opposing National Health Care

I know, most of you have already figured out why I oppose national health care.  In a nutshell, I hate the poor and want them to die so that all my rich friends can use their bodies as mulch for their diamond ranches.  But y'all keep asking, so here goes the longer explanation.

Basically, for me, it all boils down to public choice theory.  Once we've got a comprehensive national health care plan, what are the government's incentives?  I think they're bad, for the same reason the TSA is bad.  I'm afraid that instead of Security Theater, we'll get Health Care Theater, where the government goes to elaborate lengths to convince us that we're getting the best possible health care, without actually providing it.

That's not just verbal theatrics.  Agencies like Britain's NICE are a case in point.  As long as people don't know that there are cancer treatments they're not getting, they're happy.  Once they find out, satisfaction plunges.  But the reason that people in Britain know about things like herceptin for early stage breast cancer is a robust private market in the US that experiments with this sort of thing.

So in the absence of a robust private US market, my assumption is that the government will focus on the apparent at the expense of the hard-to-measure.  Innovation benefits future constituents who aren't voting now.  Producing it is very expensive.  On the other hand, cutting costs pleases voters this instant.  This is, fundamentally, what cries to "use the government's negotiating power" with drug companies is about.  Advocates of such a policy spend a lot of time arguing about whether pharmaceutical companies do, or do not, spend too much on marketing.  This is besides the point.  The government is not going to price to some unknowable socially optimal amount of pharma market power.  It is going to price to what the voters want, which is to spend as little as possible right now.

It's not that I think that private companies wouldn't like to cut innovation.  But in the presence of even rudimentary competition, they can't.  Monopolies are not innovative, whether they are public or private.

Advocates of this policy have a number of rejoinders to this, notably that NIH funding is responsible for a lot of innovation.  This is true, but theoretical innovation is not the same thing as product innovation.  We tend to think of innovation as a matter of a mad scientist somewhere making a Brilliant Discovery!!! but in fact, innovation is more often a matter of small steps towards perfection.  Wal-Mart's revolution in supply chain management has been one of the most powerful factors influencing American productivity in recent decades.  Yes, it was enabled by the computer revolution--but computers, by themselves, did not give Wal-Mart the idea of treating trucks like mobile warehouses, much less the expertise to do it.

In the case of pharma, what an NIH or academic researcher does is very, very different from what a pharma researcher does.  They are no more interchangeable than theoretical physicists and civil engineers.  An academic identifies targets.  A pharma researcher finds out whether those targets can be activated with a molecule.  Then he finds out whether that molecule can be made to reach the target.  Is it small enough to be orally dosed?  (Unless the disease you're after is fairly fatal, inability to orally dose is pretty much a drug-killer).  Can it be made reliably?  Can it be made cost-effectively?  Can you scale production?  It's not a viable drug if it takes one guy three weeks with a bunsen burner to knock out 3 doses.

Once you've produced a drug, found out that it's active on your targets, and produced more than a few milligrams of the stuff, you have to put it into animals, then people.  Does your drug do anything in animal studies?  Does it do too much, like, say, killing the patient?  How about humans?  Oral dosing is just the start.  Does your drug actually get somewhere after it's swallowed, or do the stomach/liver chew it up?  Is there any way to wrap it in a protective package long enough to let it reach its target?  Do clinical trials show efficacy compared to placebo, or other drugs?  How big is the market (in other words, how many people want it, how badly, and how much of an improvement is your drug)?

This is the stuff academic pharma doesn't do, and as you can see, without it, you don't have a drug; you have a theory.  What the NIH does is supremely valuable.  But so is all that "useless" effort at the pharmas.

Now, maybe government institutions could be made to produce innovations; I certainly think it's worth trying Dean Baker's suggestion that we should let the government try to set up an alternate scheme for drug discovery.  Prizes also seem promising.  But I want to see them work first, not after we've permanently broken the system.  The one industry where the government is the sole buyer, defense, does not have an encouraging record of cost-effective, innovative procurement.

At this juncture in the conversation, someone almost always breaks in and says, "Why don't you tell that to an uninsured person?"  I have.  Specifically, I told it to me.  I was uninsured for more than two years after grad school, with an autoimmune disease and asthma.  I was, if anything, even more militant than I am now about government takeover of insurance.

But you can also turn this around:  why don't you tell some person who has a terminal condition that sorry, we can't afford to find a cure for their disease?  There are no particularly happy choices here.  The way I look at it, one hundred percent of the population is going to die of something that we can't currently cure, but might in the future . . . plus the population of the rest of the world, plus every future generation.  If you worry about global warming, you should worry at least as hard about medical innovation.

The other major reason that I am against national health care is the increasing license it gives elites to wrap their claws around every aspect of everyone's life.  Look at the uptick in stories on obesity in the context of health care reform.  Fat people are a problem!  They're killing themselves, and our budget!  We must stop them!  And what if people won't do it voluntarily?  Because let's face it, so far, they won't.    Making information, or fresh vegetables, available, hasn't worked--every intervention you can imagine on the voluntary front, and several involuntary ones, has already been tried either in supermarkets or public schools.  Americans are getting fat because they're eating fattening foods, and not exercising.  How far are we willing to go beyond calorie labelling on menus to get people to slim down?

These aren't just a way to save on health care; they're a way to extend and expand the cultural hegemony of wealthy white elites.  No, seriously.  Living a fit, active life is correlated with being healthier.  But then, as an economist recently pointed out to me, so is being religious, being married, and living in a small town; how come we don't have any programs to promote these "healthy lifestyles"?  When you listen to obesity experts, or health wonks, talk, their assertions boil down to the idea that overweight people are either too stupid to understand why they get fat, or have not yet been made sufficiently aware of society's disgust for their condition.  Yet this does not describe any of the overweight people I have ever known, including the construction workers and office clerks at Ground Zero.  All were very well aware that the burgers and fries they ate made them fat, and hitting the salad bar instead would probably help them lose weight.  They either didn't care, or felt powerless to control their hunger.  They were also very well aware that society thought they were disgusting, and many of them had internalized this message to the point of open despair.  What does another public campaign about overeating have to offer them, other than oozing condescension?

Of course, the obese aren't the only troublesome bunch.  The elderly are also wasting a lot of our hard earned money with their stupid "last six months" end-of-life care.  Eliminating this waste is almost entirely the concern of men under 45 or 50, and women under 25.  On the other hand, that describes a lot of the healthcare bureaucracy, especially in public health.

Once the government gets into the business of providing our health care, the government gets into the business of deciding whose life matters, and how much.  It gets into the business of deciding what we "really" want, where what we really want can never be a second chocolate eclair that might make us a size fourteen and raise the cost of treating us.

I realize that to most people, these are airy-fairy considerations that should be overridden by the many "practical" considerations of the awesomenes of central health care.  Well, I'm actually pretty underwhelmed by that awesomeness, for reasons I'll happily elaborate elsewhere.  But not here, because fundamentally, to me, the effect on the tax code and the relative efficiency of various sorts of bureaucracy are mostly beside the point.  The real issue is the effect on future lives, and future freedom.  And in my opinion, they way in overwhelmingly on the side of stopping further government encroachments into health care provision.

Quote of the Day

My thoughts exactly:

On the 47 million people without health insurance point, that too is a statistic where there is less than meets the eye. First, health insurance does not equal health care (there are not just emergency rooms but cash-based clinics, and conversely, a lot of people with insurance don't get good health care). Second, of that 47 million, 14 million are already eligible for existing programs (Medicare, Medicaid, veterans' benefits, SCHIP) yet have not enrolled, 9.7 million are not citizens, 9.1 million have household incomes over $75,000 and could but choose not to purchase insurance, and somewhere between 3 and 5 million are uninsured briefly(<2 months) between jobs. That leaves about 10 million Americans who are chronically without insurance. Needless to say, extending the blanket of coverage to this group should not cost $1.5 trillion and require a wholesale overhaul of all of medicine.

Credible Threats and the Homeless Population

On first glance, you'd think that New York has suddenly been taken over by hard-nosed Republicans.  The government has just made it considerably easier to kick homeless families out of shelters.

A budget cutting move by desperate finance officers?  A conservative smack at freeloaders?  Hardly.  This is done to help the people running shelters--aka folks who've devoted their lives to helping the homeless.  I was pleasantly surprised to find my old boss from the homeless-helping nonprofit I once worked for quoted in the article:

Several nonprofit shelter providers, who asked not to be identified because they feared retaliation from the administration, said that they did not intend to evict any families from shelters.

But others said they were grateful for the ability to threaten the most difficult families with ejection.

"If you need a big stick now and then, for certain families, so be it," said Richard Motta, the president and chief executive of Volunteers of America of Greater New York, which runs three family shelters.

The lack of such a threat was a problem, Mr. Motta said.

"There's not a caseworker alive that wants to realize that threat, and as an agency, we don't want to move people to the streets," he said. "That's not what we're in business to do. But if you enter the shelter, if you know there's a threat of being put out of the shelter, you'll be more likely to follow the rules."

Though I doubt he remembers me (I was his secretary for something like six months), I can personally attest that Richard is a very, very nice man, who cares deeply about helping the homeless.  So why does he want to kick them out of the shelter?  Because families in crisis are sometimes in crisis because the head of household, or an older child, has a severe behavior problem.  That minority can make life unbearable for the majority.  They can also make life miserable for themselves, and facility managers would like to be able to open slots for new intakes by forcing refractory long term residents to, say, apply for jobs, or move into subsidized housing.

The point is not to ever exercise this threat.  Rather, it's to make sure they don't have to.  If a family knows they can't stay in temporary shelter forever, they'll be more motivated to follow the rules, and help get themselves back on their feet.  Without that, a dysfunctional minority can choke the system.

Why Marriage?

Why are we getting married?  ask commenters.  Why not simply live together, and avoid the tax hit?

Well, it's outre, I know, but I sort of believe in marriage.  I believe in the act of committing for life to another person.  I believe in the power and the joy of facing your life as a team.  I think you can have a very happy, fulfilled life without being married, and before I met Peter, I was preparing to.  But my life is even happier and more fulfilled with him.  So naturally, I want to start building that life as Team McSudelman.

There's a reason for the social role of "spouse".  And there's a reason for all of the legal and social systems that have grown up around that role:  they reinforce and strengthen it.  It would be much harder to do many of the things we want and intend to do, for and with each other, without that useless little piece of paper.

But more to the point, once we'd decided to do what spouses do, why wouldn't we, well, become official spouses?  Just because I enjoy akward five-minute conversations about how my "partner" is a he, not a she, and you know, we really love each other, but we just don't believe we need society's ratification . . . I don't, I assure you.  And I'm happy to have society's ratification.  Celebrating our marriage will be one question upon which society and I agree 100%.

There are tax consequences for couples whose incomes are roughly equal, as one commenter pointed out. But we are, sadly, not in the happy position of having dual half-million-dollar salaries we need to shelter from the grasping tax man.  Besides, marriage is not an investment strategy.  And I suspect that the more you treat it like an investment strategy, the less likely it is to work.

I mean if domestic partnership is working for you, I'm happy for you.  But when I thought about the reasons not to get married, they mostly boiled down to an instinct for contrariness.  I don't need to put myself through a bunch of legal hassle and domestic partner registration just to prove something to Jerry Falwell and my eighth grade history teacher.

The Real Mechanism

I'm in favor of calorie labeling on menus--unlike some of the more, er, committed libertarians, I don't believe in a very significant right not to know things that make you uncomfortable with your decisions.  (I'm also in favor of encouraging women considering abortions to look at sonograms).  However, I'm pretty skeptical that they'll do much good, for reasons that I outlined last week:  appetite is more powerful than willpower for almost everyone.  If you skip the donut, you'll eat four apples or an extra slice of bread with dinner.  We've required nutritional labelling on food in the supermarket for decades, and this has not exerted any noticeable downward pressure on America's waistlines, even though grocery shoppers are less likely to be having a "splurge".

And this, from Ezra Klein, doesn't make any sense:

Restaurants know that consumers have no effective way of comparing the caloric content of meals. Diners know, of course, that a burger is worse for you than a banana. But eggs cooked in a vat of butter look like eggs cooked in very little butter. A salad with a dressing that adds 600 calories looks like a salad with a dressing that adds 300 calories. People return to restaurants for taste and price and ambiance, because that's what they can measure. So restaurants jack up the caloric content pretty heedlessly.

If menu labeling is passed, however, and consumers exhibit any preference toward relatively less fattening items, that creates an incentive to reformulate those items to be less fattening. California, which recently passed a labeling law for restaurants with more than 20 locations, is seeing this happen. The Macaroni Grill, for instance, just cut its scallop and spinach salad from an astonishing 1,270 calories -- do they grow the spinach in butter? -- to 390 calories. Denny's has slimmed down its Grand Slam breakfast. And the law hasn't even gone into effect yet.

But this is exactly the response we'd expect. The Macaroni Grill's example is a good one. Ordering the spinach and scallop salad is the sort of thing that you'd do if you were watching your calories. But since you didn't actually know how many calories were in the dish, the Macaroni Grill could make it delicious and filling and fatty and you really weren't any the wiser. That made the Macaroni Grill more attractive to healthy eaters even as it was actually tricking them. Now customers will know the caloric content, and so the Macroni Grill reformulated the dish so it's more in line with diner preferences.

If people weren't going to act on the labelling, Macaroni Grill wouldn't be changing its menu.  I doubt they'd be rejiggering their kitchen staff if California passed a law requiring restaurants to publish the name of the workers who made my salad, because that wouldn't change my behavior.

That said, I doubt this is going to have more than a very limited impact on either diner or restaurant behavior.  Obsessing about the calories in your food is an activity largely limited to high SES people.  That's especially true of men:  constant worrying about weight has crept down the female half of the income distribution, but affects perhaps the top 10-20% of males.

Those are the people most likely to . . . order a scallop and spinach salad at Macaroni Grill.  But they're also the most likely to check calories on the website.  And they're the most likely to already be thin.  The people ordering the four-cheese ravioli probably aren't under the misimpression that this is going to make them thin.

Moreover, I bet that after Macaroni Grill reformulates its scallop and spinach salad, more people start ordering heavier entrees, because they suddenly notice that they're still hungry after they eat the salad.  As we've proven over and over and over again with every fake sweetener and imitation fat, you may fool the eyes . . . you may even fool the taste buds . . . but the body knows.  And it almost always gets what it wants in the end.

It's Adverse. But Is It Selection?

I'm afraid we're all just going to have to adjust to the fact that it's going to be All Healthcare, All the Time until the August recess.

So:  onto adverse selection.

Adverse selection is the idea that information asymmetries in markets can lead to sub-optimal outcomes.  Say 30% of all used cars are lemons that will cost you a fortune to repair.  A new car is worth $10,000 while a good used car is worth $5,000, but a lemon is only worth $1,000, because of the repairs.

The problem is, you can't tell which cars are lemons.  So you won't be willing to pay $5,000.  You might be willing to pay more like $3,500, which compensates you for the risk.  But the owners of the good cars will not wish to sell them at such a steep discount.  The owners of the crap cars, however, will leap at the chance to unload them for such a great price.  The percentage of lemons in the market goes up to 50%.  You demand a bigger discount to compensate you for the higher risk; now you'll only pay $2,500.  More owners of high-quality used cars decide to keep them rather than buy a new one.  The percentage of lemons rises to 70% . . .

You can see where this is going.  And, presumably, how it might apply to insurance markets:  you end up with a pool of very sick people who cost a lot to cover.  This (along with a lavish schedule of mandatory benefits) is arguably why health insurance in New York State costs so much.

Adverse selection is a favorite explanation of why markets for health care can't work, and health care therefore needs to be provided by the government.  Often, the proponents of this theory add a wrinkle:  insurance companies spend huge amounts of money on trying to keep from treating people.

Alex Tabarrok points out a hole in this theory:

If insurance companies do avoid covering people who are "likely to need care," this suggests that the uninsured are unhealthy.  But 60% of the uninsured are in excellent health (Table 10) (In fact, overall the uninsured are only slightly less healthy than the insured).

Henry Farrell voices the objection that immediately occurred to me.

But the statement '[Insurance companies] try to avoid covering people who are actually likely to need care' very obviously does not imply the statement 'All uninsured people are being refused coverage because they have expensive conditions.' The logical connection between the two implied by the 'contra Paul' bit is not, to put it mildly, clear to me. As a result, I am not sure what Alex's actual point is. Is he suggesting that the incentive problems that Paul identifies are in some sense unimportant?

But on reflection, I think Henry and I were wrong.  I was very surprised to follow through to the table Alex Tabarrok links (from the Kaiser foundation, hardly a right-wing advocacy group) and find out that the percentage of the uninsured* who are in "fair" or "poor" health really isn't much larger than the percentage of the insured in those categories:  10.3% of the uninsured, versus 8.4% of the insured. 

That is surprising because we would expect the uninsured to be sicker than the general population, even if the insurance companies were doing nothing to weed out the sick.  Being uninsured is correlated with other things that are strongly correlated with poor health:  being born in another (poorer) country; being too sick to work full time; little education; low SES. 

Of course, it's also true that the population of the uninsured is correlated with something that's also correlated with good health:  being young.  But then, this sort of undercuts the adverse selection argument, and also the moral imperative of giving them health insurance.  If you could reasonably afford health insurance by dropping down to a lower-priced cell phone plan and cutting back on your bar tab, you are not a national emergency.

So for the nonce, let's ignore all those confounding factors, and assume that without virulent machinations by the insurance companies, the population of the uninsured ought to mirror the population of the insured in health status.  How many people are being pushed out of the insurance market because of their poor health status?  It can't be many; there are only 4.6 million people without health insurance who report poor or fair health status.  And not all of those people are very sick.  I'd be hard pressed to call my health better than fair because of my asthma and my Hashimoto's Thyroiditis.  But neither of those diseases costs my insurance company, or me, much.

