Asymmetrical Information

From the desk of Jane Galt:

Making markets in the political economy

As a business school student, I find this sort of thing intellectually appealing:

Hence the lesson for the Democratic party is that it should prioritize long term gains over short term ones, Jumbo over Dumbo. It’s losing out with voters because they don’t know what it stands for anymore – it keeps on chasing short term advantage (like Boeing in the 1990’s) and sometimes wins temporary gains, but only at the cost of cannibalizing its long term asset of party ID - voters don’t identify with the Democrats because they don’t know what they should be identifying with. Perlstein says that the Democratic Party needs to return to its populist roots, and build a coherent identity out from them.

Thus, the main contrast that he draws in the essay is between short term thinking and long term thinking. Short term thinking is hiring Dick Morris, and engaging in a Clintonian process of “triangulation” in order to win over voters in one election, while muddying the Democrats’ appeal in the longer term. Long term thinking is building a set of coherent policies that build on the Democrats’ core strengths, while adapting them to new political realities. Now I reckon that Perlstein is using the right metaphor (even if Boeing is doing a little better now than it appeared to be doing in the summer of 2004), and is also right on the main underlying argument. But short term thinking versus long term thinking is the wrong way to connect metaphor and message. It results in some confusion among his commenters, and gives some of the more hostile ones the opportunity to take a couple of unwarranted cheap shots. What Perlstein is really trying to get at, I think, is what one might call the difference between market making and market taking (or at least, this is the lesson that I take from Perlstein’s extraordinary book on Barry Goldwater). To capture this difference, you need to be using a different language than that provided either by economists or by rational choice political scientists. You need to be looking at how economic sociologists like Neil Fligstein describe processes of market creation and disruption, or how renegade political economists like Mark Blyth talk about the intersection between ideas and economic policy.

What was important about Boeing’s creation of the jumbo-jet wasn’t simply that it involved long term strategizing, and the willingness of Boeing’s CEO to accept temporary failures. That’s process rather than product. It’s that it was an act of market making. Boeing didn’t go out and look at a given market structure, in order to figure out how best it could fit in. It realized that new technologies provided it with the opportunity to build a new market, in essence to summon customers (who had never realized that they wanted a jumbo-jet) out of thin air. And once it had built this marketplace, on its terms, it was able to dominate it for a very long time. Because it had created the market, it was in a position where it could define what Fligstein calls the “conception of control,” the rules under which competition took place, so as to secure a long term advantage.

In contrast, most firms most of the time are market takers. They try to fit themselves into an existing ecology, finding some secondary niche that isn’t too vulnerable to predators. They don’t have any ambitions to re-write the rules, but instead accept the market as it exists. They forego the massive profits that accrue to the market-making firm or firms in exchange for a more-or-less comfortable existence.

This, I think, is the key distinction that Perlstein’s metaphor and argument is pointing to. The Democratic Party, at the moment, is a market taker. It’s working in a political marketplace where the Republicans have set the rules. The Dick Morris-type consultants and New Democrats for whom Perlstein has appropriate disdain are working on the underlying assumption that the Democrats need to adjust to a more conservative political space if they are to survive. They need to triangulate and adapt, to become more like the Republicans, because that’s what the market seems to be demanding.

But Perlstein’s key point (and again, you need to read his book on Goldwater to properly understand this) is that the current conservative bias of US politics is itself a political artefact. It’s the product of an extraordinarily successful long-run initiative by right wing Republicans to reorient the political debate around a set of ideas that once seemed bizarre and unnatural to most Americans. The Republicans have largely succeeded in capturing the “conception of control” in the marketplace. They set the rules regarding what can be debated and what can’t in economic policy (protecting the poor becomes “class warfare”), and, increasingly in other areas of policy too. As long as that’s true, the Republicans are always going to be in a position of structural advantage, and the Democrats in one of structural weakness. Triangulation can help win temporary victories, but it can’t produce long term gains. Indeed, by forcing the Democrats to ‘accept’ rules of the game that they haven’t themselves set, it weakens their long term ability to bring through real structural change.

But even as a discussion of business strategy, this is incredibly naive. The folks at Boeing didn't just wake up one morning and decide to force their view about planes on the world; they took a huge long term bet on the market. To be sure, their strategic decision changed the market; if they had not introduced the jumbo jet, the history of aviation would have been very different. But the business landscape is littered with the shattered hulks of firms that tried to make markets, and failed. Boeing was taking a bet that paid off, not forcing their vision on an unwilling world.

But as a political metaphor, this is silly. As a company, the folks at Boeing had no particular emotional vision of what planes should be like; they wanted to make whatever would sell. They became market makers only to the extent that they--and the companies they sold to--recognised an untapped market for mass air travel. Yet this metaphor is being advanced by people who want Democrats to resist the call of the market, to stick to principles rather than trimming their sails to the prevailing political winds in the hope that people will come their way. If the folks at Boeing had just followed their hearts this, Boeing would have made a bunch of super-fast, super-fun, super-small jets that appealed to the engineers designing the planes . . . and filed for bankruptcy a few years later.

The "If you build it they will come" strategy is what Barry Goldwater tried. That is not how conservatives "made the market". Conservatives, like Boeing, took a long hard look at political realities, and decided that no matter how much they wanted to, they were not going to be able to roll back the New Deal. Rather than continuing to launch a fruitless assault on institutions that a majority of the population supported, they started to look for ways to implement their agenda within the reigning paradigm, such as school vouchers and entitlement reform. In the process, of course, they did build a platform on which to reach for more aggressive goals, but it's still not clear that they'll achieve many of them.

