Matt Yglesias

Endgame

Take my problem to the United Nations:

— Moving toward stagnation.

— “Evolving Structure Of US Economy And The Employment Challenge”.

— Laura Ingraham commands $30-50,000 per appearance as a speaker.

— I’m against Koran burning and even more against murderous mob violence.

— Workplace wellness grants.

— Rebecca Black, Miley Cyrus, and rent seeking.

Multilateral! PJ Harvey, “The Words That Maketh Murder”.

Confederate Inflation

Very interesting historical note from David Beckworth about the monetary systems during the Civil War. Here’s a chart showing the value of confederate dollars, which tended to fall both because of excessive monetary inflation and because of growing doubts that the country issuing the notes would continue to exist:

One interesting thing you can do with this data is look at 1864 as a proxy of market expectations of Lincoln’s re-election. In the absence of polling, we’re normally left with conjecture as to the state of this campaign and when sentiment turned in his favor, but with the currency data we can spot the turning point quite precisely.

Getting Serious About Funding Disparities

The next step in the DC voucher farce, it seems, is that not only will House Republicans push for the DC scholarship program, John Boehner will propose supporting it as the sine qua non of “serious” education reform.

This is, plainly, nonsense. The underlying model of the program—deploy federal dollars to send some poor kids to private school over and above the existing public school system—plainly doesn’t work at any kind of meaningful scale and its Republican proponents have no interest in attempting to scale it up. As a DC resident, I’m happy if congress wants to send extra cash our way, but as my colleague Theodora Chang writes the real task is tackling systemic issues in American education like some of the nutty funding disparities allowed by current Title I rules:

“Getting serious about education” requires addressing the deeper funding issues that affect all students, starting with fiscal equity. Equal opportunities for students are hindered by inequitable funding formulas at the state and district level as well as under Title I of the Elementary and Secondary Education Act. Studies show that students attending high-poverty schools actually need more funding to achieve at the level of their wealthier counterparts, but reality shows us shortchanging our students.

One key issue here is the comparability loophole that instead of equalizing actual staff funding between rich and poor schools merely mandates “comparable” staffing. That means that if one school has three math teachers and another school has three math teachers, they’ve both got a “comparable” number of math teachers. This, however, is perfectly compatible with School A having a giant budget to pay veteran teachers while School B is stuck with a rotating cast of novices. Its like saying the LA Lakers and the Cleveland Cavaliers are “comparable” because they both have full rosters of basketball players without noticing that LA has $38 million more in payroll that they use to hire Kobe Bryant and Pau Gasol instead of Daniel Gibson and JJ Hickson.

Grass Greener For Some Grass Cutters

(cc photo by DRB62)

Education priorities fact of the day from Joanne Jacobs:

Eighteen grass cutters and three pest sprayers earned $50,000 last year working for Broward County schools, more per day than most teachers with 10 years experience, reports the South Florida Sun-Sentinel. Seventeen stock clerks earned $52,000 or more; two mail clerks were paid $49,000. Painters and roofers outearned teachers with 16 years of experience: 34 painters and 24 roofers made at least $59,000.

Now grass cutters making 50 grand a year are hardly the lucky duckies of American life, but I would posit that the quality of groundskeeping has a relatively minor impact on student learning compared to the quality of teaching.

The Limits of Knowledge in a Revolutionary Scenario

The precise nature of the rebel groups the US, France, and Britain are supporting in Libya remains somewhat mysterious, which has raised a lot of eyebrows among skeptics of the operation. And, certainly, I think this is legitimate grounds for doubt. As Aswini Anburajan says:

Knowing thy allies should be as critical as knowing one’s enemies, as the U.S. learned in supporting and arming Afghan rebels in the war against the Soviets in the 1980s. The BBC reports that Nato Operations Commander, Admiral James Stavridis, has said that there are “flickers” of al-Qaeda activity among the rebels, but overall there’s a question mark in who these individuals are.