If there were no evil insurance companies involved, what would those percentages look like?  A slightly higher percentage of the insured market would report fair health, and a slightly lower percentage of the uninsured market.  But the difference would be less than 1 million people: 0.3% of the US non-elderly population, and 0.2% of the total population.

What this means is that even if this is a problem, it is not a big problem.  You don't gut rehab the US health system because of a "market failure" affecting a small fraction of one percent of the population.

Of course, as Alex notes, that doesn't mean that uninsured sick people aren't a problem.  But as both he and Tyler have pointed out, they seem more likely to be a distributional problem than a market failure.  In other words, the problem is not that the market cannot provide them insurance; the problem is that they don't have the money to buy it. 

This seems meaningless, a distinction without a difference, to most people.  But in fact, distributional problems and market failures call for very different kinds of solutions.  You fix distributional problems with cash or vouchers.  You fix market failures with regulation or some other form of intervention.

Now, arguably, there could be a market failure that is being fixed by existing government interventions:  regulations preventing insurance companies from ripping off customers; government programs to cover the indigent, which take care of those who have become too sick to work.  But I have to agree with Alex; the empirical data does not seem to back up the notion that there is a large and persistent selection problem in current markets.

Reputation and Insurance

Bryan Caplan offers an interesting take on the debate over health insurers and their allegedly bad incentives:

Here's an argument even I've found seductively appealing:

The problem with free-market health insurance is that if a customer develops a truly serious health problem, his insurance company will try very hard to weasel out of the contract.  At best they'll deliberately give poor service to the people who need it most, because they know that none of their competitors want to poach customers with serious pre-existing conditions.  At worst, they'll claim that you broke the contract somehow, and hope you die before your lawsuit gets to a jury.

It seems plausible, no?  If your condition is truly catastrophic, won't profit-maximizing health insurers struggle to "contain their costs" at your expense?

The problem with this argument is that it proves far too much.  The same argument applies to life insurance and home insurance.  You dutifully pay your premiums for years.  Then you suddenly die, or your house burns down.  What's a profit-maximizing insurer to do?  Say you died or the house burned down because you were smoking in bed, of course!  Can you prove otherwise?

Yet in practice, people almost never complain about disingenuous disputes with life or home insurers.  Why not?  The obvious explanation is that life or home insurance companies that shirk their responsibilities hurt their reputation.  It might seem profitable to reject expensive claims, but in the long-run, an insurance company that mistreats its expensive customers is going to have trouble attracting any customers at all.  After all, what's the point of buying insurance from a company that won't pay when you need it most?

So why would the reputational argument be any less convincing for health insurance?  I wouldn't choose an insurer that was known to abuse or abandon its sickest customers.  Would you?  And why would word of mouth, advertising, and other conduits of reputation be less potent here than in other lines of insurance?

This is interesting, but I'm not sure it's quite right.  I had originally thought that the main problem was that you need ongoing interaction with the company--once you've gotten cancer, you're effectively unable to obtain private insurance. But I think the real problem is monitoring.  The payouts for a life or homeowner's insurance policy are for discreet and generally agreed upon events:  your house burns down, you die.  There is occasional fraud on the customer side, and occasional chiseling on the insurance company side, particularly when they're planning to exit the business (witness the arguments over whether Katrina damage was from wind or water, since only one of the two was an insured event.)  But mostly firms pay out because we know, and they know, what has occcurred and what the appropriate remedy is.  Moreover, the payout is roughly known in advance.

But in health care, it's hard to measure inputs, much less outcomes.  Difficult-to-diagnose conditions abound.  Once you are diagnosed, deciding what constitutes an acceptable standard of care from your insurance company is fraught.  Even if you agree, people frequently get the legislature, or the newspapers, to intervene on their behalf.  New treatments are invented, old ones are found to be ineffective.  You pretty much can't write a solid contract.  So it's not really surprising that costs tend to billow out of control, and people get angry when their insurers try to rein them in.

It's Official

Nate Silver proves scientifically that the only thing Arlen Specter stands for is re-election.  Bonus:  he appears to have made Pat Toomey actually competitive in the general race, which certainly wouldn't be true normally.

This may give pause to those who are advocating that the Democrats "discipline" the Blue Dogs.  Many of them are in districts that lean Republican much more firmly than Pennsylvania has swayed left.  A primary challenge from the left would be a sad joke.

The Value of Transparency

I know I said I wasn't going to blog about wedding planning.  It turns out that this was a lie.  The economics of the thing are just fascinating.

First rule:  there are no awesome bargains, particularly in DC.  If you want to save money on the catering, you have to rent a venue . . . and the venues price accordingly.  No one in DC has a back yard which serves as reasonable competition for a wedding, and hello, price inflation!

(Why are you getting married in that pricey hellhole, I hear you cry.  My hometown is Manhattan.  Peter's hometown is on Florida's Emerald Coast. These are not noticeable price improvements, particularly when you factor in travel to, like, meet vendors and taste the food.  Now, if one of us had been born in Topeka, we could have a slammin' hometown wedding on a thin budget, but there you are.)

Second rule:  transparency is not at a premium in the industry.  They strenuously try to hide their prices from you until you they can get you into the shop and strenuously imply that a wedding without 4,000 calla lilies won't make you feel really married.

Since Peter and I are a) journalists and b) in agreement with each other and our families that we are not going to spend any sum that might reasonably function as the downpayment on a house, I don't want to waste time talking to vendors who cannot deliver on our budget. So especially in the case of caterers, if you don't have a menu--with prices--on your website, you don't get a call from us.

I am wondering whether this is leading to greater transparency--and thus price competition--in the industry.  I suspect that it's probably just segmenting the market.  High end caterers who don't want to listen to Peter and I whine that we really can't afford to pay one squillion dollars a head even if it is hand-picked Argentinian moss in the garnish, will continue to rely on word of mouth and the society pages.  The ones who cater to a more, er, thrifty audience, will put up packages and prices . . . and probably see their margins competed downward. 

Which is rough.  Most brides feel that the caterer must be raking it in . . . $100 a head for a few itty-bitty hors d'oeuvres and a piece of steak?  But my mother was a caterer for a while, and once you've factored in things like staff, insurance, inventory, spoilage, downtime, and so forth, those margins start to look pitifully thin.

All that said, the one thing I actually have bought so far, the wedding dress, turned out to be a joy.  I read all the horror stories about bridal salons, and the way they thwart competition and exploit you at every turn for "extras" like fittings, alterations, and ironing the dress.  Labels (illegally) scissored out of dresses and photos forbidden so you can't comparison shop.  Industry mags that tell them how to manipulate you into a sale.  No one allowed to look at the dresses, which have to be pulled by a "consultant" to insure that you don't spy one cheaper than your budget that you might like.

Then while I was at my family reuinion in western New York, I stopped in at this shop, which is run by my first cousin once removed.  It's friendly rather than fancy.  The racks are open, the dresses are reasonably priced, and all the alterations are included.  I tried on half the dresses in the store, and bought the one that Janice picked out--which was one of the mid-priced dresses.  I slept on the purchase with no hassle.

I have no idea whether this experience is typical, but I'm not quite as suspicious of wedding vendors as I was a few weeks ago.  I suspect this may cost me somewhere down the road . . .

Department of Non-Leading Indicators: Special Health Care Reform Edition

Rasmussen has Obama's disapproval ratings at 51% for the first time since he took office.  But then, Rasmussen runs much more conservative than other polls.  But then again, Rasmussen surveys likely voters, who matter more to electoral problems than other types of polls.  Surveys of registered and likely voters both show more hostility to Obama than the "whoever picks up the phone" kind.  Conclusion:  Doubt Obama's numbers are really that low, but the fact that Rasmussen could get that result does not bode well; all his polls have dropped in recent weeks, and now put his ratings just about where George W. Bush's were at this stage of his presidency.

Waxman is reportedly considering a sort of House nuclear option to bypass the Blue Dogs on his committee and take health care to the floor.  This strikes me as posturing rather than a real threat; what would be the point of bringing it to the floor only to have the Blue Dogs vote against it?  The president and the Democratic leadership have far more to lose, politically, from the bad PR than the Blue Dogs do.

Obama's spokesman says he wants to wrap this up by the end of the year, and says the main thing in DC is to make progress.  Presumably, they're afraid to set any real deadline, for fear they'll slip it.

Something called "health care reform" still feels very likely--but a lot more evitable than it seemed a few weeks ago.

Moral Quandaries that Aren't

Roy Edroso unctuously asks for someone to defend the Brooklyn chap who was just arrested for selling organs.  I'd rather see him justify not paying for kidneys, when this is the result of the shortage.  Justify driving organ sales to the black market, where the brokers get rich, the sellers get a pittance, and only the rich can afford them, rather than taking the money we currently spend on dialysis to compensate those who are willing to help provide the gift of a dialysis-free life to others.  Bonus question:  explain why we should prevent people from voluntarily donating a kidney when living kidney donors do not appear to have an elevated risk of kidney failure without resorting to any of the following

1. Huffy declarations that anyone who disagrees with you must be amoral
2. Appeals to the fact that many other people are also against organ donation
3. Invoking the infamous "ick" factor involved in selling a body part

Extra credit:  do all of the above, to someone on longterm dialysis who is legally prevented from buying an organ, or having the government buy one for her.

Double extra credit:  prove that we don't need no stinkin' market by voluntarily donating your own kidney for the sheer joy of helping others.

As for the chap in Brooklyn:  he broke the law.  I'm against that, even if the law is stupid, which is why I dutifully sign for my sudafed, instead of breaking into the pharmacy after hours.  On the other hand, the law seems grotesque to me, possibly near the level where one has a duty to break it.  On the third hand, he's clearly not acting out of any sense of moral duty.  But I'm not going to celebrate the fact of one less live kidney donation in the world, even if the person who gets stuck on the machine is affluent and thus presumptively deserves it.

What are You Saying, Paul?

Paul Krugman on Obama on health care:

The initial reaction of the cable talking heads was that Obama blew it because he didn't couch his argument in terms of personal anecdotes, Reagan-style. Then, when it was pointed out that he did, in fact, offer a number of specific examples of people harmed by our current system, the whine became that he didn't give their names.

Now, it's true that George Bush liked to give names of people who would benefit from his tax cuts; but Ronald Reagan's anecdotes -- about, say, the Cadillac-driving welfare queen -- generally didn't name names. And there was a good reason for that: with rare exceptions, Reagan's folksy anecdotes weren't true.

Is Health Care Reform Falling Apart?

I find it hard to believe that Congress is going to get a good, substantive bill passed before the August recess.  The leadership will not bring it to the floor unless it is basically guaranteed to pass.  That means either buying people off with increasingly expensive giveaways, and then letting Republicans run ads in Blue Dog districts asking about the budget deficit, or a considerable amount of lengthy log-rolling and arm-twisting.  Meanwhile, all Democrats who are afraid to vote for it have to do is . . . stall.

Ezra Klein makes a persuasive case that they need to deliver health care reform for the party's survival, and thus their own electoral fortunes:

Minnick represents Idaho's 1st District. He took office in 2008, after squeaking by the Republican with 50.6 percent of the vote. According to The Washington Post's vote tracker, he's the least reliable Democrat in Congress, voting with his party a mere 65 percent of the time. The question is, what should Minnick do?

The place to start, it seems, is to ask how Minnick won. And there the story is clear: He was carried in on the Democratic wave that washed through Congress in 2006 and 2008. His district is heavily Republican. But disgust with the Republican Party let him eke out a win in 2008. Minnick, however, is exactly the sort of marginal congressman who is likely to be turned out of office if voters turn against the Democrats. And they will do that if the tide turns against major Democratic initiatives and health-care reform fails and Barack Obama begins to seem less popular and Democrats like Minnick begin to distance themselves from the party.

Minnick is thus in a tricky position: His district will always be more conservative than the Democratic Party. But he needs them to not hate the Democratic Party so totally that they will vote for any Republican who runs against the specter of Obamacare. He needs, in other words, for Democrats to be successful even as he appears independent of them.

There's another former congressman who was frequently associated with the centrists and who learned this lesson rather well. Before Rahm Emanuel was Barack Obama's chief of staff, he was in Congress trying to get guys like Minnick elected. In September of 2007, he gave an interview to Politico on the lessons he learned from 1994. "You've got to have a plan for universal coverage," Emanuel said. "But you also have to have some product at the end of the process you can deliver." You may not win, in other words. But you cannot fail to pass a bill.

Emanuel has carried that lesson with him into the Obama White House. "The only thing that's not negotiable is success," he likes to say. The worst outcome for the party -- in part because it's the worst outcome for its marginal members -- is defeat. Voters punish defeat. That's what happened to Minnick's Democratic predecessor in Idaho's First District, Larry LaRocco. LaRocco captured the seat in 1990 only to lose it in 1994, the last time Democrats failed to sign a health-care reform bill. It's possible, of course, that LaRocco would have lost his seat with or without health-care reform. But it's evidence that a bill not passing was not a great outcome for Idaho's lonely Democratic congressman. If you're a centrist in a district that doesn't like Democrats and events turn your constituents further against your party, your odds of survival are very poor.

Ezra may be right.  But I'm not sure.  For one thing, this assumes that everyone in Minnick's district admires the Democrats for passing national health care.  But let me propose a couple of alternative scenarios.  One is that basically center-right districts elect Democrats because the Republicans did things they didn't like:  raising taxes, raising spending, getting into costly wars in the Middle East that don't go so well.  When a national health care program passes, this reminds them that delivering a gigantic raspberry to the GOP has a price.  Another is that the health care plan passes, the mid-session budget review delivers the bad news that we're missing a few more percent of GDP, Republicans start running effective ads in your district about hog-wild Democratic spending.  Maybe five years down the road everyone in your district is won over, but meanwhile, you, Congressman Minnick, are back to hawking shrubbery at the SummerWinds Garden Centers.

These are not precisely unlikely scenarios in the heavily Republican 1st Idaho.  Congressman Minnick might well be better off distancing himself from his party and trying to ride the incumbents advantage into a second term.  Best case scenario might be that your party doesn't do anything to piss the voters off; second best is that they do, but you vote against it.  Neither bodes well for the bill.

That doesn't mean that Obama won't pass something.  I am pretty sure that something called "health care reform" will go through Congress and be signed.  But I am increasingly sure that it will be a very bad bill--larded with pork and inefficiency in order to bribe districts like Walt Minnick's into keeping him in office.

Green Shoots . . . from 1930

I've linked the News from 1930 blog before, but it remains fascinating . . . and eerily familiar.

Market opened at about the previous low levels with some further decline; increasing resistance to bear efforts as the morning progressed; rallies developed in recent trading favorites. Good news on steel encouraged bulls, as well as rumors of important operators "lining up their forces for another bullish demonstration;" rally broadened in the afternoon. Good rebounds from Monday lows in many majors. Banks and trusts higher.

Administration members reported telling Wall Street that business has turned corner, and should curve slowly upward until winter, becoming clearest in October. No forecast beyond that ventured. However, administration strenuously denies rumors of using "its influence to bring about organized support for the stock market."

Irving Trust July review says we may be entering "ultimate pit of the depression;" sees mostly bad news in June, including declines in most lines of business, lower commodity prices, stock market declines, and possible tariff reprisals. Nevertheless, advises remembering that "It is always darkest before dawn."

Sentiment improved by market support yesterday. Conservative observers still advise buying on dips and selling rallies, but if market can get above previous resistance, would be considered confirmation of uptrend and convert many observers to the bull side.

Banks reported deposit increase by $257M in past week, to $21.317B; most of money not employed; increase of $37M in loans and $82M investments.

Rail freight loadings for week ended July 12 were 915,985 cars, down 150,429 from 1929 and 108,940 from 1928, but up 123,844 from July 4 holiday week.

US Steel production in past week was almost 64% vs. 63% prev. week and 55% holiday week; industry was 57.5% vs. 57% and 48%.

Developing consensus among brokers is that market is in general uptrend with occasional downward reactions. Advise gradually buying high-grade stocks for investment, advise traders to buy on dips and sell on rallies. Enough bears still around "to make trouble when the market begins to show signs of wavering."

Technical analysis: Next week is crucial to determining whether the current rally was due to fundamental factors or just technical. As of last Friday market had recovered about 50% of the June break. Bear test on Saturday and Monday then wiped out about a third of the rally gains. New support yesterday was encouraging; if market continues up, this indicates rally is due to fundamental reasons (increased business confidence).

Current month is the anniversary of the business slowdown; October will be anniversary of the stock decline. "Every succeeding day means we are just that much nearer a definite turn for the better." Meanwhile a Canadian broker points out: In the 1907 panic March 14 was the low, and the nearest low afterwords was 224 days later. Likewise in the 1929 panic, Nov. 13 was the low and the nearest low afterwords was 224 days later (on June 25)!

Meatpacking industry sales first 5 months sales $5.083B, almost as large as last year. Packing stocks in a rut thanks to low profit margins.

Machine tool market still dull, but thought to be at bottom; sentiment improved.

So How'd That Obama Presser Go?

Here's one indicator that doesn't look so good:  my Google News feed around 7 am this morning.


That's how a machine ranked the stories, based on reader response.  The Gates story is sucking up the public's very limited attention span for health care.

I was already pretty skeptical that this was going to do much good.  Outside of elections and wars, it's hard to get people to watch a presidential address at the best of times.  Late July is not the best of times.  You don't want to counterprogram a wonkathon when people can flip to "So You Think You Can Dance" or wander outside to drink in the summer evening.  Maybe it will move the poll numbers, but frankly, I'd be surprised.

