Author: Derek Thompson

The Economist declares 2010 “the year of the paywall.” Newspapers will try to make readers pay for news next year, it predicts, because … well, they have no choice. Online advertising pays pennies to the dollars publishers get from print ads, classifieds are doomed, and total advertising has been in a free fall for the last year. What’s more, newspapers that are charging readers, like the Wall Street Journal and the Financial Times, are generally considered success stories.

I’m interested to watch the paywall revolution for two reasons: (1) The future of online journalism has a not-insignificant impact on my rent money; and (2) I would consider this a good business move even if I wasn’t in this business.

Although the WSJ and FT are considered successes, they’re also
considered islands. “Those are just the financial newspapers,” other
publishers tell themselves. “They can support a different model because
they have a different audience.” So this is what I think will happen.
One major publication — possibly a Murdoch paper — will announce that
it will give readers 10 or so free articles a month, and then it will
shut down free access to your IP address unless you register and pay a
small fee. Other publishers will wait to see what happens with traffic
and revenue. If the results aren’t disastrous, another big paper will
try something similar. And then another. And then another.

As for readers, I don’t think this should seem terribly apocalyptic. As Marion Maneker points out,
millions of Americans choose to pay for cable TV, because it offers
content they want to watch. This is how media works, and how it has
worked for hundreds of years. The ’00s represented a brief vacation from
history where consumers learned to expect that reading news should
be entirely free online. Fifty years ago, that would have seemed crazy.
Fifty years from now, I think it will seem equally crazy. But before
the journalism business loops back to history (and hopefully to
something resembling profitability) we need more walls.

Today’s tech news has been dominated by the debut of a Google phone that puts the Internet giant in direct competition with Apple’s iPhone. But there’s another move in the Google-Apple tug-of-war that sneaked under the radar…

Some background. In the future as imagined by Google CEO Eric Schmidt, our phones will
be our main lifeline to the Internet in the next decade. That’s why
Google, which makes nearly 97 percent of its revenues from online ads,
recently bought AdMob,
a mobile ad display company, for an insane $750 million, which is
17-times more than AdMob’s sales. In other words, this is a sector
Google expects to explode.

But Apple is game to what’s happening with smart phones and advertising
too. So they’ve bought their own mobile ad firm Quattro Wireless, for
the relative deal of $275 million. This is an important move, albeit one that won’t change the company in obvious ways over the next few months. As this Ars Technica article dutifully points out, mobile advertising is just another place where Apple is competing directly with Google (even though Schmidt sat on Apple board for years until 2009). This list now also includes cloud-computing, music-streaming, and phone hardware and software.

The recently opened Burj Khalifa in Dubai is the tallest building in the world, with the highest occupied floor of any building in the world, and more stories than any building in the world. Of course, Dubai declared bankruptcy last year, which makes this grand opening look less like an accomplishment, and more like an awkward answer to the question: Where did all the money go?

In any case, it’s very tall. If you had stacked the WTC twin towers on top of each other, they would have reached only 13 feet higher than the Dubai tower.

This graph from the New York Times is pretty stunning:

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I’m a huge fan of telecommutes. It’s not that I don’t like being around people. I do, and my colleagues in particular are wonderful. But I can blog from my laptop from anywhere with an Internet connection, my line on the DC metro is a sardine can, and staying on my couch saves over an hour of total travel. In the aggregate, telecommuting is good for conserving office space, good for family time, good for the environment, good for overall travel times (if there are fewer people going to work, the roads are less congested).

But would telecommuting be good for our government? Conor Friedersdorf thinks so.

