Author: Megan McArdle

Apparently, I’m not the only one who thinks that Google Docs might be very useful for managing wedding planning tasks.  The Official Google Blog notes all the ways in which they’re trying to help you plan for that very special day.

However, Google’s entry into the wedding planning business is uncharacteristically, almost comically, inept.  These tools are free.  This is not how wedding planning services work.  The way they work is, they charge you $50 for things that are normally free, escalating rapidly if there is actual work or materials involved.

It’s looking increasingly like Fannie Mae and Freddie Mac are going to cost the US government much more than AIG. 

In its latest long-term budget outlook
released in late January, the CBO projected that the AIG bailout would
ultimately cost the Treasury $9 billion dollars.  Indeed, the entire
private financial industry bailout is ultimately expected to cost less
than $30 billion; of the $99 billion that the CBO expects we will
ultimately lose on TARP, half of the loss comes not from helping the
“banksters”, but from the Obama administration’s decision to bail out
the automakers.  A further $20 billion will be spent on the Home
Affordable Mortgage Program, aka the administration’s mortgage
modification plan.

By contrast, the nationalization of the Government Sponsored Entities is expected
to cost the federal government $64 billion between 2011 and 2020, on
top of the $110 billion we’ve already spent.  Fannie and Freddie have
long defended themselves on the grounds that their underwriting
standards weren’t nearly as bad as those in the private sector.  But
they’ve certainly been better at socializing their losses; firms that
controlled maybe half of the mortgage market will end up costing the
taxpayer four times as much as the other troubled financial
institutions.

And that CBO report was issued before yesterday’s
announcement that due to an accounting change, Fannie and Freddie were
going to buy back
many of their non-performing mortgages rather than continue to make
payments to the investors.  For those who haven’t been following along
at home, Fannie and Freddie guaranteed loans they packaged for resale,
which means when homeowners default, they have to make the payments. 
This is expensive, so Freddie and Fannie have decided to repurchase the loans.

This is actually probably
good news for the taxpayer over the long run, because they’ll be
borrowing money to buy out the investors at lower interest rates than
the interest rates on the non-performing loans for which they’re
currently covering the payments.  But it raises some disturbing
questions.  First, why is an entity that is essentially an arm of the
U.S. government paying out extra cash in order to maintain some
accounting fiction?  And second of all, how long before they have to do
this again?

As most of you already know, Greece is in big, big trouble.  Its deficits are enormous, its debts are larger, and its credit quality is so shaky that it may set a world record on the Richter Scale. For a while now, the consensus has been that larger, more solvent members of the eurozone would bail the country out. Greece’s creditors are saying, in effect, “Nice eurozone you’ve got there . . . shame if anything happened to it.”

And it would be.  There’s no real mechanism for a country to exit the eurozone.  That is, from all accounts, deliberate–a currency zone doesn’t work if you start with the assumption that countries may exit at any time.  The problem is, if a country is forced to exit, the process is . . . well, let’s just say it’s disorderly.  If Greece leaves the currency union, the best case scenario is a local bank run and a sharp jump in interest rates for euro-denominated debt, particularly that issued by weaker members, as lenders start pricing in currency risk.  The worst case scenario is that Ireland, Spain, and Portugal also suffer bank runs, forcing them to exit as well, which fatally weakens the whole project.

This is why almost everyone expects the richer members to eventually come through.  The problem is, there’s also no mechanism for delivering a bailout.  Greece can’t ask for one, because it thinks this would undermine the credibility of its plan to reduce the deficit.  (Note to Greece:  this is like Paris Hilton worrying that buying an Amy Tan novel might undermine her reputation for intellectual seriousness).  And Germany, the obvious candidate to lead a bailout, is not eager to do so.  So while everyone knows this is going to happen, no one is quite ready to say, “Hey, we’re going to hand Greece a bunch of money and get little in return except, well, not having our currency zone broken.”

No one has the authority to do the obvious:  swoop in with a bunch of cash, in return for which the Greek government gets put on a serious diet.  I mean, they can tell Greece to get its fiscal house in order, and negotiations over this sort of thing are part of the reason for the delay.  But while they can force Greece to agree to austerity measures, they can’t actually enforce them, other than with a set of fairly pitiful sanctions.  Which is why Greece is running such huge deficits in the first place, even though the rules of the monetary union say that deficits aren’t supposed to exceed 3% of GDP.  Since it is entirely possible that Greece will find itself in the same pickle ten years hence, no one’s exactly enthusiastic about making this sort of commitment.  Giving Greece money also gives markets the idea that Greece is Too Big to Fail, which means that if Greece does end up in trouble again, a bailout will be even more necessary. 