So I think the left-wing pundits worrying about the performance are missing the point.  The performance was, in fact, not all that good, especially by the high standards Obama set during the campaign.  But I'll be shocked if the overnights beat Law and Order reruns.  More than one journalist of my acquaintance skipped the thing.  If a press conference falls in the summer doldrums, and nobody watches it, does it really matter?

The Duty of the Wonk

I was arguably too hard on progressive pundits yesterday when I said that they've led their ideological compatriots to unrealistic expectations of the process.  After all, we need wonks to get their wonk on:  advocating what's a good idea, rather than what is politically feasible.  That's how you move broad political sentiment towards better policy.

Still, I think you have to establish a sort of minimal cutoff below which it's better to wait for a better opportunity than do something NOW!!!  What I'd really like to see up front is an acknowledgement that after a proposed program gets through congress, it will probably look very little like what is being proposed, and to talk about when we should--and should not--go for second best.  That would leave the true believers less disappointed.  It would also, I hope, mean that we might pass fewer bad policies on the ground that they share a few minor features with some hypothetical good policy that's politically infeasible.

The insistence, now, that conservatives arguing against the plans on the table have to take into account hypothetical potential cost savings that have so far proven politically and bureaucratically unworkable, is a case in point.  Conservatives are perfectly within their rights to argue that these plans right here do nothing to bend the cost curve, and in fact, quite noticeably increase the structural fiscal instability of the US budget.  If you want to talk about awesome future cost savings, pass them.  Otherwise, you have to defend the actual bills we might pass, not some better bills that we haven't and probably won't.

The ACLU to Religious Minorities: Cut It Out!

In a recession, the problem most people and organizations face is too little money.  But clearly, that's not the case with the ACLU, which apparently has ample time and money to sue to prevent a charter school from unconstitutionally promoting Islam.  In a way, this is very good to hear, because it makes it easy to direct my giving to organizations with more urgent needs.  On the other hand, what the hell is wrong with the leadership at the ACLU?  In theory, for all I know, it unconstitutionally promotes religion.  In practice, what important freedoms are being violated?  The establishment clause was supposed to prevent a minority from being oppressed by a majority, not to prevent a minority from oppressing itself.  I admire a huge amount of the work that the ACLU does on issues like habeas corpus and wiretapping.  Why, then, do they so often seem intent on turning the organization into the highbrow edition of Stuff White People Like?

Department of Bizarre Arguments

The National Kidney Foundation's argument against paying organ donors:

The National Kidney Foundation opposes compensation on the grounds that it would "cheapen the gift"--that it may be an "affront" to those who have already donated. ("The argument that paying organ donors is 'an affront' to unpaid donors is disgusting," Virginia Postrel, who donated a kidney to her acquaintance Sally Satel, wrote on her website. "Are unpaid donors giving organs to save lives or just to make themselves feel morally superior?")

Having volunteered for Habitat Humanity several times in college, I am personally offended by the existence of Toll Brothers.  Also, I've worked in a soup kitchen, so I'm suing Friendly's for defamation.  As for hotels, as the former employee of an organization that provides homeless shelters, I can only say:  have you no shame, sirs?  At long last, have you no shame?

Stuff the Beast

For a long time, Republicans, and conservatives, and libertarians, embraced a strategy known as "starve the beast".  The idea was that you pass tax cuts now, and the resulting budget deficits will hold down spending increases.  Eventually, it will get so bad that they'll have to cut spending, because tax increases will be so unpopular.

Hrm.  Didn't work out as planned.  Arguably, in fact, it made things worse:  by assenting to budget deficits, Republicans took a price tag off new spending.

On health care, it seems to me that many Democrats want to do the same thing in reverse.  Pass programs now, and figure out how to control costs later.  That was the strategy behind the Massachussetts health plan, which more than one liberal pundit has earnestly praised as a strategic model for a federal proram.  Instead of starve the beast, we stuff it.  Hell, we stick a tube down the federal beast's throat and gavage the sucker.

Both have the same flaw:  the same political forces that keep you from cutting costs now will keep you from cutting costs later.  In fact, they will be worse, because the greater magnitude of the fix, and the larger number of people it will affect, make it harder to implement the changes that this federal engorgement is supposed to enable.  Politicians in the future will be no braver or wiser than the ones we have now.  Perhaps they'll fix the nasty problem you've bequeathed them, but on the other hand, perhaps they'll just make it worse and we'll get a taste of life in a banana republic.  There is no good reason to think that the former is more likely than the latter.  Our founders tried this sort of stunt in the Constitution, and the result was eight decades of slavery, and about 600,000 dead soldiers.

Thus I think that honest pundits, and voters, have to answer the question:  is this program a good idea if it provokes a crisis, instead of much needed change?  In the case of tax cuts, I think the answer is clearly not, which is why I think Republicans should lay off them unless they're planning to pay for them by cutting spending now.  I also think expanding health care without a clear and immediate plan for costs is a huge mistake--but then, I don't like it anyway, so you'd expect me to say that.

Reasons to Want to Be Rich

I don't actually think there are that many; I'm pretty content on a two-journalist household income.  But here's one:  you can ride the Orient Express.

The Sheds, Ye Shall Always Have With Ye

One of the side discussions that goes on among economists about recessions/depressions is which businesses are "depression-proof".  The Wall Street Journal offers up a surprising one:  building sheds, which protect sidewalks from falling rubble.  In good times, they protect against construction and renovations.  In bad times, they protect against falling-apart buildings that the landlords can't afford to repair.  This is particularly true in New York, where rent control leaves many landlords with a permanent disinterest in maintenance.  Alas for those of us in industries that aren't recession-proof, it's probably too late to get into the game now.

The Biggest Obstacle to Bike Commuting

Well, my fourth bike was stolen this morning, out of our backyard, which has a seven foot stockade fence around it.  I have never managed to hold onto a bike more than six months in an urban environment--the previous two times, they left the bike lock, as if to taunt me with its inadequacy. I think I'm done with bike commuting.  I'd rather just hand out $100 bills to random people on the street; at least I wouldn't be rewarding theft.

It wasn't an expensive bike, either; it was the cheapest hybrid available in my size.  But the fact is, if you own a bike in this city, it will be stolen.  I'm willing to brave weather and entitled motorists.  But I'm sick of funding donations to the bike theft brigade.

Department of Awkward PR Moments

I don't know that this is going to hurt the image of healthcare reform.  But it probably isn't going to help:

Why Health Care Reform Is So Troubled

The commenters in Mark Thoma's threads seem to think that the administration erred in trying to modify the plan in order to buy votes in Congress.  I take this as symptomatic of how the debate played out on progressive blogs, magazines, and columns; Paul Krugman is exhibit A.  People were led to expect that Obama could pass a plan through mere force of will, "cracking heads" and bulldozing Congress into something close to the left-wing technocratic version of health care reform.

This was never, ever going to happen.   The Democratic conventional wisdom, true or not, is that Bill Clinton lost because the overwhelming majority of folks who have insurance, and are basically satisfied with their health care, freaked out when they realized that their coverage was going to change.  The Clinton administration argued to no avail that it would change for the better; people are risk averse, and too many of them simply didn't trust the government with their own health care.  So the kind of massive grotting around with the innards of the health care system that progressives envisioned was DOA.  And so was the best hope for cost control.

The commenters also believe that the Blue Dog fascination with budget deficits is ridiculous, since it's a small part of the overall budget for the 10 year period.  This ignores the fact that this "small" deficit persists even after the Democrats have used their most politically popular arsenal.  A surtax that will bring the total tax increase on very high incomes to 10%, plus smaller increases below that.  And this assumes that all the cost savings planned will materialize.  Much has been made of the government's ability to batter down prices.  But in fact Congress has a history of passing health care cuts and then undoing them.  Cat care is one example.  There's also the automatic cuts in physician reimbursement, which are ritually repealed in an annual kabuki ritual, because physicians say that they will stop taking Medicare, and/or voting for politicians who support the reimbursement cuts.  What happens if cost growth exceeds projections, the way it has in Massachussetts, and AFAIK, every Federal health care program ever?  Where do we get more money?

A lot of people seem to have thought they were going to get a bill designed by wonks, instead of an ugly and self-interested political process.  Obama's tried to avoid Clinton's fate by staying out of the fray, which has only made the bill even worse.  If Democrats want national health care, they need fewer wonks, and more Lyndon B. Johnsons.

How Much Does Central Bank Independence Matter?

Not very much, says Alex Tabarrok:

Why are more independent central banks better at fighting inflation than less independent central banks?  There is nothing magical about independence that makes for low-inflation.  Suppose we pick someone at random and give them complete power over monetary policy.  Such a central banker would be very independent but I wouldn't count on this policy resulting in much in the way of systematically lower inflation.

The primary reason that independent central banks are better at controlling inflation is that absent direct political control the default selection mechanism favors bankers, i.e. lenders, people whose interests make them more favorable towards lower inflation.

Thus, independence is a political decision that favors lenders in the decisions of monetary policy.  Now, depending on the alternatives, there may be good reasons for making this choice but we should not fool ourselves into thinking that we have depoliticized money.  We should not be surprised, for example, that "independent" central banks tend to make lender of last resort decisions that protect banks and bankers.

I don't think this is quite right. 

Start with a stylized fact:  in a democracy, there will be a strong tendency for monetary policy to favor debtors, because there generally more debtors than creditors.  This is particularly true of America, with its lavish credit markets.

In the long run, however, strongly inflationary monetary policy makes everyone worse off; it impedes capital formation, lowering productivity.

Central bank independence works, not because the bankers aren't accountable to Congress (they are, after all, reappointed every so often), but because Congress is only weakly accountable for the actions of the central bank.  If Congress were held to account for the actions of the central bank, Congress would appoint bankers who would do populist things that would make us all worse off.  Most of the financial policy journalists I know have the sense that Congress actually supported most of what Paulson/Bernanke/Geithner did, but knew they did not dare enact it.  They don't want a more accountable central bank.

So there is something magical about bank independence.  It lets Congress cut against its basically populist political interests.  You may think that makes it too bank-friendly.  But it also means we don't have double-digit inflation, which is where we were headed before Volcker.

Waiting for the Mid-Session Budget Review

The White House is putting off issuing its mid-session budget review until after Congress goes on its August recess.  The mid-session review is the update to Congress that outlines how actual revenue and spending are matching up to the projections. It's almost always issued in mid-to-late July.  Delaying it until the recess raises suspsicions, as the AP puts it, that Obama is expecting bad news, and wants Congress as committed as possible to new spending before he unleashes it.

 Delaying a mid-session review is pretty rare.  The last time it happened was . . . 2001, when Bush was in his first year of office.  Presidential transitions are extremely disruptive. 

That doesn't mean it's unreasonable to think that there may be extremely bad news--for us, and for Obama's agenda--contained in the mid-session review.  Employment news is dismal, and ultimately, most of the federal government's tax revenue depends on income taxes.  Its other major source of income is capital income:  corporate income taxes, capital gains, dividends, and interest.  Well, corporate profits aren't good--the bounces in the stock market come from beating really dismal expectations, not from actually high levels of corporate income (Goldman Sachs, as ever, excepted).  No one's taking big capital gains this year.  Interest income is hard to come by when everyone's trying to stash all their money in money markets and treasuries.  And dividends are no longer the major income source they once were.

Meanwhile, the recession is putting big pressure on the government's spending.  There are states who need to be propped up, all manner of "automatic fiscal stabilizers" like unemployment, welfare, and Medicaid to pay for, and companies in need of bailouts.

So I expect that the news will be bad, and I further expect that the administration is hoping that bad budget news released in the August doldrums will have less impact than bad news slapping Congress in the face during health care negotiations.  But that doesn't mean that the administration is doing this deliberately.  Sometimes a delay in the mid-session budget review is just a delay in the mid-session budget review.

One Small Step For Man . . .

If you're like me (and I know many of you are), you grew up reading the science fiction of the 1940's and 1950's, promising a quick and rapid expansion into the solar system, and not too long thereafter, the galaxy.  Your young mind tried, and failed, to fathom the vastness of the empty gulfs between the stars.  But there was one thing you knew:  you wanted to go.  During the incomprehensibly lengthy interval between you and adulthood, man would surely prepare itself to go to Mars and beyond, and you were going to be among the pioneers.

Four years before I was born, man walked on the moon for the first time, the most magnificent single feat our little tribe of East African Plains Apes has ever managed.   Now we don't even do that.  What happened to the dream?  Government mismanagement, yes, but something more than that, too, some failure of imagination and will. 

I hope that by the fiftieth anniversary some people, somewhere, will have regained the momentum that pushed mankind into our first tenative baby step towards the stars.

Massachussetts Health Plan Pushes for Capitation

The Massachussetts health plan has been successful by some metrics--the recorded number of the uninsured has gone down--and unsuccessful on others.  According to the chap who runs the Massachussetts exchange, the state and medical providers still face a hefty expense for treating those who don't have insurance, with over half the cost of medical care for the uninsured still persisting.  And the new system is very expensive, particularly in a time of fiscal trouble.

It's thus predictible that a commission appointed by the governor wants to move in a new direction:  capitation.  That's when the state pays providers a fixed amount for each person (in the plan, or in their practice) and lets the providers figure out how to treat them.

Capitation looks attractive, because it discourages doctors and hospitals from doing too much.  But, as with all good things in life, it has a few downsides:

• It shifts the insurance risk to smaller entities who are less easily able to bear it
• Correspondingly, it eliminates many of the benefits of pooling.  Doctors who happen to get stuck with a sicker population go broke.  If you try to rig the payments to account for degrees of sickness, you will quickly get mired in a system even more complicated than the current health insurance system.  This is why "paying for health rather than procedures" never pans out.
  
• It exacerbates the existing problem with fixed payments in health insurance, where doctors compete to get you in and out of their office as quickly as possible
• Single payer advocates are fond of complaining that when you force consumers to bear the cost of their own health care, there's no guarantee that they'll cut back on unnecessary services.  Well, there's arguably even less guarantee when the guy making the cuts isn't the one who gets to die if it turns out that test was needed
• The political incentive will be to mandate an ever-greater number of services and treatments at the same time as they cap the payments.  The result will be an outflow of doctors from the state, or medicine.

I don't like a system where the doctor has a financial incentive to give me unnecessary tests.  But I'm even less fond of the idea of giving her financial incentives not to give me necessary ones.  

I predict this lasts about half a news cycle before the public outrage overwhelms state legislators, who start screaming for the heads of the traitorous, heartless bastards who suggested it.

What Did the American Taxpayer Get for its Billions?

A fellow journalist emails:  "I badly want someone to explain to me whether the taxpayer realizes any benefits from BoA, Citi, Goldman, etc.'s profits. Or was this just a massive "Thanks for nothing, Tim" moment?"

Hard to say.  On the one hand, as a wise economist Brad DeLong* said to me last fall, "You can't bail out the financial system without bailing out those who are long financial assets".  In other words, banks and bankers.  And not bailing out the financial system has been pretty conclusively demonstrated to have ugly, ugly results.

What benefit might we get from all these record profits?  A more liquid, better capitalized banking system.  On the other hand, if the bankers simply ship the profits back out the door as dividends and paychecks, what we'll get is a big fat pile of nothing.

Which will happen?  We don't know yet, for all of our dark suspicions.  A lot has to do with the regulators--and also with the next few quarters.  It wasn't totally surprising that the banks posted substantial profits as the capital markets recovered from total meltdown.  Probably things won't look quite so outlandish in the future.

*  I was not trying to deny Brad his rightful due; rather, I try not to quote people by name if the conversation wasn't clearly on the record, because sometimes people get upset.  Now that he has outed himself, I gladly attribute it to its wise source.

Learning to (un)Love Leverage

It was literally on my first day of business school that a classmate asked me, "What's the most expensive form of capital?"

It was bizarre sort of pop quiz; he had come out of private equity, while I had been building servers for the last four years.  I floundered.

"Equity," he solemnly informed me, after a few minutes of bewildered guessing.  "Debt payments are capped.  Equity has unlimited upside, while debt payments are capped.

This is conventional wisdom at America's business schools, and over the next few years, I definitely lived it.  We borrowed money for school, for living expenses, for books.  I bought a car, went skiing, went to Mexico on spring break.  Why shouldn't we?  We were "consumption smoothing"; in a few years, we'd be making more than $100K, so why not spend a little of that now?

Then we were unleashed on the world to tell companies about the astonishing benefits of leverage.  Leverage let you turn a small investment into a huge profit.  Leverage means you get all that juicy corporate upside for yourself.  You should never use equity finance if you can use debt.

That logic is alive and well, as Joe Weisenthal reports:

We remarked after Goldman Sachs (GS) came out with earnings, that analysts were already pestering the company about its mere 14x leverage ratio, wondering when they might start to get more aggressive -- this after the financial system nearly collapsed due to too much leverage.

Nobody's learned anything.

He goes on to quote an HBS blog lamenting Google's lack of leverage.  To which one of his commenters retorts:

Joe - have you ever looked at a finance textbook? If you can borrow long-term funds at a cheap rate to acquire/fund businesses that will grow/earn CFs at a faster rate, then that is value-creating, bottom line. It's a better strategy than using equity (or not buying back equity) due to the higher cost of capital (opportunity cost) of that equity.

In short - if someone will lend you money at 6% to invest in a business that returns 10%, then you have a positive economic return.

The trouble is NOT in taking on debt, per se, but in terms of taking on debt to fund projects/do LBOs that don't earn cash at a rate ABOVE the cost of that debt.

What's missing from that picture?  Risk.  I didn't get that $100,000+ job I was expecting; I ended up in journalism, making less than half that.  My loan payments ate up something like 45% of my take-home, which made it extremely difficult to live.  Loan payments have limited upside for the investor. But they have unlimited downside for the borrower:  if you can't make your loan payments, you're bankrupt, and out of business, or at the very least, forced through an awful restructuring.

