NOBODY GIVES A [Expletive Deleted] ABOUT STEEL TARIFFS
I can see it now: "Honey, how about we go out to the porch, sit on the swing and watch the grass grow as we discuss the finer points of trade law and it's effects on the economy?"
"Oh, Robert..."
Or how about, "Timmy, I think it's time we've had a talk. You're going to be growing up fast soon and going through changes at a rapid pace. You'll be confused, you'll experience new sensations, and you'll be looking at Steel Tariffs in a whole new way."
Tee-hee! That's the first time I've ever seen steel tariffs made funny.
Wow. This piece suggests that Jane Fonda should have been tried for treason. Not that they're the first to say it. But it's not screechy -- its tone is quite understated, and it makes an interesting case. I, for one, was not aware of the way that Jane Fonda was apparently able to meet with severely beaten and malnourished POW's and turn around and tell their families that they were not only being well treated, but wished their families and loved ones to actively campaign for the regime that was holding them hostage.
I like this article on blogging from the register, although I suspect I may be one of the "attack blogs" he criticizes as an infinitely repeating punditry loop, and I don't think I merit making fun of because I'm not succeeding in being revolutionary. I'm not trying to be revolutionary; I'm saying things that I believe because I enjoy saying them, and for some reason a ridiculous number of you stop by every day to listen. I'd like to think that I'm getting a little word out about some basic economics, but I'm afraid that the people I'd like to reach will dismiss me because what I say doesn't agree with what they've already decided to believe. So I'm left with (hopefully) giving fellow travelers the correct tools to make their case. Not revolutionary. But nothing to sneeze at either.
Regarding my earlier post on steel tariffs in which I said that the Democrats currently screaming about them wouldn't have said a word if Gore had done it, Matthew Yglesias says that the point is that Gore wouldn't have done it. He points out that the Clinton Administration didn't do it, even though it would have helped Gore in West Virginia. Possibly true, though it's difficult to argue a hypothetical (just as difficult as it is for me to prove that the Democrats wouldn't be screaming, though Yglesias graciously admits that this is a strong probability). However, I think in this case the logic is flawed. You can't simply posit that Gore would have carried out every Clinton policy intact; follow that logic, and we have proof that George Bush I never raised taxes. Moreover, Gore wanted Kyoto, and Kyoto would have meant some major payoffs to labor constituencies in heavy-industry states like -- oh, say, the steelworkers.
I'm less astounded by the free trade Democrats (though I still think they would have given Gore a walk if it had become necessary to pass Kyoto) than I am by Democrats who are protectionist to the bone unless a Republican gets credit for the legislation. But no more so than by my silent siblings on the free market side.
Bias: A CBS Insider Exposes How the Media Distort the News While I wait for my next infusion of books from Amazon I've been dipping into the book collection of my sister, the social conservative, who has an extensive assortment of books I would broadly label conservative polemics. I was obviously particularly interested in this one because I'd read so many reviews: Tom Shales hates it, for reasons decidedly biased. Jonathan Chait's tone is more reasonable, but his assertions that there's really no media bias were handily refuted by Jonah Goldberg. The most balanced review I saw came from Lou Cannon in the National Review, whose assessment agrees with mine: the phenomenon Goldberg is covering is real, but the book is hopelessly sloppy.
All of its evidence is anecdotal, but that's all right; I can enjoy anecdotal evidence even if I wouldn't want to use it to make policy. But there's too little even of this; the evidence offered to support the central thesis is thinner than Calista Flockhart on Slim Fast. The book certainly has its moments -- but they are widely interspersed between long plaints about how badly the network treated Bernie Goldberg, how much Bernie Goldberg was hurt by Dan Rather, how disgusted Bernie Goldberg is with modern newstrends . . . all bolstered mainly by inanely detailed recounting of petty incidents in the life of -- you guessed it -- Bernie Goldberg. I suspect this is why so many reviews have focused on the question of whether or not there is media bias -- there's just not enough meat in the book to write a good review on. Media accounts that have tried to dissect the facts in the book have ended up in the sort of exchanges
You did!
Did not!
Did too!
That's because you're a big fat [liberal] [conservative] dooty-head!
that make you wonder if the proper place to hash this all out isn't the principal's office.
That said, it's the sort of book you have to read, because everyone else is talking about it. It reminds me of The Bell Curve, which no one I know except me has read, but about which everyone I know -- except me -- has a strong opinion. Once you have read it, you'll find to your amusement that people make all sorts of wildly inflated or just downright odd assertions about it's contents, and it provides a glorious moment of superiority when you can trump someone's argument by cooly asking whether they've read the book. So go ahead: click the link and buy it. Then you can join the rest of us in wondering what all the fuss is about.
I read with some hilarity this item on the Democrat's strategy in the New Republic, which seems to be a case study in poor polling:
The fundamental problem facing these Democrats is a familiar one: how to please faithful liberals without alienating moderate voters in the rural districts and states on which control of Congress hinges. One message already on display posits a battle of "local interests" versus "special interests." Voters will be urged not to support Congressman Jones because his votes for corporate allies of the White House--Enron and other big energy companies, for instance--put local highway projects, or health clinics, or whatever, at risk. One leading party strategist recently described it as "basically `The People versus The Powerful' again." For instance, Democrats recently polled the following question: "Enron, like many of the biggest corporations, used money and influence to get their way, at the expense of the public. We need leaders who will attack the abuses by big corporations that have too much influence over what happens in Washington." Fifty-eight percent of registered voters polled agreed a "great deal," while another 26 percent agreed a "fair amount."
One can imagine similar Republican poll questions showing "wide support" for their issues:
"Clinton, like many of the Democrats, is a lying, cheating horn-dog of the first order. We need leaders who will pay more than lip service to the truth and keep their hands to themselves."
"The Kyoto Treaty, like many environmental initiatives, would most likely contract our economic growth rate by between 33% and 50%. We need leaders who don't want to throw your wife out of work and force your brother-in-law to take up permanent residence on your couch."
"Social Security is having trouble and Tom Daschle, like many Democrats, wants to fiddle while Rome burns. We need leaders who can make sure that you spend your golden years on the golf course instead of the work house."
Make your own -- it's fun!
Poll questions like this are useless. Not only do they make prejudicial statements that your opponents, like it or not, will have ample time to refute during the campaign, but they produce abnormally high favorable responses to whatever it is you're proposing to curb whatever it is you just told them was wrong. No wonder the Dems are floundering.
it is nearly impossible for the private sector to not to be the cause of a recession, as the private sector represents the bulk of the economy. But let's not forget something - all that growth prior to this mild recession was from the same place. This was a capital spending and productivity boom, and a capital spending bust (the productivity boom is holding up so far). Also, capital spending busts have happened before; not every recession, even recently, is the result of an external shock.
So if someone gives you $10 and takes back $1, net-net you have a problem with that? To put it another way, if 10 telecoms beat each other up to give you cheaper long distance, and some of them go bust trying, you have a problem with that? If we create the extraordinary medium (and resource) through which I communicate now but make many seriously ill-advised investments along the way, the system needs second-guessing? I disagree.
The "right" economic solutions are extremely hard to find. It is a dynamic process. Some failed experimentation (and "wasted" investment) is necessary to achieve success. The two cannot be separated.