His argument isn’t so much about the environment, or the commute times, or family. It’s about K Street:

As professional lobbyists grow ever more powerful, it is increasingly
consequential that members of Congress spend significant stretches of
time hundreds or thousands of miles from their constituents, but mere
minutes away from every K Street firm. An e-Congress wouldn’t merely
result in legislators more attuned to their constituents by virtue of
spending their working lives among them — it would make influence
peddling far more difficult on lobbying firms, who’d find it more
expensive and time-consuming to get face-time with multiple senators
and Congressional representatives, or to simultaneously court a
senator, six members of the federal bureaucracy, a few political
journalists, and a dozen House underlings …

And although lost social lubricant would be one cost of an e-Congress,
it would be mitigated by an important benefit: fewer folks would get
jobs as congressional staffers, put in a few years at a mediocre wage,
and cash out by using their contacts as leverage when they negotiate
their starting salary at a lobbying firm. Ask yourself whether social
cohesion among D.C. insiders results in good governance — or the
opposite.

There are a few double-edged swords here. It might be more difficult for a Whip to unite an opposition for partisan reasons, but it would also be more difficult for committees to produce bills as anybody who has every dozed on in a teleconference meeting knows. You might mitigate obstructionism that way, but you’d also mitigate constructive conferences in Congress (if that isn’t oxymoronical, anyway).

Similarly, a more hyperlocally-focused Congress would be a good thing for individual districts, but it could also (a) increase the pressure for more pork; (b) allow local interests to eclipse national legislation, which would result in (c) even more money being used to pay off local interests to bring that national legislation to the floor. Just look at the health care bill. So this is an unperfect idea, but still it is a very interesting piece by Conor.

I’m excited about the new Apple Tablet (which I probably won’t buy) the same way I was excited about the iPhone (which I don’t own). The latter combined a phone and an iPod, mixed in a hundred thousand apps and created something more than an iPod that makes calls. It created Swiss Army Knife for the 21st century, a do-it-all machine that find directions, name that tune and pick our next restaurant. Similarly, I think the Apple Tablet, which will be something like the child of e-reader and a small computer, could turn out to be more than the sum of its ancestors. It could be a revolutionary personal entertainment device; an techie artists’ easel; a super e-reader that allows magazines to evolve into multimedia heaven; a college students’ textbook and notebook; the perfect tablet computer and so on.

So I disagree slightly with Matthew Yglesias’ take that the Apple Tablet mania is just a bunch of hype:

But why do I want a tablet? Magazine publishers seem to want me to want
a tablet because after I have my tablet I’m allegedly supposed to want
to pay them for tablet versions of their magazines. But that can’t be
why I want a tablet. Is it supposed to replace my laptop? Is the idea
that conventional laptops are too easy to type on? Or does it replace
my kindle somehow? If you could make an iPhone-esque touch screen much
bigger and do it at an affordable price, that might be a cool feature
to ad to future MacBooks or iMacs–I’m sure programmers could devise
something interesting to do with a new user interface–but nothing
about typing on an iPhone has ever made me say if only I could replicate this experience in a device that doesn’tfit in my pocket!!!!

This is funny, but I don’t think it’s entirely fair. The one
rhetorical question that goes unanswered here is “or does it replace my
Kindle somehow?” Yes, that’s exactly what it replaces. Except instead
of merely replacing the Kindle, it reinvents what consumers are
supposed to expect from their e-readers by adding entertainment and
computer capabilities that carve out a new “smart-reader” category in
the market the same way smart phones have slowly taken over the cell
phone industry. I have no idea if this idea will catch like wildfire or blow up. But let’s all wait until we see the product before we proclaim it redundant.

At Northwestern, I was a journalism/political science major because I wanted to be a journalist in Washington, DC. But not all of my friends’ majors and dream careers lined up so cleanly. I knew theater majors who wanted to be travel writers, and history majors who wanted to work in public health in Africa, and psychology majors who wanted to be sports agents and so on.

One of the nice things about college is that you don’t have to plug into a pre-med or pre-law streamline if you don’t want to. If you want to study novels for four years, or study philosophy, or learn to write in ancient Greek, you can do that and graduate with the same degree as somebody who’s laser-beam focused on turning college into a pre-professional career tutorial.

But in these economic times, with money tight and parents looking harder for a return on investment, schools are feeling the pressure to make college relevant for careers. Is that a good thing?