The problem is, in an expected value calculation, going bust shows up as a zero.  But in fact, it's an extremely negative-utility event.  Oh, some people can merrily declare bankruptcy and walk away.  But most people, and firms, find it deeply traumatic.  That isn't captured when you blithely declare that equity is more expensive than debt.  Or talk about investing in a business that returns 10%, as if there were some kind of textbook world where you could actually get a guaranteed return.

American debt levels are hugely out of line with other countries.  I'm a big fan of American exceptionalism, but in this case, I'll say that we're at least partially in error.  We need to take the downside of leverage much more seriously, starting with our nation's business schools.  OF course, I don't expect people taking on $100,000 worth of debt to be too easy to persuade of the dangers of leverage.

Markets in Everything

According to Politico, the American Conservative Union is selling off endorsements to the highest bidder.  Actually, that's too kind; this sounds more like an extortion racket:

The American Conservative Union asked FedEx for a check for $2 million to $3 million in return for the group's endorsement in a bitter legislative dispute, then flipped and sided with UPS after FedEx refused to pay.

For the $2 million plus, ACU offered a range of services that included: "Producing op-eds and articles written by ACU's Chairman David Keene and/or other members of the ACU's board of directors. (Note that Mr. Keene writes a weekly column that appears in The Hill.)"

The conservative group's remarkable demand -- black-and-white proof of the longtime Washington practice known as "pay for play" -- was contained in a private letter to FedEx , which was provided to POLITICO.

The letter exposes the practice by some political interest groups of taking stands not for reasons of pure principle, as their members and supporters might assume, but also in part because a sponsor is paying big money.

In the three-page letter asking for money on June 30, the conservative group backed FedEx. After FedEx says it rejected the offer, Keene signed onto a two-page July 15 letter backing UPS. Keene did not return a message left on his cell phone.

The Economics of Blogging

The Wall Street Journal lists the top 25 economics blogs.  

Making a Bundle Out of iTunes

I suspected that this was some sort of an elaborate troll, but no, this chap at PC inciter actually wants to break up Apple's monopoly over the iTunes store, the iPhone, and the iPod.

What monopoly, you may ask, and indeed, I did.  Apple has a monopoly over these things only in the trivial sense that P&G has a monopoly over Charmin, and I have a monopoly over the chocolate cake I baked last night.  Neither "monopoly" is withholding a critical good from people, or forcing them to pay an extortionate price for same.  If you don't want to buy your music from iTunes, you can trot right over and buy MP3s from Amazon.  And they'll play just as well on a Zune.

But, you say, you'd like to buy music from iTunes and play it on a Zune?  Well, I'd like to get takeout from Ray's Pizza and enjoy it in the stunning ambience of Cafe des Artistes.  If the waiter refuses to let me do so, is that a monopoly?

No, that's what we call "bundling".  Most people hate bundling.  That's because most people are under the impression that they would pay less if things were unbundled.  Sometimes this is true.  But if you forced Cafe des Artistes to "unbundle" the location from the food, that doesn't mean I'd be able to enjoy a cut rate meal in a beautiful location.  They'd just charge me $100 for the seat. 

Similarly, people who want their cable unbundled because they only want to pay for a few channels are under the delusion that they could save huge bucks by cutting off the Golf Channel.  But cable companies don't save any money when you drop the Golf Channel, because they stream all the channels down the coax at once.  Indeed, it may cost them money; the Golf Channel now has fewer potential viewers, and hence falling ad revenues, and they have to hassle around with custom packages for every customer, which is labor intensive, and thus extremely expensive (and also more likely to break).  If we forced cable companies to unbundle, odds are you'd pay at least as much as you now do in order to watch the channels you do like, because those are also the channels everyone else likes:  HBO, Discovery, Bravo, Showtime, ESPN, TNT, USA.  If you've ever stopped on a random channel to watch a movie you didn't know you liked, you've been a beneficiary of bundling.

Like cable, iTunes is mostly fixed cost, which means that unbundling would make their profit fall much faster than their revenue.  So I doubt unbundling would save much money; rather, either the cost of iPhones or iTunes would rise.  Yes, there are competitors to both iPhones and iTunes.  But the very reason Coursey wants them unbundled is that most people consider them best in class.  Forced unbundling would help a narrow range of consumers who want to use a Zune with iTunes so much that they don't mind paying extra for songs.  But it's not clear that anyone else would be better off. 

On Income and Consumption Inequality

Will Wilkinson has a new paper out on inequality, which I will be blogging about later.  But Ezra Klein has an interesting response, which focuses on the difference between income inequality and consumption inequality.

I broadly agree with Will that consumption inequality, not income inequality, is what matters.  If the rich have access to broad classes of goods that the poor can't have, I find this worrying.  On the other hand, if the problem is that Bill Gates has a really awesome 80 inch flat panel television, while the poor have to be content with a 32 inch CRT, well, I can't say my heartstrings are plucked very tight by this injustice.  So it's important to know what the real differences are.

This theory was very popular with conservatives and libertarians over the last few years; I'm sure I referenced it myself.  But of course, as Ezra points out, some of that consumption inequality may well have been due to rising credit inequality: people borrowed money from their houses to buy consumption goods.

But I think it's easy to overstate the contribution of debt, for two reasons.  First, many of the discussions on consumption equality focus on the poor, who were still relatively credit constrained even at the height of the bubble.  And second, income inequality figures exclude both taxes and government benefits.  Things like the EITC and Section 8 vouchers really have made a quite substantial improvement in the ability of the poor to consume.

So I don't think we actually know how much of a difference consumer credit made to equalizing consumption between rich and poor.  I suspect that the continued mechanization of formerly labor-intensive tasks has made a greater difference, but then you'd expect me to say that.  The data we want will not be available for several years, especially since period immediately following the financial crisis will be very atypical*, and therefore not useful in assessing the longer term trend.

*  Before you accuse me of cherry-picking, I expect that the data following the financial crisis will actually show income and consumption inequality falling, because financial crises tend to make bigger relative cuts in the income of the wealthy.  That doesn't mean that they "suffer more" in any meaningful sense--losing 5% of a $30,000 annual salary is almost certainly a greater hardship than losing 25% of $300,000.  But the numbers will still show shrinkage.

CIT RIP

There's been a great deal of coverage of the woes of CIT in the business pages, but as far as I can tell, almost no one outside of the business press has taken much notice.  CIT is one of the many firms that got TARP funds last year, but it's not a big, sexy investment bank; the firm makes loans to small and medium-sized businesses, particularly retailers.  It's on the rocks, which is not quite surprising; retail is shakier than it's been for decades, and though the company became a bank holding company last year, right along with Goldman Sachs and Morgan Stanley, it's primary business model involves extracting funds to loan from suddenly skittish investors. 

CIT had applied for a government bailout, but after some deliberation, the administration decided that the firm simply wasn't too big to fail. At this point, bankruptcy seems inevitable, and it's expected that trading in CIT shares will be halted sometime today or tomorrow.

I think the government made the right decision--the decision it should have made with GM and Chrysler.  But that doesn't mean there won't be painful fallout from this failure.  CIT is particularly prominent in the factoring business, which is how most smaller garment manufacturers finance their operations, but it's also a major player in the broader retail sector.  Its demise is going to mean that a lot of smaller retailers will have trouble making payroll, and a lot of smaller garment firms simply won't be able to carry on at all.  Come winter, a lot of retail shelves are going to be barer, or at least less interesting, places.

Other firms will take up much of the slack, of course.  But it's not clear how much extra capacity they have.  When you look at the mess in the mortgage industry right now, with banks simply unable to cope with the volume of modification requests on top of record foreclosures, it's clear that it's not so easy to simply expand your operation when volume spikes.  Especially in tough times--and you can be sure that other people in CIT's space are not exactly going to find investors lining up to give them money.

Given how key the retail network is to economic recovery, the failure of CIT probably will prolong the downturn.  That doesn't mean it wasn't the right thing to do--we need to start making it clear that financial firms, even sizeable ones, can and will fail.  But it does mean the economic outlook just got a little gloomier.

This is your Head, Blogging

Matt Yglesias and I assess the future of conservatism and other disturbing issues

More Thoughts on the Health Care Surtax

I confess, I am surprised to find out just how little money you can raise by slapping a 5.4% surtax on incomes above a million.  I also wonder at what point serious political resistance to taxes sets in.  I know, it's common to claim that Americans are tax haters.  But actually, Americans, even the wealthy, pay their taxes at a rate that would shock an Italian.  We grumble, but in the end, we pay.

But at some point, that changes.  In the highest paying zip codes, the effective average combined tax rate (not the marginal rate) on many affluent people is already well over forty percent--I shelled out more than 40% of my really non-lavish journalist's salary when I lived in Manhattan.  The repeal of the Bush tax cuts will push some taxpayers into the 50+percent total tax bracket.  Is America ready?

One thing I think that wonks often overrate is how fiercely the resistance to taxes mounts once you get past a certain point.  Our mental arithmetic is all wrong.  We think of a 5% tax increase as a relatively small amount.  But of course, once you're nearing a 50% average tax rate, a 5% tax increase is something like a 10% cut in the taxpayer's take-home pay.  And the higher the starting tax rate, the larger the percentage of tangible income the tax increase consumes.  Yet because wonks assess tax increases relative to the size of the base rate, an increase from 55% to 60% actually sounds smaller than an increase from 15% to 20%.  Yet from the perspective of the taxpayer, the former represents a much greater encroachment on their disposable income.

Someone with two million a year in adjusted gross income now takes home $650,000 out of the last million, then pays some portion of the remainder to various state and local authorities.  In 2011, if all goes as currently planned, they'll lose just more than $100,000 of that income, and more to various tax increases on lower income levels.  Rich people are less budget-conscious than you and I, but I bet even they notice a missing $100,000. 

Should we feel sorry for them?  No.  But I expect they'll start felling sorry for themselves.  And I'll be interested to see what impact this bill has, if it passes, on Obama's support among the wealthy.

Fat of the Land

Now that we're getting ready to spend a whole lot of money providing health care for other people, obesity is becoming an increasingly pressing topic.  There's a fair amount of controversy over how much upward pressure obesity puts on health care costs, but the wear and tear on joints alone heralds millions of dollars worth of arthritis drugs and knee replacemetns in our public health plan's future.

So it's not surprising that writers and bloggers are discussing our rising rates of obesity, and possible ways to counteract that.  Matthew Yglesias writes:

But there's a very profound problem of evolutionary psychology here. For the vast majority of human existence people were engaged in much more daily physical activity than is the typical member of a contemporary rich society and it was impossible to be certain that food would be available in the future. Consequently, people are largely designed with the instinct to err on the side of eating more food rather than less. Especially if the food is tasty. These days, of course, we're in a very different situation. Nobody starves to death in the contemporary United States, but lots of people have problems related to poor dietary habits.

Hardly an original point on my part. But the sign made me think of it. And I suppose I would make the point that at the margin expenditures of funds to fight this tendency are going to do a lot more to improve public health than will expenditures of funds to treat people's diabetes.

That presumes you can find a marginal dollar that will reduce peoples' tendency to eat more than they burn just as effectively as we treat diabetes.  Seven years ago, when I investigated fast food lawsuits, I found very little evidence for that proposition.  Pretty much every public health effort to get people to eat less has proven a dismal failure.  As Paul Campos has noted,  telling people to eat less and exercise more is the most exhausitvely attempted experiment in the history of science.  And we have 200 million data points that prove just how badly it works at keeping Americans slender.

I'm thus pretty skeptical that we're going to do much about obesity through the sort of mild nudges that a lot of the discussion about changing peoples' eating habits implicitly imagines.  For example, I'm a big fan of Brian Wansink's Mindless Eating, which details all the ways that we take in more calories than we think.  But I'm skeptical that in the long run, these factors make all that much difference.  If you think about it, taking in an extra fifty calories a day more than you need--half a piece of bread, or a few cocktail nuts--is enough to pack on an extra five pounds a year.  If we really at that mindlessly all the time, we'd all be morbidly obese.  I expect that in any given sitting, things like portion size, or calorie counts, can cause people to reduce their intake.  But over time, I doubt they'll have much impact.

That leaves more illiberal options, like forcing manufacturers to change their foods in order to make them less apealling, or massive taxes on fat, sugar, and salt.  Even if I thought there was a practical, and politically acceptable, way to carry this out, I'd be against it.  Enacting national health care, and then declaring that it now gives you the right to dictate how people will eat . . . well, that's exactly the sort of thing libertarians are talking about when they bemoan the creepign nanny state.

Republicanism and Its Discontents

I talk to Doug Holtz-Eakin about the past, and the future, of conservatism:

The Gift of Life

Virginia Postrel has a terrific piece on organ donation in our pages.  Long story short:  don't count on cadaver organs, because there aren't enough of them, and organs from living donors last longer.  We need quasi-market mechanisms to attract more living donors.

Postrel deals with "donor chains" in which people who want to give a kidney, but are incompatible with their target, form chains with other incompatible donors to get everyone what they want.  Then she moves onto markets, which are very controversial.  I confess, I don't understand the ban on paying for organs.  We let eighteen year olds decide to go to Iraq in order to eventually pay for college, but we won't let a thirty-five year old sell off a part of himself that he probably won't need, and with which he could save a life?

Good News/Bad News on Weddings

Good news for me:  wedding costs are apparently down 33%.  Bad news:  this seems to mean that I am going to have to hand craft invitations and centerpieces.  A gifted florist, I am not.

Antibiotic Resistance

Here's a regulatory move that I think everyone except industrial livestock farmers can applaud: the federal government is considering restricting the indiscriminate use of antibiotics in livestock.

But Megan, you will say, government regulation!  Nanny state!  Ecofreaks!

To me, restricting antibiotic use is a legitimate public health measure.  Antibiotics have been responsible for much of the increase in human lifespan over the last century, as well as dramatic improvements in the quality of our years.  But they have a real collective action problem:  the more they're used, the more bacteria resist them.

Cheap meat is not worth having your kid die of an antibiotic-resistant infection.  Farmers use these things indiscriminately because it allows them to pack the animals into filthy conditions that would otherwise make the animals very, very sick.

Obviously, for someone like me who is basically opposed to factory farming, the tradeoff seems even less compelling than for someone who likes to pack in a Tyson's chicken every other day.  But even if you're a big fan of treating animals like widgets, I don't see any way that somewhat cheaper meat is worth the risk of returning to an era when the president's son could die of an infected blister he picked up playing tennis.  It is possible to have a perfectly rich and fulfilling life without eating most of a pound of meat every day.  On the other hand, the world pre-antibiotics really was visibly much grimmer.

Seige Economy

Maggie Schmitt describes food markets in Gaza for the food channel:

Not for nothing is this a holiday meal: the chicken required to make this dish has increased more than 100 percent in price since the bombings last January. One chicken can now cost as much as $18, as three of Gaza's 11 chicken farms were completely leveled by Israeli tanks, two more were severely damaged, and even the farms not directly damaged lost most of their animals for lack of fuel with which to heat the henhouses.

The massive unemployment in Gaza owing to the destruction of its productive sector and the impossibility of exporting through closed borders has reduced the per-capita daily income to about $2 a day. The ingredients for this splendid traditional dish would therefore cost more than two weeks' income for an average Gazan given the current situation.

Meat

Of course, grilled kebab is the king of street foods, served in a pita bread with grilled onions and a little plate of pickled vegetables. But traditional home-cooking tends more to the slow stews, meat so tender it melts at the touch of the fork. Sumaggiye is one of these dishes, perhaps the most quintessentially Gazan. It is a stew of beef, chickpeas and chard, married with the unique combination of lemony sumac and tahini. It is served with fried garlic and chili and mopped up with fresh pita bread. During the holiday season at the end of Ramadan, neighbors give each other bowls of sumaggiye, each family having its particular style of making the dish.

Lambs can be smuggled through the tunnels--they trot right through--whereas calves generally panic or don't fit.

As beef is now almost completely unavailable in Gaza, this and other dishes are being made with lamb if they are being made at all. Lambs can be smuggled through the tunnels--they trot right through--whereas calves generally panic or don't fit. The minimum number of calves necessary to feed Gaza, according to the Israeli "Red Lines" document, is 300 a week, but even before the crossings were completely closed fewer than 100 entered per week. Now none enter at all, though small quantities of frozen meat are occasionally allowed in.

This has grievous consequences on both sides of the border. In Gaza it means malnutrition, astronomical prices, and the accumulation of power in the hands of those who run the tunnels. In Israel it means a breakdown of the trade relations that were once extremely lucrative for Israeli farmers.

Farms

The siege, or, as Israel calls it, the "restriction of luxury products" (like paper, shoes and rice), does have some economic benefits for Israeli farmers, however. If they have lost an enormous market, they have gained a dumping ground that serves to regulate market prices. What is or what is not a luxury, Gazans told me, seems to be determined by the surpluses produced by Israeli farms: when i visited, for example, the Israeli markets were glutted with melons, and at least three trucks a week of melons were entering Gaza. Whole neighborhoods of Gaza, I was told, were living largely off of melons.

Mustafa, a farmer I visited on the eastern border of Gaza who was harvesting his melons, lamented that there was no market at all for them: so many had so suddenly entered through the border. This was probably just as well, he added, as his melon patch was abutting the "security" limit from the border, and when working there he and his sons were occasionally shot at. Their farm, like so many others, is directly in the shadow of the border wall and its watchtowers.

Every once in a while jet planes drop a box of leaflets to the ground, advising them of new security limits: a couple of weeks ago the security limit was increased to 300 meters from the border, putting the melon patch in a danger zone. His children, he told me, know very well up to which row of vegetables they can play and after which row they will be shot.

During the bombardment last January, Mustafa's family was fortunate enough not to have their farm bulldozed, as some of their neighbors did, but they did lose almost all their livestock when their barn was hit by artillery fire. Some 25 goats and sheep were killed while the family huddled in the house listening to the continuous din of the nearby watchtower firing over their farm and into the refugee camp just beyond their lands.