I read the Kaus piece, which says
Mighty Instapundit ridicules Congress for passing a "stimulus" bill just as the recession ends -- and sneers at the idea of "these guys second-guessing corporate executives on their business judgment." But wait a minute. What caused the recession in the first place? Wasn't this the first downturn in a long time to be produced, not by some sort of policy mistake or external shock but by a colossal failure of business judgment on the part of the executives, corporate and non-, who wasted billions on idiotic dot.com projects? They could have used some second-guessing! A little humility seems in order from the defenders of executive acumen. The dot.com bust is the sort of thing that wouldn't happen if the market were as perfect as it's sometimes cracked up to be, right? ....
and had the exact same reaction as Mindles. I was going to blog on it, but he did it first, and better. Unnecessary activity avoided! Productivity increases! Kill the bill -- we'll be out of the recession any minute!
A phrase in this excellent Economist article on businesses saving money during the recession caught my eye:
Europeans are shocked by the ruthlessness with which American firms slash jobs. In France earlier this year, the Constitutional Council decided to trim new legislation designed to make it even harder for French employers to lay off workers. It was, the council said, “a manifestly excessive attack on freedom of enterprise”. France's socialist prime minister, Lionel Jospin, did not like it. “Freedom of enterprise”, he reminded his country's industrialists, “is not the freedom to sack people.” But he is powerless to overturn the court's ruling.
Freedom of enterprise isn't the freedom to choose who you hire and fire. It's not the freedom to determine what you pay them or how many hours they work. It's not the freedom to determine what you sell or the words you use to sell it. No, freedom of enterprise is the freedom to choose the color of the drapes in your coporate headquarters.
In a related story, a similarly short-sighted appellate judge has thrown out my appeal of the US Patent Office's decision to reject my patent application for my breathtaking new invention: the apostrophe. The judge noted that while I do, indeed, hold the patent on the comma, I failed to establish either that the apostrophe was, as my lawyers had argued, just a variant application of the initial technology, or that the apostrophe represented a "unique contribution to human knowlege". While I had originally planned further appeals, my lawyers have curtailed these plans by informing me that they will no longer accept payment in cigar bands.
The Economist says that grade inflation isn't inflation -- it's grade compression, an important difference. Inflation would be a slow steady rise in all grades, including the top ones (A+, A++, A++*. . . whatever) and would only mean that people seeking information about candidates from, say, Harvard, would merely have to periodically adjust the "exchange rate" they use to compare graduates with those from other schools. Grade compression, however, dilutes the value of the information and forces employers and others to substitute more time consuming and possibly less reliable metrics.
At my business school, grades were curved to a strict 3.25, which limited inflation but had its own consequences. Because there were no half-grades (you could get an A, B, C, D, or F -- no +/-) this lead to some gamesmanship. The ultimate goal was to get a low A or a low B, putting in the efficient amount of effort needed to produce a desired outcome. Many students gamed the system by determining what classes they simply lacked the background or the ability to get an A in, and exerting the bare minimum effort necessary to avoid a C. Conversely, lots of people had the experience of getting a 95 average in a class and still getting a B because there simply weren't enough A's to go around. The appearance in a class of a couple of real slackers was a sign of delight to fellow students, who knew that they would pick up the C's that would subsidize a few more A's for the rest of us. So the system wasn't perfect.
We also faced the fact that most other business schools don't curve, so recruiters who weren't familiar with Chicago's practices would take a 3.5 average as a sign of a substandard performer, rather than someone pulling significantly above average. This could be dealt with if they asked -- but only if they asked.
Nonetheless, I think it was better than the alternative. I've heard (unconfirmed) rumors that at some schools the average GPA is a 3.8 -- in other words, all but the worst screw-ups get A's. Why bother? The grades no longer convey any information. Personally, I'd like to see a nationwide return to a time when a C was an average grade for someone working fairly hard, not a sign of disgrace.
The 19-year old isn't in the office today, so we're listening to the classic rock station, which seems to be trying to develop an "All Pink Floyd, All the Time" theme. It reminds me of that fake album commercial on Saturday Night Live: "You loved Stairway to Heaven once. . . you'll love it even more seventy five times, as recorded by our top recording artists. . . " I've heard no fewer than four songs from the Wall, plus standards like "Wish You Were Here".
Ahhhh. . . remember the days when listening to "Comfortably Numb" made you feel like you were really deep? When SD&RR were more than just a hobby? When you thought it was possible to be a Pulitzer Prize winning novelist and a supermodel? Sigh . . .
Meanwhile, just in case I wasn't feeling old enough, a friend sends me a this article, presumably designed to help me beat the biological clock. Is that a hint, Matt?
UpdateStairway to Heaven just came on. All I need is a pack of Camel Lights and some Mad Dog and the flashback to 1989 will be complete.
Shocking! Jonathan Last at The Weekly Standard does an article on blogs and what do we see. . . Instapundit, Andrew Sullivan, and Joshua Marshall get top billing. Where are the women? Where is the empowered, inclusive community we dreamed of, back when web browsers were all natural native crafts made out of macrame and organic produce by underprivileged third world women? Well, once the big corporations invaded our precious space, it should have been obvious that the white male power structure couldn't be far behind. Just as in any Capitalist Imperialist system, the rich and famous get richer and famouser, while poor, honest working people like me get the shaft. Could Last spare a precious few words of column space for a fine woman blogger like myself? No, not him -- he was too busy reinforcing the pernicious stereotype that only men are interesting or have important things to say. Oh, I know some people will say that the reason Jonathan Last didn't mention me is that he's never heard of me, or that I'm not as funny and interesting as Sullivan, Reynolds, or Marshall. That just goes to show that they're trapped in the patriarchalist paradigm, espousing "rules" that serve to reinforce the hierarchical, androcentric structure of the Blogosphere.
Well, I'll show Last. I'm going on a fast until I'm mentioned in his column. But since it might be a long fast, and I don't want to contribute to the perpetuation of the White Male Power Structure with my early demise, I'll still be eating enough calories to maintain life. At a healthy weight, I mean. In fact, some people who haven't been radically empowered might call it more of a reducing diet. Or just "eating right". But you can bet your copy of The Feminist's Guide to Saving the Earth that not one piece of Auntie Em's Organic Coffee Cake will pass these lips until this weblog appears at the Weekly Standard Online.
The other half of the two part series on the Netscape suit is up on Salon. The author, JJ Gifford, agrees with me that the appeals court gutted the core arguments Netscape had against Microsoft, and that the company is relying on the jury's emotions, rather than the law, to sustain the case. However, he (?) believes that Microsoft's behavior is so egregious that the company should be punished anyway, a conclusion I can't agree with -- taking aside the moral aspect, the effects on the business community, especially the technology business, would be disastrous. The more we turn the law into a lottery system, the more difficult it becomes for businesses to predict the outcomes of their actions. The more risk there is in the legal environment, the less investment. If Netscape wins, we're essentially saying to other companies: "even if the law is with you, your competitors can put you out of business if you're cuter." Which is not to minimize Microsoft's nasty tactics; only to point out that there really is a slippery slope to outsized legal verdicts. Many of the things competitors want Microsoft punished for, like bundling and exclusive distribution agreements, are perfectly legal -- how do I figure out where the tipping point is if I have a successful software business? This does not per se argue against anti-trust suits, but it does indicate the high cost of successful litigation in this area.