I would in some ways go stronger than this. One of the big issues is that there are pretty strict limits to how much one can really know in any given situation. When a country is occupied by a Soviet invading army or run by a nutty dictator, opposition is bound to be pretty diverse. And when opposition politics takes the form of armed combat, the resulting situation is just inherently difficult to predict. The act of combat is often radicalizing in different ways, and war itself creates novel leadership dynamics. To take a familiar—and benign—example, George Washington became the preeminent leader of the newborn American republic as a result of the prolonged armed struggle with England. That wasn’t a pre-existing fact about the conflict, it was a product of the conflict. In a less benign, but in some respects similar, way the French revolution elevated Napoleon to the heights of political leadership. Even less benign is the case of Lenin. It wouldn’t be accurate to say that as of the February Revolution in Russia that Bolsheviks were the predominant actors among the opposition to the tsar, but nonetheless within a year they were running the show.

In Libya it’s not just that there are things we don’t know about the rebel groups. We simply don’t know what’s going to happen in the days and weeks to come. We don’t know which people will get killed, we don’t know which people will emerge as heroes in battles that haven’t yet been fought. The situation is fraught with uncertainty that I just don’t think is within our power to resolve at this point no matter how hard we try.

The Broken Records

I think next year as an April Fool’s joke, Joe Lieberman and John McCain should team up to write an op-ed about which countries they don’t want to go to war with. Instead we get “LIEBERMAN, MCCAIN: IN LIBYA, REGIME CHANGE SHOULD BE THE GOAL”.

Indeed. Perhaps a good time to link back to my 2008 article on McCain’s love of war and review some of his classic ideas like when in the 1990s he wanted us to wage simultaneous wars on Iraq, Serbia, and North Korea:

Transforming the Kosovo conflict from a war fought with limited means for limited objectives to a ground invasion of Yugoslavia aimed at producing unconditional surrender in Belgrade would have divided the United States from our NATO allies, stripped the war of any legitimacy under international law, and risked creating the sort of deeply problematic post-war occupation the country has been enjoying in Iraq. Hence the Clinton administration’s hesitancy. Eventually, the war was brought to a successful negotiated compromise that avoided a quagmire while securing Kosovo’s autonomy. McCain characterized this outcome in a March 2000 floor speech as “unacceptable circumstances” (i.e., diplomacy) leading to a “weak and endangered peace” (i.e., compromise). Thus, having previously positioned himself on the extreme hawk side of debates over the Korean peninsula and Iraq, he secured the trifecta by assuming the same position on the Balkan situation.

Lieberman’s no different. And, really, asking these guys about foreign policy questions is a joke. The answer is always war, always regime change, always “toughness” and then we move on to the next one.

The Balance of Power

Daniel Walker Howe on the US/Mexican balance of power at the dawn of the war:

The United States census of 1840 counted a burgeoning population of 17 million. The population of Mexico, by contrast, had declined by 10 percent during the prolonged disorders of her revolution against Spain and then leveled off; the government’s calculation of 1842 (not an actual enumeration) showed 7 million Mexicans. The economies of the two countries displayed an even greater inequality. The years since 1815 had not been kind to the former New Spain; plagued by political instability, independent Mexico had not realized the economic potential of her natural resources. Fierce localism and poor transportation hindered the emergence of an integrated nationwide economy even more than they did in the United States. Independent Mexico received little European immigration and had even expelled its Spanish-born people, losing their talents and skills. Mexico’s gross national product fell to less than half the peak attained in 1805; not until the 1870s did it exceed that level.

That’s a reminder, among other things, that there’s a strong nationalist case for making the country more open to immigration. Had the pre-WWI United States not had a basically open borders policy, we’d still be a very rich country, but probably not a “great” one. Instead we’d be geographically smaller, less densely populated, and much more agriculturally oriented—more like Australia perhaps.

Oil Shock Vulnerability

This from a CAP report is a nice graphical illustration of the relatively small impact of oil price swings on gasoline consumption in the short term:

What that means is that if disruption in supply countries or a spike in demand in Asia causes prices to go up, aggregate spending on oil imports leaps. That puts a hammer on all spending on non-oil goods. The basic problem exists in all developed countries, but we have an unusually bad case of it because we’ve built an infrastructure that depends on very high levels of routine gasoline consumption (not just driving everywhere, but driving long distances and doing it in big cars) and that in many cases offers no viable alternatives. Moving away from this over the longer term would put a lot of extra resilience into the economy.

