Asymmetrical Information

From the desk of Jane Galt:

Non! Non! NON!!!!

So the French have rejected the EU constitution. What does it all mean? I dunno, ask The Economist; they've got brilliant people sitting around thinking about all this stuff. My feeling is that this is a big deal for Chirac, but not necessarily for the EU.

I'll tell you what is a big deal for the EU, though: the euro. The disparities between euro-zone economies are not shrinking as everyone had hoped; in some places, they're growing. That is making it nearly impossible to craft monetary policy that is both hawkish on inflation, and doesn't throw huge economies (i.e. Italy and Germany) deeper into the slough of economic despond. Italy, meanwhile, is managing to disprove the adage that "inflation is always and everywhere a monetary phenomenon" by having stagflation, a recession, and an inflation hawk at the monetary helm. If the euro falls apart, it could have major repercussions for the EU, as it would be a full scale retreat from "ever-closer union".

From the desk of Jane Galt:

Question of the day

What's the movie where the Germans are trying to fool a captured soldier into telling them about d-day by convincing him that the war is over and he's back in America with amnesia? It's driving me crazy.

From the desk of Jane Galt:

More on Zimbabwe

This 2003 article from The Atlantic (subscription only) describes Mugabe's radical land reform:

In 2000, about 4,000 large-scale commercial farmers owned some 70 percent of Zimbabwe's arable land. Nearly two thirds of these farmers had bought their farms after independence, and thus held titles issued not by Ian Smith or the British colonial regime but by the Mugabe government. Mugabe had long pledged land reform as a way of redistributing farmland to black peasants and dismantling what many saw as the country's "mini-Rhodesias." But he had delayed action for two decades, generally taking farms only on a "willing seller, willing buyer" basis.

Mugabe decided on what he called "fast-track land reform" only in February of 2000, after he got shocking results in a constitutional referendum: though he controlled the media, the schools, the police, and the army, voters rejected a constitution he put forth to increase his power even further. A new movement was afoot in Zimbabwe: the Movement for Democratic Change—a coalition of civic groups, labor unions, constitutional reformers, and heretofore marginal opposition parties. Mugabe blamed the whites and their farm workers (who, although they together made up only 15 percent of the electorate, were enough to tip the scales) for the growth of the MDC—and for his humiliating rebuff.

So he played the race card and the land card. "If white settlers just took the land from us without paying for it," the President declared, "we can, in a similar way, just take it from them without paying for it." In 1896 Africans had suffered huge casualties in an eighteen-month rebellion against British pioneers known as the chimurenga, or "liberation war." The war that brought Zimbabwean blacks self-rule was known as the second chimurenga. In the immediate aftermath of his referendum defeat Mugabe announced a third chimurenga, invoking a valiant history to animate a violent, country-wide land grab.

Initially, the farmers held their ground, but it became clear after several white farmers were murdered that they were too few and Mugabe's regime was too determined. Of the 4,000 large-scale commercial farmers in business three years ago, all but 500 have been forced off their land. Most Zimbabweans (including white farmers) say that land reform was both necessary and inevitable. The tragedy of Mugabe's approach is that it has harmed those whom a well-ordered, selective redistribution program could and should have helped. Generally the farms have not been given to black farm managers or farm workers. Indeed, because of their association with the opposition, more than a million farm workers and their dependents have been displaced, and they are now at grave risk of starvation. In fact, the beneficiaries of the land seizures are, with few exceptions, ruling-party officials and friends of the President's. Although Mugabe's people seem to view the possession of farms as a sign of status (the Minister of Home Affairs has five; the Minister of Information has three; Mugabe's wife, Grace, and scores of influential party members and their relatives have two each), these elites don't have the experience, the equipment, or, apparently, the desire to run them. About 130,000 formerly landless peasants helped the ruling elites to take over the farms, but now that the dirty work is done, many of them are themselves being expelled.

The drop-off in agricultural production is staggering. Maize farming, which yielded more than 1.5 million tons annually before 2000, is this year expected to generate just 500,000 tons. Wheat production, which stood at 309,000 tons in 2000, will hover at 27,000 tons this year. Tobacco production, too, which at 265,000 tons accounted for nearly a third of the total foreign-currency earnings in 2000, has tumbled, to about 66,000 tons in 2003.

Mugabe's belief that he can strengthen his flagging popularity by destroying a resented but economically vital minority group is one that dictators elsewhere have shared. Paranoid about their diminishing support, Stalin wiped out the wealthy kulak farming class, Idi Amin purged Uganda's Indian commercial class, and, of course, Hitler went after Jewish businesses even though Germany was already reeling from the Depression. Whatever spikes in popularity these moves generated, the economic damage was profound, and the dictators had to exert great effort to mask it.

From the desk of Jane Galt:

New York News

Is there anything more enjoyable for an upper West Sider than bashing fairway? I too, am loth to brave the legions of aggressive old ladies hitting you with their shopping carts should you linger in the produce aisle, and cashiers who seem to regard customers as an apalling inconvenience who should be discouraged at all costs from their bothersome insistence on paying for their goods.

From the desk of Jane Galt:

The power of prayer

You may have seen those studies purporting to show that people who are prayed for do better than people who are not*. This Jim Henley post suggests an interesting scientific experiment:

Possibly accurate reports from Islamist websites say that Abu Musab al-Zarqawi is wounded, and urge us to pray. I do too, for septicemia. Do thou likewise.

Can prayer be used to destructive (at least on the micro level) as well as destructive ends? What about duelling prayers? There are presumably more people willing to pray for Zarqawi's death than his survival (assuming that he enjoys only mixed support among Muslims, and no support among Christians, who outnumber Muslims by quite a lot). On the other hand, Zarqawi's supporters might be more fervent. Might Islamic prayer be more effective than Christian/Agnostic/Atheist/Other prayer? Is the prayer affected by the devoutness of the adherent, and if so, how to overcome the testing bias introduced by the fact that many devoutly religious people will refuse to pray for someone's death? All sorts of interesting testable hypotheses open up here.

Yes, I know, the study was a hoax--they broke the blind and drew a bullseye around whatever results looked promising. You have no sense of humour.

From the desk of Jane Galt:

A little honesty, please

Can Democrats and Republicans stop pretending that there is some exquisitely fine distinction between judicial filibusters and legislative filibusters that makes flip-flopping on whatever they said five years ago something other than a gossamer-thin wrapping for the otherwise naked use of power? Or that they really, deep down, care about the deepest arcana of Senate procedure?

The fact is that Republicans are going to shove conservative judges down liberal throats because they can, not because there is some cosmic principle of justice involved. And Democrats should tone down the histrionics about the fundamental illegitimacy of Republican court-packing, when the reason the Republicans are so determined to pack the court is that it is the only way Democrats have left them to undo the quasi-legislation that liberal judges wrote after Democrats packed the court decades ago. Having remade the rules about how legislation gets made, you can't just tell the Republicans that it's some sort of metaphysical abuse if they try to touch the ball.

From the desk of Jane Galt:

Bubble, bubble, toil and trouble . . .

If you haven't already, you should read this post by Angry Bear on speculation in the housing market.

From the desk of Jane Galt:

The crisis deepens

When Robert Mugabe took the lands of white farmers five years ago to redistribute to sqatters and peasants (and many well-connected blacks as well), it caused an agricultural collapse that has repeatedly brought the country to the brink of famine. Now the ripples are spreading. Agricultural exports were the main source of foriegn exchange; now that Zimbabwe is a net importer, firms can't get foriegn currency to buy their imports, so manufacturing is collapsing as well:

Manufacturing has slowed to a trickle, hamstrung by shortages of fuel and imported components. Businesses have been driven to barter and the black market, adding to the inflation. Appeals for government help are mostly fruitless. The government is all but broke.

"The scarcities now are coming from manufacturers who can't deliver enough to retailers to fill their shelves," Mr. Robertson said in an interview in Harare, the capital.

Initially the problem was that manufacturers could not cobble together enough supplies to make their products. "Now that there are more critical shortages in things like fuel," he said, "it's almost academic whether they can get the material, because they can't deliver the products anyway. The end result of the shortages is that prices are rising."

It is depressing to look back at history and see how regularly the same nice-sounding idea--"let's take the land from the rich people who unjustly own it and give it to those who need it"--turns into tragedy for everyone. It's even more depressing to realise that despite the seeming predictibility of the result, lots of people want to do it anyway.

From the desk of Jane Galt:

It certainly took long enough

Looks like high gas prices are finally cutting into SUV sales.

From the desk of Mindles H. Dreck:

Long Happiness at Any Price

In this post , responding to harrumphing about humour in a bond research report, I mentioned a street research report about achieving happiness. Here it is.

From the desk of Jane Galt:

Ouch

Daniel Okrent delivers a parting shot:

Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults. Maureen Dowd was still writing that Alberto R. Gonzales "called the Geneva Conventions 'quaint' " nearly two months after a correction in the news pages noted that Gonzales had specifically applied the term to Geneva provisions about commissary privileges, athletic uniforms and scientific instruments. Before his retirement in January, William Safire vexed me with his chronic assertion of clear links between Al Qaeda and Saddam Hussein, based on evidence only he seemed to possess.