He also makes an extremely interesting point that I didn't address: monetary damages are meaningless to Microsoft, with its $36 billion cash hoard, so the companies will be aggressively seeking behavior remedies to cripple Microsoft. Yes, I mean cripple. AOL, Sun, Oracle and others are not interested in making Microsoft play fair; they want the company out of business. That's why they sought draconian remedies from the court, which Penfield Jackson obligingly provided. Gifford thinks that the breakup would have been the best remedy:
A so-called "structural remedy" -- a breakup -- would likely have been more effective. It would have replaced Microsoft with a pair of smaller but still strong companies, in a market suddenly open to competition. The collusion between operating systems and applications development that has long fortified Microsoft's monopoly would be erased. Unfortunately, the government declined to pursue such a breakup and instead opted merely to slap Microsoft's wrist. With these private actions, perhaps the company will at least get a spanking.
This ignores economic history. First of all, the anti-trust remedies that broke up great behemoths either moved along regional lines (AT&T), or along the fault lines left by previous mergers (Standard Oil). Breaking up an integrated company doesn't produce smaller, stronger companies in the short term; it's catastrophic, as centralized departments for everything except the product lines have to be dismantled and reassembled piecemeal.
It also makes it extremely time consuming to break the company up, as the court has to negotiate every last minor department, asset, and share. How will you compensate the shareholders? How do you split the stock up -- hard assets, soft assets, revenue, profit? Who gets Bill Gates and Steve Ballmer? Heads of department will try to poach the best employees for whatever company they're going to, leave the worst ones for the other company -- how do you prevent this? There's a thousand questions like this to be resolved, and the court will ultimately have to settle most of them. After years of economist and business leader testimony, negotations, and politicking, you finally produce a result -- and it takes further years to implement. You can require that every decision more complicated than what paperclips to buy get court approval, which eats up time but forces the company to stand still for the five or ten years the process takes, so that you can get a true handle on what's going on. Or you can let the company pretty much go about business as usual while you decide, which in the constantly changing technology industry means that the remedy will probably be inappropriate. Either way, by the end of this time, both Microsoft and Netscape will probably be close to death. Then the shareholders get to sue the government. Whee!
It's a very good article, but I'm extremely uncomfortable with Gifford's confidence that the legal system can easily intervene in a complex system like the technology market or a software company to produce results that will be desireable for the rest of us, not just the plaintiffs. Luckily I think that any outsized remedies handed down by a jury will be rapidly overturned on appeal.
It's an interesting question, though I think there's a question that bears on this one that Steven doesn't ask directly: what makes a merger successful?
The classic answer is "synergies", which in my experience is a weasel word that means "I'm not quite sure, but this is the amount we need to hit the EPS numbers that will make this deal sell on the street." Call me cynical. The AOL/Time Warner deal, which was supposed to create the amazing synergies by vertically integrating content, network, and access points, has yet to create shareholder value. As Den Beste points out, glomming two big companies with problems together by itself just creates a bigger company with bigger problems.
The idea that the AOL/Time Warner merger was a terrific idea was based on a flawed conception of what creates value in a merger. The story on the street was that ownership of the cable assets and the content would allow AOL to dominate the internet market, while AOL would be a massive promotion/distribution venue for Time Warner's assets. But it's hard to see what the merger accomplished that couldn't have been done much more cheaply with a distribution agreement. The problem with trying to up your shareholder value by purchasing a scarce asset (like Time Warner's near-monopoly cable network) is that whoever owns the asset charges full price for it. It's an economically neutral transaction, neither creating nor destroying value; it just transfers money from place to place. In order for such a transaction to create value, AOL would have to be better able to use the assets than Time Warner -- but since AOL had no particular expertise in managing cable infrastructure, there was no reason to think that the transfer would create value.
The other common fallacy is that it's somehow a moneymaking proposition for AOL to give Time Warner advertising, or for Time Warner to give AOL exclusive use of its assets. This comes from not fully pricing the cost to the company of giving away goods or services to other parts of the company. Let's say that I own an ice cream machine and you have a waffle-cone maker. We merge, and you start giving me waffle cones in which to sell my ice cream. I save the 10 cents it used to cost me for each cup to put the ice cream in, and I can charge 15 cents more for the resulting ice cream cones. Simple accounting shows this as a 25 cent increase in profits.
What this leaves out an important economic concept called opportunity costs. The opportunity cost of a project is the income from the next best alternative use of the resources necessary to complete the project. If you have a choice between two jobs, one at $100,000 and one at $125,000, and you take the higher-paying job, your opportunity cost is the $100,000 you could have been making at the job you didn't take. When opportunity costs exceed the income from the project, it's a bad investment of time and resources.
In this case, let's say that if you weren't giving them to me, you could sell your waffle cones to my competitor across the street for 30 cents. Suddenly the merger doesn't create value -- it destroys it. This is essentially what people were suggesting AOL/Time Warner could do -- hand over valuable resources, like advertising space or exclusive use of the cable assets -- to each other at less than they would sell them on the market. In fact, mergers encourage such behavior all the time, which is why over the long run they tend to destroy shareholder value.
There are two classic ways in which economists believe mergers can create value: redundancy, and co-specialized assets. The first is easy to understand. Say that, instead of a waffle cone maker, you also own an ice cream machine. In order to compete, we spend aggressively on advertising, signs, and the like. We also both have to be on our corner all day every day. If we consolidated, one of us could cover the store some days, the other the rest of the time. We could have one nicer sign. We could save money on milk by buying in bulk. Perhaps we could get rid of one expensive-to-maintain machine and just use the other. Such savings are called economies of scale, and while I have made them very simple in this example, the basic idea is that there is a profit-maximizing size for any given type of firm, and a merger of two like companies can produce value by achieving that size. This is the argument behind the HP/Compaq merger.
The other way that mergers create value is by merging firms that have prohibitively high transaction costs preventing them from making otherwise profitable deals. A transaction cost is any monetary or non-monetary cost, aside from the price, associated with making a deal. The amount of time you spend looking for a house is a transaction cost, as is the broker fee, the lawyer fee, the escrow fee, the filing fee. . . you get the idea. The price of the house you buy is not a transaction cost.
The most common transaction cost preventing otherwise profitable deals is something known as highly co-specialized assets. Consider the waffle cone maker. Suppose I come out with a bubble-gum flavored ice cream, and I want you to make a novelty cone in the shape of a bubble. I can sell this cone for $3.00 instead of $1.50 at little extra cost to me. However, for you to do this, you'll have to completely retrofit your waffle-cone maker. It won't be good for making anything except bubble-gum shaped cones. If the cone doesn't take off, or I get sick of bubble gum, or someone famous dies a horrible bubble-gum related death that kills the cone's popularity, you're stuck with an expensive cone-maker that's not good for anything. Moreover, since I know this, once you've done the retrofit, I might decide to tell you that my new price for bubble-gum shaped waffle cones is 5 cents -- take it or leave it. Since leaving it would mean going out of business, you're at my mercy as soon as you commit to the transaction. In this case, merging makes sense; I get my bubble-shaped cones, and you get a guaranteed share of the profits.
