Matt Yglesias

Endgame

Businessmen with stopwatch hearts—they don’t beat:

— Sara Mead and Rick Hess on the “merit pay” study.

— Irrational fear of inflation.

— “Central Banking in a Democratic Society”.

— Rich members of congress don’tlike estate taxes “even after we accounted for their party affiliations, their National Taxpayer Union ’scorecards’ (reflecting opposition to taxes on other bills), and the characteristics of their districts (median income, urbanicity, and polled opposition to the estate tax).”

— Paul Krugman (sensibly!) takes himself out of the running to be NEC director. I think Larry Summers’ leftwing detractors would be surprised to learn how little daylight there is between he and Krugman on the issues.

— Hedge funds and talent allocation.

— Sebastian Mallaby continues to show he’s the smartest man in journalism through his consistent focus on defending the interests of the richest people on earth.

Delerium (featuring Emily Haines), “Stopwatch Hearts”.

Wall Street and Inequality

I want to thank everyone who sent me a copy of Steven N. Kaplan and Joshua Rauh “Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?” overnight. They make an effort to really bore down into the question of who, exactly, the superrich are. The answer turns out to be—largely finance types:

We look at hedge fund, venture capital (VC) fund, and PE or buyout fund investors. The data here are very coarse, and we make a number of assumptions to obtain estimates of income. A large number of professionals in these areas are highly compensated We estimate that the professionals in hedge, VC, and PE funds include roughly the same number of individuals in the top 0.1% of the AGI income distribution as the top nonfinancial executives. While we do not estimate precise distributional changes over time for this sector, we show that these industries are significantly larger today than ten and twenty years ago and, therefore, that their employees must represent a larger fraction of the top brackets than before.

We also find that hedge fund investors and other “Wall Street” type individuals comprise a larger fraction of the very highest end of the AGI distribution (the top 0.0001%) than CEOs and top executives. In 2004, nine times as many Wall Street investors earned in excess of $100 million as public company CEOs. In fact, the top twenty-five hedge fund managers combined appear to have earned more than all five hundred S&P 500 CEOs combined (both realized and ex ante). This trend accelerated after 2004. In 2007, it is likely that the top five hedge fund managers earned more than all five hundred S&P 500 CEOs combined.

They show that star athletes “represent a similar percentage of the top 0.1% AGI bracket in 2004 as in 1995 (0.8% for both years), but a larger percentage of the top 0.01% AGI bracket” and also that non-sports celebrities “comprise a substantially smaller share of the top brackets” yet another reminder of the under-acknowledged declining real wages of movie stars. They further show “that the fraction of lawyers in the 0.1% (and top 0.5%) AGI brackets rose substantially from 1994 to 2004.”

I think some of the interpretive conclusions they draw from this are a bit funny, but the clearest conclusion they offer is that this undermines accounts of inequality that focus on corporate governance, the decline of unions, or other labor market institutions. After all, increases in executive compensation at publicly traded firms have been matched or exceeded by increases in the realm of finance where these issues aren’t in play.

So what’s left? They say “theories of skill-biased technological change, greater scale, and their interaction.” Scale is easy to understand—the heads of bigger firms get paid more, as do asset managers who manage more assets, and scale has increased in both financial and non-financial sectors. But this is a pretty special kind of skill-biased technological change. In particular, it’s not the kind that would be ameliorated by boosting the high school graduation rate or improving the quality of community colleges. Instead they say technological improvements “provide part of the explanation for the increase in pay of professional athletes (technology increases their marginal product by allowing them to reach more consumers) and Wall Street investors (technology allows them to acquire information and trade large amounts more easily).”

If it were my paper, I would have discussed this under the heading of “globalization” which they instead dismiss with the odd remark that “it seems difficult for globalization to explain the increase in the top end of VC investors, PE investors, hedge fund investors, and professional athletes.” In part this becomes a question of semantics, but I think it’s quite obvious that globalization helped Tracy McGrady earn more money by becoming a celebrity in China. Similarly, globalization helped American financiers get richer by managing the money of rich people from the developing world.

Either way, I think the more granular view of what’s driving inequality helps refocus the policy conversation on questions of what it is we’re trying to do with progressive policy. If reducing high-end inequality means implementing regulations that make the very richest hedge fund managers less rich to the benefit of lesser managers of financial assets then that doesn’t seem like a particularly important goal. By contrast, if what’s happening is that finance types are getting rich off a badly flawed regulatory scheme that leaves the world economy vulnerable to catastrophic crashes and panics then that’s a problem all on its own completely apart from the impact on inequality. Last, taxes. These hedge fund and private equity guys are paying a lower marginal tax rate on their income than you or me or a teacher—that’s outrageous.

But beyond income taxes, I’m not sure that whether Stephen Schwartzman earns $400 million or “only” $100 million next year is something I really care that much about. But I do care a great deal about whether the bulk of his $4.7 billion fortune ends up going to charity or whether it sets his heirs up as a new aristocratic elite. Whether or not we have a meaningful estate tax in this country will make a big difference there.