Goldman's Fabulous Quarter

Even more fabulous than the sky-high forecasts, as Clusterstock lays out.  This is not actually hugely surprising, given that three of their biggest competitors went out of business or were acquired in the last year; as financial markets unfroze, Goldman, which had one of the cleanest balance sheets, was bound to see a hefty increase in their profits.

Still, the populists are bound to make hay out of this, and it's hard to blame them.  It is true that Goldman probably did not need the federal funds it accepted; Bernanke and Paulson pushed healthy banks to take funds as well as sick.   The idea was that if only the sick banks got money, that would send a strong signal to the market that they were in danger, and trigger the very run the feds were trying to prevent.

On the other hand, as Matt Yglesias and others have pointed out, whether they want to be or not, banks like JP Morgan and Goldman have gotten a great deal out of the government interventions.  For starters, they were the first and biggest beneficiaries of having the financial markets not collapse.  And now they enjoy an implicit guarantee that Uncle Sam will not let them fail because they are simply too important.  That is a very valuable and profitable guarantee to have.

I genuinely don't know what to do about this.  The libertarian answer is that the government should make a credible committment not to bail out banks.  I'm pretty sure that's a bad policy idea, but leave that aside; the government can't make that committment, because politicians cannot committ their future counterparts to action.  And I guarantee that if there is another crisis, politicians will intervene rather than risk another Great Depression.

Nor is the answer simply regulation.  A lot of that revenue is perfectly sound, boring stuff we want them to do, like underwriting equities.  I don't know where the government would get the legal authority to cap either their volume, or the salaries they pay their workers.  But that doesn't stop it from rankling.

Personal Finance

So should we be worried that Alan Grayson of the House Financial Services Committee, got taken in by a ponzi scheme?  Does this render him unfit for the position, as I've seen some conservative commentators claim?

You heard a lot of this during the Edmund Andrews brouhaha, and I don't think it's useful in either case.  Certainly, their personal feelings about regulation might be influenced by their history, but that's true of everyone.  The more prevalent claim was that badly managing their personal finances somehow disqualified them from having opinions on financial policy.

But being good at analyzing policy, and being good at managing your personal finances, are not at all the same thing, just as you can report on the science of obesity, and nonetheless find yourself unable to risk that second eclair.  Having impulse control problems, or being excessively trusting, in one area of your personal life doesn't really have much to do with your ability to analyze the macroeconomy.  I don't know whether Ben Bernanke's a spendthrift or a tightwad.  But I'd still rather have him in charge of the Federal Reserve than the CouponMom.

Villains of the Piece

A woman gets into her car, and waves at her husband, who is crossing in front of the car. Pressing the pedal to the ground, she puts it into gear . . .  and steams forward at full speed, crushing him against the wall of the garage.

Is she a villain?  It rather depends, doesn't it?

Scenario #1:  she's angry because she found out he had an affair, and decided to kill him "by accident" for the insurance.  Scenario #2:  she thought she was stepping on the brake, and stepped on the gas instead.  The former is a crime, the latter a tragedy.  But you can't divine which simply by knowing that something terrible happened.

So I confess I'm slightly puzzled that Barry Ritholtz is puzzled by my assertion that "financial crises don't offer villains":

I don't really get Megan McArdle when she makes a statement such as the one above. It was in an article critiquing Matt Taibbi and defending Goldman Sachs.

Um, Megan, I am going to have to beg to differ with you. There were many, many identifiable villains who through their own action and inaction, helped create the crisis. There were people who remained slavishly  devoted to an outmoded and disproven ideology, which led them to decisions that were indefendable. Some people engaged in utter recklessness when it came to risk management, or such gross irresponsibility that they are not merely morally culpable, but legally also. Then there are those regulators who gave the corporate interests they supervised pretty much everything they asked for.  And of course, the people simply trying to grab a free lunch contributed mightily to the collapse.

Ritholtz is not, in many of these cases, describing villainy.  He is describing "being wrong", which is not a crime, thank God.  Villainy involves people who know, or should have known, that what they were doing was likely to lead to the awful results.

I mean, you can quibble and say "You should have known that that was the gas pedal", and indeed you should have, but if, for whatever reason, your senses deluded you, you're not a villain.  No, even if you were thinking about the presentation you had due at work--or how angry you were at your husband for having a fling with his secreatary--rather than concentrating on your driving.

When something is common enough, I think it definitionally isn't villanous.  It may be a practice that should be fixed--we should all be more careful when starting our cars, I'm sure.  But most of us have, at some point in our lives, accidentally stepped on the gas instead of the brake.  And in the overwhelming majority of cases, this is not a huge problem, or even a problem at all--we run into the curbstone, or roar out of the driveway a little too fast.  We don't punish people merely because, through a fluke of circumstance, the one time THEY did it happened to be fatal.  Or at least, we shouldn't.

Because of course when very bad things, like Great Depressions, happen, we do indeed go looking to prove that people who did the wrong thing at the wrong time must have been awful, awful people. 

I have no reason to love Goldman Sachs, and I don't.  I didn't like them when I was interviewing for investment banking internships in business school (worst interviews by far were sponsored by Goldman Sachs and Bear Stearns).  I dislike the way their alums, and indeed, their current employees, have permeated our politics and our financial regulatory system like some sort of insidious fungus.  I have been repelled by Jon Corzine ever since he spoke at my business school graduation ceremony, where he jovially described how he had cheated his way into a diploma by getting his girlfriend to do his final project for him.  He seemed to think this was funny.

I am excessively unpleased with the way the banks in general, and Goldman Sachs in particular, are not even a little bit contrite about the fact that the American taxpayer had to bail them out of a gigantic mess they helped create.  They have not returned any of the squintillions they made off creating the crisis, offered a heartfelt apology, or even sent flowers and a faux-sincere note.  And the salaries they are preparing to pay themselves this quarter by way of celebrating the fact that they didn't actually succeed in reducing a once great nation to barter?  I can't even think about them because I am afflicted with borderline hypertension, and do not wish to start medication before I have to.

But while it is irksome that bankers thought they were geniuses who had somehow magically made risk disappear, while it is vexing that they made so much money taking so many systemic risks, none of these things are actually illegal.  And while their arrogance and greed were certainly a necessary precondition of the crisis, they were not in any way sufficient.   They needed cooperation from moronic Asian savers who lent them the money, regulators who thought--just as the bankers did--that they'd gotten too smart to have a financial crisis--and homeowners who had come to view homeownership as a way to get rich without working.  Everyone who said "renting is throwing your money away" is a guilty party in this.  And that's . . . almost everyone. 

I'm well aware that if my financial and romantic situation had been different in 2005 or 2006, I might well have bought a house that would now be in deep trouble, because, well, everyone's doing it, and things that everyone's doing seem inherently safe.  Which is why no one parent can let their kid wait at the bus stop alone, but they can all collectively allow the little tykes to take up rock climbing, or get behind the wheel of a car when they turn fifteen.

Once you have tens of thousands . . . or tens of millions . . . of people in the dock, you don't have villains.  You have a system that has gone badly wrong.

Oh, the crisis has produced villains, or rather, exposed them.  Bernie Madoff, Allen Stanford, et al are genuine human sewage as far as I can tell.  But the crisis would have gone on just the same without Bernie Madoff, and Bernie Madoff would have gone on just the same without the housing bubble.  At any given time, there is a certain amount of garden variety financial fraud going on.  It tends to emerge in financial crisis not because they're actually connected, but because falling asset values expose the con.

There are plenty of villains around, but no group small enough to be assigned any meaningful measure of responsibility for the financial crisis.  Imagine that Goldman Sachs had, say, gone under in the 1998 financial crisis.  Imagine that Clinton or Bush had appointed someone else to the SEC from the universe of politically possible candidates.  Imagine that Suze Orman had started talking down homeownership in 2003 rather than touting it as a fabulous way to build your net worth.  What would be different now?  Nothing of any importance, as far as I can tell. 

You can point to many people--thousands of bankers, tens of thousands of realtors and mortgage brokers, millions of homebuyers--who did things I really wish they hadn't, blinded by greed and wishful thinking and arrogance.  But when the action of any one person, or firm, requires millions of counterparties taking their own stupid risks, I don't see how you can really name them the villains of the piece.

This will not, of course, please anyone who wants me to tell them how and why we should get the bankers.  For them, the important thing is the conclusion; since we already know it, it is a trivial matter to assemble whatever evidence might help us get the bankers.    And since I am not providing them with convenient reasons to get the bankers, it therefore follows that I must be a paid hack protecting my corporate masters. 

Me, I think it's possible that we should get the bankers, and I'd certainly like to get the bankers out of government, though I'm not sure how you find out what is going on in the banking system without, like, asking some bankers.  But I think the case needs to be a leetle bit tighter than the fact that bankers make stupid decisions, bankers get paid a lot, and we just had a financial crisis.  I'd like to see someone make the case that they did things that were actively, knowingly, illegal and morally turpitudinous, rather than simply totally moronic.  Because with the total moron thing, they had an awful lot of company.

The Price of Innovation

Two pieces worth reading on health care innovation.  First, Glenn Reynolds on his family:

President Obama talks about the importance of prevention in a way that suggests that when people have heart attacks it's their own fault. But my wife, a longtime vegetarian and marathon runner, had a freak heart attack at the age of 37.

It wasn't from too many Big Macs. After some rough patches, she's now doing well, thanks to an obscure and expensive anti-arrhythmic drug called Tikosyn, and an implantable cardioverter/defibrillator. Not too long ago, she'd have been largely bedridden. These medical innovations made the difference between the life of a near-invalid and a life that's close to normal.

My mother had a hip replacement. Her hip didn't break - she basically wore it out with exercise. When the pain got too bad, she got it replaced, and now she's moving around like before, only painlessly. Not too long ago, she would have been chairbound.

My father had prostate cancer; his doctor suggested waiting but on biopsy it turned out to be pretty aggressive. It was treated with radioactive "seed" implants. He's now been cancer-free for several years, without the side effects of earlier treatments -- or, worse, of cancer.

My daughter had endoscopic sinus surgery this spring. She had been sickly and listless, complaining of constant migraine headaches, missing a lot of school, and generally looking more like a zombie than a teenager. Several doctors dismissed her problems, or prescribed antibiotics that didn't help much, until we found one who took the extra step.

A head CT scan done on a fancy new in-office machine showed a nasty festering infection, the surgeon cleaned it out, and now she's like a normal kid again. Before laparoscopy, her condition

would probably have remained untreated, and she would have been another "sickly" kid. Better to be well.

The normal critique of socialized medicine is to point out that people have to wait a long time for these kinds of treatments in places like Britain. And that's certainly a valid critique. I'm sure my mom and daughter would still be waiting for their treatments, while my father and wife would probably be dead.

The key point, though, is that these treatments didn't just come out out of the blue. They were developed by drug companies and device makers who thought they had a good market for things that would make people feel better.

This is something I've been saying for a while.  But it touches on something else I've been thinking about--the way in which our attempts to measure health care innovation are going to bias our health care output towards things that can be measured.

The death of Dr. Helen would have shown up in any system's statistics.  It's a hard fact which is easy to measure, hard to game.  But if she had merely been bedridden, the loss that represents would be hard to measure, and easy for the system to "improve" by deciding that being bedridden wasn't so bad, after all.  An old woman waiting for a hip replacement (or not getting it at all?)  A daughter whose health was sort of permanently dragged down by a lingering infection?  The system rarely looks for ways to fix things that the system doesn't measure.

Meanwhile, The Enterprise blog has one of the more fascinating health care charts I've seen in a while:

Veterinary spending is rising just about in line with human medical spending.  Kudoes to AEI for publishing a graph that seriously undercuts one of the major conservative arguments about health care:  that the main problem is consumers who don't bear their own costs.  Veterinary spending is subject to few of the perversities that either left or right suppose to be the main problems afflicting health care spending.  Consumers pay full frieght most of the time.  They are price sensitive, and will let the patient die if keeping him alive costs too much.  There is no adverse selection.  There is no free riding on mandatory care.  Government regulation is minimal.  Malpractice suits are minimal, and have low payouts.  So why is vet spending rising along with human spending?

Two reasons, presumably:  technological change and rising income.  As we get wealthier, we spend more of our income on former luxuries, like keeping our pets healthy--nineteenth century veterinary care for sick cats consisted of a sack and some stones to weight it down with.  And improvements in health care technology are giving us more things to spend that money on.  With the help of my family, I bought my dog five extra years of life with an MRI that diagnosed his slipped disk; without it, we'd have had to put him to sleep when he was three.  Worth it?  I think so.  But in 1950, I couldn't have afforded it, even if it had been available.

When 60 Isn't Enough

A lot of leftbloggers are understandably upset that the 60-vote requirement is still with them.  How can Democrats control 60% of the Senate, and still be unable to get a goddamn cloture vote?

Well, Teddy Kennedy is out of commission.  But not totally.  This shouldn't keep Democrats from passing legislation.  Why can't Democrats do this?  Hilzoy points out that Democrats could always vote for cloture and then vote no:

It's one thing to vote against something, and quite another to vote against the proposition that a majority should be able to determine whether or not it passes in the Senate. There are rare occasions when I could see doing that. (I would have filibustered the Iraq war, for instance.) But voting to sustain a filibuster ought to be very serious, and wholly different from simply not supporting a bill.

Democrats ought at least to be able to insist that their members should not obstruct the agenda that the party as a whole has embraced. Absent some very compelling reason, voting to sustain a filibuster on any important piece of Democratic legislation ought to be seen not just as a way of not supporting a bill, but as undermining both the Democratic Party and the Senate as a body. And it should be punished. When Senators vote to sustain a filibuster of a bill that's a Democratic priority, they should absolutely lose seniority.

But of course, if Hilzoy were in the Senate, she wouldn't be Hilzoy; she'd be someone who had just spent some of the best years of their life putting themself into a position to get into the Senate.  And she'd undoubtedly have plans to stay there for a good, long time, doing all manner of wonderful things for her constituents, and the world.

I am perhaps too fond of rational actor models, as I am constantly assured by angry commenters, but I assume that the reason Democrats can't get the votes for cloture is that many of their members do not want to vote at all--they come from states sufficiently finely balanced that voting either yes or no on things like healthcare could be their undoing.  Moreover, I assume the reason the Democrats have not put the arm on their members is that they believe that doing so would result in the loss of their 60-vote majority in 2010.  Even further, I believe that the Senate leadership is probably much better at assessing this particular risk than I am.

So what is a good Democrat to do?  That, alas, I cannot answer, since I am not a good Democrat.  All I have to offer is my own surprise that it's so hard to get things done even with those magical 60 votes.

Matt Taibbi Gets His Sarah Palin On

This Eric Martin post reminds me that a number of you have asked me what I thought of Matt Taibbi's Rolling Stone piece on Goldman Sachs.  What I think, sadly, is that Matt Taibbi is becoming the Sarah Palin of journalism.  He seems to deliberately eschew understanding his subjects, because only corrupt, pointy-headed financial journalists who have been co-opted by the system do that.  And Matt Taibbi is here to save you from those pointy headed elites. 

Taibbi is a gifted narrative journalist, whose verbal talents I greatly admire.  But financial meltdowns don't offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system.  Confronted with this, Taibbi doesn't back away from the narrative form, or apply it to smaller questions where it is more appropriate, as William Cohan did in House of Cards.  Instead, he grabs whoever's nearest to hand and builds them up into a gigantic straw villian, which he proceeds to bash with a handful of recently acquired technical terms that he clearly doesn't quite understand.  It's not that everything he says is wrong, but the bits that are true aren't interesting, and the bits that are interesting aren't true.  The whole thing dissolves into the kind of conspiracy theory he so ably lampooned in The Great Derangement.  The result is something that's not even wrong.  It's just incoherent.

To give you a flavor of what I mean, Taibbi rants about how we knew derivatives were bad bad BAD! because they'd gone so badly wrong before:

There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated - and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses.

But it's not clear how much derivatives regulation would have helped any of these three companies.  Gibson was defrauded by its bankers.  P&G wasn't; they spent a great deal of money unwinding their positions when the Treasurer realized they had a lot of exposure on a bad bet on falling interest rates.  Orange County, too, was making a massive, levered bet on a steep yield curve (roughly, a large difference between short and long term interest rates) that came undone when the yield curve flattened and interest rates rose.  Moderately complex derivatives allowed its idiot financial manager to take somewhat larger bets, but you can take massive, money losing bets without them.  At any rate, none of these derivatives have much to do with CDOs or CDSs; you might as well conflate stocks and bonds because they're both "securities".   No one, as far as I know, is now proposing that we need to curtail the use of interest rate swaps.

Or take Taibbi's complaints about Goldman and its nefarious role in the Great Depression:

Beginning a pattern that would repeat itself over and over again, Goldman got into the investment-trust game late, then jumped in with both feet and went hog-wild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund - which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah - which, of course, was in large part owned by Goldman Trading.

The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line; The basic idea isn't hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.

In a chapter from The Great Crash, 1929 titled "In Goldman Sachs We Trust," the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leverage-based investment. The trusts, he wrote, were a major cause of the market's historic crash; in today's dollars, the losses the bank suffered totaled $475 billion. "It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity," Galbraith observed, sounding like Keith Olbermann in an ascot. "If there must be madness, something may be said for having it on a heroic scale."

This is all technically true, and collectively nonsense.  Investment trusts--aka mutual funds, now heavily regulated--were not the cause of the Great Depression.  They were not even the cause of the stock market crash.  They were an interesting sideshow that Galbraith included in his book because they were a vivid example of the froth.  And Goldman was not the center of investment trust activity.  They were one player among many whom Galbraith picked as an example, presumably because they happened to be still around and had a recognizeable name.  In other words, because their activity had been less extreme, and hadn't taken the bank down with it.  Yet Taibbi turns this into a central example in the exhibit against them.  Then there's a 65-year gap in the indictment, presumably because no one has written an engaging popular book about the stock market convulsions of the 1970s.