Whew! Hang in there . . . we're coming to the home stretch.
So let's look at the EU "merger". Is there redundancy? Absolutely. Tons of it. But over half the French population is employed by the government -- think they're going to initiate massive cutbacks? The "merger" is introducing another layer of redundancy, not removing it.
How about transaction costs? Well, here we hit the mother load, in the form of national differences that restrict the flow of capital and labor between countries. I'm talking of work restrictions and the like, of course, but I'm also talking about regulations not intended to restrict the flow, which nonetheless have that effect. Small differences in the tax code, for example, increase the cost of moving capital because you have to learn what the differences are before you can invest. The largest of these barriers -- language -- probably won't be resolved soon. But the second largest, currency, just got taken down. This is huge. Companies or individuals wishing to invest abroad no longer have to factor currency risk into their calculations. It also allows for increased competition between countries, which is always good for the world economy -- but there's the rub.
There's a third reason to merge, of course, and that's the hope that you can get rid of competition. If the two companies merging control enough of the market, there's the hope (on their part, not ours) that they can lock up a monopoly or near-monopoly and get fat and sloppy while raising prices and providing indifferent products. When it's two companies trying to do this, the FTC or its European equivalent screams like a banshee. When it's a bunch of top-heavy welfare states, the EU coos "harmonization".
If the EU uses closer integration to force the Highest Common Denominator of tax rates, rigid labor policies, and heavy social spending onto more flexible member nations, I suspect that the growth-killing effects of harmonization will far outweigh the growth-creating effects of the single currency and other lowered international barriers to capital and labor flows. Add in the extra redundancy from adding a layer of EU bureaucracy without removing any of the layers of bureaucracy in the member states, and I am forced to agree with Steven -- unless something radical changes, ever-tighter integration of the EU is more likely to slow growth than promote it. European dreams of becoming a superpower to rival or replace the US remain, for now, castles in the air.
Betty Crocker's Original 1950 Picture Cookbook Whenever I'm a little stressed, I take out my Betty Crocker Picture Cookbook and get lost in 50 years ago. It's the gift I give at every bridal shower, partly because it has some downright hilarious recipes (for hors d'oeuvres, have your guests roast Vienna Sausages over candles!) and passages like these helpful hints:
Harbor pleasant thoughts while working. It will make every task lighter and pleasanter. . .
Every morning before breakfast, comb hair, apply makeup, a dash of cologne, and perhaps some simple earrings. Does wonders for your morale. . .
Notice humorous and interesting incidents to relate at dinnertime, etc. . .
If after follwoing all these rules fro proper rest, excercise, diet, you are still tired and depressed, have a medical check-up and follow doctor's orders.
Helloooo, valium.
But that's not the only reason I love it. The best reason is that it is the single best guide I know to producing comfort food, even for beginniners. I wouldn't follow the instructions for preparing roasted meats (although I did pick up a good technique for stovetop barbeque chicken), but my mother, who's studied with Craig Claiborne and Julia Child, still uses this for most of her baking, from basic bread to airy, homemade cakes. It's perfect for beginners because while most of the recipes are simple, they were written before the advent of cooking oil, margarine, mixes, and other cooking evils that make all food taste like it came out of your high-school cafeteria. From four recipes for macaroni and cheese to our family's special Christmas bread, almost everything is awfully good. How can you not love a cookbook that has a supper dish called Pink Bunny? If you like comfort food, good basic dishes, or just retro stuff, highly recommend it.
Meanwhile, this little tidbit from the Wall Street Journal (Sorry, no link -- it requires a subscription):
WASHINGTON -- An attorney representing AOL Time Warner Inc. helped write a controversial agreement between two agencies dividing antitrust enforcement that steers future AOL merger reviews to the Justice Department's antitrust division -- headed by one of his former law partners.
The funny/sad thing about the Netscape lawsuit is that it is no longer a scrappy little David against Goliath -- it's one huge corporation against another, both of which are widely disliked by "serious" technology people.
There's been a large minority in the tech community that felt that, regardless of Microsoft's practices, the close involvement of key competitors in lawsuits was a dangerous precedent. In particular, questions have been raised about the involvement of Oracle, which has not been harmed by any of Microsoft's predatory practices yet is a key player, going through the garbage and writing briefs for DOJ lawyers. Why is Oracle involved? Because Microsoft makes database software that's cheaper than Oracle's -- and as Microsoft relentlessly improves it, it threatens Oracle's core business. Now there are serious concerns about whether certain key competitors, notably AOL/Time Warner (which as a media company is a veteran of working the regulatory system), are too good at litigation for comfort.
As someone who attempted to use Netscape's server technology, I can tell you that if there ever was a company that deserved to lose, it was Netscape. The software was expensive, bug-ridden, horrendously documented, and miserably supported.
Netscape would set up support forums for their server software that required paid subscriptions (on top of what you already paid for their server software) where there were no Netscape engineers to available to answer questions! Ultimately, these turned into buyer-venting sessions, where we ranted against Netscape and suggested alternatives to one another.
With its engineers totally walled off from the user base, each release of the Netscape server was worse than its predecessors. Ultimately, for my company, I chose the JavaWebServer.
The funny thing about the Netscape/Microsoft battle is that it's possible to argue that it was Netscape that acted like a monopoly: sitting there fat, dumb, and happy while someone else took their market share away.
Microsoft's initial releases are almost always junk that no one wants to use (I'd say always, but just because I can't think of an exception, doesn't mean there wasn't one). That's because Microsoft's business strategy relies on getting a product -- any product -- out early to establish a market presence, and then using the feedback from the market presence to relentlessly improve the product. You may not like the kind of code they write, but they are awfully good at developing a "look and feel" that makes consumers happy. As I argue in the article, this consumer focus, at the expense of developing innovative or elegant technology, is what gives the company its bad rap among technology people.
Netscape, on the other hand, is highly technology focused (which is why it was so funny/sad to see them eaten by the other great consumer conglomerate, AOL.) They built a great product, but they were not as aggressive about improvements as Microsoft was, especially on the consumer side. Unfortunately, they got a little soft in the days when they were the only game in town. Confident that there was no real competition from Microsoft, they introduced a passable browser -- Communicator 4.5 -- and some reportedly iffy server software. Unlike Microsoft, they didn't maintain an aggressive focus on consumers, as Kling's piece shows. Every release of a Microsoft product gets better. Netscape products got worse. In fairness, some of the decline in the server software was allegedly due to the fact that they had slowed the pace of browser development to focus on other things, and when IE 4.0 turned out to be decent, they had to pull back resources from everything else to hurl at the browser development team. Which didn't seem to help, of course, because Netscape 6.0 was worse than Communicator. And also in fairness, Netscape pretty clearly thought that it could takes its customers for granted because -- well, because it was Netscape. That's monopoly thinking.
Netscape was too confident that users would continue to use its technology simply because it was already the dominant technology in the market. They took the wrong lessons from Microsoft. Microsoft is not the technology leader in the market (by a long shot), but that doesn't mean the company doesn't innovate. It focuses its innovation on consumer features, which is what makes it so successful. Netscape assumed that once it had established dominance, it didn't matter that much what the company sold because the brand and the network effects would carry it. That's an assumption Microsoft never made, which is why it's around today.
