Asymmetrical Information

From the desk of Jane Galt:

Were the strikers wrong to do what they did?

I'm being chided for "chiding workers for striking selfishly". But I didn't. I merely reported that others were chiding workers for striking selfishly. There's a difference, and in fact, I meant to post about it, but events intervened; between travel, work, and getting ready for Sunday's party, I've been too swamped to follow up.

I hadn't any sympathy for the union, whose complaints about their jobs seemed either unfixable--what was the MTA supposed to do, exactly, about rude passengers or the lack of bathrooms along bus routes?--or unworthy; I just don't think that anyone is entitled to retire at 55.

I had sympathy for those stranded by the strike. And I thought it was really terrible that those who were truly affected weren't the upper-middle-class* professionals like me, but the poorest working stiffs who lost salary they could ill afford. But my sympathy was of the "hey, that really sucks" variety, not the "the bastards have no right" kind. I thought the people lashing out at the union for being greedy were being rather silly. of course they were being greedy. It's their job to be greedy. The whole magnificent capitalist enterprise performs because everyone is greedy, workers as much as companies. Some stripes of conservatives seem to have forgotten that--or were under the bizarre illusion that anyone who accepts a public service job is supposed to be magically transformed into the kind of selfless altruists that in every other context conservatives claim does not exist.

No, I didn't think that there was anything wrong with the union being greedy; I thought that they were being stupid. They were trying to appeal to public sympathy, which on average tends to go to the workers rather than the employer, particularly in Moscow-on-the-Hudson. But by striking at Christmas, in the middle of a cold spell, they alienated their natural constituents--who, unlike me, do believe that you're supposed to care more about public service than private gain. They struck not at big, unpopular companies, whose employees were all on vacation anyway, but at small, photogenic retailers. And because the strike occurred at such a crucial time, they impressed upon the mind of every single New Yorker what a great pension deal they had. And when New Yorker's lashed back, their PR response was comically inept, consisting basically of "that's for not smiling at me when you bought that Metrocard, you bastards". The outrage forced them into a humiliating public retreat. If anything, the strike seems to have made their bargaining position worse.

The union seems to have developed an outsized sense of entitlement due to the fact that without them, the city would not be able to function normally. I get the impression that they expected that the realization of their vital role in the city's life would bring their fellow citizens to a humbling realization of the true worth of transit workers. But there are lots of people without whom the city would not function: sanitation workers, police officers, doctors and nurses, grocery store workers, and the investment bankers whose salaries and taxes pay for it all. New York city could probably get along just fine without me. But most of the rest of the citizens are pretty necessary. When their transportation was taken away, these citizens did not, in aggregate, find a new sympathy for the transit union burgeoning in their hearts; their general reaction was more like "Who the hell do you think you are, Miss Thing?"

* well, by upbringing, anyway

From the desk of Winterspeak:

Who pays for health care?

Paul Krugman has a good column on rising healthcare costs and how to ration them. Krugman has been a frothing nutter for about 6 years now, so it's nice to see something honest and reasonable for a change.

On the topic of rising healthcare costs, Krugman correct identifies the main culprit: new (expensive) medical technology

Consider what happens when a new drug or other therapy becomes available. Let's assume that the new therapy is more effective ... than existing therapies ... but that the advantage isn't overwhelming. On the other hand, it's a lot more expensive than current treatments. Who decides whether patients receive the new therapy? We've traditionally relied on doctors to make such decisions. But the rise of medical technology ... makes ... medicine ... in which doctors call for every procedure that might be of medical benefit, increasingly expensive.

Krugman's prescription is to have the government step in and regulate pricing. He does NOT point out that this fix works by eliminating new (expensive) medical technology. This does not matter if you are an old person or someone with a treatable disease, but sucks if you are a young person or have a (currently) untreatable disease.

Transfering healthcare from future generations to the Boomers may seem like a clearly Good Thing to Krugman, but not to me.

One area where public interest has killed research is in AIDS vaccine research. Current retroviral therapies costs hundreds of dollars a year and need to be taken over a lifetime. Activists have agitated for these drugs to be given for free to poor nations, and patients have agitated to have these free drugs re-imported into rich countries at lower cost. This appeals to our human moral sense, but it reduces the profit from the drugs, and so reduces the incentives to create new drugs.

An AIDS vaccine would eliminate the value of retroviral therapies. Since those are expensive now, an AIDS vaccine would only be worthwhile to develop if it could be priced high -- say $100,000 a pop.

Some people would pay this. Certainly it is worth far more than $100,000 a pop -- in Africa we are told repeatedly that AIDS is costing these poor countries billions of dollars in healthcare and lost productivity. But Merck, or whichever poor schlub actually invested the damn thing could not charge Africa, or anyone, $100,000 for a dose of AIDS vaccine. Public opinion would force them to give it away for free, or for a very low price. For God's sake -- we're talking about the AIDS vaccine here! (And if anyone got sick from the vaccine they would sue the company for $billions.) Therefore, drug companies will not invest money in developing this vaccine, but they will not say they are not developing a vaccine for the very same reason.

You can see this simple logic play out in this CNN piece, where an NIH expert says the private sector has no incentive to develop a vaccine, and a bunch of pharma execs say "no, we're working on it".

In short, this is what Krugman--and all public-healthcare advocates--advocate. Since expensive new medical technologies increases the price of healthcare, eliminating healthcare development (by taking the profit out of it) will reduce the costs. We can then spend this saved money on... I don't know, the leisure needs of healthy 55 year old ex-government employees.

Update
Some commenters have taken issue with my pricing an AIDS vaccine at $100K and comparing that to the cost of retrovirals -- they say I am making a "lump of labor" mistake. This is a good point, so let me clarify.

The question is how high can a pharma company price an AIDS vaccine? Obviously it is very valuable--AIDS is a terrible disease and very expensive to treat (until recently it was fatal). Assuming that the pharma company has some sort of patent and can price above marginal cost (which is a very reasonable assumption -- most drugs under patent are priced much higher than marginal cost), how high politically can the company price? They will certainly come under pressure to dispense the drug, for free, across the continent of Africa and various other poor countries struggling with AIDS. National drug buyers in richer companies will surely demand bulk rates. Citizen groups in the US will surely demand the right to re-import the cheap foreign versions of the drug. Politicians will surely reimport drugs and dispense them at cheap prices. All of these will reduce the profitability of the drug by limiting the drug company's ability to price.

And remember -- they can only price high until the patent wears off and competitors enter the market. At that point competition will reduce the price to marginal cost (or close to it) and the profit is gone.

All new drugs face the above pressures, but I think the AIDS vaccine will face it more strongly since AIDS is a more political disease and it exists in both the rich and poor world. As the power to price goes away--whether for a treatment, vaccine, or cure--the incentive to create new medical technologies goes away as well.

From the desk of Jane Galt:

Who's the real empire?

If you want to look for an empire on the North American continent, look north, where the french minority was conquered in the eighteenth century and has been kept in the union ever since against its will, or south, where there's still a large separatist movement. Of course, one might argue that this is because we killed the Indians, unlike the Mexicans, and one would have a very good point. But today, both Canada and Mexico look more like the Chinese and Russian empires than we do.

What about Iraq? Perhaps it was an imperial venture, but it's not now. It seems to me that an important part of the critique of imperialism (spare me, please, the bland dictionary definitions) is that one is trying to essentially operate another country for one's own country's benefit. Otherwise, what we did in Europe and Japan after WWII was an imperial venture, and a damn good idea at that. Perhaps it's just my American blinders on, but we aren't doing that. They're having free elections, and it's clear to everyone (even those who disagree with the policy) that we intend to withdraw and leave them to run their own military and their own state. Certainly we gain from a more stable middle east, and a less volatile oil market (I think almost everyone can agree that this was the goal of the invasion, no matter what one thinks of the actual result), but so does almost everyone else in the world, including the Iraqis . . . and not in some aerie-faery "White Man's Burden" sort of way. The racial/nationalist arguments that animated Western (and Chinese and Russian) imperialism are also absent; few people are arguing that there's anything wrong with the Iraqis except that they had a crappy government.

From the desk of Jane Galt:

Oh my

Were Sacco and Vanzetti guilty?

From the desk of Jane Galt:

The essentials of life

Journalism beats "pre-washed bagged salads"! Scratch that career change to lettuce bagger.

From the desk of Jane Galt:

Tu quoque?

From Alex Tabarrok:

Liberals are claiming that President Bush has violated constitutional restrictions on torture and spying on Americans. Don't they understand that the constitution is a living document that must be reinterpreted in light of new events and understandings? An originalist reading of the constitution would throw us back into the primitive past when the minimum wage was unconstitutional. Fortunately, conservatives know that constitutional interpretation must change with the times and never more so than now. We live in a different world. The Founding Fathers may have been great in their time but they did not face the problems that we face today and we should not be bound by their 18th century ideas of liberty and executive tyranny.

Just to be clear, I am not endorsing the spying programme. From what I know, I'm against it, not because I think that what the Bush administration has done has seriously violated valuable civil liberties, but because I think we need to draw a line in the sand to prevent the government from accumulating dangerous powers to pry into our lives, and being a staunch civil libertarian, I would like to draw that line well shy of the point where actual harm is done. I'm just engaging in a bit of enjoyable finger-pointing, in the full knowlege that there are just as many hypocrisies on the other side.

From the desk of Jane Galt:

Is America an empire?

Chris Bertram says yes. Like others on Crooked Timber, he can't resist a little bit of "See! Americans aren't so great anyway, the bastards!" His main argument is that our displacement of the Indians by white settlers is similar to that of imperial Russia and China; QED, we are an empire.

I think his definition is too sloppy. Most people do not now think of the main body of Russia and China as empires, because they are, in the main, full of people who think of themselves as Chinese or Russian. The imperial accusation comes from the substantial populations of Tibetans, Latvians and so forth who do not identify with Russia, and yet get ruled by them anyway.

Indeed, the definition that Mr Bertram uses is useless: if an empire is a nation where one or more dominant ethnic groups kicked the asses of smaller or weaker groups and took their land, then every single nation in the world is an empire. Our sins are merely more recent.

This is not to excuse them; historically; the fact that other people rape and murder and plunder is not an excuse to do so yourself. It is only to point out that such a definition of empire reduces the word to uselessness.

Nor is Mr Bertram correct in thinking that Americans particularly care to divide their colonial sins from Europe's. No one in America is unaware of what happened to the Indians; no one that I have ever met has tried to justify it, though we are all awfully glad that we have a country. Our exceptionalism comes from the fact that, for example, we actually lived here, rather than simply trying to ship the booty back home across the sea. There is a difference between having an overseas empire and having a local one; Russian and Chinese expansionism may not be superior to the European kind (although I would argue that, for all its brutality, in many cases it was), but it has a very different character. But Americans are not unaware that Manifest Destiny was a nationalist/imperialist impulse; indeed, we are so aware of it that the word "imperialist" is generally attached to it in our textbooks.

When Americans react to the word imperialism we are, at least in my experience, reacting to the accusation that what we do in the world now is somehow meaningfully comparable to what Europeans did to Africa in the 19th century. I'm going to go out on a limb here and assert: it isn't. While America does try to influence world events in its favour, it does not run governments, much less exploit local economies for its own advantage. Anyone who purports to be unable to distinguish a shoe factory in Malaysia from what King Leopold did to the Congo seems to me to have perceptions so hopelessly deranged as to make further discussion useless.

Were we imperialist in the past? Absolutely. Are we now? I think not. Mr Bertram's post (and, to be fair, the sources which he is debating), conflates the two questions, which just ins't useful.

A propos of absolutely nothing, I haven't seen many Americans going over to Europe to inform them what they think, and then grandly disabusing them of their illusions. That, at least, appears to make us exceptional.

From the desk of Winterspeak:

Ask and you shall receive

Firstly, Merry Christmas.

Secondly, I recently wrote that "I would like the government in general to shift from cash accounting to GAAP accounting. While GAAP accounting has lots of room for fudging, the mismatch between long-term liabilities and short-term cash plays havoc with discussions around pensions in general and social security in particular"

It seems my wish has been granted. This NYTimes article states that

When the numbers are added up under new accounting rules scheduled to go into effect at the end of 2006, New York City's annual expense for retiree health care is expected to at least quintuple, experts say, approaching and maybe surpassing $5 billion, for exactly the same benefits the retirees get today. The number will grow because the city must start including the value of all the benefits earned in a given year, even those that will not be paid until future years.

The pay-as-you-go accounting method that New York now uses greatly understates the full obligation taxpayers have incurred because it does not include any benefits to be paid in the future. Most other state and local governments that offer significant health benefits to retirees use the same method and will also have to bring newer, larger numbers onto their books in the next two or three years.

I would love to know how they got this rule change pushed through. I'd also love to see it happen for social security, medicare, and other long-term government obligations.

From the desk of Jane Galt:

More contest mania

We've been nominated for a very special blogging award. And of course, there's still time to vote for my recipe for Citrus Cake, which has made the finals of the Epicurious October recipe contest. I don't think I'll get enough votes to win the refrigerator, but I'm gunning for third place, and with you guys behind me, I just may make it. Remember, you can vote once a day until December 31st, so help me make my recipe stand out.

From the desk of Jane Galt:

Long and lean

According to this article, how you're born often correlates with what you look like when you grow up:

An Oklahoma woman gave birth to a 14-pound, 3-ounce baby girl on Friday. Hospital workers say the newborn is already wearing diapers and clothing designed for nine-month-olds. Do giant babies like this one turn into giant adults?

Yes. There's no way to predict exactly how big this enormous infant will become, but studies have shown a linear correlation between birth weight and adult size (as measured by the body mass index). We also know that the length of a baby is associated with its eventual height and weight. In other words, heavy babies tend to grow up fat and long babies tend to grow up tall.

That's certainly true of me. I was 23 inches long at birth, and 7.5 pounds; when my mother told my new pediatrician this, he told her that she had misheard, because there was no such thing as a 23 inch baby, especially one that weighed so little. [cough] years later, I'm 6'2 and 144 pounds.

On the other hand, many of my seriously skinny friends were seriously fat babies, so I'm not sure how strong the correlation is.

From the desk of Winterspeak:

$20M over three years?

The NYTimes declares that

Yet for all the rage and bluster that followed, this war was declared over a pension proposal that would have saved the transit authority less than $20 million over the next three years.

I'm betting that the next three years is the wrong time period when evaluating the cost/benefit of pensions. Later on, the article says

But he said the plan would achieve significant savings, more than $160 million in the first 10 years, with some officials estimating that it would save more than $80 million a year after 20 years.

Mr. Dellaverson said it was important for the authority to try to control its pension outlays even in a year when it had a surplus. The authority's pension outlays for the transit workers have soared to $453 million this year, triple the amount in 2002.

I would like the government in general to shift from cash accounting to GAAP accounting. While GAAP accounting has lots of room for fudging, the mismatch between long-term liabilities and short-term cash plays havoc with discussions around pensions in general and social security in particular

From the desk of Jane Galt:

Memo to self

. . . do not blog about the people I kill. It can only get me in trouble.

From the desk of Jane Galt:

Fast food nation

It looks like the Center for Science in the Public Interest is gearing up for another lawsuit, this one against soda manufacturers for selling their wares in schools. It seems crazy that you could sue Coca-Cola for allowing distributors to sell their products to state education systems, but then, it seemed crazy that you could sue tobacco companies because you lit up a roll of burning leaves and stuck it in your mouth twenty times a day for forty years.

As it happens, I was one of the first journalists to predict these lawsuits, waaaay back in 2002. Still seems crazy to me. But then, that's why I'm a journalist and not a plaintiff's lawyer.

From the desk of Jane Galt:

We can't go on like this

How long can the housing bubble sustain itself?

From the desk of Jane Galt:

Et TWU?

And what are the transit workers getting out of the strike? Not as much as they undoubtedly expected. Over 1,000 of them have already crossed the picket line and returned to work, according to NY1. Presumably, these are the lily-livered lukewarm members who could be expected to cave almost instantly. Still, Toussaint can't be feeling too frisky if so many workers can't even stand a second day of striking.

The union is getting hammered from all sides. A court ordered the union fined $1 million a day, which will rapidly throw the union into receivership if the strike goes on. Meanwhile, the national union is taking the MTA's side:

"TWU (International) hereby notifies all members of Local 100 of their obligation under the December 13, 2005 preliminary injunctions and the December 20, 2005 temporary restraining orders issued by the New York Supreme Court to cease any and all strike or strike-related activities and to report to work at their regularly assigned work hours and work locations.

"As has been reported in several media outlets, I personally spoke before the Local 100 Executive Board when it met on the morning of Dec. 20, and told them that I would not approve this strike. I told them that the only road to contract victory for the membership was not by strike but continued negotiation. I continue to believe this. It should not be construed in any way that my refusal to sanction this strike lessens my resolve to secure the best possible contract for this membership."

It even posts the court opinion on its website without one word about oppressive, anti-labour judges, or the rights of the working man. I think it's safe to say that the TWU members, who by law lose two days of pay for every day they strike, cannot count on any financial help from the national, and the fines will gut the local's strike fund, such as it is.

A correspondant writes:

[The Metropolitan Transit Authority (MTA)] took almost everything off the table in exchange for a new pension tier for new employees that would have them contribute 6% to their defined benefit plan, not the current 2%.

If you presume a 4% annual turnover in staff, in 10 years, 40% of the 30,000 covered workers will pay. That's 12,000 workers. That's the equivalent of 2500 employees. Now the TWU workforce loses in penalties the equivalent of 250 employees each day. So if the strike goes on for 10 days, even if they win, they will have struck for nothing.Worse, existing employees will pay for the future employees

And the union will hurt because the penalties will empty their treasury and the loss of check off will hurt their income.

I hope that this makes sense. The union can only win if the MTA waives penalties, and I don't sense any willingness to do this.

Of course, they may have to, if they can't get the workers back on any other way. Steven Malanga is arguing in the Wall Street Journal (subscription required) that they shouldn't bother:

New York officials should take a page from President Reagan's playbook: The MTA should start sending out termination letters to striking workers for breaking the law, and hiring a new work force -- including offering jobs to current workers, but on terms set down by the MTA.

While rebuilding the work force, transit officials could unleash the privately owned van services and bus lines, which they currently prohibit from operating along public bus lines, to protect the MTA's and the TWU's monopoly. The MTA should begin handing out long-term contracts for these operators to provide alternate, competitive services on a permanent basis.

New York officials should also privatize big chunks of the transit system, as many other cities in the U.S. and abroad are doing. For the past 50 years New York has unfortunately moved in the opposite direction, preferring to take over private lines and to house transit operations in a gigantic state agency, the MTA, or to offer no-bid franchises to a few politically connected and heavily subsidized private lines -- all in the mistaken belief that having workers on the public payrolls would prohibit strikes and make the system more reliable.

Elsewhere, transit authorities are more like outsourcing contractors than operators, bidding out lines and overseeing routes. Denver and San Diego have contracted 35% of their bus routes. But perhaps the best model is London, where, spurred by Margaret Thatcher, officials began an aggressive transit privatization program nearly 20 years ago. London's bus lines, though designed by the city, are now operated by some 40 private companies. Only on such a model can New York begin to rein in its high costs and stop repeated union blackmail.