And note that whether or not we’re consuming “foreign” oil makes extremely little difference here. If domestic production were larger relative to domestic demand that would alter the extent to which price spikes impact our trade balance, but it would still be the case that every sector of the economy that involves making and selling things that aren’t oil gets hammered any time there’s a price spike. The fundamental issue is inflexible dependence on oil, not the oil’s nation of origin.

Welcome to Real America

Sign on the door of the Kauffman Foundation building in Kansas City:

In the liberal precincts where I’ve spent my whole life, this tends to go without saying.

Air Transit

Atrios says: “Yes, most airports in this country have crappy transit connections much as most cities have crappy transit, but we do actually have some decent ones. Off the top of my head there’s Portland, Seattle, San Francisco, Chicago, Minneapolis, Baltimore, Philly, Washington (National), …”

I would add that America in some ways seems to be to do freakishly well on this score. Like Phoenix, Arizona is not really a mass transit town but it’s single light rail line offers very convenient access to the airport if you happen to want to go to someplace near a light rail stop. DART will get you to DFW Airport quite nicely but, again, your trip would need to be near a DART station on the other end. Which is all just to say that most American cities just don’t have much in the way of mass transit or transit-oriented development, but I don’t think there’s a particular problem of cities not remembering to connect their airports.

Who’s Winning The Future?

Superficially, it looks like America’s CEOs are doing pretty well: “At a time most employees can barely remember their last substantial raise, median CEO pay jumped 27% in 2010 as the executives’ compensation started working its way back to prerecession levels, a USA TODAY analysis of data from GovernanceMetrics International found.”

But the real lucky duckies are here:

The highest-paid U.S. hedge fund managers at some of the biggest and best-performing funds got slightly over $22 billion in pay last year, the New York Times reported, citing an annual ranking by AR Magazine.

Welcome to the recovery!

Empty Chinese Houses

When I was in China last year there were certainly visible signs of a real estate bubble, and there’s tons of reporting to back that up. But I also continue to be somewhat confused by the concept of such a bubble in a country like China that continues to feature hundreds of millions of people living in plainly substandard housing. For example, Sarah Goodyear writes the following about an Australian TV report on new Chinese ghost cities:

According to Hong Kong-based real estate analyst Gillem Tulloch, who is interviewed in the piece, the housing units are priced well above what an average Chinese person can afford. The result, he says, is a housing bubble that is terrifying in size, “a property bubble like which I don’t think we’ve ever seen,” he says. “It will make the United States pale in comparison. It’s said that there’s around 64 million empty apartments…. It’s essentially the modern equivalent of building pyramids. It doesn’t add to the betterment of people’s lives, all it does is it promotes GDP.”

As the Dateline report points out, there are indeed tens of millions of Chinese people who would like to own their own homes—but the urban development the government has backed is creating housing stock that is hopelessly out of their reach, even as it destroys old neighborhoods and cities at a feverish pace.

If you have a lot of housing units whose current sale price is unrealistically high given the average income of Chinese households, then clearly prices need to fall. And there will be economic consequences to that. But how is it that it “doesn’t add to the betterment of people’s lives”? The price of the houses won’t fall to zero, after all, it will fall to some level that’s realistic given the average income of Chinese households. And once it’s reached that level, people will move into the houses. Houses that are better than the houses they’re currently living in.

In other words, there are two kinds of problems with a real estate boom. One is potential financial fallout. But another is the idea of just over-investing in new houses. Given that back in 2000 Americans already enjoyed the largest, nicest houses in the world overbuilding seems like it was really wasteful. Not just a little not-so-efficient and non-optimal, but really and truly a giant waste. But China’s not really like that. If the upshot of the building boom is that everyone gets a nicer house, then that’s nicer houses for people who are currently living in really crappy houses. That might not be the optimal allocation of capital, but it’s not nothing either.

Why Cloud Music Now

Shani Hilton is such a fan of Amazon’s new cloud-based music storage system that she’s gone into a reverie about Jimmy Eat World.

What people should be asking themselves, though, is why did it take so long for this to happen. After all, the technology available to stream music over the web has existed forever. So why is it just now that someone is launching a business where you store your music remotely and then access it over the internet? The answer is that we had such a business over ten years ago, but in UMG v MP3.com a judge ruled that a service that let you rip music from a CD you owned and then upload it to a remote server for cloud storage amounted to copyright infringement. UMG was awarded over $53 million in damages and the whole thing died.