Which makes sense. What can the feds offer the partners? No matter what they do, I'm pretty confident that every single Andersen partner is going to be stripped of all his/her assets in shareholder lawsuits -- unless a judge somehow moves to protect less senior partners in distant practices from the one that gave a pass to Enron. Which would be fair, in my opinion, since the junior folks in Seattle didn't have any idea what was happening in Houston -- but I don't know how likely it is. At any rate, the senior partners who are doing the negotiating are most probably going to have their pockets turned out for every last dime no matter what they do, so why settle with the feds? Those who aren't linked to the shredding order aren't going to see jail time anyway, and I doubt they feel so kindly to the partners who were involved that they're interested in undergoing financial and legal pain in order to spare them the rigors of life in one of our many penal institutions.
Sleepy now, so I'm going off to bed without getting up the book reviews, but they'll definitely be up tomorrow, along with the long awaited discussion of free trade and tariffs, including Ricardo's Theory of Comparitive Advantage. It's much more interesting than it sounds, for you non-economists -- it's the whole foundation of modern international economics. And it can be described in simple, interesting terms. (Now beginning shameless plug) So if you've wandered in from Salon or beyond, and you like what you see, don't forget to bookmark!
In the department of "Just let it go already", via Andrew Olmstead comes Robert Scheer's groundshaking revelation that -- steel yourself -- Richard Nixon was a bad, bad President. The article is predicated on the newly released Nixon tapes which promise to completely change the way we see Nixon. We now know not only that he obstructed justice, lied under oath, and orchestrated breathtaking abuses of his presidential power, but also that he tossed off anti-Semitic remarks, made silly off-hand comments about the conduct of the Viet Nam "police action", and considered ways to turn the assassination attempt on George ("Segregation Today. . . Segregation Tomorrow. . . Segregation Forever!") Wallace to his political advantage.
I don't know what to say. It's like I've lost a father figure. Where is that kind, gentle hero to whom I turned in my mind at times of crisis to ask, "What would Nixon do?" It is a dark day indeed for the many millions of us who thought of the man I like to call "Uncle Dick" as everything good and fine in the American character.
"If you're going to blast anyone for `advocating' use of nuclear weapons, the person to go after would be me. Then again, since I'm obscure that wouldn't serve your fund drives too well. I'm just an ordinary working stiff who sees a need for the US to deter further acts of aggression. Look at blogs like Sgt. Stryker, VodkaPundit, Live from the WTC and you'll see I'm far from alone -- even if Mr. Lowry and the NR crew don't agree with me. . . "
I want to thank my reader for bringing me to the attention of the NR crew (well, actually, I have no evidence that I've been brought to their attention. But it was nice to see the blog named on the NR site). However, I would like to point out that while I do advocate a "credible threat" strategy in the War on Terrorism, I am not actually advocating the use of nuclear weapons, at least not in the sense that Steve Forbes is advocating the flat tax, or Ralph Nader is advocating a wholesale abdication of common sense. If I've confused anyone on this subject, I apologize.
But of course I haven't, and the person Lowry quoted wasn't advocating using nuclear weapons either. It's just that The American Prospect thought that made better copy.
You heard it here first: Ernst & Young is declining to pursue a merger (one presumes that D&T, the earlier tout, already has), citing concerns about liability. I think Arthur Andersen partners may end up losing more, collectively, then Enron execs. The article tells us that "Ernst & Young is the first of the 'Big Five' accounting firms to say it definitely won't pursue Andersen", which I suppose is technically true, although as a member of the Big Five, Andersen would have some difficulty merging with itself. That leaves PWC, D&T, and KPMG as potential suitors, though I doubt any of them will bite.
Robert Samuelson sums up my feelings about the steel tariffs -- bad, but more bad as a symptom of other problems than as an economic catastrophe -- in an excellent column that points out how lopsided we've become not only militarily, but economically:
Here is the larger problem: a world overdependent on America. It depends too much on America to buy everyone else's imports, through rapid growth and a strong dollar. It depends too much on America to absorb other countries' savings. Unless U.S. economic growth explodes, it will disappoint. There are massive potential instabilities and stresses.
Protectionism in steel is but one symptom. What's needed are stronger European and Japanese economies and currencies to help carry the load. As yet, they are nowhere in sight.
John Fund calls for a long, hard look at gerrymandering. It's about time. Computer technology has become so good at drawing districts to the whims of whichever party controls the state legislature, that in a very real way, the individual votes of the majority of the US population just don't count. It's like eating at your Mom's versus eating at a restaurant. What she cooks may be good; you may even like it a lot. But the only way you can get a different meal is by going to a whole different house. That's not a good thing for democracy, especially combined with the newly passed Incumbent's Protection Act of 2002.
I find this interesting for two reasons. First, because, as the article points out, advocates are much less vocal about smoking and drinking than they are about obesity, even though an astounding 61% of Americans are overweight or obese, at least according to this article. I wonder whether this is because they know they'll get shot down if they even try to enact the kind of puritan legislation that has effectively banned smoking in many places, or because obesity is harder to address.
The other reason that I find this interesting is that with the amazing popularity of Fast Food Nation, which in essence accuses the fast food industry of manipulating consumers to make them fat, not to mention quack weight loss nostrums, I think we're going to see more activism on this front. While I haven't read the book, I've read his article in The Atlantic and seen him on television, and his thesis seems to be that our weight problem isn't our fault -- it's the fault of the fast food industry, which manipulates us to eat enormous portions of unhealthy food.
I find it ultimately unconvincing, although as I say, the argument may be more subtle in the book. On television, he tells us that portions get larger and larger -- which is true -- without pointing out that the reason this is so is that consumers like them that way. While I agree that portion size has something to do with our current epidemic of obesity -- people tend to eat what they're given, rather than stopping when they're full -- all those fast food places have smaller portions on the menu. People choose the supersize double-quarterpounder meals.
The anti-fat crusaders will be fighting something even more powerful than nicotine addiction: a billion years of evolution. We crave fat and sugar because in a scarcity environment, they are the most intense source of energy. This is not news to anyone.
But with Fast Food Nation, we've taken the first step towards a public health crusade: offloading the blame from individuals onto corporations.
When I started smoking, cigarettes cost $1.30 a pack. When I quit, almost 3 years ago, they were near $4.00. Now they're $5.00 a pack or more in New York. Unsurprisingly, when you raise the price of somthing, people demand less of it, which has given the states a nasty surprise as money from the tobacco settlement begins to dry up. This was a major triumph for anti-smoking forces, and was apparently a driving force behind the lawsuits -- forcing behavior changes with a price increase that they never could have gotten legislatively.
This is not the only way in which the anti-tobacco activists have curtailed smoking, of course; by curtailing where we can smoke, they've made it much less attractive to do so. The important point is that successful strategies work on a macro level. Efforts to change individual behavior through advertising, insurance premiums, and the like have been much less effective. And efforts which target businesses start with the declaration that undesirable behavior is the responsibility of someone other than the person engaging in it.
So I think that studies like this, and books like Fast Food Nation, and groups like The Center for Science in the Public Interest (one of the many activist offspring of my beloved beloved Ralph Nader) are paving the way for an assault on the fast food industry as a proxy for our poor eating habits and worse exercise regimes. Perhaps it will make us healthier, although I doubt it. But even if it does, I’m still against this “by any means necessary” approach to changing people’s lives for their own alleged good by stealthily abrogating their freedom of choice.