None of the choices are good.  Thus we wait until everyone, including the Germans, reluctantly concedes that there is no other way to get out of this than to funnel money into the eurozone’s most profligate government.

Join the conversation about this story »

See Also:

• The Greece Powder Keg Explodes
• Watch Hedge Funder Hugh Hendry Fight WIth Joe Stiglitz And Say He Wants Greece To Collapse
• Here’s The REAL Reason Germany Is So Hesitant About Bailing Out Greece

One of the mildly surprising things about the Stuyvesant Town debacle is the kinds of investors the deal attracted.  What were entities like CalPers and the Church of England doing plowing their money in along with real estate moguls like Tishman Speyer?

The answer is “looking for alpha”.  Underfunded pension funds have been
looking for extra return in order to make up the holes . . . and the
problem is worst among public pension funds, because until recently,
their accounting wasn’t very good, so politicians were fond of making
unfunded promises in lieu of wages.

Needless to say, public
pension funds cannot necessarily afford to attract top investment
talent, particularly since appointments tend to have a political as well
as financial component.  They’re thus vulnerable to making investments
that aren’t in their best interest–not just in real estate, but in
things like derivatives, as Felix Salmon notes:

In
reality, it’s not the pension funds which are engaging in
“derivatives abuse”, but rather the investment bankers who sell the
pension funds complex over-the-counter derivatives which make the
broker lots of money and which rarely do any good for the end client.
As Clavell says,

Let’s assume you work at a
Pennsylvania school board, or
a Swiss private bank, an Australian life insurance company, a German
corporate treasury, a UK Pension administrator or any one of thousands
of other buyside entities, supposedly with sufficient expertise that an
investment bank can classify you as a non-retail customer.

The more complex the structured product, the more opportunity for
agents to extract fees at your expense…

Admitting you don’t know is pure alpha; you will not claim to have
any edge and this may put you off involvement in the product. If you
claim you do know where the fees are, banks want you as a customer. You
don’t know. Really, you don’t. Hang on, I hear you shouting that you’re
actually smarter than that, so you do know. Read carefully: Listen.
Buster. You. Don’t. Know.

The fees are hardly the worst part; more worrying is that many public
pension funds and other public trusts are assuming risks they don’t
necessarily understand.  They think they’re gaining alpha–higher
expected value on their investments.  But often they’re confusing alpha
with beta, which is to say they’re getting higher returns not because
they’re making good investments, but because they’re taking on more
risks.

I don’t think I need to convince many people that
high-risk, high-return investments are a bad way for public pensions to
try to deal with their massive unfunded liabilities.

Felix is
right that the investment bankers who push these sorts of things on
public pension funds are, at the very least, doing something unsavory. 
But they don’t deserve all the blame.  Public pension funds shouldn’t be
trying to make up their deficiencies by chasing unrealistically high
returns.  Of course, if politicians and their appointees had the courage
to pay for the gifts they gave public employees, rather than looking
for loopholes, we wouldn’t be in this mess in the first place.

As most of you already know, Greece is in big, big trouble.  Its deficits are enormous, its debts are larger, and its credit quality is so shaky that it may set a world record on the Richter Scale. For a while now, the consensus has been that larger, more solvent members of the eurozone would bail the country out. Greece’s creditors are saying, in effect, “Nice eurozone you’ve got there . . . shame if anything happened to it.”

And it would be.  There’s no real mechanism for a country to exit the
eurozone.  That is, from all accounts, deliberate–a currency zone
doesn’t work if you start with the assumption that countries may exit at
any time.  The problem is, if a country is forced to exit, the process
is . . . well, let’s just say it’s disorderly.  If Greece leaves
the currency union, the best case scenario is a local bank run and a
sharp jump in interest rates for euro-denominated debt, particularly
that issued by weaker members, as lenders start pricing in currency
risk.  The worst case scenario is that Ireland, Spain, and Portugal also
suffer bank runs, forcing them to exit as well, which fatally weakens
the whole project.