This is rather kind to the British rail system, which has had severe problems from the strange structure of privatisation. But certainly, deregulation would ease the havoc the union could wreak. I'm still betting on the union, though. Sometimes crazy is better than smart.

From the desk of Jane Galt:

Strike II

Another day of New York's exciting transit strike.

Judging from the news shows, the union has not ingratiated itself with New Yorkers. Even other civil servants being interviewed basic took a "to hell with them" attitude when interviewed by the roving cameras. The people who expressed support of the union seemed to be disproportionately people who lived two blocks from work.

My commute was, of course, hell . . . it took me a full three minutes to roll over and pick up my computer this morning. I'll be working from home until the strike ends. It's not even keeping me from doing my Christmas shopping, because my parents have a car, which I can drive out to the suburbs any time I want. I suspect that if nothing else, the transit union has given a nice boost to telecommuting. Props to the organisation with the strategic vision to try and put itself out of business before its competitors do.

The people being hurt by the strike, unfortunately, are mostly people who make less than the transit workers do. Small businesses are being gutted by this; the last few days before Christmas is the busiest time of the year for most retail establishments, and their customers can't get to them. One of the news shows had small businessmen complaining that this was going to bankrupt them, and I've no doubt that it's true for at least some of New York's retail stores, which often operate on a shoestring.

Meanwhile, poor workers, who tend to work hourly, are losing salary that they can ill-afford. The Transit Union put up a blog early in the process to report on the strikes; they seem not to have realised that they were going to get flooded with angry denunciations of the strikes in the comment section. As of 3:30 yesterday, they had almost 800 comments. While there was a fair amount of anonymous anti-union trolling, the comments were running about 2:1 against the union. Sometime yesterday evening, the union disabled the comments section. Unfortunately for them, I left the page open overnight, and was thus able to save the comments for your delectation. I've posted them in a handy Word document for anyone who's interested.

It's hard not to gape at the astonishing cluelessness of MTA workers, and some of their boosters, a substantial portion of whom merrily announced that they were supporting the MTA's fight from the safe remove of cities thousands of miles from New York. While the strike has so far deprived me of one free lunch and drinks with some friends from grad school, even I was tempted to endorse one acquaintance's plan to go to Seattle and Cleveland and encourage the fire departments that serve these yahoos to go on strike before engaging in a spot of selective arson. To people who complained about having to carry their children to day care through the frigid weather, lost pay that was forcing them to cancel Christmas, inability to take exams or get home for the holidays, being stranded uptown without Christmas presents for their kids, or losing so much traffic at their businesses that they might lose the shop, the MTA workers and their supporters proclaimed . . . suck it up, because the transit workers need to retire at 50! My favorite comment so far (I haven't yet read them all) came from an MTA worker, responding to a parent who had had to push their tot to day care in a stroller during the early morning freeze:

To the mother who must walk with her son in the cold...We all have to do what we have to do...My son has to figure out a way to get to school but is he crying?? NO because he understands that his mother is doing what she has to do.To those that feel this strike is an selfish act on MTA employees parts I say you are the true selfish ones only now thinking about how you'll get to work or around the city when any other time you take us and our duties for granted. It seems actually it is obvious your unappreciativeness towards the people that get you from point a to point b on a daily basis regardless of most circumstances. Belive and trust we do feel bad and apologize for what many of you will feel and for the inconvience our actions may cause but I will not apologize for doing what I can to make a better life for MY CHILDREN and MYSELF and if it means at this point to inconvience the people of NYC then so be it. Why are we the selfish ones?? Why should we work for month or years with out raises. Yes I took this job because of the benefits it affords and I am glad for the most part that I did it serves my purposes for the life I choose to live despite the indfference,mistreatment and disrespect that has been meted out to myself and my coworkers.But I'll be damn if after the opportunity arises to make the things that should/could be/get better better will I apologize. Please please try and understand the reasons for a event that has been long long long over due.

I feel that commenting on this response would be gilding the lily. But I begin to suspect that the TWU took down the comments not because of the nastygrams they were getting, but because of the rotten image their putative supporters were projecting.

From the desk of Jane Galt:

Blame Canada

A long time ago, in a galaxy far, far away, I joined Derek Lowe in making fun of drug companies for pretending that drugs from Canada were somehow dangerous, because they didn't have those good old American quality controls. This is silly, though in their defense, if they offered the true arguments against drug reimportation, they would be stampeded by seniors groups who basically don't care if some young whippersnappers who don't know how to show proper respect to their elders maybe don't get any new drugs in twenty years.

But according to this WSJ piece (subscription required), I may have been wrong . . . not because Canadian drugs are substandard third-world counterfeits, but because many of the drugs being represented as "Canadian" are coming from somewhere else:

The agency looked at packages suspected of containing pharmaceuticals sent from India, Israel, Costa Rica and Vanuatu -- four countries the FDA said appeared to be sources of drugs that were ordered from pharmacies alleged to be Canadian in origin.

Out of nearly 4,000 parcels examined, almost 1,700, or 43%, had been ordered from "Canadian" Internet pharmacies and were represented as being of Canadian origin. Of the 1,700 packages, 85% of the drugs weren't manufactured in Canada and came from 27 different countries.

"This operation suggests that drugs ordered from so-called Canadian Internet sites are not drugs of known safety and efficacy," Andrew von Eschenbach, the FDA's acting commissioner, said in a statement Friday. "These results make clear there are Internet sites that claim to be 'Canadian' that, in fact, are peddling drugs of dubious origin, safety and efficacy."

While Canadian drugs are just as safe and effective as American ones, there are lots of countries where that isn't true. Another reason to tell my family to steer clear of Canadian internet drugs.

From the desk of Jane Galt:

Why didn't they get a warrant?

The big issue with the NSA scandal seems to be not that they spied on people located in the US, but that they didn't get a warrant to do so. Why not? Good question. A possible answer from The Poor Man:

. . . a lot of bloggers have been coming to the conclusion that there was some kind of new technology or technique being employed which would either make it difficult to obtain enough warrants, if any at all (Noah Shachtman seems to have picked this up first). I should mention that there’s an alternate theory that the WH just wanted to spy on domestic political enemies, which certainly seeems like their MO, but even if that were the case, they would need some kind of cover story to sell to both the career NSA types and the few congresspeople that they briefed. Looking at Jay Rockefeller’s letter, it seems clear that this was the case, that his briefing referred to some kind of technological mumbo jumbo:

Clearly the activities we discussed raise profound oversight issues. As you know, I am neither a technician or an attorney. Given the security restrictions associated with this information, and my inability to consult staff or counsel on my own, I feel unable to fully evaluate, much less endorse these activities.

As I reflected on the meeting today, and the future we face, John Poindexter’s TIA project sprung to mind, exacerbating my concern regarding the direction the Administration is moving with regard to security, technology, and surveiliance.

So what is this magic surveillance technology that confused John Rockefeller and obsoleted the FISA court? Well, who knows. It’s Top Secret. But this being the blogosphere, we can speculate: first of all we turn to the original NYT article for hints:

Under a presidential order signed in 2002, the intelligence agency has monitored the international telephone calls and international e-mail messages of hundreds, perhaps thousands, of people inside the United States without warrants over the past three years in an effort to track possible “dirty numbers” linked to Al Qaeda, the officials said. The agency, they said, still seeks warrants to monitor entirely domestic communications.

“Dirty numbers” in this context means phones - most likely pre-paid cell phones, but any kind of phone can be gotten pretty anonymously - that terror suspects use to contact the “home office”, as it were. The government’s goal, presumably, is to get taps on any dirty line (I’m using phones as an example but it could apply just as easily to e-mail addresses, IP addresses, or screen names) as quickly as possible. That is very difficult if the subjects keep switching to new prepaid numbers. So, if you’re not particularly concerned about civil liberties, what to do? The most obvious idea is to tap EVERY international call, and analyze the substance offline. This requires a lot of time and a lot of manpower, and, unless your arabic voice recognition software is extremely good, doesn’t necessarily give you a lot of accuracy. The next idea is to determine via other methods (name or address matching, tracking calls from known locations) what numbers are attached to suspects, and use those. This potentially gives you great accuracy, but finding the right numbers takes quite a bit of time, and if the suspects are switching phones often enough, you might never get any intelligence. The third option is to algorithmically determine what numbers are most likely to be of interest (based on calling patterns, more or less), and then focus on those. Techniques for doing this kind of network analysis are well known (there’s a paper, which I can understand about three words of, here, if you’re interested) and have been used for years by phone companies to determine, for instance, what accounts are likely to be delinquent. The problem with this is that it takes time and a good chunk of data to determine the anomalous nodes, and while you’re waiting for enough statistical certainty to pick a target, actionable intellligence will be lost. So I think that the NSA is using essentially the opposite of this approach. When a novel phone number places or recieves an international call, that call is automatically recorded, and a tap stays on this line until the statistical analysis indicates that it is likely not a number of interest. This corresponds pretty well with several of the points in the NYT article: they said that there were “as many as 500″ of these warrantless taps going at any one time, which sounds like a reasonable number if you assume that only numbers (e-mail addresses, etc.) with no previous international traffic are added, and older numbers are dropped constantly. It provides a great deal of “mobility”, as discussed by WPE in his press conference, since you would be sure of continuing a tap even if the subject moved to a new phone. Also, using this approach makes it very difficult to obtain individual warrants, because the rate of number turnover would be high, and the number of simultaneous taps large. Not to mention that the vast majority of lines tapped would have nothing to do with terrorism, although it’s sounding like the FISA court may be pretty mellow on that score. It also sort of explains what the risk is in revealing this program, since now suspects would know that any international call they made, even if it was from a brand new phone to a “clean” number in a safe country, would be tapped.

In implementing this the administration may also have believed that (as in the TIA debacle) the fact that surveillance of innocent American citizens would not be indefinite in this program might have made it an easier sell for those members of Congress they were obliged to inform. It seems like the biggest mistake they made may have been believing they needed to circumvent the legal system to implement this program; while warrantless wiretaps of Americans in this form are risible, it’s not too hard to imagine a variant of this program that would have easily gained Congressional approval in November 2001, abhorrent as us crazy civil libertarian types might find it.

This doesn't actually seem particularly likely to me; I'd think that there were more phones than this initiating their first transatlantic phone call during any reasonable time period. But it's better than the other answers I've heard, which have consisted of a blank stare.

From the desk of Jane Galt:

Strike!

So the transit system has shut down.

It's not affecting me personally; I'm just working from home. (Although I am missing our editorial holiday lunch, and I will be unable to inflict holiday baked goods on my coworkers, since my office closes for the holiday this afternoon.) Other people aren't so lucky. Midtown traffic is ordinarily very bad; on the worst bits of the avenues you can expect to go about one twentieth of a mile every 2-3 minutes (one block per stoplight cycle). But today it is, if you can imagine such a thing, even worse. The news shows are full of people trying to walk to work across the Brooklyn Bridge. It's cold out there.

A few blocks to the north of me, 96th street is blocked off by police lines; I saw them when I was out walking the dog. It looks like something out of one of those movies where right-wing militants turn America into a police state and you have only 72 hours to get the secret plans to the rebels before you go straight to video.

The union, meanwhile, is running ads on local cable whining that they didn't want to strike, they just had to because the MTA is so awful to them. This is not true. The union is very hard left, like transit unions in most places. I'm not sure why this should be; perhaps because most of the workers have to do very little to earn their pay. The train drivers don't actually, y'know, drive; the rails take care of that. I'm told that they could easily be replaced with the kind of self-driving systems you see in airports, if the union weren't so powerful. Admittedly, the conductors are highly skilled: it takes them years to learn to mumble into the announcement microphones in a secret language that no one in the entire world except them understands. But their main useful task appears to be sticking their heads outside the window to make sure no one's limbs are sticking out of the train, a job that could be eliminated if idiots didn't try to cram themselves through closing doors because they know the conductor will keep the train from driving off with their arm waving out the door. And the primary responsibility of the toll both workers is making sure that the line to buy Metrocards never gets shorter than ten feet. All of these jobs leave a great deal of time for contemplation, which the transit workers presumably spend eradicating every vestige of false consciousness.

The point being that the workers did indeed want a strike. They've been itching for it for years. That's because they know they will win. In the private sector, the company would probably fire them and replace them with machines. But this is not the private sector, and the transit union controls not only a large number of votes, but a huge amount of funding. The City Council recently changed the law to allow political campaign contributions to come from individual locals, rather than the national union. That means that they can swing a huge chunk of change by getting locals from around the counry to donate to our council members.

There's a surprising upsurge of sentiment for going Ronald Reagan on them. This will not happen; Reagan had a large reserve of skilled air-traffic controllers from the military that he could instantly deploy to take over the ATC jobs while new people were trained. There's no such reserve of non-union train drivers, and while driving a subway train is not exactly rocket science, transit folks are still haunted by the fact that one of the worst subway disasters in New York history occurred when scabs were brought in during a strike in the early twentieth century. That's even presuming that there were union-busters in the Metropolitan Transit Authority; there aren't. The organization is solidly Democratic, as is the city power structure that is trying to influence the negotiations.

But the union's position is surprisingly unsympathetic, even to liberal New Yorkers. The workers make an average of $55K, more than what your average New York journalist makes. They have a lavish pension, on which they can retire at 55, and incredible benefits. And yet to judge from their interactions with ordinary New Yorkers, you would think that they were enslaved in Egypt. Everyone I know detects an expression of positive glee on the faces of the conductors who close the door just as you are getting to it, or the booth operator who makes you stand there, watching the trains come and go, while she stacks her pennies in orderly piles. No one I've talked to feels that they are entitled to more money, fewer disciplinary hearings, or better benefits. Everyone seems pretty eager to see the transit workers forced to wait until their sixties to retire like the rest of us. It's not as if the bulk of the jobs are so physically demanding that it's unreasonable to expect them to keep sitting in their booths for another ten years.

It won't happen. The union will win, as unions always win in New York City. All this strike is doing is providing moderate excitement to stranded New Yorkers before the MTA caves. Sic semper tyrannis.

From the desk of Jane Galt:

Dell hell

You know, over and over again I have stood up for Dell Computer. Sure, their outsourced technical support people generally can't speak English so well, and given that they are, like, 5,000 miles away from the mother ship, they don't really understand the company procedures well enough to help customers when something goes wrong. But who is better, I asked. Who is providing the kind of good old American service we used to expect from our computer companies? No one, that's who, and given that, you certainly can't beat the value of a Dell.

That was then. I have just had what may be the worst customer service experience of my life with Dell. They may have soured me permanently on the company.

Let us travel back through time to one month ago, November 15th, when my mother asked me to order a computer as a surprise Christmas gift from my grandmother to my Aunt Annie, who has taken over the job of running the house and paying the bills since my grandfather died. "I will order it from Dell right now," I told her, and forthwith did, finding a very nice deal on a Dimension 3000 that set us back a little over $850 including shipping and tax.

Fast forward to December 5th, when the computer has still not arrived. There begins the odyssey of telephone calls to people at Dell, the US postal service, and my grandmother's caregiver, trying to track down the elusive package. No one knows where it is. Nor do the Dell people evince that much interest in finding out, despite their promises to locate it immediately and call me back with the information.

Trusting in them, I let things slide until sometime around the 10th, at which point my mother begins to worry that the computer will not arrive in time for Christmas. Another call to Dell. Where is the computer? No one knows. But not to worry, they will order us another one and have it Fedexed when it is ready. It will arrive in plenty of time for Christmas.

At that point, I begin my routine of calling Dell once a day to see where the computer might be. It's in process, I am told; the people at the customer service desk cannot track it down until it comes out of manufacturing and is ready to ship.

Today, I call them again. "Where is the computer?" The first fellow I call, located somewhere in Latin America, seems to be very nice except for his near-total inability to comprehend my English. Now, I have never won any diction prizes, but when I say "two", very few people in my experience mistake that for the number "three". He also cannot locate my records in the system, despite being provided with the original order number, my name, and my telephone number. Eventually I ask to be transferred to a supervisor. I am transferred . . . to the supervisor's mailbox.

I hang up and call Dell again. This time the Indian fellow has no difficulty whatsoever locating my record. "it's been cancelled," he informs me cheerfully. Apparently, Dell is no longer manufacturing that model. Why didn't they, y'know, call us to tell us that the order had been cancelled? Blank silence. I mean, it's a pity that it's now six days until Christmas and all, but they'll transfer me to hardware support, who will tell me what my options are.

Keep in mind that I have been calling them every single day since we ordered the replacement, to make sure that the thing was actually percolating through the system. On Friday afternoon, five days after the replacement had been ordered, no one mentioned this little issue to me. Apparently, they stopped manufacturing the Dimension 3000 some time this weekend. Undoubtedly all the workers were in Hong Kong, protesting at the WTO.

Hardware support, when they finally pick up the phone 15 minutes later, is, of course, completely befuddled as to why I, who have not yet received a computer, am speaking to them. I, too, had tried to suggest that hardware support might not be the appropriate place to transfer me, but the customer service representative had assured me that they would be able to help me out. Of course, they could not. What they could do is waste another ten minutes asking me for the exact same information I'd given to the previous fellow, and then a further 5-10 minutes transferring me back to customer care--whereupon I was informed that Dell was doing me the tremendous favour of crediting my account for the $850.

You would think, that with all the customer service problems they have been having, Dell would not want another customer out there saying "Dell strung me along for a month and then dumped me on the computer market five days before Christmas." You would think, in fact, that they would be falling all over themselves to fedex me the closest thing they could find to what we ordered at no extra cost to myself. Or maybe you wouldn't think that. Maybe I'm some sort of woeful naif with an outsized sense of entitlement who believes that just because Dell's colossal screwups threaten to leave my family without a present under the tree for my much-put-upon Aunt come Christmas morning, that Dell should try to fix it.

I am currently holding for a supervisor. I have now been on the phone with Dell for well over an hour, and so far all I know is that I should have bought the damn computer somewhere else. I'll know better next time.

Update Should have seen it coming: Dell disconnected me, but not until after I waited another ten minutes or so to speak to a supervisor. Now on call #3.

Update II They've cancelled the order. Five days before Christmas, and I have to find another computer that my family can afford. Dell's idea of resolving the problem is magnanimously informing me that they will credit the money back to my account, as if not charging me for merchandise that they haven't, y'know, sold me were some kind of enormous innovation in customer service.

I wish I could be funny about this. But we had a limited budget for the computer--my grandmother is not wealthy--and now I have to go out and try to find something decent in that price range, which is going to be pretty damn hard. There's a very good chance that my Aunt Annie, who has been taking care of my grandmother without complaint for over a year since my grandfather died, will not have her gift under the tree. Everyone in the family was so looking forward to having something special to give her to reward her for all her hard work, and now we're back at square one, with five days to the holiday and no time to find a good deal. If I weren't so mad, I'd cry.