I think so. From the NYT article:

The pressure on institutions to answer those questions is prompting
changes from the admissions office to the career center. But even as
they rush to prove their relevance, colleges and universities worry
that students are specializing too early, that they are so focused on
picking the perfect major that they don’t allow time for
self-discovery, much less late blooming.

I generally think the “American” approach to liberal arts college education is a little weird. We expect our colleges to be intellectual playgrounds and professional factories. They’re designed to touch on a diverse range of material (my distribution requirements mandated at least one Statistics course and one Art History course) and also allow students to dive deep into their major. But trying to instill expertise in this system is a bit like trying to get somebody to eat a lot of one kind of vegetable by putting them in front of a buffet.

And yet. To a certain extent, expertise isn’t the point of college at all, and it’s not necessarily what employers are looking for. From the article:

The Association of American Colleges and Universities recently asked
employers who hire at least 25 percent of their workforce from two- or
four-year colleges what they want institutions to teach. The answers
did not suggest a narrow focus. Instead, 89 percent said they wanted
more emphasis on “the ability to effectively communicate orally and in
writing,”

If college’s want to keep the buffet-style education but also tell parents that they understand how to move their graduates from lecture halls to cubicles, I can think of two fairly simple solutions. First they should expand their acceptance of
accredited internships or provide more financial compensation to unpaid internships. A summer at
a non-profit think tank in DC is an education in policy,
politics and the serpentine navigation of Senate offices. If colleges
want to give all their students a leg up in the post-grad world where
internships are a requisite, they should step up their internship financing
and accreditation.

Second colleges should make it easier to students to streamline the graduation process. Here’s one way you could do that. Let’s say it normally takes 32 credits to graduate and 16 credits to complete a major. Rather than hold students hostage to an arbitrary smattering of distribution requirements, more colleges could allow something like a super-major where a student can graduate with a 20-credit major and 8 additional classes. In other words, the extra level of specialization would allow him or her to graduate one semester early. That could be an interesting way to reward students for choosing to “deep-dive” in college and save a semester worth of money.

What 10-year graph best sums up the aughts: Housing prices, global trade, China’s growth or US household borrowing? Economist Michael Mandel presents his four most important economic graphs of the decade. I offer one more.

1) The boom and bust in housing prices clearly
epitomizes the decade. What’s more, in 2000 nobody in their right mind
would have predicted that the boom lasted as long as it did. Downside:
The gyrations in the housing market may be a symptom of deeper
problems, much like a fever is a symptom rather than a disease in its
own right (The chart below is drawn from the Case-Shiller price
indexes)

2) Globalization has been one of the main themes of this decade-and nothing illustrates globalization more than the rise in exports as a share of global GDP.
In 1999, global exports were about 22.7% of global GDP, as measured by
the International Monetary Fund. By 2008, that number was 32. 3% before
plummeting in 2009. Downside: There may be systematic double-counting,
as companies break up production into smaller and smaller pieces.

3) Chinese economic growth would have been one of
the runner-ups for the Economic Statistics of the Decade for the 1990s.
Chinese economy growth averaged an astounding 10% peryear in that
decade, and looks like it’s going to get to the same level again in
this decade. Downside: No one is really sure whether to trust the
Chinese economic statistics or not.

4) Finally, we come to U.S. household borrowing, which
probably is the clearest reflection of the financial crisis. In this
decade the U.S. household sector amped up its borrowing from $500
billion in 1999 to $1.2 trillion in 2006, before dramatically cutting
debt in 2009. Downside: This number from the Federal Reserve includes
domestic hedge funds and nonprofit organizations, making it a bit tough
to interpret.

As for me, I wish he had included this graph below (also via Mandel) which nicely sums up America’s private sector problem. Our 10-year net growth in jobs is quite positive in health, education and government, but negative in everything else.