Then the reserve of popular investment post-mortems fattens, and suddenly there's a lengthy litany of new complaints about Goldman:  pumping, laddering, spinning.  Eric Martin defends Taibbi on the grounds that it's all true.  I myself firmly believe that these things are true (she said, looking demurely over her shoulder at the nice man from Legal).  But it's all old, old news.  It's not even a particularly well-written or thoughfully analyzed summary of the exhaustive treatments of the subject by the fuzzy headed moderate business journalists Taibbi disdains.  Investment banks treated their clients disgracefully during the internet bubble, and a lot of the clients were managers who did the same to their shareholders.  But what does this have to do with the current financial crisis?  Perhaps more to the point, how is it a special indictment of Goldman, the ostensible topic of his piece?  Other banks did more and worse.

Even as an indictment of the system this thing is lacking, and showcases Taibbi's lack of fundamental conceptual understanding.  He complains about CDO's on the grounds that Goldman hid the atrocious risks inside a fancy dan derivative package that no one could understand.  But in fact, everyone was aware that CDO's were repackaging crap mortgages--that was the point.  The idea was pure portfolio theory, broadly agreed upon by everyone involved.  Everyone knew a lot of the mortgages might go bad, either by defaulting or prepaying. (This is a risk for bankers, who don't like the idea that if interest rates drop, their 7% mortgage might suddenly turn into a pile of non-interest-bearing cash which can only be invested at 5%.)  But if you pool the risk, only some of the bonds will go bad, while others pay off.  The result is a less risky, less volatile investment than any individual junk mortgage bond.  And it would have worked, too, if it hadn't been for those crazy kids a collapse in the housing market of a scale not seen since the Great Depression.

Did individual portfolio managers take on too much risk?  Yes.  Did some morons get sold these bonds without understanding what was going on?  Undoubtedly.  But Goldman's customers for CDOs are not little grannies who think a bond coupon is what you use to buy denture glue.  They're institutions who could reasonably be expected to understand the risks.  Which is why it is not, as Taibbi absurdly claims, "securities fraud" for Goldman to sell people mortgage-backed CDOs when they themselves were moderately short the overall housing market. 

"That's how audacious these assholes are," says one hedge-fund manager. "At least with other banks, you could say that they were just dumb - they believed what they were selling, and it blew them up. Goldman knew what it was doing." I ask the manager how it could be that selling something to customers that you're actually betting against - particularly when you know more about the weaknesses of those products than the customer - doesn't amount to securities fraud.

"It's exactly securities fraud," he says. "It's the heart of securities fraud."

First of all, of course banks sell people positions they aren't themselves taking.  Sometimes the bank is right, and sometimes the customers are; differences of opinion are what make marriages and horse races.  Second of all, the banks that went down, the ones that arguably caused the financial crisis, were long their own toxic waste (and that of others).  Third of all, Goldman itself might argue that its mortgages were not as toxic as others, and for all I or Matt Taibbi know, they might be telling the truth.  Fourth of all, the disconnect between the underwriting and the customer side of the investment houses was not only legal, but in some cases, mandatory.  Excessive entanglement between the two is why Henry Blodget, whom Taibbi references elsewhere, has been banned from the securities industry for life.  That Taibbi could even ask how this was not securities fraud is really troubling.

This would not be complete, of course, without a detour into the dastardly CDSs, in which Taibbi illustrates that he either does not understand the concept of "hedging", or doesn't care.  Memo to Taibbi:  we want banks to lay off some of their risk exposure.  That's what makes them more stable.  Now, maybe Goldman Sachs was doing something wrong.  But the fact that they insured some part of their portfolio against default is not proof of it.  To know that, we'd need some sense of the size of the portfolio, the size of the insurance, the structure of the deals.  Those are details Taibbi either doesn't have, or doesn't provide us.

I won't even go into Taibbi's silly and naive discussion of Goldman's alleged oil market speculation, except to note:

• He again does not succeed in pinning it all on Goldman
• He fails to explain how a 1991 rule change caused a 2008 price spike and decline
• He fails to note that price spikes and declines in the oil market were common pre-1991

Does this matter?  Aren't I, as people love to claim when you get into details, "missing the big picture?"  After all, okay, maybe Goldman wasn't really all at fault but the important thing is that it shows how we were all duped over the last 25 years by insiders.

No, for several reasons.

First of all, Taibbi doesn't say that Goldman Sachs is just a sort of Everyman; he claims they helped engineer crises so that they could profit from them.  Second of all, ignorance leads Taibbi to ask the wrong questions, and provide no useful answers.  The problem isn't that pointy-headed bankers were rooking us--that may have been an individual problem for individual investors, but a crisis this big cannot be explained by any sort of fraud.  To make these charges stick, Taibbi needs to posit a ludicrous level of naivite among institutional investors.  Being satisfied with sloppy answers, he doesn't talk about, say, Goldman's role in the AIG collapse, or how you build a banking system without putting bankers in charge of it.  He doesn't prove anything except that Matt Taibbi knows little about how the financial system works.

A lot of laymen, and not a few financial writers, like Taibbi because he's willing to take the piss out of self-important bankers.  But you can learn about how the banking system works without being coopted by the bankers--look at Michael Lewis, whose Liar's Poker remains a classic twenty years on.  What you can't do is build cartoon villains.  Felix Salmon isn't overly friendly to Wall Street.  But he doesn't write rubbish.

The more dangerous thing is that Taibbi makes a lot of people feel like they finally understand how they were conned.  Taibbi's facile use of technical terms, his lengthy explanation of little-known secrets that have been endlessly rehashed on every financial page for going on a decade, gives people the illusion that they have acquired valuable information about the financial crisis.  They haven't.  They've acquired a bunch of disconnected vignettes.

Which is not to say that I disagree with Taibbi's project.  Wall Street is an arrogant beast that more than held up its half of the devil's bargain which drove us into our current ugly straits.  Bankers who thought they were geniuses were deceived by models that assumed away the possibility of a second great depression.  They made a terrifying amount of money doing it.  And now that the taxpayers have bailed them out at considerable expense, we don't even get a goddamn fruit basket.  Instead they merrily go along paying themselves gigantic bonuses for the singular feat of not driving our economy entirely back to the stone age.  I think some populist rage is more than warranted.

But just because Taibbi, or Sarah Palin, has a legitimate grievance, it does not follow that everything they say is thereby legitimate.  How you press that grievance matters.  And the right way to do it is carefully, honestly, and with a deep respect for the value of knowledge, even if you disagree with those who are purveying it.

Funding Health Care With a Surtax

I'm afraid I gave the impression yesterday that I thought the fate of Manhattanites makes $200K+ was infinitely more tragic than the fate of single mothers making $20K.  Not so.  The point wasn't that beleaguered Manhattanites are particularly worthy of our sympathy--though there really is a disconnect between the lifestyle being taxed in Manhattan and Omaha at similar levels of income.  Rather, it's that almost no one, including people who are quite affluent, seems to have realized that they're on the hook for the spending they support.  Yet the more practical plans for funding Obama's expensive agenda involve things like a VAT, which will fall on the activists most enthusiastic about national health care.  Yet none of the think tankers I know believes that they are undertaxed, or can easily spare 10% of their wages.

Why is that the most practical?  Look at our current deficit.  There's a reason that most countries do not attempt to fund large welfare states with a very progressive income tax, the way we do*.  The income of the wealthy is fungible, mobile, and volatile.  These are not strengths from the vantage of the tax system.

Paying for a huge new entitlement which will, at best, grow steadily during downturns, should not be done with a tax that will plummet the way progressive income tax revenues seem to during a depression.  See:  California, State of.

But at any rate, I was in no way trying to argue that it's unfair to raise taxes on wealthy people.  Only that a) doing so seems to raise shockingly little revenue and b) fairly wealthy people seem to be getting a nasty surprise from this, and I expect that the surprises will get nastier as the administration is forced to dip into lower income quintiles who were told to expect a tax cut.


*  (Yes, yes, I know the liberals are squirming in their seats, waiting until they can tell me that it is a MORAL OUTRAGE that I called our system progressive.  "Progressive" is a slippery term with many meanings, but in this case, I merely mean that our tax system collects a vastly disproportionate share of its income from the wealthier members of society.  The individual income tax, which is the largest single source of revenue, collects 75% of its money from the top 10% of taxpayers.  FICA is regressive in incidence, but still collects most of its income from the higher quintiles, for the unsurprising reason that higher quintiles have more income subject to the tax.  Calculating corporate income tax incidence is functionally impossible, but one hopes it falls more heavily on the rich than the poor--if it doesn't, we ought to get rid of it.

"You are missing the point!!!" you want to say, but for this purpose I am not.  I am not making a normative argument about the justice of American tax distribution.  I am making a positive argument about the dependence of American tax revenue on the income of the upper quintiles.)

Sasha Baron-Cohen Strikes Again

We went and saw Bruno last night.  Peter liked it much better than I did.  I'm not against it reflexively--some of the viler participants really did seem to deserve what they got.  But overall, it just wasn't that funny.  

Partly that's because Baron-Cohen's schtick is wearing a little thin.  Yes, you've proven that if you put people in weird situations, they will usually go along to be polite.  But the sight of normal people awkwardly complying with Cohen's antics seems less amusing than it did five years ago.

But I suspect that the deeper problem is that most Americans just aren't as openly homophobic as he and director Larry Charles were clearly expecting.  Baron-Cohen is funniest when he gets one of two reactions:  genuinely horrible people say genuinely horrible things, or he gets people to go along with his non-horrible, but utterly surreal questions.



But there's little of the former, and almost nothing of the latter, which is what's always charmed me about him.  They are forced to resort to provoking people by being complete jerks:  fondling people inappropriately, showing them "surprise" sexually explicit video, and if all else fails, grabbing their stuff.  And the responses to people being complete jerks are not particularly surprising or interesting, and therefore, not really very funny.

A lot of the jokes, for example, rely on making very, very explicit passes at straight conservative men.  But the men all behave pretty well.  Though one target throws around the word "queer" in a way that made me like him less than I already do, no one says anything nastily homophobic; they just tell "Bruno" to knock it off.  The tension as these scenes build up is occasionally interesting, but the weakness of the denouement means they never pay off.  I haven't laughed so weakly at a movie in years.  Plus there's always the disturbing knowledge that I'd be deeply, deeply offended if any straight man approached me the way he went after those men.

Even the folks carrying the "God hates fags" signs are barely good for a half-hearted smile.  Cohen is reduced to grabbing onto their signs, since they declined to provide him with the verbal fireworks he was expecting.  That's true in much of the movie--he's forced into actual physical slapstick, which he's not very good at, because people don't give him the dialogue he's trying to provoke.  A number of the funniest scenes are, in retrospect, obviously staged.  But while they'd be funny if they actually happened, none of them rise to the standards of fictional comedy.

In the end, it just didn't work at any level. There were a few chuckles along the way, and one genuinely funny and charming moment.  But mostly, it feels like an amateurish college video.  After the trailers, I was expecting a lot more. 

Extreme Health Care

Kevin Drum is skeptical that America does more in extremis than other healthcare programs:

Boy, I'd sure like to see some backup for that.  If by "extraordinary" Megan means the most extreme 0.001% of procedures, then maybe she's right.  Maybe.  But nothing I've read about Western European healthcare systems makes me believe that there's any substantial difference between the way they treat severe illnesses and the way we do it.  And no systematic difference in success rates for such treatment either.  Nor should this come as a surprise, since most extreme medicine is practiced on older patients, who are covered by a public plan both here and in Europe.

If only Kevin had a subscription to The Atlantic--very reasonably priced at 19.95 a year--he would have found a hint in Virginia Postrel's article about Herceptin and early stage breast cancer, which we ran in March.  That article is about New Zealand, but the controversy over Herceptin was not limited to the Southern Hemisphere; Britain had a famous case involving the expensive cancer drug, in which a woman successfully used a combination of legal and media pressure to force the NIH to provide her with the drug for her early-stage breast cancer (she has since died).  Early stage HER2 positive breast cancer is hardly a 0.001% event--25% of breast cancers have the HER2 trait, and those tend to be the more aggressive kinds of cancer.  The drug had already been offered for early stage cancers in the US for years, even though no one had definitive proof that it worked.

This may be why--contrary to what Mr. Drum has apparently read--cancer survival rates in Europe lag those in the US.  (Although this is complicated:  we catch cancer earlier, because we're screening-test-mad, and some cancers just hang out for decades without killing you).  At the highest macro level, life expectancy, Europe generally outperforms us.  But it's not clear how much of that is health care, and how much things like our murder rate, and our famously sedentary lifestyles.  When you drill down into many diseases, we outperform them.  And many argue that we outperform them on hard-to-measure "lifestyle" issues:  how fast your torn ACL gets repaired, how quickly (or whether) you get a hip replacement, etc.  Such quality of life issues are nearly impossible to measure, though this hasn't stopped many people from trying.  But I don't really trust the figures they generate.

Europe gets a great deal out of all of this.  We figure out what works, then they adopt it.  But we get a great deal too--we get earlier access to controversial treatments, and our future generations get all the treatments we've discovered so far..

So What About That Surtax?

A Democrat of my acquaintance, who makes something, but not a huge something, over $200,000 a year while living in Manhattan, was recently grousing to me about the surtax.  "My taxes on a marginal dollar are going to go up almost 1000 basis points!" said he.

This is true, I agreed.  And just what, I wondered, had he thought was going to happen if he elected Obama?  Not clear.  Our subject had listened to Obama talk about taxing people who made more than $250,000, which seemed entirely reasonable; he hadn't realized that being single, his tax hikes would start much lower than that--that he, too, was "the rich".  Mentally speaking, the rich don't live in eight hundred moderately roach-infested square feet in an unfashionable neighborhood of New York.

A few readers emailed to ask me about the proposed 4% income tax surcharge on incomes over $250,000, and what I think is that this experience will eventually be renacted down the income chain.  What's really astonishing is how little money the thing is expected to raise:  less than $100 billion a year over the next ten years.  That's not even enough to cover the current static estimates of the health care plans on the table.

Needless to say, I don't think the plan will cost as little as it is projected to, since virtually no US government health care plan in history ever has.  Meanwhile, the gaping maw of Medicare opens ever-wider.  Obama is going to have to push much farther down the income ladder to pay for it all, taking money out of the pockets of ordinary folks--people who thought that by electing a Democrat, they were going to get relief, not more bills.  He may end up far enough down the income ladder to scoop money out of the pockets of the jounralists and wonks who have been enthusiastically pushing his plans.  Old people are expensive, and they don't have much income.

This hardly dooms his electoral chances--my acquaintance remains a die-hard Democrat.  But it sure won't be popular.

Reports of the Death of Obamanomics are Greatly Exaggerated

I just can't get excited by conservatives who are listening hard for the distant sounds of herds of voters preparing to destroy Obama and his agenda.  Yes, his approval ratings are falling, but his approval ratings were never going to remain at their inauguration highs; once you start making actual policy, rather than pretty promises, you invariably start pissing some people off.  Yes, it turns out that FDR was more of a fluke than a model, and crises may not be such a good time for passing massive new agendas after all.  Yes, the green shoots seem to have shrivelled.

But honestly, I feel like the punditariat needs to check its meds; the bipolar swings are starting to induce whiplash.  The second derivative of unemployment perks up, and the economy is back on track, the stimulus is working, and we're all going to go to heaven when we die (and have excellent universal health care right up to that point).  Retail figures fall, and Obama's presidency is over, climate change is going to kill us all if the recession doesn't get us first, and 95% of the Washington Post's columnists start bulk-pricing canned goods and ammunition.

I'm certainly not going to say that Obama is guaranteed re-election, or any part of his expansive agenda.  But it's far, far too early to count him out.

The Politics of the Possible

Paul Krugman asks why favoring a second stimulus, like opposing the Iraq War, has been written out of the public argument.  Now, I seem to remember a very robust and lengthy public argument about the war, which couldn't have persisted without opponents.  But leaving that aside, what about the stimulus?

Well, it is starting to get some traction.  But it probably won't get much, and here's why:  Democrats aren't interested.  They aren't interested because they are already facing political pressure over the debt.  Doing another stimulus will--or so they think--make it much harder for them to do health care and climate change.  Their initial thesis that a big, bold spending program would "prime the pump" for more big, bold spending programs has fallen flat.  The stimulus is working too slowly, probably because little money has yet been dispensed, which has made further spending programs less, not more, popular.

A question for Paul Krugman and other stimulus proponents:  would you rather have a second stimulus, or health care?  I know that in an ideal universe you wouldn't have to choose, but assume that the worrywarts are right, and you do.  Which should Obama get done?

That's a genuine question, and one that I think congressional democrats and Democratic wonks should probably be more conflicted about than they apparently are.  Not to concern troll, but it's a genuinely tricky, and interesting, political question.  If you think a second stimulus will work, and is needed, then you're risking the 2010 midterms and the 2012 election if you don't do it.   On the other hand, what's the point of electing Democrats if they can't get a single major program passed?

A Public Plan and the Law of Unintended Consequences

Hilzoy is mad at conservatives talking about rationing in the public plan.  She says that no one's really rationing care with a public plan; anyone can buy what they want.  It's just that the public plan will ration for those in its care in order to make coverage affordable. 

I feel a little odd putting the shoe on the other foot, here, since this argument is usually used by liberals arguing against libertarians, but surely the point of worry is that many millions of people will be forced into the public system, because its existence will encourage their employers to dump their health care plans.  Since private systems have so far found it virtually impossible to deny many treatments for long, this will mean that millions of budget constrained people will find themselves with less available treatment than before.