Although this is a labor of love, I'm not above trying to make a fast buck where I can. (My student loan officer is hungry). So here's the deal: from now on, when I permalink a book from Amazon, I get a small cut if you click through and buy it right then (not if you stick it in your shopping cart and pay for it later). This is not a plea to buy books you wouldn't otherwise buy, or accelerate your purchases or anything to make me money; I love you all just for coming to the site and listening to me rant. It's just full disclosure so that you know that if you happen to click through off one of my links and buy, I'll get a little money. This does not mean that I'm about to go hog wild with book links; it's just that I do link books fairly often, either because I'm reading them or they're relevant to something I'm discussing, and a couple of readers who noticed this said "why not get a cut?"
It does, however, coincide with something I started doing at the beginning, and then stopped, but am now going to resurrect: a "What I'm Reading" feature that gives you the Meggish perspective on whatever I happen to be putting in my brain. Reviews will be short, non-polemical, and (hopefully), amusing. This feature will continue regardless of association with Amazon.
Here's the thing though: this website is not about my making money, so if any of you are mortally offended (or even mildly put off) by the practice, drop me a line. If I hear from enough people, I'll stop, and put a hold on the plans for the Megan McArdle Signature Coffee Cup and T-Shirt line from CafePress. I'll halt talks for the Megan McArdle Memorial Little League Field in Central Park. I'll take my name off my building. I'll stop renting myself out by the hour to people who want to hear a good 500-word refutation of the Labor Theory of Surplus Value. I'll. . . I'll do anything, for you, dear, anything, cause you mean everything to meeeee. . .
Thank you for listening. We will now return to our regularly scheduled programming.
Andrea Yates has been convicted of capital murder. It's just. But I find it hard to rejoice. The woman is pretty clearly as nutty as a busload of Skippy.
Now the jury votes on whether or not to give her the death penalty. I doubt she cares. Which makes me doubt the wisdom of executing her.
It’s worth a try. If you search Google for these terms now, you’ll see just how much play this scurrilous pile of phony research is getting in the world’s media.
Reader Myria does some fact checking inspired by this post on the column by Nicholas Kristof in the New York Times, who apparently didn't think to do any of his own; to wit, he used Japan as an example in support of this statement:
there's abundant evidence that having more handguns also means more gun thefts, more armed robbery, more suicide and more murder.
Myria got the data:
FWIW, out of curiosity I did some quick checking and what I had heard was wrong. The Japanese suicide rate alone exceeds the US Murder/Nonnegligent Manslaughter/Suicide rate by 1.2/100,000.
United States 1998 Suicide: 11.3/100,000 1998 Murder/Nonnegligent Manslaughter: 6.3/100,000 Total: 17.6/100,000
Years chosen based on last available WHO suicide data.
Somehow I doubt anyone is going to make the argument that gun ownership reduces suicide rates, however. But given that the Japanese Suicide rate alone apparently exceeds the US violent death rate in total, it would seem to me that the Japanese make a rather poor example for the anti-gun types to point to.
Is it too much to hope that Mr. Kristof will stumble in here and find the evidence of his silliness? Undoubtedly. But a girl can hope, can't she?
Since Social Security is the retirement plan of last resort, it must be made immune to individual stupidity or chance. This is due to Biggerstaff's Law: it will not become acceptable in the future to let a voting bloc of elderly grasshoppers starve, so any grasshoppers will inevitably be funded (again) by responsible taxpaying ants.
A purely private investment scheme, like a mandatory 401(k), would give individuals the most control. It would also be subject to Enron-like investor madness, followed by the application of Biggerstaff's Law above.
Fans will be surprised to find that I agree with Mr. Biggerstaff, and this is because of a phenomenon economists call Moral Hazard.
The premise of Moral Hazard is simple: when you buy fire insurance, you suddenly don't care as much whether your house burns down. (No, I'm not talking about people who burn the house down to collect the insurance; economists call that Insurance Fraud, just like everyone else does). Oh, you still care -- there's all those pictures of the wedding, and little Timmy with his first goldfish, and that precious light-up plastic statue of James Joyce you bought the night you won your first scrabble tournament. But you don't care as much as you would if you were going to have to scrape up the 200K to buy and furnish a new house on your own. You're not as careful about smoking in bed. When you use up the fire extinguisher on the Portieres du Salon au Cherries Jubilee, you forget to buy a new one. After little Timmy gets bronchitis from staying out in the garage for hours during the winter, you agree to let him practice his fire-eating in the house.
This is what's known as moral hazard: the act of taking a large precaution (insurance) has caused you to stop taking small precautions. Fraud aside, one of the most reliable predictors of accidents is the size of the insurance coverage against those accidents. Think of HIV. When treatment became available, unprotected sex became more popular.
Regulations intended to protect people from catastophe work the same way. People build houses in areas prone to regular flooding because they know that FEMA will swoop in and bail them out. Farmers plant crops that generate the highest yield, rather than those that are appropriate to local conditions, because the DOA will bail them out of any crop failures based on -- you guessed it -- yield per acre. Savings and Loans executives take off on a massive jackalope-ranch-buying-and-junk-bond-trading spree and the investors at those institutions don't bother to look up from their Bingo cards, because they know the government will cover any losses.
Even most hard-core libertarians aren't going to let some poor schmuck who bet on the wrong horse in the market starve to death when he's too old to work. People know this, which makes them more likely to take outsized risks with their portfolios.
Imagine two retirement investments. One has a 100% chance of paying off $60 for every hundred you put in. The other has a 50% chance of getting a $100 payoff, and a 50% chance of getting nothing. In a laissez-faire economy, risk-neutral or risk-averse investors (there's no such thing as a risk loving investor, not even your idiot cousin Bob who bought the jackalope ranch. Risk-loving investors, in theory, are people who, given the choice between a 50% chance of $40, and a 100% chance of $60, would take the 50% chance at $40 just for the thrill of it) will choose the sure thing, rather than the 50% chance of a higher return, because the Expected Value, or the probability wieghted value of a choice, is $60 for the first, but only $50 ($100 x .5 + $0 x .5 = $50) for the second. With me so far?
All right, now imagine social insurance. Let's say that you know that if you lose everything, your fellow taxpayers will kick in some amount -- let's call it $25 -- to keep you alive. Let's look at that expected value again:
Expected value of the sure thing: $60
Expected value of the risky investment:
Upside: $100 x .5 = $50 Downside: $25 x .5 = $12.50 (I lost, but my fellow suckers. . . excuse me, citizens, are keeping me in Geritol)
So my expected value for the risky investment is $62.50. The rational choice is to gamble, and count on the taxpayers to make up my losses, at least in part. Note that in order for me to choose the sure thing, social insurance has to be less than or equal to just 1/5 of my potential high return.
This is a vastly simplified scenario, of course, and it leaves out the question of whether most people can actually make qualified investment choices, but you see my point. Even in a world of rational, informed actors, the moral hazard of the implied social promise could lead people to take on a lot more risk than they should. And a lot of that risk will be taken on on behalf of the future taxpayers they're expecting to cushion the downside, which could severely undermine the stability of a private system. So government will have to take some sort of measures to mitigate this. What those measures might be, I shall leave for brighter minds and another day.