This is why almost everyone expects the richer
members to eventually come through.  The problem is, there’s also no
mechanism for delivering a bailout.  Greece can’t
ask for one, because it thinks this would undermine the credibility
of its plan to reduce the deficit.  (Note to Greece:  this is like
Paris Hilton worrying that buying an Amy Tan novel might undermine her
reputation for intellectual seriousness).  And Germany, the obvious
candidate to lead a bailout, is not eager to do so.  So while everyone
knows this is going to happen, no one is quite ready to say, “Hey, we’re
going to hand Greece a bunch of money and get little in return except,
well, not having our currency zone broken.”

No one has the
authority to do the obvious:  swoop in with a bunch of cash, in return
for which the Greek government gets put on a serious diet.  I mean, they
can tell Greece to get its fiscal house in order, and
negotiations over this sort of thing are part of the reason for the
delay.  But while they can force Greece to agree to austerity measures,
they can’t actually enforce them, other than with a set of fairly
pitiful sanctions.  Which is why Greece is running such huge deficits in
the first place, even though the rules of the monetary union say that
deficits aren’t supposed to exceed 3% of GDP.  Since it is entirely
possible that Greece will find itself in the same pickle ten years
hence, no one’s exactly enthusiastic about making this sort of
committment.  Giving Greece money also gives markets the idea that
Greece is Too Big to Fail, which means that if Greece does end up in
trouble again, a bailout will be even more necessary. 

None of
the choices are good.  Thus we wait until everyone, including the
Germans, reluctantly concedes that there is no other way to get out of
this than to funnel money into the eurozone’s most profligate
government.

Jim Henley wonders if the Kindle and its brethren won’t reverse the trend towards thicker and thicker books:

I understand the impulse on the supply side toward thick books: I
myself have witnessed bookstore shoppers choose one book over the other
because “this one’s thicker.” (Said out loud in so many words.) And I
witnessed a shift in mass-market printing strategies toward using
thicker paper, bigger fonts and wider margins. Compare a mass-market
paperback from the 1960 or 1970s with a reprint of the same title from
the 1980s or later and the difference is stunning. In the earlier era,
the publisher was plainly trying to keep the physical size down; in the
later era, puffing the same text up like a blowfish.

What interests me is how the ebook era will affect book lengths.
Right now, all ebooks look “the same size” on the (virtual) shelf. The
Kindle store gives you a “print length” but, at least for me, that’s an
abstract fact I take little notice of. Baen Books successful
Webscriptions store doesn’t even do that.
Perhaps one day ebook vendors will list a book’s word-count instead,
but I don’t think that will make as much impression on shoppers as a
physical package’s relative bulk does. Also, my Kindle’s progress bar
is relative rather than absolute. No matter how long the text, the
progress track runs the width of the screen. If you’re a third of the
way through a 100,000 word book, the progress bar extends a third of
the way across the screen. If you’re a third of the way through a
200,000 word book, likewise.

Every change in “printing” technology/economics has affected the forms of literature. This one will too.

On the one hand, it will be nice that books no longer have to sell
themselves by adding “doorstop” and “paperweight” functions.  On the
other hand, one can imagine it going the other way–longer books are
now cheaper to print, and easier to store.  Also, to the extent that
ebooks have lower margins, editors will have less time to invest in
sweating loquacious writers down to a more appropriate number of
words.  I have no doubt that the new technologies will change the forms
of literature, but I have no idea how.

A new Washington Post poll apparently shows that people want Congress to keep looking for a way to pass comprehensive health care reform.  The graphic is rather striking:

This does not mean that the public wants Congress to pass any of the
current bills, though we don’t know yet, since the Post seems to be
dribbling out the numbers over a few days.  But I’ll be surprised if
they get more “ayes” than “nays” on passing HCR in its current form,
which hasn’t happened
since Kaiser got a 42% favorable a month ago.  No, I’m betting that
what the public, God bless ’em, really wants is for Congress to go back
and find a fairy bill that covers a bunch of people, doesn’t cost
anything, offends no popular special interests, and generates broad
bipartisan support.  While they’re at it, I want a pony.  And a sous
vide machine.

So will Congress keep searching for this miracle
piece of legislation?  That depends, I think, on how strong this
preference is to have them “keep on truckin’ ” on a health care bill. 
As I’ve observed a zillion times, almost everything polls well in
isolation.  Of course the public wants Congress to try to clean up the
uglier bits of our health care system.  But does the public want
Congress to use its finite energy on creating a new health care bill more
than it wants that same legislative effort expended on jobs, banking
regulation, or the economy?  All the other polls I’ve read say “no”.