No one deserves the personal vituperation that regularly comes Dowd's way, and some of Krugman's enemies are every bit as ideological (and consequently unfair) as he is. But that doesn't mean that their boss, publisher Arthur O. Sulzberger Jr., shouldn't hold his columnists to higher standards.

I didn't give Krugman, Dowd or Safire the chance to respond before writing the last two paragraphs. I decided to impersonate an opinion columnist.

And bravo to this:

It's a story, say, about the New York City public schools. In the first paragraph a parent, apparently picked at random, testifies that they haven't improved. Readers are clearly expected to draw conclusions from this.

But it isn't clear why the individual was picked; it isn't possible to determine whether she's representative; and there's no way of knowing whether she knows what she's talking about. Calling on the individual man or woman on the street to make conclusive judgments is beneath journalistic dignity. If polls involving hundreds of people carry a cautionary note indicating a margin of error of plus-or-minus five points, what kind of consumer warning should be glued to a reporter's ad hoc poll of three or four respondents?

From the desk of Jane Galt:

More on Daniel Gross and pensions

Daniel Gross's article on corporate pensions also contains this bit:

Because the national pension system—like many of its private-sector counterparts—is woefully underfunded, we are told, stakeholders must be willing to accept benefits that are lower than were promised and less than were anticipated. But as Zimran Ahmed points out, this comparison is silly. Our pension system (Social Security, for those following along at home) isn't underfunded--it's unfunded. And there isn't any way to fund it, in the sense of storing up assets to cover the liabilities, unless we change the law so that the government can hold stocks or other assets. As P.J. O'Rourke has said, "the people of Eastern Europe had some very pungent names" for government ownership of economic assets.

Given the current legal structure under which our government operates, then, either big tax increases, or big benefit cuts, will be needed to make inflows and outflows balance in the future. Congress hasn't failed its fiduciary duty; the crime is that it has allowed people to think that there is a pension system in the first place.

Posted by Jane Galt at 4:04 AM | Comments (31) | TrackBack

From the desk of Jane Galt:

I don't think this is quite right . . .

Daniel Gross's article on corporate pensions contains this sentence:

In many instances, bankrupt companies turn over their plans to the Pension Benefit Guaranty Corp. But if you're entitled to more than the maximum that the PBGC insures, tough. For example, the PBGC recently took over the pension plan of bankrupt United Airlines, which was underfunded by $9.8 billion. Since the PBGC would guarantee only $6.6 billion of those benefits, the workers—who had met all their obligations to United—took a $3.2 billion cram down.

I believe that $9.8 billion is the total size of the United pension scheme, not the underfunding, which is $3.2 billion. Can anyone confirm this?

From the desk of Jane Galt:

Race matters

I was travelling when this happened, so I missed it the first time, but Mark Kleiman has brought it to my attention:

I just ran across Orin Kerr's calmly outraged and entirely correct response to the story of four young white men in Linden, Texas, who beat up a mentally challenged black man and dumped him in a field. Billy Ray Johnson is crippled for life, and his assailants are being let off without any of them spending so much as a day in jail. Note that the District Attorney thinks the outcome was just fine.

Arvin Tseung at Rebuttable Presumption is right to say that there's no evidence that the assailants were racially motivated. But, as a thought-experiment, mentally switch the races of the assailants and the victim; can you imagine a similarly lenient sentence? I can't.

I'm not sure that even the verdict is about race; it's about class in a small community, which is protecting its own. There was a similar case in New Jersey in which four white boys assaulted a white mentally disabled girl, and were let off with barely a swat on the wrist; they were nice boys from the right families, who therefore couldn't possibly have meant to brutalise a helpless and terrified young girl. It took a nationwide publicity campaign to get them prosecuted, and afterwards, they were let out for nearly ten years while their cases were appealed. They were from the connected class; she wasn't, and in the justice system, that's often fatal.

But for too many blacks in this country, that's a distinction without a difference. And there's no excuse for letting these boys off without punishing them. They weren't joyriding or smoking a little pot; they were committing assault. And if, when your son "gets a little wild", he ends up crippling someone for life, then he needs to go to jail.

From the desk of Jane Galt:

Is Newsweek responsible for those deaths?

In one sense, of course, the rioters hold the responsibility. But on the other hand, look at the rioting that devastated LA after police officers, who had been captured on videotape, were acquitted of brutalising Rodney King. Sure, the hatred of the police, the anger, had been there all along. But no beating, no acquittal, no riots. The police and the jurors were the proximate cause of the riots in LA. It seems pretty clear to me that this is also the case in Pakistan and Afghanistan, where the reports of someone flushing the Koran down the toilet were, according to all the news accounts I've read, the force that agitated the rioters and bound them together in deadly violence.

But to say that someone's actions were the cause of a bad thing is not to say that they bear the responsibility. If I give my child a peanut-butter cookie, and my child gives half that cookie to another child, who dies from their peanut allergy, no one in that chain is responsible for the tragedy, even though clearly both mother and child were causes of it--had they acted differently, the death would not have occurred. On the other hand, some are willing to blame the police and/or jurors in the Rodney King incident, because they think that the police and jurors acted wrongly, out of racist motives that fed the righteous flames of anger over race in Los Angeles. It is possible to believe this without excusing the rioters. I may truly believe that during a disaster, people should exit buildings in a calm and orderly fashion--but this does not give me license to shout "fire" in a crowded theater, even though it is the heedless stampeding of other patrons that will actually kill people.

But did Michael Isikoff do anything wrong?

I don't agree with those who say he shouldn't have printed it even if it were true--a press that thinks it's on the government's "team" is not a very good watchdog of our liberties, though I concede it worked pretty well in World War II. I don't have enough knowlege of standards in political reporting to comment upon single-sourcing or anonymous sources--there just aren't that many people who want to keep their revelations about our nation's retail inventory figures on deep background. There is a tradeoff between quality and quantity of information that must be made with anonymous sources, and I don't have any very good idea of where we should draw the line.

But I do think that Mr Isikoff made a pretty big mistake, a la the Dan Rather team, which is that he doesn't seem to have thought very hard about the proletarian details of the story he was reporting. I don't particularly think that this was some case of a partisan who "wanted" the story to be true--I think that Abu Ghraib has unfortunately made these sorts of incidents all too plausible. But nonetheless, he should have done a double take, because as others have pointed out, it is very, very hard to flush a book down a toilet.

Korans are not printed on newsprint (which also clogs the plumbing if you use it often). They are printed on nice paper, as befits their station. They have solid bindings. The Koran runs 77,000 words, plus notes, which is a decent-sized novel.

The Newsweek report nonetheless says, not that the Koran was dunked in the toilet, but that it was flushed down one. Did they have an industrial scale paper chipper on premises? (Shreds would, I'd bet, still be cloggy). Did some maniac stand there for hours, carefully ripping the pages into pieces a few at a time, the better to enjoy the anguished screams of the inmates? What did they do with the covers, which at the very least would be highly-non-dissolving treated cardstock?

I don't say that there aren't possible explanations--that the report actually involved the book being dunked-and-swirled, that it was a latrine, not a toilet, or that they were in fact using a paper chipper of some sort. But once you realise that the story as written is highly questionable, it also becomes quite possible that the source has gotten it wrong somehow. And that should have caused Mr Isikoff, and his editor, to pause and check.

It now seems highly possible that what the source was remembering were unsubstantiated allegations of Koran desecreation by inmates--who, like prisoners the world over, do not have the same credibility as other sources. Particularly when many of them presumably have political reasons to brand America as a defiler of the Koran. Such mistakes happen, and the fault is not having gotten a bad fact, but getting a bad fact that didn't smell quite right, and not catching the whiff of implausibility.

That said, it's all too easy to make mistakes like this. Every time there's an error in a story, bloggers pile on crying "Don't they have fact checkers?" Why, yes, we do, but producing thousands of fact-filled words is, speaking as someone who went from critic to journalist, more difficult than it looks. Once your brain has processed a piece of information incorrectly, it tends to continue processing it incorrectly, no matter how many times you look at it--your brain tells you "right, looked at that, that's a fine fact, move along . . . " To take a trivial example (caught by a fact checker) when I was writing a piece on the unfunded liabilities of America's old-age system, I spelled Jagadeesh Gokhale's name as "Jagdeesh". I checked that piece at least five or six times, and missed it every time.

Now, I think that Michael Isikoff and the other editors who checked his work in some sense should have known that there was something implausible about flushing a Koran down the toilet. But I'm not sure that I realised that, when I heard the story (though in my defense, I of course assumed that Mr Isikoff & co. had checked it out). And those of you who did realise that--I guarantee you that if you were doing this five or six days a week, you'd find that there are an amazing number of things that don't strike you as at all odd until someone else points them out--at which point they are obvious enough to burn your retinas into crispy ash.