I saw them turn the memorial lights on this evening, and the most amazing thing was that they seemed to stretch forever into the heavens. Those of us familiar with the area argued over the question: were they really that tall?
Yes, they were. They were really that tall. And the lights tracing their heights are heart-breakingly beautiful. Go look for yourself.
Party operatives tell of numerous calls from nervous Democratic officeholders asking precisely that question. "[P]eople are discovering to their discomfiture that they did not understand the bill as well as they thought they did," says one party lawyer. One party staffer canceled a luncheon interview with me last week because, he said, he had to spend the entire day explaining to House members that, contrary to their expectations, there were no easy end runs of the law already mapped out.
Okay, so they kept up the pressure on the issue for yearsto pass a law that it turns out they only voted for because they thought they'd be able to sneak around it. I'm supposed to feel sorry about this?
I'm curious to see whether it will work, or whether the taint associated with its practice has killed even the asset value of its business practice, which, after all, is mostly clients (who no longer want to do business with the firm), brand (I don't have to talk about that one) and people. I'm especially curious to know whether those who've worked with Arthur Anderson will find it hurts their chances of getting another job.
And with this rather thin set of assets comes a potential indictment, and a virtually guaranteed raft of civil suits which could quite possibly bankrupt the partners. Look at the way that liability on asbestos has attached to companies that had possession for a couple days of an asbestos-using subsidiary of some company they bought -- Deloitte partners or anyone else would have to be crazy to take the risk. IMHO.
From the article, it seems like they're trying to set up some structure where they sell the assets to Deloitte, while leaving a shell of Anderson to deal with the Enron liability. I think that they must have access to much better drugs than I do if they think this is going to fly. Essentially what they're trying to do is sell the business operations, leaving as little as possible in the shell to pay off creditors. It'll be a cold day in hell when the FTC, the SEC, or whoever has charge of such things, allows that to go forward, unless they can prove that they're getting a higher price for the assets than a bankruptcy sale would -- in which case, why wouldn't Deloitte wait for the fire sale?
In Flanders fields the poppies blow Between the crosses, row on row, That mark our place; and in the sky The larks, still bravely singing, fly Scarce heard amid the guns below.
We are the Dead. Short days ago We lived, felt dawn, saw sunset glow, Loved, and were loved, and now we lie In Flanders fields.
Take up our quarrel with the foe: To you from failing hands we throw The torch; be yours to hold it high. If ye break faith with us who die We shall not sleep, though poppies grow In Flanders fields.
Steel tariffs are evil. Those who passed them will eventually be consigned to the tenth circle of hell. It would be cheaper to hand each steel-worker $300,000 to start his own jobs-training program.
All right, now I've done my part. I hope Matt Yglesias is happy. He's surprised by Mickey Kantor's ridiculous Op-Ed on the subject, since he thinks of the Clinton Administration as being good on Free Trade -- which they were, but Kantor's attitude was much more "Trade as War", Japanese Mercantilist style, than free trade.
But the reason that I'm not blogging on it is that I haven't convincing evidence that this amounts to the enormous tax hike Yglesias posits. Oh, I think it will raise prices in steel-consuming industries -- but the cost of labor in a car is far higher now than the cost of steel, and will be no matter how high we make tariffs. I'm against tariffs on principle, and don't doubt that they'll have a marginal effect, but I don't think it will be as big as the ranters think -- and I also don't think that many of the Democrats ranting about the tariffs would be saying a word if Gore had done it. I think that they're waaaaaaaay more pissed that Bush has ingratiated himself with a major constituency -- organized labor. (Not that I'm personally in favor of doing so. I fear that when you pay the danegeld, you find it hard to get rid of the dane.)
Very interesting article on Cuban v. American infant mortality shows one of the trickiest aspects of using statistics: making sure you're not comparing apples to oranges.
The reason this is so difficult is that often statistics which sound like they're the same thing actually aren't. For example, comparing rape statistics. Most of us think of rape as being forcible intercourse with an unwilling victim. However, there are studies that have included such things as statutory rape (which may be appalling, but isn't what we're trying to get at, which is the rate at which people are sexually assaulted), "rapes" in which the victim never struggled or said no, but merely reported later that she was uncomfortable, or other definitional expansions that make it hard to establish valid comparisons with other studies that focused on forcible intercourse.
In this case, the article points out that while Cuba seems to have a lower infant mortality rate than America, this appears to be because extremely low-weight births for which American doctors perform heroic intervention (and thus get recorded as a live birth in America, followed by a death a few hours later), get reported as stillbirths in Cuba. So it's very important, when you see a statistic, to ask yourself if the two numbers are really comparing the same thing.
Question of the Day for New Yorkers: Are you going to watch it?
The answer for me is that yes, I am. I don't like violent things, and I have been extremely put off by the voyeurism of some of the tourists down at the trade center, munching popcorn and chatting gaily away as they filmed what they could of the carnage. So why am I watching it?
Like a lot of people from the city, I still find out, every month or so, about someone else I know who was lost, most recently the first guy I dated in college. And I guess that I want to know what happened to them. And part of me thinks that we ought to know, so that we know exactly why there are boys dying a long way away from here. For us, in the most real sense. . . to avenge our city. Perhaps that makes me hypocritical, given how I feel about the Daniel Pearl tape . . . but what bothers me about the Daniel Pearl tape is not that people want to watch it, but why . . . it's the same thing I feel about those tourists. Many of them come with a sense of -- well, reverance isn't quite the right word, but with a sense of respect for what happened there. They're trying to understand what happened there; to experience it, emotionally. It's not those who make me angry . . . it's the ones whose emotions are so shallow that they experience it only as the tawdriest sort of thrill that something really BIG took place there, or a forum to display ersatz sentiment.
So I'm going to watch it. But I am not without reservations.
All right, my little chickadees, I’ve come out of retirement to talk about a topic that I am sure is on the minds of us all: Unemployment!
No, not how to collect it, though as a veteran of multiple layoffs, you can be sure that I’m an expert on that as well. No, today I’m going to talk about an exciting term you may never have heard: NAIRU, or the Non-Accelerating Inflation Rate of Unemployment. (It will not surprise you that this term was invented in the 60’s, when even economists tried to make their acronyms sound like something with which their hippy-dippy students could identify.) Actually, I won't quite be talking about NAIRU itself (really, I just love saying the word), but about it's kissing cousin, Full Employment
What brought all this to my mind is that, as sharp-eyed observers may have noticed, unemployment just dropped to 5.5% from 5.6% the month before. Now, that may not seem like much of a drop to you, but the fascinating thing about this is that 5.5% is well below what believed the full employment level to be in the mid-90’s. Full Employment describes a situation where pretty much everyone has a job that wants one. So where’d the 5.5% come from, you ask? The answer is that full employment doesn’t actually mean that everyone’s employed. There are people who are just entering the job market, like students or housewives, who just haven’t found the right job; there are people moving between jobs; and there are people who are supposed to be looking for a job, and tell their wives they are looking for a job, and put on a suit every couple of weeks so that they can look the guy at unemployment right in the eye and tell him how hard they’re trying to find a job, but who don’t actually want to find a job. The first two are known as Frictional Unemployment; the last is usually known as “that goddamn bum you married” or some such.