“There hasn’t been this much hype about a tablet since Moses came down from the mountain,” David Carr gushes about the forthcoming Apple tablet, which promises to be something like the missing link between e-reader and computer. I’m excited, too! There’s a lot to talk about with Apple’s new “iSlate,” from tech specs to industry implications. But let’s focus on the most proximate question — for me at least. Can it save journalism?

One way to look at the last ten years in online media is that the
aughts were the decade when tech savvy Americans learned to expect
everything they could read, watch and hear to be free. The next decade
will have to be The Empire Strikes Back for media companies. Consumers will have to re-learn the mental muscle memory of paying for what we consume.

The e-reader is a huge part of the puzzle. Publishers who blew it by
giving away everything for free on computers have a raft of new
e-reader gizmos where they can charge for access to their content and
train readers to expect to pay for the content. The Apple “iSlate”
represents the apotheosis of the early e-reader revolution. Ideally,
techies expect a blown-up iPhone with a touchable screen, readable text
and goshwow graphics capabilities. This kind of machine combined with an online digital storefront for magazines and newspapers could presumably persuade readers to start paying for the privilege of reading news again. Carr elaborates:

A simple, reliable interface for gaining access to paid content can do
amazing things: Five years ago, almost no one paid for music online and
now, nine billion or so songs sold later, we know that people are
willing to pay if the price is right and the convenience is there.

I’m on Carr’s side here: salivating for the Apple tablet; excited for
the Hulu-for-magazines project; rooting for a Journalism Savior; and so
on. But the first step is key. Newspapers and magazines have to
eventually put up a paid wall for readers. This is very simple: Nobody
will pay for something they can easily get conveniently, and for free.
Without a pay wall perimeter around journalism’s finest estates, the
Apple iSlate won’t be a savior. It’ll be just another device where we
get free stuff.

US manufacturing had its best month in three years and grew for the fifth consecutive month in December. Reuters juxtaposes the good news with the bad:

But a separate report showed a decline in homebuilding activity in November pushed construction spending beyond a six-year low.

Make no mistake: Growing US manufacturing is good for America. But US manufacturing isn’t growing because the economy is strong. It’s growing because the dollar is weak.

Our manufacturing sector is being tugged up from the mire of the
recession by low interest rates, a cheap dollar and an early recovery
out of east Asia. All that makes our products cheap and Asian buyers
rapacious. Good for us! A recovery led by manufacturing is better than
a recession. But the Reuters piece highlights the schizophrenia of this
recovery in which America is growing while tens of millions of
Americans are out of work and consumers in general are still loathe to
spend and are moving less than at any time since World War II.

Who’s optimistic about 2010? Slate’s Daniel Gross is:

My bold prediction for 2010 is that the consensus of the forecasters
surveyed by the Philadelphia Federal Reserve, which projects the
economy will grow only 2.4 percent in 2010, is too pessimistic, perhaps
by half.

The Menu title of Gross’ article is: “The dangers of economic pessimism.” The basic idea is that we were too optimistic about the economy in the boom times, and now we’re being too pessimistic in the bust. But isn’t the much graver danger today in economic optimism?

Gross is right that there have been plenty of happy surprises in the
upturn. Many of us thought the Dow would languish in the 5000s in
March. Today it’s in the 10,000s. We thought some of our biggest banks
would be hosed for years, whereas many are already paying back their
TARP funds with interest. So yes, the Debbie Downers can be wrong too.

But Gross is omitting some important reasons why pessimism remains
popular. Our big Q3 GDP recovery was initially reported at 3.5%, then
revised to 2.8%, and then again to 2.2%. Low 2% growth will barely be
enough to hold the unemployment rate steady much less provide jobs for
an expanding population and today’s unemployed. The housing market
remains weak. The Federal Reserve is planning to rein in its asset
purchases even with unemployment over 10 percent. Relaxed housing
standards are set to end. There’s no guarantee of another round of
stimulus spending to juice Americans’ depressed consumerism. In other
words, we’re barely growing and the very government programs that lured Americans to the nation’s storefronts in Q3 are ending.