But of course killing MP3.com didn’t save the business of selling physical CDs. All it did was delay the advent of useful music storage services by more than a decade.

Endgame

Nothing I can do to make it turn around:

— PPP sells to the left, polls down the middle.

— “Medicaid pays 43% of America’s long-term care bill, including bills for around 60% of nursing-home residents.”

— Exiting opportunity to see me speak in New York.

— Down South they like their taxes regressive.

— Start ups on the decline.

As I am here in Kansas City, this is Neko Case doing “The Train From Kansas City”.

Re-Indexing Public Pensions

Robert Shiller takes a long time to get to the payoff here, but this seems like a smart idea to me:

But, basically, we can keep traditional pensions by changing how we compute them. We should use a formula so that guaranteed future income in retirement bears a fixed relationship to a state’s future ability to pay — as measured, for example, by that state’s economic output.

It is that simple: Just scrap the current indexing of pensions to the Consumer Price Index and replace it with a link to the state’s gross domestic product.

I don’t really want to propose revolutionizing the pension system based on one article I read in The New York Times, but I’d be interested in hearing more discussion of this idea since it makes sense to me. Thanks to RY for the pointer.

Racial Polarization in DC

Adam Serwer writes about racial polarization returning to Washington DC local politics after a brief truce:

Yet the city polarized along racial lines in numbers not seen since the last time Barry was on the ballot, with 80 percent of the black vote going to Gray while Fenty drew the same numbers among white voters. The post-Barry truce between the black middle class and the city’s white residents dissolved, increasing the probability that the city’s class divide will morph into a racial one. White voters’ initial impression of Gray has stuck despite his efforts to alleviate anxieties west of Rock Creek Park through a series of pre-general election town halls. A survey released by the Clarus Research Group last week showed Gray with a 17 percent approval rating among white residents. Yes, the mayor managed to short-circuit his honeymoon with a series of disastrous appointments that have driven down his approval ratings even among the black residents who voted for him. But it’s hard to say his low approval among whites is so easily explained. After all, that 17 percent resembles his share of the white vote in the primary anyway. If anything, he’s just confirmed what they already thought about him in the first place. What makes this baffling is that Gray ran largely as an alternative to Fenty in style rather than substance, and the policy differences between them were virtually nonexistent. Gray went as far as appointing Kaya Henderson as Rhee’s replacement, signaling continuity with Fenty on education—the one issue in this city over which there’s something approaching genuine ideological conflict, and the one most white voters flagged as the most important.

To back Serwer up on this, the education issue is even odder than that because Mary Cheh, who represents super-white Ward 3, was a huge opponent of the Fenty/Rhee/Henderson education agenda. All of which suggests that education policy and race got caught up in Fenty vs Gray in a completely arbitrary way. My personal obsession in the Fenty/Gray race was, however, Fenty’s status as an opponent of the taxi driver special interest and Gray’s tendency to kowtow to them.

That said, not only are the racial politics ugly and unfortunate on their own terms, they seem to really stand in the way of any kind of rational policy assessment in a way that’s bad for the city. Not that DC is unique in this regard. Big city politics in America have always had a hefty ethnic/racial element. Washington just poses this in a black vs white way that’s starker than the more complicated ethnic coalition politics of a New York or a Los Angeles.

The Ubiquity of Consumer Surplus and The Danger of the Telecom Monopolists

As Karl Smith points out, there’s certainly a huge consumer surplus associated with the Internet that goes beyond its financial “worth.” But I think people are sometimes too quick to point to this sort of thing as undercutting bleak narratives about income trends. After all, consumer surplus is not a new phenomenon.

Think about your standard refrigerator/freezer. It’s sort of a miraculously useful device. Instead of your food turning stinky and rotten, it sits nicely in my fridge. The direct financial value of being able to store leftovers or freeze excess raw ingredients is significant, over and above the convenience value. You can spend a lot on one of these miraculous devices if you’re so inclined, but you can also get one for a few hundred bucks. That’s because the market for fridges is quite competitive—lots of different manufacturers, lots of different vendors—so at the less stylish end of the market, the sale price approximates the construction costs. And the construction costs are low, crazy low relative to what you’d be willing to pay to a refrigerator monopolist. If the cheapest fridge out there cost $5,000 I’d still want one and I bet you would too.