Update III One of the major pitfalls of outsourcing to India, it seems to me, is that when I said "this is a Christmas present for my Aunt, who's been taking care of my frail little 91-year-old-grandmother all year", I was met with the same suave lack of interest as if I'd informed them that I planned to start writing a memoir of my years as the assistant sanitation chief for Dubuque as soon as I got the computer. That only added to my rage, which, to be fair, was already pretty considerable. They also displayed no motivation to even pretend that they were going to do anything except repeat that the Dell Dimension 3000 is no longer being manufactured, but--never fear!--they are graciously prepared to give me my money back.

Update IV I seem to have inadvertently implied that Indians are incompetent and/or mean in the update above. The point was just that Indians presumably don't understand the cultural significance of Christmas, any more than I understand the cultural significance of . . . umm . . . that holiday where they throw colored powder all over each other. Although it looks like mad fun. I assume that Indians are just as compassionate and caring as Americans are. Although I have only met a small fraction of India's 900 billion people, my experience so far has been very pleasant. If we can generalise up from my small sample, Indians are lovely people indeed.

Update V I contacted Dell's press office to give them a chance to respond. They're being very nice and trying hard to resolve this.

Update VI Dell has just called to offer me free expedited shipping and a 10% discount on a similar refurbished machine from their outlet. I've had very good experiences with their outlet machines . . . I'm typing this on one right now . . . so I'm very happy with that. In fact, all I wanted last night was for them to Fedex me an outlet machine, which I could see they had on hand, and pay for the expedited shipping. Mistakes do happen, and I don't blame Dell for the fact that things went awry. I was just angry that they weren't fixing the problem, which they've now done, and exceeded what I thought I was entitled to. So three cheers for Dell, after all.

From the desk of Jane Galt:

Crimes of passion

Like many spirited young girls, I chewed the legs off my Ballerina Barbie. I had no idea, however, that such violence was epidemic, much less that it was so dangerous to society.

From the desk of Jane Galt:

How thoughtful

Don't forget to get those cards out this holiday season.

From the desk of Jane Galt:

Worthy work

The Mark Kleiman post to which I responded below contains this this lovely sentiment:

Could there by anything crazier, at a social level, than telling young people with the talent and determination to pursue careers in the natural sciences that doing so isn't a wise move from a personal-financial-planning perspective? It's true, of course. But think of the social waste involved in converting a potential biologist in to, say, a detail man for a pharamaceutical company. Even at an individual level, do we really want to live in a world in which most of us have to choose between work that is materially rewarding and work that is satisfying?

Well, if we don't tell them that, who will take out the garbage? Do our taxes? Teach snotty, disinterested undergraduates what a demand curve looks like? Do you think people would do any of these things if the wolf weren't pawing at the door?

This is a pretty regular political plaint, and it strikes me the way much of feminism does: extremely privileged educated people attempting to disguise their class interest as concern for those less fortunate than they are. Not consciously, I mean. But underneath the surface, the movement ends up being all about *me*.

I, like Mr Kleiman, am one of those lucky enough to have an extremely fun and rewarding job. Should I also get to be paid as well (or even nearly as well) as my classmates who went into consulting or banking? If there weren't such a dramatic income differential between journalists and academics and silmilarly gifted people who go into more lucrative professions, everyone in the entire world would be trying to get my job. And frankly, journalism is competitive enough already. Isn't it nicer that some people can be compensated for their willingness to spend dreary weeks studying Nucor Steel's supply chain by having a bigger house and nicer vacations than I do?

The world doesn't really need more journalists; people already have more writing than they can (or will) read. Perhaps it needs more academics, though it seems to me that the big surplus supplies are in fields that produce little obvious benefit to anyone except the academics themselves. (I mean, I think it's nice that someone knows all about the fishing industry in 15th century Denmark, but I doubt my fellow citizens benefit very much thereby). We have a shortage of American students who want to be engineers, organic chemists, and so forth, even though these fields pay quite well; science is hard work. I see no benefit from encouraging more people to pursue a career in teaching university-level history rather than becoming marketing executives at Kraft--certainly not one worth inserting the hammer-hands of the government into the economy.

At the lower level of the income/education scale, the choice that people are making is generally not between work that is entertaining and work that is remunerative; it's between work that is physically demanding, and work that is mind-numbingly boring. And the fact is that there's a huge amount of very boring, often disgusting work out there that needs to be done. Someone needs to make sure my computer gets shipped, change old people's diapers, clean school buildings, drive busses, sort mail, stock shelves, answer phones, file papers, and so forth. It is pretty unfair, of course, that that person isn't me, just because I happened to be born smarter and a better writer than the average person. And it's also pretty unfair that, in general, crappy boring work is less well remunerated than more mental endeavors. But that's the cruelty of a bell curve; intelligence is clustered along a distribution, and as jobs get more complicated, they get more interesting, even as fewer and fewer people can do them well. Severely disrupting the relationship between intelligence and wages (by which I mean, not "increasing the minimum wage", but setting things up so that file clerks get paid more than biology professors), would play havoc with the economy in ways that would ultimately make us all poorer.

From the desk of Jane Galt:

Happy are they who redistribute their income

Mark Kleiman argues that my posts below imply support for Robert Frank's thesis that we should enact a liberal income redistribution scheme, because money doesn't buy happiness above a certain low income threshhold.

No, no, a thousand times no. I have been distinctly underwhelmed by Robert Frank's work, which argues from happiness research to conclude that--shockingly!--it proves scientifically that we should adopt the political platform that Mr Frank just happens to have believed in before he wrote the book.

Now, I am not as hostile to happiness research as, say, Will Wilkinson. I am willing to posit that status-seeking expenditure, on things like houses too big for a normal family to regularly use all the rooms, or expensive cars when the owners are not the kind of people who particularly care for driving or auto mechanics, does indeed strike me as a collective action problem. (A collective action problem is one where all the individuals in a group would be better off, say, striking to get more wages, but because they are only better off if everyone does it, they generally take another course of action acting alone.) Everyone buys expensive goods in order to signal their status to the community, but because status is a zero-sum game--one person must lose status in order for another to gain it--these are wasted activity from the point of view of the group; there is no net gain in happiness from all that expenditure.

But while to a liberal that implies that we should take some of that money that isn't producing any happiness and give it to others, to a conservative this points up the essential futility of income redistribution. Since you will be redistributing the money without redistributing the status, you'll produce no net gain in happiness. The average welfare mother in America has better health care, entertainment, food, shelter* and clothes at her disposal than the Rockefellers did at the turn of the last century.

You could give welfare mothers in New York City $1000 more a month to spend on housing, and they would still live in exactly the same crappy apartments they now occupy, because there is no more housing being built, and with a 2% vacancy rate, landlords can afford to be choosy about their tenants. That's why they're all herded into government housing projects. And in my experience, admittedly limited, public housing tenants complain about two things that no amount of money will fix absent major institutional changes (most of which would be opposed by the left): having the government for a landlord (imagine trying to get your pipes fixed by the DMV) and the other tenants, many of whom are criminal or antisocial, and tend to destroy both safety and the physical plant of the housing project.

Similarly, let me posit that any fashion trend, automobile, restaurant, or what have you, that is adopted by the poor will rapidly become a low-status item among higher income quintiles. SInce Robert Frank's writing implies that the physical objects do not actually make anyone happier, why should we give the government massive intrusive powers in order to give the lower quintiles objects which will not confer upon them the status that the objects are purposed for? Why, indeed, should welfare cover anything but enough food to keep you from being hungry, enough shelter and clothing to keep you from being cold? Our pioneer ancestors managed to live full and happy lives on such a regime.

What about those intangibles that could make us all so much happier: income security and increased leisure?

I have several problems with this. For starters, while I think that people spend a lot of money that doesn't make them happier, that doesn't mean I think that no spending makes people happier. My high speed internet connection, for example, makes me materially happier than I used to be, because it has enabled me to discover a community of people that I never would have met otherwise. A tired mother getting off her feet at an Arby's while the kids toss french fries at each other is certainly happier than she would be making mac-and-cheese for the zillionth time at home. Robert Frank (and Mark Kleiman's post) implies that there are certain activities and professions that are more worthwhile than others, and that we should design the economy in order to push more people into those things. But this presumes that Mr Frank (or any technocratic planner) has the ability to correctly identify the right activities. I am deeply sceptical of this--and I am certainly not going to hand that sort of power over to anyone based on studies who data comes from self-reported surveys, a notoriously unreliable data source.

Because I don't know which new technologies will make people happy, and which ones will merely enable them to waste more of their hard-earned money, I want the economy to sort that out, not some exquisitely educated clown like me. And while Mark Kleiman apparently thinks that following Robert Frank's suggestions would have no impact on GDP growth, I vehemently disagree.

Take income security. Now, believe you me, if anyone knows how much it sucks to have your carefully planned life overturned, it's me. I didn't just watch my city blow up due to 9/11; I saw my career and my relationship with my then-boyfriend implode, leaving me, at the age of 29, living with my parents and doing clerical work. If you had asked me beforehand if I wanted to buy insurance against just such an eventuality, I would have paid a pretty penny to avoid it.

But I would have been wrong. That was undoubtedly the worst period of my life, made even more dreadful by a growing fear that it would never end, and my life would be ruined. But the loss of everything I had counted on was what enabled me to take an enormous risk: becoming a journalist. I never would have dared to do something so insane if I'd had a cushy job. And that was possibly the best thing that ever happened to me.

The overwhelming majority of people simply will not reach their potential without the fear of catastrophe dogging their footsteps. There are some standouts; perhaps Mr Kleiman is among them. But there's a reason that I have produced a lot of stories on the world economy, and almost nothing of the novel I've wanted to write for years: I have a demanding editor who controls my paycheck demanding regular work out of me.

I don't mean to paint some Rebecca-of-Sunnybrook farm picture of the world, where suffering always spurs innovation, and risk is always rewarded. Some people whose expectations go awry never do get back on their feet. But most people whom I met have managed to pull together fuller, richer lives after the disaster pared their life back to essentials. And if the possibility of failure weren't real, the impetus to rise above wouldn't be, either. Guaranteeing people that their living standard can never really fall strikes me as a very bad idea.

Would leisure be bad for the economy? Well, it seems to me that France's experiment has revealed that mandating more leisure would, at the very least, be bad for full time employment. And the availability of full-time employment is one of those things that happiness research suggests does make people happier. At the upper reaches of the professional scale, it would also be bad for innovation. You can split a waiter's shifts pretty easily, but you cannot get as good as a result by splitting a lawyer's work in half and assigning the two halves to two different lawyers. That's because the true work--the reason you need a lawyer and not a paralegal--takes place in the lawyer's head, where all her knowlege about the case swims around together and forms connection between the various facts of the case. That's the main reason that big law firms don't have many part-time associates, and partners don't get to take it easy once they've got it made.

What about income distribution? I've said before that I think the supply-siders who argue that lowering our marginal tax rates will raise revenue are full of bunk. But that doesn't mean that I believe the Laffer Curve doesn't operate anywhere. High taxation has a pretty high deadweight loss, and given that the Fortune 500 is increasingly composed of people who earned, rather than inherited their money, I think it's inadvisable to risk it with the really large government taxation and regulation plans that would be necessary to bring Mr Frank's plans to fruition.

In sum, just because I think that people spend money on things that don't really make them happier doesn't mean I want the government to step in and make them stop, especially when so many of the prescriptions are potentially so harmful. Nor do I agree with Mr Kleiman's claim that individuals really can't deal with the vicissitudes of life; a middle aged man who loses his job could deal quite well if he'd been saving 25% of his salary. That he has failed to save adequately does not instantly present to me either a moral or a utilitarian case for rectifying his failure, particularly since doing so will encourage other people not to invest in their future. (I'd certainly vote to keep him from starving, but not to replace all his lost income). That is why I encouraged individuals to look hard at their spending to eliminate the things that do not truly make them happy, rather than calling for government programmes. They're in the best position to actually know what they need.

*Yes, the Rockefellers had a lot more space, and marble floors to boot. But would you rather have a big house with marble floors, or a little apartment with central heating, air conditioning, and indoor plumbing? I know which one I'd pick.

From the desk of Jane Galt:

Do we have a Social Security problem?

Calculated Risk says it's not worth bothering about compared to other problems:

This chart shows the relative sizes of the three major fiscal challenges over the next 75 years. The NPV for the General Fund deficit is based on deficits equal to 5% of GDP. Note: the fiscal 2006 general fund deficit will be close to 5%.

The estimates for Medicare and Social Security are from the GAO report (pdf): The Long Term Fiscal Challenge

From the GAO report:

"Health care is a bigger problem than Social Security. Participants acknowledged the need for Social Security reform but emphasized that Social Security is a relatively small part of the long-term fiscal challenge when compared to spending on health care. ... Several participants observed that few members of the public are aware of this. Rather, the general public impression is that solving Social Security would solve most of the longterm fiscal challenge, and this is not correct.

And on the General Fund deficit:

"Participants agreed that a key moral context is the impact federal budget deficits will have on future generations."

Conclusion

The debate should be focused on the two major issues: Health Care and the General Fund deficit. Without addressing those issues first, reforming Social Security is irrelevant.

Arnold Kling takes issue with this:

But the premise is also wrong. If we allocated a larger share of payroll taxes to Medicare instead of SS, we could argue that Medicare is not a problem but SS is the big issue. We should be looking at the challenge of funding spending as a whole, not looking at the arbitrary allocation of taxes to different programs. In terms of overall spending, Social Security is a gigantic issue.

Finally, it is disingenous to whine that we need to solve the other problems first, without offering a solution. Overall, this stance of "solve X and Y before you tackle Z" comes across to me as mere demagogic rhetoric, the end result of which will be that X, Y, and Z will remain unsolved.

I agree that the people saying "Social Security's not the problem, Medicare's the problem!" in general show an astonishing lack of interest in fixing Medicare; indeed, they are often the same people who want to add nationalised health insurance to the budget, which seems to betray a lack of committment to solving our budget problem.

But there's another problem with Calculated Risk's argument: Social Security is a major contributor to the General Fund deficit problem. The social security surplus masks the general fund deficit; if you take social security out of the picture, no president has run a budget surplus for more than thirty years. Taking the social security surplus away from our legislators is the most obvious first step to force them to address the general fund deficit. Moreover, after the surplus disappears, social security will become a major drain on the general fund.

It looks to me as if Calculated Risk's chart acts as if the "trust fund" were real. But as discussed many, many times before, the "trust fund" is not, from the perspective of the US taxpayer, funded. I'd argue that the relevant question, for the US taxpayer, is not the accounting distinctions that the US government makes, but what percentage of (tax revenues + borrowing) is devoted to paying Social Security benefits. Bringing the "trust fund" into things arbitrarily changes a substantial portion of the Social Security burden from benefit payments to interest payments. This substantially overstates the general fund deficit and understates the Social Security problem.

More broadly, the deficit has some institutional limits on it: lenders will not continue to indefinitely extend us unlimited credit, and as it goes on, political pressure will build, albeit slowly, to reduce it. Social security, on the other hand, has very weak limitations. While under statute, benefits are supposed to be slashed to meet revenues when the "trust fund" runs out, there seems litle realistic possibility that Congress will allow benefits to be suddenly slashed to 70% of their previous levels. And if they did, that would hardly rate as a good outcome in my mind, or presumably in the minds of the people saying that the Social Security system is "just fine".

By far the biggest problem with our budget, to my mind, is that we are communicating to senior citizens, and more importantly to future senior citizens, that they do not need to save all that much for their retirement, because someone else will cover their medical expenses and help them pay their bills. This is not an affordable promise, either financially or politically, and when it finally breaks down, either young workers or senior citizens--and probably both--will find themselves in big trouble. The purpose of reforming Social Security is to force people to consume less and save more, thus increasing the productivity of the economy that will have to support them. This is a very big problem, and pretending it isn't is just making it bigger.

From the desk of Jane Galt:

Welcome back

Terry Teachout, who not only runs one of the best art blogs out there, but also is a charming and brilliant dinner companion and all-around mensch, has been having some health troubles. Head over there and wish him a speedy journey on the road to recovery.

From the desk of Winterspeak:

More cheap, healthy, easy things to cook

Inspired by Jane, I thought I would add more cheap, healthy, easy things to cook. At least they are cheaper and healthier than most restaurant food.

Full disclaimer: Much of my cooking comes from Best Recipes and Think Like a Chef. Over time I've found myself focusing more on technique and much less on recipe or ingredients, and these two books focus on technique.

1) Pan Searing
I'll use burgers (cheap) as an example, but steak (not cheap), duck breast (not cheap), lamb chops (not cheap) also sear up a treat.

Get fatty ground chuck (30%). Mix with lots of kosher salt and pepper. Work into patties, with big dimples in the middle (otherwise they become spherical).

Heat a cast iron pan until it's quite hot. Put patties on pan (do no crowd). This will release a lot of smoke, so if you're doing it indoors turn off the smoke detectors.

Let the patties cook 80%-90% on one side. Do not mess with them while they cook, you want a powerful sear. If they start blackening, turn off the heat and hope for the best. Once they are done on one side flip and brown the other side (here you are just browning the outside, so it should not take long).

Serve with ketchup and raw onion.

Freeze any extra raw patties.

2) Roast any meat
This works very well with chicken, fish, and any meat you want to pan roast. You really do need an anodized pan through (like the ones Calphalon makes). If you use chicken, buy kosher chicken. It comes pre-brined and that makes a difference.

Take your meat and liberally sprinkle it with salt and pepper on both sides.

Heat up your pan with extra virgin olive oil.

Put meat in pan, pretty side down.

Leave it *alone* so it develops a nice crust. Reduce heat so it sizzles but does not spatter. If you have trouble controlling the heat on the stove top, preheat your oven to 450 degrees and finish the dish in that by putting the whole pan in.

Cook it 80%-90% on one slide, then flip it and finish it on the other side.

That's it. This also works really well with duck legs btw. which essentially confit in their own skins. Duck breasts work better using the searing method (above).

Serve pretty side up.

3) Roast any vegetable
I've had good luck doing this with zucchini, carrot, mushroom, etc. If you try this with potatoe, use high starch potato (like Russet) and make sure your oil is good and hot first.

Cut vegetable up into appropriately sized slices/chunks. Toss with olive oil and lots of kosher salt and black pepper.

Preheat over to ~300-400 degree.

Heat heavy pan on stove. Put all vegetables in pan (making sure they do not crowd). Put entire pan in oven.

Wait for ~15-20 mins and see if they are browning nicely on one side. If they are, let them fully brown before flipping them over. If they aren't give them some time.

The goal here is essentially to dehydrate the vegetables and caramelize the outside at the same time. They should be markedly smaller and browner when they come out, with crispy outside and molten insides. They should not be burnt.

All of these "recipes" are very simple in that they don't involve much beyond the ingredient, extra virgin olive oil, kosher salt, and black pepper. You also don't need to fuss with them much once they are going (in fact, fussing with them reduces your crust, and therefore makes them worse). You do need to keep an eye on them though and develop a sense for when things are ready. But I've found them to be easy, quick, and tasty.