The Limits of Triangulation

Atrios’ point about the media invisibility of left-wing criticism of the American Recovery and Reinvestment Act is an important one. After all, in this case the criticisms were really, really non-obscure as the person leading the charge has both a Nobel Prize in Economics and also a column in the most important newspaper in the world. Lori Montgomery of the Washington Post can’t actually be unaware of this argument which was also aired in a Summers profile in the most celebrated magazine in America. But the conventions state that a dispute of this sort has to be framed as a binary argument between the left-wing Obama administration and right-wing congressional Republicans.

In addition to highlighting the folly of MSM conventions, this illustrates the folly of relying too much on triangulation tactics to try to maintain your popularity. Any prominent actions undertaken by a Democratic President that are progressive enough as to not be actively opposed by congressional Democrats simply come to be defined as the leftward pole of debate. If Obama brings a CEO into the administration, that person will rapidly be identified as the Joseph Stalin of business leaders. It’s true that relatively few Americans self-identify as liberals, so there’s always something to be said for trying to distance yourself from the dread hippies, but at the end of the day a Democratic President is bound to end up mostly being portrayed as the hippie-in-chief. You fundamentally need to try to do a good job and have people feel like their lives are improving.

Maybe We Should Give Poor People More Money?

(cc photo by citta vitta)

During the debate over the Affordable Care Act, progressives made a fair amount of justified hay over the political obsession with Rube Goldberg schemes to provide people with health insurance through eleventy-million kinds of tax credits and regulations instead of a program where people pay taxes and in exchange the government gives them health insurance. I think passing the Affordable Care Act was a tremendous achievement, but I also think that critique has a lot of merit. But what I find interesting is that I bet relatively single payer-loving critics of ACA will agree with me about the subject of affordable housing.

Yet here I am reading Cheryl Cort extolling the virtues of Washington DC’s inclusionary zoning rule and wondering if this level of complication is really necessary:

DC’s IZ program, like many land-based subsidies such as bonus density or land trusts, requires the owner to sell at an affordable price, yet allows the price to rise as overall incomes in the region rise. This rise in price is then shared with the owner. Keeping the unit affordable but sharing appreciation with the homeowner based on rising area incomes is a national best practice. According to the Center for Housing Policy, this is an effective approach that balances individual wealth-building with community goals of ensuring long-term affordability. [...]

In the case of for-sale units, IZ offers opportunities for lower income families to build wealth while realizing the other important benefits of homeownership. DC’s IZ program uses the change in the HUD Area Median Income (AMI) to calculate a maximum resale price an owner may receive for his or her unit. It uses the annual rate of change over the previous ten years to smooth out fluctuations in the AMI. For example, an IZ owner who bought her unit in 2006 for $200,000 and sold it in 2008 could potentially sell it for approximately $211,800 (plus any capital improvements made).

What if instead of doing all this, we let developers charge whatever they want for the apartments they build, thus increasing the quantity of property taxes paid by rich people living in fancy condos? Then we could take that revenue, and either write checks to poor people or else reduce the regressive sales tax rate. You can make housing more “affordable” through regulatory mandates that it be sold cheaply, or else you can increase income (check writing) or increase the affordability of other items (sales tax cut). But my option would seem likely to do more to increase the overall supply of housing in the metro area (making it more affordable for everyone) and also perhaps spur business expansion and job growth.

I’m not going to go all the way to the extreme and suggest that all in-kind provision of services should be replaced with cash grants. I can see why you might want to give families free preschool rather than money—you’re acting paternalistically, which is appropriate when there are kids involved. Social insurance programs involve a kind of risk-aggregation. But I think the general question “what if we just gave people more money instead?” is one that’s not asked often enough in either domestic or international poverty-fighting context.

What The Fed Should Do

Kevin Drum wants us to go beyond calling on the Fed to “do more” and start saying specifically what we’d like to see happen. The idea is that “the Fed needs cover for radicalism,” so here’s a maximalist agenda.

It all starts with framing. If I were in charge I would do this. First you take the price level at the start of the recession. Then you draw a line representing two percent annual growth in the price level from that point moving forward. Then I would say “I am absolutely determined to get the price level back in line with this trend and intend to take whatever expansionary measures are necessary to do the job. I urge Congress to assist in this endeavor by making the long-term budget deficit smaller and the short-term deficit bigger. But whatever Congress does or doesn’t do, I am committed to raising the price level with every tool at my disposal.”

I know some economists (Thoma definitely, and perhaps Krugman as well) disagree with this, but my view is that a very strong statement to this effect combined with even relatively mild action like cutting the interest on excess bank reserves to 0% would do the job. Where I come from, it’s easy for central banks to raise inflation expectations and difficult to lower them, so all we really need to do at this point is try. But if there’s a need to do more, then in addition to penalizing excess reserves you should fire up the helicopters and just give people money. Money financed fiscal policy would be an even better idea, and I think that if you explained it patiently to congressional leaders they might get on board, but if you don’t then just disburse the money.