That wedge between what you actually pay and what you hypothetically would pay is the consumer surplus and it’s giant. That’s why establishing competitive markets is important. But this isn’t a new Internet-era phenomenon. And actually I think there’s a specific problem here with the Internet, namely that while competition between websites is incredibly robust, competition between Internet service providers is a joke. People sometimes look at the difficulty of charging people to read online news outlets and say that people “don’t want to pay for news.” But of course I do pay for my ability to read things on the Internet—I pay Comcast and I pay AT&T. After all, the consumer surplus of the home appliance revolution (fridges, toasters, radios, etc) was all built on the back of the giant consumer surplus associated with home electrification. But that surplus wasn’t brought to us by competitive markets, it was brought to us largely by public investment and a regulated utility model of dealing with “natural monopoly.” Absent effective regulation, a much larger share of the refrigerator surplus would have ended up in the pockets of the utilities.

On some level, I think everyone kinda knows this (certainly everyone hates AT&T) but Americans tend to be too parochial to recognize quite how badly we have it in this regard. Read, for example, Horace Dedieu on the American wireless Galapagos syndrome.

The Declining Price Elasticity of Gas

From Alexander Hart at TNR’s nifty new “The Study” blog:

According to research by UC Davis’s Jonathan Hughes, Christopher Knittel and Daniel Sperling, Americans are now less responsive to increases in gas prices. In the late 1970s, a ten percent rise in the cost of gas would lead to about a three percent decline in the amount of gas consumed. In the early 2000s, on the other hand, gas prices would have to rise about 60 percent to provoke a similar decline in gas consumption. The researchers theorized that this might be because spending on gas is now a smaller fraction of total monthly income or because cars get better mileage now, meaning that cutting back on driving saves less gas than it would have in the 1970s. But either way, their research suggests that even if gas prices go higher, we’re unlikely to see Americans buying less gas.

To be precise, it doesn’t say people won’t buy less gas even if prices rise, it says that the impact on driving will be relatively small. And since households are income constrained, that means the impact on spending on everything that’s not gasoline will be relatively large. I would flag as a causal factor here the fact that residential patterns have shifted in favor of a larger share of the population living in places where there are fewer good alternatives to car commuting. You might respond to higher prices by driving to the commuter rail station instead of driving all the way to the office, but you can only do that if you live in a metro area with a commuter rail network.

Where Good Outfits Go To Africa

I was trying to edify myself by scanning Chris Blattman’s slides on his research on the link between poverty and violence in the developing world, but I found myself puzzling over the clothing being worn by the various Africans in his photos. Where does that stuff come from? As it happens, Laura McClure at Mother Jones has a slideshow on this and the answer is basically that poor people in Africa are wearing clothes westerners didn’t want anymore and gave to Goodwill or the Salvation Army.

This seems like an interesting example of Charles Kenny’s Getting Better thesis that life in the poorest countries is improving in ways not captured by GDP. Indeed, in some ways I’d imagine the availability of free clothing would depress Africa’s measured economic output. But it still reflects a real improvement in living standards.

Does an iPad 2 “Really” Cost $2,000?

Brett Arends of Smart Money says an iPad 2′s not worth the $2,000 it costs, which some of us would think is why Apple doesn’t try to charge $2,000 for it. But he explains that $500 is “really” $2,000:

But I figure $2,000 is the minimum that Steve Jobs’s new toy is going to cost me. How come? Simple. If I don’t spend that $500, I’ll invest it. Historically, the stock market has produced average long-term returns of maybe 5% a year above inflation. (More on this below.) At that rate, in 10 years’ time my $500 will have grown to about $800. That’s in today’s dollars—after inflation. In 15 years it’ll be about $1,000, and in 30 years, $2,000. I figure I’ll be retiring in about 30 years, which is when I’m going to need lots of capital. I can have the iPad now, or about $2,000 then. Thanks, but I’ll take the $2,000.

That’s fine, I guess, if you enjoy switching back and forth between real and nominal dollars in a confusing way. But what does it have to do with an iPad 2? It just seems like a generic argument in favor of saving money.