Update:  Yup, they may want Congress to move forward, but not on the plans currently on the table.

Veronique de Rugy has a good post on the limits of blaming Bush for the deficits. Yes, Bush enacted a horrible prescription drug benefit and tax cuts that didn’t improve matters. 

But the net increase in interest on the Federal debt under Bush was dwarfed by the current and future projected deficits, and will naturally shrink further as inflation returns.  And the tax cuts expire this year.  The proponents of blaming every single bad thing that happens on one George W. Bush offer the wan defense that, after all, it would be hard to not extend the tax cuts. 

But that argument applies equally well to Bush; it would have been hard not to enact the tax cuts in the first place, and politically disastrous not to do a Medicare prescription drug benefit, and idea that was essentially forced on him by Democrats eager to curry favor with seniors.

But the fact remains that George Bush enacted a bunch of tax cuts, and did nothing to implement the spending control those tax cuts demanded.  He shouldn’t have done that, even if voters would have been, like, rilly rilly mad if he didn’t give them free drugs.

So, too, at some point, Obama has to take responsibility.  Listening to his defenders reminds me of those people who sit around whining about how their Dad was really distant and critical . . . I mean, fine, you apparently had a rotten childhood, but Dad can’t get come and get you off the couch and find you a girlfriend and a better job.  Girls and employers get really creeped out if they try.

Whatever George W. Bush did or did not do, he’s no longer in office, and doesn’t have the power to do a damn thing about the budget.  Obama is the one who is president with the really humongous deficits.  Deficits of the size Bush ran are basically sustainable indefinitely; deficits of the size that Obama is apparently planning to run, aren’t.  If he doesn’t change those plans, he will be the one who led the government into fiscal crisis, even if changing them would be [sob!] politically difficult.

I have a serious question for the people who are mounting this defense:  at what point in his presidency is Obama actually responsible for any bad thing that happens?  Two years?  Five?  Can we pick a date for when bad things that happen on Obama’s are actually in some measure the responsibility of one Barack Obama, rather than his long gone predecessor?  And then stick with that date?  Conversely, can we agree that as long as the bad things that happen are really George Bush’s fault, any good things that happen should probably be chalked up to his administration as well?

Join the conversation about this story »

See Also:

• The ‘Budget Deficit Crisis’ Is A Myth, And It’s Getting In The Way Of Obvious Reform
• Stop Freaking Out About The Deficit — It’s Just More Republican Scaremongering
• Obama To Unveil Record $3.8 Trillion Budget And $1.6 Trillion Deficit

Here’s a serious question:  why don’t more cities rent out their snow services?  Upstate New York is apparently blissfully free of snow, and short of money.  Washington DC is one of the flushest metro areas in the country, and in need of snow removal.  Why not get some of the snow removal equipment–and talent–from Rochester and Syracuse and Buffalo on the road?  They could be here in twelve hours at the outside, and have this place cleaned up in a jiffy.

It seems like this would be a win-win combination.  But as far as I know, no one’s even suggested it.

Commenter Bosco Higgins offers an astute possibility as to why Apple might be signalling that they’re willing to cut prices, even though this will just encourage consumers to wait:

If I had to guess I would say it is a pricing signal to its competitors
(Kindle, Nook, Sony) saying that if they try to compete on price, Apple
is prepared to willing to drop iPad prices. It is the old prisoner’s
delimma on pricing – Apple is trying to establish a cartel price and
scare the other participants from defecting.

It’s not a bad guess. Oligopolies can be maintained for quite some time with the right signaling games.  On the other hand, I’m not sure how credible a signal they can send.  Apple may eventually make most of its money from content, but right now it’s a vendor of shiny hardware, which it sells at a hefty premium.  Amazon doesn’t need to command a premium price in order to protect a brand image; they’re a discounter, and that’s why people like them.  If Apple starts getting into price wars, it’s heading into uncharted and dangerous lands.

Remember the kerfuffle over the original iPhone?  Apple charged luxe prices for the first few months, and then after it had wrung every possible dollar out of the early adopters, dropped the cost to capture more price-sensitive users.  Many of those who had bought early reacted with the righteous fury of a wronged spouse.

This time around, they can’t say they weren’t warned:  Apple has apparently already said
that if sales of the iPad aren’t brisk enough, it will drop the price. 
I expect it will have to, if the company is to have any hope of hitting
the 1-5 million sales analysts are projecting in the first year.  $500
is pretty steep for a netbook without a keyboard.