The danger of too much economic optimism is that it coincides with
too much fiscal caution. We tell ourselves the ’09 stimulus will be enough, and
that doing too much will upset the fragile bond markets by making American debt look dangerous and driving
interest rates through the roof. We hasten the rush to normalcy and in
the process turn 2010 in 1937, the year the Great Depression double
dipped as FDR and his advisers tried to balance the budget and shrink
the money supply.

To be sure, I don’t know what’s going to happen in the next 12 months
any more than Gross does. But it’s important to note that there’s a
danger to both economic optimism and pessimism.

James Suroweicki’s interesting new column sees community rating — the new law that will require health insurers to cover all comers at the same price regardless of their health risk — as the downfall of the private health insurance industry. Kevin Drum agrees. I don’t.

First, let’s hear James’ argument (via Daily Dish):

Congress’s support for community rating and universal access doesn’t
fit well with its insistence that health-care reform must rely on
private insurance companies. After all, measuring risk, and setting
prices accordingly,
is the raison d’être of a health-insurance company….Congress is
effectively making private insurers unnecessary, yet continuing to
insist that we can’t do without them.

The truth is that we could do just fine without them: an insurance
system with community rating and universal access has no need of
private insurers.

OK, it’s true that community rating makes large-scale risk evaluation
— or underwriting — unnecessary, but the universal mandate to buy
health care quite obviously strengthens private insurers by adding
millions of subsidized customers. Even as health care reform makes these
companies “unnecessary” it’s also making them stronger. Here’s Kevin:

I agree [with James], and it’s one of the reasons that, warts and all, I support the
current healthcare reform legislation so strongly. My take is that
community rating at the national level can eventually lead to only two
outcomes: (a) the end of private health insurance completely¹ or (b) the transformation of private insurers into regulated public utilities … It’s too bad we’ll have to wait so long for this to happen, but today’s
healthcare legislation puts it on the road to inevitability.

I’m not so sure. On the one hand, I similarly see this bill as first
step rather than a final edit of the health care system. On the other
hand, the private insurance industry is very clearly strengthened by
this health care bill. After all, the universal mandate gives them
millions of additional mandatory customers. The absence of any
guaranteed cost control provisions means that premiums aren’t going to
stop growing really really fast — even though the government will be
paying for much of the increase with subsidies to poorer families.
There is nothing in the Senate bill that guarantees a move away from
fee-for-service (although there are some limited efforts to find more
affordable means of providing care), which is the main driver of our
medical inflation.

One of the interesting things about the health care debate last year was
that the Right rallied against the bill on the grounds of radicalism
and socialism when in fact the bill’s principle weakness was its lack of
radicalism. The truly radical ideas where policy wonks on left and
right could get even close to holding hands — e.g.: moving away from employer coverage and
the soaring costs of fee-for-service toward a combination of health
savings accounts, public insurance and all-government coverage for the
poor, the old, and catastrophic care — is light-years away from where
Congress was willing to go.

A while back, I wrote that calling
socialism on this bill was like watching a construction company add a
fourth bedroom to your house and accusing them of arson. I still think that way. I support this
bill, this metaphorical room addition, but eventually we’re going to
have to revisit the fact that the home’s foundation remains flawed.

This doesn’t make a lot of sense to me:

Every £1 spent on print advertisements yields £5 in revenue,
compared with £2.15 for television and £3.44 for online advertising, a
study of 26 leading UK retailers found.

In other words, the advertising hierarchy goes like this: Print >Online>TV. I hope this is true! After all, online advertising pays my rent. But I can’t imagine it is.

I just conducted a quick non-scientific study of some bloggers behind
me. “What’s your favorite online ad?” I asked. They wrinkled their
foreheads, gazed off into space, and looked somewhat lost for a few
seconds. “Exactly,” I said. “I can name my favorite TV ads,” one said apologetically.
“Exactly,” I said again.