A lot of Democrats think that they can reach for the goodies without building the platform, a belief that should have been thoroughly dispelled by the last three election cycles. That means compromise, and coming up with programmes that are bold without attempting to force the rest of America to embrace a value system they clearly dislike. So far Democrats are good on either bold (national health care) or agreeable (job training!), but little in their idea-basket is both.

That, I think, springs from a larger problem within the liberal progressive movement--even larger than the belief that if they change their name, somehow people will like the brand better. (Memo to progressives: didn't work for Anderson Consulting Accenture, won't work for y'all. It wasn't the name that people objected to).

On the one hand, you've got the folks who think that if Democrats can just turn themselves into Republican Lite--one third less dour moralism than regular GOP!--they will storm the storied "middle" and seize the reins of power. This is unlikely--the mathematics of winning an election without a motivated base are unappealing, which is why 3rd party candidates do so poorly. Worse, it's pointless. The moderate middle, almost by definition, produces little in the way of big ideas, and its little ideas generally end up as muddy messes--if you start compromised, what you generally end up with is pork-laden monstrosities. And why should people put out the phenomenal amount of energy it takes to get people elected in order to get 2% more spent on teacher salaries?

The other wing of the progressive movement appears to think that all they really need to do is shout louder, since America seems to be getting a mite deaf. I watched Howard Dean on The Daily Show last night, and rarely have I seen a major political figure so thoroughly, even painstakingly, inept at appealing to voters. His remarks elicited cheers from the true-blue supporters in the audience, but only at the expense of alienating every single other person in the country. If he wasn't making ham-fisted attempts to prove Democratic moralistic superiority* by selective and theologically shallow quotation from the bible--an activity that even bible-thumping Republican congressmen undertake with more caution (and erudition) than Mr Dean did--he was claiming that his was the party of real moral values. Cringe. When was the last time you heard an RNC chair say something like that? Answer: you don't, because the "Family values" guys know that you do not garner votes by saying "Everyone who voted for the other guy is immoral" . . . especially when the other guy got a majority. You get votes by talking about what your values are, which (other than gay marriage) Howard Dean had a hard time doing.

Neither group is going to lead the Democrats to the kind of dominance that they once enjoyed--and that Republicans are now basking in. Neither is capable of building a winning coalition with a central set of values that pretty much everyone can endorse, as the Republicans have.

But even worse are the folks telling the progressives that the only problem is that they are misunderstood. Howard Dean, like a lot of my acquaintances, seems to believe that the only reason Republicans keep winning is that people somehow don't understand what they're up to. On fine regulatory questions, that is undoubtedly true--but I doubt that many voters know what Clinton's telecoms policy was, either. On big questions, such as taxes, the budget, the military, or what have you, the voters have a rough but workable idea of the differences between the two parties, and there is no evidence that there are systematic differences in their misperceptions of their politicians (which is to say, they believe some wrong things about Republicans, but about an equal number of wrong things about Democrats). The problem is not ignorance, or that they've been lied to. It is that they don't like what Democrats stand for.

The folks trying to tell Democrats that they've just got a branding problem are right, but the Lakoff solution--better slogans--is exactly the wrong idea. Democrats have a branding problem because, just like many companies with branding problems, they overpromised and underdelivered. Americans looked at the seventies, saw that it was the culmination of decades of progressive hegemony, and decided that they didn't need any more of that--just as decades earlier, they had punished Republicans for the Great Depression. Whether either, or neither, was fair, that is the political reality. Republicans eventually dealt with it, but the hardliners in the progressive movement are still resisting. Yet it's hard to see any hope of resurrecting the Great Society vision; the success of welfare reform has made that politically impossible. Other big issues, like abortion, are being slowly eroded by technological change that is making their stance both unnecessary, and unappealing. And the huge middle class entitlements that many are proposing in order to subvert bourgeois resistance to subsidizing the socioeconomically dysfunctional have a price tag that seems to be unacceptable to the American public.

I think that the "brand" warriors and the post above make the same, common mistake: they think of markets as something very like the ones described in John Kenneth Galbraith books, where consumers are but the hapless, unknowing cattle herded by ad-wielding corporations to the slaughter. Certainly, corporations can and do change the marketscape, but only within the fairly immovable constraints placed upon them by consumer desires. Boeing can't just sell big tin cans and make people buy them through force of will, and Democrats can't just up and change the terms of debate, because both are set by what consumers like. Perhaps this is what the author is trying to argue, but I didn't get it from his post . . . and in general, this sort of argument seems to be advanced by those who believe that they can "make the market" with pretty much the same big spending programmes they've always believed in. If the Democrats are going to attract new consumers, they need "product" which is:

a) Firmly differentiated--no "3% more for computers in the classroom"
b) As simple to explain as school vouchers (no ultra-wonkish new methods of financing comprehensive government-provided health care need apply)
c) Not so expensive that it runs afoul of our citizenry's basic aversion to paying high taxes to send money to people they don't know and probably wouldn't like if they did.

What sort of ideas would those be? Haven't a clue. If this stuff were easy, they already would have done it.

Now, this is not to sneer at progressives, who believe what they believe as fervently as libertarians or social conservatives or anyone else believes what they believe . . . and out of the same high-minded motives. It is not right to say that "they are out of ideas", as a number of commentators have over the past few weeks. They have lots of ideas about the way the world should be, and a number of policy proposals they think would get us there. What they are out of is ideas that both advance America towards their vision, and appeal to enough voters to get them elected. That's an important distinction--but it's one that must also be recognised by the Democrats who have been saying "We do so have ideas!" if they want to re-establish their hegemony.