So I think Mr Isikoff & co made a mistake. But they are not villains; they are simply human. Like their critics, who should give them a little bit of a break now that they've stood up like men and apologized.

From the desk of Jane Galt:

Wow

Deeply cool site.

From the desk of Mindles H. Dreck:

Pan it he did

Anthony Lane has choice words for Yoda:

The young Obi-Wan Kenobi is not, I hasten to add, the most nauseating figure onscreen; nor is R2-D2 or even C-3PO, although I still fail to understand why I should have been expected to waste twenty-five years of my life following the progress of a beeping trash can and a gay, gold-plated Jeeves.

No, the one who gets me is Yoda. May I take the opportunity to enter a brief plea in favor of his extermination? Any educated moviegoer would know what to do, having watched that helpful sequence in “Gremlins” when a small, sage-colored beastie is fed into an electric blender. A fittingly frantic end, I feel, for the faux-pensive stillness on which the Yoda legend has hung. At one point in the new film, he assumes the role of cosmic shrink—squatting opposite Anakin in a noirish room, where the light bleeds sideways through slatted blinds. Anakin keeps having problems with his dark side, in the way that you or I might suffer from tennis elbow, but Yoda, whose reptilian smugness we have been encouraged to mistake for wisdom, has the answer. “Train yourself to let go of everything you fear to lose,” he says. Hold on, Kermit, run that past me one more time. If you ever got laid (admittedly a long shot, unless we can dig you up some undiscerning alien hottie with a name like Jar Jar Gabor), and spawned a brood of Yodettes, are you saying that you’d leave them behind at the first sniff of danger? Also, while we’re here, what’s with the screwy syntax? Deepest mind in the galaxy, apparently, and you still express yourself like a day-tripper with a dog-eared phrase book. “I hope right you are.” Break me a fucking give.

RTWT.

From the desk of Jane Galt:

I did not need to know this

I do not want to know this. That's right, Dr. Manhattan emails to say that Civ 4 is coming. Hey, buddy, I have an eating habit to support, you know.

From the desk of Jane Galt:

Will they? Won't they?

American politicians are pressuring the Chinese to revalue the yuan, in order to make their exports less competitive with American domestic goods. Nouriel Roubini, an economist at New York University, has been forcefully arguing that this is mad, because China's foreign currency reserves are currently bolstering both domestic consumption and government borrowing; any slowdown in the pace of the Chinese central bank's accumulation of dollar reserves would mean a hard landing for the US economy. Fewer people, however, are looking at the thing from China's point of view, where there are some real risks, as well as benefits, to revaluation.

Update More from Brad Setser.

From the desk of Jane Galt:

Suddenly, and for no apparent reason . . .

This New York Times article on class and heart attacks contains the following assertion by a public health professor:

It's like diffusion of innovation: whenever innovation comes along, the well-to-do are much quicker at adopting it. On the lower end, various disadvantages have piled onto the poor. Diet has gotten worse. There's a lot more work stress. People have less time, if they're poor, to devote to health maintenance behaviors when they are juggling two jobs. Mortality rates even among the poor are coming down, but the rate is not anywhere near as fast as for the well-to-do. So the gap has increased.

.
There's a lot wrong with this. some of this isn't true--in America, the rich work longer hours than the poor, and a postal worker is less likely to have a stressful job than an investment banker. And note the use of the passive voice: "Diet has gotten worse". It's like how in Spanish, no one ever breaks everything; everyone says "se rompio. Diets have gotten worse because poor people are eating crappy food, not because the diet fairy left them with the pork rinds rich people didn't want.

[Doesn't the poor quality of inner-city markets make good food hard to get?-ed. I shop at a market in a housing project, and while it's not exactly Wegmans, I manage to put together a balanced diet on a budget so tight the nickels squeak. Plus, as the man says, "diets have gotten worse", but supermarkets, even in poor areas are only getting better. People are eating fattier, more sugary diets because as food has gotten cheaper, they have chosen to consume more of the things that aren't good for us.]

This is nitpicking, but that quote is absolutely typical of the way obesity among the poor is presented in the media: low-income people are framed as hapless victims rather than agents. This is bad for two reasons. First, it distorts people's beliefs about what sorts of policy interventions are likely to succeed--if you believe the average news article, it would be easy to decide that the best way to lick obesity would be to air-lifting rhubarb and radishes into East New York, and pay doctors to harangue people. Whereas if you spend some time with actual people in, say, assisted housing, you'll find that they, like everyone else know

a) what makes you fat
b) that being fat is unhealthy
c) that you can easily buy fresh fruit if you cut out the slurpees

They're not stupid, and they're not particularly ignorant, though they're probably not as up on the ins-and-outs of saturated fats and Omega-3's as your average food-obsessed young professional. They are choosing to eat the way they do. Which is the second problem with this sort of thing. By treating the poor as if they are not choosing their diets in any meaningful sense, people license themselves to start making choices for the poor. John doesn't realise that his hamburger is killing him, so I'll just take it away and give him a nice sliced turkey sandwich and an apple and if Johnny is very, very good Mommy will take him to the zoo later. I've never understood how the belief that a large swathe of our society is in need of a nanny is reconciled, ideologically speaking, with the belief that we should do everything we can to encourage those people to vote. But that's another rant.

Update Then there are things like this:

For years he was a high-voltage cable splicer, a job he loved because it meant working outdoors with plenty of freedom and overtime pay. But on a snowy night in the early 1980's, a car skidded into a stanchion, which hit him in the back. A doctor suggested that Mr. Wilson learn to live with the pain instead of having disc surgery, as Mr. Miele [the rich guy also profiled in the piece] had done.

Now, Mr Wilson works for Con Ed. And if there's anything that unionised electrical workers have, it's gold-plated health insurance; it's certainly a lot better than what I have. If the doctor suggested Mr Wilson not have surgery, it's because the doctor thought that he shouldn't have surgery (and coming from a family rife with back problems--being tall and all--everyone tells me that surgery should be absolutely the last resort).

Overall, other than the initial luck of location--the man in midtown has his choice of Manhattan's hospitals, while the other two have to take the slimmer pickings of the boroughs--it's not clear that the bad outcomes which accrue to the middle-class and poor people in the story have much to do with class. The maid they profile has trouble communicating with her doctors because she can't speak English, a problem in any health care system. The middle class man likes fried shrimp. The maid refuses to follow doctor's orders, eats fatty foods and smokes, and doesn't even look for a cardiac rehab programme. But again, the article treats these things as if they just happened, with no suggestion that any of these people have any choices in the matter.

Perhaps the point is that class affects how willing we are to listen to doctors; the maid pretty much ignores hers, clearly not believing that he knows best--she has sort of a schoolgirl adversarial attitude, as if she's sneaking around teacher when she bolts a doughnut. If so, I wish the article had made that clearer. That makes one wonder, of course, what we are supposed to do about this; is there some superior healthcare system, or for that matter, political system, which can force middle-aged Polish immigrants to pay attention to their doctors?

From the desk of Jane Galt:

Quel surprise

Amtrak features serious cash crunch, officials say

Amtrak would run out of money within two weeks of the end of its fiscal year if Congress does not continue to fund the cash-strapped railroad, according to the Transportation Department's inspector general.

The bleak picture painted by Kenneth M. Mead yesterday morning before a Senate subcommittee does not take into account the losses Amtrak is incurring as a result of shutting down its Acela Express line, the most profitable train it operates, as a result of a brake problem discovered last month. Amtrak has said it is losing $1 million every week the high-speed service is not operational.

Stand by for Senate subcommittee findings that the sky is blue and eating too much without excercising makes you fat.

From the desk of Jane Galt:

What do insurgents want?

"Damned if I know", experts say.

. . . it seems from the outside, no one has shrugged off the lessons of history more decisively than the insurgents themselves.

The insurgents in Iraq are showing little interest in winning hearts and minds among the majority of Iraqis, in building international legitimacy, or in articulating a governing program or even a unified ideology or cause beyond expelling the Americans. They have put forward no single charismatic leader, developed no alternative government or political wing, displayed no intention of amassing territory to govern now.

Rather than employing the classic rebel tactic of provoking the foreign forces to use clumsy and excessive force and kill civilians, they are cutting out the middleman and killing civilians indiscriminately themselves, in addition to more predictable targets like officials of the new government. Bombings have escalated in the last two weeks, and on Thursday a bomb went off in heavy traffic in Baghdad, killing 21 people.

This surge in the killing of civilians reflects how mysterious the long-term strategy remains - and how the rebels' seeming indifference to the past patterns of insurgency is not necessarily good news for anyone.

. . .

"Instead of saying, 'What's the logic here, we don't see it,' you could speculate, there is no logic here," said Anthony James Joes, a professor of political science at St. Joseph's University in Philadelphia and the author of several books on the history of guerrilla warfare. The attacks now look like "wanton violence," he continued. "And there's a name for these guys: Losers."