The study was conducted my Microsoft advertising, which “recommended
retailers increased online and print advertising
budgets by 10 per cent and decreased television budgets by that
amount.” Since Microsoft’s online products like Bing would profit from
an uptick in online advertising, this sounds like a classic example of consider the source. The Times dutifully points out that this study differs from larger professional surveys.

I don’t have access to the findings, but it seems to me that a little
bit of intuition goes a long way. Television advertisements take up the
whole screen. They play. They have volume and live-motion and stories
and punch-lines. Even if online advertisements are more “targeted,”
most web ads capture our attention the way the frame around an oil
painting stands out to the viewer. TV ads interrupt with stories.
Online ads just hang around the perimeter.

Late in December, when inspiration for new articles runs dry, we journalists love getting boozed on  “SOMETHING of the Year” spirits. So here’s an aperitif to cap off 2009. What was Obama’s most important economic decision of the year? Noam Scheiber has an answer. Passing the $787 billion stimulus package? No. Picking Tim Geithner? No. Taking over General Motors? Heavens, no.

It was … the stress tests?

Here’s Noam.
Per usual, this is clear-headed, straightforward thinking and you
should read the whole article. For my two cents, Dan and I have said
for a while that one of the most important things the government did
early when the recession was still mostly a financial crisis was we
stood behind the banks and essentially said: Armageddon will not
happen, and we have the trillions to back that promise up. The Federal
Reserve opened wide its balance sheet to buy bad assets. The Treasury
swung open its doors with hundreds of billions of dollars of TARP to
throw at struggling banks. We put AIG and Citi on government crutches.
We arranged a semi-forced marriage between Merrill Lynch and Bank of
America. These steps told investors that the United States was not in
the business of managing large-scale nationalization or allowing
large-scale bank failure. We were in the firefighting business.

The stress tests, whether they were honest or not, were the damage
report. They told investors that the house that was once on fire was
going to stand. When history judges this year, it will probably
characterize the bailouts as a double-edged sword. On the one had, the
government’s implicit guarantee to save Wall Street probably averted a
depression. On the other hand, by setting a floor on bank losses we
deepened our troubling tradition of moral hazard, which encourages top
tier bank institutions to bet big, knowing the government will have to
bail them out if they lose. But those implications are next year’s debate. This year, I agree with the Noam that the stress tests are something to be thankful for.

Among bloggers, there is a certain tendency when writing about the shifting tectonics of technology to proclaim that every little development must spell “The End” of something else (… guilty as charged.) So here’s a column about how smart phones spell The End for small web-oriented netbook laptops.

Stephen Williams of the New York Times:

The netbook, which rose to great popularity only about a year ago, may,
in fact, become the victim of the technology that helped create such a
small computer. Ultra-thin machines now offer more power in much
lighter packages, smartphones with increased Web functionality and more
sophisticated processors will eclipse the netbook’s rather limited
abilities, and the tablet computer is likely waiting in the wings from
companies like Dell and Apple.

Well, as somebody who’s interested in buying a netbook with my
Christmukkah gift money, I’ll object. I want a netbook because I do all
my computer-related activity — blogging, emailing, listening to music
— online, and there’s no reason for me to pay $1000 for an Apple
laptop when I can buy a cheap HP netbook with better battery life for
$300. Smart phones are great. But I’m not going to blog on my
Blackberry. Reading texts from my mom is easy, but I’d rather not read
a New Yorker story she emails to me on a 1.5”-by-1.5” screen. The
ability of smart phones to do pretty much everything doesn’t mean they
obviate other tools — the same way owning a Swiss Army Knife doesn’t
obviate a better corkscrew or pair of scissors. For my money
(literally) netbooks are here to stay. And I think they’re here to thrive.

The New York Times’ ebullient tech columnist David Pogue handed out his awards for the best tech ideas of the year. Some of them I’ve covered already — like Bing’s pop-up previews, Droid and the Verizon MiFi wireless card — and some of them are very cameras that I just don’t care much about. But here are two very cool ideas that passed under my radar.