*Example: "There are hundreds of references in the bible to poverty, but I haven't seen one to gay marriage." Er . . . yes . . . well, I suppose that after the Hebrews had put homosexuals to death, they thought gay marriage wasn't going to be much of an issue.

+You are about to start yelling about farm subsidies . . . but farm subsidies are a bipartisan vice. Just ask Senators Sanders, Jeffords, or Clinton about Milk Price Supports--but bring a comfy pillow and something to drink, because you'll get a lovely long lecture on the vital role that Milk Price Supports play in our nation's health.

From the desk of Mindles H. Dreck:

Applying Kelo

In a number of vacations spots I visit during the summer, such as the Berkshires and coastal Maine, the homeowners have set up conservation land trusts and put significant holdings into them in perpetuity. They also give some of their land to 'forever wild' programs or put easements on the property before passing it to the next generation (one of those estate planning tools to reduce taxable value).

I believe all of the above actions reduce the revenue base for the town or county in which the property is located. I'm aware of a town in the Adirondacks where a large landowner put so much of her property in forever wild that the tax base declined by a full third.

Two questions:

1. Does Kelo make it possible or likely that these land trusts and forever wild programs will be invaded to prop up local revenue and/or develop the land?

2. What are conservation land trust fiduciaries supposed to do with the compensation the Trust receives if eminent domain is used?

From the desk of Jane Galt:

All autism, all the time

Dr. Manhattan is blogging up a storm about autism. Don't miss it.

From the desk of Jane Galt:

Fun science from the "Reality based community"

From a post on abortion over at TPM Cafe:

A few years ago, I noticed from some data that the total number of teen pregnancies (which is not the same as "unwanted" pregnancies, I know, but has the advantage of being measurable) was actually pretty steady since the 1950s, if you include live births to both married and unmarried mothers, as well as abortions and miscarriages. Total number of pregnancies for women age 15-19 hovered at a little over 1 million/year for most of the 70s-90s. To grossly oversimplify, in the 1950s and 1960s, a larger number of pregnant teens married, in the 1970s and early 1980s, a larger number had abortions, and in the late 1980s and early 1990s, a larger number of teenagers decided to bear children on their own, raising the panic in that era about single parents.

And then, in the late 1990s, something totally unprecedented occured: the actual number of teen pregnancies declined sharply. By 2000, the number dropped to 841,000; the pregnancy rate to 83 per 1,000, and the number of abortions was cut in half. (Some of these stats can be found here. I know I've seen stats that go back to the '50s, but I can't find them now.)

This was a real social revolution in America. It was the first time in half a century that the actual number of pregnancies declined by a significant amount, rather than just a change in the outcome of the pregnancies. I don't fully credit Bill Clinton with the achievement, any more than you can credit any president with economic growth or another change that depends on a million private choices. But there were policies and, more importantly, cultural changes, that had something to do with it.

I'll leave it to scholars to determine the proximate causes of the decline in pregnancies (I once saw a report that concluded it was due to either a decline in sexual activity or improved contraceptive use, or some combination of the two, which if you think about it doesn't really add much information.)

So the only cause he's positive about is . . . Bill Clinton. And to be fair, I suppose he did take great pains to make sure that his interns didn't get pregnant.

Update Is it "beneath me" to snark at liberals? Honey, any weblog that calls itself "reality based" (as TPM has), or claims that Republicans have some unique access to the truth, or otherwise displays their parochial political vanities and grotesquely bloated sense of self-regard, deserves any and all snarking they get.

From the desk of Jane Galt:

Public service announcement

There's an ad to your right for the Institute of Justice, which did its best to prevent yesterday's abominable Supreme Court decision to hand over private property to any rich developers who can get a couple of city councilors in their pocket. Just because we've lost the battle doesn't mean we should surrender the war--so how about tipping a few bucks their way?

From the desk of Jane Galt:

No tax? No thanks!

The US savings rate has gotten more and more abysmal--by some estimates, Americans now save only 40 cents for every hundred dollars they earn. This despite scads of tax incentives to sock it away. This should gladden my libertarian heart--government intervention doesn't work!--but frankly, I'm shocked. Tax free saving is as close to a sure thing as you can get; it's an instant 20-40% return on your money, even before you count company matching schemes. The "rational actors" model still needs some work. . .

From the desk of Jane Galt:

The right to abortion

Everyone pretty much knows that the looming fight over judges is actually a fight over the right to abortion, affirmative action, and a few other hot button issues.

What bemuses me is people who claim a) that abortion is a constitutional right and b) that Republican judges therefore have no right to overturn it.

Now, these are smart people. They know that abortion wasn't a constitutional right until the Warren court discovered it in the emanations and penumbras of amendments that had pretty much nothing at all to say about abortion. It would be one thing if those people claimed that abortion should be a constitutional right--though such arguments often rest on muddy definitions of constitutional rights which boil down to "things I don't want to argue about"--but that isn't quite the argument I'm addressing. Rather, I'm talking about people who genuinely believe that the procedure that was used to find the right to abortion is somehow illegitimate when used to remove it. But Plessy v. Ferguson¹ was constitutional doctrine for much longer than than Roe v. Wade has been. Yet none of those same people believes that Brown v. the Board of Education was an illegitimate abrogation of the constitutional right to discriminate. Only on abortion is the fact that one court has declared abortion to be a constitutional right used to argue that, therefore, another court has no right to say that it isn't, full stop, no added justification needed.