"The insurgents are doing everything wrong now," he said. "Or, anyway, I don't understand why they're doing what they're doing."

. . .

A clear cause - one with broad support - is usually taken for granted by experts as a prerequisite for successful insurgency.

But insurgents in Iraq appear to be fighting for varying causes: Baath Party members are fighting for some sort of restoration of the old regime; Sunni Muslims are presumably fighting to prevent domination by the Shiite majority; nationalists are fighting to drive out the Americans; and foreign fighters want to turn Iraq into a battlefield of a global religious struggle. Some men are said to fight for money; organized crime may play a role.

. . . In Iraq, insurgent groups appear to share a common immediate goal of ridding Iraq of an American presence, a goal that may find sympathy among Iraqis angry about poor electricity and water service and high unemployment.

. . . If the insurgency is trying to overthrow this regime, it is contending with a formidable obstacle that successful rebels of the 20th century generally did not face: A democratically elected government. One of the last century's most celebrated theorists and practitioners of revolution, Che Guevara, called that obstacle insurmountable.

. . . What is curious about the Iraqi tactic is that it appears aimed at creating active opposition. The insurgency is powered by Sunnis; the civilians they have killed have been overwhelmingly Shiites and Kurds. The goal appears to be to split apart the fragile governing coalition and foment sectarian strife.

Yet if the insurgents achieve all-out civil conflict, the likely losers are the Sunnis themselves, since they are a minority. Having governed for decades in Iraq, Sunnis are accustomed to the whip hand and may simply assume they will be able to regain control. Or perhaps they are betting that chaos will lead to partition, allowing Sunnis to govern themselves.

David Galula, author of a systematic 1964 study, "Counterinsurgency Warfare: Theory and Practice," noted the effectiveness of force and intimidation as tools of an insurgency. But he added a crucial caveat: "There is, of course, a practical if not ethical limit to the use of force; the basic rule is never to antagonize at any one time more people than can be handled."

My theory: the Baathists still have a lot of money and armaments, and they're furious, plus they have zero chance of regaining power in a democracy. Angry hopeless men + money + guns = Big Problem. Lots of other would-be insurgencies have had the anger, but this may be the best funded effort in history.

Note: As usual, I will be policing the comments and ruthlessly deleting those that propose such theories as "arabs/muslims/middle-easterners are stupid/evil/violent-by-nature". We thank you for your cooperation.

Update Tyler Cowen has some thoughts.

From the desk of Jane Galt:

More trouble for the media

Box office sales are disappointing, possibly due to DVDs. That may cause studios to lower their advertising spending in newspapers, which has been one of the few bright spots for print media over the last few years.

From the desk of Jane Galt:

Oops

Profanity is too weak:

Newsweek Says Erred in Koran Desecration Report

Newsweek magazine on Sunday said it erred in a May 9 report that said U.S. interrogators desecrated the Koran at Guantanamo Bay, and apologized to the victims of deadly Muslim protests sparked by the article.

"We regret that we got any part of our story wrong, and extend our sympathies to victims of the violence and to the U.S. soldiers caught in its midst," Editor Mark Whitaker wrote in the magazine's latest issue, due to appear on U.S. newsstands on Monday.

Whitaker said the magazine inaccurately reported that U.S. military investigators had confirmed that personnel at the detention facility in Cuba had flushed the Koran down the toilet.

The report sparked angry and violent protests across the Muslim world from Afghanistan, where 16 were killed and more than 100 injured, to Pakistan to Indonesia to Gaza. In the past week it was condemned in Egypt, Saudi Arabia, Bangladesh, Malaysia and by the Arab League. On Sunday, Afghan Muslim clerics threatened to call for a holy war against the United States.

This may be close to the worst American media screwup since the Maine

From the desk of Jane Galt:

Whadja say?

This week's New York Times magazine has a special entitled "saving the track house".

From the desk of Jane Galt:

One more thing about bankruptcy

A number of people are acting as if bankruptcy were some sort of concession to companies, allowing them to escape paying their debts. But bankruptcy is the legal recognition of a fact: that companies have become insolvent. (In other words, they can't pay their debts). Creditors wouldn't get more without the bankruptcy law; the money ain't there. Rather, bankruptcy law reduces economic risk because it lets creditors know up front approximately what the terms of reorganisation will be.

From the desk of Jane Galt:

The light at the end of the tunnel

My grandfather, who died lass year, was an active participant in the Rotary's campaign to wipe out polio worldwide. He was disheartened when the campaign was derailed by muslim clerics in Nigeria, who began telling people that the polio vaccinations were an American plot to make their daughters infertile. Nigerian strains have now spread to 16 countries that thought they had eliminated the virus.

Now, however, it looks like they've gotten back on track:

Next month Rotary International turns 100. Rotary clubs, a staple of small-town life, are celebrating the construction of innumerable parks, the holding of myriad blood drives, the awarding of countless college scholarships - and the imminent global eradication of polio.

Twenty years ago, there were a thousand new cases of polio every day. Now polio strikes only about a thousand children a year. By next year, that number should be zero. People who think of Rotary as a congregation of service-minded dentists and funeral directors may not have noticed, but the dentists and funeral directors have created the largest, most successful private health initiative ever.

When Rotary celebrated its 75th birthday, its leaders decided to find a project that all its clubs - now in 168 countries - could work on together. A Rotarian ophthalmologist in the Philippines, where polio was rampant, asked Rotary to vaccinate Filipino children. It vaccinated six million, then made similar efforts in five other nations. In 1985, Rotary decided to wipe out polio completely.

By the time polio is eradicated, Rotary clubs will have directly contributed at least $600 million, more than any other organization except the United States government. And they offer more than cash.
...
"Every polio meeting you go to, you see them," said Rima Salah, deputy executive director of Unicef. "They have commitment, credibility and influence with leaders." This is crucial, as the challenge today is political. In August 2003, Muslim clerics from the northern Nigerian state of Kano charged that America had laced the polio vaccine with drugs to render African girls infertile. Kano stopped vaccinating. Kano's cases doubled, and Nigerian strains of polio have spread to 16 other nations that had beaten the virus.

Coincidentally, the president of Rotary International that year, Jonathan Majiyagbe, was from Kano. He helped broker a compromise: Kano would use vaccine made in Indonesia, a Muslim country. In August 2004, Kano's governor publicly vaccinated his infant daughter.

Although the countries Kano infected will have to spend millions on emergency vaccination campaigns, they will probably be successful. The real challenge is to eliminate polio at its epicenter, Nigeria. If Kano does not bolt again, this will probably happen in a year. "We would not be here without Rotary International," Dr. Salah said. "Rotary is the heart and soul of polio eradication."

Wherever Grandpa is, I'm pretty sure he's smiling.

From the desk of Jane Galt:

What About American Families?

It's a Saturday morning, and here I am, inside, blogging about bankruptcy. Am I a loser, or what? Well, I'm going to a blogger party tonight, honest, and I'm having dinner with Jessica (and won't she be surprised if I don't have time to clean the house because I'm too busy blogging about bankruptcy?) But first, once more into the breach.

In my defense, when I finished writing those articles about bankruptcy, I sighed, and thought, "I have spent a great deal of time learning about this subject, and all of that knowlege is a total waste, since I will never again be called to write about it"* Luckily for me, angry opponents of bankruptcy reform are still seething, giving me an opportunity to deploy my hard-won knowlege. So a big thank you to Battlepanda, who has created an opening with this throwaway line:

I'm also interested in Jane's favorable take of chapter 11 bankruptcy for firms on the grounds that it makes the American economy more resilient. Is she willing to extend the same curtesy to American families?

Now, this is just a little bit odd, because as I made clear in the earlier comments to which Ms Panda is responding, I didn't like the bankruptcy reform bill, despite Todd Zywicki's heroic attempts to persuade me otherwise. I thought a number of provisions were badly structured, and at least one struck me as gratuitously intended to make bankruptcy harder to file: it forced families whose incomes were low enough to file Chapter 7 (which simply discharges all non-secured debts) to nonetheless fill out detailed budgets as if they were going to have to file Chapter 13 (which puts the bankrupts on a partial repayment plan).

But the law ultimately is just not going to have that big an effect. The overwhelming majority of people will still be able to file Chapter 7; they'll just have to go to credit counseling first, and provide tax returns and a driver's license. Their attorney's fees may be a few hundred dollars higher (though since they seem to generally be paying those fees out of assets they're hiding from their creditors, it's hard to tell which way the moral censure should go). And a few of the richer people are going to have to make a payment plan instead of having their debts discharged.

Which brings us, in a roundabout way, to Battlepanda's question: am I willing to extend the same benefits as companies get to American families? Why yes I am! And luckily, American families already get them, so I don't even have to get off my butt and do something about this. Chapter 13--the terrible fate which reform opponents were bewailing--is basically Chapter 11 for humans. The court works out a payment plan, after which the person or the company emerges with its debts discharged.