1) iType2Go
I don’t have an iPhone, but if I did I’d buy this app pronto. When
you’re texting, iType2Go superimposes your words over a live camera
view of where you’re walking. So rather than looking like a
half-klutz/half-jerk running into trees, cars, families with strollers
and so on, you can see exactly where you’re going as you text your
friend. For Droid phones, a similar function is called the Text’n’Walk.

2) Readability
Pogue calls Readability — a free button for your browser that renders
any online article as an ad-free, novel-esque page — “the single best
tech idea of 2009.” That was enough for me! So I downloaded the
function by visiting the Readability site here,
selecting my reading preferences (Novel-style text; Medium sized print;
Wide margins) and dragging the Readability button to my bookmark
Toolbar. Voila. Every article I read can now be rendered as a ad-free,
clutter-free page of crystal clear text on a sepia background. I urge
you to try it out.

How did Obama’s economic team fare in its first, recession-drenched, partisanship-soaked year on the job? Professor Brad DeLong hands out a grade of B+/A-/”exceeds expectations.” Here’s what he writes on the report card:

I was just about to write a year-end reflection in which I was going to
say that the Obama economic policy team had exceeded expectations–a
sizeable fiscal stimulus, a second round now moving through the
congress, victory in the intellectual war over whether the government
should and can stabilize the economy, blocking any protectionist moves,
key support for what looks to be a successful (if moderate Republican)
health care reform, key support for ongoing climate policy–a solid
B+/A-. The major problems are (a) that the macroeconomic situation
turned out to be much more dire than we thought last November-December,
(b) that financial regulatory reform looks to be a flop–too many
members of congress bought by bankers–but IMHO Geithner and company
played out a weak hand that Paulson had taken care to leave them, and
(c) that the fact that private banks have profited while the government
has not from the bailouts means that there is now no more ammunition
should things turn south once more.

History will judge better than my December reflexes, but I’m nodding to all of this paragraph. Still, demons lurk. Financial regulation shouldn’t blow up in Congress, but it could. A double-dip recession probably won’t happen, but it could. Unemployment should gradually begin to sink into the single digits, but it could bob around 10 percent for more than a year. Which is to say, I think the Obama administration has done a commendable job battling with the multi-headed hydra of a recession in its first eleven months. But history takes a long view, and we don’t yet have the right perspective.

Here is Slate’s very smart man Tim Noah on why the Senate health care bill’s tax on expensive “Cadillac” insurance plans is a bad idea:

It’s certainly true that the price and availability of insurance
coverage has a significant effect on medical inflation. If insurers
spend less, doctors and hospitals will spend less. But how much less?
The prices that doctors and hospitals charge aren’t determined only
by private insurance. They’re also determined by the availability of
government money (which will increase substantially under health
reform) and by what individuals feel compelled to pay out of their own
pockets (which, in the case of serious illness, can be quite a lot).
It’s therefore easy to imagine the Cadillac tax squeezing patients
between ever-lowering benefits and still-rising prices for medical
care.

I’m not sure I follow.


Noah says that the prices that doctors and hospitals charge are
determined by a combination of private insurance and government money.
But government money already exerts a downward pressure on prices. Medicare
reimbursement rates are so famously low that some doctors won’t even accept Medicare patients. The government can pay hospitals
up to 30 percent less than private insurers because of lower
administrative costs. So government stinginess is already tying an anchor to medical inflation. A excise tax on Cadillac plans would tie another. Why is that a bad thing?

Well, Noah’s right that could also mean fewer benefits, worse care, a popular uprising and, ultimately, the repeal of the tax. But as David Leonhardt explains today,
fewer benefits doesn’t necessarily mean worse care. From Richmond to
Mayo to the Cleveland Clinic, there are many examples of excellent
health services without abundant care. Peeling our health care system away from the mantle of More-Is-Always-Better is exactly the long-term goal of health care reform. The excise tax is not a
perfect plan, but it pushes American health care away from something that is entirely unperfect and wholly unsustainable.