The question,
of course, is “how low can Apple go?”  Apple could afford to drop
prices significantly on iPhones, because they were driving big volume. 
I just can’t imagine that they’re going to push 30 million iPads out
the door in the first 3-4 years of its existence; it’s ultimately
something of a niche product.

One estimate is that the cheapest
iPad costs $270 to manufacture.  Throw in advertising, transportation,
distribution, and so forth, and maybe they can cut the price $100 if
they’re willing to make a slim profit in order to establish a market. 
Of course, there’s probably more room on the high-end models, and
presumably costs will fall as they get more experience, and volume. 
But I don’t see them getting within striking distance of a Kindle
particularly soon.

Still, they can probably cut the cost deep
enough to make it worth waiting for.  So why announce it?  It seems to
me that this practically guarantees a slow start to sales.

Asking Republicans to be part of a televised forum on health care reform is a clever move:  put up or shut up.  Nonetheless, I’d guess it probably fails.  Republicans are saying what you’d expect them to:  we won’t engage in sham negotiations.  If you want us to come to the table, shelve this monstrous and unpopular plan and let’s start over.

Democrats should recognize the tactic:  they invented it.  And used it successfully against Social Security reform in 2005.  Sure, they wanted to do Social Security reform, they said.  All Republicans had to do to bring them to the table was get rid of the central point of the reform:  the private accounts.  Astonishingly enough, they did not suffer at the polls, even though the president tried to stir up public discontent with their “obstructionism”.  The problem is, the public doesn’t get mad at you for obstructing things the public doesn’t like.

Interesting comment from one of our readers on digital film distribution:

I distribute films and did so for
a major studio for some years. Not an exhaustive answer but here are a
few things at work in no particular order.

The delay for video rental after the theatrical release is because
the exhibitors (movie chains like Regal) insist on not having their
business encroached by the home video market.

Studios are somewhat ambivalent about embracing online rentals for a
number of reasons. With each new format VHS, DVD, Blue Ray etc. they
have been getting to resell the same product to the same customer which
may end with online sales.

Studios have been slow to do it but want to do their own digital
distribution. On the other hand Netflix and Amazon are some of their
largest customers and so are shy about going into competition with them.

Part of poor availlability in older titles has to do with the fact
that ownership of the digital rights can be varied and hard to track
down or establish. The studios may not own them. Some heir to some
producer or star from back in the day may own them and no one is
actively working to generate revenue with them. There may be fights for
control of those rights that are keeping them from coming to market.
Digital rights were not spelled out in contracts for films long ago.

The companies that specialize in monetizing the “brand” of a star
like Marilyn Monroe typically only want to invest in a star that has
lots of different revenue streams like merchandizing stuff ets. A great
movie star who is not actually iconic, like a Walther Matthau for
example, cannot generate enough revenue to pay for a company to work at
keeping his films availlable in all formats, His films will only be
moved into a new format when someone buys a whole library of content
that has some of his work in it.

It isn’t cost effective to spend the money establishing legal ownership of a film that won’t sell many copies.

This is a little of what is happening and why. There is a real
dearth of good economic history written about Hollywood. Some of this
is also because so many decisions in this industry aren’t made for
economic reasons in a straightforward way – and a lot of the data and
reasons people do make economic decisions are pretty propietary about
their data.

A number of you have asked me what I think of Paul Ryan’s health care plan.  I think it’s a serious plan–but it’s serious in the way that serious government plans are, which is to say that it has virtually no hope of being enacted as written.

Consider Matt Yglesias’ relatively uncharitable, but accurate, summation:

Right now, the rapidly rising cost of health care
implies rapidly
increasing Medicare costs. Ryan doesn’t have a plan to control those
exploding costs. Instead, his plan is to refuse to pay the bill. This
saves a ton of money. If instead of paying for old people’s health care
you just . . . don’t pay for their health care, then you reduce
expenditures a great moment. But the reason nobody’s come up with this
genius proposal before is that we’ve had a decades-long commitment to
finding a way to ensure a dignified retirement, including adequate
medical care.