From the desk of Jane Galt:

Ten incredibly cheap, healthy and easy things you can cook for yourself

So what sort of things are cheap, easy, and delicious? Very few, I'm afraid. But here are some I've found:

1) Fruit compote (delicious, healthy, and filling as a dessert or breakfast with lowfat yogurt and granola)

1 bag frozen raspberries
3 bags mixed berries (or 3 bags of whatever berries you like)

Put frozen raspberries in small saucepan on stove with 3 tablespoons apple juice or water. Bring to a boil over medium heat. Boil for one minute, then add 1/3 cup of Splenda. Stir to combine.

Empty other three bags of berries into a large bowl. Pour raspberry mixture over them, and allow to cool. (Heat from raspberry sauce will thaw them) Put a couple large spoonfuls over yogurt (I make my own for a fraction of the cost of storebought) and sprinkle with 1/4 cup granola.

2) Almost-homemade chicken soup

Super-thrifty way: Take picked-over carcass of roasted chicken. Place it in a stock pot and cover with 2/3 fat-free chicken broth, 1/3 water. Toss in a bay leaf, chopped onion and celery, 1/4 tsp sage or poultry seasoning, and a cup of wine. Bring to a boil, then turn down heat to low and simmer for 2 hours. Strain.

Less thrifty way: Just use chicken broth from a can/box. Pour it into the stock pot to give 3-5 inches cover of the chicken breasts.

Take two pounds of boneless, skinless chicken breasts (bought on special,naturally) and cook in the chicken broth over medium heat until chicken breasts are white all the way through, 15-30 minutes depending on your stove. Remove breasts from chicken broth and strain broth again to get rid of scum.

Add two or three stalks of celery, minced, a bag of baby carrots cut in half, a box of mushrooms cut into quarters, and any other vegetables you fancy, except peas (they'll get soggy). Cook until the carrots are tender. Now toss in half a box of frozen baby peas and noodles or alphabets, if you like. Cook for five minutes, until pasta is barely tender. Cut up the chicken and add it back in. Add salt and pepper to taste. Serve. Not as good as recipes that start with a whole chicken, but much better than canned, and it only takes half an hour.

This basic principle can be extended to all sorts of soup; if you like Chicken Tortilla soup, add some tomatoes and hot peppers and bake some cut up tortillas at 400 degrees until they're crispy. If you like creamy soup, add cream. If you're on a diet, and want creamy soup, take out the chicken and the vegetables and throw a cup of rice in the soup. Simmer for 45 minutes, then puree the resulting mixture. Looks just like cream of chicken soup.

3) Scrambled tofu stir fry

Non vegetarians groan at this. Tofu? Gross. It's not the flavour, they explain; it's the consistency.

Okay, so here's how you get around that and eat your cheap, healthful tofu.

First, cook some rice, of course.

For two people, take 1/3-1/2 container of firm tofu and mince it into little pieces. I recommend using one of these hand choppers, which are really cheap and useful enough to make them a must-have for any cook.

Now take a bag of mixed vegetables, like broccoli, cauliflower, and carrots. Add some chopped onions and mushrooms, and if you can get them, bamboo shoots, bean sprouts, and/or water chestnuts. (one of the things I miss about London is that they sell stir-fry vegetables in handy pre-packed bags in many supermakets there).

Use a bottle of your favourite stir-fry sauce from the supermarket, or make your own; I like to use a mixture of dry sherry, garlic, minced ginger, soy sauce, oyster sauce, and a tablespoon or so of peanut oil. You can mix up a bunch in advance, and use it several days running, but it's probably best to start with the store-bought stuff.

Take one or two tablespoons of peanut oil and heat it on the stove over high heat for several minutes. (A wok is great, but I stirfry in a regular frying pan. Just make sure it has decently high sides). When the oil is really hot, throw your vegetables into the pan and stir them around for three minutes while they cook. At the three minute mark, throw in all that chopped tofu. At the five minute mark, throw on your stir-fry sauce until you have the level of sauciness you like; I tend to err on the dry side, since sauce adds fat and calories (and I like the flavour of broccoli) but it's your call.

Cook for a minute, and then take off the heat and serve with rice.

I wouldn't serve this at a dinner party--it doesnt really look that appetizing--but then, neither does tuna noodle casserole, and we all like that. It's very healthy, it's cheap, it takes under ten minutes to prepare (twenty, including making the rice and your own stir-fry sauce) and you'll never know the tofu is there.

4) Scrambled eggs.

Everyone thinks they know how to make scrambled eggs. But to make really good, creamy scrambled eggs, you need two things: lot's of milk, and very low heat. I mean, put the burner on simmer.

For one averagely hungry person, use two eggs and 1/4 cup of milk. (If you use lowfat or nonfat milk, add a tablespoon or so of lowfat milk powder to the milk to beef it up. Don't worry-I guarantee that you won't taste it.) Beat that up well in a bowl, and put a frying pan over the lowest heat your burner will do. Spray the pan well with cooking spray, and pour the eggs in. Then let it sit. It will probably be about five minutes before the eggs even look like they're cooking. That's okay. Patience, grasshopper. Just stir it around every few minutes to scrape up the cooked bits and let the raw egg run into their place. Towards the end, you'll have to stir more frequently, but don't manhandle the eggs--only move them when the bit touching the pan is clearly cooked.

This is not super-quick; it probably takes twenty minutes to cook a pan full of eggs. But it's pretty low-work, and they're really lovely, creamy, fluffy and moist. And it really doesn't get much cheaper than $3.00 for six people.

5) Fish in foil

Expensive restaurants do it in parchment paper, but foil works nearly as well, and it's cheaper.

Take a cut of white fish, such as Orange Roughy, Sole, Flounder, or whatever you find on special this week. Divide into portions. Don't ask me "how big"?--don't you know how much you eat? But generally, about 6-8 ounces.

Preheat the oven to 450 degrees.

For each portion, make a piece of foil big enough to completely cover the fish, with room to spare, when folded in half. Brush the inside of the foil well with olive oil. (If you like garlic, I recommend crushing a clove of garlic into the oil before you do so). Place the fish onto the foil with a slice of lemon and a sprig of whatever fresh herb you fancy; tarragon, thyme, and rosemary are all especially nice. Then fold the foil over the fish, and fold the edges over each other until the packet is sealed shut. Cook on a cookie sheet for about ten minutes. You'll get delicate, herb-infused fish steamed gently in their own juices. They're very nice on their own, or with a quick sauce, such as one made by melting a tablespoon of flour and a tablespoon of butter together then adding a cup of white wine and the juice of one lemon and cooking until slightly thickened.

6) Easy lentil rice

Take one box of Near East Lentil Pilaf mix. Cook according to the directions, except that when you add the rice, you also add a half a box of mushrooms, sliced or cut in quarters, 1/4 cup chopped onions, one extra tablespoon of butter, and A LOT of fresh ground black pepper. It's a lovely side dish, but it also makes a healthful, vegetarian main dish, at only about $2.00 a servince. Lovely with a big salad and some hummus and pita.

7) Really good vegetarian lentil soup

Most lentil soup tastes like dirt, especially if it's made without meat. The secret, I've found, is to add half a small jar of those roasted red Italian peppers.

So melt 3-4 tablespoons of butter in a soup pot and saute 1 chopped small onion, 1/2 a jar of roasted italian peppers (chopped), 2/3 cup of chopped carrot and 3 minced stalks of celery until the onion is translucent. Add a bag of lentils, a bay leaf, and some fresh ground black pepper, and cover with water or vegetable broth--or, if you like it tomato-ey, with water mixed with one can of chopped plum tomatoes (unseasoned). Cook over medium heat until the lentils are tender, about 1 hour. Season with salt and pepper to taste.

8) Turkey sloppy joes

Take one can of Manwich sauce and cook according to the directions, except use ground turkey instead of ground beef.

You can also make turkey soft tacos this way, using El Paso or McCormick taco seasoning (no, really, it's actually pretty good), but if you do, I recommend using two packets; ground turkey has no flavour of its own, so it really needs a lot of seasoning.

9) Pea soup

Not split pea soup; regular pea soup. It's very springy.

Saute 3/4 cup of chopped onion in a tablespoon of butter for five minutes. Add a large bag of frozen peas, and 2 1/2 c chicken broth, and simmer for five minutes, or until peas are tender. Puree in a blender, then add 1/3 cup buttermilk (contrary to the name it's low fat) and salt and pepper to taste. Heat and serve, swirling a little more buttermilk in.

10) Barbecue chicken

Okay, this isn't quick. But it's cheap and good.

Take a cut up whole chicken, or just breasts, or just legs, depending on how much you want to spend. Soak in 5 cups of water, 1 cup of sugar, and 2 teaspoons of kosher salt overnight in the fridge. The next day, preheat the oven to 300 degrees and put the chicken parts on a cookie sheet or jelly roll pan. Brush with barbecue sauce on both sides then bake, skin side up, brushing with barbecue sauce and the pan juices every twenty minutes. It'll take a little over two hours, but the skin will be richly infused with barbecue flavour, and there's very little actual work involved.

From the desk of Jane Galt:

Real genius?

Peter Watson, who has just written a book on ideas, describes himself as "the know-it-all from hell". But his interview with Deborah Solomon doesn't make him sound like the brightest bulb on the Christmas tree:

On the other hand, not all big ideas are good ideas. In fact, most big ideas are probably terrible ideas. What do you think is the single worst idea in history?

Without question, ethical monotheism. The idea of one true god. The idea that our life and ethical conduct on earth determines how we will go in the next world. This has been responsible for most of the wars and bigotry in history.

Monotheism: responsible for most of the wars in history. I was unaware that the early Romans, Greeks, Assyrians, Babylonians, Chinese, Japanese, Vikings, Mongols, Huns, Persians, Medes, Visigoths, and Zulu had all been monotheists. I was under the impression that they didn't really give a hoot what the people they conquered believed; they just wanted their stuff.

Perhaps he doesn't mean the majority of wars, but only the majority of deaths. This would tend to bias the results towards monotheism, simply because monotheism pushed into the far corners of the earth at the same time as the population explosion that followed the Industrial Revolution. But his definition doesn't really fit the Nazis, either, who could have cared less what the Slavs believed; all they cared about was bloodlines. Nor the parties in World War I, who didn't line up by any sort of recognizeable religious or cultural practice. And while I suppose one could categorize communist regimes, who are the other major source of body counts in the twentieth century, as believing in "one true God", none of them were notable for their emphasis the afterlife, unless you count badly executed bronze statues as "life after death".

The shallowness of this response does not make me inclined to buy Mr Watson's book. It's the sort of "daring" statement that actually relies completely on the unquestioning acceptance of his audience, whose prejudices it neatly caters to. If they actually thought about it for a minute, they would see that it doesn't make very much sense. But why bother thinking about things that just feel so true?

Who needs ideas at all, really? We know what's true in our guts, where it counts.

From the desk of Jane Galt:

That sounds like a plan

Andrew Samwick blogs a plan that sounds like it is not only sustainable, but also could achieve broad consensus across the left-right spectrum--although not across the old/young spectrum. I imagine the AARP will go nuts, making such a plan DOA. But one can hope.

From the desk of Jane Galt:

Hee!

Dungeons and Dragons: the Devil's tool.

From the desk of Jane Galt:

Another contest

Reminder! There's still time to vote.

My recipe for Citrus Cake has made the finals of the Epicurious October recipe contest. Needless to say, this is pretty exciting for me, and I'd love it if y'all would wander over there and toss a few votes my way.

In other news, we're slipping behind Club for Growth in the 2005 Weblog Awards. I told you before what will happen if I don't win. No one wants to see me cry, do you? Because I'm so fond of you.

It is perfectly legal to vote once every 24 hours in both contests, so vote early and often.

From the desk of Jane Galt:

Stop snitching?

After reading this article on snitching, I'm well prepared to believe that there are serious problems with the way our nation's police forces use informers. But this seems a little bit crazy to me:

Finally, as the T-shirt controversy illustrates, snitching exacerbates crime, violence, and distrust in some of the nation's most socially vulnerable communities. In the poorest neighborhoods, vast numbers of young people are in contact with the criminal-justice system. Nearly every family contains someone who is incarcerated, under supervision, or has a criminal record. In these communities, the law-enforcement policy of pressuring everyone to snitch can have the devastating effect of tearing families and social networks apart. Ironically, these are the communities most in need of positive role models, strong social institutions, and good police-community relations. Snitching undermines these important goals by setting criminals loose, creating distrust, and compromising police integrity.

Call me heartless, but I don't feel like fostering stronger bonds between criminals should be a goal of our nation's policy.

From the desk of Jane Galt:

Jack 'em up

The Fed raised interest rates by 25 basis points today. On the one hand, they indicated that they were keeping a close eye on resource utilization (which probably refers mostly to the unemployment rate) as an indicator of possible inflation; on the other hand, they took the word "accomodating" out when referring to current monetary policy, which indicates that we've moved into the end stage of tightening. The upshot is that we're largely in the same place we were a couple of weeks ago, expecting to get increases of 25 or 50 basis points before the Fed slacks off its "measured pace" of tightening. After last week's stellar economic indicators (3Q GDP growth of 4.3%, productivity growth an even sexier 4.7%), there was speculation that the rapid GDP growth might spur tightening, or the productivity growth might mean a looser policy out of the Fed. Meanwhile, everyone's worried that sustained high oil prices will feed through into broader price inflation, although it hasn't yet. But Greenspan seems to be staying the course--which, generally, is what you want a central banker to do.

From the desk of Jane Galt:

Adverse news for adverse selection

Alex Tabarrok has a marvellous post up on adverse selection. As he puts it, the central insight of adverse selection ". . . is simple enough for your friends to understand but profound enough for them to be impressed at your learning. so it's a hard story not to tell!"

Unfortunately, he argues, besides being elegant and important, the central insight behind adverse selection is also not true--at least not in many of the contexts in which it is used.

The basic idea of adverse selection is that in certain markets, all or most of the relevant information is known by one party, but unobtainable (at least cost-effectively) by the other. When you are selling your car, you know whether it is a good car, or a piece of crap that breaks down every two miles. But you have no incentive to tell prospective buyers this. So the information that the buyer gets--"this car is completely reliable!"--is the same whether the car is a lemon, or a mechanical dreamboat.

Buyers, knowing this, will discount the price they are willing to pay by the probability of getting a lemon. But if you are a car seller, why sell a good car at a hefty discount because of some other dishonest schmuck out there? Sellers with very good cars will exit the market, leaving only the relatively poor cars. But soon buyers will demand a steeper discount, because the probability of getting a lemon has gone up. The process is iterative; sellers with relatively good cars will exit the market, making the average quality even poorer, which will cause buyers to demand an even bigger market.

The theory of adverse selection is a favourite of national health care advocates, and has to my mind been one of the more convincing arguments in their arsenal (though not convincing enough to get me to endorse their plans). They argue that as sick people drive up the cost of health insurance, healthy people will decide not to buy insurance. This will increase the average cost of the people left in the pool, which will cause insurers to raise rates, which will cause more healthy people to drop their insurance, which will increase the average cost of the people left in the pool . . .

It makes intuitive sense, yet it is, as Mr Tabarrok says, profound. Just not true:

The facts of the matter, however, are that adverse selection is not an important part of the market for automobiles (trucks), or of auto, life insurance or health insurance (on the latter see below).

One reason adverse selection may not be that important in practice is because buyers and sellers use testing and certification to remove the most important information asymmetries.  You can buy a decent used car, for example just get it inspected or certified.  Only if such adjustments are illegal, or in some other way not allowed, will adverse selection become important.

Second, the asymmetry may run in favor of the sellers.  Do I really know more about my own life expectancy than an insurance firm that has access to sophisticated actuarial models?  And, assuming that I do have extra information is it all that important?  After all "the race is not to the swift, nor the battle to the strong, neither yet bread to the wise... but time and chance happen to them all."  Or, more prosaically, the signal is near irrelevant when the signal to noise ratio is high. 

Third, propitious selection can be more important than adverse selection.  What sort of person buys a lot of life insurance?  Is it people who expect to die soon?  Or is it the sort of person who is so worried about not leaving their family in trouble that not only do they buy life insurance they also buckle their safety belt and eat healthy?  The price of life insurance falls the more you buy so evidently insurance companies believe it is the latter.

Everyone talks about adverse selection in the market for health insurance but in fact non-group policies in these markets are not relatively expensive and not hard to get.  The national average annual premium for reasonably generous coverage for a single person is just $2,268.

Sure, that's a lot of money but the point is that it's not a lot relative to what an employed person and their employer would pay for similar coverage in the group market.  There is no evidence for an adverse-selection death spiral in the market for health insurance.  That's not surprising because non-group health insurance is medically underwitten (i.e. medical inspections just like car inspections).  Most people are accepted a few are not.  Only in states that require insurance companies to accept all or most buyers are rates high relative to the group market (rates in New Jersey, an outlier, are almost three times as high as the national average.)

There are problems in the health insurance market, including a lack of long term insurance, job lock and the inequity of affordability, but adverse selection is not one of them.

That pretty thoroughly undercuts any support I might have had for nationalised health care.

You are cruel! my critics will say. No, not really. It is true that I now have good health insurance, but I was also against nationalised health care when I did not have health insurance, whih I could not afford thanks to New York's practice of "community rating"; i.e. forcing health insurance companies to sell insurance to anyone who can breathe and sign a check. The reason that I am against nationalised health care is that I think the market is the primary vehicle for medical innovation, and I do not want to see the government become the monopoly purchaser that destroys that market. Believing as I do, if I supported nationalised health care I would be privileging the needs of those who are undertreated now, over those who have diseases that we could cure in the future. Since there are more of the latter than the former, this does not seem to me to be a reasonable moral choice, though I am sure that there is more than one left-wing moral philosopher out there who would like to explain to me why I am wrong.

From the desk of Winterspeak:

The End?

I knew it was too late to join the dot com boom when the local water delivery guy asked if I wanted to invest in his new internet company. He, and a couple of buddies from Poland Spring, were going to do something online involving water and he was generous enough to offer me a slice of the action. I politely declined and then sold all my Cisco stock.

I'm not sure if I've seen the equivelent for real estate, but this may be close.

From the desk of Jane Galt:

A Christmas Gift to Yourself

Do you use Firefox yet? If not, I urge to to try it. Tabbed browsing is fantastic--it saves you all those zillion little windows along the Windows toolbar. I open one window for research, another for the web applications I use to do my work, a third for mail and so forth, and then I have tabs in each of them. It allows me to easily flip between different types of work without getting lost. And needless to say, it's great for blogging.

Firefox also has, to my mind, a better pop-up blocker, and it's less vulnerable to spyware.

If you do use Firefox, or are thinking of trying it out, then you can get more out of extensions. Wired has a great article on the best extensions out there. Here's the list of the ones I use:

Del.icio.us which lets you bookmark sites, with notes to yourself, and then access the bookmarks anywhere on the web

PDF download, which lets you choose to download PDF's outside of the browser--something I highly recommend you do, because PDF's are ridiculously slow in browser windows, especially if, like me, you spend a fair amount of time browsing 150 page economic reports.

Down them all! Which lets you download all the links on a page at once

IE View, which lets you open pages in Internet Explorer This is helpful, because some pages won't work right in Firefox; it gives you a one-click way to use IE when you have to.