We all delude ourselves about the sacred status of things we agree with. Do I really think that the federal government has no commerce clause jurisdiction over medical marijuana, or do I merely agree that it is so because I am in favour of medical marijuana? But this puzzles me because it's so logically inept, and because I often hear it from people who are intellectually very gifted.

¹ The case that established the legality of "separate but equal" accomodations for blacks

From the desk of Jane Galt:

Public service announcement

Where have I been, I hear you cry.

I have been in London, my little chickadees. I just moved back a week ago, and my internet service in my house is still not up. Plus I've been working a lot, on crazy half-London, half-New York hours. Have pity.

I've gotten some emails that I really, really want to answer (if you're reading this, you know who you are) but I just downloaded them last night, and there's about eight-zillion people in the queue. I have not forgotten you! Nor ignored you! Please be patient while I get my replies back in gear.

From the desk of Jane Galt:

Safe, legal and rare?

This TPM post asks whether that's really possible:

The repackagers want us to focus on a strategy of "Safe, Legal and Rare." It sounds good to me. Only one bit in Levitt and Dubner's Freakonomics stuck out at me. After Roe v. Wade, they write,

Conceptions rose by nearly 30 percent, but births actually fell by 6 percent, indicating that many women were using abortion as a method of birth control, a crude and drastic sort of insurance policy.

That, to me, gets at the heart of the abortion issue. A moral hazard is at play, and if you keep abortions legal and accessible, not only will they be anything but rare (Levitt and Dubner cite 1.6 million a year in the U.S. - in any event, it's a significant number), they will correspond to greater numbers of unwanted conceptions to begin with.

Now, as someone who supports abortion rights - and for that matter doesn't think removing a fetus in early development is wrong - I'm fine with that. It would be better if more conventional birth control were used often enought to reduce the need for abortions. But, for all the solemn emphasis to the word "rare" as a more acceptable code word for "wrong" and for all the education about and distribution of birth control, we don't know how to make abortion rare without coercive power of making it illegal, unafforable or otherwise regulated to the point of unavailability. To pretend otherwise is dishonest.

Weeeellll . . . I don't know if that's quite right. One way of making abortion rare(er) would be to stigmatise it socially--to say outright that it is wrong. I'm not saying this would eliminate abortions--it wouldn't--but it would probably cut down on the number. Most people don't refrain from, say, marrying their siblings because it is illegal; they refrain because the very idea gives them the creeps.

Of course, none of the militant pro-choice groups will stand for Democratic politicians allowing the word "wrong" to pass their lips. Nor do I think it would do much good if they did. What would make abortion rarer is a cultural shift: liberal Democrats willing to say that just because something is legal doesn't make it right. It's legal for me to go upstate and tell my sweet Victorian grandmother she's a horrible person and I hope she dies. Indeed, I would fight any government official who proposed outlawing such monstrous behaviour. But it remains monstrous.

Most adamant pro-choicers will never say that abortion is wrong, in part because they fear that saying so will start the country on the slippery slope to prohibition, a legitimate fear. But they also won't say it because saying that abortion is wrong conflicts with something else they ardently believe in: freeing women from the unfair tyranny of reproductive biology. That's much easier to do if abortion is a morally neutral act.

And of course, having to advocate for keeping something legally that you think is morally wrong is not very much fun. For one thing, you have to concede that your opponents might have a point.

But barring social change, there are other things that could reduce the rate of abortions. Women shown sonograms of their young fetuses for example, are about one-fifth as likely to have abortions as women who are not shown sonograms. Why not mandate a sonogram--fully funded by the Federal government!--for every woman seeking an abortion? Friends who are more ardently pro-choice than I am--which is to say, almost all of them--are against this, though they don't have any clear-cut explanation as to why. The arguments tend to be circular: the sonogram would alter the woman's decision, which, because it was made in the pure-pre-sonogram state, is somehow the platonic ideal decision. Yet the post-sonogram decision is made with more information; it's hard to see how one can argue that less informed women are making better choices.

When it comes down to it, there is an instinctive aversion among most pro-choicers to making women feel bad about having an abortion. Unless that changes, I agree with the poster: safe and legal abortion will not be rare.

Update:

This from one of the commenters:

The position of the Democratic party needs to be "We are pro-choice. Some of us believe that abortion is morally acceptable. Some of us find it repugnant. Some of us just aren't sure. But ALL of us believe that the federal government, which is incapable of fairly and effectively policing traffic violations, has neither the right nor the ability to reach a binding decision on difficult moral issues such as this."

Sounds good to a libertarian . . . but it does seem that it would undercut much of the rest of the Democratic platform, no?

From the desk of Mindles H. Dreck:

Emergent Stupidity at the NYSE

I recommend this article by Kim Strassel on the Webb Report and the behind-the-scenes story of Dick Grasso's fat pay package at the NYSE.

Strassel's article takes a detailed look at board involvement, and lack thereof, in approving this package. It's a fascinating look at the problems with honorific board membership, in this case Madeleine Albright and Carl McCall, and the emergent stupidity of groups.

The board, which was often dysfunctional, was stocked with celebrities from diverse constituencies, many of whom didn't understand the NYSE or take their responsibilities seriously. Former New York State Comptroller Carl McCall, who brought Mr. Grasso's contract to fruition, was viewed by his colleagues as incompetent and, in the words of Goldman Sachs CEO Henry Paulson, not "financially sophisticated." Former Secretary of State Madeleine Albright felt she shouldn't "question" the pay; Bear Stearns CEO James Cayne admitted he "tuned out" of the pay proceedings; and Van der Moolen Vice Chairman Robert Fagenson suggested the only real concern was "how this was going to reflect on the Board."

But the interviews also make clear that more astute board members, such as Mr. Langone, former Viacom President Mel Karmazin, and former Merrill Lynch Chairman David Komansky, took it upon themselves to understand Mr. Grasso's contract, and offered strong arguments for why they'd paid him as they had. "We knew what we were doing when we paid him. We did it purposely, and we believed it was the right compensation," Mr. Komansky said in his interview.

......Former Morgan Stanley chief Mr. Fisher noted "that many directors 'couldn't tell a stock from a bond' and were only on the Board because they represented particular constituencies." As a result, the board was rife with personal antagonistic agendas. Mr. Cayne referred to Ms. Albright as "unbelievably irritating." Mr. Levin told investigators that some of Mr. Schrempp's actions were designed simply to "cover his ass." And independent floor broker James Duryea suggested that the banks with electronic networks competing with the Big Board could "benefit from discord," and may have seized the moment to "do away with Grasso." *

In other words, it was a part-time dalliance for a big group of notables and, miracle of miracles, their individual effectiveness did not add up to a well-oiled machine. As I said, emergent stupidity.

More later.

*Actually, the rumour on the street has consistently been that specialists outed Grasso's pay package to derail disciplinary actions. This isn't entirely inconsistent with Duryea's suggestion, however.

From the desk of Jane Galt:

Baseball season

I'm back in New York, and longing for the sun on my head . . . the roar of the crowd . . . the satisfying, slightly sickening, "what the hell is in this thing?" taste of the stadium hot dogs . . . sigh. It will be a little while before I can get myself to a baseball game, but in the meanwhile, I'm contenting myself with following a friend's road trip to five major league and three minor league baseball games in eight days. Enjoy.

From the desk of Mindles H. Dreck:

We don't want it (except when we want it)

Well, it's nice to see someone else in Maureen Dowd's slot, but not so nice that the replacement appears to be reinforcing* the tiresome Barry Schwartz-too many choices argument(previously abhorred). She has some problems deciding on dental floss and, with the assistance of an E.B. white reference, builds her confusion into full-blown parsimonious Yankee finger wagging:

In taking cluster analysis and its classifications to the logical extreme, are we not building a superfinicky society? Five minutes in any Starbucks line will answer that one. We used to be one nation, undivided, under three networks, three car companies and two brands of toothpaste for all. Today we are the mass niche nation. This is a country in which 40 percent of the eligible population doesn't vote, but can be expected to maneuver its way through a sprawl of options every time it heads out for tooth twine. Increasingly the brick-and-mortar world resembles the virtual one: an infinite landscape of microscopic subcategories, in which one loses oneself, twice.

...Hasn't Procter & Gamble heard about the dumbing down of America? To say nothing of the fact that we have simultaneously managed to boil the political discourse down to red states vs. blue states.

We'll leave the swipe at popular intelligence alone (lack of blogging has bred restraint). But which came first, I wonder? The finicky chickens or the bewildering brand-extended egg selections? Ms. Schiff might find a clue on the facing letters page, where a reader complains that the airline industry doesn't offer enough niches:

The airlines apparently think that customers are neatly divided into two separate groups: business travelers, who have no budget constraints and will pay a ridiculous price for a flat bed and a glass of wine, and "leisure travelers," who will gladly camp on the floor to save 50 cents on the ticket.

To use a restaurant analogy, if the world were really like that, there would be only fast-food chains and four-star restaurants, with nothing in between.

So a terminally unprofitable industry is under-segmented and the thriving consumer products companies offer too much product segmentation. Perhaps Ms. Schiff will find an answer here. If not, she could look to Virginia Postrel:

.. grumpy social critics like Schwartz never consider the obvious thought experiment: Would you like to go back to the world with fewer options? Granted, dealing with lots of choices causes frustration and regret. But would you really be happier, once you’d become accustomed to them, if those abundant choices disappeared?

All this aside, we hope Ms. Schiff takes Dowd's space permanently. We submit to her and her companions at the NY Times editorial page another E.B. White quotation for consideration:

Democracy is the recurrent suspicion that more than half of the people are right more than half the time.

UPDATE: A commenter reminds me of one argument that Virginia Postrel did not make (surprisingly). By what authority will choices be limited? Who will have such power to limit choice, and how will they decide? Even scarier, how will those who argue that we were happier when we weren't aware of other choices keep us in this blissful state of ignorance? Just how Soviet a system are they wishing for?

Pejman reminds us that marginal unhappiness from an abundance of choices (if this truly exists) hardly constitutes an argument for government interference:

But it is a fundamental tenet of those arguing for greater government intervention in our lives that if an anti-government theory does not work perfectly in practice, it does not work at all and government intervention must take place. That is precisely what is happening here. Those who -- like me -- advocate the devolution of power and choice-making to the local and individual level are well aware of the fact that localities and individuals do not always make "perfect" choices (whatever those are). But they do make better choices than a faraway "libertarian paternalist" actor that is not nearly as libertarian as Messrs. Thaler and Sunstein make it out to be.

In short, advocates of individual choice build in the capacity for individual error into our theories. No theory works perfectly, after all. But some work better than others and should be left to continue working. And it is a fundamentally illegitimate method of debate to posit that since a theory does not work perfectly, it ought to be discarded or curtailed.

*I should point out that Ms. Schiff does not take these arguments to Schwarz' scary statist extremes, but stops at scolding society.

From the desk of Jane Galt:

Department of Awful Statistics

Naughty, naughty! The New York times, editorialising on aid to Africa, says this:

The United States currently gives just 0.16 percent of its national income to help poor countries, despite signing a United Nations declaration three years ago in which rich countries agreed to increase their aid to 0.7 percent by 2015. Since then, Britain, France and Germany have all announced plans for how to get to 0.7 percent; America has not. The piddling amount Mr. Bush announced yesterday is not even 0.007 percent.

What is 0.7 percent of the American economy? About $80 billion. That is about the amount the Senate just approved for additional military spending, mostly in Iraq. It's not remotely close to the $140 billion corporate tax cut last year.

This last sentence surprised me. I follow tax policy pretty closely, and I hadn't noticed a corporate tax cut last year. And a $140 billion tax cut would be pretty large, given that, according to the IRS, the corporate income tax only generated $167 billion dollars last year. I felt like I would have noticed an 83% tax cut.

So I searched around for the number, and here it is. It's the ten-year estimate for the cost of tax cuts in last year's change to the export subsidy, before the various clawbacks in that bill are subtracted.

This is naughty in two ways. First, comparing the ten year cost of a tax bill to the one year cost of aid is not the done thing in economics circles--any more than you can compare the amount you'll spend on food over the next decade to the amount you'll spend on your mortgage over the nex year, and declare that you spend more on food than shelter. And second of all, it is not quite playing the straight bat to include all the costs of the bill, and accidentally leave out the revenue generation.

Aid to Africa is an excellent idea. If we can find reasonably competent and honest governments to give it to, I'm all for sending 1% or more of our GDP to poor countries, if it can keep some of the millions of children who die from treatable diseases every year alive. But the cause of poverty relief--and indeed, the cause of bashing the Bush administration--should be able to stand on their own without shoddy statistics.

From the desk of Jane Galt:

Department of Awful statistics

This article came up in the comments section of the post on the seventies.

Homeless Iraq vets showing up at shelters

Washington, DC, Dec. 7 (UPI) -- U.S. veterans from the war in Iraq are beginning to show up at homeless shelters around the country, and advocates fear they are the leading edge of a new generation of homeless vets not seen since the Vietnam era.

. . .

Nearly 300,000 veterans are homeless on any given night, and almost half served during the Vietnam era, according to the Homeless Veterans coalition, a consortium of community-based homeless-veteran service providers.

Funnily enough, that's the very same coalition that I excoriated for stating that a disproportionate number of homeless people are Vietnam vets in a book I was reading. I only suspected before that they were pulling numbers out of [cough] the air [/cough]. Now I know they are.

First of all, 300,000 is about total number of homeless people, according to serious estimates. So if we take the Homeless Veterans coalition at its word, virtually no one on the street didn't serve in the military.

Yet, if you look at people on the street, you'll see that most of them are neither in their mid-to-late fifties, nor their early twenties, the two most likely ages for a veteran who has seen combat. And if they haven't seen combat, why would they end up on the street? Is the stress of saluting so great that it pushes them over the edge?

Moreover, the idea that half of the people on the street are Vietnam vets is simply ludicrous. Real street people have tragically short lifespans. They tend to get pneumonia, or some other disease related to lack of adequate food, shelter, and clothing. They are frequently victims of violence. If Vietnam put people on the street, unless there's some sort of extraordinary time-delay device on PTSD, they should have been dead long ago. And as pointed out above, most street people simply don't fall into the right age category to have been in Vietnam.

What happened here? Well, there are two explanations, one benign, one not. The benign explanation is that Americans feel that Vietnam was more recent than it was; they don't realise that most Vietnam vets, particularly combat vets (deaths peaked in 1967), should be getting ready to collect social security. When a man in his thirties or forties tells them that he was in Vietnam, it doesn't quite register that this is not possible. And the Vietnam-soldier-as-dysfunctional-dropout is so engrained in our popular culture that (I'm told) that it is quite common for homeless people to claim to have been in Vietnam, either as a way of deflecting censure and increasing charity, or because they are crazy, and believe that they were in Vietnam. So nice, compassionate, slightly innumerate people who genuinely want to help the homeless could concievably have been taken in.

The non-charitable explanation, of course, is that the advocacy group is making up fantastic numbers in order to increase their media exposure.

The reporter should not have been taken in. But the fact of journalism is that we have to rely on numbers other people give us; we can't go do our own independant research on every story. This number is bad enough that he should have caught it, but I am humbly aware that somewhere down the road, I will probably print a number or two that turns out to be wildly wrong.

From the desk of Jane Galt:

United in the dock

This post by Kevin Drum implies (with an able assist by Senator Chuck Grassley) that United's pension fund was underfunded through gross company malfeasance:

PENSION PROBLEMS....The New York Times reports today that the failure of the United Airlines pension fund was perfectly predictable. In fact, the SEC knew all about it:

Loopholes in the federal pension law allowed United Airlines to treat its pension fund as solid for years, when in fact it was dangerously weakening, according to a new analysis by the agency that guarantees pensions. That analysis is scheduled to be presented at a Senate Finance Committee hearing today.

.... "We saw similar practices and events at Enron, but unfortunately, this time it's perfectly legal," said Senator Charles E. Grassley, the Iowa Republican who is chairman of the finance committee.

....The Pension Benefit Guaranty Corporation found that in 2002, when United was determining how much it had to contribute to its four plans, it calculated that the plans for its pilots and its mechanics each had more money than needed....Those numbers are on file with the Labor Department. But they do not square with the pension numbers United provided to the Securities and Exchange Commission. That agency requires companies to calculate pension values in a different way. At United, that method showed the four pension plans to be only 50 percent funded.