Communicate to the business & popular press that the beatings will continue until morale improves and if anyone has any cash they’d best spend it ASAP because prices are going up. And communicate to the Chinese that if they keep their currency pegged to ours, I’m going to wreck their economy with inflation long before I wreck ours. Consumers will buy things. Firms will come up with stuff to invest in. Net exports will improve.

As Tony Montana might say, in a large depressed economy you gotta print the money first. Then when you print the money, you get the job and income growth. Then when you get the job and income growth, you get re-elected.

Huge Commitment Made to Women’s Health

Mark Leon Goldberg writes to inform me that apropos of my post on Mad Men, from a global and historical perspective today’s most important event is almost certainly the pledge fo $40 billion in new spending by governments, NGOs, philanthropies and private businesses on toward the Global Strategy for Women’s and Children’s Health:

If these commitments are fully implemented, the lives of 16 million women and children can potentially be saved. The commitments made today range from very specific policy initiatives (e.g. Bangladesh will train an additional 3,000 midwives; Liberia will increase health spending from 4% to 10% of its national budget; Yemen will “enforce a ministerial decree to provide free contraception to all women of reproductive age”) to new financial commitments from donors (e.g. UK will give $1.1 billion a year for maternal and child health programs between now and 2015; CARE International’s $1.8 billion pledge; the pharmaceutical company Merck is donating its HPV vaccine, GARDASIL).

And now you know.

Measuring Individualism

To me the idea that individualism as a cultural value has a two-way causal relationship with economic prosperity is so intuitive that it’s almost banal. So I wasn’t surprised to learn that a couple clever economists have a study (PDF) purporting to demonstrate that this is the case:

To me the most interesting thing about the study isn’t the analysis, but one of the premises of the analysis—namely that we can rigorously measure “individualism” and thus see what it correlated with. How do they do this?

A key question for our empirical analysis is how to measure individualism. A well-known measure of individualism (and other cultural dimensions) at the country level was developed by Hofstede (2001) who used surveys of IBM employees in about 30 countries. To avoid cultural biases in the way questions are framed, the translation of the survey into local languages was done by a team of English and local language speakers. With new waves of surveys and replication studies, Hofstede’s measure of individualism has been expanded to almost 80 countries. In a nutshell, the individualism score measures the extent to which it is believed that individuals are supposed to take care of themselves as opposed to being strongly integrated and loyal to a cohesive group. Individuals in countries with a high level of the index value personal freedom and status, while individuals in countries with a low level of the index value harmony and conformity. Hofstede’s index as well as the measures of individualism from other studies use a broad array of survey questions to establish cultural values. Factor analysis is used to summarize data and construct indices. In Hofstede’s analysis, the index of individualism is the first factor in work goal questions about the value of personal time, freedom, interesting and fulfilling work, etc. This component loads positively on valuing individual freedom, opportunity, achievement, advancement, recognition and negatively on valuing harmony, cooperation, relations with superiors. Although Hofstede’s data were initially collected mostly with the purpose of understanding differences in IBM’s corporate culture, the main advantage of Hofstede’s measure of individualism is that it has been validated in a number of studies. For example, across various studies and measures of individualism (see Hofstede (2001) for a review) the United Kingdom, the USA and Netherlands are consistently among the most individualist countries, while Pakistan, Nigeria, and Peru are among the most collectivist.

So there you have it. At any rate, what I think is most interesting about this is this. It’s well-known that there are basically two groups of very prosperous countries. On the one hand, the relatively low tax Anglophone bloc and on the other hand the relatively high tax Dutch/Nordic bloc. Then in popular accounts you have a disagreement as to whether the Dutch/Nordic model works well because of cultural aspects of those countries are different from Anglophone culture—for example, they’re inherently driven by solidaristic values so incentives don’t matter as much—or because of cultural attributes we share in common.

I’ve been drawn to the “common cultural attributes” thesis just based on the observation that Nordic pop culture (Max Martin, Stieg Larsson, Ida Maria, Robyn) penetrates the Anglosphere very easily and has done so for a long time (Abba, Aha, Ibsen). It still strikes me that the most plausible mechanism here has to do with corruption and good government rather than individualism per se. I imagine that everyone looks out for his or her own interests, but the question becomes what does that balance with. If you balance it with fairly abstract principles of correct conduct, you get good government and enlightened self-interest. If you balance it with loyalty to extended family groups or long chains of personal connections, then you get corruption.

But that’s just ideas I made up.

Obama Should Pick an NEC Director Who Will Do A Good Job Of Helping Formulate Economic Policy

Alan Mascarenhas, in a tragically typical piece of political journalism, suggests that what Obama really needs in a Larry Summers replacement is not a woman or a CEO but rather “a top-notch communicator, someone who can make the case for the administration’s economic policies and sell a clear message over the din of Tea Party vitriol.”

I hate to be boring, but what Obama really needs is someone who’ll do a good job. Coordinating economic policy is difficult. And important. And “the case for the administration’s economic policies” will become more compelling if the economic situation improves and not otherwise. People don’t listen to the President talk and they certainly don’t listen to the National Economic Council chief. FDR’s economic message was very compelling in 1936 because the economy was growing rapidly. Ronald Reagan had the same advantage in 1984 and so did Bill Clinton in 1996.

Knowing What Really Matters

I’m with Ta-Nehisi Coates in finding the way Mad Men deals—or, perhaps, doesn’t deal—with the civil rights movement to be both somewhat refreshing and also dramatically interesting. There’s a telling irony in the fact that the participants in the drama don’t have any awareness of what we in retrospect see as the most important issue of the day.

One of the things I wrestle with as someone who blogs about public affairs is the awareness that it’s hard to know which of today’s debates are going to look important in the long run. I don’t want to spend my time emphasizing issues that nobody cares to read about, but I also don’t want to spend my time emphasizing issues that only seem important in a very transient sense. Obviously it’s impossible to tell what the future will hold or exactly what will seem important in fifty years. But I do try to keep in mind that our perspective will probably only grow more international over time and that what’s most important will probably be political and economic developments in places like China, India, and Brazil rather than the 2010 US Senate elections.

Everybody Outsources

I got into a little back and forth on twitter yesterday about having written that “It’s often the case that, in principle, contracting-out should be able to save money” as a preface to some remarks about problems with contracting-in-practice that are likely to be made worse by Citizens United.

So to expand on my remarks, it’s worth starting with the observation that many liberals who think they’re against “privatizing” government services or dread contractors in fact have no real problem with the practice. After all, the federal government doesn’t manufacture its own printer toner and your state’s Department of Education doesn’t manufacture desks. The official standard is supposed to be that you don’t outsource “inherently governmental functions” but that’s a bit tautological. Conversely, I often hear it said that we could save money by contracting this or that out without skimping on quality but it’s not possible because the vile public employees unions won’t let us. This, however, is kind of an apples to oranges comparison—the contractors can and will lobby to have programs turned to their private benefit rather than to a public purpose.

The point is that one way or the other, clientelism—the attempt to make programs benefit service providers rather than service recipients—isn’t something you can rule out procedurally. It’s something people need to be vigilant about in general.

New Study Indicates That Teacher Bonuses Don’t Improve Student Test Scores

Linda Pearlstein summarizes a pretty good new controlled study from Vanderbilt University that tested the idea that offering teachers bonuses of up to $15,000 could improve student outcomes. The results—nope:

With one exception researchers could not fully explain—fifth grade—they found that students of teachers eligible for bonuses performed no better than other students. The teachers in one group did not approach instruction differently from those in the other, and where they did, it did not affect student achievement. Scores went up for both groups, “a trend that is probably due to some combination of increasing familiarity with a criterion-referenced test introduced in 2004 and to an intense, high-profile effort to improve test scores to avoid NCLB sanctions.”

I’m not surprised that this didn’t work, but it is worth dwelling on the fact that it’s too bad that it doesn’t seem to work. As Pearlstein writes “presuming that merit pay alone would elevate student achievement makes sense if you assume teachers have a hidden trove of skills and effort they are not unloosing on their students only because they lack the proper incentives to do so.” I don’t think that was ever a very psychologically plausible account of what’s happening in American classrooms. But imagine if it was correct. Say we had a legion of roughly average teachers who knew perfectly well how to turn themselves into excellent teachers if it was only worth their while. Well then we’d be on easy street. Offer bonuses, teachers will try harder, kids will learn more, teachers will earn more, and the more productive economy down the road will easily pay for the bonuses. It’d be a win-win-win universe.

It sounds implausible, however, and it doesn’t appear to be accurate (though it’s not like anyone suffered in this experiment—kids learned more across the board).

This is one reason why I’ve never really liked the term “merit pay” or the rhetoric around it. The right way to think about teacher compensation, I think, is this. You could have a system in which all teachers are paid the same amount. But we don’t have that system. Instead we have a system where veteran teachers are paid much more than novice teachers, and teachers with master’s degrees are paid more than teachers without master’s degrees. We could switch this to a system where teachers whose kids do much worse than average on value-added measures get fired, and teachers whose kids to much better than average get paid more than average teachers. The idea here wouldn’t so much be to create an “incentive” as simply to ensure that the best teachers aren’t tempted to leave the profession while the worst teachers are encouraged to do so. If you want to do something through a bonus/incentive mechanism, what would make sense is to offer teachers extra money to take on challenging assignments in high poverty schools.

The point is that an absolutely flat salary structure makes no sense. Instead, we prefer to rely on proxies for quality. Currently, we use length of service and possession of a master’s degree as our proxies. But the evidence suggests that these are bad proxies and that value-added metrics, despite their flaws, are better.

The Problematics of Efficient Stimulus

(cc photo by Ezra Velazquez)

Annie Lowrey explores the waxing and waning stimulative impact of the 2010 Census:

This is far from the most efficient way to tally U.S. residents. Social scientists and small-government supporters argue that an extensive telephone survey supplanted with some physical counts would do the same job, perhaps more accurately, at a fraction of the cost. And many cost-saving technological advances have failed. In 2000, the Census let respondents answer over the Internet. In 2010, they did not. [...]

All that spending meant that the Census has a noticeable and measurable impact on the economy. Measured quarterly, the Census boosted annualized real and nominal gross-domestic product by 0.1 percent in the first quarter of 2010 and 0.2 percent in the second. It reduced GDP growth by similar amounts in the third quarter, even though, last month, Census still flushed $250 million of new government spending into the economy. And it knocked a few tenths of a percentage point off of the April and May unemployment rates, essentially preventing those rates from drifting higher.

The Census actually came in under budget, by about $1.6 billion. Commerce Secretary Gary Locke noted that part of the reason the Census went so smoothly was because of the higher-quality workforce it attracted: Due to the massive number of unemployed persons, the Census attracted more-qualified applicants for jobs. “That highly skilled workforce came up with efficiencies on their own and ideas that were then incorporated community-wide and then system-wide,” Locke said. He noted that a number of Census employees had canvassed for Obama.

This highlights one of the main problematic aspects of fiscal stimulus in general. When the economy is functioning healthily, you increase prosperity by finding more labor-efficient ways of doing things. Voicemail, cell phones, and email mean you don’t need as much administrative support staff to run an organization so the people formerly employed filling out little message cards go do something else with their time and overall production increases. But when your problem is an economy wracked by idleness and excess capacity and you’re trying to put people to work, this logic is turned on its head. The correct way to dig the foundation for a new building is to use a lot of machines. But if you’re merely trying to maximize employment to stabilize the economy, it’d be better to just rely on a huge number of guys with shovels.

It’s genuinely difficult for public officials to get the balance right on the fly, and the experience of 2009-2010 should only re-enforce our pessimism. In addition to everything else, politicians face intense and pressure not to “waste” stimulus money. This, however, pulls in two contradictory directions. On the one hand, a high dollars to jobs ratio looks like waste. But on the other hand, the only way to ensure a low dollars to jobs ratio in an advanced modern economy is to deliberately do things in an inefficient way. What’s really needed from fiscal policy for the next time is a much better and more robust set of automatic stabilizers—some planned-in-advance way of dealing with Unemployment Insurance and something to prevent tax hikes and layoffs at the state and local level.

Replacing the Irreplaceable

One point that I think is worth making as we ponder the turnover in the Obama economic team is that to an extent you can’t just “replace” people by looking at their job titles. According to Ezra Klein “The early word is that Obama would like a CEO and a woman, and there are rumors about former Xerox CEO Amy Mulcahy.” That’s a bit silly if you ask me, but the larger issue is that influence in a White House staff job comes from the President deciding he wants to listen to what you have to say so if Summers was wielding a lot of influence you can’t “replace” that influence by bringing in someone from the outside who the President doesn’t know and who was picked because his political team thought it would “look better” to bring in a woman CEO.

Obviously it’s possible that over time someone like that could gain the President’s confidence and become a trusted advisor. After all, it’s not as if Summers and Obama had some incredibly long history together. But at a first blush the President is going to listen to people who he put in jobs because he wanted to hear what they had to say over people who he put in jobs because he mistaken thought that appointing a CEO to a job would induce rich businessmen to stop complaining that the government ought to cater more to the interests of rich businessmen. It’s worth paying attention to Sheryl Gay Stolberg’s account of Summers’ influence:

After Mr. Obama was elected, he persuaded Mr. Summers — who had served as Treasury secretary for Mr. Clinton — to take the lower-profile job of running the National Economic Council, a job that some thought might be beneath him.

He greatly expanded the role by establishing the daily economics briefing, which he controlled and ran. Early on, he ruffled feathers, disagreeing with Mr. Geithner — to whom he had been a mentor — and Ms. Romer, although those differences seemed to abate over time. There was also widespread speculation that he wanted to be chairman of the Federal Reserve, a job he did not get when Mr. Obama reappointed Ben S. Bernanke.

Which is just to say that Summers’ influence came from his personal stature and from a reshaping of the role of the office he held. If it’s the case, as you sometimes hear, that Summers was the most influential member of the team then his “real” replacement in that role is likely to be Timothy Geithner or Austan Goolsbee rather than someone brought in from the outside for odd reasons.

Last, it’s worth saying that in retrospect the decision to stick with Bernanke over Summers at the Fed doesn’t look very good. The Bernanke Fed turned much less aggressive in fighting the recession than it should have been once he was reappointed, Bernanke’s status as a conservative Republican has bought zero political cover for the administration to do anything, and one of the prominent explanations given at the time was that sticking with Bernanke “helped assuage fears in financial markets that a chairman closer to Obama might boost the economy in the short-run at the expense of high inflation” which in retrospect was totally counterproductive. A chairman tied to the administration who was seen as likely to be willing to boost the price level to soak up excess capacity is exactly that the country has needed for the past year and could use going forward.