(I say this assuming arguendo that we think a public plan can and will control costs by limiting treatment--a thesis of which I am actually pretty skeptical.)

This is not a crazy worry.  What America is best at is delivering a lot of complicated care in extremis, and "quality of life" treatments.  What European countries are best at is delivering a lot of ordinary care for the sorts of things that afflict people from 0-50, which is why most of the Europhile journalists writing about Europe genuinely have very good experiences to report.  I'd rather be here to have a hip replacement, but I might rather be in the Netherlands to have a baby.  Doing something moderately ordinary here is a hassle.  Doing something extraordinary there is often not possible for the overwhelming majority of citizens, though that depends on what, and in what system.

Option value matters, particularly for the elderly, who tend to get short shrift because they have more, and more extreme, illnesses, and fewer life-years left over which to amortize the cost of their treatments.

That's not to say that there's nothing to gain from a public system:  obviously, the peace of mind that comes from not worrying about losing your health care along with your job is also worth some incalculable amount.  But the fear that many people will have to permanently trade the option to get access to our frenzied, experimental extreme care is not crazy.

Question Answered

Matt Yglesias accuses me of premature hypocrisy hunting.  Lucky for Cactus provides some very strange defense of this arcane Democratic art, which makes me merely prescient:

But there are others who believe that a (D) is short-hand for something else, namely that the politician generally hews a bit more closely to a particular set of policies that have worked a little better than the policies adhered to by people who have an (R) after their name. Its not a guarantee of performance.

I have noticed that many people who take the second approach have been criticizing Obama's approach even before he took office. I for one have posted (over and over and over) on the folly of bailing out the financial institutions that have caused this mess (since when is taking from the poor and middle class and sending to the fabulously wealthy compatible with the policies that generally define Democrats?), and I've had a few posts noting that Christina Romer was a very poor choice for CEA chair (Mankiw's endorsement alone should have been a tip-off even to someone who never read her "narrative economic history" paper).

Sure, exogenous factors do matter. Truman was a Democrat, but the economy was awful for the first few years of his administration; transitioning from WW2 to a peacetime economy ain't easy. And it sucked in 1933 too, which was FDR's first year. This despite the fact that annualized, real GDP per capita grew much faster under FDR than any other President over the time period for which the BEA computed GDP, even leaving out the War years. Which also indicates something else - the economy might still turn out alright despite the many Obama mis-steps. Time will tell.

But there are a few other things - for one, you don't have only one (R) or (D) administration to look at. You have probability and statistics. (And to forestall the point that inevitably gets brought up again and again and again and again, that's what degrees of freedom are for.)

And while no theory is perfect, the better ones require fewer exceptions. If Obama starts acting like a Democrat and the economy still sucks by the end of his term, that means Democrats have to explain away Obama and Truman. Republicans still have to explain why Republicans generally do so much worse when it comes to real GDP per capita growth rates. The BEA has only been calculating real GDP per capita since 1929, and yet the best performing Republican, Reagan, is beat out by four Democrats, and all but one of the entire bottom half of the sample is taken up by Republicans. Tip to Megan McArdle: nobody can tell you for sure who's going to win next year's World Cup in South Africa, but betting on Grenada to pull it off is a bad idea.

And then there's the question that McArdle herself keeps bringing up - the mechanism. The mechanism doesn't apply if you don't have the right inputs. As I noted above, Obama has not yet behaved like a Democrat; his policies on the bail-out have been essentially the same as those of his predecessor who most certainly was no Democrat.

So in the end, here's what I say to Megan McArdle: ask your question again when Obama starts doing things a Democrat would do. Pushing through the "public option" on a healthcare would be a start.

So Obama doesn't count because he's not really a Democrat.  But Bill Clinton was.  But Richard Nixon--the chap who implemented price controls and massively expanded Social Security and Medicare--was definitely a Republican.  Jimmy Carter, who deregulated like mad:  definitely a Democrat.

What are these policies that neatly define Democrats to exclude only the ones who happen to have crappy growth?  On what metric does Barack Obama register as farther to the right than Bill Clinton?  Because from what I remember of the 1990s, I spent most of the decade listening to my genuinely left-wing friends weep that he'd betrayed them.  Remember Edelman's resigning in protest of welfare reform?

I submit that there is no intellectually credible way that you can throw Obama out of the sample because he didn't include a public option in the health care plan--something that's actually driven by Congress, anyway--while keeping Clinton, his welfare-reformin' ways, and his lovely, lovely late 1990s growth rate.  On actual domestic policy, Bill Clinton was well to the right of Richard Nixon.  You could argue that he was more socially liberal, but then Jack Kennedy was less socially progressive than Richard Nixon--time is a more important variable than party identification.  And at any rate, I'm aware of no work indicating that abortion policy is an important factor in economic growth.

Now, of course, it may be that the economy starts growing like gangbusters in the next year.  In which case I expect that Cactus and his merry band of madmen will continue with their arguments.  But if, as most people expect, growth continues to stall for the next few years,  it seems I can look forward to more explanations of why Democrats--and only Democrats--can be thrown out of the sample if they have low growth and betray The Faith; and why the economic results of Democratic presidential administrations--and only Democratic presidential administrations--are sensitive to exogenous starting conditions.

Information Wants to Be Free

I'm not going to comment much on my employer's salons except to say that I've been to them, and there's no scandal there.  At the paid ones, where the journalists talk, the journalists dictate what we say, and the sponsors are told they have no control.  At the unpaid salons, it's--well, it's an off the record briefing, of the sort that every other journalist is well familiar with.  Either way, I've never said or done anything that I wouldn't say at a regular interview, and neither have the other journalists.

But this Jack Shafer article is just silly.  Off the record conversations allow journalists to get much deeper understanding of what's going on. That's why journalists talking to their friends about their jobs at companies of interest to the journalist talk off the record.  I'm sure that Jack Shafer has done this, or else he doesn't have any friends in the media.

Now, there are journalists that get carried away with the excitement of an off-the-record conversation.  Subjects can lie just as easily off the record as on it.  But it's absurd to say that the only worthwhile conversations between journalists and the powerful are on the record.  Off the record conversations allow politicians to say things that they cannot say publicly because the Fed Chairman or the Secretary of State or the Schools Chancellor cannot be seen to say certain things as they are trying to affect outcomes--they are, as the economists like to say, endogenous to the system.  Restricting their ability to explain things off the record would restrict the supply of information available, not expand it.

Sigh

Ezra complains that I called him a communist, or ignored the TOTALLY AWESOME EXAMPLES OF NATIONAL HEALTH CARE in order to compare it to the Soviet Union, which we all agree sucks.

Uh, no.

I said that these arguments about administrative costs and rationalizing production and eliminating wasteful competition turn out not to be nearly as good arguments as they initially sound.  Maybe there are other good arguments about national health care.  But this particular set of belief systems was well developed about other nationalized markets by the vast tradition of socialist literature, with which today's young progressives are shockingly unfamiliar. 

Because so many young leftists do not seem to know their own history, they are doomed to repeat it.  Literally.  They make arguments that were common in socialist circles a century and a half ago--for the popular version, try Edward Bellamy's Looking Backward. 

Those arguments utterly failed to rescue other nationalized markets. 

On the other hand, as Ezra points out, people in Germany and France are not dying in the streets.  So centralization does work better on health care than it does in steel.

But I'd argue that the difference is that Germany and France, unlike the Soviet Union, have companies which produce in American markets to provide them products.

One key thing to remember is that there's a big difference between a situation where the government is a sizeable buyer/producer, and one where the government is essentially the only buyer/producer.  In the latter case, the market still works, even if the government presence distorts it--prices are set by supply and demand, research is done, and so forth.  Indeed, it is not well appreciated on the left how dependent Medicare is on private insurers to tell them what the competitive price is for the treatments and products it pays for--if the private sector went away, Medicare would have to develop some sort of pricing system, and so would all the health care systems abroad.  Once the government becomes the dominant player, however, everything changes. 

Look at defense spending.  Are F-22 raptors worth $138 million?  It's a pretty meaningless question.  Congress is willing to pay $138 million.  But this bears only the haziest relationship to what the Americans who pay the bill want, or are willing to pay, for such a plane.  And the procurement system pays at least as much attention to what congressional district things are built in as what makes the most effective military.  That's why virtually everyone thinks defense procurement is an overpriced disaster, which gets innovation only at drastic cost.  Unfortunately, there's no other way to go about it.

Right now, the US has a market--no matter how screwed up--for medical goods.  It is not a good market.  But no one in the market, except Medicare, has enough pricing power to totally undermine the market mechanism, so it grinds out an equilibrium that bears some resemblance to consumer demand.  In turn, Europe can buy those market-produced products.  But if you kill the last market, everything suddenly looks very different.  What's the right price for innovation?  What should we research?  Those questions stop being decided on the basis of the number of consumers served, and start being decided on the basis of who has the best lobby.

There's one more difference, which is that health care is not transportable.  When British coal was overpriced and delivered erratically, this was obvious, because other countries had a steady supply of the commodity at a lower price.  Healthcare is hard to measure and impossible to transship, and almost no one consumes health care internationally (though I'll note that as the internet has facilitated comparisons, Europeans have become disenchanted with their rationing boards). 

A lot of blogs recently have been talking up this quote from Jon Cohn:

Last year, I had the opportunity to spend time researching two of these countries: France and the Netherlands. Neither country gets the attention that Canada and England do. That might be because English isn't their language. Or it might be because they don't fit the negative stereotypes of life in countries where government is more directly involved in medical care.

Over the course of a month, I spoke to just about everybody I could find who might know something about these healthcare systems: Elected officials, industry leaders, scholars - plus, of course, doctors and patients. And sure enough, I heard some complaints. Dutch doctors, for example, thought they had too much paperwork. French public health experts thought patients with chronic disease weren't getting the kind of sustained, coordinated medical care that they needed.

But in the course of a few dozen lengthy interviews, not once did I encounter an interview subject who wanted to trade places with an American.

But as anyone who has lived in Europe can attest, the beliefs about what happens in America are ludicrous.  And I'm not talking about "the man on the street"; I'm talking about journalists, politicians, doctors.  It's not uncommon for Americans getting treatment in Europe to be asked "You'd never be able to afford this in America, right?" by their doctors and nurses, when "this" is stitches or antibiotics.  I'd be terrified of switching places with an American too, if American health care were actually one eighth as bad as most Europeans seem to believe.  Yet despite that, as far as I know the net migration is actually the other way.

But the main point is not that one system is better than the other.  The main point is that these are very bad arguments which have been trying, and failing, to save nationalization for well over a hundred years.  If indeed Europe's systems are superior, it is not because they have managed to eliminate wasteful competition and centrally rationalize decision making.  It is in spite of those things.

Medicare's Mythical Administrative Cost Savings

The title of this post is going to make some of my readers very angry.  Medicare has lots of administrative cost savings, they will say.  This may be so.  But I mean mythical in another sense:  there's ultimately no way to prove or disprove these amazing savings.  The problem is indeterminate.

Jon Cohn, who I respect greatly, spends a lot of time on the money and time that insurance companies put into denying claims.  This is undoubtedly true.  But I have two caveats.  First, some of that effort is a good thing:  without it, there would be fraud.   No, not the automatic denials so many insurers are fond of, and I'm not defending.  But Medicare should probably spend a lot more effort rooting out excessive billing. And I don't know what percentage of claims denial consists of refusing to line the pockets of doctors and labs.

But the more important point is that I doubt this is the majority of their administrative costs, or even the difference between their administrative costs and Medicare's.  I'm not trying to justify the bullshit automatic claims denial, but that's not actually a very costly process:  a hospital submits a bill, they deny it, you yell at them.  Nor is refusing to cover people with pre-existing conditions, or any of the other multifarious complaints of single-payer advocates.

Rather, private insurers have costs that Medicare doesn't have within the agency.  Private insurers bill.  Medicare does too, but the IRS has its own budget--hell, its own courts--which don't show up on Medicare's balance sheet.  Private insurers negotiate with suppliers.  Medicare does too, but most of the negotiation takes place between lobbyists and Congressmen who again, do not show up on Medicare's balance sheet.  The Federal government has all sorts of these little items which relieve government agencies of reporting certain costs.  But the costs remain.

My guess would be that these explicit costs are still lower than Medicare's.  But then there are implicit costs to government fiat that markets don't have.  As Tyler Cowen points out, taxation has deadweight losses, and Medicare is a tax on employment, which is something we are particularly anxious not to suppress right now.

The final point is that while people commonly think of administrative costs as "wasted", in fact, they are an important part of the market system.  As Alex Tabarrok points out, and I have myself from time to time, many of the arguments in favor of national health care are literally socialist.  And no, I am not using that term to apply to "anyone who is in favor of redistribution" or "government programs".  But consider the following common arguments:

• National health care will be cheaper because we will reduce administrative overhead
• National health care will reduce wasteful competition in the form of me-too drugs
• National health care will reduce wasteful competition in the form of advertising and other marketing expenses
  
• National health care will allow us to rationally distribute care to where it does the most good rather than the current messy, wasteful hodge-podge
• National health care will use resources for production instead of profits
• National health care will achieve economies of scale in purchasing and record-keeping
  
• People will not overuse free goods because there are hard limits to desired consumption

These were all arguments advanced in favor of socialism.  Contrary to popular conservative belief, socialists were not unfamilier with either the incentive problems of communism (people will not work hard if there's no benefit to doing so) or the Hayekian argument about the value of prices, aka the Socialist Calculation Problem.  Rather, smart socialists thought that they could overcome these problems with a combination of status competitions (Hero of the Soviet Union, Second Class) and massive efficiencies gained by wringing all that fragmented, wasteful competition out of the system.  Economists who would be ashamed to make these sorts of arguments about Proctor and Gamble or the used car market suddenly start parroting these things as if they hadn't been thoroughly discredited by the last seventy years.

But why were they discredited? That list looks really, really good on paper, even to my jaded libertarian eyes.  A lot of the answer lies in the reason that we don't like monopolies--even though that list is just as true of monopolies as it is of the government.  Monopolies, government or private, are risk averse, slow to innovate, and generally run things for the benefit of themselves rather than their customers.  Hamstringing them with regulations can limit measurable outcomes, like excess profit-taking, but not unmeasurable ones, like the people who might have been cured by a drug the system didn't invent.  And the political system introduces its own problems.  As Robert Heinlein pointed out years ago, systems that have only positive feedback loops tend to fail catastrophically.

My critics will want me to explain why, then, Europe can do it cheaper.  The answer is threefold.  First, most European nations have better governance than we do--the American political system is a Public Choice disaster.  Second, they pay people less money in a way that's hard to replicate here (and even if it wasn't, would be a one time savings that wouldn't check the rate of growth).  Third, we're still driving quite a bit of product innovation.  Our messy, organic, wasteful, unfair, irrational system allows experimentation, and they cherry pick the best results.  If we stopped doing this, their system would stop looking so good.

Question of the Day

What happens to the cottage industry among Democratic-leaning armchair economists grinding out analyses proving that Democratic presidents are, like, totally awesome for the economy?  Presuming that we're stuck--as seem very likely--in at least a couple of years of really grinding low-to-no growth, Obama is going to destroy their figures.  Are we in for a resurgence of belief in exogenous growth factors?

Retraining Isn't the Answer

Forgive me for going anecdotal for a moment.  In 1995, having already lost two jobs to the recession and my affinity for parlous startups, I took a job as an administrative assistant at a non-profit.  This had its upsides--the work was light enough for me to complete the worst novel ever written in the English language during my spare time.  But it was tedious and offered few prospects for advancement.  Like most non-profits, this one had a flat management structure:  there were senior men who had been hired in from outside, and junior women who did their typing and filing.

It was not my cup of tea.  On the other hand, I did like to eat regularly, and there were surprisingly few more lucrative opportunities for recently minted English majors.

Thus did I make one of the best and worst decisions in my life:  I signed up for a course to become a CNE--a Certified Netware Engineer.  I'd done some light network administration at the startup, and I thought I'd like to make a career of it.

The IT types among my readers are cringing.  No one gets hired because they took some low-rent course and passed a computer adaptive test.  Indeed, back in the day, hearing someone officiously announce that "I'm a CNE" was a warning sign not to let them anywhere near your network.  It's like having a job applicant hand over their eighth-grade graduation certificate.  Of course, everyone qualified has one to stick on the resume, but they don't talk about it, because it's not even a basic qualification.  Anyone whose main qualification is a CNE knows just enough to be extremely dangerous.

But I didn't know that at the time.  I financed a $3,500 course on credit cards, and dutifully trooped off to class four evenings a week.  I passed all the tests.  Then I found out what any professional could have told me:  without actual work experience, no one would hire me.

My classmates were all in the same boat.  Lik me, they had found themselves in career dead-ends.  Unlike me, they weren't 22-year-olds who could live at home.  They were people who had been made redundant by technology or competition:  payroll machine operators, verizon line workers, office managers, various salesmen, secretaries who could type 100 wpm in an era when bosses were increasingly doing their own typing.

I got super lucky.  The place where I'd trained was doing a corporate training startup, and they needed someone who could a) type b) work for low pay and c) futz with the network.  The startup lasted for three months, then, like my jobs before, shut down.  But now I had job experience.  It was the tech bubble.  I was laid off for less than twelve hours:  I found out at ten, called an employment agency at 10:45, went on my first interview at 1:00, had two job offers by that evening, accepted one on Friday, and started my new job on Tuesday at a 30% bump in salary.

The rest of my class, nine months later, was mostly still looking.  One other guy had found a job in technology.  The others had wasted $3,500 and five months.