Anytime you see "Enron" and "perfectly legal" together in the same sentence, you just know that something is wrong, don't you?

As Grassley points out, it's not just airlines that are having pension fund problems. The rules regarding pension fund solvency today are about as rigorous as the rules regarding S&L solvency were in the 1980s. My guess is that the end result is going to be about the same too.

Let's go to the tape, shall we?

First of all, Enron's many problems stemmed from violating Generally Accepted Accounting Principles (GAAP) by using a slew of special-purpose vehicles (168 of 'em, if memory serves) to keep liabilities off the books and artificially inflate their profits in order to fool investors. United didn't violate GAAP; that's the stuff they filed with the SEC. They also didn't violate pension-accounting rules; they prepared their numbers just like the PBGC told them to.

But that is a bad way to prepare their numbers, say critics, and I agree (provisionally, since I know nothing about the difference between PBGC standards and GAAP). Nonetheless, unlike Enron, United did not gin up fancy numbers to cover up the fact that they were getting themselves into trouble, or looting the company.

The article makes it sound as if the bad numbers were covering up malfeasance. But this was nothing of the sort. Note the year: 2002. What happened in 2002? Airlines took two big hits: a nasty recession, and a sharp decrease in passengers. That drove their revenues sharply negative at the same time as the collapse of the stock market bubble knocked the stuffing out of their pension fund. This resulted in an underfunded pension plan at exactly the worst time for them to try to top it up.

Now, there are all sorts of problems with how pension plans were managed in the 1990's; management started expecting 10% annual asset growth a year (then a conservative estimate), and consequently, put very little money into their pension plans. They are paying for that now, although not fast enough for my taste--Congress is letting them slow down the rate at which they top up their unfunded plans. While in hindsight, 10% is clearly too high, it's not clear what a good number would be, and certainly the sharpest critics of corporate pensions seem to have very little to offer on that subject. Nor do I see a good way to codify a number if we did all agree, since markets change, and any bright legal line would be certain to fall afoul of reality in some way down the road.

Anyway, the point is that the problem was not malfeasance at United. You could have forced United to account for its pension any way you like and it would not have made one whit of difference to the final outcome, since by the time United's pensions were clearly grossly underfunded, United didn't have any money to put in them. Nor is the government going to indict a company for taking heavy losses in a bear market. All of this ranting about United is just grandstanding.

That said, there are big problems with pension underfunding now, and Congress, out of an understandable fear of accidentally forcing weak firms into bankruptcy, is allowing corporate America to fund its obligations rather too slowly for my taste. But it doesn't exactly rise to the level of criminal--or regulatory--conspiracy.

From the desk of Jane Galt:

The continuing expansion of the commerce clause

Well, I'm against it, but then you knew that already, didn't you?

From the desk of Jane Galt:

Why ask why?

Why is it a big deal that soldiers at Guantanamo abused a Koran? Umm, because we're not fighting a religious war here. Abusing the holy books, statues, or other religious paraphenelia of your opponents is what crusaders do. Even if you aren't disgusted by American soldiers abusing other people's religious objects--after we went to all that trouble amending our constitution to prevent soldiers from their faith on us by force--surely you can see . . . surely even the tiny minority that thinks we have launched a religious war against Islam (or ought to) should be able to see . . . that in this age of lightning-fast communications and angry bomb-igniting religious fanatics, it is best not to behave as if we are launching a war against a major world religion.

This post has been rewritten to correct inept phraseology

From the desk of Jane Galt:

Are the seventies past their expiration date yet?

I haven't paid very much attention to the deep throat revelations, because to me this is all ancient history--interesting, you know, but not important. Richard Nixon was president when I was born, but not for very long; he resigned shortly thereafter. Not that I'm taking credit for bringing down the president, or anything. I'm just saying.

To journalists ten or twenty years older than me, this is the long-awaited end to a grand mystery. To people my age or younger, it just doesn't matter that much. Baby boomers, many of whom seem to have trouble accepting the fact that time has passed, often seem incredulous that the major formulating events of their lives simply aren't that interesting to everyone else. Vietnam and Watergate have become the language of public debate, even though both ended over thirty years ago.

For example, I just finished a book about uninsured people (more on which later) that makes the unlikely statement that a disproportionate number of veterans are homeless (backed up by a seat-of-the-pants estimate from--you guessed it!--an organisation dedicated to lobbying for homeless veterans). Why are they homeless? Why, the rigors of combat, and post-traumatic stress disorder, naturally. Vietnam is mentioned prominently, leading us to imagine legions of battle-scarred psychotics roaming our streets.

Dude, Vietnam ended over 30 years ago. Psychotic maniacs on the street have a very short life expectancy. Where are all these battle scars coming from? The only major operation since then was Gulf War I, fought in a matter of days. (Gulf II is a different matter, but hasn't been on long enough to have dumped large numbers of BSPs on our streets.)

If they'd bothered looking at actual research, I believe they would have found that the percentage of veterans on the street is roughly the same as the percentage of veterans in the general population. But why check? Everyone "knows" that Vietnam is a major cause of our homelessness problem, even though the very youngest veterans of Vietnam are now in their fifties, and a sizeable chunk are in their sixties or beyond--not an age range you see a lot of in the homeless population. Homelessness has a lot more to do with our refusal to forcibly institutionalise non-compliant mental patients or give public money to addicts than it does with Vietnam. But somehow, earlier generations just can't let it go.

Anyway, that's a long, pointless digression, just to remind you that this is a blog, not some well-reasoned news piece. Go read this cogent and penetrating analysis of how Watergate gave rise to the cult of the journalist over at Jay Rosen's place.

Update I do of course think that Watergate was an appropriate event, and that Mark Felt--whatever his motives--did a great thing for his country. But I don't think that the identity of Deep Throat matters as much as, say, what's going on in Darfur right now.

From the desk of Jane Galt:

Blackout

We're having a blackout here in London. This is the third such I've now been through in the past few years (the first two in New York). Luckily for me, this time I'm in my company's headquarters, which is on backup generator. Unluckily, I just lost several paragraphs of the story I have due in thirty minutes. More later.

From the desk of Jane Galt:

Euromania

There is a rumour going around, based on a report by the German magazine Stern, that the German government's new electoral strategy is to blame the euro for all the nation's economic woes.

There is some truth to the accusation. The ECB monetary policy is wildly inappropriate for Germany, which currently has low inflation and slow growth. Fiscal policy is pretty much tapped out; the German budget deficit looks much like the American one. And as the article points out, "The introduction of the euro has cost Germany its former advantage of lower financing costs, which partially explains why it's lagging behind the other euro members".

But the rest of the explanation as to why it's lagging behind euro members has to do with its sclerotic labour market, moribund regulatory system (ever tried to buy milk in Germany after work?), and lunatic decision to apply same to East Germany. Since East Germany is much, much less productive than West Germany, this has combined to produce unemployment rates that, IIRC, often top 20%. This is not the fault of the euro, and dissolving the currency union will still leave Germany a slow-moving economic has-been with a looming pensions crisis unless it gets its regulatory act together.

From the desk of Jane Galt:

Wolfie for the Bank

Paul Wolfowitz takes the helm of the World Bank today. So far, so good. But fighting poverty nation by nation is perhaps the hardest job in the world today. A while back I had an interesting debate with Laura, of the ever-excellent Apartment 11D, on whether or not "unregulated capitalism" was good for the third world. My answer is that when we look at the third world, our heart cries out, as it should, but that doesn't mean that those in the third world are victims of anything but nature. The appalling poverty of Sri Lanka or Mozambique is not some bizarre aberration that can be tracked to a cause we can cure. We are the aberration; Sri Lanka and Mozambique are the normal state of human history. Trying to figure out how to reproduce those abnormal results in a couple hundred more countries is very, very hard. Fascinating, and unbelievably important. But tricky. If Paul Wolfowitz thought he was controversial before, wait until he tries to finance his first dam.

From the desk of Jane Galt:

Oooh, yeah . . .

Sensible talk about Social Security from Voxbaby:

I don't think there is any way to suggest that the government could pre-fund future obligations through running surpluses inside the Social Security system over any sustained period. Whatever lockbox there is has 536 keys, but more importantly no lid.

For me, the debate is becoming less and less about philosophy or efficiency, and more about the inequity of passing such large burdens off to future generations of taxpayers. I freely acknowledge that this burden is coming not just from Social Security, but the growth of Medicare and the inability of the government to balance its budget. A sensible fiscal policy would have the on-budget deficit sum to zero over the business cycle and all long-term entitlement programs to have zero projected long-term actuarial deficits.

That would have been my rejoinder to Mark Kleiman's assertion that we could "fund" Social Security by paying down the national debt. I regard this as true but not useful, since despite the fulsome protestations of some Clintonophilic economists, the surplus of 1998-2000 seems to me much more a product of a unique historical moment than any reproducible political strategy. We had a sudden spike in tax revenues, thanks to the bubble, that involved taking money relatively painlessly from people who had made it relatively painlessly. We had abnormally low military spending, both as a percentage of GDP and as a percentage of the federal budget. We had abrnomally low unemployment, thanks to extremely loose monetary policy linked to the Asian crisis and Y2K. We had managed to control growth in health care costs through HMO rationing, which congress and state governments were busily undermining even in that golden era. In short, we had an unusually high amount of funds, and and unusually low need for them, thanks to a productivity boom, easy monetary policy, and an asset price bubble. This is not sustainable long enough to pay off the national debt.

I don't say this to excuse Republicans in Congress and the White House, who are being grossly irresponsible with the nation's purse strings. But I do not expect any coalition to emerge which will behave substantially differently. For all the rhetoric about balancing the budgets, I do not see many politicians in either party who want to tell voters that the government is not a magic machine for generating free money. Sure, Kerry liked to talk about re-instituting PAYGO rules, but he also liked to talk about covering uninsured people. Which promise do you think he would find more urgent once in office? Which one would be easier to sell to a public that likes to get free stuff, and thinks that the government can provide it? Not that the public doesn't think PAYGO is a nifty idea, in abstract. But deep down it's a dingy little procedural matter that will generate little publicity and less notice. Covering the uninsured, on the other hand, is SPLASHY!

. . . and that is how spending grows in America. I begin to think that big budget deficits may simply be endemic to a bicameral system like ours, where benefits are targeted but legislative responsibility for deficits is diffuse.

Given those constraints, I favour finding programmes that legislators will support, but will nonetheless force them to behave more responsibly. Social security privatisation seems like such a scheme to me. Take the social security surpluses and dedicate them to the thing they are supposed to be doing--funding retirements--and you will force congress to behave more responsibly, because there are limits to the deficits they can run. This is one fewer obligation we are leaving to our children, and, as a bonus, there's no risk that a bunch of pensioners will suddenly find the government has defaulted on its "guarantees", as has happened in places that promised more payments than they could afford.

Update More from The Economist.