Bug Me Not, which will fill in web registration forms for you with a login from the bugmenot database

Session saver, which magically restores your last browsing session if your computer crashes

Tab X, which adds a cute little close button to each of your tabs, sparing you the effort of right click on each tab and selecting "close" from the resulting menu.

Stumble Upon, which I advise against downloading unless you want to get fired. It allows you to rate cool websites, and gives you a button that will automatically take you to a random website that other users have marked as cool.

With all the extensions plugged in, I think Firefox is way cooler than IE--and I'm not one of those Microsoft snobs who refuses to use products merely because they have Bill Gates' fingerprints on them. I switched from Netscape to IE back when IE was clearly superior, and now I'm over at Firefox because tabbed browsing is, like, the best thing ever. Give it a try.

From the desk of Jane Galt:

Good as gold

James Hamilton has an excellent post on why the gold standard isn't the panacea so many people think:

Under a pure gold standard, the government would stand ready to trade dollars for gold at a fixed rate. Under such a monetary rule, it seems the dollar is "as good as gold."

Except that it really isn't-- the dollar is only as good as the government's credibility to stick with the standard. If a government can go on a gold standard, it can go off, and historically countries have done exactly that all the time. The fact that speculators know this means that any currency adhering to a gold standard (or, in more modern times, a fixed exchange rate) may be subject to a speculative attack.

How long a country stayed on the gold standard, he points out, is strongly correlated with how badly it suffered during the Great Depression. Try pointing that out to your local gold bug next time he tries to put a flea in your ear.

From the desk of Jane Galt:

If I'm so financially sound, how come i live in the most expensive city in America?

Because in my chosen field, economics journalism, I basically have two choices: New York, or DC, which is nearly as expensive, at least housing-wise. And in New York, I don't need a car. Yes, I could have chosen a profession that paid more, or could be located somewhere where the cost of living is lower. But I love what I do. I don't think that money is the most important thing in the world--nor, like many people in low-paid, high-enjoyment professions, do I think that my choice is superior to those who became investment bankers and consultants, as long as they are happy with it. It works for me, that's all.

But having so chosen, I have learned a little about cutting back. I was trying to pass on what I've learned for the benefit of those who are starting out, so that they can hopefully avoid some of the more painful lessons my choices taught me.

I'm getting a fair amount of complaint that I'm lecturing people not to consume things I don't think are important. That's not quite right. Look, everyone gets a rush when they buy a shiny new toy. That rush is intensely pleasurable, so we seek to replicate it often. But after the rush wears off, often the shiny new toy does not actually increase our pleasure over the less shiny old toy that we replaced. The new car gets a dent, we don't have enough songs to fill the 60GB iPod, the new tool lies unused in the garage, we dont have anywhere to wear that stunning dress.

For a lot of people, that doesn't matter, because they have disposable income to burn. But a lot of other people max out their income buying this stuff, leaving them intensely vulnerable to any emergency. Having seen a couple of friends go through bankruptcy in just such circumstances, I will go out on a limb and say that the pleasure you get from that expensive car or flat panel television does not adequately counterbalance the misery of serious financial trouble. If you need every single thing to go exactly right . . . no one loses their job, no one gets sick, every raise and bonus comes in exactly as expected . . . to keep you out of financial trouble, you are spending too much money.

Why did I hack on chain restaurants and flat-panel televisions? Not because I'm one of those New York yuppies who believes that a $10,000 home entertainment system is a waste of money, but putting in $25,000 teak floors is just good taste. To my mind, chain restaurant meals, flat-panel televisions, and teak floors have better close substitutes than travel or pets. Put in about ten hours with a basic cookbook and Epicurious and you can replicate anything you find at the local chain place. There are very few mid-level restaurants--either in New York City or in your local strip mall--that provide better food than you can at home. On the other hand, it's hard to mock up the Parthenon in your back yard.

Downwardly mobile people like myself , or college students fresh off the parental dole, often get themselves in trouble for a couple reasons. First, they are embarassed to tell people they can't afford things, or to live in the kind of house, or drive the kind of car, that they can afford. Second, they feel entitled to the lifestyle they used to have, and so they maintain it by cutting back on savings. My comments on what is inessential were addressed to those people, not the fellow with $10K of disposable income that he feels like sinking into a flat panel television. I'm not a miser, nor do I believe that others should make their purchases reflect my lifestyle choices. But I do think that, as a nation, we should be saving much more than we are. If you already have plenty socked away, then ignore my comments; they are not addressed to you.

From the desk of Jane Galt:

Why should you deprive yourself today for the benefit of tomorrow?

Tyler Cowen points out that you might die, rendering all those savings moot. He also says he loves to eat out, which he does all the time.

My point was not that you should deprive yourself of everything that makes life pleasurable in order to hoard all your money for a tomorrow that might never come. Rather, my point was that many of the things we consume don't make us that happy.

If you live in the typical suburban area where the Benihana or Olive Garden is the apex of the culinary offerings, it's silly to eat out often, because you can do better than that at home. If you don't like doing dishes, eat off paper plates and make your spouse do the cleaning. Even in New York City, most of the restaurant meals I eat with friends are no better than what I could fix at home, with the exception of Asian food and pizza. Even worse are the deli lunches, which regularly run in the $10 range for a sandwich or salad with drink and fruit. They're definitely not worth paying money for, when I could easily make the same thing at my home for a fraction of the price; the only advantage of delis is that I can choose exactly what I feel like eating at lunchtime. This is a pretty trivial benefit, compared to the $40 a week I could save on lunch.

Far better to find a few friends who can cook and alternate having meals at each other's places. You save money, you don't have a waiter harrying you to free up the table, and the food will in general be less fattening and more interesting than the Chicken Marsala or steak frites you would have eaten out. There are some things, such as pie and homemade layer cake, that I have never had well done in even an expensive restaurant; they're just too delicate and time-consuming for mass-production.

But if, like Tyler, you love to find new and interesting restaurants--and live in an area where there are a lot of those things around--then eating out isn't a waste of money; it's one of the major joys of your life. Of course you should spend money on things that give you joy.

But many of the things we think we'll give us joy really just produce the transitory boost of consumption. A flat panel television or a showy car really isn't going to enrich your life so much that you should shortchange savings to buy it. A huge house does allow you to claim more private space, but there's a tradeoff not just in heating bills, but in family intimacy. In the short run, it is easier not to haggle over what shows to watch or games to play, but in the long run, families that have to share build stronger bonds . . . and children who know how to work well with others.

All of us, including me, fritter away money on things we don't need. The trick is to figure out which ones aren't worth the money. If someone proposed to give you a Starbucks a day for a year if you paid them $1400 on January 1st, would you take them up on this offer? I don't know about you, but that's a sizeable chunk of my income to be devoting to coffee. Yet that's what you'll spend over a year's time, if you buy an average Starbucks once a day, at least in my neck of the woods. Might be better to drink the free stuff your office provides, and put that money into something that really will give you joy, like a trip to Italy, or a great restaurant meal, or making yourself more financially secure.

One tip I left off: one of the main keys to financial health is not to worry so much about what other people are thinking of you. Don't be ashamed to tell friends that you can't afford something they want to do; they know what you do for a living, and how many children and needy parents you have, so why should you be ashamed to confess that you, like the rest of us, are on a budget? Don't buy a car, or a house, because you like what people will think of you for owning it. Do you really care about the opinions of people who judge you based on your material possessions?

Why, yes, you do. We all do; it is in the nature of primates to seek status. But status-hunting via material goods is a zero-sum game, and unless you're Bill Gates, the odds are you're going to lose. With a little mental discipline (okay, a lot) you can stop playing that game, and force yourself to concentrate on the things that really give you joy, rather than simply creating a transitory gleam of envy in someone else's eye.

What are the things that give me joy? Family. Friends. Travel. Writing. Reading. My dog. Eating good food. Being healthy. So I've rearranged my budget to emphasize those priorities--a gym membership, expensive dog food to cater to my dog's allergies, trips hither and yon, giving parties, buying good food to cook. But I've also recognized that many of these things don't cost me money, and that by cutting out the tempting inessentials, I have more time and energy to devote to the things I care about, as well as the peace of mind that comes from putting money in the bank.

From the desk of Jane Galt:

Understatement of the week

From Daniel Drezner:

The idea that a Johnson strength as president was how he responded to criticism on Vietnam is certainly an.... interesting interpretation of the historical record.

From the desk of Jane Galt:

The NYTimes on George Martin

I've been raving here about George Martin's fantasy books, which you Really. Must. Read. The New York Times has a long article on Mr Martin and his creations.

From the desk of Jane Galt:

Shameless Begging: Book edition

Some of y'all have emailed me to ask for recommendations for books to read and DVDs to watch, to go with the recommendations for kitchen gear and home electronics I offered earlier. Here are the book recommendations; DVDs will hopefully come later, but I'm sick as a dog, so I make no promises.

As you may know, now is the time of year when I engage in an absolutely shameless attempt to encourage you to earn me money from my Amazon.com associates account, under the thin pretense of suggesting things you can buy your loved ones for Christmas. I am poor, and my student loan officer is hungry, and the people at the workhouse will only give me one serving of gruel a day. . . this brazen commercialization of The Birth of Our Lord is the only way that I can afford to buy myself the books with which I enrich my mind so that I can offer you keen insight and witty commentary on a quasi-daily basis.

If you're going to do your Christmas shopping on Amazon this year, just click the handy links provided by me or another of your favourite bloggers (mine's over there at the right, if you scroll down a little!), and at absolutely not cost to yourself, you can send a little commission our way. We get the commission even if you buy something other than the product we linked, though the commission is higher for direct links.

However, even if you don't order through Amazon, all the stuff I'll suggest here is stuff that I genuinely love, so do consider purchasing for yourself or your loved ones offline. And if you do buy something I recommend, please, please, please email me to let me know how it went over.

And if you don't like anything you see here, please feel free to peruse last year's selections, though there is some overlap.

Fiction

Anna Karenina Yes, I know, it's shameful, but I just got around to reading it this year. Outstanding, even in translation . . . and I generally hate translation. Tolstoy's characters breathe even though they (never) lived over 100 years ago.

Letters from Earth This is a collection of Mark Twain's unpublished writings, which was put together after his death. It lacks the polish of his published work, and some of it is unfinished, but it offers in some ways a more intimate look into his mind. Especially recommend it paired with The Autobiography of Mark Twain, which is a sampling of the autobiographical musings he dictated at the end of his life. Because he didn't mean it to be published until after his death, it is much more frank than most autobiography, and of course, Mark Twain is one of the most brilliant writers ever.

A Game of Thrones, A Clash of Kings, and a Storm of Swords by George R. R. Martin, as discussed in this post I can't tell you how much I enjoyed these books . . . they really made time fly in London

The Man in the Gray Flannel Suit It's a period piece--postwar 1950's "Isn't there something better than this?" literature. He doesn't do it as well as John Cheever, but that's hardly a put-down, since Cheever was one of the prose greats of the twentieth century (and if you don't own The Stories of John Cheever, then run, don't walk, down to your nearest bookstore and pick one up.) Nonetheless, it's enjoyable not merely as a period piece--though peaking into the heads of our near ancestors is in itself a pleasurable reading experience--but as a novel, even though it gets a little sappy at the end.

Past Due by William Lashner. As you can see, my reading is eclectic; I whipsaw between genre fiction and "classic literature". But only selected genre literature. William Lashner is one of the few mystery writers who made my cut. It's sort of noirish fiction set in modern-day Philadelphia, narrated by a wanna-be mob lawyer. He's no Tolstoy, but he will help you pass more than a few pleasant hours. I liked his earlier books--Hostile Witness, Bitter Truth, and Fatal Flaw even better, but I recommend them all very highly if you like mysteries.

The Stepford Wives Didn't know it was a book, did you? I confess, I was taken aback by how much I enjoyed this book, which has a lean, understated prose style that really sets off the underlying horror. I liked it so much that I bought Rosemary's Baby, which I also highly recommend.

Heart of Darkness I reread it while I was in London, and may nominate the beginning of this book for best prose ever. I actually get chills down my spine every time I read the words "And this too was among the dark places of the earth". If you haven't read this, you must, and not just because you liked Apocalypse Now.

Non-Fiction

Freakonomics Yes, you've heard about it from every economics blog in creation, including theirs. But it really is enjoyable. It won't give you a basic grounding in economics, but it will give you insight into economic problem-solving. It's just a bonus that the writing is engaging and entertaining.

In the Wake of Madness It's a popular history about a whaling boat where a couple members of the crew kill the captain. The author dissects the official story, which had native crewmen going bonkers for no particular reason, and reveals that the captain was possibly crazy, certainly cruel. I know you probably weren't expecting me to recommend a book on whaling, but I found it surprisingly engrossing. I also learned a great deal about whaling, not that I expect this to come in handy any time soon.

Where are the customer's yachts? This is a humorous book about Wall Street written in mid-century, skewering the conceits of both investors and brokers. The shocking thing is that almost all of it still applies today.

Against Depression The author of Listening to Prozac, which I read when it came out, followed up with this book, which argues against the notion that one's depressed self is somehow the authentic, natural self, and that medication is thus false comfort. He also fights those who point out that since great artists tend to be disproportionately depressed, there is danger in treating all depression, saying that we would not have left Van Gogh untreated if he'd had cancer, and depression is little different. I'm not sure I agree with this--it seems to me that depression, with its sharper insight, does spur art, and I think that there are things in life more important than being happy--at least on even-numbered days. Anyway, even if you disagree with this, it's very much worth reading if you're interested in happiness research.

The Lessons of History by Will & Ariel Durant. The story of the Durants is lurid enough to justify reading their work just for the prurient interest: Will fell in love with Ariel while he was teaching her at the Ferrer School, an early experimental school. She was just fourteen when he resigned his post and married her. Later they collaborated on the enormous multi-volume Story of Civilization, which I'll read someday when I have a zillion dollars to spare. This book isn't so ambitious; it's just a summing up of what they've learned about people and governments from their study of history. And it turns out the prurient interest is just gravy; their work is delightful. I can't recommend it highly enough.

Into the Wild I first read Jon Krakauer because he was on Everest in 1996 when everything went to hell; his chronicle of that expedition, Into Thin Air, is brilliant. Into the Wild is less biographical, more journalistic; it's a reconstruction of a boy on the hippy fringe who breaks all ties with his family and goes off into the Alaska wilderness to test his manhood, where he dies. It all sounds rather juvenile and melodramatic, and it is, but at the heart of juvenile melodrama there is a worthy core of aspiration that Krakauer deftly extracts.

More later, if and when I think of them. For now, I'm off to bed with a Nyquil.

From the desk of Jane Galt:

What should you do with your money?

In the comments to this post, Laura of 11D says ". . . you should hire yourself out to universities to give lectures to upcoming graduates. My fellow students were completely clueless. Oddly, they almost took pride in their financial ignorance." Well, I can't be everywhere, but I can offer my financial advice, such as it is.

I've actually contemplated the possibility of writing a book on being downwardly mobile for people who, like me, found themselves in a career track that caused them to downshift their income expectations. The first chapter would be an excercise in which people put down the book, went and looked themselves in the mirror, and repeated the phrase "I can't afford it" until it sounded natural and easy.

So here's the collected Jane Galt wisdom for people who are living on a tight budget. If you've ever read a financial advice book, you'll recognize a lot of it since there simply isn't much new in the world of financial planning. But you're getting this advice absolutely free. It's probably worth a little more than you're paying for it:

1) Pay yourself first. What does that mean? It means you divert money into savings automatically, before the money hits your bank account. You divert an automatic percentage of your salary into your 401(k), and you set up your direct deposit so that money is automatically put into a special savings account unconnected to your ordinary checking and savings, that serves as your rainy day fund. The rainy day fund should hold at least six months, and preferably a year's, worth of expenses. Retirement savings should 15-20% of your income.

Yes, I said 20%.

"20%!!!!!" I hear you screech. "I can't afford it!" Well, then you'd better start developing a taste for cat food. Home equity is going to be a bad way to save for retirement in a country with a stagnating population, as the US will have when I get around to retiring. And Social Security benefits may be slashed, means tested, or otherwise legislated out of your pockets. If you're putting 3% of your salary into your 401(k) every year and hoping that will cover you you're in big trouble.

The reason you pay yourself first is that for most people, budgeting just doesn't work. Most people simply don't have the discipline. The answer is to keep the money out of your bank account. If you don't see it, you won't spend it.

What if you don't have enough savings? You probably feel like your budget is pretty tight, but--trust me!--it can get tighter. (When I graduated from business school, I made about $40,000 a year, and had $1,000 a month in loan payments to make.) Start right now and set up your 401(k) to take 5% of your salary out of every paycheck, and set up a separate bank account with your bank that is your rainy day account, and arrange with HR to have a chunk of money deposited in there every month automatically. If you're poor, start with $100, or even $50 or $25, but put something in there, even if you have to cancel the phone and sit on your stoop to read by the streetlights. You must have savings.

2) Avoid credit card balances Credit card debt will kill you. If you just make the minimum payments, you will pay for whatever you purchased many, many times over. If you can't afford it, don't do it, no matter how important it is. Credit card debt can turn a bad situation, like a job loss or a medical emergency, into a financial disaster. Don't take on credit cards unless you genuinely have no choice, like an emergency repair on the car you need to get to work. And if you put your money into a rainy day fund now, hopefully you won't need it.

3) Use tax advantaged savings vehicles Unless you are making minimum wage, every time you save money in a 401(k), it's like getting a 30% match from Uncle Sam. You should max out your 401(k), and put money into an IRA.

Some financial pundits like Suze Orman are now telling people that they shouldn't bother to use a 401(k), because today's deficits will just mean that tomorrow's governments will have to raise taxes. That's probably true. But in your retirement, you will probably be in a lower tax bracket than you are now, so even if taxes go up, the net result may not be that big an increase. And the effects of letting your money accumulate for thirty years or so with no capital gains taxes are huge.

Should you use a Roth IRA (which doesn't give you a tax deduction now, but pays out the money tax free on retirement) or a regular IRA (which gives you a tax deduction now, but taxes the money at ordinary income tax rates when you take it out)? Depends on whether you're in a low tax bracket now, or a high one. If you're currently in a low tax bracket, then a Roth IRA makes more sense. If you're in a high one, go with a traditional IRA.

4) Wait a couple of years to buy a house The market is probably at or near its peak. The general rule is that troughs in the housing market tend to come about three years behind the peak, meaning that if you wait a couple of years, you will probably end up buying near the bottom of the market, and you will have markedly less risk of ending up "upside down" on your mortgage--meaning that you have negative equity, so if you have to sell, you owe the bank money. I know that you have a voice screaming at you that you want to build equity for yourself instead of a landlord--but the likelihood is that if you buy now, particularly on the coasts, you will not build much equity. And the bank, unlike the landlord, will not let you break your agreement without destroying your credit rating.

5) Use index funds, not actively managed mutual funds An index fund is one that mimics a broad market index such as the S&P. Study after study shows that actively managed mutual funds do not beat the market. I know, you think your fund does, but the research says that that's just luck . . . and that luck could easily turn next year. All actively managed funds do is cost you money in management fees.