That last group is also a symptom of what’s known as Structural Unemployment. In simplest terms, this is the unemployment that is introduced into the system by the regulatory structure of the markets. These can raise unemployment either by making it more attractive for people to stay unemployed, or less attractive for employers to hire people. The most common things that can cause structural unemployment:
Minimum Wage Laws Minimum wage laws, as any reputable economist will tell you, cause a loss of jobs. Depending on their politics, they may argue about how large this is, and whether the social cost is offset by the benefit of some people getting higher wages, but few will argue about whether or not the jobs get lost. Those that do, like Card and Krueger, who tried to refute this using possibly the worst dataset in economic history (it relied, among other things, on self-reporting), end up getting ripped to shreds by other economists. (When I asked my b-school professors about the study, they told me that Card-Krueger, who like the minimum wage, are highly respected by op-ed columnists. Becker, and others who refuted their study, are highly respected by economists. You decide). The idea that minimum wage laws do not cause unemployment goes against the basic proposition that when you increase the price of anything, suppliers (workers) want to provide more of it, while consumers (employers) want to buy less of it. Yet economists who would never be caught arguing that if you increased the price of paper by 15%, companies would use the same amount, somehow get all giggly and foolish about the minimum wage.
Imagine that there were a “minimum car price law” that set a floor of $20,000 for cars. Sure, some people might trade up from a Geo to a Ford Taurus, but what about your layabout Cousin Todd, whose entire income comes from selling the Grade Z reefer he grows in his basement? Bummer, dude . . . guess he’s walking. Minimum wage laws work the same way. There are some employers who simply up the wages they pay, and either take it out of profits, or pass it onto consumers in higher prices. But there are some employers whose businesses are marginally profitable; raising the minimum wage means they either go out of business, or do the work themselves. There are other employers who currently use labor because it’s cheaper – but with higher wages, would find it more profitable to switch to machinery. Hand carwashes and dry cleaners are good examples of businesses that simply aren’t economical at the current minimum wage – people won’t pay $20 to get a shirt cleaned. There are also employers who don’t care too much right now about efficient use of labor, but might care a whole hell of a lot if you raise the price of that labor by 20%. All of those companies will cut jobs if you raise the minimum wage.
Meanwhile, everyone and their cousin (though possibly not Todd) enters the job market, because the wages make working more attractive. Unemployment is measured by how many people are looking for work at a given time. More people seeking fewer jobs make unemployment jump. How high it will jump depends on how responsive workers and employers are to the price of labor; but it’s idiotic to say that there will be no response (or, as I heard on television the other day, that minimum wage laws actually increase employment because. . . I don’t know, Ralph Nader beamed it to the pundit from his Organic Space Capsule or something. That actually sounds more intelligent than the argument he made, which was so dumb that I can’t make my mind hollow enough to reproduce it here. This is what I get for watching TV).
The rise in unemployment due to minimum wage is a rise in structural unemployment; it is a permanent increase in the equilibrium level of unemployment in the economy.
High Payroll Taxes on Employers like, for example, Social Security and Unemployment contributions, work much the same way as minimum wage laws do – they raise the cost of labor, so employers use less of it.
Making it difficult to fire people This seems counterintuitive, but the harder it is to fire someone, the more risky it becomes to hire someone. What if you accidentally got a Cousin Todd, smoking up in the alley before he drives the forklift? You can’t let him drive the forklift – and if you can’t fire him either, he ends up sitting in the break room, drawing a salary and making funny fish faces at the TV.
This is one of the main reasons that Spain has 22% unemployment. If you can get a job, you’re in Sucker Heaven – that’s why this is the nation that gave the world the 3-hour lunch break. But as we’ve seen, anything that makes employment more attractive to workers makes it less attractive to employers, and this is no exception. Companies desperately try to substitute machinery for people, or temporary workers for permanent ones – anything to keep from adding someone to their payrolls that they might be stuck with for the next 40-50 years.
Interestingly, this, along with the minimum wage, is a major factor in inner-city unemployment. Firms won’t take a risk on anyone, because discrimination suits and other laws increase the risk that you might get stuck with someone awful. For people with a spotty unemployment record, this makes it very difficult to break into the labor market, because the minimum wage prices them out, and firms hire friends and family of current workers whose work habits they can verify.
Productivity Lowering Regulations Though they are not the precise econometricians some extreme free marketers would have you believe, meticulously measuring every input from paperclips to people to ensure that they are getting an adequate return, employers do have a pretty good idea of how much work they have to get out of employees to make them pay for themselves – especially at the lower end of the job market. Anything that lowers an employee’s productivity brings him closer to the point where he’s not worth his salary.
Examples of productivity lowering regulations:
o Union-type rules specifying minimum staffing, minimum hours, or maximum speed of work, otherwise known as “featherbedding” o Safety regulations that force employees to work less efficiently o Environmental regulations that alter work practices o ADA regulations that force changes in work area configurations o Any sort of regulation that forces employees to spend time documenting how they complied with the regulation
Note that some of these regulations may, depending on your politics, be something you support. However, the next time you hear employers talk about the implied productivity loss in a regulation, realize that this means that a real, live person may really lose their job.
High Unemployment Benefits make it more attractive for the Goddamn Worthless Bum to stay firmly planted on the couch. This isn’t much of a worry in the United States, because almost no one is willing to do any work, even lying on the couch, for a maximum benefit of less than $8,000. In Europe, however, it’s a major contributing factor to “natural” (read equilibrium) unemployment rates not seen in the US since the Great Depression.
All welfare benefits can contribute to this effect, most especially ones that require recipients to be looking for work. Since many such programs define things like sitting around and visualizing what it would be like to actually have a job, looking for work doesn’t necessarily correlate strongly with getting work – and oops! There goes the unemployment rate.
Now back to NAIRU (I just love saying it – I can practically smell incense and the Oaxaca ditch weed). NAIRU is thought by many to be the equilibrium level of employment that an economy can sustain over the long run without throwing itself into an inflationary tizzy. There are differing explanations for why this is, with which I won’t bore you, but most economists do agree that there is some level, which differs between economies, below which unemployment cannot sustainably drop.
The interesting thing is that NAIRU rose for decades in the US and Europe. In 1960, when JFK ran on the slogan “Let’s get this country working again!” unemployment was a whopping 3.6%. In 1996, it was widely agreed that the “Full Employment” level was somewhere around 6%.
Oops. What happened?
Well, welfare reform, for one – a lot of people suddenly found that they couldn’t just look for work; they had to actually find some. Turned out a lot of them had had some all along, under the couch cushions maybe, and others found it was less of a hassle to just get a job then go through the arduous process of pretending to look for one.
For another thing, productivity, which had dropped like a stone for decades, suddenly started rising again in the 1990’s – we think. As with any economic figure, people argue – in this case, about whether those gains were really felt outside of the computer industry. So the jury’s still out.
And, of course, the idea of NAIRU itself is taking a beating these days, although some would argue that those who criticize it are wild-eyed radicals trying to drive the stock market to ever loftier heights.
Anyway, by some mysterious process, we’ve arrived at a recession level of unemployment that’s lower than the expansion level of five years ago. Pretty neat stuff. Which only leaves us one question:
