Author: Derek Thompson

This might have been my least favorite sentence from the entire State of the Union speech:

Families across the country are tightening their belts and making tough decisions. The federal government should do the same.

It doesn’t make a lot of sense to juxtapose family belt-tightening and federal belt-tightening. It makes even less sense for Obama to suggest that one justifies the other.

The rationale behind Keynesian stimulus is that weak consumer demand
can kick off a vicious cycle. Families buy fewer goods; companies make
less money; companies fire more workers; those workers make less money
and buy fewer goods, and down we go. When families tighten their belts,
the government is supposed to loosen its belt.

Indeed, loosening the belt is exactly what this government did when it passed a $787 billion stimulus plan just as the Federal Reserve bought trillions of dollars worth of assets. And before Obama got going with the belt-tightening parallelisms last night, he credited the recovery to … the government’s loose belts!

The plan that has made all of this [economic recovery] possible, from the tax cuts to the
jobs, is the Recovery Act. That’s right — the Recovery
Act, also known as the stimulus bill. Economists on the
left and the right say this bill has helped save jobs and avert
disaster.

If you’re a Keynesian, Obama’s belt metaphor should make you weep softly. But even if you’re an anti-Keynesian, Obama’s belt metaphor make you laugh derisively. Here’s why: The CBO projected that 2010 federal outlays would increase by $5 billion to $3.52 trillion. Freezing non-security discretionary spending (that’s the belt-tightening we’re talking about) might shave off about $15 billion. That brings net belt-tightening in 2010 to $10 billion — or 0.3 percent of the total budget. One third of one percent.

Trumpeting budget cuts at that level is about optics — and optically-speaking, I think it stinks. Obama’s job as communicator-in-chief is to defend his policies. His job is to tell Americans what’s going wrong, how he’s fixing it, and why. His job is not to tell Americans that he think Keynesian stimulus is saving the economy, and then five minutes later subvert our understanding of economics with a nonsense belt metaphor that betrays the purpose of that very stimulus. This sentence does a disservice to both his economic policy and Americans’ economic education, and it didn’t belong in the State of the Union.

One of the early themes of the economic recovery is that the firepower isn’t going to come from the American consumer. How could it? One out of ten Americans is unemployed. The figure grows to one out of six, if you count marginally attached workers. And we’re still wallowing in debt. As Anal_yst pointed out in this blog, non-revolving debt is still up a whopping 72 percent from ten years ago despite the rumored deleveraging.

So where will the recovery come from? Obama think he knows.

Obama acknowledged that short-term growth might rely on exports. In his words (via White House transcript):

Third, we need to export more of our goods. Because the
more products we make and sell to other countries, the more jobs we
support right here in America. So tonight, we set a new
goal: We will double our exports over the next five years, an increase
that will support two million jobs in America. To help meet
this goal, we’re launching a National Export Initiative that will help
farmers and small businesses increase their exports, and reform export
controls consistent with national security.

For now a cheap dollar and an early Asian recovery is combining to juice our export numbers and fuel manufacturing’s growth. That’s a good thing. And now seems like a good time to bring together manufacturers and security officials to reform our export control rules, which haven’t changed in decades. That collaboration will begin here.

The Apple iPad is a small sliver of screen that’s filled with potential. It’s been described as an e-reader extraordinaire, the perfect entertainment hub, and the missing link between smartphones and laptops. I thought it looked pretty sweet. But I still had questions.

Who is supposed to buy the iPad, anyway? What will it offer customers that our smartphones and Kindles can’t? And what lucrative opportunities does it offer advertisers and media companies like magazines, newspapers and other websites? To find answers, I spoke with Lincoln Bjorkman, executive vice president and executive creative director of the New York region of Publicis’ Digitas, a digital marketing agency. Here is our exchange:

1) The iPad looks awesome, but I doubt I’ll buy one. Who will?
Affluentials. Affluent
kids who just can’t get enough social communication or media
interaction and content, and affluent kids who to mix their educational
needs and requirements with the aforementioned fun stuff. Also, affluent
travelers. Business people who want connectivity and ease of use and
portability. Anybody who has been stuck on a plane or in an airport in
the last 2 years. Anybody who has a Mac or iPhone or iTouch because
they instinctively understand how to use it and what it will unlock.

I
think Kindle and Nook early adopters and those who have considered it
are going to run to this device. The price point says, why not upgrade
and get more that just an ugly book reader thingy? I think the
celebrity chic set will be all over it too–it’s a great way to consume
what they create and interact with their peeps and their fans. If it’s
out, wouldn’t you expect to see it in an Oscar goodie bag?

2) We know what the iPad looks like. It looks like a big iPhone. The
iPhone is amazing, but it’s not been hailed as a savior of media
advertising. What makes the iPad different?

The iPad itself
isn’t the big news (though it’s very cool and very worthy of some
attention).  What’s different is the signal that technology companies
like Apple (and Google) continue to send when they create extremely
compelling devices, applications, browsers and experiences such as the
iPad (especially if it’s successful) that give advertisers and agencies
and agency creatives more and more compelling places to play. This is
yet another harbinger of opportunities that are not yet to come but
that are here, now, for brands and agencies willing to fluidly
collaborate.

3) At a very broad
level, what are all the different ways you can see the iPad giving publishers and
content producers an advantage in advertising?

It’s only one
device — though a very high-profile one to be sure. One advantage the iPad gives publishers and
content producers is the sheer size of the iPad audience and those who
cover and market to that audience. There is tremendous opportunity to
partner and show they are highly motivated to serve up their wares —
however and wherever the audience wants it.
 
Moreover, this is
a HUGE learning opportunity. We can track, test and measure response,
behaviors and trends through the iPad and learn what customers want —
both in the form of the technology and in the content they acquire
there. I, for one, can’t wait to see how many iPads end up in the hands
of affluent business travelers in lounges and airplanes. Is it really
fast enough and powerful enough for the fat middle of the gaming
marketplace? Will this be, as I suspect, the beginning of the “it”
thing that students really need and want to carry in their backpacks
all the way through to college? Will device proliferation speed up
cloud computing, so I can get my stuff and my programs on any device I
carry, cheaper and faster?

4) I spoke to one publisher who thinks the future of advertising is going to be more interactive.
Ads will look more like mini-sites that we WANT to visit rather than
click away from. Do you agree, and where does the iPad fit in here?

I
agree. Sites are where the action will be — more so than apps. It’s
not the ads, it’s the brands that people will want to engage with (or
click away from). The question then is, how must a brand make its
presence felt on any device or better yet across all them, seamlessly,
so the audience allows them “in” to their world: why should I let you
in or care that you are already there? I own the delete button, pal.
Prove yourself. The iPad is another door to me.

5) Sports Illustrated magazine famously debuted its
iPad-compatible living magazine in a YouTube clip I saw. Does Apple get
a cut of the advertisement associated with that special SI magazine? If
so, does that violate net neutrality?

Though I’m not sure
about the specifics but we must accept that there must be some kind of
exchange of commerce if we want meaningful content on our various
screens or in our ear buds. Net Neutrality to me is a myth. We pay one
way or another for access (whether via the device, the carriers, cable,
etc. or via advertising revenue or both) and content is going to cost
something, unless we move into a world of user-generated content and
nothing else. Personally, I want and expect more and am willing to pay.
The market should and will adjust to demand.

6) Let’s talk books for a second. How could the iPad and similar products
change or revitalize the book industry in a way the Kindle hasn’t?

I’ll
buy the new Twilight book and watch a preview for the next film. I will
Facebook the trailer to my friends and swoon. I will post exclusive
photos I got from the book purchase to my TUMBLR blog. I will listen to
the soundtrack endlessly while I read. My friends will tell me that
SohoDolls just released a new track for the next film on their MySpace
page and I will jump to get it before they take it down. I will buy two
more books based on the recommendation of “friends” I’ve never met but
who wrote about the book I’m reading in a way that I understand, in a
voice that resonates with me. I will recommend all my favorite books to
friends who can instantly take me up on the advice and who will write
to me “as they are reading it” telling me what they think. All of this
will happen in so fast it hurts. It’s not just about the book anymore.

7) What are you most excited about for the next iPad?

Let
me have my phone there too, but one number so I can pick which one is
on. Faster chips and more memory. It still lacks a number of features
that would let me dump my laptop altogether – using multiple features
at the same time, Flash capabilities for better games. What about
medical information to and from my doctor on the tablets? Imagine going
to the doctor and leaving with all my info and CAT scans and
prescriptions and directions and follow up info on the device. SKYPE. A
front facing camera and SKYPE. That will change the world.

8) Could
the iPad fail? Is it possible that Apple has smelled a space in the
market between smartphones and laptops that simply doesn’t exist — that
smartphones are better for mobile browsers and laptops are better for
workers and the iPad will make something that fails to compete with
both?

I don’t think you fail if you continue to innovate and
listen and learn and activate the knowledge gained fast. Newton and
AppleTV didn’t kill ’em. The iPad won’t either. And it’s all leading to
the Apple iChip they imbed in my arm! This is just a baby step toward
that.

President Obama’s State of the Union address was sprawling, as State of the Unions tend to be. It was sprawling not only in its ideas, but also in its tone. Obama quipped with lawmakers and then chided them. He poked fun at his hope-and-change reputation and then ended with nothing but more hopeful promises to change. As the head of the the federal government, he spent paragraphs explaining what’s so wrong with the federal government. He described an America both recovering, and in crisis — a nation ready to move forward, but led by a government caught in cyclical inertia. God bless us, indeed!

Megan wrote: “Let us not mince words, nor even chop them loosely: most State of the Unions are, well, completely useless.” Absolutely right. But in deference to this broad speech, here are five scattershot observations about the State of the Union:

1) Barack Obama is a Secret Republican
Well, not really. But he praised off-shore drilling and nuclear power
plants. He gushed over small-businesses (14 mentions of the the term
“small business”!) and glorified entrepreneurs. He roared about
American competitiveness, and even threw in a dash of nationalism. As
Joshua Green wrote last night, Obama sounded like a better Republican than some Republicans in parts of the speech.

2) So, Are We Counting Jobs or Not?
— The White House on January 12:  No more counting jobs saved or created, because it’s not possible, practically, or politically winning.
— President Obama last night:
“Because of the steps we took, there are about two million Americans
working right now who would otherwise be unemployed.” Huh?

3) Who’s Afraid of the Bank Tax?
— As Obama talked the bank tax and the camera panned to sullen-faced Republicans, Megan got a scoop:

As President Obama baited Republicans about
their opposition to new taxes on the banking industry, the pool camera
(helpfully?) cut to a shot of Republicans, who weren’t clapping. An
influential Democrat e-mails: “The footage of every R sitting when
Obama talked about bank tax is going into every ad we do in 2010.”

It’s unclear to me what Republicans gain by campaigning against the
most populist elements of financial regulation. I’m with Megan all the
way on this issue.The bank tax is good populist politics, but it’s a
confused short-term policy. Obama presents the tax as a way to recoup
the bank bailout money, but we didn’t lose TARP money on the banks. We
lost TARP money on AIG and Detroit. So the justification for the tax is
a small lie. If the White House wants to tax liabilities over a certain
limit to discourage excessive liabilities, then that’s a part of
financial regulation that shouldn’t be dressed up as a
one-time-money-grab.

4) Vagueness on Health Care
Just before the speech, my colleague Dan Indiviglio told me: I’d guess
that what the market wants from this speech is certainty. We didn’t get it on health care. Obama called health care reform necessary — but also implicitly secondary to the jobs bill. He defended the cause, but not the hotly contested specifics of the bill. Not sure he moved the dial, unless he gets a general boost after the speech and a rising tide of Obama lifts the health care boat.

5) Vagueness on Jobs
The jobs plan that Obama previewed in the State of the Union didn’t
have much detail, either. It was mostly broad strokes: Tax rebates for
green energy, small business credits, infrastructure spending, and
slashing capital gains taxes on small business investment to zero. I wonder if this is the right approach after a lack of specificity from the White House was a key feature of much-delayed, now-imperiled health care reform.

President Obama’s State of the Union speech tonight will touch on a number of issues from terrorism to immigration reform, but the US economy will be at the beating heart of the speech. There are at least four distinct economic issues that he’s expected to focus on: the three-year spending freeze, the middle class relief bill (or jobs bill), health care reform, and financial reform.

Here’s what I think Obama will say about each of these four topics. Then, to have a little fun, I’ve amended my pretend-speech-writing to tell you what Obama won’t tell America.

Three Year Spending Freeze

Will Say: “The budget
oversight of the last ten years, followed by the Great Recession,
followed by federal government’s swift and successful efforts to end
the recession, have put America’s finances in a terrible hole. Our
current deficit is necessary. But it is also gaping and unsustainable.
There are many things we need to do to fix our national balance sheet,
but the first step is to tie a belt around federal spending. That’s why I’m
proposing a three-year freeze on all discretionary spending
not directly related to our national security. It is not sufficient to solve our deficit crisis. But it is a necessary and important start. “

Won’t Say: Obama knows that everybody is worried about the deficit — moderates, Republicans,
bondholders. We can’t do anything non-gimmicky and substantive because Republicans won’t
raise taxes and Democrats won’t cut services. So here’s something
gimmicky and mostly without substance. We’re freezing less than 25% of
the budget, which should save $15 billion in a year where the deficit
is expected to pass $1.3 trillion.

Middle Class Relief/Jobs Bill

Will
Say: “America, I know you are hurting. Unemployment is over 10 percent. If you’re a parent, you’re struggling to pay your mortgages and save for your children’s
college. If you’re a recent university graduate, you’re worried about
student loans, and whether this economy will be strong enough in the
next few years to help you pay them down. If your career is behind you,
and you’re thinking about retirement, you’ve seen this recession wreak
havoc on your savings. This administration has worked hard — and I have
worked hard — to get this economy back on track. Today GDP is
growing. But that’s not enough. I get it.

“America, I want you to
know that I have thinking about your jobs all along. Last year, in my
first month in office, Congress passed an $800 billion stimulus
package. Almost half of this stimulus is tax cuts. The rest is going to
keep teachers in our classrooms, to put construction workers on our
bridges, and to keep entrepreneurs in their small businesses. This year
I’m going to do more. I’m going to propose a new stimulus that is all families and jobs: tax cuts for small businesses, middle class family tax credits,
special help for families with children and families caring for both
children and eldery adults. I’m also going to create an infrastructure and green technology fund to channels tens of billions of dollars to create jobs that help America run again — on high speed rail, and brand new bridges, and wind farms…”

Won’t Say: Unemployment crossed ten percent last autumn and what was Congress doing at the time? Debating health care for the 157th (or something) consecutive day. So Americans think Congress forgot about their job hunting. Obama needs to demonstrate that he’s been working on jobs all along, not just since the Massachusetts election. But that’s hard to do because, well, Congress has only gotten serious about the jobs bill since the Massachusetts election! A lot of leftish economists have been saying for months that Obama needed to move on jobs, and the fact that he’s only doing so as an apparent concession looks weak, even if it’s good policy.

Health Care Reform

Will Say: “Our health care system is too inefficient, too uncompetitive, and too expensive. More than thirty million Americans lack access to care and millions more face dropped coverage if they get sick. We can change that. The health care bill in the Senate forces insurance companies to play by the rules. It extends health care to thirty million Americans. It punishes lavish plans to encourage your employers to pay you more money in income. It does all this — and it saves money, up to $70 billion in the next ten years.

“I know there are concerns about the health care bill. There are serious, and they deserve our attention. But doing nothing does not make us better off. Doing nothing threatens millions of families with bankruptcy if somebody gets sick. Doing nothing means throwing up our hands at high costs rather than experimenting with innovative reforms included in this bill. Doing nothing hurts the poorest American without insurance, the average American with tenuous yet expensive care, and the richest American who faces incredible tax increases if we don’t get medical spending in order in the next decade. Health care reform is economic reform, at every level.”

Won’t Say: Obama would do anything to convince Americans that health care reform was economic reform and deficit reform, but at this point the polls don’t indicate that anybody is buying the message. Health care reform might be alive, but Massachusetts seems to have killed whatever political points it had to confer on its YEA votes. To many voters, health care reform must appear like a mom forcing Robitussin down her child’s throat: I know you hate this but I promise it will make you feel better! The optics are just terrible.

Financial Reform

Will Say: “One year ago, our financial system was on the brink of destruction. We had no choice but to use every last instrument of government to save Wall Street. And we did. Today Wall Street is not only growing, it is thriving, and handing out enormous bonuses that make a mockery of the daily suffering of ordinary Americans who have been tragically affected by the banks’ bad bets. Today we have a responsibility to make sure that nothing like this ever happens again.

“My plan is three-fold: First we will make big banks smaller and smarter by taxing their liabilities, separating their risky bets from their customers’ money, and encouraging them to diversify their investments. Second we will install a new regulatory regime, with one agency in charge of regulating the nation’s largest banks and another in charge of protecting consumers. Third we will handle banks that do fail by setting up a system that winds down their assets in an orderly manner that doesn’t require the implosion of the financial sector and the general economy. These reforms will make Wall Street more solvent and Main Street more secure.”

Won’t Say: “Why didn’t I tackle this thing six months ago?!” Financial reform is the antidote to populist rage against government. Years from now, I think that delaying on this golden chance to pick up good will among moderate and populist voters will be seen as one of the administration’s biggest mistakes.

Google commands more than half of all iPhone Web traffic, according to a new report. That’s not terribly surprising, considering it’s the default search engine. But these are four very interesting stats to know and share, from the Chikitah Research report:

1) Google search accounts for 50 percent of iPhone Web traffic.
2) The iPhone now accounts for 54 percent of total smartphone traffic.
3) Android accounts for 27 percent of total smartphone traffic.
4) Google search accounts for about 31 percent of total Web traffic.

I draw two conclusions from this. First, these stats offer a glimpse into the future of Google online advertising. There are rumors
that the iPhone is going to switch its default browser to Bing. Yes,
that would be a blow to Google since Bing is a perfectly good search
engine and I’m sure most iPhone users will simply keep using the
default search function. But the rise of Android, run by Google,
suggests that Google will continue to hold on to a strong segment of
the mobile search market, which is expected to grow about 15 to 20
percent next year. That’s precisely why Google is investing in mobile technology and Web display companies.
Google, after all, is an advertising company from a revenue perspective
— 97 percent of its revenue comes from online ads, and those ads are
slowly moving to mobile devices.

Second, sometimes I hear Web and journalism gurus say something like this: There
is no newspaper crisis, only an advertising crisis. And if Google can
figure out how to live on ad revenue alone, why can’t newspapers?
So here’s one rejoinder: Of course Google has figured out how to
command wed advertising. Google accounts for a third of all Web
traffic! It hasn’t figured out how to revolutionize ad rates for
newspapers. It’s figured out how to be ubiquitous in a world of low ad
rates.

President Obama is expected to sell an $8 billion high-speed rail project today as a jobs creator that will also provide transportation between 13 major US corridors, including Orlando-Tampa.

This is in keeping with the White House’s articulated jobs strategy. It’s not just about jobs now. It’s about jobs that last, and jobs that build something that lasts even longer.

In a Wall Street Journal op-ed in
December, Christina Romer, chair of the president’s Council of Economic
Advisers, rejected public works projects and explained that Obama
wouldn’t spend money on jobs for the sake of jobs. He wants to build
something. I expect this will be the theme of Obama’s job creation section of the State of the Union.

Romer focused on tax credits for home retrofitting, which would boost
green tech jobs and construction, and infrastructure. Infrastructure
spending has a high multiplier effect, and as this
WSJ story indicates, there’s a lot of excess capacity with construction
companies afraid that their already running out of projects from the
first round of stimulus.

Oregon voters approved by a wide margin new taxes on wealthy families and corporations. For two decades, Oregon voters had mimicked California, freezing property taxes, rejecting sales taxes and demanding that any surpluses go back to the people in the form of rebates. No more! The two measures will raise income taxes for households making more than
$250,000 a year and raise the state’s corporate income tax.

Naturally, Washington will be looking for national implications of this vote — especially since conservative pundits greeted the Massachusetts upset like a deus ex machina.  I have two observations.

The first observation is that direct democracy is an incredibly poor
way to run a state. Oregon and California’s experiments in initiatives
and referenda have done nothing more than reveal that their voters love
services and hate taxes.

Imagine you’re an Oregonian on the day of a sales tax referendum vote.
You wake up, go downstairs and flip through your credit card bills
while you brew the coffee. You wake up your kids, remember that you
forgot to pay the tutors last month, and drive them to their fine, but
admittedly mediocre public school. Then you pull onto the highway to head
to work. The engine light turns on, dammit. You reach the office, toil
through Excel for three hours (you really ought to be paid more for
this, you remind yourself) and at noon you pass the Subway where you
usually buy a cheap sandwich to save money to vote on the sales tax.
You remember that there’s a deep budget deficit and that something will
to be done in a distant place called tomorrow. But tomorrow is
tomorrow, and you need money for the credit cards, and the tutors, and
the public school donations, and the engine, and the money you’re not
making on the job — you need that money today. So you vote NO to all the tax increases and service cuts — as you always have and almost always will.

I’m not saying this guy is wrong or stupid. I’m saying this guy is why we need representatives to make tough budget decisions for us.

The second observation is that I think this vote has nothing to do with
Left or Right. It has to do with money and anger. With double-digit
unemployment, eight-digit Wall Street bonuses and thirteen-digit
federal deficits, Americans are feeling inundated with a lot of numbers
that tell a simple story: America’s workers have no money, America’s
coffers have no money, but America’s rich people have a lot of money.
Neither liberals nor conservatives have a monopoly on populism, and it
seems to me that Obama needs to show America tonight that he feels the
anger. If we’re lucky, we might even see it. It’s not entirely clear to
me how the White House loses by taking on the banks more aggressively
in the next few months to build back political mojo. Separate from
whether or not it is good financial policy, a plan that says “I’m
taxing the banks who created this mess and I’m funneling that money
into jobs programs to help average Americans pay their mortgage” is
pretty safe politics.

The New York Times’ 2011 online paywall could bolster the Website’s revenue or erode its online readership and advertising. I think it’s a necessary idea, but I don’t know if it will work. The Big Money’s Frederic Filloux makes the case for optimism. More than an interesting defense of the paywall, his article is an expert analysis of newspaper economics.

More people are reading the New York Times (and the Washington Post,
and the Wall Street Journal…) than ever because of the Web. Why
can’t they monetize these record-breaking numbers? Because the online
ad rates are so paltry that these papers’ revenue per
online-reader is a small fraction of their revenue per print-reader. Consider the Washington Post:

For the full 2008 year, washingtonpost.com made $122.7 million in
advertising revenue. Applied to a monthly audience of 11 million unique
visitors (we’ll assume this stable audience is a yearly average), this
translates into $11 per visitor per year. That’s the ARPU (average
revenue per user) for the Post, it comes only from
advertising–and it’s 20 times less than the ARPU for print readers.
You see, then, the goal: Having people pay for content is a way to
close this 20x gap between ARPUs.

That ad base needs a supplement, and subscribers would fit the bill. Filloux calculates that 66 percent of readers access the Times through
the homepage rather than exclusively through search engines. Some back of the envelope math comes to this:

If 25 percent of that group could be converted to paying $6 a month, it will double the Times‘ online revenue. Convert only 10 percent at that price and you still get a 43 percent bump.

I think 25 percent is too optimistic, and $6 a month is too expensive.
I think more realistic numbers might be 10 percent converted to pay
closer to $3 dollars a month, a 20 percent bump in revenue. That’s not insignificant! And even if nytimes.com traffic falls 20 percent, they won’t lose 20 percent of their ad revenue because advertisers pay a premium for loyal paying audiences (Filloux claims the WSJ charges 30 percent more for ads in the “pay zone”).

In conclusion, I still think this paywall can work. Especially if the Times incorporates some of my ideas for keeping its homepage sticky.

What’s black and white and red all over? Today’s news about the deficit!*

The same day Washington grappled with a spending freeze to help fight the deficit — which the CBO today projected to hit $1.3 trillion — the Senate voted against the (patently ridiculous) bipartisan deficit commission this morning. The commission wouldn’t have worked anyway, but the roll call surprises me: Thirty-six Democrats, and only 16 Republicans voted for the amendment (yes, that’s a majority but the special floor rules required a super-majority).

Wait, why only 16 Republicans?

I wonder if the GOP would have voted for the commission if Obama hadn’t
publicly supported it last week (after demurring for a month). I do
love to scold plastic-feathered deficit hawks, but I’m not going to
castigate the no-votes for lack of seriousness. There’s no story here
except that some moderate senators lost a fake debate about how to have a separate fake debate about cutting the deficit.

*Sorry.

The president’s plan to freeze non-military discretionary spending isn’t good. The new projections for this year’s economy from the CBO are much worse. They project a $1.3 trillion deficit for fiscal year 2010, the second largest as a share of GDP since WWII. They project unemployment over 10 percent until mid-year, and still in the high 9s when the spending freeze bites.

In short, we’re trapped.

Unemployment is so high that it’s costing us billions in government
revenues, but the instinct to rein in spending could potentially cost even more. Obama wants to demonstrate — to voters, to moderate
Republicans, to international investors — that he’s serious about
tackling the deficit. Ironically, the way he’s chosen to do that is by
freezing all spending except the parts that impact security and entitlements.
But the main drivers of our deficit are, well, military spending and
entitlements. He’s demonstrating his dragon-slaying potential by fighting a dragonfly.

A spokesman for House Minority Leader John Boehner likened the freeze to
“announcing you’re going on a diet after winning a pie-eating contest.”
Well, that doesn’t make a lot of sense. If you’re a fat person who’s
just won a pie-eating contest, you should start dieting eventually!
No, this freeze is more like a pie-eating champion announcing that his weight-loss plan is to stop drinking cafe lattes. The gesture is only marginally related
to his weight gain (he’s a pie-eating champ, after all), and it might
even backfire by making him more sluggish.

The health care bill languishing in the Senate is flawed. We should pass it, anyway.

From the beginning, this bill has never been the radical reconstructive surgery that its critics have claimed — or, perhaps, that it should have been. Our health care system is deeply flawed. The employer subsidy shields health care costs from customers, encouraging us to consume more. The employer-provided care system keeps families from choosing their own coverage, and it forces us to lean on our bosses for health care, even when we want to switch jobs or start own own companies.

The bill does not re-make our health system. It does not
even promise to make it better. Instead, this health care bill makes
the system broader, with a chance to make it better. We can’t pass a
bill that takes away the government subsidy for employer-provided
health care, but we can start to tax employer plans. We can’t conjure a
fair and competitive health insurance market for individuals overnight,
but we can begin to build one through the state and federal exchanges.
As the employer tax grows (and it will) and the state and federal
exchanges grow (and they will), we could move toward something
resembling a real transparent market for insurance. Jonathan Rauch puts
it beautifully:

Taken together, these measures could set in motion a virtuous cycle. As
health costs rise, more employer-provided health plans become taxable,
giving employers an incentive to find cheaper plans. As
employer-provided plans grow less generous, more employees have an
incentive to take a tax credit and shop around, and, as premiums rise,
more qualify to do so. Little by little, insurance coverage shifts
toward an individual-based, consumer-driven market. And the faster
health insurance costs rise, the faster the transition happens.

You should read the whole thing.

President Obama’s announced freeze on non-military discretionary spending will be chewed over by analysts and spit on by both liberals and skeptical conservatives. But one aspect of the policy that won’t receive much chewing over is its qualifier: “non-military.” Even during periods of great deficit hawkery, it’s become rote in Washington to consider military spending impregnable to the forces of budget cuts. I think this is a horrible mistake.

Last year I wrote an article for the Daily Beast that asked the White
House and Congress to debate the Afghanistan escalation as though the
additional resources were real money, paid for by real taxes, whose
addition counted against our real deficit. Here was my last paragraph:

To be sure, there is a dimension to the Afghanistan debate that goes
far beyond red and black ink. There is no mechanism for the CBO to
score the critical bank-shot of securing Pakistan by strengthening our
presence along the Afghan border. Also, scaling down could help our
financial integrity in the eyes of the Chinese, but it will impugn our
moral integrity in the world’s eyes if we permit a reign of extremist
terror marked by scourges of stonings. I don’t mean to combat our
generals’ advice with my own. I’m only calling for elected officials to
consider the cost of war just as they would consider the cost of any
other use of taxpayer dollars. Generals on the ground advocating for an
expensive counterinsurgency are only reciting their best opinion.
That’s their job. The president should balance their recommendations
with our capacity to fulfill them. That’s his.

The Obama freeze does not “consider the cost of war just as [it] would consider the cost of any
other use of taxpayer dollars.” The Obama freeze does the opposite. It treats military spending as something too precious to be touched by the frostbite.

My point is not that military spending deserves an X-percent cut. My
point is that military spending should not be exempt from the debate on
how to cut costs. This spending freeze, if it follows through, will put
extreme pressure on Democratic and Republican officials to determine
which programs they need, which can withstand smaller budgets, which
should be forced to become more cost-efficient, and which can be
scrapped to spare the most important services from cuts. Why shouldn’t
our military face a similar exercise in self-reflection?

The announcement that President Obama will freeze non-military discretionary spending for three years has the liberal caucus in a tizzy. The key fact is that non-military discretionary spending today is about 25 percent of the budget. Freezing 25 percent of spending while entitlements grow faster than inflation does not confront our deficit, but it does make the Democratic base really really mad.

Here are five quick questions about the gambit and some answers.

Where will the cuts come from?
This is being called a budget freeze, but the biggest parts of the
budget won’t feel the frostbite. The exemptions include: security
departments like the Pentagon, Homeland Security, the Veterans
Administration, and entitlements like Medicare, Medicaid and Social
Security. The freeze targets close to a quarter of the yearly budget —
departments like Education and Health and Human Services, agricultural
subsidies and earmarks. The White House will provide a specific list of
possible cuts to adhere to the freeze, but ultimately it will be up to
Congress to determine how the money sloshes around.

Will it dent the debt?
A little. The freeze is not — repeat, not — tied to inflation.
That means the cuts will get even deeper each year. $15 billion saved
next year. Maybe $50 billion the next year, and $75 billion the year
after that. The White House is projecting $250 billion saved over ten
years. My understanding is that our projected accumulated debt over
that time is close to $9 trillion.

Who is the intended audience?
There are a couple candidates. (1) Moderates concerned about the
deficit, whom the administration fears are slipping away nationally, as
they did in Massachusetts. (2) Republicans who want to see good-faith
compromises from the president to verify that he is willing to work
with them, not around them, in 2010. (3) Foreign investors looking for
a signal that the administration is aware of/concerned about the
deficit. This freeze would represent more of a psychological boost for
bondholders than a substantive economic shift.

What do the Republicans/Democrats think about it?
It sounds like they’re laughing. And not with the president, either. At him. From the Times:

Republicans were quick to mock the freeze proposal. “Given Washington
Democrats’ unprecedented spending binge, this is like announcing you’re
going on a diet after winning a pie-eating contest,” said Michael
Steel, a spokesman for the House Republican leader, Representative John A. Boehner of Ohio.

The year on liberal economists’ minds is 1937. That’s the year that
FDR, seeing an economic recovery, pulled back the reigns on fiscal and
monetary stimulus, causing the economy to “double-dip” into a second
recession. The left is worried that, since government spending is very
clearly fueling what consumer spending we’ve got going, tightening the
federal budget could drive down the economy. You could also make the
case that if the economy does turn down again after the freeze —
whether or not the freeze has anything to do with the downturn — it
will look horrible for the administration.

What could be the fallout/unintended consequences?
A couple theories are floating around. Could this be a move to slow the
growth of earmarks? Possibly.  By forcing a broadly Democratic
Congress to wrangle amongst themselves for the cuts, it seems to me that
he’s setting the stage for hoards of angry electeds who are in danger
of seriously ticking off their constituents in an election year. Take
Blanche Lincoln for example. She chairs the Senate Agricultural
Committee, is a conservative Democrat, a swing vote on every major
issue including health care, and is locked in a tough reelection
battle. You think the White House is going to force her to sign off on
agricultural subsidy cuts?

Maybe the administration thinks this move gives them political space. You propose a freeze that is unpopular with Congress, hold it over electeds’ heads as a bargaining chip, and then approach senators throughout the year making promises to spare their programs from the Deep Freeze in exchange for votes.

I’m interested to see how this polls. America’s deficit hawk streak has been on a tear for months. Confronted with this semi-serious effort to demonstrate deficit hawkery, will Americans applaud the move? I’m sure the administration is hoping it can buy some good will among moderate debt watchers — enough to forge ahead with a maybe-sorta-still-alive health care bill and apparently-very-still-alive jobs bill.

The New York Times will start charging for news in 2011 by capping the number of free articles readers can access. But there could be a loophole. Nicholas Carr passes this along:

Essentially, it appears that if you come to a Times article via a link,
either on the Web or in an email, you will get to read the whole
article, and the article won’t count against your monthly limit of
articles.

Leaks? Hardly. For shrewd readers, this is more like building a wall, and then carving out a door that says PUSH HERE.

If Carr is right about this plan, then the same way savvy readers get around the Wall
Street Journal paywall by pasting the WSJ headline in a search box and pressing ENTER,
prolific readers will get around the NYT paywall by going in horizontally
— through blogs, emails and other links.

As Felix Salmon notes, the Times is “not actually charging for NYT
content; they’re charging for NYT navigation.” Felix thinks this is a
weird idea, but I agree with Carr that’s it’s a savvy policy. News
junkies who might have left the Times forever if the paywall capped
their reading now can find a way to sneak into the site and read it
just as frequently. So who will pay for the NYT online? Older, less
Web-savvy readers — exactly the people who are more likely to pay for
the news anyway. These readers will want to pay for navigation, because
they rely on NYTimes.com exclusively for their news.

This plan could fail. But if it does, it won’t be because the NYT’s plan is hopelessly flawed. It will be because the NYT
misread the marketplace. It will be because online readers of general
interest news are not ready to pay a penny for what they consume. If
this is true, then it’s not just the Times’ problem. It means we’re all
in trouble.

All information wants to be free is the the unofficial slogan of the Internet age, but is true? Nick Carr argues that we spend more on information now than ever before — what with Internet service, cable service, phone bills, and other information service fees. Alan Jacobs from The New Atlantis takes Carr’s observation somewhere very interesting…

One of Nick’s commenters suggests that his point is misleading because we’re not paying all that much per bit
of data. That’s probably true, but it may not make the point the
commenter wants it to make. Consider an analogy to restaurant dining:
Americans in the past twenty years have spent far, far more on eating
out than any of their ancestors did, and that’s a significant
development even if you point out that huge portions of fat-laden food
mean that they’re not paying all that much per calorie. In
fact, that analogy may work on more than one level: are we unhealthily
addicted to information (of any kind, and regardless of quality) in the
same way that we’re addicted to fatty foods?

We pay hundreds of dollars for information services, and not a penny in exchange for specific bits of information. To continue the food analogy, browsing the Internet isn’t like a restaurant, where each plate has an affixed price. It’s more like paying a lump sum for a resort club with unlimited access to the buffet. As a result, you eat a lot of food because there’s no marginal cost to eating more.

The question of whether Americans are in fact addicted to information takes us in another direction that I’ll the Disinformation Revolution. In a review of the top ideas of the last decade, I wrote: “An Internet connection plunges us into a nearly
infinite reservoir of knowledge, and yet our relationship with the truth
remains fraught…

“Just as “weapons of mass destruction” made a mockery of
intelligence, the 9/11 Truther conspiracy and Obama-as-illegal-alien Birther
storyline used information in the disservice of truth. Moreover, they used lack
of information (where’s that birth certificate?) as an indictment–a maneuver
that could only be possible in an age when everything is supposedly knowable.

“In his 2008 book True
Enough, Farhad Manjoo explains that the fragmentation of the Internet
allows different groups to create, and live in, their own “split” realities.
Facts can’t find us anymore–instead, we find our own “facts” in the corners of
the Internet that reflect our beliefs. “Truthiness,” the 2006 Miriam Webster
word of the year coined by Stephen Colbert, means “truth that comes from the
gut.” In other words, it is belief cross-dressing as certainty. The World Wide
Web is a resource many times larger than the largest library in history. Yet
the very size and structure of the Internet guarantees that we will find what
we we’re looking for rather than what we need to know.”

I think there are two things going on here. The first part is demand. Our willingness to pay hundreds of dollars for Internet access — and often not a penny in exchange for specific pieces of Internet content — depreciates the perceived value of the newspaper articles and songs we access “for free.” As a result, the same way an all-expenses-paid resort encourages over-eating, our all-content-paid access to the Internet encourages us to gorge on both high and low quality information.

The second part is supply. The same way our obesity epidemic is fueled by outrageous oversupply of corn products, our information addiction is goaded by the Internet’s superabundance of content that free software and low barriers to entry make incredibly easy to produce online. And this allows consumers to cocoon themselves in corners of the Internet that reinforce their viewpoints, no matter how limited or prejudiced. The size and structure of the Internet guarantees that we will find what
we we’re looking for rather than what we need to know.

In Washington, today is always the day to cut taxes, and tomorrow is
always the day to have a meeting about reducing the deficit.

Democratic Rep. Harold Ford has an op-ed in the NYT that calls on Democrats to focus on tax cuts and deficit reduction to grow the economy. The Atlantic Wire samples some liberal commentators who rightly skewer the piece for blithely moving from “More deficit-growing tax cuts!” to “Less deficit-growing!” in four paragraphs, without even pretending to acknowledge the discrepancy. Here are the relevant paragraphs:

First, cut taxes for businesses — big and small — and find
innovative ways to get Americans back to work. We can start by giving
any companies that are less than five years old an exemption from
payroll taxes for six months; extending the current capital gains and
dividend tax rates through 2012; giving permanent tax credits for
businesses that invest in research and development; and reducing the
top corporate tax rate to 25 percent from 35 percent…

Second, we should pass a
more focused health reform bill that restructures current health care
costs before spending more, prohibits insurance companies from denying
coverage for pre-existing conditions, enacts responsible reform on
malpractice suits and extends health coverage to all children…

Third, we should reform our immigration policy to ensure
that those who contribute to our economy, especially foreign math and
science graduates of American universities, have a clear path to
citizenship.

Finally, we need to address budget deficits now
rather than waiting for some ideal future economic situation. It’s a
good sign that the Obama administration is following the advice of
Senators Kent Conrad of North Dakota, Evan Bayh of Indiana and other
Democratic fiscal pragmatists who embrace the idea of a bipartisan
commission to recommend spending cuts to rein in deficit growth. But we
must be sure that the administration and Congress heed the commission’s
advice.

My problem with these paragraphs is not that I think they’re terribly
misguided on the merits. I agree that targeted tax cuts could boost
employment, which would boost production. I agree that overlooking
immigration reform this year would be a terrible mistake, for precisely
the reason Ford provides — clearing the citizenship path for foreign
graduates of American universities. I do agree that we should pass
health care reform, although I don’t think Ford’s stripped-down version is practical.

But here’s my problem: Ford has ideas for tax cuts, health care and
immigration. But for deficit reduction, his idea is “Hey, let’s hear from somebody else!” This sort of vicarious indignation about the deficit is
widespread — look at Conrad, and Bayh and Gregg. The entire deficit
reduction debate is like a group of high school kids who want to create
a swanky sounding student group (International Affairs Inter-Student Ideas Engagement
Council!) in their senior year so they can list it on their college
resumes. We have a deficit crisis because the things causing the deficit like tax levels and entitlement spending are politically intractable. A commission won’t solve that problem. It will only rediscover it.

The knock on Obama since the Republican upset in Massachusetts is that he pursued health care reform in 2009 to the exclusion of job stimulus. I don’t get it. The government passed a $800 billion stimulus plan over wide Republican opposition and bailed out Detroit for $50 billion (not to mention the Federal Reserve’s trillions of dollars spent buying mortgages and bad assets and bringing interest rates down near zero). That doesn’t sound like excluding job stimulus to me.

Moreover, it turns out that Americans don’t like the way Obama focused on job creation. There’s a new CNN poll (via Chris Good) finding that 75% of the American people think at least half of the stimulus money was an utter waste. Even though I think this is wrong, I understand where the anger is coming from.

First let’s look at what the stimulus actually does. The bill has a lot
of items, but 40 percent of the ARRA went to something Americans tend
to like a lot: Tax cuts — about $250 billion for individuals and $35
billion for businesses. Another big category was about $180 billion of state aid to avoid deficits that would have resulted in hundreds of thousands of job losses. Another $100 billion went to education. Another $70 billion
extended unemployment insurance and health care for recently laid off
workers. The overall goal of the stimulus might have been to juice
production, but much of it went to give Americans more money to spend, and give states more money to maintain payrolls.

There is a lot of generalized anger in this country. Many Americans are
juxtaposing the high unemployment rate, frustrating health care reform
process and bank profit headlines and concluding: Obama ignored jobs.
They’re telling pollsters things like “the stimulus was a waste” and
also, “unemployment is too high for government inaction.” The message
seems to be: The stimulus was a waste, we need more stimulus!
Obama has to respond to that anger, even if he thinks it’s confused. He
needs to remind Americans where the stimulus money went, how future
stimulus spending will target joblessness even more exactly, and why
health care reform fits into the narrative of our long term economic
recovery.

Some time this week, Avatar will surpass Titanic to become the best-selling movie in the history of the world. Kind of.

The film’s worldwide gross is nearing $1.85 billion, which is more than any movie ever released. But adjusted for inflation, Avatar is not the best selling movie of all time. In fact, *going by domestic spending, it’s not even close to the top.
Adjusting for inflation might seem like a wonky buzz-kill to James Cameron’s opus, but it’s really important. The average ticket price in
1939, when Gone with the Wind hit theaters, was 23 cents. My Avatar ticket cost $10.50. That’s 45-times more expensive! As Slate’s Zachary Pinkus-Roth noted, this would be comparing somebody’s 100-yard sprint time to a 2.22-yard jump.

Here’s the full list of the biggest domestic grosses adjusted for inflation from Box Office Mojo (the list does not include Avatar, which has made $560 million):

So inflation-adjusting puts Avatar ahead of Thunderball and just behind, um, Grease. Grease! Wait, can that be right?

It turns out that there are a couple problems with counting all tickets sales and multiplying them all by the inflation index. First, by treating all ticket sales as equal, we overestimate the grosses of movies where a big proportion of the sales were to children, whose tickets cost less. That’s one reason why movies like 101 Dalmatians, Fantasia and The Lion King rank so high. Another problem with the list is that the cost of a movie ticket has actually grown faster than the consumer price index, according to Pinkus-Roth. That means that a ticket to Gone in 60 Seconds (2000) cost more in relation to other items than a ticket to Gone with the Wind (1939). And those are just two of the most serious issues.

So this is an imperfect list, but the point it makes is instructive. It’s true that Avatar has made more dollars than any movie ever, but it’s not entirely accurate to call it the biggest movie of all time.

*Thanks to Charles Davi for making me emphasize that this list is domestic box office. So Avatar‘s worldwide gross of $1.85 beats Gone with the Wind‘s domestic gross record.

One in five US teenagers has unhealthy cholesterol levels, says the U.S. Centers for Disease Control and Prevention. The two stats that stick out from this study are: (1) 1/3 of teens are sufficiently overweight to qualify for cholesterol screening and (2) 14% of normal weight teens have unhealthy cholesterol levels.

This reminds me of a great piece Marc Ambinder wrote last year about what an American obesity policy should do:

And
with obesity, we’re dealing primarily with children and prevention.
Obese adults are not going to lose weight unless they decide to have
their stomachs separated from their digestive tracts. Megan is
pessimistic about any policy intervention and questions any such
intervention from a moral level. But any sensible policy is designed to
change the environment
for children, not for adults. It’s not as if children are making
choices about food and enjoyment in a vacuum. Childhood obesity is
fairly contagious: if you’ve got an obese friend, you are more likely
to be obese. The heritability quotient for obesity is .65, which means
that obese people tend to produce obese children; whether this is a
consequence of genetics, epigenetic factors, pre-natal nutrition —
it’s not clear. As kids and adults, obese people tend to cluster with
obese people.

There are compelling public
policy reasons to try and reduce the rate of childhood obesity.
Lectures and hectoring and moral suasion don’t work, but changing the
environment these kids grow up in might work. Even such a fairly minor
intervention as better maternal health habits can influence the
likelihood that a child will become obese. Breastfeeding babies reduces
the chances for obesity. Kids who sleep more as children will be less
obese as adults. Kids who aren’t as exposed to pesticides are less
likely to become obese.

Without
reversing the trendline, obese kids will continue to self-segregate;
stigma within their group will be reduced, which is good, but it will
grow among thin people, there will be more intergroup tension. John
Edwards’s two Americas: a fat America and a thin America, coming in
about 15 years to neighborhoods near you.