6) Saving is more important than lattes People who say they can't afford to save can surprisingly often afford Starbucks, new cars, and alchohol. These are not things you need in the same way that you need to be able to eat if you get sick and can't work.

The easiest things to cut out are food. You *can* cook at home, no matter how tired you are; breaded chicken breasts and steamed vegetables take ten to fifteen minutes to prepare from scratch. Cutting out restaurant meals and buying your own lunch are the single easiest way to save money. Oh, I know, it's not as pleasurable to pull a turkey sandwich out of a plastic bag as it is to go down to the deli and get exactly what you want this minute. But the markup on those sandwiches is generally between 400-800%, and a daily starbucks will cost you over $1000 a year. As a side bonus, the more you have to cook it yourself, the less you'll be tempted to overindulge in goodies. And if you want to hang out with friends, I can generally prepare a very nice dinner for four for less than it would cost me to pay for my own meal at a New York City restaurant. And no waiter badgering you to free up the table.

7) Put yourself on a cash budget. Figure out how much you can afford to spend each week, and take that money out at the beginning of the week in cash. Once you've spent it, no more until the next week. It's surprising how easy it is to develop spending discipline when you have to watch each purchase steadily diminishing your purchasing power.

The corollary to this is to leave some of that money at home at the beginning of the week. You can't spend what's not in your pocket, and it saves the painful denouement at the end of the month.

8) Pay down your debt unless the interest rate is ridiculously low. Credit card debt should be your first priority, but it's also nice to get a headstart on student loans and mortgages. Oh, some of my business school classmates would be horrified. But real returns on investments are pretty low right now; by paying down a 7% non-deductible loan, you get a guaranteed 4.5% real return.

Your mortgage, of course, is deductible. But you are not a corporation; you are a real person who will suffer if you go bankrupt and lose your house. It is only sensible to shorten the time until you own your abode outright.

The easiest way to do this is to split your mortgage payment in two, and set up your bank account to automatically pay one of the half payments every two weeks. This will result in your paying 26 half-payments a year, or an extra payment per annum, and will shorten the life of a thirty year loan by about eight years. Because it is pegged to your paycheck, this is practically painless, and depending on the interest rate and the size of the loan, can result in material savings on interest just because the steady payments slow the interest from compounding. This works especially well for credit card debt.

9) Don't take on debt unless you absolutely have to Absolutely have to means: you need a car for work; your boiler broke down in the middle of winter; you are buying a house. It does not mean: your friend is getting married in Gstaad, your old couch is showing its age, you want to buy a nicer car than you can afford to pay cash for. If you want a treat, save for it. You'll enjoy it more when you have it.

10) Do not default on your loans A shocking number of students default on their student loans. This is a terrible idea. For one thing, those loans aren't dischargeable in bankruptcy, meaning you'll have to pay them eventually--if nothing else, they'll garnish your social security benefits. For another, it screws up your credit rating for years and years. And for a third thing, student loan lenders will almost always work with you if you genuinely can't pay--they'd rather get something than nothing, and they don't want to piss off the government by leaning on students too hard.

11) Do not take on adjustable rate debt There's nothing wrong with adjustable-rate debt, but most people who take on ARMs are doing so because they can't afford the payments on a fixed-rate loan. When interest rates rise--and there's practically nothing else they can do now--those people will end up defaulting. You really, really do not want a mortgage default on your credit report.

12) Buy used There's a genuine debate over whether it's a good idea to buy used cars; it is for me, because I have mechanics in the family, but most people don't. But there are loads of other things you can buy used, through Craigslist or the local classifieds. Furniture (although I don't recommend buying mattresses or anything upholstered), lamps, computers, china. You need plates and something to sit on, but you only want shiny new ones.

13) Buy generic Some brands are worth paying for, but half the time that private-label (aka "store brand") sitting next to the brand name on the shelf was turned out in exactly the same factory; the only difference is the name. Drugstore makeup is generally pretty much the same as the stuff sold in department stores. Vitamins, organic ingredients, and things that you eat make absolutely no improvement to bath and skin products, all of which rely on the same basic chemistry for breaking apart the fat molecules in dirt, and then putting new fat molecules back onto your skin.

14) Buy in bulk. Don't tell me you don't have space; I live in 450 square feet. You can find room for six boxes of pasta and sixteen rolls of toilet paper and you'll save a ton of money. If you don't want to pay for a Costco membership, ask around and find out which one of your friends already have one. They'll be happy to take you with them; warehouse club shopping is much more fun as a social experience.

15) Don't bet on home equity gains Buying a house is a fine way to make sure you have somewhere to live. But historically, it has not been a particularly stellar investment; your retirement plans should not count on enormous returns on your investment in housing. Nor should you take out a mortgage with a tiny down-payment; if you have to move, you can get screwed. And if you are buying a house, buy it because you want to live there, not because you're counting on flipping it for twice the price in three years.

16) Invest in stocks when you are young, and then transition an increasing portion to bonds in your fifties and sixties. When you have an investment horizon of twenty or thirty years, you can afford to ride out the ups and downs of the stock market, and in the long run, it should give you a better return than bonds. As you get closer to needing the cash, you should start transitioning your funds into fixed-income securities, which have a lower return, but guarantee that you won't have to sell in a down market.

That's it. Unfortunately, no surefire way to get rich quick; if I had one, I'd be using it, not telling you. But if you follow my advice, it should keep you out of the poorhouse.

From the desk of Jane Galt:

What I'm buying myself this Christmas

Well, I just got my hands on A Feast of Crows, by George R. R. Martin. If you haven't read the previous books in this series--A Game of Thrones, A Clash of Kings, and A Storm of Swords--well, I envy you my friend, because you have a rare treat in front of you. I don't read a lot of science fiction and fantasy, but I'm as fond as the next person of well-written page-turners, which this one is. It's a low-magic version of The War of the Roses, with the Yorks as protagonists. I bought the first one to read on the plane to London, and raced through the next ones as soon as I got home. I've been waiting eagerly for this one ever since, and now I'm holding off on reading it for just a little while so I can savor the anticipation.

Also, I'm finally trying to get my kitchen organized. I invested in a butter boat, which uses water to keep butter cool enough that it doesn't go rancid, but warm enough that you can spread it. I have no idea if this will work, but if it does, I will be extremely excited. I hate hard butter on my toast. I also bought three of these spice racks, which stack into one tower that takes up a lot less space in my tiny apartment. I just assembled it last night and filled it with spices, and it looks surprisingly lovely with all the different colored spices in it. I'm very excited to finally cook with the thing. And I got a tupperware carousel, which is far too small for a family, but is just perfect for a single person. It has cleaned up the perilous tower 'o tupperware that used to lurk in my cupboards.

I finally got Kanye West's College Dropout, Damien Rice's O, and Freedy Johnston's This Perfect World.

I'm toying with the idea of getting one of these, but am worried that it won't do nearly as good a job as a conventional microwave. Reader comments are solicited.

Oh, and I'm investing in the first volume of George Orwell's four-volume collected essays, journalism and letters. If it's good, I'll buy the next three.

If you want to know what sort of things I think are cool, but do not yet own, my wishlist is here . Think of it as a big recommendation list for Christmas presents if you happen to know someone who shares my obsession with financial markets and kitchen gear.

Thanks, all of you who bought through my Amazon account. Y'all are making all this possible. Merry Christmas, everyone.

From the desk of Jane Galt:

How dumb are people?

Democrats, and people who were against the war, made a lot of noise about how people who voted for Bush disproportionately believed that Saddam was behind the 9/11 attacks. Conclusion: Bush voters are deluded.

Undoubtedly they are. It's my impression that all voters are deluded, and you can make either Democrats or Republicans look like idiots depending on what questions you ask.

Here's a fun fact for you: I was watching a documentary about Pearl Harbor the other day, and according to the nice folks who made it, 60% of Americans thought that Hitler was behind the attacks. This, despite the fact that it was Japanese planes who attacked us, and the Japanese government we declared war on. Why did they think this? I'm going out on a limb here, but it might have had something to do with the fact that FDR made the war in Europe his priority.

I am one of those loony conspiracy theorists who think that FDR basically herded us into World War II, by deliberately provoking the Japanese into attacking us. I am of the opinion that he did this because he wanted to fight Hitler, not because he particularly cared whether a bunch of yellow people invaded countries inhabited by other yellow people. And I am of the opinion that he was correct to do this, even though I, personally, care whether Southeast Asian countries start invading each other about as much as I care about invasions in places where paler people live. Of cours, the Holocaust has done a lot to vindicate FDR's judgement, which is strange, because he also didn't seem to particularly care about the concentration camps. But nonetheless: I think FDR deceived the country into war, and I'm okay with that.

Am I bothered by the fact that his actions gave Americans a misimpression about the source of the Pearl Harbor attacks? Yes. But I am also bothered by the fact that Americans have misimpressions about sound monetary policy, good fiscal policy, rent control, usury laws, and so forth. Given my political leanings, I think Americans are wrong about nearly everything, and moreover, that they're wrong in systematic ways which deeply disturb me. These systematic delusions make them vulnerable to better-informed politicians, who can use these delusions to lead the country into a war it wouldn't support if all the facts were known, or convince a country that a gigantic new health benefit can both expand coverage and decrease costs. Really, the amazing thing is that the country is still here despite all our delusions.

Update Is it reasonable to think that Hitler knew about hte attack? Yes. Was it reasonable to think that he planned it? No. The Japanese had been rattling their sabres at us for quite some time, and they had vast strategic interests that we were blocking. Hitler, on the other hand, had little reason to want us in the war; while he may have believed, erroneously, that it would interrupt Lend-Lease long enough for him to invade Britain, that's not enough to drive a war. If the American people had been paying attention to what was going on in the Pacific, they would have known that.

But the American people, by and large, don't pay much attention to the world. They didn't realize that we'd been harrying the Japanese for more than five years, despite acts from Congress forbidding us to do just that. On the other hand, they had been reading a lot about Lend-Lease. So they put two and four together and concluded that Hitler must have gotten his friend Tojo to strike us in order to keep us from helping Britain. Just as Americans who knew that Saddam Hussein hated America, gave money to terrorists, and plotted to assassinate George Bush concluded, from their very cursory supply of information, that he probably had something to do with 9/11. In both cases, they were aided in this conclusion by the fact that their government rapidly turned from teh source of the actual attack to the "more important" target.

I'm not trying to justify the War in Iraq, or what George Bush did, or what have you. Nor am I trying to excuse the Japanese, who were running a particularly foul Colonial empire that made the Dutch and the Belgians look like Mother Teresa. I'm just pointing out that stupidity is a longstanding and bipartisan vice, and that if your favoured political model depends on voters being well-informed, you'd better chuck it now, because it's never gonna happen.

From the desk of Jane Galt:

Austan Goolsbee is pretty neat

Marginal Revolution points out that Austan Goolsbee is smart. Why, yes, he is. But that's not all! He's also an amazing teacher. His new economy strategy class was one of the best I took at the University of Chicago, which is saying something, because I had a lot of great teachers there. He had a way of getting you to commit to some conventional wisdom before slowly and painfully demolishing it, leaving you cringing at the obviousness of your error. He's also hilarious. He's well known at the business school for taking a starring role each year in the annual follies, which, as I think I recently mentioned, I directed while I was there. His role always involved yelling a lot . . . our year it was a takeoff on Alec Baldwin's famous scene in Glengarry Glen Ross, and the year before it was something involving boot camp. He never had any script; he would just get up on stage and rant for ten minutes. Hilarious.

Anyway, there's no real point to this post, except, obviously, to reveal my latent crush on Austan Goolsbee. And, I suppose, to suggest that if you are thinking of going to business school, you apply to the University of Chicago, and take his class if you get in.

From the desk of Jane Galt:

The war on the west

Dave Kopel is blogging over on Volokh about the Canadian government's new proposal to ban handguns. He's stressing the "slippery slope" aspect of this: gun registration would indeed become a prelude to gun confiscation. But there's another strain here, or at least I think there is: Paul Martin's Liberal premier is once again striking a blow at the conservative, rural West.

Most Americans don't realise that there are deep regional divides in Canada, deeper than anything we currently have here. The split between the Francophones and the English speakers is nearly as deep and hostile as the split between the North and the South was after the Civil War--and for the same reason; the Quebecois were conquered into Canada against their will, and there are enough of them to stick at it. But while we've started to pull back together, the divides in Canada are getting deeper. There is also a deepening rift between East and West. Like the American West, the Canadian West has always been a frontier sort of place, with different values from the rest of the country. But while we love our West, Eastern Canadians have come to resent them, particularly since Alberta is getting rich off natural resource exploitation. In his last election, Paul Martin ran on the argument that he would not allow the tragedy of Alberta to be replicated across Canada. (Alberta is the conservative party's biggest power base, and its social services are much less lavish than those found in the rest of Canada.) The handgun ban seems to me to be another slap at Western Canada, which has similar attitudes towards gun ownership as our West.

This will not help matters. It is also surprising to most Americans that there is a robust separatist movement in the West, particularly Alberta but also in British Columbia. It's by no means comparable to the Quebec separatists, but every time the LIberal party bashes Alberta to win votes in Ontario, it gets stronger. There is a small, but significant, possibility that Canada may fracture into its constituent parts over the next fifty years. If, that is, Ontario lets it go; while the rest of Canada benefits financially if Quebec takes a powder (particularly if the First Nations, which have the land where all the natural resources are, re-secede back into Canada), Alberta is one of only two provinces that are net contributors to the national budget; the other is Ontario, which along with Quebec has most of Canada's population. Especially because it has so few people, losing Alberta would be a big loss for the rest of Canada.

Of course, Canada's army apparently couldn't invade anything much larger than a city block, and is (or so someone told me) disproportionately composed of Westerners, so Alberta may not have much to worry about.

From the desk of Jane Galt:

Confusing risk with reward

One of the big trends of the last few years has been the pile into hedge funds. Assets under management in these (relatively) lightly regulated investment vehicles are soaring as everyone with a little bit of money tries to get in on their outsized returns. Pension funds have been dumping an increasing share of their assets into hedge funds, chasing higher returns in order to make up for the enormous holes left by the crash of the stock market bubble, and for those who don't have the large sums it typically takes to buy in, there are mutual funds that buy into hedge funds, so you can get a piece of the action.

The ostensible logic behind investing in a hedge fund is that they can wait out temporary market storms, since they often impose a lengthy "lock up" before investors can withdraw their money, and that the manager's incentives are to do well, because they get a share of the profits. There's some truth to this, but mutual fund managers also have an incentive to do well--they lose their jobs if they don't. It's possible, of course, that the higher potential returns from hedge fund management lure the most talented managers into hedge funds. But there is pretty strong evidence that fund managers do not beat a broad index of stocks over time. When the announcer on those mutual fund commercials quickly mutters "past performance is no guarantee of future results", he's not just giving you a standard required disclaimer: he's summing up the best economic research available. There's very little correlation between how a fund performed last year, and how it will perform this year--meaning that that fund you plowed your 401(k) into because it has such great five-year returns is just as likely to trail the index next year as it is to outperform it. Almost all mutual funds on offer have good return numbers, for the simple reason that funds with bad numbers are terminated by mutual fund companies, and their assets rolled over into new funds without such horrible track records. Given that the market has produced no noticeable geniuses who outperform the market (Warren Buffet and Peter Lynch may be notable exceptions to the rule that you can't beat the market, but neither you, nor the guy who manages your Vanguard fund, are them), it seems unlikely to me that hedge funds are managing to consistently cull the superior talent.

But even if they were, that wouldn't make hedge funds a good investment, because this presupposes that the pool of talent that can generate large returns is limited, making the talent wars a zero-sum game: if the hedge funds pay more, they get all the good managers. That implies that investing in the rapidly expanding pool of hedge funds is not likely to produce superior results, because the big funds, which are now closed to investors like you, have already got almost all the talented folks (if they didn't, we'd be seeing mutual funds tht consistently beat the market), and the hedge fund you'll be investing in will underperform your expectations.

There is another advantage hedge funds have, which is that they can take positions that mutual funds can't. Though it's true that you cannot, in general beat the stock market, there are areas, like microcaps, where it's possible to find real values, provided you can buy a sizeable chunk of stock, and hold it for a while. Unfortunately, this suffers from the same problem as the "management talent" argument: as the number of hedge funds swells, they will quickly chase all the inefficiencies out of these dark little corners of the markets, making it once again impossible for the erstwhile hedge fund investor to secure what economists call "excess" returns--returns that are superior to a broad portfolio of stocks, without the investor taking on more risk.

Unfortunately, it is often hard in the short term to distinguish excess returns from risk. Long Term Capital Management was generating astounding profits right up until the point where it blew up so spectacularly that it nearly dragged the US banking system down with it. And LTCM had as principals two guys who got a Nobel prize for figuring out how to value risky options.

Of course, there's no point in lecturing you on the perils of hedge fund investing. Presumably, few of my readers are being chased down Wall Street by hedge fund mangers begging for a couple of million dollars. (Although if you are, and you wish to discuss exciting investment opportunities in the world of finance and economics blogging, please do contact me.)

But it nonetheless matters, because an increasing portion of our financial capital is being poured into these vehicles. Now, it is customary, when writing pieces like this, to bemoan the fact that hedge funds are "lightly regulated". I don't think that this is the problem. Rather, I think the problem is that many, even most, Americans, from pension fund managers to the payroll clerk down the hall from you, have come to expect ridiculously high levels of return from their investments. That's why people are taking out dangerously big mortgages; they have come to believe that the housing market will provide the kind of enormous returns they got from their stock portfolios in the 1990s. That's why public pension fund managers, who should be among the most conservative of asset overseers, are putting money into an investment vehicle which relies for its return on taking thinly traded positions where valuations are the most subjective. That's investors are piling into Latin American securities, even though most governments are moving away from the Washington Consensus towards what we might term the Hugo Chavez Style of quasi-socialist populist meddling. Even if you believe that Hugo Chavez is a better economic manager than Roberto Lavagna, I think it's safe to say that most bond investors don't . . . yet they continue to buy Latin American bonds. Paul Blustein argues that while they say they are responding to improved economic policies, there's quite a bit of evidence that the real reason they are doing this is simply that returns are currently so low in rich countries; the economic policy argument is simply a fine bit of post-hoc rationalization.

That means our financial system is mispricing risk. And history tells us that when investors systematically misprice risk, disaster generally follows. Or as Merton and Scholes might have said: "Apres nous, le deluge."

From the desk of Winterspeak:

Spending under Bush II

This excellent Angry Bear post details, as a % of the economy, how federal spending has changed under Bush II compared to previous administrations

Some interesting points:
1) In general, spending has remained remarkably flat.
2) Defense spending has increased but is still below where it was when Clinton first took office. Yes, Virginia, we were spending more on defense in 1992 (in % terms) than we are now.
3) Healthcare has gone up steadily since 1970. Much of Bush's Medicare expansion isn't showing up on the charts because it's still new.
4) Interest payments -- that bogeyman that haunts evil bad countries that run budget deficits -- are at the lowest they've been since 1970. So much so.