Bankruptcy is vastly friendlier to consumers than companies in this country, starting with the fact that people who file Chapter 7 (debt liquidation) don't get shot at the end by the bankruptcy judge. When a company files for either liquidation or Chapter 11, a receiver is appointed to watch management like a hawk, auditors pore over the books, and various officials walk around telling management what they may or may not do. Human bankruptcy cases, on the other hand, are generally decided in minutes or hours, by a judge who by and large just takes your word for what you own (with the exception of financial assets, which show up on searches). Companies don't get special exempt asset classes, like houses, furniture, and electronic appliances, that can't be sold to satisfy creditors. And it's a lot easier for a human to start over than a corporation.

A final note: no one seems to have noticed, what with writing all those articles on how we were all about to be thrown out on the street by rapacious credit card companies, but the bankruptcy reform bill actually made Chapter 11 much harder on companies. For one thing, it gutted the ability of management to set up KERPs -- Key Employee Retention Programmes, which pay bonuses to managers who stay on. I'm ambivalent about this; generally the employees who leave during bankruptcy are the ones the company most needs to stay, but these plans can also turn into big management slush funds. But there's no question this is distinctly corporation unfriendly, as are several other major provisions of the bill.

There is an interesting question about bankruptcy, which Battlepanda should have asked, and almost did ask, but ultimately didn't, so I will: should bankruptcy courts take cognizance of the effect that a company's bankruptcy will have on other companies in its industry? In United's case, I don't think that this will make much difference, since the airplanes and the landing slots, which are causing the ruinous overcapacity in the industry, won't go away. But it is an interesting question that I haven't seen addressed as a legal matter. My first instinct is no, they shouldn't, because judges aren't very good economic analysts (nor should they be). Such a provision seems more likely to make us economically worse off, by making bankruptcy protection somewhat arbitrary, and thus increasing corporate risk. But I'd love to see someone comment the other way. I'm sure that I'm not the first person to wonder about this.

From the desk of Jane Galt:

What about Chapter 11? Isn't that a big fat government giveaway?

Er . . . no. There are arguments against Chapter 11, chiefly that it can sustain overcapacity in an industry, forcing serial bankruptcies as companies that were clinging to profitability find themselves unable to compete with competitors who have shed debts, expensive union contracts, and so forth. But this is a practical objection, not a moral one. It's still not "corporate welfare" in the sense that the governthatment gives money to corporations, or releases them from the tax obligations facing the rest of society.

Chapter 11 may in some cases take from private creditors and give to the company, though it's my understanding that in most cases the creditors do better in the long run by having an operating company paying their bills, than collecting the pennies-on-the-dollar that one usually gets out of liquidation. It's more likely to rearrange payments between creditors, favoring those with secured debt (companies usually try to keep making full payments on their equipment loans and mortgages) and vital suppliers over, say, the guy who decorated the corporate headquarters. But as I say, my understanding is that, over the long run, the creditors are actually generally better off. And even if the weren't, this too would not meet the definition of corporate welfare, which has to do with giving public funds to companies.

Far from being "corporate welfare", in fact, Chapter 11 is to the benefit of Uncle Sam. A liquidated company pays no taxes; nor does one that is losing money. The tax man is senior to all but secured creditors, but from what I understand, in most bankruptcies, there is precious little left after the secured creditors have gotten theirs. Chapter 11 ensures that Uncle Sam gets his back taxes, and then some.

Certainly, in United's case, a forced liquidation doesn't look like it would do the pensioners any good; if you can read a financial statement, go take a look at United's 2004 annual report. You'll observe that after senior creditors and Uncle Sam are paid, there will be precious little available for the pensioners--who, if Battlepanda et al had their way, would be out of a job as well as a pension.

But what about the market says Battlepanda. Don't I care about the market? Why, yes, with a passion seldom found in one so young. But the market is not some abstract entity, a platonic capitalist ideal that exists independant of human thought or action. It operates in a framework of law, which has to decide things like what to do with companies that are unable to pay their bills. There's no shiny libertarian answer to this question, any more than there's a libertarian code governing what to do with people when they die. One has to ask, what's best for society? Which encompasses questions like "What makes creditors best off?" "What is most likely to foster economic growth?" "What causes the least disruption to the lives of everyone who has been involved with this company?" and "What expresses our social values?" I think that "Chapter 11" is, in fact, the best answer to all of these questions. It makes our companies more competitive, and our recessions less violent; it helps creditors, workers, and suppliers; and it expresses the fundamental American belief that past mistakes, or bad luck, should not spell everlasting future doom. We have the easiest corporate and personal bankruptcy in the world, and no coincidentally, we also have the most successful entrepreneurial culture. I think most Americans, left and right, agree that it is a good thing that American citizens and corporations feel free to strike out in new directions without the crippling fear that one mistake could sink them forever.

Forced liquidation, which is common in other countries, is an expression of a social value that I find oppressive: that one must pay for past mistakes no matter how innocently made. In Germany, for example, managers of companies that go bankrupt are liable to be prosecuted for breach of trust; in Britain, managers that allow their companies to stay in business one minute past the point of perfect solvency are personally liable for any debts so incurred. These things are certainly fair, if you look at them one way, but they are also personally, and economically, stifling.

Moreover, they produce an attitude towards personal bankruptcy that most of the liberals getting excercised about Chapter 11 would find horrifying: there is no such thing as Chapter 7 anywhere else in the developed world. In every other country, everyone, no matter how unfortunate, poor, or unworldly, must strip their budgets down to the bare bones in order to pay a portion of their debts over periods that can last ten years or more. If your conduct is less than perfect during that time, the administrator can, and will, deny you a discharge. In Northern Europe, they'll deny you a discharge if they think you ran up the original debt in a profligate or immoral fashion. And all of these laws, draconian by American standards, result from a substantial loosening of the laws -- until about ten years ago, personal bankruptcy didn't exist at all outside of the countries whose legal systems were based on the English Common Law.

So no, it isn't corporate welfare; it's an attempt to deal with the difficult, but inevitable circumstance of companies whose fortunes take an irreperable turn for the worse. It may not be perfect. So few human laws are. But having studied the matter a little, it looks a lot better than the alternative its critics are offering.

From the desk of Jane Galt:

More on the PGBC and corporate welfare

I think I have discovered the source of one of the arguments I've been having about why the Pension Benefit Guaranty Corporation's assumption of United Airlines' pension funds is not corporate welfare.

The PBGC premiums, my interlocutors argue, are too low. This, they say, is corporate welfare.

Why yes, I say, it is. But that doesn't make the pension bailout corporate welfare.

Huh? They say. Let me explain.

Imagine that congress made a law forcing GEICO to underprice car insurance. We can build a simple model in which GEICO has five customers, all of who have a 1-in-5 risk of having an accident, meaning that, on average, there will be one accident in the insurance pool a year.

Now, let's say that the cost of every accident is $500. GEICO should be charging us each $100, which will just cover the cost of the accident. (This assumes, of course, that GEICO neither needs to make a profit, nor can invest the premiums. But this simplified model works perfectly well in this case.)

Let's say that instead, Congress sets the premium at $50. GEICO collects $250 from the five of us. Then my friend and co-insuree Ual (he's from someplace in central Asia you've never heard of) gets into an accident. GEICO, living up to its excellent reputation for service, immediately cuts him a $500 check. GEICO is out $250. If this keeps up, GEICO will need to be bailed out by the congress that forced it to underfund.

Is this $500 worth of welfare to Ual? No; he's paid premiums. Is it $450 worth of corporate welfare? Again no. To see why, look at the payouts with or without the mandatory pricing:

With congressionally-mandated price ceiling: $500 payout - $50 premium = $450 benefit to Ual

Without CMPC: $500 payout - $100 premium = $400 benefit to Ual

Benefit of CMPC to Ual: $450 benefit w/CPMC - $400 benefit w/o = $50

GEICO is out $250, but Ual only got a $50 benefit! Where'd the rest of the money go?

Why into my pockets, and those of the other 3 insurees. We each received a $50 benefit: we were insured for $100 worth of risk (a 1-in-5 chance of suffering $500 worth of damage to our cars) for only $50.

Now, this is complicated in the real world by several things. First, UAL has a higher risk than other companies of going bankrupt, and its pension fund is larger, so the artificially low premiums, capped by congressional fiat, are more valuable to UAL than many other companies. However, that doesn't change the fact that the benefit of lower premiums is several orders of magnitude smaller than the size of the pension bailout, and took place mostly in the fairly distant past. That's why I'm not excercised about the bailout as an example of corporate welfare.

The second complicating factor makes this look even less like an example of corporate welfare: the PBGC payments in no way benefit the company. They benefit the employees.

The PBGC takes over company pension plans when the companies are in bankruptcy. There is no benefit to the company here; the company can discharge its unfunded pension obligations whether or not there is someone to pick up the tab, because bankruptcy is the legal recognition of the existing fact that the company does not, and will not in the reasonably forseeable future, have enough money to meet all its obligations. The number of companies that did, in fact, discharge their unfunded pension obligations in the early 1970s (often after looting the pension funds to stave off bankruptcy) is the reason that the PBGC and the ERISA regulations governing pensions were put in place.