The Fed’s Failure

To understand the scope of the failure of monetary policy right now, this is the paragraph you need to read:

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

This is not brain surgery. If inflation had been running too high for a while and was seen as likely to continue to be too high for a while more, the Fed would act to bring it down. By the same token, if inflation has been running too low for a while and is seen as likely to continue to be too high for a while more, the Fed should act to bring it up. But they’re—well—they’re not going to do anything for no clear reason.

Beyond Fed condemning, though, let me observe that I think I’ve been ahead of the curve among progressives in calling attention to the importance of this topic and that despite that fact I was behind the reality curve. The Great Recession has revealed lack of capacity for engaging with monetary issues to be a major institutional weakness of the progressive movement.

Endgame

Can’t meet there demands:

— Would be better if progressive pundits could muster non-ironic, non-meta outrage about conservatives filibustering funding for the troops.

— If “family instability” is really the root of all evil as Reihan Salam says, then what are we supposed to do about it?

— I want to read this paper but don’t have access to it.

— Sarah Palin’s dismal poll numbers seem inconsistent with frontrunner status.

— Bill Clinton defends Paul Kagame.

— Jamelle Bouie takes me to school on Christianity and lying.

I love Sleigh Bell’s “Infinity Guitars” but between the bad lip synching and the “fire! fire!” the video makes me wish Beavis & Butthead were still around.

Summers Departing

White House press office today confirms that Larry Summers will be stepping down as head of the National Economic Council at the end of the year:

Dr. Summers said “I will miss working with the President and his team on the daily challenges of economic policy making. I’m looking forward to returning to Harvard to teach and write about the economic fundamentals of job creation and stable finance as well as the integration of rising and developing countries into the global system.”

I think it’s easy to make too much of these staff comings-and-goings. The fact of the matter is that White House senior staff never stick around forever. Jason Furman, one of Summers’ deputies, is the guy I thought would do the job in the first place and I think would be a natural fit. I know less about the other deputy, Diana Farrell, but tapping her would avoid an all-boys economic policy team.

Half a Win for the National Archives

The National Archives has created a cool new website called Docs Teach that offers access to lots of Archives material. All good stuff. But bizarrely they’re asserting copyright in the name of the “Foundation for the National Archives” rather than releasing the site into the public domain as the product of a government agency:

Whether or not this analysis passes legal muster I’ll leave to others to decide. But there’s no reason to do it. The Foundation says it “works in partnership with the National Archives to “open the stacks” of the Archives and enable millions of visitors to interact personally with the original records of our democracy through the National Archives Experience.” That sounds great. But what better way to serve the public than by clarifying that this archived material exists in the public domain and that the public is free to interact with it however we want?

The Honor Code

Kwame Anthony Appiah taught the introduction to philosophy class I took the fall of my freshman year, and it was sufficiently impressive that I signed on to major in it. I followed that up with a seminar he taught, and he remains one of the most brilliant and learned people I’ve ever encountered. So his work is always recommended here, and The Honor Code: How Moral Revolutions Happen is no exception. This is a book not about how people win ethical arguments, but about how people cause ethical practice to change. He observes that it was generally acknowledged that all the good arguments were on the side of anti-dueling in England quite a bit before dueling died out and asks how it that a practice can persist under those circumstances and what brings it to an end.

His answer, which has to do with honor, entails sort of throwing caution (and social scientific validity to the wind) but is monstrously interesting and the exact reverse of all the stereotypes of academic overspecialization and who-cares-ism.

Excerpt here, NPR segment here. This is not a work of “real” philosophy, but if you want an introduction to the disciplined as practiced in the contemporary United States Appiah’s Thinking It Through is your best bet and he also does work of the “this is boring and weird” variety.

The Shape of Cuts to Come

In an excellent column, Stan Collender makes the point that it does no good to talk about cutting spending in pure numerical terms. If you don’t spell out which actual things you want the government to do less of then you’re not really doing anything. If we have a “hiring freeze,” for example, what tasks currently undertaken by civil servants are going to go undone?

My colleagues Michael Ettlinger and Michael Linden try to take this on in a new report they call “A Thousand Cuts.” It starts by looking at the quantity of deficit reduction that would be needed by 2015 in order to achieve the goal of “primary balance” (i.e., receipts equal non-interest spending) by that year. And it spells out a few different scenarios. One entails doing 33% of the reduction through spending cuts, one entails doing it with 50% cuts, one entails 75% cuts, one entails 100% through cuts, and one features 100% cuts and doesn’t count tax expenditures as spending. The report is both a guide to specifically which programs are relatively low value and also to how extraordinarily painful the reductions would have to be to do this all or exclusively on the spending side.

Something it would be nice to see the media do is challenge senators who want cuts to talk about programs that specifically impact their constituency. Do senators from farm states want to cut farm subsidies? Do senators from timber states favor eliminating the special tax subsidy for the timber industry? Does your state have too many FBI agents in it? Do ACA-haters really want to insist on reversing proposed Medicare cuts. There’s some waste in the federal government, and also some programs that we don’t need, but it’s not just a bunch of bureaucrats sitting around lighting piles of cash on fire. To cut spending, something needs to actually go undone.

Harvard Cancels Peretz Speaking Gig

(cc photo b dan4th)

More exciting adventures from the Ivy League:

[Martin] Peretz, the editor in chief of The New Republic and a former Harvard professor, had been scheduled to speak at the 50th anniversary celebration of the Committee on Degrees in Social Studies, scheduled for Sept. 25, according to the Harvard Crimson, the university’s student newspaper. But the final schedule for the program does not list Peretz as a speaker. He is to be recognized, however, along with several other head tutors and directors of studies. [...]

An undergraduate research endowment fund in Peretz’s name was created recently by his family and friends, according to the Crimson, which also said that the fund’s proposed amount had increased from $500,000 to $650,000 in the last week from alumni contributions. The growth has been interpreted as an indication of alumni support to honor Peretz at the program.

I’m glad to see an enhanced level of attention being given to the fact that a semi-important figure in American political journalism is driven by racist views of Arabs and Muslims, as I’ve said before this whole farce mostly illustrates the absurd racket of fundraising at already-rich American universities. The Harvard business model is the exchange of money for prestige, and insofar as Peretz has rich friends willing to pony up cash Harvard is willing to bestow honors. If it becomes a problem, they may try to sweep it under the rug by, e.g., changing the speaker’s roster. But not accepting the cash isn’t on the menu, nor is refusing the perform the service in exchange for which the cash has been offered.

It’s true, of course, that well-intentioned Harvard donors could probably change things by threatening to withhold future contributions unless the honor is rescinded. But that would be a bit silly since people shouldn’t be giving Harvard money anyway. By the same token, the individuals responsible for establishing the Peretz Fund should consider putting their views of Peretz, Muslims, and all the rest to one side and asking whether an undergraduate research fund is a reasonable way of helping people. Are there no educational institutions in the world more in need of funds? Really?

Monetary Aspects of Austerity Budgeting

I liked Nick Clegg’s speech to the Liberal Democrat party conference and think it’s a nice defense of progressive liberalism against the libertarian vision of the vanishing state on the one hand, and the clientelist vision of a state run for the benefit of service-providers. But something I think is interesting is that his defense of the UK governing coalition’s austerity budgeting totally misses the best arguments in favor of it, namely the centrality of monetary policy.

The crux of the matter is that in the UK, unlike in the US or Europe, monetary policy has in fact been extremely expansionary. Sufficiently expansionary that after falling to 1 percent in the fall of 2009, the CPI is back up to three percent. Reporting has made it clear that the view in the Bank of England and the Treasury is that absent fiscal austerity the monetary authorities will need to tighten to keep inflation from getting undesirably high. This is a judgment whose merits could be debated, but the Brits—unlike us—are in the position of facing some real tradeoffs here and the austerity option is not-unreasonable when you consider that the UK is coming off a 12-year span of Labour rule during which the size of the public sector did in fact expand considerably.

All of which is just to observe that in the UK, just like in the US, politicians seem loathe to talk about monetary policy even though they love to talk about “jobs” and “the economy.” It’s impossible, however, to talk about short-term economic performance in an accurate way without talking about monetary policy. All across the developed world countries have set up central banks, charged with with maintaining macroeconomic stability, granted them operational independence from politics, and then fallen so deeply in love with the idea of independence that the political system acts as if they don’t exist. But they do! And whatever the merits of whatever form of independence, it doesn’t make sense to just ignore them.

Welcome to the Recovery

The Fed says it will do nothing.

Note that if the Fed doesn’t want to see aggregate demand increased, there’s relatively little anyone can do to cause aggregate demand to go up despite the Fed’s desires. The whole idea of fiscal stimulus is predicated on the idea that monetary authorities are also working to expand demand.

What Not to Eat

The best part of Rachel Saslow’s article on health-destroying chain restaurant meals:

Uno Chicago Grill’s Chicago Classic deep-dish individual pizza, which is topped with sausage, tomato sauce and cheese.

The numbers: 2,310 calories, 165 grams of fat, 54 grams saturated fat, 4,920 milligrams of sodium.

Equivalent of eating: The fat in 45 strips of bacon.

Expert evaluation: Although Uno counts this smaller pizza as having three servings in its online nutritional information, Scritchfield says that when someone orders an “individual” pizza, they are likely to see it as a meal for one.

Yikes. The point I would make about this, however, is that though it’s true that many American chain restaurants offer many extremely unhealthy dining options, the whole reason we know this is the case is precisely because they are chains. Many such places already disclose nutritional information (albeit at times in misleading ways) and even if they don’t it’s the very scale and standardization of the chains that makes things like Center for Science in the Public Interest’s “XTreme eating” survey a tractable endeavor. As Saslow observes, an under-discussed provision of the Affordable Care Act will mandate calorie count labeling on the menus for all restaurants with more than 20 branches.