Of course, this is true of the
Democratic plans too; it’s just that their “not paying” consists of
equally arbitrary caps on provider payments which will cause some
providers to exit Medicare, plus giving some board the power to decide
what treatments we can’t cover.  Whether you prefer the Democratic plan
or the Republican plan boils down to whether you want the decisions
about which stuff not to buy to be made by possibly ignorant consumers,
or possibly arrogant
technocrats.  I had a pretty good experience, when I was uninsured,
with getting providers to think seriously about which costs it was
worth imposing on me.  And I think that the ability of a centralized
board to decide on “the right treatment” for 300 million patients is
highly oversold.  But I was a pretty educated patient, so your mileage
may vary.

The problem with both sets of plans is that the voucher
cap would never withstand the assault from angry and frightened
seniors, while the provider caps and treatment disallowals would never
withstand the pressure of various other interest groups.  That’s why I
want to turn the Federal government into an income-based catastrophic
insurer, for expenses that exceed 15-20% of AGI.  I don’t think there’s
much hope of controlling cancer treatments or heart surgery.  But I
think we could eliminate a hell of a lot of unnecessary day to day
expenses–the ER visits of convenience and CYA tests for diseases
there’s no indication the patient has.  But the only way we’ll do that
is by making the consumer responsible for those costs.  Short of that,
we’re just rearranging the deck chairs on the Titanic.

In the US press, the real estate bubble is an example of American capitalist excess.  Anyone who has lived abroad knows better.  The American real estate bubble wasn’t even particularly special by global standards.  Certainly, the British boom beats it for both size and staying power–according to Brett Arends, it’s still going on.

Arends attributes this to the British government’s hefty stimulus, and he may be right.  This is one of the uncomfortable questions that attends government intervention to keep financial crises from going too deep. We seem to know now how to keep bubbles from turning into Great Depression style disasters, with a combination of monetary policy, fiscal stimulus, and safety nets for both banks and individuals caught in the storm.  But what happens next?  Japan’s Lost Decade?  Or are we just setting ourselves up for a bigger, badder bubble down the road?

By now, I’m assuming that most of you know the rough outlines of last week’s dispute between Amazon and Macmillan.  The shorter version is that once the iPad was introduced, Macmillan used its new leverage to demand that Amazon let the publisher raise the prices of eBooks in order to protect sales of its front list hardcovers.  After a weak attempt at retaliating, Amazon folded.

The longer version you should get from our excellent Atlantic Business piece by Virginia Postrel.

So as soon as competition was introduced into the eBook market . . . prices to consumers go up?  This sounds like an odd outcome.  Isn’t competition supposed to make prices go down?

Not necessarily.  Actually, if you’re among the majority of
Americans who view the Sherman Anti-Trust Act as one of the finest
legislative achievements in our history, you’ll be surprised to find
that the evidence that breaking up monopolies helps consumers is
actually kind of weak. 
Monopolists often operate in markets where there are great returns to
scale, and they keep competition out by offering prices too low for a
smaller new entrant to compete.  After the breakup of Standard Oil,
probably the Sherman Act’s most famous scalp, prices for key petroleum
distillates actually rose.

Government granted monopolies
do display higher prices and poorer quality, because the
government-granted monopolies don’t need to worry about new entrants. 
If cartel agreements were legally enforceable, all monopolies would
look like Comcast.

But Kindle’s strategy was on the “benevolent
monopolist” side:  Amazon wanted to attain a virtual monopoly over the
eBook market by using its bargaining power to keep the prices of eBooks
low.  Once Steve Jobs showed that he was willing to give publishers
better terms, that bargaining power was eroded.

Does that mean
consumers are worse off?  Maybe.  As someone who likes to consume cheap
electronic reading material, I’m tempted to say yes.  But the
publishers would say that if consumers like new books, they need profit
margins high enough to feed the queue.

There’s also the
possibility that once companies have gotten a monopoly, they will start
gouging consumers.  In practice, you see less of this than you’d think,
because in the absence of some sort of legal protection of their
monopoly status, they can’t act so badly that people start switching to
other companies.  But that’s not to say it doesn’t exist.

Still,
I think it’s worth noting that while we usually discuss antitrust as a
means of helping consumers, in fact, it’s more obviously successful at
helping competitors.  This is why libertarians are so often
against antitrust interventions:  they don’t recognize a right to be
free from competition, even the “unfair” kind.

It may also explain why the harshest actions against Microsoft have come out of the EU.