Rather than benefiting companies, the PBGC forces them to pay premiums in order to insure their workers against underfunded pensions in the event of a bankruptcy. Now, I don't say that the PBGC shouldn't do this; I think it's a rather good idea. But it's obvious that the PBGC in fact hurts "the corporation" as an entity, forcing it to pay premiums for insurance against an event that cannot harm the corporation itself--as if congress had passed a law forcing GEICO to collect its premiums from the estates of your deceased neighbours.

In other words, congress has decided to bail out pensioners whose companies go bankrupt, and to stick corporations with part, but not all, of the bill. There may be an argument for sticking them with more of the bill, but (on the assumption that few companies are planning to go bankrupt), not a very strong moral one (I am assuming that ERISA, which forbids companies in trouble from dipping into the pension plan, is still in force; otherwise the PBGC would be corporate welfare.)

Nor, I think, can the decision not to raise what is essentially a tax on pension plans be construed as "corporate welfare" in the same sense that paying Dole to go abroad and market the hell out of its pineapple, or giving oil companies special income tax abatements, is "corporate welfare".

From the desk of Jane Galt:

The jig is up

They've traced the finger found in a bowl of Wendy's chili to an associate of the husband the woman who claimed she bit down on it. Apparently the associate lost the fingertip in an industrial accident last December. I'm just trying to imagine how she brought up the idea of eating his finger for fun and profit. My store of conversational openers seems thoroughly inadequate to the task.

From the desk of Jane Galt:

New York News

The Henry Hudson--the highway nearest my house, which I travel up and down at least a few times a week--has been blocked by a landslide.

From the desk of Jane Galt:

Is the Pension Benefit Guarantee Corp corporate welfare?

Battlepanda, who seems to be some sort of left-liberal, is interrogating libertarians about the United Airlines bankruptcy, in which it is being allowed to default on its pension funds, thus passing them off to the US government. This will probably result in cuts in benefits for at least the Pilot's union (I believe the maximum annual pension the PBGC will pay is around $40-50K), and of course, a huge bill for the PBGC.

Alex Tabarrok chooses to respond to the recent horrendous decision to let United screw over their employees by jettisoning their pension plans and letting the taxpayers pick up most of the remaining liabilities by making a convoluted jab at Social Security:

A large organization counts on its younger workers and continuing high revenues to fund the pensions and medical care of its retired workers but finds that rising health care costs, longer life-expectancy, and its own inability to control spending force it to cut pension benefits and switch to personal accounts.

Kinda makes you go hmmm...doesn't it?

You know what makes me go "hmmm..."? The lack of honest libertarian analysis on a situation that could really use it -- corporate welfare. Is Alex's hackles not raised by the violation of free-market principles foisted on the business community by the likes of United being kept on life support? Does he not find it distasteful that his tax dollars are going towards honoring United's liabilities so that it can go on, zombie-like, for a few more quarters?

I'm not sure that Angelica quite understands bankruptcy law and the Pension Benefit Guarantee Corporation. The PBGC, while it is grossly underfunded, isn't exactly "corporate welfare"; it's a government-chartered pension insurer, which forces pension plans to pay it premiums (the worse shape their pension/company is in, the higher the premium), and in return regulates the hell out of the pension plans. It is not incorporated for the benefit of the corporations, who do not like either the premiums or the regulation; it is for the benefit of the workers. The PBGC steps in to cover pensions that have already been discharged in bankruptcy or liquidation. It possibly introduces an element of moral hazard, making bankruptcy judges more willing to discharge pension obligations, but it is not corporate welfare in the same way that, say, the Chrysler bailout was (and even that was done for the benefit of autoworker votes, not Lee Iacocca).

Many, perhaps even most, libertarians object to the PBGC on principle. Personally, it's the sort of programme I can live with. Markets and companies change in unpredictible ways, and the PBGC is a way of making sure that those who, in perfectly reasonable good faith, assumed that they would have a corporate pension to support them in retirement, do not end up destitute. It has its economic costs, as do all regulatory institutions, but as with FDIC, I think the benefits in terms of economic stability outweigh them.

I'm not really sure what Battlepanda's objection is. UAL is insolvent--can't meet its debt payments or its pension obligations. Does she think that bankruptcy law should force liquidation? Hard luck for the workers, suppliers, and so forth, no? It's pretty generally recognized that Chapter 11 bankruptcy is one of the great strengths of the American economy, allowing companies in hard times to restructure rather than expire, salvaging something for workers, creditors, and the company. And allowing UAL to at least try to limp along isn't costing the taxpayers anything, as far as I know. The only people who lose out are the stockholders.

Or is she arguing against the PBGC? But should we really just abandon people who made the mistake of depending on their pensions? Tell a 58-year-old stewardess to suck it up and go to phlebotomy school? UAL cannot survive if its pension and debt obligations aren't reduced; it's pensions are underfunded by billions, and the airline is losing something like $1 billion a year. Pension obligations aren't senior to secured debt, and as far as I know, most of UAL's major assets are either security for debt (planes and other major capital equipment) or non-tradeable (landing slots, which I believe revert to the port authority upon liquidation, though I could be wrong about this). Without a Chapter 11 plan in which it sheds its pensions, UAL will have to liquidate; but because the assets tend to be secured, even if UAL does liquidate, the pensions seem to get little more than they have now. Meanwhile, all the employees who just lost their pensions also lose their jobs.

There are real issues with these sorts of bankruptcies--for one thing, UAL's new and improved balance sheet may allow it to compete harder, forcing already-tenuous companies like Northwest and Delta to follow suit. But I don't think that corporate welfare can be rightly said to be among them.

From the desk of Jane Galt:

The shout heard round the world

99% of my readers probably didn't even notice yesterday when a story hit the wires that China had definitely decided to revalue the yuan. Needless to say, those of us who write about these sorts of things were following this more attentively than an obsessive-compulsive bloodhound on the trail of a meat truck. Would they? Could they?

Sigh. Turns out it was just a translation error, says the Wall Street Journal (subscription required):

Guan Xiangdong, a reporter for the China News Service, is more at home writing about tourism than about finance. But she was on duty in Hong Kong last Saturday while more financially savvy colleagues took the day off. And in a bit of enterprise, she put together a story on the impact of a possible appreciation of the Chinese currency. Her sources: bits and pieces of news and analysis gleaned from local newspapers.

Yesterday, her efforts roiled the world's trillion-dollar-a-day foreign exchange market and sparked panicky emails and phone calls among currency traders and fund managers from Singapore to Stockholm as the U.S. dollar tumbled. The dollar later recovered against major currencies.

. . .

Ms. Guan, who says she has been a reporter for 20 years, was flabbergasted by the fuss. "I can't work out why it's got blown up like this," she said. She says that all she did was trawl through Hong Kong newspapers for views on how an appreciation of the Chinese currency would play in the city -- views that she attributed to "observers," not to the newspapers she was drawing from.

The online People's Daily got hold of her story and farmed it out to a translator who put it into English. The translation took her speculative musings and made them much more concrete. It stated that China had decided to revalue, by 1.26% within a month and 6.03% in 12 months. It gave no source for the story and neglected to mention China News Service. China News Service was set up in Beijing in the early years after the 1949 Communist revolution to channel news to Chinese living outside the country. It maintains close links to the Chinese State Council.

In London, yesterday morning, Bloomberg staff who monitor global currency markets were alerted to the People's Daily article. It was unearthed by software that Bloomberg uses to automatically search the Internet for new postings that contain key words.

The People's Daily article was written in clunky English, but the first sentence contained what could be construed as a major development: a revaluation of the yuan or an expansion of the band in which it trades "will be announced" after a meeting between Chinese and U.S. economic officials -- a meeting that actually did take place this week.

Based on the article, Bloomberg shot a headline around the world. An editorial staffer familiar with what happened said that before the Bloomberg story was published, a Bloomberg reporter contacted the People's Bank of China, and it declined to comment. (Later in the day, the bank denied the report.) Weighing that nonresponse along with the assumption that the People's Daily speaks for the Chinese leadership, Bloomberg decided to go with the story. "The key is that it's state-owned -- the People's Daily -- there it was on the Web site," said one Bloomberg staffer.

The Bloomberg story flashed across trading screens just as Asian currency traders were ending their day and European markets were opening.

In Stockholm, Frederic Cho, who manages Chinese equities for brokerage firm Hagstromer & Qviberg, used the office loudspeaker system to announce the news to startled colleagues and then started frantically searching for the People's Daily story on the Internet and dialing journalists and finance-industry contacts in Asia. "It didn't make sense to me," he says. What central bank would telegraph a revaluation, with the exact numbers, a week in advance?

In Shanghai, Stephen Green, chief China economist for Standard Chartered Bank, was similarly puzzled. "My initial thought was, 'This is very strange,' " he said. He got on the phone and started calling Chinese regulators. Eventually, his research team dug up the English translation and the original story in Chinese and figured out what was going on. Immediately, he sent an electronic note around the bank explaining that there had been a mistranslation.