Casey Mulligan, writing for the New York Times’ Economix blog, pushes a theory that’s gathering momentum: We can juice employment if we lower the minimum wage.

Some would say that high real wages are part of the problem — that
employers would be hiring more if labor were cheaper. If that’s right,
public policy so far in this recession seems to have gone in exactly
the wrong direction by raising the minimum wage and otherwise increasing employment costs.

The Wonk Room’s
objection is simple: The current minimum wage already supports a nearly
unliveable salary of only $16,000. Paul Krugman’s objection traces the
impact of broadly lower wages: Lower wages means a lower overall price
level, which juices demand but also raises the real value of debt. Tyler Cowen pushes back.

I’m of two minds here. On the one hand, we want to make it as easy and
desirable as possible for employers to hire, and a minimum wage is a
marginal barrier to cheap hires. There are certainly some
people collecting unemployment benefits from the government that would,
with a lower minimum wage, get scooped up in the private sector. At the
same time, my sense is that a lower minimum wage might not contribute
meaningfully to employment or aggregate demand. When I imagine myself
as an struggling employer with a X dollars in compensation that I split
between Y workers, some of which are paid at the minimum wage, a lower
MW might encourage me to reduce X, the compensation pool, rather than
Y, the number of workers. After all, times is tough, and I’m still not convinced that aggregate demand will support a sustainable recovery. The opportunity to reduce the compensation pool would essentially be a short- and
long-term transfer of wealth from employees to employers, which would
hurt aggregate demand.

In short, I think the effects of reducing the minimum wage would be mixed, and I prefer other job-spurring ideas.

Unemployment is the pits, but employment can be a pain, too. You want proof? Here’s proof. The winner of the “Best Job in the World” competition to explore an island off the Great Barrier Reef and write a blog about it for $120,000 was unceremoniously greeted by a island native:

Trouble struck paradise this week when a British man who has the
“Best Job in the World” as the caretaker of a tropical Australian
island was stung by a potentially lethal jellyfish.

Ben
Southall — who won a contest to blog for six months about life on
Australia’s Hamilton Island to promote tourism — wrote Tuesday that he
was lucky to have survived his brush with the extremely venomous Irukandji jellyfish.

Happy New Year, old relatives! You can die, now.

That’s pretty much the grisly theme of this WSJ piece on the estate tax, which takes a one-year vacation in 2010 — thanks, W! (And Congress!) In a macabre act of inter-generational-kindness, a bunch of old people are trying to time their deaths just right to pass along their untaxed estate to their offspring. How … sweet?

Here’s the nutshell of the story:

The macabre situation stems from 2001, when Congress raised estate-tax
exemptions, culminating with the tax’s disappearance next year.
However, due to budget constraints, lawmakers didn’t make the change
permanent. So the estate tax is due to come back to life in 2011 — at
a higher rate and lower exemption.

Two points: 1) This is a perfect example of a molehill transformed by political voodoo
into a mountain. According to the article, the tax applies to about
5,500 taxpayers a year. That number is not large! And yet the attention
that attends the “death” tax is.

2) I’ll be interested to watch how both parties deal with the tax for 2011. Naturally, Republicans are united against any action that involves not destroying the death tax forever. That includes Sen. Judd Gregg, the moderate Republican and co-producer of the fantastical commission to reduce the deficit, who has consistently supported every effort to whittle away the estate tax.

Obviously, one way to reduce the deficit is to reduce spending. But another way is to raise taxes — or at least to not kill the taxes that we already have in place. The Lincoln-Kyl bill in the Senate to cut estate taxes after the one-year hiccup would cost almost $250 billion over 10 years. That is, as they say, real money, and it’s hard for me to imagine how this tax cut would spur economic growth, since inheritance is passive. If we’re going to consider spending over the baseline part of PAYGO, we should do the same for government receipts below the baseline. So would Republicans plan to make up that money?