So, people who want to cut federal spending should turn their attention to the military (even though it's still below 1992 levels) and healthcare.

From the desk of Winterspeak:

Best chair for the money?

I find myself working from home more often these days and realize I need a new office chair. My current chair was priced right ($0 -- found it on a curb in Chicago) but it has poor ergonomics -- and my back and wrists are paying the price.

So what chair to get? The famous Aeron (and its less famous little sister Mirra) are freakishly expensive (around $800 and $600 respectively). I can get a new chair from Staples for $200 or pick up a used one from Craigslist for $20.

However -- Aerons and Mirras do not seem to depreciate -- their used prices seem to be exactly the same as their new prices. The Staples chair, however, is sure to lose 90% of its value ($180) as soon as I take it out the door. If the expensive chairs are more durable as well, they could infact end up being cheaper than the Staples chair.

But it seems ludicrous to shell out $600 for a simple chair when I can get one for 30 times cheaper.

Slate has an old article where it tested various office chairs and it ended up liking the $400 Lets B. I cannot make up my mind whether this is a sensible compromise or if it's the worst of both worlds. A quick eBay and craigslist scan does not turn this chair up so I don't know if its selling used for $40 or $399. Since it lacks the cachet of the Aeron, it may be a great buy used, but a waste of money new.

From the desk of Jane Galt:

Contest

Asymmetrical Information has been nominated for best business blog of 2005. Please go vote for us. Because if we don't win, I'll cry. Big, fat tears rolling out of my dewy green eyes, staining my porcelain cheeks as my body racks with sobs. No one wants that.

Realistically, I doubt there's any way we can compete with Freakonomics. But the battle for second place is still wide open! Help us unseat the Club for Growth.

From the desk of Winterspeak:

Mortgage foreclosures

Interest rates remain low, housing appreciation remains (fairly robust), the economy is OK -- so why are mortgage backed securities for risky mortgage debt falling (and foreclosures up)?

When I wrote about higher default rates earlier, I was told that this was more likely due to the recent change in personal bankruptcy law than anything else. I agreed with that. But this time there has been no change in bankruptcy law, and the housing market has not cooled much, so why are we seeing higher than average foreclosures?

Home ownership in the US has increased because of cheaper financing -- it's easier for people to shoulder a slightly larger monthly burden than scrape together $100K in cash for a down payment. The growth of 0 down loans, ARMs, neg-am mortgages etc. means that more and more marginal buyers now own homes than in the past, and these buyers are more sensitive to slight movements in interest rates and prices.

Given the deterioration in the quality of housing stock owners, and their greater exposure to negative shocks in the housing market, you would expect the overall rate of foreclosure to increase, and the rates on such loans to go up.

A buddy of mine who worked in the mortgage backed securities told me that the models they used to predict foreclosure basically had the owner eating dogfood until divorce or being fired meant he could not longer make payments. At that point he either sold the house and pocketed the appreciation, or gave the keys back to the bank.

One extension of this model is to expect credit card applications spike before an increase in foreclosures -- people will try to use their credit cards to cover monthly payments. Credit card usage is down (people are refinancing their homes and getting cash that way) so banks may initially see an uptick in credit card activity as good news.

From the desk of Jane Galt:

Budget woes

Think we've got budget problems? At least we've got a budget. The EU, on the other hand, is having no luck putting one together, possibly because they need to secure unanimous agreement from all 25 member states to make it pass.

From the desk of Jane Galt:

British spelling

I know that my British spelling startles and annoys those of you who are well aware that I was raised on Manhattan's Upper West Side. Undoubtedly, many of you are wondering whether I'm like those college girls who spend half a semester as an exchange student at Oxford and affect a British for the rest of their lives. Fear not! The only time I affect a British accent is when I am forced to ask for directions in my own city, though this happens rather more frequently than you would expect for a native New Yorker. The reason I write with British spellings is that I work for a British paper, and my tiny little brain is unable to cope with two sets of spellings. It now takes me profound effort not to spell most things the British way, and I am lazy; hence, I spell with a British accent, even though I speak in the dulcet tones of an overeducated denizen of Moscow on the Hudson. Sorry if it annoys you, but I just can't help myself.

From the desk of Jane Galt:

Collective action

Brad DeLong points to this LA TImes article about New Orleans, which paints the decision to rebuild as a collective action problem:

What Bush said would be one of the largest public reconstruction efforts ever is becoming a private affair, leaving the tough choices to residents as their risks increase. Laurie Vignaud faces a double dilemma: If she rebuilds her wrecked ranch house at 1249 Granada Drive in the great suburban expanse south of Lake Pontchartrain, will her neighbors do the same? And even if they do, will that guarantee their Gentilly neighborhood does not end up an isolated pocket in a diminished, post-Katrina New Orleans?

Nothing in Vignaud's 46 years, not even her job as affordable housing vice president with Hibernia Bank, the region's biggest financial institution, prepared her for this problem. From her relocated offices in Houston, she recently confessed, "It's scary. I don't know when I'll ever go home." Double dilemmas abound in this deeply damaged city, and represent considerably more than the start of the slog back from disaster. Lost amid continued talk of billions in federal aid is the fact that most homeowners and businesses are being left to make the toughest calls on their own. Lost is that New Orleans' recovery -- which President Bush once suggested would be one of the largest public reconstruction efforts the world had ever seen -- is quickly becoming a private market affair.

"My constituents have pretty much concluded that it's up to us to put our neighborhood back together and get on with our lives," said Republican city council member Jay Batt, who represents the Lakeview neighborhood just west of Vignaud's. To market advocates, this is the way it should be. Rugged individuals settled the American West in the 19th century and can resettle the Crescent City in the 21st. But the risks that individual New Orleanians must shoulder in such an on-your-own recovery appear staggeringly large.

"There is no market solution to New Orleans," said Thomas C. Schelling of the University of Maryland, who won this year's Nobel Memorial Prize in Economic Sciences for his analysis of the complicated bargaining behavior that underpins everything from simple sales to nuclear confrontations. "It essentially is a problem of coordinating expectations," Schelling said of the task that Vignaud and her neighbors must grapple with. "If we all expect each other to come back, we will. If we don't, we won't. But achieving this coordination in the circumstances of New Orleans,'' he said, "seems impossible."

To me, it seems clear that there is a real potential for a market failure: if everyone wants to rebuild New Orleans, but doesn't because they are afraid their neighbours won't, then everyone is on net worse off. (At least in New Orleans. The American taxpayers who are expected to continue to protect a floodplain from, well, flooding, at enormous expense are probably better off. I will not attempt to calculate which utility is greater.)

But the implied solution--government action--seems to me to hold at least as much potential for market failure. If the majority of people don't want to move back to a crime-ridden and corrupt small city on a hurricane-prone flood plain, but the federal government goes ahead and rebuilds it anyway, it will have decreased the utility of those forced to move back, and wasted a stunning amount of taxpayer money on a suboptimal solution. I see no good way to distinguish whether the government or the market is more likely to produce suboptimal results, so my instinct is to default to the non-coercive system.

From the desk of Jane Galt:

I know! If we want to reduce abortions, let's keep women from getting pregnant in the first place!

On the one hand, I find it maddening that conservatives who oppose abortion also oppose teaching girls how not to get pregnant. On the other hand, I am extremely sceptical about the possibilities of nice-sounding ideas like this one:

Balkin and Levinson can talk all they want about whether to abandon Roe, but The Carpetbagger has a better idea: endorsing Tim Ryan's "95-10" legislation (still in process). The numbers signify the bill's claim that it will reduce 95% of abortions in 10 years.

How precisely will it do this? According to The Carpetbagger, "the 95-10 plan expands women's health care programs, emphasizes contraception equity in health care plans, and makes adoption tax credits permanent. Better yet, it would demand full funding for the federal WIC program. Then, there's the flip side. The "95-10" initiative also bans late-term abortions and requires parental-notification laws. That might be a little more problematic."

Why am I sceptical? Well, for one thing, the authors of legislation always make extravagent claims for the efficacy of their programmes, which are never met in practice. But beyond this, the assumption seems to be that women are getting pregnant because they lack access to birth control.

Planned Parenthood gives condoms away for free. When I was uninsured, I used them for my annual exams, and they literally forced a big paper bag full of condoms into my hands despite multiple attempts to demur. They also provide women's health on a sliding scale that goes down to practically nothing if you're poor. In other words, you literally cannot be too poor to get birth control, at least in the more urbanised areas of our country where child poverty (the kind that the authors are presuming causes abortion) is most concentrated.

I am sure that there are, here and there, women who get pregnant and have abortions because they just don't have the cash to go on the pill. But there can't be too many of them--if they can't afford $20 for the pill, or $10 for a box of condoms, where are they getting the money for the abortion?

The authors also push WIC, which is not a programme that I'm against, although there are some who argue that WIC is a contributing factor in the disproportionate rates of obesity among the poor. But saying that one could reduce abortions by modestly subsidizing food for children seems to imply that having an abortion is an economic decision. But if that's so, why aren't women making the even more economically sensible decision to use birth control, which costs a lot less than either an abortion or a baby?

The permanent adoption tax credit may also be a nice idea, though in principle I'm opposed to using tax credits to subsidize anything, no matter how much it warms my heart. But it will do absolutely nothing to increase adoption, because in the United States, adoption is constrained by the supply of adoptable babies, not the demand for them. It might provide a tiny increase in the number of families willing to adopt the older, sicker children currently clogging our nation's childcare system.

In other words, the post seems to suffer from the view of abortion that pro-choicers like to sell themselves: that it is the province of desperate women unfairly singled out by fate. Let me offer an alternative, and in my view much more plausible view: abortions are obtained by women largely because they, or their partners, were careless. Either they used their birth control wrong, or they ran out at an inconvenient time and decided to risk pregnancy for a moment's pleasure. Improperly discounting future risks against current gains is a vice not confined to executives of large corporations.

For evidence, I offer Steve Levitt's contention that when abortion became legal, the number of pregnancies rose, even as the number of live births dropped. In other words, women became more willing to risk pregnancy when they knew that they could terminate it. That does not look to me like women getting caught out by circumstances beyond their control; it looks to me like women rationally (or irrationally) taking on the risk of pregnancy.

I am sure that some marginal progress could be made by widening access to birth control in rural areas without free clinics, and getting the old "put a condom on a banana" demonstration back into high school sex-ed classes. But I would guess that we're talking about trivial gains. New York City's public schools have, if nothing else, excellent progressive sex education programmes. They also have extremely high rates of teen pregnancy, despite the fact that Planned Parenthood has not one but three clinics within the city limits, all conveniently reachable by public transportation. 95% of abortions eliminated in ten years? I'd be very surprised if you could get 9% with any government programme that didn't involve making it very, very difficult to get an abortion.

From the desk of Jane Galt:

Lots of luck

Peggy Noonan wrote something right after 9/11 that I liked very much:

I know people who are feeling a sense of betrayal at the big change, as if they thought history were a waiter in a crisp white jacket, and though they ordered two more of the same, instead--instead!--he brought them, on a pretty silver platter, something quite dreadful.

. . .

People always think good news will continue. I guess it's in our nature to think that whatever is around us while we're here is what will continue until we're not.

And then things change, and you're surprised. I guess surprise is in our nature too. And then after the surprise we burrow down into ourselves and pull out what we need to survive, and go on, and endure.

But there's something else, and I am thinking of it.

I knew for many years a handsome and intelligent woman of middle years who had everything anyone could dream of--home, children, good marriage, career, wealth. She was secure. And she and her husband had actually gotten these good things steadily, over 25 years of effort, and in that time they had suffered no serious reverses or illnesses, no tragedies or bankruptcies or dark stars. Each year was better than the previous.

It was wonderful to see. But as I came to know her I realized that she didn't think she had what she had because she was lucky, or blessed. She thought she had them because she was better. She had lived a responsible, effortful life; of course it had come together. She had what she had because she was good, and prudent.

She deserved it. She was better than the messy people down the block.

She forgot she was lucky and blessed!

You forget you're lucky when your luck is so consistent that it confounds the very idea of luck. You begin to think your good fortune couldn't be luck, it must have been . . . talent. Or effort. Or superiority.

The consistency of America's luck may have fooled many of us into forgetting we were all lucky to be born here, lucky to be living now, lucky to have hospitals and operas and a film industry and a good electrical system. We were born into it. We were lucky. We were blessed.

We thought we were the heirs of John Adams, Ulysses S. Grant, Thomas Edison, Jonas Salk, Mr. Levitt of Levittown. And we are. But still, every generation ya gotta earn it. It doesn't mean you're better; it means you're lucky, and ya gotta earn it.

You can phrase the sentiment in a cynical wasy: "[Censored] happens". Or you can phrase it in a cheerful way: "Count your blessings". But either way, they add up to the same thing: the universe is not here to make you happy. That's your job.

From the desk of Jane Galt:

Was it worth it?

The post below sounds like I'm feeling sorry for myself. Far from it. Yes, I share 450 square feet with a bullmastiff. Yes, I live on a tight budget, particularly now that I have finally started plugging 10% of my income into my 401(k). (I know that should be 15%, and it will be once annual raise time comes around. But that's another post.)

But I am lucky enough to have what just may be the best job in the entire world. I waste money on all sorts of stuff--cable television, deli sandwiches, diet gingerale. I don't need a car, I don't want an exotic home entertainment system, and I have excellent health coverage. I already live better than 99.9999% of people in the history of hte human race just by being in America, and on top of that I have a terrific family, a very cool dog, great friends, and I'm fortunate enough to be in a profession that provides many opportunities for free food. My apartment, though small, dark, and noisy, is also charming and cozy. I have a terrific life; I just don't have as many material goods as most of hte people I grew up with. The tradeoff has been well worth it.

THe reason I wrote that post was not to express, or invite, pity. Rather the opposite. I was responding to something I thought I saw in Laura's post: a healthy skewering of the sense of entitlement my generation was raised with. Every generation, of course, ends up coming to terms with the disappointing realization that the universe does not owe them anything. But the meritocratic system that produced Laura and me not only produced outsized expectations; it inculcated a belief that we deserved wonderful jobs and a comfortable lifestyle. John Cheever chronicled his generation's downward mobility, but his downward spiral was the decline of an aristocratic elite gone soft; they expected the universe to treat them well for no other reason but that it had always done so in the past. My generation, on the other hand, were the second generation of the meritocracy; we were raised to believe that intelligence and hard work were synonymous with personal worth, and that it was only just that we be rewarded richly for our labours. When the rewards did not follow as automatically as we had always assumed they would, we screamed in outrage.

But if you are healthy enough to walk nto work, have enough food so that hunger pains don't wake you up at night, don't have to suffer the cold longer than it takes to walk from the subway to your door, and don't worry that roving gangs of bandits will steal your cattle and burn your crops and leave your children to starve . . . well, you are so far ahead of the game as far as this planet is concerned that you have no right to ask for anything else. Anything you have on top of that is gravy. Every time you sit rinking chardonnay--or Miller Lite--with a group of friends, bewailing the earthquake in Kashmir or discussing whether it's worth the risk of viral resistance to send AIDS drugs to Africa, there is some lonely woman across the ocean lying on a dirt floor, every breath getting weaker as her life ebbs away. She feels the flesh of her limbs, the twitching of her fingers, the blinking of her eyes, the beating of her heart, just as you do at this moment, but she knows that she will soon loose that warm flesh to the void. She is dying not because she did anything to deserve it, but because she was born in the wrong continent, in the wrong time. She has never seen the internet, her country's capital, more food than she can eat. If you are not that woman, you have all the luck you need to live a rich and happy life.,

Don't get me wrong--I'm even luckier than most lucky Americans. I have never been afflicted by any misfortune worth mentioning. But even at my darkest hour, when I began to genuinely believe that I would never again being employed at anything that didn't require me to state my typing speed, I was unbelievably lucky just to live in a country that is so rich, it could afford to make an entire one-hour documentary on killer jellyfish for me to watch last night while blogging and instant messaging my friends last night.

The other reason I wrote that post is that I really disagreed with Laura's belief that things have, on the whole, gotten worse for our generation. For one thing, I'd imagine that Laura comes from a home like the one I grew up in, where the family was so financially successful that an ordinary middle class existance looks to us like disaster. And for another, while certainly some things, like Social Security are getting worse, other things, like health and lifespan, are getting much better. This may just be because I am young and childless, but I'll take a longer, healthier lifespan over an old-age pension any day.

From the desk of Jane Galt:

You think you had some crappy jobs?

Scott Adams points to the best and worst jobs in the world.

Yet another “third highest ranking al-Qaida leader” has been killed, this time by a rocket attack from an unmanned drone. There are a lot of jobs that I wouldn’t want, and “third highest ranking al-Qaida leader” is right at the top. But I can tell you for sure that if I ever got that job, the first thing I’d do is narc out one of the top two guys so I could move up a notch. Apparently one of the perks of being in the top two is having a really, really good hiding place. The number 3 through 10 leadership guys are pretty much scurrying between mud huts and looking at the sky a lot.

. . .

Maybe it’s just a “guy thing” but the idea of blowing up a mud hut by remote controlled drone sounds like the most fun thing I can think of. And if the number 3 al-Qaida leader happens to be inside, that’s a bonus. It certainly makes your story sound less nerdy afterwards.

I find it interesting that the guy with the best job in the world gets to blow up the guy with the worst job in the world. That’s really rubbing it in. But I guess it’s not so different from a CEO downsizing the auditing department. It’s one of those recurring themes in life.

From the desk of Jane Galt:

How good were the good old days?

Well, I've upgraded both Movable Type and my web browser (now proudly using Firefox 1.5) and for the first time in, like, a zillion years, I can see the nifty little buttons that let you hyperlink and make things bold and so forth. So now that I don't have to make all the damned HTML tags I want to celebrate by blogging my little heart out.

Luckily for me, there's a lot of fodder out there. Starting with this post by Laura of Apartment 11D:

Due to a gross miscalculation about the time it takes to write a dissertation, my son was born before either of us had finished. So, we lived in a seedy fourth floor walkup in Washington Heights with waterbugs the size of your fist flying into the baby’s bassinet. We were on welfare. My parents slipped us money at family gatherings and dropped off bags of groceries. Suspicious paint flaked up at the window sill.

One day, I walked into the court yard of my building and braced myself for the long haul with kid and stroller up the stairs. As I paused, I realized that the drug dealers had taken their pit bulls off their leash, and the dogs with studded collars were bounding for my kid. “Get your dogs off my kid!” I yelled at the guys in their black puffy coats, hoping that they would leave me alone, because their grandmothers loved me.

We were not only “elaborately educated” but positively festooned with degrees and here we were, living in poverty. After one year, degrees were finished, resumes submitted, but the jobs were too rare. We could either live in separate cities and far from family support or we would have to start over.

We started over. Husband ran out and got the first temp job he could find, an assistant job at an investment bank. We had tried fulfilling work, but it didn’t work out. His new job was demanding and inflexible and not interesting. At first it only paid enough to get by. If I worked, we would go into further debt. So, we assumed a traditional family structure, an imperfect situation for both of us, but the most important thing was to keep the pitbulls off our kids.

The temp job turned into an important job, Finally, after five years, we were able to take the two kids away from the pitbulls and waterbugs and drug dealers, and bring them to a place with a tiny backyard and a good school system.

We’re doing okay now. We still have to work our way through the student loans. And with all those years in grad school, we have no retirement money. We had to buy at the top of the market for the house, so we’ll always have to be very careful. I still buy the kids shoes at Payless and my meat on sale. But we’re okay.

That experience changed me. Made me a utilitarian. The number one purpose of work is to keep the pitbulls off your kids. Everything else is gravy. A fulfilling job. Gravy. A nice social life. Gravy. A job that benefits humanity. Gravy. A job that helps to overthrow the patriarchy. Gravy.

I think that these utilitarian notions of work are more common with my generation than with older generations. We don’t believe that we’ll have social security to rely upon. There are fewer jobs in key fields. Academic jobs were a dime a dozen back in the seventies. We’re saddled with student loans and the knowledge that our kids’ college tuition may exceed a year’s salary. Housing costs are insane. Mobility is much more difficult. There is little room for either gender to experiment with career changes or alternative plans. Whatever is working, you stick with, be it two incomes or one, fulfilling or drab.

On the one hand, I thoroughly agree with the sentiment of hte penultimate paragraph. My generation of nice upper middle class white kids was given a ferocious sense of entitlement by our parents and teachers. As long as we played by the rules we were taught in school--do your work on time, study hard, put work first--we were supposed to have wonderful jobs, terrific spouses, adorable children, a house whose tasteful bibelots and appropriately offbeat furniture all our friends could admire.

If you're a long time reader of this blog, you know what happened to me. I got into a top business school at the height of the internet bubble, went about $100K into hock for tuition, books, and living expenses, and by October of my second year had already secured a high paying job as a management consultant, complete with hefty signing bonus, relocation expenses, and a new new economy "live anywhere you want" policy. I spent most of my second year blissfully studying things that would have no relevance to my future job, travelling, and co-producing the annual GSB follies.

Then the recession and 9/11 happened, and they fired my entire associate class before we could start. But not before they strung us along with ever-later start dates, so that by the time we started looking for another job, we were competing with next year's class of business school graduates. Every time I went into an interview, I could see the interviewer thinking "What's wrong with her? Why doesn't she have a job yet?" Of course, they knew that I'd lost my job through no fault of my own; I simply bet on the wrong horse in the management consulting stakes. But still, why take a chance?

I had never before experienced the feeling of being unable to get a job. A permanent job, I mean; by this time I'd been working at the World Trade Centre Disaster Recovery Site for quite some time. But that didn't really have any future. I needed work I could build a career out of, work suited to my educational background, skills, and ambitions. Unfortunately, such work was pretty damn thin on the ground. My classmates in similar situations started going back to their old fields. My old field was installing computer networks, a field that had attracted a flood of new workers in the capital spending boom that preceded Y2K, and had subsequently busted along with the technology bubble. One technology recruiter I called actually suggested that I find some banker to marry and have babies, since he couldn't find himself a job, much less anyone else.

You have never seen anyone as indignant as I was to discover that the universe was not going to automatically provide me with everything I thought I had earned. And after the righteous anger had waned, I experienced something perilously close to despair. I felt as if someone had told me that the law of gravity had been repealed: if going to a good business school and doing everything you were supposed to was not enough to guarantee you security, what was? If that universal constant could not be depended on, I began to feel that perhaps nothing I had believed in could be relied upon.

That sounds grandiose and adolescent, and of course, it is. But unless you have been out of work for an extended period of time, it's hard to understand exactly how desperate it can make you. In American society, what you do is what you are; everyone asks how you make your money, and if you are not working, you become an object of pity, even as everyone reassures themselves that there must be something wrong with you, so that they do not have to confront the frightening thought that this could just as easily have happened to them.

That was one way to discover that the promises the meritocracy held out to its elite students cannot always be fulfilled. Lots of people end in the same place, though they get there down different roads: there are too few jobs in your chosen field; or a sudden layoff forces you to take the first job you're offered; a child's disability requires Mom or Dad to stay at home changing diapers instead of overseeing mergers; spouses jobs pull in different directions, forcing one to sacrifice their career aspirations; or it turns out that your job just isn't as great as it looked when you signed onto that career track at age 25. The result is that many in my generation . . . or really, the handful of my generation that went from elite school to elite school, academic honor to prestigious job . . . feel somehow that we were cheated, that we'll never have it as good as our parents.

But I think that this is vastly overblown. And worse, I think a lot of liberals tend to generalise their experience to that of their entire generation. Now, there's nothing that sets my teeth on edge than someone claiming that conservatives possess some fountain of widsom undreamt of by liberals, but I haven't seen conservatives making this particular sort of argument; when conservatives look to the past as a lost eden, they romanticize its social structure, where men were real men, women were real women, and children got a kiss and a cookie from a loving mother every day at 3:00 on the dot. Liberals look longingly back at the security and flat income distribution of the 1950's and 1960's.

But when I look at what my family was actually doing, it looks like neither paradise. My great aunts worked all through the fifties and sixties, on the farm or teaching school. My grandfather had his own business, a gas station. He was certainly successful, but he spent most of his day pumping gas. My mother stayed home with us until economic insecurity and the sheer boredom of keeping house in a small apartment turned her out onto the job market, where she sold real estate, as she continues to do. My father stopped working for the City and took a job with a trade association. When I look back I don't see a halcyon era of secure, well paying and fulfilling work; I see people doing what they had to to pay the bills. Indeed, when I began freaking out about my drastically reduced income expectations, my mother pointed out that when my parents moved into the apartment I grew up in, she was 9 months pregnant, had just quit her job, and they had a (to them) giant mortgage, and less than $500 in the bank.

And that's for nice middle class kids with good educations. The lives of the working and lower-middle class were even less fulfilling. Yes, many of them had secure union jobs that were relatively well paying, and I don't want to minimize the value of that; economic insecurity is terrifying. But most of those jobs were like well padded prisons. Forget the visions we all have of those mid-century factories, culled from World War II propaganda films showing happy workers driving rivets, with the vision of a brighter, freer world always in front of them, even as they stop to wipe the honest sweat from their rough-hewn brow. Working on an assembly line is like working inside a clock . . . your entire energy is focused on willing that minute hand to move. Almost any of my readers who worked on an assembly line would find themselves going insane after fifteen minutes of the mind-numbing repetition. And then you have 7 hours, forty-five minutes to go. By the end of your shift, the minute hand moves too slowly for you to concentrate on; you watch the second hand, which advances so sluggishly that you begin to suspect you are trapped in some sort of Einsteinian relativistic vortex where time is moving at a different rate for the rest of the world than it is to you; your life is rapidly trickling away even though the clock is stuck at ten minutes to five.

That's one day. Then you have four more days. And Sunday afternoon spoiled by the knowlege that you have to go back. Endure that torturous progression fifty times, and you've made it one year. Just thirty more to go before you qualify for that gold plated pension. And though it's tempting to believe that the only reason people like me find such work so intolerable is that we're just too gosh-darned bright, it ain't so. Slow and average people find assembly-line work just as stultifying as I do. The only people who find repeating the same action thousands of times a day challenging are too limited to be employed in most factories.

Most white collar jobs were almost as dull. It's hard to be sad at the loss of millions of payroll clerks tabulating ledgers by hand, secretaries dutifully typing up someone else's dull business letters, operators connecting long-distance calls, or any of the other jobs that have been destroyed by technological innovation. Some people are worse off, to be sure, and unlike most libertarians, I'm not willing to simply shrug off the very real unfairness of dumping workers in their mid-fifties on the job market with no help because they bet on the wrong industry 25 years ago. But fwe've replaced those jobs with jobs programming computers, selling software, helping users, designing robots. On the whole, that's a good thing.

It's easy for local tragedy to feel global. If you'd asked me in 2002, I would have guessed that the recession was the worst one since the Great Depression; literally half or more of my friends were out of work. Similarly, to academics, it feels like the whole world is going to hell because academic employment has become dramatically less secure; there has been a glut of graduate students, particularly in history and related fields, that has persisted since the 1960's, even as increasingly professional administrations rely more and more on adjunct professors who get no benefits, no job security, and get paid slightly less per hour than those Bangladeshi children who knot rugs. Though to be fair, the adjuncts are not chained to their desks, at least not literally. Of course, that may just be because the administration wants to keep them running around as much as possible.

But the fact that some of us have had to settle for jobs less lucrative or fulfilling than we expected does not mean that the whole world is going to hell in a handbasket. Yes, we probably can't rely on social security, but on the other hand, it's easier than ever to save for retirement, with Uncle Sam basically giving you a 30% match on every dollar you put into your 401(k). I think the most frightening thing for many of us is the feeling that we have no safety net--that we'll end up poor and abandonned in retirement. But for most of us, it would probably be easy to save for retirement if we were willing to live like your parents did--or at least like my parents did. One television, no stereo, no VCR, no cable, one (used) car, six rooms for four people, no eating out, no cell phones, no vacations other than visiting relatives, stretching meat out with egg and bread and noodle rings, jello as a salad, turn the light off when you leave the room and get off the phone--it's long distance!

That sounds dreadfully as if I'm lecturing Laura on how she'd be fine if she didn't waste so much money. Which is stupid. For one thing, I don't know Laura, and for all I know she pinches pennies so hard that Lincoln screams. And for another, I don't have kids, which I am reliably informed suck up 10% more income than any normal person earns, so it would be ridiculous of me to comment. And for a third, I know all too well just how deeply an intellectually rewarding trip to graduate school which does not result in the expected job can dig you into a financial hole. I know y'all think I'm joking about my student loan officer when I shill for you to buy stuff through my Amazon account, but without those commissions, I wouldn't be able to afford to buy books; the budget here at Stately Galt Manor is so tight it squeaks.

But the thing is, that even as I indulge in invidious comparisons between my apartment and the one I grew up in, and those my classmates are currently renting or buying, I have to remind myself that in so many ways I'm better off than my parents were at my age. I'll live longer (well, statistically, anyway), I have a fantastic job, and though I complain about lack of space, I have everything I need. The things I want more space for, and more money for, are incidentals that the human race lived happily without until, oh, last week. On the other hand, I have things they never dreamed of, like this blog, that enrich my life in various intangible, yet crucial, ways. Just like the song says, the good old days weren't always good, and tomorrow ain't as bad as it seems.

From the desk of Jane Galt:

There's gold in them thar hills

James Hamilton takes on the gold bugs:

. . . there were a few historical occasions-- the late 1970's being the most spectacular example-- in which the gold bugs were rewarded most handsomely. Historically much of the demand for gold came from its central role in monetary standards, and the roaring U.S. inflation of the late 1970's fueled a keen interest in gold as an alternative to dollars. Jewelry demand is ultimately a matter of fashion, and the idea of having jewelry that was also a store of value and inflation hedge also contributed to that price spike.

And gold prices are up 18% so far in 2005. But anyone banking on a replay of 1979 is sure to be disappointed. The surge in inflation in the 1970's had little to do with oil prices and was caused predominantly by rapid money growth. Fed Chair Paul Volcker's determination to eliminate inflation proved to be a disaster for the gold bugs. And today's Fed looks to me even more committed than Volcker was to preventing even the smallest whiff of inflation.

In any case, if you did want to bet on inflation, there are better vehicles out there for doing so, such as going short 10-year bonds and long on inflation-indexed securities.

Some investors are always going to be drawn by the allure of this pretty metal. But it's not for me.

From the desk of Jane Galt:

Let's do it the hard way

Bad economic thinking is hardly the main sin of the Nazi party, but it's still mind boggling, as Bryan Caplan reports:

Economic historians have long known that a key plank of Nazi economic policy was autarky. They took the usual nonsense about the dangers of foreign trade seriously, and tried very hard to eliminate Germany's "dependence" on the rest of the world. What I only learned recently, however, was that by 1940 Hitler had had a change of heart:

The course of the war shows that he have gone too far in our efforts to achieve autarky. It is impossible to try and produce everything we lack through synthetic processes or other measures. (Hitler to Minister of Munitions Fritz Todt, June 20, 1940, reprinted in Nazism, 1919-1945, vol. 3)

Of course, this doesn't mean that Hitler decided that Bastiat was right after all. No, Hitler's epiphany was that the real danger was not "depending" on foreign products, but paying for them!

We must follow another path and must conquer the things we need but lack. The one-off commitment of man-power which that will require will not be as large as the manpower which will be continuously needed for the synthetic plants. Thus, our aim must be to secure all those territories which are of special interest to our defence economy through conquest.

I've been reading about the history of Nazi Germany for decades, but statements like these still astonish me. The bounty of the world was on sale at bargain prices, and people like Hitler couldn't help thinking "There must be an easier way. I know - let's kill each other."

From the desk of Jane Galt:

Oooops

The Army Corps of Engineers misjudged the strength of the 17th street levee:

The floodwall on the 17th Street Canal levee was destined to fail long before it reached its maximum design load of 14 feet of water because the Army Corps of Engineers underestimated the weak soil layers 10 to 25 feet below the levee, the state's forensic levee investigation team concluded in a report to be released this week.

That miscalculation was so obvious and fundamental, investigators said, they "could not fathom" how the design team of engineers from the corps, local firm Eustis Engineering and the national firm Modjeski and Masters could have missed what is being termed the costliest engineering mistake in American history.

The failure of the wall and other breaches in the city's levee system flooded much of New Orleans when Hurricane Katrina slammed ashore Aug. 29, prompting investigations that have raised questions about the basic design and construction of the floodwalls.

"It's simply beyond me," said Billy Prochaska, a consulting engineer in the forensic group known as Team Louisiana. "This wasn't a complicated problem. This is something the corps, Eustis, and Modjeski and Masters do all the time. Yet everyone missed it -- everyone from the local offices all the way up to Washington."

What really chaps my ass, of course, is that if George Bush had been doing his job, checking the soil substrates under the levees, this never would have happened. We expected him to protect the country from disasters, and this is the one of the biggest disasters ever to hit the country. Yet where was George? Not taking soil cores, doing sonar analysis,or analysing soil samples in the lab--that much is clear. What the hell does he think we elected him for? Did he even make a cursory examination of the 17th street levee? I demand a special prosecutor to investigate why our president was not performing geological surveys of New Orleans in the days before hurricane struck.

From the desk of Mindles H. Dreck:

Eliot Spitzer call your office

Anyone see auction market manipulation possibilities opening up for high profile bloggers?

Thanks for your post on the Star Treck Ultimate Collection. Thanks to you, I was able to snap up one of the last two copies I could find on ebay for what I'm sure will end up being a relative bargain at $2499.99. Now the only choice is to cough up $3908.98 for the one and only remaining set. And only a crazy person would do something like that.

From the desk of Winterspeak:

Why does this deficit matter?

In this smackdown between Tyler Cowen and Max, Max raises the common Democrat/left wing concern that the current Federal budget deficit is too high and that taxes must be raised (or, as he prefers, "tax cuts repealed") to narrow that deficit. To be fair, the Republic/right wing has its share of budget hawks too--folks who are aghast at how rising spending and lower taxes during Bush II have increased the federal deficit.

Even Jane Galt has argued on this blog that "starving the Beast" by running deficits does not seem to have curbed spending, so now it's time to try something new.

Suppose, though, that Bush listens to his critics and hikes up tax rates tomorrow to shrink the budget deficit to zero. This transfer of money from individuals to the government would destory value through deadweight loss, and this value destruction would reduce consumption and investment in the US. This would be Bad.

This Badness would not be outweighed by the traditional Goodness from small budget deficits -- namely lower interest rates. The US short term rate is currently being actively increased by the Fed because I assume they think it is too low now and possibly feeding into a dangerous real estate bubble. The long term rate is arguably too low as well as Asian central banks take money from their people and give it to the US.

In an environment where rates are too low, I see no benefit in reducing economic growth to reduce rates further. In the future this situation will change and that will be the time to cut the deficit through higher taxes or lower spending. At that moment, lower rates will be a blessing, not a problem.

But now is not that moment. I am going to be deliberately provocative and argue that it is fiscally irresponsible to not run deficits when foreigners are handing you free money. I would prefer it if the US were spending that money more wisely (and I'm talking more here about homeowners and real estate than the government), but to refuse a stranger's $100 is as irresponsible as forgetting $100 on the subway.

Cheney was surely too blase when he said "deficits don't matter", but they certainly don't seem to matter right now as interest rates, and inflation, remain remarkably low. There is surely a time for deficit reduction, and that time is later.

Update Many comments -- I'll make a quick response to some of the common themes here.

Firstly, government debt is similar to personal debt in many ways but different in one critical one -- government debt can be rolled over into the far future in a way personal debt cannot. If I lend someone a $1M to be paid back in 100 years, I actually don't care about the principal since in NPV terms its essentially zero -- but I do care very much about interest payments. This is why the ability to finance debt (and therefore the interest rate) is more important than the actual size of the debt outstanding. While many commentors in the thread don't seem to have confidence that the US can make good its obligations, there are clearly lots of people who do -- as evidenced by the extremely low rates interest rates they ask for to in exchange for buying the debt.

Since governments can roll debt over for as long as they exist, they essentially never need to pay debt back -- they just need to make their interest obligations (whatever those might be) -- and can keep rolling the debt over.

Whaa asks "isn't the biggest (and indisputable) benefit of not running deficits that you don't have to pay all that money back later on?" The answer is no -- governments get that for free just by being governments. They never need to pay back principal, only interest, and whether or not that's a good idea depends on the rate. The link between the rate and the total indebtedness depends on the demands of lenders, and currently they are being very indulgent towards the US.

I have no doubt that in the future creditors will demand higher interest rates and at that point the budget deficit will have to be reduced. But that is exactly why not running deficits now is fiscally irresponsible. People are not going to be giving out free money forever -- might as well get it while you can.

Questions about the size of government, efficacy of various government programs, and public vs private investment are all interesting but tangential to the argument that when lenders are offering their cash too cheap, one should take extra.

From the desk of Jane Galt:

Europe's monetary policy

The European Central bank finally raised interest rates this morning, the first time it has done so in more than five years. Jean-Claude Trichet, the president of the bank, is trying to establish credibility as an inflation hawk by leaping on any sign of inflation before inflationary expectations become established.

But big eurozone economies like France and Germany are only now recovering from the post-boom downturn, and a hefty part of that recovery has relied on a weaker euro, which has boosted exports, particularly from Germany. Mr Trichet is in an unenviable position, trying, in effect, to reassure markets that he will fight inflation, without raising rates high enough to cause a credit contraction or an appreciation in the currency, which could push eurozone economies back into the doldrums.

Mr Trichet faces the same problem that other central bankers confront: how to fight inflation driven by high oil prices. On the one hand, oil-driven inflation doesn't mean that the money supply is too loose. On the other hand, oil-driven inflation can entrench inflationary expectations, which are very costly to quell once they are established. And some economists argue that the productivity shock of high oil prices in fact increases core inflation, even as it slows economic growth. Most central bankers are supposed to balance price stability against employment and economic growth. What does one do when they're both moving in the wrong direction?