European stocks jumped on the People's Daily story, but quickly reversed themselves when it became clear the story was erroneous.

But there is still a school of thought that says this was no accident. The Chinese government doesn't have accidents like this; it was clearly a trial balloon to see how markets would take the news.

The WSJ quenches this hope:

It once was true that a story in the People's Daily really did have the imprimatur of the Chinese government. Foreign journalists would study every phrase in search of nuances that could signal a change of policy. But now the official Chinese media, under commercial pressure to compete, often in real time, sometimes struggle with basic accuracy.

. . .

After yanking the story, editors at the People's Daily online edition expressed regret, albeit defensively. "We are very sorry that the translation was not accurate -- it is our mistake," said one editor, who declined to be identified. But the editor also took a swipe at the China News Service: "Their reporter should be criticized. She put too many vague sentences in the story, which eventually caused our mistranslation."

I find it all too easy to believe that Chinese reporters are as fallible as their Western counterparts. Still . . . it might not be a bad time to buy yuan . . .

From the desk of Jane Galt:

More on risk

Catallarchy tells us about selection bias.

From the desk of Jane Galt:

Who's the hypocrite?

Even if the "trust fund" is technically "insolvent", isn't Bush really trying to fool ignorant people into thinking that it will have no money at all in 2042, instead of the 70% of benefits it will be able to pay out?

Now, I'm the last person to accuse the American public of being financial geniuses, but you'd be surprised at how well they grasp the basics of bankruptcy--working class people tend to know someone, or some company, who's gone bankrupt. So no, I do not think that the Great Unwashed confuse bankruptcy with "having absolutely no income or assets". This is the mistake of college students, whose income generally consists of cash assets donated by their parents.

Let me turn the question around for my Democratic interlocutors. When Democrats tell people the system is "just fine" until 2042, do you think that people understand that either taxes or government borrowing will have to go up, or current spending on other programmes go down, starting around 2015? Or that they would think that "in 2041 you get your benefit; the next year it drops by 30%, followed by more cuts as needed" is really "just fine"?

From the desk of Jane Galt:

Regulating risk

There's a debate that we should be having in this country, about risk, but aren't, because everyone's trading scare stories about Social Security.

In a follow-up post, Matthew Yglesias argues with Alex Tabarrok about whether the United Airlines bankruptcy, in which they have just shed their pensions, means that Social Security is more obviously bad, or more obviously good, than it was before. (Will Wilkinson chimes in here). Defined benefit programmes are risky, Alex points out, because when conditions change, they tend to become insolvent. That's why the government needs to have one, argues Matthew; with corporate programmes blowing up left and right, people need some safe harbor in their sea of troubles. (That's one coherent metaphor, if you imagine the pension system to be something like Pearl Harbor. Luckily, that's not very hard to imagine.)

Who's right? Well, basically, there are three entities that can bear retirement risk: a company, a person, or a government.

There are problems with all three. People are too small to be actuarially sound; they can be wiped out by adverse events. Also, some of them are incredibly stupid about money; others like to gamble.

The defined benefit corporate pension plan has been, for a long time, the holy grail of liberals. It was lavish and safe. It is also dying. Not that it was ever that prevalent in the first place, mind you; liberals who lionize the Golden Days of the fifties and sixties seem to believe that everyone worked for either IBM or GM, when in fact most jobs, just like today, were with small businesses.

But the corporate pension was certainly *more* prevalent. Unfortunately, time has revealed its cracks; companies aren't very good vehicles for managing this sort of risk. Time is the biggest one; pensions require companies to plan over time horizons that span 30 or 40 years. That was fine in the cozy, protected, and highly regulated environment of the 50s and 60s, but when the market changed, the pension promises couldn't. This is what (among other things) is dragging down the major airlines; I expect that within the next decade we will also see Ford and GM default on their pension promises.

The government, which is an actuarially sound pool, seems like a natural to take over insuring away this kind of risk. Unfortunately, government has its own problems. For one, it is even more rigidly unable to cope with changes in the pool than an old industrial firm coping with an intransigent union. T his is saying a lot. But it is justified. Look at Medicare, which everyone except the AARP agrees is a total financial disaster which will destroy the fiscal health of the United States unless something is done to control costs. Our politicians are well aware of the problem, and so they feverishly worked to--tack on a prescription drug benefit that will add trillions to the bill. At least when companies have insufficient accrued assets to meet their accrued liabilities, the government forces them to trim benefits or raise contributions. Government programmes, on the other hand, have a tendency not to self correct until the crisis is upon us--by which time the nature of the fix has gone from painful to catastrophic. And taxation to support government insurance programmes has a high deadweight loss.

What's the best solution, then? I'd say we're converging on it: a system of minimal government insurance for those who have been unlucky, in life or investments, combined with a regulated forced savings plan to make sure that those who aren't unlucky aren't tempted to free-ride on society, and incentives to employers to encourage additional savings among employees. This won't make anyone ideologically happy. But it seems like the least intrusive, most fair, most economically sound possibility.

Update Something I meant to say, but somehow forgot to, is that people have advantages, as well as disadvantages, the chief one being that they are the best judges of their ability to work, their basic needs, and the tradeoff between current and future consumption.

When someone has a pension, that person should retire at the earliest year it will allow him to take a full benefit. On the other hand, when a person has assets, they have to decide between consuming more leisure now (by retiring) or consuming more goods later (by continuing working and leaving their nest egg untouched). In the first scenario, there's no tradeoff-you cannot maximise your later consumption by continuing to work. Given that older people have skills and experience that are generally valuable, it is in the best interest of society that they continue contributing those skills to the labor pool for as long as possible, rather than living off the work of others.

People are also better judges of what is the basic standard of living they will be happy with than the government. (Though there's new behavioral research showing that people may make bad judgements about deferring consumption, there's no evidence that hte government--which is, after all, elected by those same people--makes better ones.) Furthermore, government pensions have a particularly pernicious feature: retired people can vote to increase their pension payout without having deferred earlier consumption to pay for it. This is not quite playing the straight bat. Government pensions also introduce a considerable element of moral hazard--save nothing now, and force your children, and everyone else's children, to stump up when you retire!

[Don't corporate defined benefit pensions introduce the same moral hazard?--ed. No. Workers with defined benefit pensions are trading off current salary for the pension benefit, as you'll readily see if you sit in on any union negotiations. They can't--unless they buy a lot of their company stock--vote themselves higher benefits later.]

Update II Will Collier points out another problem with corporate pensions: depending on the same company for your livelihood, and your retirement, is bad mojo.

From the desk of Jane Galt:

How can a "trust fund" go "bankrupt"?

How can I argue, my critics ask, that the trust fund is going to go bankrupt, when I don't even believe there is a trust fund?

But I'm not arguing that the trust fund is going bankrupt. I think that the trust fund is a political fiction, as is its purported bankruptcy.

But at least it's a consistent fiction. Democrats are trying to argue, on the one hand, that the trust fund is real, and on the other hand, that it is not going bankrupt. These are mutually incompatible. For the trust fund to exist, the Social Security Administration must be an independant entity of the US government. Unless the programme is changed, in 2042 that independant entity will not have enough money coming in to cover the benefits it has promised to pay out. That entity will be insolvent--in common parlance, bankrupt.

(So why isn't the government bankrupt now demand some of my critics. Because, my little chickadees, unlike the SSA, the government can borrow money. And it can borrow money because the market knows that if it needs to, it can raise taxes or cut spending--again, unlike the SSA. The SSA is an entity with fixed revenues and fixed obligations which are getting ready to diverge sharply, in the wrong direction.)

If I don't think the system is going bankrupt, why do I want to reform it?

Well, I don't, all that much. I'm not one of those libertarians who believes, either for economic or ideological reasons, that Social Security represents The End of the World as We Know It. Social Security isn't really a hobby horse of mine, and it certainly doesn't get me worked up in a lather the way, say, school choice does.

Nonetheless, I think we have a very large general budget problem, caused in large part by our demographic problem. Most of that demographic problem is caused by Medicare, but a sizeable chunk--in the neighbourhood of $6-10 trillion, or approximately 30 years worth of Bush's tax cuts--is caused by Social Security.

Now, it's possible to argue, and some have, that the Social Security problem is pretty trivial; over the next 75 years, they say, social security payouts go from 4.35 percent of GDP in 2003 to somewhere between 5.35 to 9.08 percent of GDP in 2075, with a median estimate of 6.65 percent. A mere 3.73 percent increase, at the highest!

There's an element of innumeracy here: the change is, of course, not a 3.73% change, but an 85% increase in spending on Social Security, which is already an enormous programme. The median estimate represents a 53% increase in spending. Current revenues are higher than outlays: 4.97%, in 2003. While the low estimate would mean we barely need to raise taxes, that median "best guess" estimate means your payroll taxes would have to rise by 33%--an extra 4% of your income going to one programme. But since we're already spending that extra revenue on other things, unless we cut those programmes, the better number is a 53% increase, or just under 7% of your income. Doesn't sound like much? If you make $50K, that's an extra $3,500 a year. I don't know about y'all, but the budget at Stately Galt Manor is tight enough that a missing $3,500 would mean foregoing something pretty critical, like food, shelter, or clothing. I don't really feel like I should have to take in a roommate at aged 50 so that my slight elders can make their greens fees.

Want to pay for it out of income taxes? Federal tax haul seems stuck at around 20% of GDP. Income taxes would have to go up by more than 10%. And god help us if people live longer, or productivity growth slows, or both, bringing us to that 9% number. Even assuming no deadweight loss from additional taxes--a heroic assumption--income taxes would have to rise by roughly 30% just to finance Social Security; alternatively, we could more than double the payroll tax.

Can we do this? Probably; Europe already does--and consequently, their pensions really are unsustainable. But it will put immense strain on our budget. (Which won't matter because Medicare will have caused the budget to implode like Paris Hilton's dignity, but that's another rant). Also, it will undoubtedly push more people into working off the books in order to avoid their social security taxes--making both our tax system, and our workers, less secure.

More importantly, why should we? I'll be drummed right out of the Fervent Libertarian Journalist's club, but I see a real role for government in protecting people from the risks of bad planning, or insufficient income to fund retirement. A welfare transfer to those who've had bad luck is undoubtedly necessary. But why on earth should we continue with this mad attempt of the middle class to get rich by picking its own pocket?

Social security as it is currently configured has a number of bad political/economic effects. It encourages people to retire early. The illusory "trust fund" gives congress several hundred billion dollars of income to play with every year even while accruing massive unfunded liabilities for Social Security and Medicare. It seems to discourage not only private saving, but also having children--the free rider problem writ on a society-wide scale. Social security, in short, seems to take money that would have been saved by investing in the private sector, and spend it instead on farm subsidies and underutilised light rail systems. It's not nearly as progressive as a welfare programme funded out of general revenues would be.

The current system also deludes workers into saving less than they need to by providing the entirely false illusion that they are earning benefits with their "contributions". If they realised that the current system is underfunded, and that they have absolutely no legal entitlement to their benefits, they might save more. Private accounts would alter this.

I understand why liberals object--they think that without the middle-class entitlement, benefits at the bottom would be cut. Perhaps, though I think the evidence for that proposition is pretty underwhelming. But this does not strike me as a sufficiently compelling reason to avoid reforming the system. Trying to implement a huge boondoggle system of cross-subsidies in order to maintain benefits for the relatively small number of elderly poor is using a chainsaw to attack a gnat--you're more likely to put an end to yourself than the problem.

A system of forced savings, on the other hand, funnels money into productive private investments, even if you (as I would) force participants to index, and move their savings into progressively safer investments over their life cycle. Backed up by a system of welfare for the unlucky/immiserated, it is more progressive than the current system, at least as safe, forces workers to plan their retirements instead of depending on the government, and reduces deadweight loss from taxation at least somewhat. What's not to love?

From the desk of Mindles H. Dreck:

I wish I'd said it

I wish I'd said it so concisely:

At its heart, the muddle over social security reflects the muddle over other, basic questions, such as "should people save for themselves or should the government save for them", "should the government take money from rich people and give it to the poor or not? If they should, how much?". As social security stands, it saves for no one, and takes from both rich and poor young people and gives to rich old people.

While looking through Winterspeak, I also notice that Zimran also seems to have a perfectly acceptable corrections policy (paging Mr. Cohen), as demonstrated in this post on marginal tax rates.

From the desk of Jane Galt:

Nature and Nurture: The Cage Match

Very interesting debate on innate differences between males and females between Steven Pinker and Elizabeth Spelke.

From the desk of Jane Galt:

Morally Bankrupt?

Matthew Yglesias repeats a claim I've heard from a lot of people who don't understand the meaning of insolvency:

Is the liberal media killing Social Security privatization?

Russ Mitchell of CBS Evening News wouldn't even give the president credit for facts that are indisputable. According to Mitchell, "Mr. Bush said he's open to any good idea to fix a system he claims is heading for bankruptcy." Bush doesn't have to "claim" the system is going bankrupt. According to the Social Security Administration trustees, benefits paid to retirees will exceed payroll taxes collected by 2017. By 2041 the system will be totally broke.

Of course, I'm not happy with that kind of reporting either. Every time the President gives a speech claiming the system is heading for bankruptcy, I'd like to see news services report, "Speaking today in Canton, Ohio, the President repeated his misleading claim that Social Security is headed for bankruptcy. In fact, even after Social Security's trust fund is exhausted (projected by the Social Security administration to happen in 2041, and by the Congressional Budget Office to happen in 2052) tax revenues will suffice to pay seventy percent of scheduled benefits."

Sadly for Matthew and others using this argument, Social Security would still be bankrupt (technically, insolvent--in the US, bankruptcy is generally undertaken voluntarily, as a way of escaping insolvency--but the words are used interchangeably by lay people) in the circumstances he describes.

The belief that bankruptcy means you have no cash is wrong, and further, makes no sense. Oh, bankrupt individuals often do try to wait until they have no cash--why give things to creditors when you don't have to? The liens will be just as dischargeable as the unsecured debts. Bankrupt companies, however, generally have to declare bankruptcy when their long-term cash flow becomes insufficient to meet their bills (though not, of course, until management has executed every Hail Mary Pass it, its family members, and the psychic who works down the street, can think of).

USAir, for example, is not "bankrupt" in the sense that it hasn't any money coming in or going out; it is bankrupt in the sense that it couldn't meet its future obligations with its future cashflows. Much like . . . why, Social Security. So Matthew's preferred formulation would, in fact, be wrong, just like the one that the National Review is objecting to.

From the desk of Mindles H. Dreck:

We Contain Multitudes

Standards! We must have standards!

Adam Cohen says Bloggers need to develop an institutional code of ethics.

Bloggers may need to institutionalize ethics policies to avoid charges of hypocrisy. But the real reason for an ethical upgrade is that it is the right way to do journalism, online or offline. As blogs grow in readers and influence, bloggers should realize that if they want to reform the American media, that is going to have to include reforming themselves.

When will editorial observers of blogs realize we are just independent citizens organizing spontaneously? How on earth would we "reform ourselves"? The millions of bloggers commenting at any time run the gamut from much "more hypocritical than Mr. Cohen's media to much less. There is no institution to create or enforce rules or judge hypocrisy, and if there were a 'Bloggers Guild' millions of blogs would exist outside it, wax and wane in popularity and still occasionally create an enormous public outcry about certain public figures. Popularity and credibility will continue to be determined by individual market-type forces unless Mr. Cohen contemplates complete State or corporate control of our medium.

Blogs are an active slice of the journalists' and politicians' own stakeholding public talking back to them and, for better or for worse, there's bugger-all Mr. Cohen and his ilk can do about it.

UPDATE: can anyone so thoroughly misunderstand a medium?

Many bloggers make little effort to check their information, and think nothing of posting a personal attack without calling the target first - or calling the target at all. They rarely have procedures for running a correction.

Lots more, including Ann Althouse, Cori Dauber and others if you go to memeorandum:

and see also Citizen Z in the comments who asks simply " who is calling for blogger reform"?

PS: Anybody know what happened to blogspace? How can we live without our NYT permalinks? Perhaps they have been witheld until we reform ourselves.

From the desk of Mindles H. Dreck:

Dave and Discourtesy

Sounds like Jimmy Swaggart preaching monogamy.

UPDATE: check out the screen grab here (scroll down).

From the desk of Mindles H. Dreck:

Scorecard for Private Accounts

UPDATE and BLEG: I created a table version of the graphic below, with a few updates. For some reason when I paste it into the post it breaks open a huge chunk of white space. Any ideas?

I penned a rough draft of this in the comments at the end of my last Social Security* Post in response to this question:

"If the trust fund put $1 trillion into the stock market, and the government issued $1 trillion dollars of extra debt, would in your view Social Security be better off? It sounds like you think so with private accounts."

I'm cleaning my response up here in a table and making it a separate post.

The questioner jumbles private accounts with an equity-invested government reserve, but I answered assuming private accounts and looked from the perspective of beneficiaries and government as a whole (taxpayers..). The 'Social Security System' perspective is meaningless since it's part of the government.

This doesn't necessarily represent the President's Plan, rather a generic combination of private accounts and benefit adjustments. I'm not positive it is complete, so I'm interested in the potential discussion. I don't view this as an advocacy exercise, at least until I feel comfortable it's complete and I can start estimating amounts. Finally, it doesn't take into account distributional effects between beneficiary cohorts.

*The Ancient and Noble Scheme That Shall Not be Altered™ (still making up my mind on the right phraseology. Perhaps 'The Scottish Plan'?)

From the desk of Jane Galt:

Department of Extreme Irony

The AFL-CIO contemplates layoffs.