One of the big challenges of eating healthier is that it’s genuinely hard to know what’s what. Obviously, McDonald’s isn’t the healthiest option on earth but if you’re on the road and stop there for dinner I don’t think there’s anything intuitively obvious about the fact that a Quarter Pounder With Cheese has fewer calories than a Premium Grilled Chicken Club. But you can look it up (PDF) and in the near future thanks to an under-discussed provision of the Affordable Care Act the information will have to be disclosed right there in the restaurant. I have no idea whether this will actually work to promote healthier eating—I believe the early results from menu labeling requirements aren’t all that promising—but it’s difficult for me to think of a more plausible mechanism. If people decide they want to eat healthier, then reasonably large-scale operations whose food’s nutritional content can be analyzed and verified would be the places where the healthier eating happens.

Contractors and Citizens United

Mark Kleiman has some advice for wannabe governor Whitman in California:

Yes, California prisons are more expensive than they need to be. Good luck with reducing costs. Shipping prisoners to out-of-state for-profit prison firms is a good way of increasing your flow of campaign contributions, but generally not a good way of saving money: the for-profits are experts at “creaming” low-cost inmates while charging rates based on average cost, and “pro-business” Governors aren’t very good at driving hard bargains.

The whole genre of government contracting is rife with this sort of abuse. It’s often the case that, in principle, contracting-out should be able to save money. And it’s equally often the case that, in practice, it doesn’t do so in no small part because the very same firms that benefit from poorly managed contracting also get to intervene in the electoral process.

Speaking of which, just yesterday I was reading Sam Issacharoff’s new essay “On Political Corruption” that discusses this issue in the context of the Citizens United decision:

A tightly drawn prohibition premised on the effects of “pay-to-play” on public policy could potentially survive scrutiny under Citizens United as a constitutional first step. Moreover, the regulated bodies might even welcome such a law as a protection against public officials intent on using their position to solicit funds for campaign expenditures. Such a measure would be only a partial inroad into the accompanying world of lobbying and the sector of the economy that does not face incumbent state officials as contracting parties but as subjects of regulation. Likewise, lawmakers may broaden the protections offered by the Hatch Act amendments by prohibiting contractors from expenditures through PACs, 527 groups or bundling efforts without running afoul of the underlying rationale in Citizens United. Admittedly, these are partial steps. Nonetheless, such approaches do offer alternative insights into the problem of money, not so much in terms of election outcomes but in terms of public policy. Whether an incumbent Congress would welcome such legislation is another matter.

Of course the flipside of optimism about the possibility of such legislation passing constitutional muster is pessimism about the likely consequences of failing to pass it. The Supreme Court’s just opened the door to an already unsatisfactory situation to get much worse. Here’s Customs and Border Patrol paying $240 an hour to a small firm staffed by former Border Patrol leaders to “facilitate discussions among senior Border Patrol leaders.”

The Case for Webtimism

When blogging was new, bloggers were really excited about it. Then came a slightly odd backlash associated with use of the term “internet triumphalism” in a disparaging way, and tons and tons of hand-wringing. Personally, though, I’m an unabashed web optimist about new media who thinks it’s always been perverse to posit that a new set of technologies that makes it radically cheaper and easier to obtain and disseminate information would somehow be bad for journalism (as opposed to being contrary to the interests of incumbent journalists). In part, I think that’s driven by over-sentimentalization of traditional journalism, which has never consisted primarily of in-depth investigations of important subjects, and in part by undue impatience about the development of new formats.

For a great example of the latter, check out Megan Garber’s piece on the apparent success of long-form journalism at Slate under editor David Plotz’s “Fresca Initiative.” Garber explains that the long-form pieces this has generated have gotten a lot of traffic and also that, just as has always been the case for long-form writing, play into a broader effort to market Slate to advertisers as a prestige brand.

A point I would make about this is that people sometimes forget that capitalism doesn’t operate by magic. When it comes to a certain form of “hard” technical innovation, people get this. Computers keep getting better and better, but these improvements don’t happen instantaneously—people need to put the time in to figure it out. But when you get to “softer” organizational innovations, the same thing happens. These new computers show up, then someone needs to think up an idea about how to use them better. Then that person typically needs to connect with someone who has money and some confidence in the innovator. Then you have to get the thing up and running. And then you have to see how it turns out. Then if it turns out well, the model will spread. It’s a process that takes some time, especially since the people who initially had experience writing and editing didn’t necessarily have experience with the Internet.

But we’re learning and more and more things are happening. I’m old enough to remember when the problem with the Internet was allegedly that’s there wasn’t any original reporting. Now there’s tons. Now people are trying to do local online. Slate’s doing long-form features. The thing about online that really bothers some people is actually a great strength—online there are new illusions about what people are doing. You can’t stick that story from your Cairo bureau on page A-13 and tell yourself people are reading it because they’re buying the paper. Online you actually know what’s being read and what’s not. Some people find the truth depressing, which is fine if that’s how you want to be, but it’s important to recognize that what you found reassuring about the old paradigm was largely an illusion. Online if it turns out people aren’t interested in something you think is important, then you’re faced with the challenge how do I get people interested in this and you have the tools to figure out whether you’re succeeding.