In a valiant attempt to defuse the ideological conflicts between the reformist and traditionalist wings of the liberal education wonketariat, Matthew Yglesias argues that this disagreement is not not ideological at all.  Rather, it is an artifact of past decisions about educational structure:

Take, for example, the hot issue of teacher compensation. The
traditionalist view is that teachers should get paid more for having
more years of experience and also for having more degrees. The reform
view is that teachers should get paid more for having demonstrated
efficacy in raising student test scores. This is an important debate, but I think it’s really not an ideological debate at all.
I think the only reason it’s taken on an ideological air is that unions
have a view on the matter and people do have ideological opinions about unions in general.
But if we found a place where for decades teachers had been paid based
on demonstrated efficacy in raising student test scores, then veteran
teachers and union leaders would probably be people who liked that
system and didn’t want to change to a degree-based system. Because
unions are controversial, this would take on a certain left-right
ideological atmosphere but it’s all very contingent.

This
is a very interesting thesis, but ultimately I think it’s wrong.  There
is a reason that unions kill merit pay, and it’s not because they just
happened to solidify in an era when merit pay was out of fashion.

To
state the obvious, unions negotiate ironclad contracts to cover dozens,
hundreds, or thousands of workers.  Once they take effect, those
contracts are rarely renegotiated, and they apply to every single
worker no matter what the situation.  So unions are always going to be
looking for the simplest, least subjective metrics by which to measure
their members.  Furthermore, they will be looking for metrics which are
not under the control of the other side.  The school board cannot
change how many years you have in service, or whether or not you have a
degree.  But it can change the curriculum, or the tests.

Obviously,
people who are not in unions write employment contracts, which are
similarly hard to write.  But non-union employment contracts operate in
an environment where both sides often hope to continue the relationship
beyond the initial term.  This offers quite a bit of good-faith
flexibility, because people who are too rigid about the exact letter of
their contracts are apt to find that their contract isn’t renewed. 
Even in contracts with a very definite term, there are reputational
considerations.  That’s just not how unions operate, because the union
can’t be fired by the employer.  When the contract expires, you’re
going to negotiate another contract.  The result is that people in
non-union employment contracts can tolerate quite a bit more ambiguity
on both sides than people in a collective bargaining situation.

The
unhappy corollary of this is that the metrics will not only tend
towards simplicity and ease of measurement; they will also tend to
reward mediocrity.  Again, this is not an accident of history.  A
collective bargaining unit run by a “majority rules” system is always
going to look for a system that rewards the median or modal worker, not
the best.

A merit pay system can work in one of two ways.  It
can benchmark teachers against the average, and reward the people who
achieve the most improvement. Or it can set some minimum standard and
give a bonus to any teacher who bests that standard.  (You could set
three tiers, or what have you, but the concept is basically the same).

In
my opinion, the first system is probably going to best maximize
productivity (though this is an interesting discussion for another blog
post).  But it would never pass a union vote, because the majority of
teachers wouldn’t benefit from it, and those who did would have to work
harder.  The second system might pass.  But the union would make heroic
efforts to water down the benchmarks until the majority of their
members were receiving at least some “bonus” pay.

But compare either system to what now exists in our nation’s schools.  Every single teacher can stay on for years unless they do something direly wrong.  Every single teacher
can get a useless education degree, which basically requires a pulse. 
They have a system that spreads benefits absolutely evenly among all
their members. 

How would any alternative gather majority
support from the union members?  I mean, you can add on resistance to
change, which I think is significant.  But even if they were picking a
new system from scratch, the seniority + degrees system is clearly
going to satisfy many more members than either of the merit pay
alternatives.  It would probably be the majority choice no matter
what.  And of course, over time, teacher’s unions select for the sort
of people who prefer this arrangement to competitive merit pay for one
reason or another

Unions
are set up to minimize frictions and maximize benefits for the bottom
55%.  That’s how they work everywhere–in schools, and out.  That’s how they have to work.  No amount of cajoling, no number of white papers, is going to change that.

I cannot get too interested in the conspiracy theorists asking whether the US government doesn’t now, due to its ownership of GM, have a conflict of interest when it starts publicly raking Toyota over the coals.

Item One:  Toyota didn’t handle this particularly well, and there’s at least some suggestion that they downplayed problems that were killing people.

Item Two:  Many people in our government already had ample bad incentive to rake Toyota over the coals, because they come from states where the UAW is popular.

Now, there’s no question that this is good for American automakers,
since their lingering reputation for terrible quality has historically
handicapped them in competing against the Japanese.  But I’m willing to
bet the biggest beneficiary is Ford, not GM or Chrysler.  Ford is
perceived as basically healthy; the other two, as crippled and weak.

What it means for Toyota should be a management shakeup.  The US is a
huge market, and they just did brutal damage to their brand on one of
their two or three biggest selling points. People are going to want to
see rapid commitment to making sure this never, ever happens again. 
Moreover, it would be good for Toyota to actually make such a
commitment.  How do you design floor mats that will kill people if used
improperly?  Giving engineers power is a great way to get quality
improvements.  But they have to keep in mind that they’re designing
cars for normal people, not engineers.

So what to make of the new PPP poll suggesting that Demcorats are marginally better off passing health care than not?  I take it seriously.  But not too seriously, for the following reasons:

1.  It’s a national poll, but congressmen are running in local
races.  The poll shows that Democrats say they are more likely to turn
out, and independents who like health care reform say they will like
their representatives better, if it passes.  But we don’t know where
those base members and HCR-favoring independents live.  They probably
are not clustered in a state like Arkansas, where over 60% of the
voters polled by PPP (a Democratic outfit) reported that they were
against health care reform.  Motivating the base in California in New
York isn’t going to save Blanche Lincoln.

2.  Polls are an okay
guide to public opinion about things (with the usual caveats about
framing).  They are not a good guide to what people will do.  Just ask
the executives who brought you New Coke.  The customers they surveyed
overwhelmingly said they’d switch to New Coke.  They weren’t lying;
they just didn’t know what they were actually going to do. 

3. 
Another round of health care legislating might drive its popularity
down even further in the polls.  Which would make passing the
legislation even more costly.

4.  Passing HCR has opportunity
costs.  Time spent negotiating this is time not spent passing some
other piece of legislation that might actually move your popularity
upward in November.  Nancy Pelosi doesn’t care about such fripperies;
her seat is safe.  But anyone in danger cares very much.

5. 
Passing health care will refresh the public’s memory of it.  The longer
ago an electoral initiative happened, the less salient it is.  In an
election year, even three months matter.

6.  Evidence from an actual election offers some counterevidence to the PPP poll:

There were two controversial pieces of legislation that defined the
Clinton Administration for Republican-leaning voters: the assault
weapons ban and the first Clinton budget (a.k.a. the tax hike). If we
look at the fifteen Democrats who voted against both pieces of
legislation, only one lost (she represented a district that gave Bush a
15-point win in 1992). In fact, about half of them saw their share of
the vote increase or stay roughly the same from 1992!

Let’s move on to Democratic incumbents who represented
Republican-leaning districts who voted for only one of these two pieces
of legislation. There were thirty-seven such Democrats. The casualty
rate here is a little higher; thirteen of them, or thirty-five percent
of them, lost. And of the twenty-two Democrats from Republican-leaning
districts who voted for both pieces of controversial legislation, ten of them (45%) lost.

In other words, the problem for Democrats in 1994 was not that they
didn’t support Clinton’s agenda enough. It was that they got too far
out in front of their conservative-leaning districts and supported the
President too much.

Maybe I’m a heartless econblogger type, but I’ll take revealed
preference over stated preference every time.  Now who is willing to
take the other side and argue that it was no easier for Republicans to
campaign against real, existing, hated laws than to campaign against phantom ClintonCare?

Harry McCracken walks through the iPhone naysayers, and wonders if those who panned the iPad will look as foolish in the next few years.

This specter always haunts pundits, and every time I’m tempted to make predictions about products that are too firm, I recall William Goldman’s famous adage that “No one knows anything”.  If Steven Spielberg had realized that 1941 was going to flop, he wouldn’t have made it.  But he couldn’t tell, and there you are.

That said, I’m still unsure how the iPad gets around the core
problem:  it doesn’t replace anything.  Buying an iPhone let me take my
phone, my camera, and my iPod out of the briefcase.  Buying a Kindle
let me remove a newspaper, several books, and some documents I have on
PDF.

What does the iPad let me take out?  Not my laptop, because
it can’t multitask and I’d have to add a portable keyboard.  Not my
iPhone.  Maybe I could take out my Kindle, but then I’d have to put
books back in for long plane journeys.  The best I get is a couple of
magazines, which aren’t exactly causing me space or weight issues.

Maybe I’m missing something.  It sure looks cool.  But that’s not enough to justify the outlay.