This is basically typical of job retraining.  Students are overoptimistic.  Schools encourage them in their folly while collecting checks.  And employers demand real-world experience that training can't give.  It works best on people near entry-level, and those with complementary skills.  But that rarely describes the people most in need of retraining, like displaced autoworkers who have spent decades at semi-skilled labor no longer in demand.

Government programs do no better, possibly because they can't run trucking schools and electrician training programs themselves, so they end up contracting out to private parties like the school I attended (which did a lot of BOCES training for the state of New York) or hybrid institutions like community colleges.  Educational output is hard to measure:  much depends on the student themselves.  So we tend to measure inputs instead.  Or we measure outputs--"are they employed six months after graduation?"--without controlling for quality of the jobs. 

So I'm not surprised to find out that when you actually do try to measure the impact on student lives, government training programs have a dismal record.  This comports with our experience in the 1980s, when we tried to retrain people out of the rust belt, and the 1990s, when we tried to do the same for people displaced by trade.  Yet whenever we experience a dislocating crisis like the auto collapse, all the pundits are out again calling for job retraining.  They're not stupid or disingenuous; they just don't have any better answer for a very tough question.

But given my own experience, it strikes me that we might do better by targeting employment--offering employers a subsidy for hiring displaced workers into a job that pays $10 or more an hour.  For skilled work, you might need to pair this with training.  But that would give the workers what they actually need--a job on the resume and a new skill--rather than a useless diploma.

Political Constraints on Programs

I wanted to do more Waxman-Markey blogging, but unfortunately I was overtaken by events.  However, I think it's worth noting that what happened with the bill sort of goes to my point about Medicare cost control.  One of the ways Obama was going to get the money to pay for health care was from auctioning carbon permits.  That went away to get through the House.  And the Senate is more conservative about legislation than the lower house.

Now, everyone on the left was united in favoring auctions over giveaways.  Auctions also had a fair amount of support on the right, mostly from people who hate corporate welfare even if they also oppose cap-and-trade.  And you can whine all you want about how the Republican party had a god-given moral duty to provide political cover to Democrats from coal states (though frankly the complaining about your party's 60-seat senate majority is really starting to sound quite idiotic), but the fact is that at the end of the day, you couldn't do this perfectly obvious thing that has surprisingly broad support among the policy elites of both parties.  Instead, the bill was passed in a form that makes it more expensive, and almost totally ineffective.

The fact that you can imagine some perfect bureaucrat administering a beautifully-designed law does not mean that this is actually possible in the American political universe.

There's something else that has been bothering me.  I have been urged to support Waxman-Markey on the grounds that we musn't make the perfect the enemy of the good, and maybe I do.  But the mediocre can also be the enemy of the good.  Even if you support national healtch care, you certainly wouldn't build Medicare in its current form.  But there is path dependance in institutions:  once they exist, they're precious hard to change.  Enacting a crappy climate trading system in order to do something forestalls the possibility of enacting a better design five or ten years from now.  Given that this bill is universally expected to accomplish virtually no significant emissions reduction in the foreseeable future, that should worry people.  Other than me, I mean.

City Slickers Meet Farmhands

I read this article on urban farming this weekend, and thought "heartwarming, but uselss."  So far it's required subsidies of $1 million to produce a small amount of food--the Times glowingly says that it "provide(s) healthful food to 10,000 urbanites", but of course, all that means is that 10,000 people, give or take, have received at least one vegetable apiece.  It's not providing anything like the majority of their food intake.  And that's in a rust-belt city with a lot of spare land and spare labor.

Ezra argues that industrial agriculture gets subsidies too, and this is true--but not the things these people eat.  More to the point, the subsidies are not why American agriculture has so many vile practices.  What enthusiasm for these sorts of projects fail to deal with is scale.

Scale matters in two ways.  First of all, scale is why so many promising pilot projects fail to yield results when they're implemented broadly--think how many terrific new education and medical programs you've read about over the years, which delivered mediocre results when they became more popular.  Pilot projects have a deep pool of enthusiastic and skilled labor.  There is the excitement of the new, of possible discovery, driving everything forward. Broad programs are applied by ordinary busy people with no stake in revolution.  Over time, the enthusiasm wanes.  Urban gardening is not new, after all--it was in vogue during the Settlement House movment, the 1940s, and again in the hippie sunset of my childhood, when I, along with the other children of PS 166, dutifully weeded little herb patches on 89th and Amsterdam.  By the early 1990s, many of those lots had been abandoned or turned into condos.

Milwaukee, unlike many cities, probably has a lot of abandoned property.  But it probably doesn't have an unlimited supply of urban farming volunteers, or people interested in buying organic local watercresss at $16 a pound.  And if Milwaukee did try to grow most of its own food, it would have the problems that areas with lots of farms experience, like massive pest infestations.  (Agriculture has terrific network effects--for bugs and mold spores).  And, um, smells, which are the first thing that urban transplants to farm country tend to complain about, particularly if animals are involved.  Don't grow animals, you'll say; they're bad for the planet anyway.  But animals are key suppliers of key organic inputs like bone meal and manure. 

Then there's the reason industrial agriculture is like it is:  economies of scale.  Agriculture has extremely high capital requirements, and thank God, because all that capital is the reason that you and I (aka Shiva, Destroyer of Houseplants) are spending our days on the internets rather than poking at weeds or staring at the back end of a mule.  But capital means high fixed costs for land and equipment.  Industries with high fixed costs naturally gravitate towards large producers who do a lot of volume.  America has a lot of cheap land far from its cities, which is where that scale can be most easily achieved.  The subsidies are pernicious, but they are a sideshow.  Remove them, and it's quite possible that we'd see a more concentrated, more socially irresponsible industry forcing even more negative externalities onto the rest of us.

That scale has, up until now, been least achievable with produce.  Produce is also the area of farming which recieves the fewest subsidies, probably because when our farming policy was framed, produce was a perishable sideline for most cash croppers.  But as picking becomes more mechanised, and various technologies enhance the returns for those with capital to invest, that is changing.  I don't see how urban or suburban farming becomes anything but a sideshow for a few committed souls.  The returns to scale are simply too great.

Is Our Stimulus Working?

Paul Krugman is a very smart economist, far smarter than I am.  So when I do not understand this post, I assume that I must be missing something. 

Bruce Bartlett has written that the Obama administration underestimated how quickly the stimulus would affect the economy, reducing unemployment almost immediately.  Krugman calls this "totally false":

Did Bartlett even look at the Bernstein-Romer paper? Here's the key graph:

The predicted impact from the stimulus is indicated by the difference between these two curves. We're now at the very beginning of 2009Q3; they predicted that the unemployment rate right now would be only a fraction of a percent lower now than it would otherwise be. The impact wasn't supposed to be really noticeable until late this year, and wasn't supposed to peak until late 2010.

The problem, in other words, is not that the stimulus is working more slowly than expected; it was never expected to do very much this soon. The problem, instead, is that the hole the stimulus needs to fill is much bigger than predicted. That -- coupled with the fact that yes, stimulus takes time to work -- is the reason for a second round, ASAP.

But when I look at the graph, it looks to me as if the stimulus was supposed to affect the unemployment rate immediately.  Specifically, it was supposed to dramatically lower the rate of increase in unemployment immediately.  By now, at the beginning of Q3, unemployment was supposed to start falling.  But unemployment has continued to rise apace.  It definitely isn't falling.

Also, I don't understand what he's trying to get at when he says that unemployment was only supposed to fall by a fraction of 1% by now.  In my experience, "a fraction of one percent" is usually used to refer to a small fraction of one percent, i.e. a trivial number.  As "fractions of 1%" approach 1%, it gets increasingly hard to distinguish them from 1%, because of measurement error inherent in collecting economic data.

But this fraction is certainly not trivial.  Eyeballing it, it seems to be in the neighborhood of .7%.  Since the maximimum reduction promised for the stimulus looks to be about 1.8% by Q3 2010, this means that we already should have seen more than a third of the employment benefit from the Obama plan.  By their own estimates, the stimulus seems to have failed badly.  I see little sign at this point that it's even moderating; rather, the seasonal adjustments seem to be improving because college graduates, who are being frozen out of the job market it record numbers, don't show up in job losses and unemployment claims.

It seems to me that a better defense against the Newsweek graph I linked is simply that models like this don't work very well, so expecting any sort of precise number from them is silly.  The problem is, those are the same models used to justify the stimulus in the first place. There's no question that in theory, ceteris paribus, a stimulus helps the economy return to full employment.  But as with tax cuts and other macroeconomic medicine, the size of the effect is an open question, one that has to be modeled against an extremely complicated and unpredictible economy.

Omnibus Link Farm

Well, it's been a very busy couple of weeks, and blogging has suffered accordingly.  Now, back to blogging.  Some of the things I saw, but didn't blog:

• California creates own currency
• Why you spend so much time with your kids
• Incandescent lightbulbs get more energy efficient
• GM Section 363 sale goes through smoothly
• Information may want to be free, but landlords want to get paid
• Change you can believe in:  three-day weekend reform
  

Toward a Unified Theory of Cutlery

No, I am not planning to embark on endless exciting rounds of wedding blogging, even though my world is already full of exciting new discoveries, like did you know that if you try on fifty or so rings in a day, your finger will swell up and you will have difficulty removing the later selections?  Virtually any woman in America would make a better wedding blogger than I would.  But a reader sent in this, which is useful for anyone with a cutlery drawer.  No, seriously, click through.  You don't think you want to, but trust me, you want to.

Department of Blogger Weddings

News does not stay secret for long in this new media world.  Not, I suppose that we were really planning to keep it a secret.  Peter and I are getting married.  At some point.  The date to be determined by the vicissitudes of the wedding-industrial complex.  Right now we have a ring, a fond hope not to spend the price of a luxury car on a six hour party, and a sort of dazed and happy look.

What a Day

Today's a holiday for The Atlantic, which I used to attend to all those personal affairs left hanging while I flitted off to Aspen.  So naturally, Sarah Palin goes and pulls this totally bizarre stunt.  I'm not saying Sarah Palin's out to get me.  But she could have been a little more considerate, I think.

All one can say, really, is "what the hell?"  We don't know yet whether this resignation comes in advance of some financial scandal (or to ward one off), to save her family from the really disgusting attention it's gotten from some quarters, or simply because she's got some sort of serious impulse control problem.  But even explanation two reflects badly on her.  I'm second to none in my condemnation of the attention her family has received.  But can you imagine a male politician resigning because comedians and bloggers were being too mean to his daughers?  The state of Alaska elected her to serve a term.  She owes them that much.

When Blogs Were Young

Laura at 11D has an absolutely terrific post up about how the blogosphere has changed over the last six or seven years.  The upshot is that it's a lot harder to make it big in the blogosphere, while the old A-listers are burning out.  Blogging more than a thousand words a day, every day, is mentally exhausting, and if you aren't getting paid for it, eventually, your life intrudes.

Back in the day, new bloggers were emerging all the time.  Now it's happening much more slowly, and the old bloggers have gravitated to various professional positions. Is the new media revolution over?

Department of Invidious Comparisons

Felix Salmon notes who California feels is important enough to pay in cash.  Legislators yes, blind and disabled people, no.  Natch.

Wal-Mart and Health Insurance: The Theories of the Case

I find it hard to believe that none of the liberal commentators breathlessly celebrating Wal-Mart's "capitulation" on national health care have even entertained the most parsimonious explanation:  that Wal-Mart is in favor of this because it raises the barriers to entry in the retail market, and hammers Wal-Mart's competition.  Yet somehow, this appears nowhere in any of the analysis.  These are the explanations that they found more plausible:

1.  Wal-Mart wants to change its image, which is better accomplished by securing a massive regulatory mandate than by, say, insuring more employees, or setting up a happy-face charitable foundation.

2.  Wal-Mart wants to make its voice heard in the process, which is better accomplished this way than by paying lobbyists.  Also, Wal-Mart is hoping that the federal government will deliver health-care cost control, which is something the company that gave us $4 prescription drugs couldn't hope to do on its own.  Controlling health care costs is, of course, a big worry for a company that I'm told does not insure many of its employees.

3.  Wal-Mart is flummoxed by unpredictable health care costs for all the workers it apparently isn't covering.  Because if there's one thing that we've learned over the years, it's that when the government gets involved, health care costs become totally predictible. 

Also not considered:  Wal-Mart cut a deal with the SEIU in exchange for the SEIU leaving it alone.

Yet, even in liberal academic literature, it is a commonplace that regulations disproportionately benefit several types of firms:

a)  Incumbents
b)  Market leaders
c)  Firms with the most employees

Regulation has a very high fixed cost for compliance; the larger the firm, the more dollars/employees over which to amortize the fixed cost.  Meanwhile, market leaders have disproportionate bargaining power, and tend to get better rates from suppliers than smaller competitors.  Finally, a high fixed cost means either that it's harder to initially enter the market, or (if there are exemptions for the smallest firms) harder to grow.

On the other side, there is regulatory capture.  Wal-Mart is always going to have a seat at the table when employer mandates are discussed, because Wal-Mart is the nation's largest private employer.  Target and Macy's probably won't have a seat at the table.  So Wal-Mart can influence the rules in ways that benefit Wal-Mart at the expense of the competition.  This is partly because the regulators often cycle into jobs at the firms they regulate, but also simply because the regulator's attention is finite, so being consistently at the table allows you to shape their views over time.   Again, this isn't some kind of crazy right-wing analysis; regulatory capture was first diagnosed by a Marxist historian named Gabriel Kolko.

All of which is to say, Bootleggers and Baptists should be required reading in all schools.  When you find strange bedfellows in politics, don't look for a surprising outbreak of spontaneous virtue:  looking for the hidden conspiracy.

Old Media Blues

Jack Shafer writes a lovely column celebrating the rise of new media, and pooh-poohing the old guard who are just afraid of competition from upstarts:

Let me say it another way: The barriers of entry into the journalism business have been battered down, making it easier than ever to enter the profession. That will read as small consolation to the journalists who have had their publications shot out from under them--the Rocky Mountain News, the Seattle Post-Intelligencer, the Ann Arbor News (come July 23), and magazines too numerous to tally. But please notice that I'm not saying there has never been a more lucrative or prestigious time to become a journalist. The cash and status associated with the profession are fairly recent. Until the early 1970s or thereabouts, the average journalist made an average salary (if that), and his societal standing was modest.

If the downside of the battered-down barriers to entry is less pay and lower status, the potential upside is that a flood of new entrants into the field could portend a journalistic renaissance. No, I'm not saying that every junior blogger and pint-size videographer will immediately stand as tall as Barton Gellman and Errol Morris and that the Washington Post and NBC News should be flushed. But journalism has generally benefited by increases in the number of competitors, the entry of new and once-marginalized players, and the creation of new approaches to cracking stories. Just because the journalism business is going to hell and it may no longer make economic sense to maintain mega-news bureaus at the center of war zones doesn't mean that journalism isn't thriving.

From where I drink, the champagne is still dry, cold, and fizzy.

This seems to me to rather precisely miss the point.  The problem besetting newspapers is not that there are hordes of bloggers giving it away for free.  Bloggers are, to be sure, great competition for the op-ed section.  But the op-ed section is not a money maker, as the New York Times so painfully discovered with Times Select.  As I wrote at the time, the Times confused what people were emailing each other with what they would be willing to pay for.  If those things were the same, poems about Jesus and pictures of kittens wearing hats would have replaced gambling and porn as the internet's most profitable content.

Journalism is not being brought low by excess supply of content; it's being steadily eroded by insufficient demand for advertising pages.  For most of history, most publications lost money, or at best broke even, on their subscription base, which just about paid for the cost of printing and distributing the papers.  Advertising was what paid the bills.  To be sure, some of that advertising is migrating to blogs and similar new media.  But most of it is simply being siphoned out of journalism altogether.  Craigslist ate the classified ads.  eHarmony stole the personals.  Google took those tiny ads for weird products.  And Macy's can email its own damn customers to announce a sale.

We could herd every new media type into camps and force them to become shorthand/typists, and newspapers would still be in just as bad shape as they are now.  We could take down Google News, and it would barely register in their bottom lines.  Even if every newspaper and magazine in the country entered into a binding cartel agreement not to put more than a smidgen of free content on their websites, newspapers would still be losing money, and closing by the dozens.  It's the economics, stupid.

We're not witnessing the breakup of a monopoly, in which more players make more modest incomes providing more stuff, and everyone flourishes (except the monopolist).  We're witnessing the death of a business model.  And no one has figured out how to pay for hard news.  Hard news stories take a great deal of time to write--more time than most amateurs can afford, which is why blogs tend to do opinion rather than journalism.  Moreover, they are at least greatly improved when their authors are not worried about losing their jobs if what they write pisses off a local power broker.

This is a genuine loss for the American public.  Cities without newspapers seem to experience a sizeable increase in insider self-dealing and other forms of corruption--one theory as to why the Federal government is less corrupt than state and local governments is simply that it's more thoroughly covered by the press.  I am second to none in my appreciation of new media and its possibilities.  But so far, it has proven more effective as a complement to old media than a replacement.

Aspen Bulletin: Austan Goolsbee Explains It All

I haven't gotten to attend many panels this year, because I've been on too many.  But of the ones I have gone to, the Austan Goolsbee Q&A is by far the liveliest.  People who attend Aspen are very successful, and the questions he's being asked hit close to home for them:  marginal income tax rates, taxation of worldwide corporate profits, H1B visas for foreign graduate students educated in America.

The questions for Goolsbee are much more hostile than they were last year.  I don't know whether to attribute this to the economy, or the fact that the disadvantages of Obama's policies are now apparent.  All policies sound better when they're in white paper, and Obama's rhetorical deftness made it particularly easy to make his proposals sound like all things to all people.  Now deficits have to be paid for, climate change bills turn out to lack teeth for anyone except the Chinese, health care gets scored by the CBO rather than optimistic campaign members.